April 23, 2019 • 42 mins
The authenticator ref absolves everyone of blame. And sometimes generates money out of thin air.
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Episode Transcript
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Speaker 1 (00:15):
Pushkin, and so ladies and gentlemen, we moved to the
Leonardo da Vinci the Sabotomunday, the masterpiece by Leonardo of
Christ's Savior, previously in the collections of three Kings of England,
art at ninety million, being auctioned, the parting of rich
people from their money, and I go one over. It
(00:38):
takes me back to the early nineteen eighties and my
first job after college. I was the stock boy for
a New York art dealer called Wildenstein. Just about everything
about the place felt like a secret, except for how
it had started. At the end of the nineteenth century,
a Jewish street peddler in Paris named Nathan Wildenstein traded
rags for paintings with some odd ball artists. They called
(01:01):
themselves the Impressionists. He did this so well that by
the time I got to the Wildenstein's the family had
the most valuable private collection of art in the world.
Huge vaults lined with racks of Monais and Renoirs and
Pizarros that no one had ever seen. They had Rembrandts,
(01:21):
they had Raphael's, They had sixty nine Fragonards. Today the
whole collection would fetch fifty billion dollars easily, but it
was a strange business selling art so guarded the Wildenstein
family didn't even really want customers to know what they
had for sale. To keep their tax status as a
(01:42):
public gallery, they stuck a few obscure paintings on the
downstairs walls. The rest they kept hidden upstairs with me.
And so when people asked me what I actually did
for the Wildenstein Gallery, I found it hard to explain.
One of my predecessors had put his foot through us
is on. Clearly my job was not to do that.
(02:04):
But most of the time I just sat in a
small cubby upstairs and waited to be asked to move
the art around. There was the aroma of Cologne worn
by rich Frenchmen, but otherwise the place was a sensory
deprivation chamber. Weeks would pass without anyone showing up. Then
one day Thomas Hoving appeared. Hoving had just spent a
(02:28):
decade running the Metropolitan Museum of Art and was still
a huge deal in the art world. The Wildenstein's told
me to show him whatever he wanted to see. No
one else got that sort of treatment. Hoving trusted his
first impressions. Actually, that's not quite right. He made a
fetish of his first impressions. As I hauled paintings in
(02:51):
and out of the viewing room, he stood with his
back to me. He refused so much as to glimpse
the pictures until I had them set up on the easel.
I grunt and groan under some laughing cavalier by Franz Halls,
and hoisted onto the red velvet easel. Then I'd say ready,
and he'd swivel kind of like a gunfighter, and blurt
(03:12):
whatever popped into his head, sublime, luminous nineteenth century copy,
and every now and then he'd swivel in holler. Fake
life in the art world had made Thomas Hoving wary.
As he stood in front of art works in the
Wildenstein Vault, he told me that half the paintings in
(03:34):
American museums were not by the person whose name was
on the wall. They were by someone else, an assistant,
a follower, a forger. Hoving said that was the point
of all the secrecy, to hide the way the art
world really worked, And the way it worked was that
the referees in the art market, the experts, who declared
(03:55):
a painting was by this old master or that one.
Those experts were encouraged to make mistakes. A ref who
attributed a painting to a famous artist was paid a
lot better than a ref who said it was by
some obscure assistant. Hoving may have been the single savvaus
player the art market has ever seen. By my time
(04:15):
at Wildenstein, he was representing private collectors and he didn't
want his clients to be fleeced. He trusted his first
impressions because there was nothing else to trust. The art world,
more or less was rigged. That's what he was saying,
and the referees helped to rig it. The rests were
(04:36):
paid to say, yes, yes, it's a Rembrand, Yes it's
a mone Yes it's a Leonardo. Where is that? One
fifty welcome at one hundred fifty million On the left,
one sixty might take it at one hundred and fifty million.
Many places. Still, I'm Michael Lewis, and this is against
(04:57):
the rules, A show about the attack on the authority
of the referees in American life and what that's doing
to our idea of fairness. Minute these two hundred been
in his bid, give me ten at two hundred mien.
In his bid two hund have been in his here
currently hanging with Alex on my right at two hundred
(05:18):
million or Leonardo at two hundred million for two tens,
so you're coming back in at two hundred forty millions.
Connoisseurs used to be the ultimate arbitrary, especially in legal cases.
Even this is Walter Isaacson. He's written books about Ben
(05:39):
Franklin and Albert Einstein and Steve Jobs, and now he's
written about Leonardo da Vinci and told the story of
this mysterious painting supposedly by Leonardo of Jesus Christ. Walter's
interested in who gets to decide who painted what and
how they decide the art refs. They would bring in
(06:00):
Thomas Hoving or people like that, and they would make
a pronouncement and then just not not brook any descent
till ever, as it happens, Walter and I went to
the same high school in New Orleans. He was eight
years ahead of me. Every couple of years, the entire
student body of the Isidore Newman School would be herded
(06:21):
into the school auditorium to hear Walter speak. There we
were told all over again that we should all be
a bit more like Walter and every time Walter had
some new achievement. First had gone to Harvard, then had
been a Rhodes scholar, then had been the youngest editor
ever at Time magazine. God knows if that was even true,
(06:44):
but that's what they told us. And here he and
I are again. He's somehow now written the best biography
of Leonardo da Vinci, which brings us to this painting
called Salvador Mundi and a question who painted it. There
are a few facts you need to know about the
Salvador Mundi. The first is that it depicts a common
(07:06):
subject in the history of Western art, Christ as the
Savior of the World, been painted thousands and thousands of
times in more or less the same way. Jesus, looking
bored or even a bit stoned, stares straight ahead. His
left hand holds a globe and his right hand is
held up by his side. In the version I'm talking about,
(07:28):
Jesus has his fingers crossed, like maybe he's just fibbing.
The second thing you need to know about this particular
painting called Salvador Mundi. It was auctioned by Christie's in
November two and seventeen. Up to that point, there was
no record of Leonardo da Vinci having painted it. Most
paintings by Leonardo can be linked to documents that describe
(07:51):
Leonardo working on it, or promising to work on it,
or at least pretending to work on it. He painted
so little and so reluctantly that whatever he did paint
usually struck his contemporaries as worth mentioning the Salvador Mundi
has got nothing, not so much as a footnote. In
Leonardo's diaries, one of Leonardo's assistants mentions Leonardo being asked
(08:15):
to paint something called Christ the Father, and that's it.
Last thing. Most of Leonardo's paintings have his actual fingerprints
on them. He liked to smudge the paint. Are there
any fingerprints on the Salvador Monday Is or anybody? Now? Well,
now there's no Leonardo fingerprint that authenticates it now. The
(08:37):
first mention of what might be the painting comes in
sixteen fifty one, that's one hundred and thirty two years
after Leonardo died. A piece of Christ done by Leonardo
was listed along with the rest of Charles the First's
possessions after he was beheaded in London for treason, but
(08:58):
it's unclear exactly which piece of christ it was. Around
the same time, a check artist named Wenceslaus Holler made
an engraving of Jesus as Savior of the World. That
engraving was said to be a copy of a Leonardo,
But that engraving also looks like any number of Salvador Mundi's.
