Fund Management Quotes

Misuse of budget happens when business owners are not able to see far ahead in the future or don’t take the budget seriously.

Securing funds is the first step but managing those funds efficiently and effectively is the most crucial step for your business’ survival as well as growth.

We’ll have to figure out a way to spend our money,” said Kaz. “What money?” said Jesper. “It all got poured into the Shu coffers. Like they needed it.” “Did it?” Nina’s eyes narrowed and Jesper saw a bit of her spirit return. “Stop playing around, Brekker, or I’ll send my unholy army of the dead after you.” Kaz shrugged. “I felt the Shu could manage with forty million.” “The thirty million Van Eck owed us—” murmured Jesper. “Four million kruge each. I’m giving Per Haskell’s share to Rotty and Specht. It will be laundered through one of the Dregs’ businesses before it passes back through the Gemensbank, but the funds should be in separate accounts for you by the end of the month.” He paused. “Matthias’ share will go to Nina. I know money doesn’t matter to—” “It matters,” said Nina. “I’ll find a way to make it matter. What will you do with your shares?” “Find a ship,” said Inej. “Put together a crew.” “Help run an empire,” said Jesper. “Try not to run it into the ground,” said Wylan. “And you, Kaz?” Nina asked. “Build something new,” he said with a shrug. “Watch it burn.

At Mayflower-Plymouth, we believe that active capital management is the responsible way to invest. Even passive funds should be actively managed.

For this reason the gentleman will employ a man on a distant mission and observe his degree of loyalty, will employ him close at hand and observe his degree of respect. He will hand him troublesome affairs and observe how well he manages them, will suddenly ask his advice and observe how wisely he answers. He will exact some difficult promise from him and see how well he keeps it, turn over funds to him and see with what benevolence he dispenses them, inform him of the danger he is in and note how faithful he is to his duties. He will get him drunk with wine and observe how well he handles himself, place him in mixed company and see what effect beauty has upon him. By applying these nine tests, you may determine who is the unworthy man.

Nature is great at hedging investments. Nature doesn’t hedge by betting for and against the same things. Nature hedges by cultivating resilience.

The wise study the numbers and their ways. The wise count their movements and their stays.

At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history. Heller responds, “Yes, but I have something he will never have … enough.” Enough. I was stunned by the simple eloquence of that word—stunned for two reasons: first, because I have been given so much in my own life and, second, because Joseph Heller couldn’t have been more accurate. For a critical element of our society, including many of the wealthiest and most powerful among us, there seems to be no limit today on what enough entails.

At Mayflower-Plymouth we aim to employ capital and maximize ROI for central banks, sovereign wealth funds, pension funds, corporations, foundations and endowments, and individual investors around the world.

I try to be a good investment to God. All the good things he’s given me, I aim to multiply and return to him and his purposes a maximum ROI. I’m just a tree in his fruit garden aiming to produce good fruit.

Half of all U.S. mutual fund portfolio managers do not invest a cent of their own money in their funds, according to Morningstar.69 This might seem atrocious, and surely the statistic uncovers some hypocrisy.

Gratitude multiplies things to be grateful for. Faith multiplies proof of faithfulness. Love multiplies circumstances that facilitate love.

At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history. Heller responds,“Yes, but I have something he will never have — enough.

And of course Brian was far more upset about separation from those two blond moppets than about leaving Louise. There shouldn't be any problem loving both, but for some reason certain men choose; like good mutual-fund managers minimizing risk while maximizing portfolio yield, they take everything they once invested in their wives and sink it into their children instead. What is it? Do they seem safer, because they need you? Because you can never become their ex-father, as I think I might become your ex-wife?

But the simple truth is this: the more complex an investment is, the less likely it is to be profitable. Index funds outperform actively managed funds in large part simply because actively managed funds require expensive active managers. Not only are they prone to making investing mistakes, their fees are a continual performance drag on the portfolio.

How did Homo sapiens manage to cross this critical threshold, eventually founding cities comprising tens of thousands of inhabitants and empires ruling hundreds of millions? The secret was probably the appearance of fiction. Large numbers of strangers can cooperate successfully by believing in common myths. Any large-scale human cooperation – whether a modern state, a medieval church, an ancient city or an archaic tribe – is rooted in common myths that exist only in people’s collective imagination. Churches are rooted in common religious myths. Two Catholics who have never met can nevertheless go together on crusade or pool funds to build a hospital because they both believe that God was incarnated in human flesh and allowed Himself to be crucified to redeem our sins. States are rooted in common national myths. Two Serbs who have never met might risk their lives to save one another because both believe in the existence of the Serbian nation, the Serbian homeland and the Serbian flag. Judicial systems are rooted in common legal myths. Two lawyers who have never met can nevertheless combine efforts to defend a complete stranger because they both believe in the existence of laws, justice, human rights – and the money paid out in fees.

Lynch called these two mistakes, which often go together, “watering the weeds and cutting out the flowers.

A business can drift aimlessly if it is efficient but not effective. A business can lose money excessively if it is effective but not efficient.

After adjusting the comparison of index funds to actively managed funds for survivorship bias, taxes, and loads, the dominance of index funds reaches insurmountable proportions. Once

The assault on education began more than a century ago by industrialists and capitalists such as Andrew Carnegie. In 1891, Carnegie congratulated the graduates of the Pierce College of Business for being “fully occupied in obtaining a knowledge of shorthand and typewriting” rather than wasting time “upon dead languages.” The industrialist Richard Teller Crane was even more pointed in his 1911 dismissal of what humanists call the “life of the mind.” No one who has “a taste for literature has a right to be happy” because “the only men entitled to happiness… is those who are useful.” The arrival of industrialists on university boards of trustees began as early as the 1870s and the University of Pennsylvania’s Wharton School of Business offered the first academic credential in business administration in 1881. The capitalists, from the start, complained that universities were unprofitable. These early twentieth century capitalists, like heads of investment houses and hedge-fund managers, were, as Donoghue writes “motivated by an ethically based anti-intellectualism that transcended interest in the financial bottom line. Their distrust of the ideal of intellectual inquiry for its own sake, led them to insist that if universities were to be preserved at all, they must operate on a different set of principles from those governing the liberal arts.

Things go wrong more often than they go right. Failure is actually a natural—even crucial—element of a healthy economy. And the people who are willing to acknowledge that fact can make a hell of a lot of money.

Negotiation is a fundamental skill for board members. Whether it's negotiating with management over strategic direction, with investors over funding terms, or with stakeholders over environmental impact, the ability to negotiate effectively is essential for achieving the best possible outcomes for all parties involved.

If my targets seem to skew “left,” it is for a reason. The left makes huge claims about government and its capabilities. Those who manage the government and other publicly funded social services all too often persuade themselves of their virtuousness, even if their virtue is subsidized with other people’s money. Given their idealism, they refuse to cast judgment on their mission and tolerate almost no judgment from others.

Nature was a quant way before all of these MBAs and Economists were quants. I respect MBAs, and I respect economists. I just happen to respect nature more.

Nature doesn’t have puts on one side and calls on the other side of the same things, nor does it waste energy betting against the same life it works to cultivate. Nature doesn’t insure high risk gambles by trying to be both the casino and the player. Instead, nature insures capital and profits through a variety of complimentary approaches. At Mayflower-Plymouth we aim to emulate nature in this way with how we approach investing and asset management.

