Bright-Sided (25 page)

While secular positive-thinking texts encouraged people to “manifest” their material desires, pastors like Osteen and Dollar were insisting that God
wants
you to have the all good things in life, including a beautiful home. In
Your Best Life Now,
Joel Osteen had written about his initial resistance to his wife’s pleadings that they upgrade to a large and “elegant” house: “Over the next several months, she kept speaking words of faith and victory, and she finally talked me into it. . . . I don’t believe it would have happened if Victoria had not talked me into enlarging my vision. God has so much more in store for you, too.”
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A 2008 article in
Time
, provocatively titled “Maybe We Should Blame God for the Subprime Mortgage Mess,” cited the suspicions of several experts on American religion about the role of prosperity preachers in fomenting the financial meltdown. Jonathan Walton, a religion professor at the University of California at Riverside, argued that pastors like Osteen reassured low-income people with subprime mortgages by getting them to believe that “God caused the bank to ignore my credit score and bless me with my first house.” Anthea Butler, an expert on Pentecostalism, added: “The pastor’s not gonna say, ‘Go down to Wachovia and get a loan,’ but I have
heard, ‘Even if you have a poor credit rating, God can still bless you—if you put some faith out there [that is, make a big donation to the church], you’ll get that house or that car or that apartment.’ ”
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To Kevin Phillips, the connection between positive thinking and the subprime crisis seems obvious. In
Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism,
he indicts prosperity preachers Osteen, T. D. Jakes, and Creflo Dollar, along with
The Secret
author Rhonda Byrne.
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To many people who had long been denied credit on account of their race or income, the easy mortgages of the middle of the decade must have indeed come as a miracle from God. Dean Baker, one of the few economists who foresaw the bursting of the housing bubble, reports that in 2006 the dicey subprime and Alt-A categories of mortgages had expanded to 40 percent of total mortgages—many of them requiring little or no income documentation or down payment.
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No wonder that within a year more and more Americans were finding themselves in over their heads. Household debt hit a record 133 percent of household income, for an absolute amount of about $14 trillion.
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Personal bankruptcy filings jumped by 40 percent in the course of 2007 alone.
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People who were unprepared for their adjustable mortgages’ rate increases started defaulting, often moving out in the dead of night to avoid their neighbors’ stares.

But the gullibility and optimism of ordinary individuals go only so far in explaining the financial crisis.
Someone
was offering tricky mortgages to people of dubious means, someone was bundling up those mortgage debts and selling them as securities to investors throughout the world—someone who was expecting to make sizable profits by doing so. As
Washington Post
columnist Steven Pearlstein has written: “At the heart of any economic or financial mania is an epidemic of self-delusion that infects not only large numbers of unsophisticated investors but also many of
the smartest, most experienced and sophisticated executives and bankers.”
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In fact, the recklessness of the borrowers was far exceeded by that of the lenders, with some finance companies involved in subprimes undertaking debt-to-asset ratios of 30 to 1.
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Recall that American corporate culture had long since abandoned the dreary rationality of professional management for the emotional thrills of mysticism, charisma, and sudden intuitions. Pumped up by paid motivators and divinely inspired CEOs, American business entered the midyears of the decade at a manic peak of delusional expectations, extending to the highest levels of leadership.