(09:18):
It was a genre by this point, and if anyone
back in those days had any conviction that Leonardo painted
this particular Salvador Mundi, they did a really good job
of hiding their feelings. Meanwhile, the painting that Christie's eventually sold,
that got tossed around for years as if it had
no special value. Right through the eighteenth and nineteenth centuries,
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the picture was identified as the work of someone called
Bernardino Luini, then later as the copy of a work
by someone else called Boltraffio, and no one really bothered
to keep track of it. By the nineteen fifties it
was officially lost. Oh but it wasn't lost. It was
(10:01):
in New Orleans, hanging, just a short walk from the
houses where Walter and I live, right through our childhoods.
It had been bought in the late nineteen fifties in
London for forty five pounds by a New Orleans couple
named Warren and Minnie Koots. The Koots has lived on
the same street as my parents, six blocks away. Every
(10:22):
day for roughly eight years, I rode my bicycle to
school past this mysterious painting. Who knew? Not me, not Walter,
no one anyway. Warren and Mini Koonts died and left
their art collection to their nephew in two thousand and four.
The nephew died and his heirs sold it through a
(10:42):
New Orleans auction house. That's where a New York art dealer,
Robert Simon, paid ten thousand dollars for It's hard to
say what it was. It was a severely damaged torso
and head of a sad looking stoner holding a crystal orb. Yeah,
it started with Robert Simon and a couple of the
dealers who kind of found it, had a sense of
(11:05):
what it might be. Then they have it cleaned, cleaned,
I mean, exactly did they do well? They overcleaned it
and overrestored it. Many critics would say, the question is
how many current brush drugs on that piece of wood
actually were from a brush being held by the hand
of Leonardo and I suspect not many, because you know,
(11:30):
probably done by artists in the studio, and certainly the
restoration when it was found in Louisiana, Jesus had a beard,
so they take the beard off of him in the
restoration because the lencis lost Holler copy done three or
four centuries ago didn't have a beard, so when they
restore it, they take the beard off. So it begins
(11:52):
to get more amusing. Maybe, But even after the Salvador
Mundi has been repainted to feel more like a Leonardo,
it still doesn't feel much like a Leonardo. For example,
the crystal orb is a real problem, at least if
you want to believe Leonardo hated it. Reading your book,
the person I'm reading about would revel in showing the
(12:15):
optical effects of the clear globe on the other side
of the globe, and he doesn't do that right, And
that's a bit of a mystery what you have. There
is a crystal orb that Jesus is holding, and a
crystal as Leonardo very well knew because he studied lenses
and the focusing of light would have distorted the robe
(12:37):
of Jesus. And yet there's not the tiniest bit of
distortion in the robes of Jesus. But what the restorer
does to the painting may be less important than what
she doesn't do. This would be the moment to test
the paint to see if it's the sort of stuff
that Leonardo used, to test the wood to see how
(12:58):
old it is, and to do this out in the open.
The people who had this painting, the dealers who discovered
it and would try to authenticate it. They had it
restored by stores, but all done in secret. It wasn't
as if we have what we think as a Leonardo
and we want a hundred experts in and we're going
to invite television crews in and scientists and as we
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strip off parts of the paint and take his beard
off and repaint some of the strokes. That would have
been a period where you probably could have had more
independent scientific and technical analysis. But I think they were
keeping it under wraps, and for reasons I understand but
aren't totally perfect reasons. What would be the good reason
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to do that. I think that they wanted to keep
it under wraps because they hadn't finished authenticating, They hadn't
put it up for sale. It's pretty great, you find
this painting in Louisiana. You really hope it's a Leonardo,
so you can sell it as a Leonardo. But the
smart way to do this is to keep it in
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hiding for a while. Then they first go to the experts,
the referees, and only now after the painting has been
gussied up by its new owners do the authenticators get involved,
but not openly. The new owners don't just call in
any referee who might have something useful to say about
Leonardo era paintings. After Jesus has been repainted heavily and
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he looks a lot more like a Leonardo than he
did before, the new owners hand pick the refs. They
want to see the painting in a way that makes
the refs feel like they're being invited into an exclusive club.
They send them this note saying, we are convinced that
it is Leonardo's original version, although some of us consider
that there may be parts which are by the workshop.
(14:48):
Would you be free to come to London at any
time in this period. We are only inviting two or
three scholars, Only two or three scholars. That wasn't against
the rules reenactment. By the way, one of the authenticators
later declares the painting look to him uniquely Leonardo in
conceptual terms, in the way it looked at, the sheer
(15:10):
complexity of seeing what stands out for me. No one
seems to object to these authenticators assessing the painting in
the presence of people with a financial stake in their judgments,
and by the time the scholars show up, the stakes
are huge. If two or three refs declare the picture
of Leonardo, it will be included in a blockbuster Leonardo
(15:33):
show at the National Gallery in London, and the experts declare, yes,
it's a Leonardo. Well that's not a queuing at one
o'clock this morning, blinds. I think there was seven hundred
when we've got here, people camping out on museum steps
for a spot. But they all seem perfectly happy to
que videos on the National Gallery's website for years to come.
(15:54):
There are all people who go to expersitions like this
page to contact with a genius from the pasture. So
that was the twenty eleven show at the National Gallery.
And guess what happens after it. The Salvador Mundi is
sold in secret to a Russian billionaire for one hundred
(16:17):
and ten million dollars. The Russian billionaire sticks it in
a Swiss warehouse for a few years and then puts
it up for auction at Christie's. For those of you
following online, you may not have heard it. The bid
was three hundred and fifty was called on the telephone
at three hundred and fifty million for Leonardo Salvador Monday
at three hundred and fifty million, Harry Christie's at three
(16:38):
hundred and fifty million, and looking for another bid, Police
Francois at three fifty. When that painting was being sold,
you didn't hear whispers of doubt. It was definitely by Leonardo.
By the time it was sold. Yeah, well, they did
a very good publicity job, and even I was on
some panels that they organized, and you know, they rolled
(17:00):
it out beautifully and brought it to San Francisco, and
Leonardo DiCaprio looked at it, and you know, it was
very well handled, not just the going through the traps
of authentication, but also the publicity traps. And then I
realized this wasn't because it was even Leonardo or because
(17:20):
of the inherent value of the painting. It was because
it was called the last Leonardo was the way they
marketed this at the auction. The point isn't whether or
not this particular Salvadroom Monday is a Leonardo. I have
no idea if a brush attached to the hand of
Leonardo da Vinci was responsible for any of the strokes
on the thing. The point is that no one else
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does either. There is no good evidence one way or
the other, only the opinions of a few refs, and
the refs are clearly more compromised than you'd ideally want
such a person to be. You know, you have many
ways of making money off of you get to write
the book, the catalog. If it turns out to be
a Leonardo, it's much better than saying, hey, no, no,
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that's just a twentieth century fake. They may or may
not have been paid directly for their opinions, but they
do much better for themselves if they say, yes, yes,
it's a Leonardo. Until now, this entire podcast has been
about the death of the referee. Everywhere you turn you
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can find referees under assault. They're authority questioned, their expertise doubted.
But there's an exception. A certain kind of ref still
retains enormous power and prestige, the authenticator, the people who
are there to assure us that a thing is real.
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Once you start looking for these sorts of refs, you
see them everywhere, and the money they can manufacture more
or less out of thin air. Let's consider the market
for used cars just for a minute. So I buy
the car, I drive an off the lot. I'm not
(19:06):
doing anything crazy. Nothing happens to the car. Then I
can't sell the car for what it's worth. So that's
the point here. You have a case where a market
has disappeared. That's George Akerloff, professor of economics. He's famous
in part because he's married to Janet Yellen, who was
the Chairman of the Federal Reserve. But he's also famous
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for some thoughts he had on his own. Back in
the late nineteen fifties. A seemingly obvious question crossed his mind.