A small stock trader is like a small hedge fund manager, zen monk, psychologist, intelligence officer, sniper, sportsman, poker player, risk manager, analyst, and economist, all in one.

Whether you're the manager of a restaurant, a bar, a school, a construction company, an investment fund or a real estate management firm - leadership is critical to moving the business forward.

Two-thirds of professionally managed funds are regularly outperformed by a broad capitalization-weighted index fund with equivalent risk, and those that do appear to produce excess returns in one period are not likely to do so in the next. The record of professionals does not suggest that sufficient predictability exists in the stock market to produce exploitable arbitrage opportunities.

The [carried-interest] loophole was in essence an accounting trick that enabled hedge fund and private equity managers to categorize huge portions of their income as ‘interest,’ which was taxed at the 15 percent rate then applied to long-term capital gains. This was less than half the income tax rate paid by other top-bracket wage earners. Critics called the loophole a gigantic subsidy to millionaires and billionaires at the expense of ordinary taxpayers. The Economic Policy Institute, a progressive think tank, estimated that the hedge fund loophole cost the government over $6 billion a year—the cost of providing health care to three million children. Of that total, it said, almost $2 billion a year from the tax break went to just twenty-five individuals.

Here is the crux of the strategy: Instead of hiring an expert, or spending a lot of time trying to decide which stocks or actively managed funds are likely to be top performers, just invest in index funds and forget about it!

In the mutual fund industry, for example, the annual rate of portfolio turnover for the average actively managed equity fund runs to almost 100 percent, ranging from a hardly minimal 25 percent for the lowest turnover quintile to an astonishing 230 percent for the highest quintile. (The turnover of all-stock-market index funds is about 7 percent.)

As well as a shared mentality, the Establishment is cemented by financial links and a 'revolving door' culture: that is, powerful individuals gliding between the political, corporate and media worlds - or who manage to inhabit these various worlds at the same time. The terms of political debate are in large part dictated by a media controlled by a small number of exceptionally rich owners, while think tanks and political parties are funded by wealthy individuals and corporate interests.

By weaponizing the discourse of human rights to justify the use of force against governments that resisted the Washington consensus, this group of well-connected liberals was able to stir support where the neocons could not. Their brand of interventionism appealed directly to the sensibility of the Democratic Party's metropolitan base, large swaths of academia, the foundation-funded human rights NGO complex, and the New York Times editorial board. The xhibition of atrocities allegedly committed by adversarial governments, either by Western-funded civil society groups, major human rights organizations or the mainstream press, was the military humanists' stock in trade, enabling them to mask imperial designs behind a patina of "genocide prevention." With this neat tactic, they effectively neutralized progressive antiwar elements and tarred those who dared to protest their wars as dictator apologists.

thought then that decent, intelligent, and experienced managers would automatically make rational business decisions. But I learned over time that isn’t so. Instead, rationality frequently wilts when the institutional imperative comes into play. For example: (1) As if governed by Newton’s First Law of Motion, an institution will resist any change in its current direction; (2) Just as work expands to fill available time, corporate projects or acquisitions will materialize to soak up available funds; (3) Any business craving of the leader, however foolish, will be quickly supported by detailed rate-of-return and strategic studies prepared by his troops; and (4) The behavior of peer companies, whether they are expanding, acquiring, setting executive compensation or whatever, will be mindlessly imitated.

If you get sacrificed do I get your trust fund or does your dad take it back?” she asks, giggling when I dig my fingers into her side. “Also, do I have your blessing to marry Henry?” “No and no,” I say as sternly as I can manage. “I want you to wear black for the rest of your life and never move on.

Where once universities, corporations, movie studios, and the like had been governed by a combination of relatively simple chains of command and informal patronage networks, we now have a world of funding proposals, strategic vision documents, and development team pitches—allowing for the endless elaborations of new and ever more pointless levels of managerial hierarchy, staffed by men and women with elaborate titles, fluent in corporate jargon, but who either have no firsthand experience of what it's like to do the work they are supposed to be managing, or who have done everything in their power to forget it.

How do you manage for money?’ I asked. I was given two simultaneous replies of ‘We get by’ from Ian and ‘Don’t ask’ from Neil. I favoured Ian’s reply because it had less-sinister connotations. ‘Don’t ask’ left open the possibility that they raised funds by selling hitch-hikers into slavery. I changed the subject.

I was learning an important and fascinating lesson about business and human nature: Failure terrifies people. They’ll do whatever they have to do to downplay it, wish it away, and just plain pretend it doesn’t exist. Most of the time, they’ll go on living in denial long after the truth of their predicament becomes obvious.

Buffett being penalized for underperforming versus managers riding the long side of the dot-com bubble is a perfect illustration of a common investor mistake—failing to realize that often the managers with the highest returns achieve those results because they’re taking the most risk, not because they have the greatest skill.

I see companies these days where thoughts of “exits” are foremost in the minds of top management and board, and it is so clear that this value will infect the decision making down to the smallest choice by the most junior employee. Do we create something that is good, or just that seems good and might get us acquired or funded?

It’s about pressing palms, bro. Getting the funds under management. Money into the market. After that, the shit’s on autopilot.

The greatest fear of a professional investor, who manages money for a living, is capital withdrawals at the wrong time.

Annual performance means nothing to individual investors.

Money managers tend to make irrational decisions just to protect their calendar year performances, even if they believe that decision is not in the best interest of investors.

That’s when I realized it was really very simple. Index investing beats 85 percent of actively managed mutual funds.

Can You Get In The Habit?

Always believe you are great and that you are the best

Growth is only possible when there is inclusivity

Always maintain healthy margins of risk, shoulder it & have an upper hand in managing it

I dream of a world where we are all financially literate, financially free and we are all investors

Always Seek Good Growth

Give people a voice, encourage, motivate and reward them

An active manager must overcome the drag of about 3.25 percent in annual operating costs. If the fund manager is only to match the market’s historical 9 percent return, he or she must return 12.25 percent before all those costs. In other words, to do merely as well as the market, an active fund manager must be able to outperform the market return by over one-third or 34.1 percent!5

They worried ballot management in some areas was privately funded by corporate oligarchs overtly hostile to the Republican Party. Didn’t that give at least the appearance of impropriety? And they worried that failing to remove the deceased and those who moved out of state from voter rolls would cause worse problems in an election in which mail-in balloting would feature so prevalently.

All of life is Capital stewarded by God. And he allows us to steward some of it according to his purposes. And the more we model him in our stewardship, the more he seems to allow us to steward.

As the manager of my hedge fund, I’ve shorted the stocks of over two hundred companies that have eventually gone bankrupt. Many of these businesses started out with promising, even inspired ideas: natural cures for common diseases, for example, or a cool new kind of sporting goods product. Others were once-thriving organizations trying to rebound from hard times. Despite their differences, they all failed because their leaders made one or more of six common mistakes that I look for: They learned from only the recent past. They relied too heavily on a formula for success. They misread or alienated their customers. They fell victim to a mania. They failed to adapt to tectonic shifts in their industries. They were physically or emotionally removed from their companies’ operations.

Even for taxable clients, mutual fund managers supervised the assets in very much the same way, simply ignoring the tax impact and passing the tax liability through to largely unsuspecting fund shareholders.

The index fund is a most unlikely hero for the typical investor. It is no more (nor less) than a broadly diversified portfolio, typically run at rock-bottom costs, without the putative benefit of a brilliant, resourceful, and highly skilled portfolio manager. The index fund simply buys and holds the securities in a particular index, in proportion to their weight in the index. The concept is simplicity writ large.

