The Way the Future Blogs

John Diebold
 

Isaac Asimov and I often argued, though seldom rancorously — it was our idea of fun — but on questions of fact I knew better than to disagree with him. He had a wonderfully retentive and accessible memory, which allowed him to speak extempore a lot more comfortably than I. From time to time we discussed the question of which of us was smarter, especially when we were speaking on the same program.

On one occasion when we had been discussing collaborating on a book about the environment. I said, “It shouldn’t be too much trouble. Between the two of us, we know everything there is to know about the environment already.”

And Isaac cut me down to size with, “And what is the one fact about it that you know and I don’t?”

With all the lecturing we both did, we wound up now and then on the same program, frequently at a science-fiction gathering, but pretty often at almost anything that inspired groups of human beings to want to listen to someone talk about possible futures. Business and management groups in particular seemed to have an unslakable appetite for what we had to say, and one of the most high-end such groups was run by a man named John Diebold.

I was always glad to take part in a Diebold event, because you met such interesting people, but there was one in particular that is particularly vivid in my mind for three reasons: 1) It occurred while the first American rocket was landing on Mars. 2) In my after-dinner talk I made two of the wrongest predictions of future events that any human being has ever made. And, 3) it was the only time in my life that I ever saw Isaac Asimov drunk. (Maybe the only time he ever was.)

That particular John Diebold event was in one of the big Boston hotels, and for once in these as-I-remember-it recountings, I can tell you exactly when it happened. That is, I can if I’m correctly remembering which flight it was. I believe it was Mars 3, and I believe the meeting took place on 12 December 1971. The first American spaceship to make a soft landing on the planet Mars was going into its landing maneuvers while we were getting ready to sit down to our dinner. No one else in the room seemed greatly worried that they were missing a historic event, but Isaac and I were yearning to get to a TV. As soon as we could we sneaked out of the conference rooms and headed for my room on an upper floor of the hotel.

Our timing was splendid. The spaceship was on its way down with its cameras pointing toward the area where our Eagle was to land. Although the ship was still high in the lunar sky it and its cameras were so close to the Martian surface that we were seeing more detail than any previous human eye, with even the greatest of modern telescopes, had ever been able to make out.

One of those previously unseen details drew a yelp from Isaac. “Look at those craters! But I didn’t ever talk about craters on the Martian surface!” Come to think about it, neither had I.

We lingered until the spacecraft was down. (It was what you’d call a partial success — made an exemplary soft landing but seconds later stopped transmitting for good. Still no other spacecraft, U.S. or U.S.S.R. had done even that well at that time, so we were cheered,)

But then I had to get back because it was my turn to be the after-dinner speaker, and that is where I made a fool of myself twice in a single talk.

John Diebold had asked me to talk about the future of business, and I was explaining how wise America’s heads of major corporations had become. As an illustration, I mentioned some planning sessions I had recently sat in on at one of General Motors’ subdivisions, perhaps the one that specialized in transmissions. I had been impressed by the free and easy discussions and by the way each executive seemed to be familiar with the problems, and solutions, of all of the others. After telling my audience about some of the things I had observed I added, “That’s why I have confidence in the future for General Motors. If something should happen so that they couldn’t make cars and trucks any more they would transition quite smoothly to some other kind of business — maybe even some kind we’ve never heard of before, like importing Martian artichokes — and they would make a great success of that, too.”

2008 conclusively demonstrated the folly of that asinine opinion, which was probably brought about by the amount of time I had been spending with B-school graduates with their pernicious doctrines. (”If you’re on a search committee to find a new president for a grocery chain, you don’t want to hire an expert grocer to run it. You want someone skilled in business management who will have expert grocers under him.”)

The other stupidity was even worse. I called it the Corporate Leisure Time scenario. When successful businesses reach a certain stage in their development, I said, they often decide to devote at least a small fraction of their corporate energy on projects that are not directed at making a profit but are good for the community — underwrite college courses; support libraries and theaters; Forbes has its open-to-the-public art galleries; AT&T allows its scientists at that jewel in the diadem of American research facilities, Bell Labs, to spend part of their time working on pure science problems, etc.

Anyway, my point was that American business was doing what it could to make the world better, and I anticipated it doing more and more. (Oh, so wrong! What actually happened was that the practice of giving enormous bonuses to top executives even if they lead their businesses right over the cliff sopped up all the money and there wasn’t any much left for making a better world. Bell Labs still exists, though in diminished form, and much of the other business generosity to the community has simply disappeared. )

That was my record for wrongness in a single evening. I’ve been even wronger now and then, but not in public.

 
When my talk was over, the hotel waiters brought out the wine fountains. Those were a sort of cute example of modern technology that was just becoming popular around then, and Isaac was intrigued. He watched to see how it was done, then picked up a glass and filled it under the red-wine stream. He drank it down, then got in the white-wine line and refilled his glass. He saw me standing there near the red fountain and came over. “The red wine is good,” he informed me, “but I like the yellow better.”