Why does a brand new car lose so much value
the moment it leaves the lot. It's the same car,
Why should it plummet almost instantly up till then? Economists
assume that buyers and sellers come to a transaction with
basically the same information, but with things like used cars.
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That's obviously not true. Maybe the buyer and seller don't
have the same information. You'd think that the seller has
more information than the buyer. The seller knows that that
car just yesterday went over that terrible bump and then
something else went wrong, and they immediately decided, Huh, I've
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had this car too long. I'm going to see if
I can sell it to somebody else. So Akerloff wrote
this paper called the Market for Lemons. It shows that
when the seller knows more than the buyer and the
buyer knows that, the buyer lowers the price he's willing
to pay, and he lowers it to the point where
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only the sellers of really crappy used cars are willing
to deal, causing the buyers to lower their prices even further.
It becomes a vicious cycle. Under the weight of all
those lemons, the market simply collapses. A trusted ref can
make this kind of market work by making the buyer
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feel protected from whatever secrets the seller might have, by
making the buyer feel like he's not getting a lemon.
There's no market for a badly damage painting of Jesus
Christ until a few art refs step in and say, yes,
it's Leonardo. The ref exists to restore the illusion that
there are no secrets. Now, you might think, why would
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a market in need of a neutral reff wind up
with a REF who actually isn't neutral? But look around
it happens a lot, just asks Steve Eisman. Although people
seem to know me as the big short Alah, Michael
Lewis Steve Correll played Heisman in the movie as a
character with such a gift for insulting Wall Street big
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shots that the people who work for him would go
to meetings just to watch. But the bigger point about
Heisman is that he didn't trust anyone, not even the refs,
and his distrust made him rich. The crash of two
thousand and eight gets called a housing crisis, but it
was more of a trust crisis. People trusted the ratings
agencies whose job was to evaluate the risk of subprime
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home loans, and they will give different letters to them,
so the best rating is triple A, which means the
probability of loss is almost zero. These ratings agencies, Moody's
and Standard and Poor. They were the refs whose calls
Eisman decided he didn't trust. And what pressures would there
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have been on a Moody's or a standard and poor
to r rate bonds triple A when maybe they weren't
going to be triple A. I mean, the pressure was
simply economic in the sense that you were paid multiples
more for rating that kind of stuff. So the more
of the stuff that you that you would do, the
more money you'd make. And if you didn't do it,
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and if you didn't do it, the guy who so
if Moody's said, you know what, I don't like this one,
I'm not going to rate it, SMP would do it.
The whole point of Moody's in SMP was to be
independent referees to judge the value of the stuff that
the Wall Street banks created. They were supposed to assess
the loans that were inside the bonds and then give
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those bonds a grade. Before the financial crisis, Eisman went
to S ANDP to ask one of its executives what
records she got from the banks. Well, we said to her,
was when in the process of creating the securitizations, don't
you get the loan tapes so that when you're doing
the ratings you have a better idea of what's in there.
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And she said we don't have access to that. And
I said, what do you mean you don't have access
to that. She says, well, the investment banks won't give
it to us, and I laugh. I said, what do
you mean they won't give it to you. You're the
ratings agencies. I had to give you what you want.
And she basically mumbled that if they had asked for it,
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they wouldn't get it, and then they would just walk
across the street and go to Moody's. So this surprised you.
I was shocked because it would have basically meant the
ratings agencies didn't have any better data than I did,
and that stunned me. Back in two thousand and eight,
when Wall Street was collapsing and Steve Eisman was making
(24:12):
a fortune, the problem was clear. The ratings agencies had
been bought and paid for by the game's most powerful players.
The ref's lack of independence had fueled a world historic
financial crisis. If someone had told you in I don't
know early two thousand and nine that the ratings agencies
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would be in the end unscathed by all this, that
they would there would be no reform of the structure
of the raidings agencies, and we'd be sitting here ten
years later, and that could be still being paid by
the banks to rate the bonds. Would you be surprised,
I'd be stunned. Stunned, because what's interesting is that there
have been massive changes that have taken place with respect
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to the banks. I mean truly massive. So then you
have this other piece, the referees of the securities that
were at the heart of the problem correct, and the
referees haven't been reformed. And why do you imagine that is?
You know, it's one of life's great mysteries, one of
life's great mysteries. Some things were reformed after the crisis
(25:14):
to fix Wall Street, but not the refs. Why would
this be? Why would a system prefer a bad ref
to a good one? Why would it want an authenticator
that doesn't authenticate? Eisman can't explain it, but Georgejakarloff can. Okay,
let's take a h somebody who has a very hard
(25:37):
time getting a mortgage. This person is very risky, but
that person's willing to pay a higher rate of interest
on that mortgage. So I buy that bad mortgage. I
don't mind the fact that the ratings agency it allows
me to buy that bad mortgage, because then when there's
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my regulators or my board of directors or my stockholders
or whatever, they can't blame me for the fact that
I bought that bad mortage, to say, oh, you bought this,
and then he's making these big profits. They can't blame me.
That's the role for the phony ref He absolves everyone
at the table of responsibility. The guy with the bad
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credit gets alone, the bank that buys alone gets a
high interest rate, the ratings agency blesses the deal. Everyone
seems to win. Here's the funny thing about referees just now.
The only place in the economy where they seem secure
is where they've been compromised, because once they've been compromised,
they're assured of at least one truly enthusiastic source of support.
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The people who control them think of it as a
rule of thumb. Find a happy referee, and you found
a problem. So we have a new rule where the
referees are happy and prosperous. They're probably helping to make
life less fair. But let's flip it around. Let's ask
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a question, what's a truth truly egregious example of unfairness
in American life, and are there any referees present at
that scene? And for years and years and years, Fortune
magazine would have a cover story every year saying who
gets paid how much? Very neutral, and then all of
a sudden, around nineteen ninety, they cover story saying it's
(27:28):
out of control. That's Nell Minno, who helped found something
called i SSSS stands for Institutional Shareholder Services. It was
supposed to be a neutral referee to prevent the people
who ran America's biggest corporations from abusing their power or
paying themselves too much. So when you've got basically the
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capital's favorite magazine telling you it's out of control, it's
out of control. And that was a fraction of what
it is today. Back in nineteen eighty, the typical corporate
CEO was paid roughly fifteen times what is average employee made. Now,
he's paid roughly four hundred times with the average worker
gets paid. CEOs looked around and they saw investment bankers
(28:13):
making tons of money, and they would say, these guys
work for me. I'm a captain of industry, I am
moving mountains. I should be making as much as they are.
And so they started making just tons and tons of money,
and it just kept escalating and escalating and escalating, and
these pay plans were incredibly complicated. So I was put
(28:33):
in a position of kind of referring CEO pay, except
it didn't have any real authority. Is there anybody in
the CEO pay world whose job it is to declare
pay packages fair for the company? Well, in theory, yeah,
I'm Jan Corps. I am a senior managing director and
region president for Pearlmyer, which is a compensation consulting firm.
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We get hired by companies to advise them on their
executive pay programs, their board of director pay, and all
of the corporate governance things that go along with that.
Jan Cores is an example of a referee that simply
didn't exist before CEO pay went nuts, the CEO pay consultant.