Diversification, the easy accessibility of funds, and having a skilled professional money manager working to make your investment grow are the three most prominent reasons that mutual funds have become so popular.

There was a Dana Phelps with a son named Brandon, but they didn’t live on the Upper East Side of Manhattan. The Phelpses resided in a rather tony section of Greenwich, Connecticut. Brandon’s father had been a big-time hedge fund manager. Beaucoup bucks. He died when he was forty-one. The obituary gave no cause of death. Kat looked for a charity—people often requested donations made to a heart disease or cancer or whatever cause—but there was nothing listed.

One reason nature is efficient is because there is no waste. Everything produced creates value for others and is consumed by others on the basis of value. What one life may discard as not valuable is consumed by another life because of its valuable. And all things produced and consumed are continually upcycled, becoming more valuable each cycle. Perhaps it’s because nature has a capital-centric view of things; everything in nature is capital and produces capital which to varying degrees provides value to all other things in nature. Imagine if economies worked like this. Imagine if investment portfolios worked like this. Imagine if businesses worked like this. What a beautiful world it would be.

The U.S. government, contending that many Osage were unable to handle their money, had required the Office of Indian Affairs to determine which members of the tribe it considered capable of managing their trust funds. Over the tribe’s vehement objections, many Osage, including Lizzie and Anna, were deemed “incompetent,” and were forced to have a local white guardian overseeing and authorizing all of their spending, down to the toothpaste they purchased at the corner store.

Haven’t you figured it out? Giving money away doesn’t solve anything. Asking the zottarich to redeem themselves by giving money away acknowledges that they deserve it all, should be in charge of deciding where it goes. It’s pretending that you can get rich without being a bandit. Letting them decide what gets funded declares the planet to be a giant corporation that the major shareholders get to direct. It says that government is just middle-management, hired or fired on the whim of the directors.

Our plutocracy, whether the hedge fund managers in Greenwich, Connecticut, or the Internet moguls in Palo Alto, now lives like the British did in colonial India: ruling the place but not of it. If one can afford private security, public safety is of no concern; to the person fortunate enough to own a Gulfstream jet, crumbling bridges cause less apprehension, and viable public transportation doesn’t even compute. With private doctors on call and a chartered plane to get to the Mayo Clinic, why worry about Medicare?

Donald was to my grandfather what the border wall has been for Donald: a vanity project funded at the expense of more worthy pursuits. Fred didn’t groom Donald to succeed him; when he was in his right mind, he wouldn’t trust Trump Management to anybody. Instead, he used Donald, despite his failures and poor judgment, as the public face of his own thwarted ambition. Fred kept propping up Donald’s false sense of accomplishment until the only asset Donald had was the ease with which he could be duped by more powerful men.

It is surprising that nobody actually knows how many hedge funds or money management firms operating as hedge funds exist in this country. There are no regulations that require funds to register; in fact, there are actually few regulations that they have to follow.

Alex eyed the Bonesmen, robed and hooded, crowded around the body on the table, the undergrad Scribe taking down the predictions that would be passed on to hedge-fund managers and private investors all over the world to keep the Bonesmen and their alumni financially secure.

Over the last 30 odd years, Democrats have moved to the right and the right has moved into the mental hospital. So what we have is one perfectly good party for hedge fund managers, credit card companies, banks, defense contractors, big agriculture and the pharmaceutical lobby... That's the Democrats. And they sit across the aisle from a small group of religious lunatics, flat-earthers and civil war re-enactors who mostly communicate by AM radio and call themselves the Republicans and who actually worry that Obama is a socialist. Socialist? He's not even a liberal.

people in management positions, even very senior management positions, are often completely wrong about the fortunes of their own companies. More important, in making these misjudgments, they almost always err on the side of excessive optimism. They think their businesses are in much better shape than they actually are. Jerry’s rig utilization chart at Global Marine and our own CFO’s boasts about Joe DiMaggio only underscored this lesson for me at the time. And, three decades and over 1,400 meetings with other executives later, I can say this tendency is as pronounced as ever.

What I didn’t realize at the time was that living through that bust was the luckiest thing that would ever happen to me. It taught me perhaps the single most important lesson about business and about life: Things go wrong more often than they go right. Failure is actually a natural—even crucial—element of a healthy economy.

Investors often make the mistake of equating manager performance in a given year with manager skill. In some instances, more skilled managers will underperform because they refuse to participate in market bubbles. In fact, during market bubbles, the best performers are often the most imprudent rather than the most skilled managers.

And now after considerable experience with the many public institutions which I have managed, it has become my firm conviction that it is not good to run public institutions on permanent funds. A permanent fund carries in itself the seed of the moral fall of the institution. A public institution means an institution conducted with the approval, and from the funds, of the public. When such an institution ceases to have public support, it forfeits its right to exist. Institutions maintained on permanent funds are often found to ignore public opinion, and are frequently responsible for acts contrary to it. In our country we experience this at every step. Some of the so-called religious trusts have ceased to render any accounts.

At the time of the Frank Sheeran job interview by long-distance phone call, Jimmy Hoffa was coming off a period full of accomplishment and notoriety. In the mid- to late fifties Jimmy Hoffa had bulldogged and bluffed his way through the McClellan Committee hearings. He had become president of the International Brotherhood of Teamsters. And he had survived several criminal indictments. More significantly for his future and that of his rank and file, in 1955 Jimmy Hoffa had created a pension fund whereby management made regular contributions toward the retirement of their Teamsters employees. Before the creation of the Central States Pension Fund, many truckers merely had their Social Security to fall back on when they retired.

Cixi’s lack of formal education was more than made up for by her intuitive intelligence, which she liked to use from her earliest years. In 1843, when she was seven, the empire had just finished its first war with the West, the Opium War, which had been started by Britain in reaction to Beijing clamping down on the illegal opium trade conducted by British merchants. China was defeated and had to pay a hefty indemnity. Desperate for funds, Emperor Daoguang (father of Cixi’s future husband) held back the traditional presents for his sons’ brides – gold necklaces with corals and pearls – and vetoed elaborate banquets for their weddings. New Year and birthday celebrations were scaled down, even cancelled, and minor royal concubines had to subsidise their reduced allowances by selling their embroidery on the market through eunuchs. The emperor himself even went on surprise raids of his concubines’ wardrobes, to check whether they were hiding extravagant clothes against his orders. As part of a determined drive to stamp out theft by officials, an investigation was conducted of the state coffer, which revealed that more “than nine million taels of silver had gone missing. Furious, the emperor ordered all the senior keepers and inspectors of the silver reserve for the previous forty-four years to pay fines to make up the loss – whether or not they were guilty. Cixi’s great-grandfather had served as one of the keepers and his share of the fine amounted to 43,200 taels – a colossal sum, next to which his official salary had been a pittance. As he had died a long time ago, his son, Cixi’s grandfather, was obliged to pay half the sum, even though he worked in the Ministry of Punishments and had nothing to do with the state coffer. After three years of futile struggle to raise money, he only managed to hand over 1,800 taels, and an edict signed by the emperor confined him to prison, only to be released if and when his son, Cixi’s father, delivered the balance. The life of the family was turned upside down. Cixi, then eleven years old, had to take in sewing jobs to earn extra money – which she would remember all her life and would later talk about to her ladies-in-waiting in the court. “As she was the eldest of two daughters and three sons, her father discussed the matter with her, and she rose to the occasion. Her ideas were carefully considered and practical: what possessions to sell, what valuables to pawn, whom to turn to for loans and how to approach them. Finally, the family raised 60 per cent of the sum, enough to get her grandfather out of prison. The young Cixi’s contribution to solving the crisis became a family legend, and her father paid her the ultimate compliment: ‘This daughter of mine is really more like a son!’ Treated like a son, Cixi was able to talk to her father about things that were normally closed areas for women. Inevitably their conversations touched on official business and state affairs, which helped form Cixi’s lifelong interest. Being consulted and having her views acted on, she acquired self-confidence and never accepted the com“common assumption that women’s brains were inferior to men’s. The crisis also helped shape her future method of rule. Having tasted the bitterness of arbitrary punishment, she would make an effort to be fair to her officials.