One exemplar of the fashionable nonrational approach to management was Joe Gregory, former president of the former investment company Lehman Brothers. According to a 2008 article in
New York
magazine, Gregory was known as a “warm and fuzzy” person, a good golf companion, and, as Gregory himself put it, a “Feeler” with a capital F. Not for him the tedium of detailed risk analysis. “He was Mr. Instinct,” in the words of another Lehman executive. “Trusting your instincts, trusting your judgment, believing in yourself . . . and making decisions on the back of that trust is a remarkably powerful thing,” Gregory had said in a speech to one group, even when that instinct contradicted rational analysis. Sometimes, Gregory’s hunches would lead Lehman to “decide that we should be doing the exact opposite of what the analysis said,” according to one analyst.
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In April 2008, I interviewed one of the few dissenters from the prevailing positive-thinking consensus. Eric Dezenhall is a Washington, D.C., “crisis manager”—someone companies call in when faced with a potential public relations disaster. A short, blunt, intense man with an impeccable Republican background (he was an intern in the Reagan administration), Dezenhall has often found himself at odds with his own clients: “A lot of corporate types
don’t want to hear what I have to tell them.” In fact, he said, it can be a “career ender” to be the bearer of bad news. However dire the situation, “corporate America desperately wants to believe there’s a positive outcome and message.” When called in by companies to deal with a crisis, he starts by telling them, “I’m going to tell you something you’re not going to like: ‘A crisis is
not
an opportunity.’ ” I asked him whether he thought corporate decision makers went so far as to embrace the “law of attraction,” or the idea that you can control the world with your thoughts, and he replied that this way of thinking was “viral” in corporate America. “They believe this stuff. Corporations can be ruthless about making money, but when it comes to being realistic . . .”

The once sober finance sector was not immune to the “virus” of positive thinking. Finance companies hired motivational speakers and coaches like Tony Robbins, who boasted to Larry King in 2008 that he’d “had the privilege of coaching one of the top 10 financial traders in the world for 16 years” and was currently consulting to a group of traders including “the smartest minds around.”
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Some finance companies even generated their own motivational speakers. Chris Gardner, for example, whose account of his rise from homelessness to a top-earning position at Bear Stearns—
The Pursuit of Happyness
—became a best seller and a Hollywood movie, is a popular motivational speaker. Another motivational speaker, Chuck Mills, spent several years with Bear Stearns as a trader for a $300 million portfolio before going on to found his own financial services firm and speaking business. So profound was the optimism of the finance sector that, when the crisis hit in 2008, Merrill Lynch suddenly found itself having to “temper the Pollyannas in its ranks” and force its analysts to occasionally say the word “sell.”
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Or consider the somewhat tipsy case of Countrywide Mortgage, the company whose rash lending practices almost singlehandedly
set off the subprime crisis that preceded the global credit meltdown. In 2004, Countrywide’s CEO, Angelo Mozilo, ever smiling through his bright orange tan, had been the recipient of the Horatio Alger Award as “an individual who has emerged from humble beginnings to prove that hard work, determination and positive thinking are key to successfully achieving the American dream.”
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Even as his company’s stock plummeted in early 2008, the press consistently found him “optimistic” and “upbeat.” Bruce C. N. Greenwald, a finance professor at Columbia Business School, said of Mozilo: “People who get themselves in trouble are good at self-hypnosis. That is why they are such good salesmen—they convince themselves about the story. . . . And he had lived in a world where there had been no defaults for so long that he didn’t believe they could happen.”
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The same happy conviction prevailed throughout the company during its years of glad-handed lending. In a tell-all book about his time as a senior vice president at Countrywide, Adam Michaelson describes the “marginally cultish behavior” at the company, characterized by what he calls a “woo” culture of high fives, motivational speakers, and loud “woo” cheers. When, in 2004, he questioned the assumption of ever-rising housing prices, he was told, “You know what? You worry too much.” Even as the subprime mortgage market imploded, he writes, the woo culture prevailed: “These are the times when that one person who might respond with a negative comment or a cautious appraisal might be the first to be ostracized. There is a great risk in noncomformity in any feverishly frothy environment like that.”
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Interestingly, among the motivational speakers I could find listing Countrywide as a client was Buford P. Fuddwhacker (actually the fictional alter ego of the real motivational speaker Roger Reece), who is described as “a down-home motivational speaker who brings the fervor and energy of a fired-up country preacher to the platform. When you unleash Buford
on your audience, get ready for music, laughter, kazoos, karaoke, and outrageous audience participation.”