Then we were talking to other people and then, a while later, I saw him standing by himself, holding onto the back of a chair and looking concerned. And that was the last I saw of him that night, though someone said he’d lurched up to his room. When I saw him the next day I asked him how he’d liked the wine fountains. “Interesting,” he said, and would go no farther, and I never saw him touch an alcoholic drink again.

    John Lindsay
 

There was another Diebold occasion that I remember well, although I’m not sure whether Isaac was present at it or not. This one was a party at the Diebold home on East End Avenue. Among the guests was New York City’s mayor, John Lindsay. He was one of the few Republicans I admired, and he and I found ourselves chatting as the party wound down.

I had been explaining to him that a plan he had just announced for curing some of New York City’s ills was unlikely to work, because the city had become too big, and too divided, to be governable in that way. He put his watch away and frowned. Then he asked, “Did you say you were going to Penn Station? I’ll be going right past it, so why don’t you let me give you a lift?” So after we had said our good-byes and got into the mayoral limousine he politely and friendlily explained to me the numerous ways in which I was out of my cotton-pickin’ mind, with twenty or thirty minutes of statistics, polls and quotes that lasted him until we pulled up in the station — and not in any crummy old taxi rank but in the police entrance that took us right into the heart of the structure.

Lindsay had been plausible and persuasive, and he fairly nearly convinced me I was wrong. All the same, I think I may have won the argument. About ten days after that, I picked up a paper and discovered he had just announced that he wasn’t going to run for reelection after all.

 
Next installment coming up when I write it.

Lefty, the Cat

Turns out that cats, like people, have handedness. Females are more likely to be southpaws, males righties, but it can go either way. If you want to know the leanings of the Felis domestica in your house watch it the next time it has a one-paw job to do, like fishing something out of a jar,

 
You’re Never Too Poor to Swindle

The bloodsuckers are up and about and their specialty now is seeking out the people who are already in terrible financial shape, to whom they promise help. Which, of course, they don’t deliver, preferring to vacuum out and appropriate whatever crumbs of cash the impoverished may have left. (Bernie Madoff was a great villain, but at least he stole from the rich.) So I went back through my files and came up with “Financial traps are flourishing: Tough times have bred five costly come-ons” in the March ’09 Consumer Reports. So if you, or someone you know, has been hit with threats of foreclosure or evaporation of your 401K or the like, you should take a look at it.

I’ll give you just one example. If all your credit cards had been taken away and nobody would give you a new one, Continental Finance Classic MasterCard was more obliging. You probably don’t want its help, though. The maximum chargeable credit line was $300, and by the time the customer got the card $250 had already been taken out of your balance to pay for the account processing fee: $50, and annual membership fee, $200. The $50 of credit that was left you could use as you liked, bearing in mind that an account management fee would have had to be paid every month, with other fees coming due later. So beware!

So long, Fertile Crescent

The Fertile Crescent, which is the land between the Tigris and Euphrates Rivers, is the place in the Middle East where our planet’s civilizations were born. It was the home of the world’s greatest early cities — Sumer, Ur, Babylon and more — and it fed them from its rich and well watered soil; it is where many of the stories in the Bible took place and where they invented beer.

It is projected to become a full-fledged desert by the end of this century. There’s a brutal drought going on in the region, but the real enemy is dams — the big ones Turkey has erected along the Euphrates and the ones Iran has installed along the tributaries of the Tigris. Both countries have indicated they’ll go right on building them. Already some of the smaller rivers are running dry.

 
The Bush-Cheney Alumni Association

No, we didn’t make that up. It’s real. It’s what it says it is, an association of the people who were most closely connected with President Bush and Vice President Cheney over the last eight years, and its purpose, they say, is “dedicated to setting the record straight.”

Maybe so, but I can’t help thinking it’s more like getting their stories together so they’re all giving the same answers to the hard questions. Questions like: When you had the Taliban and Osama Bin Laden and all of Al Qaeda licked and running and it only took one more push to put them away for good, why did you pull the troops out to invade Iraq? And when you did go ahead and invade, why didn’t you immediately seize all the Iraqi explosives and weaponry instead of leaving them unguarded for the terrorists to steal and kill American soldiers with, as they’ve been doing ever since? And about forty other questions about the doings of the most wrong-headed administration this country has seen, ever.

Related post: Little Known Fun Facts

IQ, Do U?

Lewis Terman

Remember the Terman kids? The high-IQ teenagers Lewis Terman collected in the 1920s to follow through their adult lives to see whether getting high marks on the test (their average IQ was 150) really did mean intellectual success as a grownup? In the end, two of his candidates wound up as Nobel laureates, but they didn’t show up on his results. Terman had dropped them from his study. Their IQs weren’t high enough.