Another example is the modern political order. Ever since the French Revolution, people throughout the world have gradually come to see both equality and individual freedom as fundamental values. Yet the two values contradict each other. Equality can be ensured only by curtailing the freedoms of those who are better off. Guaranteeing that every individual will be free to do as he wishes inevitably short-changes equality. The entire political history of the world since 1789 can be seen as a series of attempts to reconcile this contradiction. Anyone who has read a novel by Charles Dickens knows that the liberal regimes of nineteenth-century Europe gave priority to individual freedom even if it meant throwing insolvent poor families in prison and giving orphans little choice but to join schools for pickpockets. Anyone who has read a novel by Alexander Solzhenitsyn knows how Communism’s egalitarian ideal produced brutal tyrannies that tried to control every aspect of daily life. Contemporary American politics also revolve around this contradiction. Democrats want a more equitable society, even if it means raising taxes to fund programmes to help the poor, elderly and infirm. But that infringes on the freedom of individuals to spend their money as they wish. Why should the government force me to buy health insurance if I prefer using the money to put my kids through college? Republicans, on the other hand, want to maximise individual freedom, even if it means that the income gap between rich and poor will grow wider and that many Americans will not be able to afford health care. Just as medieval culture did not manage to square chivalry with Christianity, so the modern world fails to square liberty with equality. But this is no defect. Such contradictions are an inseparable part of every human culture. In fact, they are culture’s engines, responsible for the creativity and dynamism of our species. Just

We don’t worry about who manages the bank or what they do with our money. Even if we hear on the news that our bank has started to lend large sums of money to piano-playing cats, which we think is a bad idea, we would not feel the need to show up at the bank the next morning to ask for all of our money back. If you had lent your money to an individual and they in turn lent your money to piano-playing cats, you would demand your money back immediately. But because you deposit your money into a bank account insured by the federal government, you feel no need to keep a watchful eye on what your bank does with the money. Insurance removes the incentive for customers to police a bank. It can also remove the incentive for banks to police themselves because they do not bear the full or even the most serious consequences of their actions. Removing the natural tendencies of the market to notice and punish bad choices creates a moral hazard that may result in well-funded cats and other undetected market risks.

This state of affairs, which bodes ill for the future, causes Us great distress and anguish. But We cherish this hope: that distrust and selfishness among nations will eventually be overcome by a stronger desire for mutual collaboration and a heightened sense of solidarity. We hope that the developing nations will take advantage of their geographical proximity to one another to organize on a broader territorial base and to pool their efforts for the development of a given region. We hope that they will draw up joint programs, coordinate investment funds wisely, divide production quotas fairly, and exercise management over the marketing of these products. We also hope that multilateral and broad international associations will undertake the necessary work of organization to find ways of helping needy nations, so that these nations may escape from the fetters now binding them; so that they themselves may discover the road to cultural and social progress, while remaining faithful to the native genius of their land.

Today the intellectual leaders of the Republican Party are the paranoids, kooks, know-nothings, and bigots who once could be heard only on late-night talk shows, the stations you listened to on long drives because it was hard to fall asleep while laughing. When any political movement loses all sense of self and has no unifying theory of government, it ceases to function as a collective rooted in thought and becomes more like fans of a sports team. Asking the Republican Party today to agree on a definition of conservatism is like asking New York Giants fans to have a consensus opinion on the Law of the Sea Treaty. It’s not just that no one knows anything about the subject; they don’t remotely care. All Republicans want to do is beat the team playing the Giants. They aren’t voters using active intelligence or participants in a civil democracy; they are fans. Their role is to cheer and fund their team and trash-talk whatever team is on the other side. This removes any of the seeming contradiction of having spent years supporting principles like free trade and personal responsibility to suddenly stop and support the opposite. Think of those principles like players on a team. You cheered for them when they were on your team, but then management fired them or traded them to another team, so of course you aren’t for them anymore. If your team suddenly decides to focus on running instead of passing, no fan cares—as long as the team wins. Stripped of any pretense of governing philosophy, a political party will default to being controlled by those who shout the loudest and are unhindered by any semblance of normalcy. It isn’t the quiet fans in the stands who get on television but the lunatics who paint their bodies with the team colors and go shirtless on frigid days. It’s the crazy person who lunges at the ref and jumps over seats to fight the other team’s fans who is cheered by his fellow fans as he is led away on the jumbotron. What is the forum in which the key issues of the day are discussed? Talk radio and the television shows sponsored by the team, like Fox & Friends, Tucker Carlson, and Sean Hannity.

We decided to attend to our community instead of asking our community to attend the church.” His staff started showing up at local community events such as sports contests and town hall meetings. They entered a float in the local Christmas parade. They rented a football field and inaugurated a Free Movie Night on summer Fridays, complete with popcorn machines and a giant screen. They opened a burger joint, which soon became a hangout for local youth; it gives free meals to those who can’t afford to pay. When they found out how difficult it was for immigrants to get a driver’s license, they formed a drivers school and set their fees at half the going rate. My own church in Colorado started a ministry called Hands of the Carpenter, recruiting volunteers to do painting, carpentry, and house repairs for widows and single mothers. Soon they learned of another need and opened Hands Automotive to offer free oil changes, inspections, and car washes to the same constituency. They fund the work by charging normal rates to those who can afford it. I heard from a church in Minneapolis that monitors parking meters. Volunteers patrol the streets, add money to the meters with expired time, and put cards on the windshields that read, “Your meter looked hungry so we fed it. If we can help you in any other way, please give us a call.” In Cincinnati, college students sign up every Christmas to wrap presents at a local mall — ​no charge. “People just could not understand why I would want to wrap their presents,” one wrote me. “I tell them, ‘We just want to show God’s love in a practical way.’ ” In one of the boldest ventures in creative grace, a pastor started a community called Miracle Village in which half the residents are registered sex offenders. Florida’s state laws require sex offenders to live more than a thousand feet from a school, day care center, park, or playground, and some municipalities have lengthened the distance to half a mile and added swimming pools, bus stops, and libraries to the list. As a result, sex offenders, one of the most despised categories of criminals, are pushed out of cities and have few places to live. A pastor named Dick Witherow opened Miracle Village as part of his Matthew 25 Ministries. Staff members closely supervise the residents, many of them on parole, and conduct services in the church at the heart of Miracle Village. The ministry also provides anger-management and Bible study classes.