In a remarkable essay entitled “The End of Wall Street’s Boom,” business writer Michael Lewis provides a glimpse into how positive thinking turned toxic on Wall Street. He set out to find insiders who had anticipated the disaster, and, not surprisingly, some of the people he found had been under pressure over the years to improve their attitude. Ivy Zelman, an analyst at Credit Suisse who foresaw the bursting of the housing bubble, “alienated clients with her pessimism, but she couldn’t pretend everything was good.” Another analyst, banking expert Steve Eisman, faced criticism for putting a “sell” rating on a company because, as Lewis quotes him, “it was a piece of shit. I didn’t know that you weren’t supposed to put a sell rating on companies. I thought there were three boxes—buy, hold, sell—and you picked the one you thought you should.” He was, in other words, a holdover from a more rational approach to business, when the job of midlevel people was not just to soothe or flatter the men at the top. Lewis relates that Eisman “was pressured generally to be a bit more upbeat, but upbeat wasn’t Steve Eisman’s style. Upbeat and Eisman didn’t occupy the same planet.”
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When I talked to Eisman by phone a couple of weeks after Lewis’s article came out, he said the finance industry had “built assumption on top of assumption”—such as that housing prices would never fall—and that “no one saw any reason to question those assumptions.” There was a good reason to remain silent about the enveloping madness, he told me: “Anybody who voiced negativity was thrown out.”

One such martyr to the cause of financial realism was Mike Gelband, who ran the real estate division of Lehman Brothers. At the end of 2006, Gelband was getting nervous about what looked increasingly like a real estate bubble. “The world is changing,” Gelband told Lehman CEO Richard Fuld during his 2006 bonus
review. “We have to rethink our business model.” Fuld promptly fired the misfit and, two years later, Lehman went bankrupt.
New York
magazine reports that, as of late 2008, Fuld still had not absorbed what Gelband was trying to tell him:

At night, Fuld has trouble sleeping. Most of the time, he lives in Greenwich, Connecticut, in one of his five houses. He can wander through the twenty rooms, eight bedrooms, the poolhouse, tennis court, squash court. Mostly, he sits and replays Lehman’s calamitous end. “What could I have done differently?” he thinks. . . . How, he wonders, did it all go so disastrously wrong?
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Or we might cite the case of Armando Falcon, a government official charged with oversight of Fannie Mae and Freddie Mac. When he issued a report in 2003 warning that the two mortgage giants were in parlous financial condition that could result in “contagious illiquidity in the market”—that is, a general financial meltdown—the White House tried to fire him.
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It’s almost impossible to trace the attitudes of failed titans like Fuld to particular ideologues of positive thinking—the coaches and motivators who advise, for example, that one purge “negative people” from the ranks. Among top executives, there’s a degree of secretiveness about the use of coaches. In the UK, for example, an estimated one-third of CEOs of FTSE 100 companies used personal coaches in 2007, but as a writer in the
Spectator
commented, “Consulting a coach is still regarded by senior businesspeople as private and absolutely not something to declare openly.”
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More likely, though, a top guy like Fuld didn’t need anyone whispering in his ear that he could have anything he wanted, if only he concentrated on it hard enough. At $60 million a year—his average
compensation between 2000 and 2008—this was already his reality, without his even having to concentrate.

Corporate leaders, in the finance sector and elsewhere, had ascended into a shimmering bubble of wealth floating miles above the anxieties and cares of everyone else. Between 1965 and 2000, the ratio of CEO pay to that of a typical worker soared from 24:1 to 300:1, and the gap also widened between the CEO and his or her third in command.
28
Robert Frank documented the fabulous wealth at the top in his book
Richistan: A Journey through the American Wealth Boom and the Lives of the New Rich.
If, for example, you were in your Palm Beach home and found that you’d left the Château Latour in your Southampton wine cellar, a private jet could be dispatched to fetch it.
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Take the case of Jack Welch, whom we last saw in chapter 4, mowing down middle-class jobs. He retired from GE with a monthly income of $2.1 million, as well as the use of a company-provided Boeing 737 and an $80,000-a-month Manhattan apartment, in addition to free security guards for his various homes.
30
On one postretirement trip to London, the
Independent
found him “installed in the suite of suites in the Lanesborough Hotel overlooking Hyde Park. Dark-suited flunkies with little GE lapel pins stand around looking menacing. One or two have earpieces and curly wires going back down their necks, like G-men protecting the President.”
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