There's a part of the whole pay questions that I
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just don't get, and the part of it is the
idea that you need that extra you're ten million dollar man,
Those extra nine million dollars of carroty for making good
decisions and being smart and trying hard are necessary to
get a guy who's already ambitious and a type a
person to try hard, make good decisions, be smart. Nobody's
(29:41):
offering me ten million dollars to make a good decision
about you know what book I write Nextually, nobody's offering
most of the people in the company. They're just assuming
that everybody's going to try their hardests and make good decisions.
The idea that this particular class of human being needs
this giant reward in order to be smart, it's actually
(30:02):
quite damning about that class of human being. So she
was brave to talk to me. I don't want to
misrepresent her views, but I thought that maybe she might
talk about pearl Meyer as an authenticator of CEO pay packages.
I mean, in theory, the place exists to judge whether
the CEO's pay is a good deal for the company. Instead,
(30:22):
she wound up defending how much CEOs get paid. I
don't know, why do baseball players need that much money
just because they happen to be good. Don't they love baseball,
wouldn't they they play baseball for less money? They do?
They do, and they they do play baseball for less money,
so and they do try hard for less money. So
the answer is they don't need that much money. That yeah,
(30:44):
that's true. But that you don't get better performance out
of them because of the money. No one argues the
baseball players are better the more you pay them. In fact,
the argument you get in professional sports is if you
pay them a lot of money, they'll get lazy because
they don't need the money. They don't the money anymore.
So so exactly so, in fact, the best time to
have a baseball player is when you're not paying him
anything and you have the first six years of his
(31:06):
career and he's got a minimum salary and he's trying
to prove something. He's trying to prove something. So why
isn't it the same true of the CEO, where let's
keep him on a starvation diet until they prove something.
I was clearly making her a little uneasy. She didn't
have a lot of power here. She was brought in
by companies mainly to help keep their CEO's pay packages
off the front page of the Wall Street Journal. And
(31:27):
I guess the argument is is that by the time
they get to be the CEO, they're like the Aaron Rodgers,
right they have they've already been through their trial, they've
already done their proving and having gotten to that CEO level.
This is now where they get their reward, and they're
so valuable that you need to pay them this in
order to get them to do the job. Um, yeah,
(31:49):
you know, yeah, yes, and no. There's not a lot
of people that can hit one hundred mile an hour fastballs.
If you can do it, you can make a lot
of money. There's not a lot of people that can
run ten billion dollars companies. Maybe that's true. I don't
really know. They seem to be a lot of people
(32:09):
running big companies just fine, and a lot of others
who don't seem all that different from them who'd be
perfectly happy to do it too. I mean, how fragile
must the company be to so desperately need this one
incredibly special person to run it. But you know, it's
even harder to find than the incredibly special person who
can run a large company, a person who's willing to
(32:29):
referee them straight up. If you have any questions or
common it's regarding any of the four management proposals, please
go to the standing microphone. Like Mike Neo, Mike Mayo
has spent the last thirty years analyzing American banks. He
tells shareholders whether they should buy or sell their shares.
He sees it as his job to say about banks. Yeah,
(32:52):
that one really is a lemon. Back before the financial crisis,
Mayo saw that a lot of banks were making bad loans,
and he called them out publicly a long list. What
is the task of the board doing its homework to
ensure that city group has the best, most effective chairman?
That is a very good That's Mayo at a mic
in the Great Hall of the Congress Plaza Hotel in Chicago.
(33:15):
There's nothing really great about the Great Hall at the
Congress Plaza Hotel. It's not even a hall. The hotel
website says that it's perfect for a reception of twelve hundred,
but really it's more like a place to throw a
party to which you hope no one will come. I'm
a bit agnostic. I mean, I've seen I've seen the
plenty of companies where the CEO and the german are
(33:37):
On this day in June twenty eighteen, the Great Hall
holds only a few dozen people, mainly retirees, and no
Wall Street analysts except Mike Mayo. Mayo buys a single
share of stock in each Wall Street bank so that
he has the right to come to meetings like this
and grill the board of directors who sit on the stage.
(33:58):
Among the largest US banks, City had worst in class
returns among its piers in twenty seventeen. Yet City increased
the CEO paid by forty eight percent, and the grades
imply that's hot man has been got almost straight a's.
So why did disconnect here? Well? I think you know
(34:19):
companies at different times have to have different different jobs
to do. Would you say the City Group CEOs over
your during your tenure of watching them, have been better
at running the bank or at getting themselves paid? Wow?
City Group, what an example? I mean, this is an
extreme example of CEO pay in the bank industry or
corporate America generally. City Group CEOs over the last two
(34:43):
decades have gotten paid about more than any other bank
CEOs at the same time they've had the absolute worst
stock price performance over that period. When was the first
time you raised, you voiced any kind of complaint with
what a CEO was paid. Nineteen ninety four, I raised
(35:06):
a concern about the CEO of KeyCorp, saying that the
CEO is getting paid too much money in conjunction with
the mergery that they were doing. And my concern was
they did not disclose this information in a way that
people could readily see it. So when you said that,
how did they take it? They cut off all business
with the firm that I was working with. So when's
(35:28):
the next time you did such a thing. Well, then,
in the late nineteen nineties I wrote about compensation in
the banking industry, and some executives were paid too much,
and some CEOs were paid too much, and I thought
that was all fine until I got fired. The Wall
Street analyst who does his job and speaks up about
(35:49):
CEO pay is the analyst who keeps losing his job.
It doesn't make any sense until you realize that the
point of this ref is not to be independent. You're
on your seventh brokerage firm, my seventh brokerage firm, not
at a choice. Do young people ever come to you
and say, Mike, how do I be like you? And
keep my job? Every now and then, but not too often.
(36:12):
I think if I were to go about my career
the way I did starting thirty years ago, then I
think I'd have a hard chime keeping a job. Let's
recap step one. A market in need of a reff
just to survive because the seller might know something the
buyer does not the market for a used car, a
subprime mortgage, an old master painting, or, for that matter,
(36:35):
a CEO. Step two, the seller, in one way or
another captures the reff. Step three, the compromise reff becomes
a stable reff, a happy reff. He's an integral part
of the market and has enough powerful people on his
side that he makes a good living. He absolves both
(36:57):
buyer and seller of blame. Now we arrive at step
four when you hear the first creeks and groans of
a system about to crash under the weight of its
own stupidity. So who is Bernardino Luini? Bernardino Luini had
worked primarily in North Italy and had returned to Milan
in fifteen oh eight to set up studio practice and
(37:22):
paint in a number of churches thereafter, mainly doing frescoes.
Matthew Landrus is a Leonardo scholar at Oxford University that period.
When he returns to Milan, he has the opportunity to
meet Leonardo da Vinci and Leonardo's studio through associates that
Leonardo had there. A funny thing happened after the refs
(37:44):
pronounced the Salvador Mundi a Leonardo. He went up on
the wall of the National Gallery in London in two
and eleven and some other reffs, people just as qualified
as the ones who had proclaimed the painting a Leonardo,
got to look at it for the first time. Landres
was among the experts who first saw the Salvador Mundi
while it was surrounded by gawking tourists when it was
(38:06):
a fete a compli. When he looked at it, his
first thought wasn't of Leonardo, it was of Bernardino Luini.
Landrus suspected Bernardino Luini painted most of the Salvador Mundi,
perhaps supervised by Leonardo, though why Leonardo would have done
this without leaving any record of it is unclear. But
(38:27):
just because Matthew Landrus thought it doesn't mean he's happy
to say it into a microphone. Do you think there's
a chance it's entirely by Louini and Leonardo had nothing
to do with it? Oh? No, no, I would not
want to say that. Of course, there's a chance. There's
a chance it could be by all sorts of other people.