By bundling the authorization of war funds with a declaration of war attributed to Mexico, Democrats ensured that any opponent of the measure could be accused of betraying the troops. Polk’s supporters skillfully managed to stifle dissent in the House by limiting debate to two hours, an hour and a half of which was devoted to reading the documents that accompanied the message. The flabbergasted opposition was caught completely off guard and struggled to amend the bill. Powerless and voiceless, they watched helplessly as Polk’s supporters ruthlessly stifled debate and foisted war on Congress and the country.

Sheepwalking I define “sheepwalking” as the outcome of hiring people who have been raised to be obedient and giving them a brain-dead job and enough fear to keep them in line. You’ve probably encountered someone who is sheepwalking. The TSA “screener” who forces a mom to drink from a bottle of breast milk because any other action is not in the manual. A “customer service” rep who will happily reread a company policy six or seven times but never stop to actually consider what the policy means. A marketing executive who buys millions of dollars’ worth of TV time even though she knows it’s not working—she does it because her boss told her to. It’s ironic but not surprising that in our age of increased reliance on new ideas, rapid change, and innovation, sheepwalking is actually on the rise. That’s because we can no longer rely on machines to do the brain-dead stuff. We’ve mechanized what we could mechanize. What’s left is to cost-reduce the manual labor that must be done by a human. So we write manuals and race to the bottom in our search for the cheapest possible labor. And it’s not surprising that when we go to hire that labor, we search for people who have already been trained to be sheepish. Training a student to be sheepish is a lot easier than the alternative. Teaching to the test, ensuring compliant behavior, and using fear as a motivator are the easiest and fastest ways to get a kid through school. So why does it surprise us that we graduate so many sheep? And graduate school? Since the stakes are higher (opportunity cost, tuition, and the job market), students fall back on what they’ve been taught. To be sheep. Well-educated, of course, but compliant nonetheless. And many organizations go out of their way to hire people that color inside the lines, that demonstrate consistency and compliance. And then they give these people jobs where they are managed via fear. Which leads to sheepwalking. (“I might get fired!”) The fault doesn’t lie with the employee, at least not at first. And of course, the pain is often shouldered by both the employee and the customer. Is it less efficient to pursue the alternative? What happens when you build an organization like W. L. Gore and Associates (makers of Gore-Tex) or the Acumen Fund? At first, it seems crazy. There’s too much overhead, there are too many cats to herd, there is too little predictability, and there is way too much noise. Then, over and over, we see something happen. When you hire amazing people and give them freedom, they do amazing stuff. And the sheepwalkers and their bosses just watch and shake their heads, certain that this is just an exception, and that it is way too risky for their industry or their customer base. I was at a Google conference last month, and I spent some time in a room filled with (pretty newly minted) Google sales reps. I talked to a few of them for a while about the state of the industry. And it broke my heart to discover that they were sheepwalking. Just like the receptionist at a company I visited a week later. She acknowledged that the front office is very slow, and that she just sits there, reading romance novels and waiting. And she’s been doing it for two years. Just like the MBA student I met yesterday who is taking a job at a major packaged-goods company…because they offered her a great salary and promised her a well-known brand. She’s going to stay “for just ten years, then have a baby and leave and start my own gig.…” She’ll get really good at running coupons in the Sunday paper, but not particularly good at solving new problems. What a waste. Step one is to give the problem a name. Done. Step two is for anyone who sees themselves in this mirror to realize that you can always stop. You can always claim the career you deserve merely by refusing to walk down the same path as everyone else just because everyone else is already doing it.

Microassaults involve misusing power and privilege in subtle ways to marginalize students and create different outcomes based on race or class. In the classroom, a microassault might look like giving a more severe punishment to a student of color than his White classmate who was engaged in the same behavior. Or it might look like overemphasizing military-like behavior management strategies for students of color. With younger children, it looks like excluding them from fun activities as punishment for minor infractions. Microinsults involve being insensitive to culturally and linguistically diverse students and trivializing their racial and cultural identity such as not learning to pronounce a student’s name or giving the student an anglicized name to make it easier on the teacher. Continually confusing two students of the same race and casually brushing it off as “they all look alike.” Microinvalidations involve actions that negate or nullify a person of color’s experiences or realities such as ignoring each student’s rich funds of knowledge. They are also expressed when we don’t want to acknowledge the realities of structural racialization or implicit bias. It takes the form of trivializing and dismissing students’ experiences, telling them they are being too sensitive or accusing them of “playing the race card.”

That’s why one of my strongest ideas is to look at the tax code in both its complexity and its obvious bias toward the rich. Hedge fund and money managers are important for our pension funds and the 401(k) plans that help millions of Americans—but far less important than they think. But financial advisers should pay taxes at the highest levels when they’re earning money at those levels. Often, these financial engineers are “flipping” companies, laying people off, and making billions—yes, billions—of dollars by “downsizing” and destroying people’s lives and sometimes entire companies. Believe me, I know the value of a billion dollars—but I also know the importance of a single dollar.

For financial services: * Well, you know how it is almost impossible to save money now with the cost of living so high? Well, I show people how to use tax advantages to fund all their savings. * Well, you know how insurance is so expensive, but we need it? Well, I show families how to get inexpensive insurance so that they still have money to enjoy life. * Well, you know how hard it is to get out of debt? Well, I show people how to pay off their debts quickly so that they have more money to enjoy life. * Well, you know how we are all going to die? Well, I show people how to manage their money so that they can party and have a great time before they die. (Okay, am I going too far yet?)

Can you think of another business in the world that would continue to exist as a going concern even after it had been proven definitively—as John Bogle of Vanguard proved about the financial industry—that most of its products are vastly inferior to other, cheaper alternatives like index funds? I can’t. How about a business whose most prestigious firms have been caught defrauding their own customers not once, but over and over again? In the normal corporate world, would such a business not only continue to operate, but actually make more and more money every year? Of course not. It would be long dead by now. And yet deceiving its clients and foisting inferior and even fraudulent products on them is exactly how Wall Street stays in business!

If you were to assume that many experts use their information to your detriment, you’d be right. Experts depend on the fact that you don’t have the information they do. Or that you are so befuddled by the complexity of their operation that you wouldn’t know what to do with the information if you had it. Or that you are so in awe of their expertise that you wouldn’t dare challenge them. If your doctor suggests that you have angioplasty — even though some current research suggests that angioplasty often does little to prevent heart attacks — you aren’t likely to think that the doctor is using his informational advantage to make a few thousand dollars for himself or his buddy. But as David Hillis, an interventional cardiologist at the University of Texas Southwestern Medical Center in Dallas, explained to the New York Times, a doctor may have the same economic incentives as a car salesman or a funeral director or a mutual fund manager: “If you’re an invasive cardiologist and Joe Smith, the local internist, is sending you patients, and if you tell them they don’t need the procedure, pretty soon Joe Smith doesn’t send patients anymore.” Armed with information, experts can exert a gigantic, if unspoken, leverage: fear. Fear that your children will find you dead on the bathroom floor of a heart attack if you do not have angioplasty surgery. Fear that a cheap casket will expose your grandmother to a terrible underground fate. Fear that a $25,000 car will crumple like a toy in an accident, whereas a $50,000 car will wrap your loved ones in a cocoon of impregnable steel.