 
If It Hurts, Talk Dirty

Psychologist Richard Stephens (UK’s Keele University), working with volunteers, applied pain stimuli to them and told them their audible response would be recorded. He instructed some, randomly selected, to avoid bad language while the rest were permitted to let the censorable words rip. On analysis of the results, the foul-mouthed sufferers turned out to be able to handle pain better than the prissy ones.

 
‘Stocks That Win If the Health Protestors Win’

That was a headline on Fox for one of its financial-advice guys the other day — for which I have to say:

Thank you, Fox! You’ve finally come clean! As was true all along. those “spontaneous” demonstrations of screaming or bellowing demonstrators, which have made it just about impossible to have a meaningful public discussion — the ones that you and all the other right-wing wheeler-dealers have been so assiduously nursing along — have just one real purpose: to prevent the passing of laws that would threaten the exorbitant profits of the giant so-called “health” providers.

Related post: More Little Known Fun Facts

The Atlantic is a magazine that I’ve never been comfortable with. Some years I’ve subscribed to it — and, as each trivia-filled issue turned up in my mailbox, wondered why — until, every now and then, they would publish a piece I was really glad to have read, and I would grit my teeth and sign up for another. Their December 2008 issue (as you see I don’t read them as fast as they arrive), is one of those, only this time it isn’t just one piece that I keep urging people to have a look at. There are two of them.

The first is by a former fund runner, Henry Blodget, and it is called “Why Wall Street Always Blows It.” Blodget should know because (as he says in the article) “I was a famous tech-stock analyst at Merrill Lynch. I was famous because I was on the right side of the boom through the late 1990s…. By late 1998, I was cautioning clients that ‘what looks like a bubble probably is,’ but this didn’t save me. Fifteen months later I missed the top and drove my clients right over the cliff.”

And so, Blodget says, will people in his position always do because that sort of bubble — in which the price of securities gets bid up way beyond their real value is bound to happen … and bound to burst.

What’s the solution? Why, you want to buy and hold as long as the bubble is bloating, but get out before it pops. That’s good advice, and it could make you really, really rich if followed … but you can’t follow it. Blodget tried to. He cut back, and advised his clients to cut back, on the high-performance tech stocks that fueled the boom.

The damn things kept going up — way up — anyway.

You can see the stocks you’ve dumped going way past the point you sold them at for just so long before you begin to think they’ll keep on doing it and you’ve missed the boat. For Blodget that point came when, “in early 2000, weeks before the bubble burst, I put a lot of money where my mouth was. Two years later, I had lost the equivalent of six high-end college educations.” Because, as he also says, getting out of a bubble too early causes almost as much trouble as getting out of it too late.

The other piece in the same issue is called “Be Nice to the Countries That Lend You Money,” and it is the text of an on-the-record conversation between financial writer James Fallows and Gao Xiqing, who is the manager of a significant chunk of the money China has loaned to the United States. Gao is a pretty Americanish Chinese with a law degree from Duke and an American employment record that includes working for Richard Nixon’s Wall Street law firm.

I’m not going to try to synopsize what he said to Fallows, only to tell you that if you read it, you’ll be glad you did — even if he makes your blood run cold when Fallows hints at the “too big to fail” principle as applied to the American debt, implying that it would cost China too much to call it, and Gao agrees, “Yes, in the short run, not in the long,”

The House of Cards, Jean-Baptiste-Siméon Chardin, 1736–7

You remember what has gone before. I posted some text called, “My Worst Prediction Ever: Corporate Leisure Time,” and before you knew it, I was claiming that the recent fad for paying top corporate personnel mostly by huge bonuses rather than by straight, if large, salaries is what caused the world financial melt-down of 2008.

“Oh,” you say, “what nonsense! How could so simple a bookkeeping device have such catastrophic effects?”

Well, like this. Let’s say that the board of directors of the XYZ corporation calls you in and says, “Mr. Phan, we like the cut of your jib, so we’re going to offer you the job as our CEO. Since you don’t have an impressive work history, the salary we can offer you is only $37.50 a week. Now, we know that’s not much. But we’re willing to pay for results.

“So here’s what we’ll do. XYZ’s stock hasn’t been doing well in the market lately. It’s been running at about $18 a share on the Big Board. We’d like to see it at around $30. We will give you a year to get it done, and we don’t care how you do it, but if 365 days from today, XYZ is at that higher figure, we’ll give you a $2 million bonus.”

So what would you say to that? I think I know what you would say. I think you would say, “Yes, sir!” And I think you would say it with great speed, so the nice XYZ man wouldn’t have time to change his mind. After all (you might calculate) there was a chance that you could just stumble into some new business opportunities that would actually make the company gain that much in a year.

And — this, you promise yourself you might try but only as a very last resort — you might go to dealing in those “derivatives” that nobody seemed to understand but some people seemed to be making an awful lot of money on.