There's no hard evidence that it was even painted in
(38:48):
the sixteenth century. But you can see why Landrus would
no longer want to say it. There is a lot
of pressure on art historians to be careful about commenting
on paintings because people will then skew that information or
change that information into discussions of value, art markets, that
sort of thing. There's a lot of pressure on art historians.
(39:12):
There is, but it's all in one direction. It's not
a pressure to say no, it's not a Leonardo. It's
a pressure to say, yes, yes, it is a Leonardo.
And once someone said it, the pressure only mounts to
the point where it might affect even the most successful
graduate of the Isidore Newman School in New Orleans, Louisiana.
(39:38):
When I got invited by the auction house to be
on the panels and be part of the special shows,
I kept saying, on balance, here's what I think. But
I wasn't going to be a flamethrower at that point.
I wasn't going to say, oh, I think this whole
thing could be a total fraud. You get wrapped up
(39:59):
in the excitement of it. Now. Fortunately, what I wrote
in the book I wrote well before this excitement. So
I stand by every one of those words, but I
suspect on a path. I got a little bit more enthusiastic,
simply because you know you want to be part of
the party. At three hundred and seventy million dollars four
(40:19):
hundred minutes, the last one you will ever be able
to buy, the last one in private hands, four hundred
millionutes a pit and you knew a Saudi prince would
end up buying it. And the piece is so the
(40:41):
Saudi Prince made a gift of his new Leonardo to
the new museum in Abu Dhabi that has arranged to
call itself the Louver thank you according to the Louver
Abu Dhabi or any other inquiry, all of this was
all over the news and then the world moved on,
except for one piece of it, the Salvador MONDI help
(41:03):
you find there, Yes, I wanted to find out if
you know when the Salvator Monday, the Leonardo painting will
be on display. I'm unfortunately we do not have any
information yet, ma'am. So you don't know why the unveiling
was postponed or where where it is now? No one
(41:26):
seems to know. I don't know. I mean, there are
these rumors that the pictures gone missing, and there are
these newspaper reports that the original Louver in Paris has
has some small problems with the idea of it hanging
on the wall of its satellite museum, at least described
as a Leonardo. I'm sorry, man, we do not have
any information. It was postponed previously, but no, we do
(41:46):
not have any opidiot, anything could happen. Okay, do you
know when you might have an update? I think whatever happens,
I'm going to doubt it can anything. I'm Michael Lewis.
Thanks for listening to Against the Rules. Against the Rules
is brought to you by Pushkin Industries. The show was
(42:09):
produced by Audrey Dilling and Katherine Giredo, with research assistance
from Zoe Oliver Gray and Beth Johnson. Our editor is
Julia Barton. Mia Lobell is our executive producer. Our theme
was composed by Nick Brittell, with additional scoring by Seth Samuel,
mastering by Jason Gambrel. Our show was recorded by Tofa
(42:32):
Ruth at Northgate Studios in Berkeley. Special thanks to our founders,
Jacob Weisberg and Malcolm Gladwell. Well, thank you very much.
Thank you, thank you b
Pushkin, and so ladies and gentlemen, we moved to the
Leonardo da Vinci the Sabotomunday, the masterpiece by Leonardo of
Christ's Savior, previously in the collections of three Kings of England,
art at ninety million, being auctioned, the parting of rich
people from their money, and I go one over. It
(00:38):
takes me back to the early nineteen eighties and my
first job after college. I was the stock boy for
a New York art dealer called Wildenstein. Just about everything
about the place felt like a secret, except for how
it had started. At the end of the nineteenth century,
a Jewish street peddler in Paris named Nathan Wildenstein traded
rags for paintings with some odd ball artists. They called
(01:01):
themselves the Impressionists. He did this so well that by
the time I got to the Wildenstein's the family had
the most valuable private collection of art in the world.
Huge vaults lined with racks of Monais and Renoirs and
Pizarros that no one had ever seen. They had Rembrandts,
(01:21):
they had Raphael's, They had sixty nine Fragonards. Today the
whole collection would fetch fifty billion dollars easily, but it
was a strange business selling art so guarded the Wildenstein
family didn't even really want customers to know what they
had for sale. To keep their tax status as a
(01:42):
public gallery, they stuck a few obscure paintings on the
downstairs walls. The rest they kept hidden upstairs with me.
And so when people asked me what I actually did
for the Wildenstein Gallery, I found it hard to explain.
One of my predecessors had put his foot through us
is on. Clearly my job was not to do that.
(02:04):
But most of the time I just sat in a
small cubby upstairs and waited to be asked to move
the art around. There was the aroma of Cologne worn
by rich Frenchmen, but otherwise the place was a sensory
deprivation chamber. Weeks would pass without anyone showing up. Then
one day Thomas Hoving appeared. Hoving had just spent a
(02:28):
decade running the Metropolitan Museum of Art and was still
a huge deal in the art world. The Wildenstein's told
me to show him whatever he wanted to see. No
one else got that sort of treatment. Hoving trusted his
first impressions. Actually, that's not quite right. He made a
fetish of his first impressions. As I hauled paintings in
(02:51):
and out of the viewing room, he stood with his
back to me. He refused so much as to glimpse
the pictures until I had them set up on the easel.
I grunt and groan under some laughing cavalier by Franz Halls,
and hoisted onto the red velvet easel. Then I'd say ready,
and he'd swivel kind of like a gunfighter, and blurt
(03:12):
whatever popped into his head, sublime, luminous nineteenth century copy,
and every now and then he'd swivel in holler. Fake
life in the art world had made Thomas Hoving wary.
As he stood in front of art works in the
Wildenstein Vault, he told me that half the paintings in
(03:34):
American museums were not by the person whose name was
on the wall. They were by someone else, an assistant,
a follower, a forger. Hoving said that was the point
of all the secrecy, to hide the way the art
world really worked, And the way it worked was that
the referees in the art market, the experts, who declared
(03:55):
a painting was by this old master or that one.
Those experts were encouraged to make mistakes. A ref who
attributed a painting to a famous artist was paid a
lot better than a ref who said it was by
some obscure assistant. Hoving may have been the single savvaus
player the art market has ever seen. By my time
(04:15):
at Wildenstein, he was representing private collectors and he didn't
want his clients to be fleeced. He trusted his first
impressions because there was nothing else to trust. The art world,
more or less was rigged. That's what he was saying,
and the referees helped to rig it. The rests were
(04:36):
paid to say, yes, yes, it's a Rembrand, Yes it's
a mone Yes it's a Leonardo. Where is that? One
fifty welcome at one hundred fifty million On the left,
one sixty might take it at one hundred and fifty million.
Many places. Still, I'm Michael Lewis, and this is against
(04:57):
the rules, A show about the attack on the authority
of the referees in American life and what that's doing
to our idea of fairness. Minute these two hundred been
in his bid, give me ten at two hundred mien.
In his bid two hund have been in his here
currently hanging with Alex on my right at two hundred
(05:18):
million or Leonardo at two hundred million for two tens,
so you're coming back in at two hundred forty millions.
Connoisseurs used to be the ultimate arbitrary, especially in legal cases.