A good example of the importance of context and collective action is breast cancer. For many of us, there couldn’t be a more personal issue. But, however personal it is, we still need the big picture. There have been very important advances in breast cancer research over the past ten years. These advances could not have happened without advocates who recognized the political, social and economic contexts of health research. These advocates have pushed breast cancer to the top of the national health agenda, raised millions of dollars and drastically increased federal funding of breast cancer research. We might be able to make individual choices that lower our risks for breast cancer, but without collective action, we wouldn’t know how to manage those risks, and we certainly would not get the level of treatment available today.

You’re as beautiful as you were the night we made our son,” she whispered, bending to kiss him tenderly. His fingers traced her dark eyebrows, her cheeks, her mouth. “I wish we could have another baby,” he said heavily. “So do I. But I’m too old,” she said sadly. She lay her cheek against his broad, damp chest and stroked the silver-tipped hair that covered it. “We’ll have to hope for grandchildren, if he ever forgives us.” He held her tightly, as if by holding her he could keep her safe. What he felt for her was ferociously protective. She misunderstood the tightening of his arms. She smiled and sighed. “We can’t, again. Cecily will think we’ve deserted her.” His hand smoothed her long hair. “She probably knows exactly what we’re doing,” he said on a chuckle. “She loves you.” “She likes you. Maybe we could adopt her.” “Better if our son marries her.” She grinned. “We can hope.” She sat up and stretched, liking the way he watched her still-firm breasts. “The last time I felt like this was thirty-six years ago,” she confided. “The same is true for me,” he replied. She searched his eyes, already facing her departure. She would have to go back to the reservation, home. He could still read her better than she knew. He drew her hand to his mouth. “It’s too late, but I want to marry you. This week. As soon as possible.” She was surprised. She didn’t know what to say. “I love you,” he said. “I never stopped. Forgive me and say yes.” She considered the enormity of what she would be agreeing to do. Be his hostess. Meet his friends. Go to fund-raising events. Wear fancy clothes. Act sophisticated. “Your life is so different from mine,” she began. “Don’t you start,” he murmured. “I’ve seen what it did to Cecily when Tate used that same argument with her about all the differences. It won’t work with me. We love each other too much to worry about trivial things. Say yes. We’ll work out all the details later.” “There will be parties, benefits…” He pulled her down into his arms and kissed her tenderly. “I don’t know much about etiquette,” she tried again. He rolled her over, pinning her gently. One long leg inserted itself between both of hers as he kissed her. “Oh, what the hell,” she murmured, and wrapped her legs around his, groaning as the joints protested. “Arthritis?” he asked. “Osteoarthritis.” “Me, too.” He shifted, groaning a little himself as he eased down. “We’ll work on new positions one day. But it’s…too late…now. Leta…!” he gasped. She didn’t have enough breath to answer him. He didn’t seem to notice that she hadn’t. Bad joints notwithstanding, they managed to do quite a few things that weren’t recommended for people their ages. And some that weren’t in the book at all.

Pointsman is the only one here maintaining his calm. He appears unruffled and strong. His lab coats have even begun lately to take on a Savile Row serenity, suppressed waist, flaring vents, finer material, rather rakishly notched lapels. In this parched and fallow time, he gushes affluence. After the baying has quieted down at last, he speaks, soothing: “There’s no danger.” “No danger?” screams Aaron Throwster, and the lot of them are off again muttering and growling. “Slothrop’s knocked out Dodson-Truck and the girl in one day!” “The whole thing’s falling apart, Pointsman!” “Since Sir Stephen came back, Fitzmaurice House has dropped out of our scheme, and there’ve been embarrassing inquires down from Duncan Sandys—“ “That’s the P.M.’s son-in-law, Pointsman, not good, not good!” “We’ve already begun to run into a deficit—“ “Funding,” IF you can keep your head, “is available, and will be coming in before long… certainly before we run into any serious trouble. Sir Stephen, far from being ‘knocked out,’ is quite happily at work at Fitzmaurice House, and is At Home there should any of you wish to confirm. Miss Borgesius is still active in the program, and Mr. Duncan Sandys is having all his questions answered. But best of all, we are budgeted well into fiscal ’46 before anything like a deficit begins to rear its head.” “Your Interested Parties again?” sez Rollo Groast. “Ah, I noticed Clive Mossmoon from Imperial Chemicals closeted with you day before yesterday,” Edwin Treacle mentions now. “Clive Mossmoon and I took an organic chemistry course or two together back at Manchester. Is ICI one of our, ah, sponsors, Pointsman?” “No,” smoothly, “Mossmoon, actually, is working out of Malet Street these days. I’m afraid we were up to nothing more sinister than a bit of routine coordination over the Schwarzkommando business.” “The hell you were. I happen to know Clive’s at ICI, managing some sort of polymer research.” They stare at each other. One is lying, or bluffing, or both are, or all of the above. But whatever it is Pointsman has a slight advantage. By facing squarely the extinction of his program, he has gained a great of bit of Wisdom: that if there is a life force operating in Nature, still there is nothing so analogous in a bureaucracy. Nothing so mystical. It all comes down, as it must, to the desires of men. Oh, and women too of course, bless their empty little heads. But survival depends on having strong enough desires—on knowing the System better than the other chap, and how to use it. It’s work, that’s all it is, and there’s no room for any extrahuman anxieties—they only weaken, effeminize the will: a man either indulges them, or fights to win, und so weiter. “I do wish ICI would finance part of this,” Pointsman smiles. “Lame, lame,” mutters the younger Dr. Groast. “What’s it matter?” cries Aaron Throwster. “If the old man gets moody at the wrong time this whole show can prang.” “Brigadier Pudding will not go back on any of his commitments,” Pointsman very steady, calm, “we have made arrangements with him. The details aren’t important.” They never are, in these meetings of his.

And as a long-short fund, he'd also been obligated to take short positions — betting against companies — which was a tactic that, to most experts in finance, was uncontroversial. The thinking went, when companies were performing poorly, or were mismanaged, or were in an industry that was being overrun, or were simply likely to fail, taking a short position wasn't just logical — it protected the marketplace by pointing out overpriced stocks, prevented fraud by acting as a check against dubious management, and poked holes in potential bubbles. Short sellers also added liquidity and volume to a stock — because they were obligated to buy the stock back at some point in the future. Yes, short sellers profited when companies failed, but usually a short seller wasn't banking on a company failing — just that the stock's price would eventually correct toward its true valuation. Sometimes, though, a trader picked up a short position because the company in question really was going to fail. Because, perhaps, it was in an industry that was dying; had management that seemed completely unable or unwilling to pivot; and had deep fundamental issues in its financing that seemed impossible to overcome.

Chang came in five minutes later, in the same jeans but a fresh T-shirt, her hair still inky with water from the shower. Her own jacket was pulled down on one side, by her own Smith. Like any ex-cop she looked around, the full 360, seven or eight separate snapshots, and then she moved through the room with plenty of energy, powered by what looked like enthusiasm, or maybe some kind of shared euphoria at their mutual survival through the night. She slid in alongside him. He said, “Did you sleep?” She said, “I must have. I didn’t think I was going to.” “You didn’t go meet the train.” “He’s a prisoner, according to you. And that’s the best-case scenario.” “I’m only guessing.” “It’s a reasonable assumption.” “Did you see the woman in 203?” “I thought she was hard to explain. Dressed in black, she could have been an investor or a fund manager or something else deserving of the junior executive routine. Her face and hair were right. And she has a key to the company gym. That’s for sure. But dressed in white? She looked like she was going to a garden party in Monte Carlo. At seven o’clock in the morning. Who does that?” “Is it a fashion thing? Someone’s idea of summer clothes?” “I sincerely hope not.