 
What are these “derivatives”? There are two that caused most of the trouble, and they are called “sub-prime mortgages” and “credit-default swaps.” The sub-prime mortgage is easy enough to understand. “Sub” means below and “prime” in this case means “a good investment.”

So what happened is that some banker (call him the “predatory lender” or just “thief”) had gone to nice old Mrs. Whitehead, who had lived in the shotgun flat behind the AME church since Lyndon Johnson was in the White House, and made her an offer she couldn’t refuse. “Sign this mortgage paper,” he said, “and I’ll give you forty thousand dollars. Here’s a pen.”

Now Mrs. Whitehead is not a fool. The first question she asks him is how in the world she can make the payments called for on a monthly income that is derived mostly from Social Security, plus what few bucks remain of what Mr. Whitehead left when he passed. But she’s not a CPA, either. Thief shows her in black-and-white that her house cost $10,000 when she and the Mr. bought it, has been gaining value ever since.

Were the payments on a $40,000 mortgage too onerous? No problem. Before you know it the house will become worth $60,000 or more. So you refinance at the new value, pay off the old mortgage, and walk away with a few thousand more of spending money, and ain’t America grand?

That system worked well as long as house prices kept going up … but not one day longer.

Then the system came cascading down. Real estate prices stopped rising, maybe dipped a little. Mrs. Whitehead couldn’t pay her mortgage any more. Thief’s bank foreclosed and poor Mrs. Whitehead was out on the street.

 

Did Thief know that was going to happen when he sold her that first mortgage?

Of course he did. He just didn’t care. His pay wasn’t based on how reliably the customers paid off their mortgages, it was based only on how many mortgages he sold.

That’s when I might lose you. “Hey,” you say, “hold on a minute. If that’s the way these people run their bank, aren’t they going to wind up with a vault full of worthless paper?”

I pat you on the head. “Exactly, my son. They do.” Of course, they could foreclose the mortgage — say the one on poor Mrs. Whitehead’s shotgun flat. But what would they do with the house once they had taken it over? If they want to get actual money, they have to sell it. But in today’s market, all they could get for it is say, $35,0000, while the amount due on the mortgage — the amount they’ve been carrying on their books as an asset — is now at, say, $50,000. So every mortgage foreclosure that they handle in that traditional way shows up on the books as a thumping great cash loss for the bank, and there are millions and millions of them.

You think that over for a moment, then you sigh. “Beats me,” you say. “I don’t see any way out for the bank. They should have seen this coming and avoided it, maybe by being a little less unethical in the way the loans took place. But they didn’t, and now only a miracle can save them.”

I have been patting your head again, this time quite hard. “Clever child!” I cry. “That’s what did it for them, at least for the moment. A miracle! Have you ever heard of transubstantiation?”

In the days when I was making much of my living from lecturing, I was generally careful not to make specific technological predictions about the future, particularly the easy ones — faster computers, cures (or ameliorations) for most diseases. I did let myself talk about social trends, though, and one trend I thought I had spotted was what I called the growth of corporate leisure time.

See, I had observed that as people became more prosperous they, or at least some of them, began to be willing to devote some of their recently acquired leisure time to doing things for people who needed help. They might help hand out Christmas baskets for the poor in the holiday season, or volunteer to drive the destitute to their doctors’ appointments, when they could get any. Whatever. It did happen. I saw it. And if this were true for individual humans, why shouldn’t corporations do the same?

I even thought I saw signs that some such process was beginning to happen with corporations, opening art galleries, or underwriting schools or classes. And especially I thought that it was happening with institutions like AT&T’s Bell Labs, the brightest jewel in America’s research diadem, where the executives in charge of the program were letting the scientists themselves decide some of the research programs they wanted to pursue.

Well, it sounds flimsier now than it did half a century ago, but I did get some powerful seconds to the those motions., one from Sylvia Porter, whose newspaper column on the financial world was the most widely syndicated in America.

And now in these opening years of the twenty-first century, how fecklessly naïve we all seemed! That isn’t how things are going at all.

 
Time was, back around 1960 or before, people bought stock in corporations because they wanted a share in their earnings. The plan was not to watch the price of the stock go up on the New York Stock Exchange and then sell it for profit when the price looked right. It was simply to tuck those gorgeously engraved stock certificates away in a safe place — under the matresss, maybe — and collect those quarterly dividend checks for the rest of your life.

(Oh, there were stock speculators, sure, wild men like Bet-a-Million Gates and his ilk, but reasonable investors stayed away from that kind of thing.)

So then what happened?

I’ll tell you what happened. Bonuses happened. Executives stopped working for those handsome salaries and expected large lump-sum payments. And the whole financial structure that held the markets together went mad.

 
Next: “The Bonus Babies.” Coming soon to a computer near you.