Even this is Walter Isaacson. He's written books about Ben
(05:39):
Franklin and Albert Einstein and Steve Jobs, and now he's
written about Leonardo da Vinci and told the story of
this mysterious painting supposedly by Leonardo of Jesus Christ. Walter's
interested in who gets to decide who painted what and
how they decide the art refs. They would bring in
(06:00):
Thomas Hoving or people like that, and they would make
a pronouncement and then just not not brook any descent
till ever, as it happens, Walter and I went to
the same high school in New Orleans. He was eight
years ahead of me. Every couple of years, the entire
student body of the Isidore Newman School would be herded
(06:21):
into the school auditorium to hear Walter speak. There we
were told all over again that we should all be
a bit more like Walter and every time Walter had
some new achievement. First had gone to Harvard, then had
been a Rhodes scholar, then had been the youngest editor
ever at Time magazine. God knows if that was even true,
(06:44):
but that's what they told us. And here he and
I are again. He's somehow now written the best biography
of Leonardo da Vinci, which brings us to this painting
called Salvador Mundi and a question who painted it. There
are a few facts you need to know about the
Salvador Mundi. The first is that it depicts a common
(07:06):
subject in the history of Western art, Christ as the
Savior of the World, been painted thousands and thousands of
times in more or less the same way. Jesus, looking
bored or even a bit stoned, stares straight ahead. His
left hand holds a globe and his right hand is
held up by his side. In the version I'm talking about,
(07:28):
Jesus has his fingers crossed, like maybe he's just fibbing.
The second thing you need to know about this particular
painting called Salvador Mundi. It was auctioned by Christie's in
November two and seventeen. Up to that point, there was
no record of Leonardo da Vinci having painted it. Most
paintings by Leonardo can be linked to documents that describe
(07:51):
Leonardo working on it, or promising to work on it,
or at least pretending to work on it. He painted
so little and so reluctantly that whatever he did paint
usually struck his contemporaries as worth mentioning the Salvador Mundi
has got nothing, not so much as a footnote. In
Leonardo's diaries, one of Leonardo's assistants mentions Leonardo being asked
(08:15):
to paint something called Christ the Father, and that's it.
Last thing. Most of Leonardo's paintings have his actual fingerprints
on them. He liked to smudge the paint. Are there
any fingerprints on the Salvador Monday Is or anybody? Now? Well,
now there's no Leonardo fingerprint that authenticates it now. The
(08:37):
first mention of what might be the painting comes in
sixteen fifty one, that's one hundred and thirty two years
after Leonardo died. A piece of Christ done by Leonardo
was listed along with the rest of Charles the First's
possessions after he was beheaded in London for treason, but
(08:58):
it's unclear exactly which piece of christ it was. Around
the same time, a check artist named Wenceslaus Holler made
an engraving of Jesus as Savior of the World. That
engraving was said to be a copy of a Leonardo,
But that engraving also looks like any number of Salvador Mundi's.
(09:18):
It was a genre by this point, and if anyone
back in those days had any conviction that Leonardo painted
this particular Salvador Mundi, they did a really good job
of hiding their feelings. Meanwhile, the painting that Christie's eventually sold,
that got tossed around for years as if it had
no special value. Right through the eighteenth and nineteenth centuries,
(09:41):
the picture was identified as the work of someone called
Bernardino Luini, then later as the copy of a work
by someone else called Boltraffio, and no one really bothered
to keep track of it. By the nineteen fifties it
was officially lost. Oh but it wasn't lost. It was
(10:01):
in New Orleans, hanging, just a short walk from the
houses where Walter and I live, right through our childhoods.
It had been bought in the late nineteen fifties in
London for forty five pounds by a New Orleans couple
named Warren and Minnie Koots. The Koots has lived on
the same street as my parents, six blocks away. Every
(10:22):
day for roughly eight years, I rode my bicycle to
school past this mysterious painting. Who knew? Not me, not Walter,
no one anyway. Warren and Mini Koonts died and left
their art collection to their nephew in two thousand and four.
The nephew died and his heirs sold it through a
(10:42):
New Orleans auction house. That's where a New York art dealer,
Robert Simon, paid ten thousand dollars for It's hard to
say what it was. It was a severely damaged torso
and head of a sad looking stoner holding a crystal orb. Yeah,
it started with Robert Simon and a couple of the
dealers who kind of found it, had a sense of
(11:05):
what it might be. Then they have it cleaned, cleaned,
I mean, exactly did they do well? They overcleaned it
and overrestored it. Many critics would say, the question is
how many current brush drugs on that piece of wood
actually were from a brush being held by the hand
of Leonardo and I suspect not many, because you know,
(11:30):
probably done by artists in the studio, and certainly the
restoration when it was found in Louisiana, Jesus had a beard,
so they take the beard off of him in the
restoration because the lencis lost Holler copy done three or
four centuries ago didn't have a beard, so when they
restore it, they take the beard off. So it begins
(11:52):
to get more amusing. Maybe, But even after the Salvador
Mundi has been repainted to feel more like a Leonardo,
it still doesn't feel much like a Leonardo. For example,
the crystal orb is a real problem, at least if
you want to believe Leonardo hated it. Reading your book,
the person I'm reading about would revel in showing the
(12:15):
optical effects of the clear globe on the other side
of the globe, and he doesn't do that right, And
that's a bit of a mystery what you have. There
is a crystal orb that Jesus is holding, and a
crystal as Leonardo very well knew because he studied lenses
and the focusing of light would have distorted the robe
(12:37):
of Jesus. And yet there's not the tiniest bit of
distortion in the robes of Jesus. But what the restorer
does to the painting may be less important than what
she doesn't do. This would be the moment to test
the paint to see if it's the sort of stuff
that Leonardo used, to test the wood to see how
(12:58):
old it is, and to do this out in the open.
The people who had this painting, the dealers who discovered
it and would try to authenticate it. They had it
restored by stores, but all done in secret. It wasn't
as if we have what we think as a Leonardo
and we want a hundred experts in and we're going
to invite television crews in and scientists and as we
(13:20):
strip off parts of the paint and take his beard
off and repaint some of the strokes. That would have
been a period where you probably could have had more
independent scientific and technical analysis. But I think they were
keeping it under wraps, and for reasons I understand but
aren't totally perfect reasons. What would be the good reason
(13:40):
to do that. I think that they wanted to keep
it under wraps because they hadn't finished authenticating, They hadn't
put it up for sale. It's pretty great, you find
this painting in Louisiana. You really hope it's a Leonardo,
so you can sell it as a Leonardo. But the
smart way to do this is to keep it in
(14:02):
hiding for a while. Then they first go to the experts,
the referees, and only now after the painting has been
gussied up by its new owners do the authenticators get involved,
but not openly. The new owners don't just call in
any referee who might have something useful to say about
Leonardo era paintings. After Jesus has been repainted heavily and
(14:27):
he looks a lot more like a Leonardo than he
did before, the new owners hand pick the refs. They
want to see the painting in a way that makes
the refs feel like they're being invited into an exclusive club.
They send them this note saying, we are convinced that
it is Leonardo's original version, although some of us consider
that there may be parts which are by the workshop.
(14:48):
Would you be free to come to London at any
time in this period. We are only inviting two or
three scholars, Only two or three scholars. That wasn't against
the rules reenactment. By the way, one of the authenticators
later declares the painting look to him uniquely Leonardo in
conceptual terms, in the way it looked at, the sheer
(15:10):
complexity of seeing what stands out for me. No one
seems to object to these authenticators assessing the painting in
the presence of people with a financial stake in their judgments,
and by the time the scholars show up, the stakes
are huge. If two or three refs declare the picture
of Leonardo, it will be included in a blockbuster Leonardo
(15:33):
show at the National Gallery in London, and the experts declare, yes,
it's a Leonardo. Well that's not a queuing at one
o'clock this morning, blinds. I think there was seven hundred
when we've got here, people camping out on museum steps
for a spot. But they all seem perfectly happy to
que videos on the National Gallery's website for years to come.