Which meant, if somehow GameStop did start to go up, the people who had shorted the company would begin to feel pressure to buy; the more the stock went up, the heavier that pressure became. As the shorts began to cover, buying shares to return them to their lenders, the stock would rise even higher. In financial parlance, this was something called a 'short squeeze.' It didn't happen often, but when it did, it could be spectacular. Most famously, in 2008, a surprise takeover attempt of the German automaker Volkswagen by rival Porsche drove Volkswagen's stock price up by a factor of 5 — briefly making it the most valuable company in the world — in two quick days of trading, as short selling funds struggled to cover their positions. Similarly, a battle between two hedge fund titans — Bill Ackman, of Pershing Square Capital Management, and Carl Icahn — led to a squeeze involving supplement maker — and alleged pyramid marketer — Herbalife, which cost Ackman a reported $1 billion. And perhaps the first widely reported short squeeze dated back a century, to 1923, when grocery magnate Clarence Saunders successfully decimated short sellers who had targeted his nascent chain of Piggly Wiggly grocery stores.

Within the huge trade unions, a similar managerial officialdom, the “labor bureaucracy” consolidates its position as an elite. This elite is sharply distinguished in training, income, habits and outlook from the ordinary union member. The trend extends to the military world, the academic world, the non-profit foundations and even auxilliary organizations of the U.N. Armies are no longer run by “fighting captains” but by a Pentagon-style managerial bureaucracy. Within the universities, proliferating administrators have risen above students, teaching faculty, alumni and parents, their power position expressed in the symbols of higher salaries and special privileges. The great “non-profit foundations” have been transformed from expressions of individual benevolence into strategic bases of managerial-administrative power. The United Nations has an international echelon of manager entrenched in the Secretariat. There are fairly obvious parallels in the managerial structures of the diverse institutional fields. For example, managers in business are stockholders as labor managers are to union members; as government managers are to voters; as public school administrators are to tax-payers; as university and private school administrators are to tuition payers and fund contributors.

In the wake of the Cognitive Revolution, gossip helped Homo sapiens to form larger and more stable bands. But even gossip has its limits. Sociological research has shown that the maximum ‘natural’ size of a group bonded by gossip is about 150 individuals. Most people can neither intimately know, nor gossip effectively about, more than 150 human beings. Even today, a critical threshold in human organisations falls somewhere around this magic number. Below this threshold, communities, businesses, social networks and military units can maintain themselves based mainly on intimate acquaintance and rumour-mongering. There is no need for formal ranks, titles and law books to keep order. 3A platoon of thirty soldiers or even a company of a hundred soldiers can function well on the basis of intimate relations, with a minimum of formal discipline. A well-respected sergeant can become ‘king of the company’ and exercise authority even over commissioned officers. A small family business can survive and flourish without a board of directors, a CEO or an accounting department. But once the threshold of 150 individuals is crossed, things can no longer work that way. You cannot run a division with thousands of soldiers the same way you run a platoon. Successful family businesses usually face a crisis when they grow larger and hire more personnel. If they cannot reinvent themselves, they go bust. How did Homo sapiens manage to cross this critical threshold, eventually founding cities comprising tens of thousands of inhabitants and empires ruling hundreds of millions? The secret was probably the appearance of fiction. Large numbers of strangers can cooperate successfully by believing in common myths. Any large-scale human cooperation – whether a modern state, a medieval church, an ancient city or an archaic tribe – is rooted in common myths that exist only in people’s collective imagination. Churches are rooted in common religious myths. Two Catholics who have never met can nevertheless go together on crusade or pool funds to build a hospital because they both believe that God was incarnated in human flesh and allowed Himself to be crucified to redeem our sins. States are rooted in common national myths. Two Serbs who have never met might risk their lives to save one another because both believe in the existence of the Serbian nation, the Serbian homeland and the Serbian flag. Judicial systems are rooted in common legal myths. Two lawyers who have never met can nevertheless combine efforts to defend a complete stranger because they both believe in the existence of laws, justice, human rights – and the money paid out in fees.

Shortly before our CFO’s pep talk, another high-level executive at the bank stopped me in the hall to give me what he considered some critical advice. “A lot of smart kids like you come through the bank, and they use it for a stepping stone,” he said. “They stay for a year or two and then they leave. I think that’s a huge mistake. Look at me: I’ve been here forever and I’m happier than anyone I know. This place rewards loyalty, and I’m good at my job because I’ve got my finger right on the pulse of the company. I know everything that’s going on.” A week later, I saw two workmen hauling boxes out of his office. He was a victim of the bank’s first-ever round of layoffs. I’m not trying to put this man down for his faith in the bank or make light of his unemployment. I want to use his story to make another point about failure in business. That chat reinforced something else I was beginning to learn: people in management positions, even very senior management positions, are often completely wrong about the fortunes of their own companies. More important, in making these misjudgments, they almost always err on the side of excessive optimism. They think their businesses are in much better shape than they actually are. Jerry’s rig utilization chart at Global Marine and our own CFO’s boasts about Joe DiMaggio only underscored this lesson for me at the time. And, three decades and over 1,400 meetings with other executives later, I can say this tendency is as pronounced as ever.

Hamilton argued that the security of liberty and property were inseparable and that governments should honor their debts because contracts formed the basis of public and private morality: “States, like individuals, who observe their engagements are respected and trusted, while the reverse is the fate of those who pursue an opposite conduct.”The proper handling of government debt would permit America to borrow at affordable interest rates and would also act as a tonic to the economy. Used as loan collateral, government bonds could function as money—and it was the scarcity of money, Hamilton observed, that had crippled the economy and resulted in severe deflation in the value of land. America was a young country rich in opportunity. It lacked only liquid capital, and government debt could supply that gaping deficiency. The secret of managing government debt was to fund it properly by setting aside revenues at regular intervals to service interest and pay off principal. Hamilton refuted charges that his funding scheme would feed speculation. Quite the contrary: if investors knew for sure that government bonds would be paid off, the prices would not fluctuate wildly, depriving speculators of opportunities to exploit. What mattered was that people trusted the government to make good on repayment: “In nothing are appearances of greater moment than in whatever regards credit. Opinion is the soul of it and this is affected by appearances as well as realities.” Hamilton intuited that public relations and confidence building were to be the special burdens of every future treasury secretary.

recalled Stephen Crocker, a graduate student on the UCLA team who had driven up with his best friend and colleague, Vint Cerf. So they decided to meet regularly, rotating among their sites. The polite and deferential Crocker, with his big face and bigger smile, had just the right personality to be the coordinator of what became one of the digital age’s archetypical collaborative processes. Unlike Kleinrock, Crocker rarely used the pronoun I; he was more interested in distributing credit than claiming it. His sensitivity toward others gave him an intuitive feel for how to coordinate a group without trying to centralize control or authority, which was well suited to the network model they were trying to invent. Months passed, and the graduate students kept meeting and sharing ideas while they waited for some Powerful Official to descend upon them and give them marching orders. They assumed that at some point the authorities from the East Coast would appear with the rules and regulations and protocols engraved on tablets to be obeyed by the mere managers of the host computer sites. “We were nothing more than a self-appointed bunch of graduate students, and I was convinced that a corps of authority figures or grownups from Washington or Cambridge would descend at any moment and tell us what the rules were,” Crocker recalled. But this was a new age. The network was supposed to be distributed, and so was the authority over it. Its invention and rules would be user-generated. The process would be open. Though it was funded partly to facilitate military command and control, it would do so by being resistant to centralized command and control. The colonels had ceded authority to the hackers and academics. So after an especially fun gathering in Utah in early April 1967, this gaggle of graduate students, having named itself the Network Working Group, decided that it would be useful to write down some of what they had conjured up.95 And Crocker, who with his polite lack of pretense could charm a herd of hackers into consensus, was tapped for the task. He was anxious to find an approach that did not seem presumptuous. “I realized that the mere act of writing down what we were talking about could be seen as a presumption of authority and someone was going to come and yell at us—presumably some adult out of the east.

...the centrality of competitiveness as the key to growth is a recurrent EU motif. Two decades of EC directives on increasing competition in every area, from telecommunications to power generation to collateralizing wholesale funding markets for banks, all bear the same ordoliberal imprint. Similarly, the consistent focus on the periphery states’ loss of competitiveness and the need for deep wage and cost reductions therein, while the role of surplus countries in generating the crisis is utterly ignored, speaks to a deeply ordoliberal understanding of economic management. Savers, after all, cannot be sinners. Similarly, the most recent German innovation of a constitutional debt brake (Schuldenbremse) for all EU countries regardless of their business cycles or structural positions, coupled with a new rules-based fiscal treaty as the solution to the crisis, is simply an ever-tighter ordo by another name. If states have broken the rules, the only possible policy is a diet of strict austerity to bring them back into conformity with the rules, plus automatic sanctions for those who cannot stay within the rules. There are no fallacies of composition, only good and bad policies. And since states, from an ordoliberal viewpoint, cannot be relied upon to provide the necessary austerity because they are prone to capture, we must have rules and an independent monetary authority to ensure that states conform to the ordo imperative; hence, the ECB. Then, and only then, will growth return. In the case of Greece and Italy in 2011, if that meant deposing a few democratically elected governments, then so be it. The most remarkable thing about this ordoliberalization of Europe is how it replicates the same error often attributed to the Anglo-American economies: the insistence that all developing states follow their liberal instruction sheets to get rich, the so-called Washington Consensus approach to development that we shall discuss shortly. The basic objection made by late-developing states, such as the countries of East Asia, to the Washington Consensus/Anglo-American idea “liberalize and then growth follows” was twofold. First, this understanding mistakes the outcomes of growth, stable public finances, low inflation, cost competitiveness, and so on, for the causes of growth. Second, the liberal path to growth only makes sense if you are an early developer, since you have no competitors—pace the United Kingdom in the eighteenth century and the United States in the nineteenth century. Yet in the contemporary world, development is almost always state led.

Was this luck, or was it more than that? Proving skill is difficult in venture investing because, as we have seen, it hinges on subjective judgment calls rather than objective or quantifiable metrics. If a distressed-debt hedge fund hires analysts and lawyers to scrutinize a bankrupt firm, it can learn precisely which bond is backed by which piece of collateral, and it can foresee how the bankruptcy judge is likely to rule; its profits are not lucky. Likewise, if an algorithmic hedge fund hires astrophysicists to look for patterns in markets, it may discover statistical signals that are reliably profitable. But when Perkins backed Tandem and Genentech, or when Valentine backed Atari, they could not muster the same certainty. They were investing in human founders with human combinations of brilliance and weakness. They were dealing with products and manufacturing processes that were untested and complex; they faced competitors whose behaviors could not be forecast; they were investing over long horizons. In consequence, quantifiable risks were multiplied by unquantifiable uncertainties; there were known unknowns and unknown unknowns; the bracing unpredictability of life could not be masked by neat financial models. Of course, in this environment, luck played its part. Kleiner Perkins lost money on six of the fourteen investments in its first fund. Its methods were not as fail-safe as Tandem’s computers. But Perkins and Valentine were not merely lucky. Just as Arthur Rock embraced methods and attitudes that put him ahead of ARD and the Small Business Investment Companies in the 1960s, so the leading figures of the 1970s had an edge over their competitors. Perkins and Valentine had been managers at leading Valley companies; they knew how to be hands-on; and their contributions to the success of their portfolio companies were obvious. It was Perkins who brought in the early consultants to eliminate the white-hot risks at Tandem, and Perkins who pressed Swanson to contract Genentech’s research out to existing laboratories. Similarly, it was Valentine who drove Atari to focus on Home Pong and to ally itself with Sears, and Valentine who arranged for Warner Communications to buy the company. Early risk elimination plus stage-by-stage financing worked wonders for all three companies. Skeptical observers have sometimes asked whether venture capitalists create innovation or whether they merely show up for it. In the case of Don Valentine and Tom Perkins, there was not much passive showing up. By force of character and intellect, they stamped their will on their portfolio companies.

gave up on the idea of creating “socialist men and women” who would work without monetary incentives. In a famous speech he criticized “equality mongering,” and thereafter not only did different jobs get paid different wages but also a bonus system was introduced. It is instructive to understand how this worked. Typically a firm under central planning had to meet an output target set under the plan, though such plans were often renegotiated and changed. From the 1930s, workers were paid bonuses if the output levels were attained. These could be quite high—for instance, as much as 37 percent of the wage for management or senior engineers. But paying such bonuses created all sorts of disincentives to technological change. For one thing, innovation, which took resources away from current production, risked the output targets not being met and the bonuses not being paid. For another, output targets were usually based on previous production levels. This created a huge incentive never to expand output, since this only meant having to produce more in the future, since future targets would be “ratcheted up.” Underachievement was always the best way to meet targets and get the bonus. The fact that bonuses were paid monthly also kept everyone focused on the present, while innovation is about making sacrifices today in order to have more tomorrow. Even when bonuses and incentives were effective in changing behavior, they often created other problems. Central planning was just not good at replacing what the great eighteenth-century economist Adam Smith called the “invisible hand” of the market. When the plan was formulated in tons of steel sheet, the sheet was made too heavy. When it was formulated in terms of area of steel sheet, the sheet was made too thin. When the plan for chandeliers was made in tons, they were so heavy, they could hardly hang from ceilings. By the 1940s, the leaders of the Soviet Union, even if not their admirers in the West, were well aware of these perverse incentives. The Soviet leaders acted as if they were due to technical problems, which could be fixed. For example, they moved away from paying bonuses based on output targets to allowing firms to set aside portions of profits to pay bonuses. But a “profit motive” was no more encouraging to innovation than one based on output targets. The system of prices used to calculate profits was almost completely unconnected to the value of new innovations or technology. Unlike in a market economy, prices in the Soviet Union were set by the government, and thus bore little relation to value. To more specifically create incentives for innovation, the Soviet Union introduced explicit innovation bonuses in 1946. As early as 1918, the principle had been recognized that an innovator should receive monetary rewards for his innovation, but the rewards set were small and unrelated to the value of the new technology. This changed only in 1956, when it was stipulated that the bonus should be proportional to the productivity of the innovation. However, since productivity was calculated in terms of economic benefits measured using the existing system of prices, this was again not much of an incentive to innovate. One could fill many pages with examples of the perverse incentives these schemes generated. For example, because the size of the innovation bonus fund was limited by the wage bill of a firm, this immediately reduced the incentive to produce or adopt any innovation that might have economized on labor.