(15:54):
There are all people who go to expersitions like this
page to contact with a genius from the pasture. So
that was the twenty eleven show at the National Gallery.
And guess what happens after it. The Salvador Mundi is
sold in secret to a Russian billionaire for one hundred
(16:17):
and ten million dollars. The Russian billionaire sticks it in
a Swiss warehouse for a few years and then puts
it up for auction at Christie's. For those of you
following online, you may not have heard it. The bid
was three hundred and fifty was called on the telephone
at three hundred and fifty million for Leonardo Salvador Monday
at three hundred and fifty million, Harry Christie's at three
(16:38):
hundred and fifty million, and looking for another bid, Police
Francois at three fifty. When that painting was being sold,
you didn't hear whispers of doubt. It was definitely by Leonardo.
By the time it was sold. Yeah, well, they did
a very good publicity job, and even I was on
some panels that they organized, and you know, they rolled
(17:00):
it out beautifully and brought it to San Francisco, and
Leonardo DiCaprio looked at it, and you know, it was
very well handled, not just the going through the traps
of authentication, but also the publicity traps. And then I
realized this wasn't because it was even Leonardo or because
(17:20):
of the inherent value of the painting. It was because
it was called the last Leonardo was the way they
marketed this at the auction. The point isn't whether or
not this particular Salvadroom Monday is a Leonardo. I have
no idea if a brush attached to the hand of
Leonardo da Vinci was responsible for any of the strokes
on the thing. The point is that no one else
(17:42):
does either. There is no good evidence one way or
the other, only the opinions of a few refs, and
the refs are clearly more compromised than you'd ideally want
such a person to be. You know, you have many
ways of making money off of you get to write
the book, the catalog. If it turns out to be
a Leonardo, it's much better than saying, hey, no, no,
(18:03):
that's just a twentieth century fake. They may or may
not have been paid directly for their opinions, but they
do much better for themselves if they say, yes, yes,
it's a Leonardo. Until now, this entire podcast has been
about the death of the referee. Everywhere you turn you
(18:23):
can find referees under assault. They're authority questioned, their expertise doubted.
But there's an exception. A certain kind of ref still
retains enormous power and prestige, the authenticator, the people who
are there to assure us that a thing is real.
(18:44):
Once you start looking for these sorts of refs, you
see them everywhere, and the money they can manufacture more
or less out of thin air. Let's consider the market
for used cars just for a minute. So I buy
the car, I drive an off the lot. I'm not
(19:06):
doing anything crazy. Nothing happens to the car. Then I
can't sell the car for what it's worth. So that's
the point here. You have a case where a market
has disappeared. That's George Akerloff, professor of economics. He's famous
in part because he's married to Janet Yellen, who was
the Chairman of the Federal Reserve. But he's also famous
(19:27):
for some thoughts he had on his own. Back in
the late nineteen fifties. A seemingly obvious question crossed his mind.
Why does a brand new car lose so much value
the moment it leaves the lot. It's the same car,
Why should it plummet almost instantly up till then? Economists
assume that buyers and sellers come to a transaction with
basically the same information, but with things like used cars.
(19:50):
That's obviously not true. Maybe the buyer and seller don't
have the same information. You'd think that the seller has
more information than the buyer. The seller knows that that
car just yesterday went over that terrible bump and then
something else went wrong, and they immediately decided, Huh, I've
(20:12):
had this car too long. I'm going to see if
I can sell it to somebody else. So Akerloff wrote
this paper called the Market for Lemons. It shows that
when the seller knows more than the buyer and the
buyer knows that, the buyer lowers the price he's willing
to pay, and he lowers it to the point where
(20:34):
only the sellers of really crappy used cars are willing
to deal, causing the buyers to lower their prices even further.
It becomes a vicious cycle. Under the weight of all
those lemons, the market simply collapses. A trusted ref can
make this kind of market work by making the buyer
(20:54):
feel protected from whatever secrets the seller might have, by
making the buyer feel like he's not getting a lemon.
There's no market for a badly damage painting of Jesus
Christ until a few art refs step in and say, yes,
it's Leonardo. The ref exists to restore the illusion that
there are no secrets. Now, you might think, why would
(21:17):
a market in need of a neutral reff wind up
with a REF who actually isn't neutral? But look around
it happens a lot, just asks Steve Eisman. Although people
seem to know me as the big short Alah, Michael
Lewis Steve Correll played Heisman in the movie as a
character with such a gift for insulting Wall Street big
(21:39):
shots that the people who work for him would go
to meetings just to watch. But the bigger point about
Heisman is that he didn't trust anyone, not even the refs,
and his distrust made him rich. The crash of two
thousand and eight gets called a housing crisis, but it
was more of a trust crisis. People trusted the ratings
agencies whose job was to evaluate the risk of subprime
(22:03):
home loans, and they will give different letters to them,
so the best rating is triple A, which means the
probability of loss is almost zero. These ratings agencies, Moody's
and Standard and Poor. They were the refs whose calls
Eisman decided he didn't trust. And what pressures would there
(22:25):
have been on a Moody's or a standard and poor
to r rate bonds triple A when maybe they weren't
going to be triple A. I mean, the pressure was
simply economic in the sense that you were paid multiples
more for rating that kind of stuff. So the more
of the stuff that you that you would do, the
more money you'd make. And if you didn't do it,
(22:48):
and if you didn't do it, the guy who so
if Moody's said, you know what, I don't like this one,
I'm not going to rate it, SMP would do it.
The whole point of Moody's in SMP was to be
independent referees to judge the value of the stuff that
the Wall Street banks created. They were supposed to assess
the loans that were inside the bonds and then give
(23:08):
those bonds a grade. Before the financial crisis, Eisman went
to S ANDP to ask one of its executives what
records she got from the banks. Well, we said to her,
was when in the process of creating the securitizations, don't
you get the loan tapes so that when you're doing
the ratings you have a better idea of what's in there.
(23:29):
And she said we don't have access to that. And
I said, what do you mean you don't have access
to that. She says, well, the investment banks won't give
it to us, and I laugh. I said, what do
you mean they won't give it to you. You're the
ratings agencies. I had to give you what you want.
And she basically mumbled that if they had asked for it,
(23:51):
they wouldn't get it, and then they would just walk
across the street and go to Moody's. So this surprised you.
I was shocked because it would have basically meant the
ratings agencies didn't have any better data than I did,
and that stunned me. Back in two thousand and eight,
when Wall Street was collapsing and Steve Eisman was making
(24:12):
a fortune, the problem was clear. The ratings agencies had
been bought and paid for by the game's most powerful players.
The ref's lack of independence had fueled a world historic
financial crisis. If someone had told you in I don't
know early two thousand and nine that the ratings agencies
(24:32):
would be in the end unscathed by all this, that
they would there would be no reform of the structure
of the raidings agencies, and we'd be sitting here ten
years later, and that could be still being paid by
the banks to rate the bonds. Would you be surprised,
I'd be stunned. Stunned, because what's interesting is that there
have been massive changes that have taken place with respect
(24:53):
to the banks. I mean truly massive. So then you
have this other piece, the referees of the securities that
were at the heart of the problem correct, and the
referees haven't been reformed. And why do you imagine that is?
You know, it's one of life's great mysteries, one of
life's great mysteries. Some things were reformed after the crisis
(25:14):
to fix Wall Street, but not the refs. Why would
this be? Why would a system prefer a bad ref
to a good one? Why would it want an authenticator
that doesn't authenticate? Eisman can't explain it, but Georgejakarloff can. Okay,
let's take a h somebody who has a very hard
(25:37):
time getting a mortgage. This person is very risky, but
that person's willing to pay a higher rate of interest
on that mortgage. So I buy that bad mortgage. I
don't mind the fact that the ratings agency it allows
me to buy that bad mortgage, because then when there's
(25:58):
my regulators or my board of directors or my stockholders
or whatever, they can't blame me for the fact that
I bought that bad mortage, to say, oh, you bought this,
and then he's making these big profits. They can't blame me.
That's the role for the phony ref He absolves everyone
at the table of responsibility. The guy with the bad
(26:20):
credit gets alone, the bank that buys alone gets a
high interest rate, the ratings agency blesses the deal. Everyone
seems to win. Here's the funny thing about referees just now.
The only place in the economy where they seem secure
is where they've been compromised, because once they've been compromised,
they're assured of at least one truly enthusiastic source of support.
(26:43):
The people who control them think of it as a
rule of thumb. Find a happy referee, and you found
a problem. So we have a new rule where the
referees are happy and prosperous. They're probably helping to make
life less fair. But let's flip it around. Let's ask
(27:07):
a question, what's a truth truly egregious example of unfairness
in American life, and are there any referees present at
that scene? And for years and years and years, Fortune
magazine would have a cover story every year saying who
gets paid how much? Very neutral, and then all of
a sudden, around nineteen ninety, they cover story saying it's
(27:28):
out of control. That's Nell Minno, who helped found something
called i SSSS stands for Institutional Shareholder Services. It was
supposed to be a neutral referee to prevent the people
who ran America's biggest corporations from abusing their power or
paying themselves too much. So when you've got basically the
(27:49):
capital's favorite magazine telling you it's out of control, it's
out of control. And that was a fraction of what
it is today. Back in nineteen eighty, the typical corporate
CEO was paid roughly fifteen times what is average employee made. Now,
he's paid roughly four hundred times with the average worker
gets paid. CEOs looked around and they saw investment bankers
(28:13):
making tons of money, and they would say, these guys
work for me. I'm a captain of industry, I am
moving mountains. I should be making as much as they are.
And so they started making just tons and tons of money,
and it just kept escalating and escalating and escalating, and
these pay plans were incredibly complicated. So I was put
(28:33):
in a position of kind of referring CEO pay, except
it didn't have any real authority. Is there anybody in
the CEO pay world whose job it is to declare
pay packages fair for the company? Well, in theory, yeah,
I'm Jan Corps. I am a senior managing director and
region president for Pearlmyer, which is a compensation consulting firm.
(28:58):
We get hired by companies to advise them on their
executive pay programs, their board of director pay, and all
of the corporate governance things that go along with that.
Jan Cores is an example of a referee that simply
didn't exist before CEO pay went nuts, the CEO pay consultant.
There's a part of the whole pay questions that I
(29:19):
just don't get, and the part of it is the
idea that you need that extra you're ten million dollar man,
Those extra nine million dollars of carroty for making good
decisions and being smart and trying hard are necessary to
get a guy who's already ambitious and a type a
person to try hard, make good decisions, be smart. Nobody's
(29:41):
offering me ten million dollars to make a good decision
about you know what book I write Nextually, nobody's offering
most of the people in the company. They're just assuming
that everybody's going to try their hardests and make good decisions.
The idea that this particular class of human being needs
this giant reward in order to be smart, it's actually
(30:02):
quite damning about that class of human being. So she
was brave to talk to me. I don't want to
misrepresent her views, but I thought that maybe she might
talk about pearl Meyer as an authenticator of CEO pay packages.
I mean, in theory, the place exists to judge whether
the CEO's pay is a good deal for the company. Instead,
(30:22):
she wound up defending how much CEOs get paid. I
don't know, why do baseball players need that much money
just because they happen to be good. Don't they love baseball,
wouldn't they they play baseball for less money? They do?
They do, and they they do play baseball for less money,
so and they do try hard for less money. So
the answer is they don't need that much money. That yeah,
(30:44):
that's true. But that you don't get better performance out
of them because of the money. No one argues the
baseball players are better the more you pay them. In fact,
the argument you get in professional sports is if you
pay them a lot of money, they'll get lazy because
they don't need the money. They don't the money anymore.
So so exactly so, in fact, the best time to
have a baseball player is when you're not paying him
anything and you have the first six years of his
(31:06):
career and he's got a minimum salary and he's trying
to prove something. He's trying to prove something. So why
isn't it the same true of the CEO, where let's
keep him on a starvation diet until they prove something.
I was clearly making her a little uneasy. She didn't
have a lot of power here. She was brought in
by companies mainly to help keep their CEO's pay packages
off the front page of the Wall Street Journal. And
(31:27):
I guess the argument is is that by the time
they get to be the CEO, they're like the Aaron Rodgers,
right they have they've already been through their trial, they've
already done their proving and having gotten to that CEO level.
This is now where they get their reward, and they're
so valuable that you need to pay them this in
order to get them to do the job. Um, yeah,
(31:49):
you know, yeah, yes, and no. There's not a lot
of people that can hit one hundred mile an hour fastballs.
If you can do it, you can make a lot
of money. There's not a lot of people that can
run ten billion dollars companies. Maybe that's true. I don't
really know. They seem to be a lot of people
(32:09):
running big companies just fine, and a lot of others
who don't seem all that different from them who'd be
perfectly happy to do it too. I mean, how fragile
must the company be to so desperately need this one
incredibly special person to run it. But you know, it's
even harder to find than the incredibly special person who
can run a large company, a person who's willing to
(32:29):
referee them straight up. If you have any questions or
common it's regarding any of the four management proposals, please
go to the standing microphone. Like Mike Neo, Mike Mayo
has spent the last thirty years analyzing American banks. He
tells shareholders whether they should buy or sell their shares.
He sees it as his job to say about banks. Yeah,
(32:52):
that one really is a lemon. Back before the financial crisis,
Mayo saw that a lot of banks were making bad loans,
and he called them out publicly a long list. What
is the task of the board doing its homework to
ensure that city group has the best, most effective chairman?
That is a very good That's Mayo at a mic
in the Great Hall of the Congress Plaza Hotel in Chicago.
(33:15):
There's nothing really great about the Great Hall at the
Congress Plaza Hotel. It's not even a hall. The hotel
website says that it's perfect for a reception of twelve hundred,
but really it's more like a place to throw a
party to which you hope no one will come. I'm
a bit agnostic. I mean, I've seen I've seen the
plenty of companies where the CEO and the german are
(33:37):
On this day in June twenty eighteen, the Great Hall
holds only a few dozen people, mainly retirees, and no
Wall Street analysts except Mike Mayo. Mayo buys a single
share of stock in each Wall Street bank so that
he has the right to come to meetings like this
and grill the board of directors who sit on the stage.
(33:58):
Among the largest US banks, City had worst in class
returns among its piers in twenty seventeen. Yet City increased
the CEO paid by forty eight percent, and the grades
imply that's hot man has been got almost straight a's.
So why did disconnect here? Well? I think you know
(34:19):
companies at different times have to have different different jobs
to do. Would you say the City Group CEOs over
your during your tenure of watching them, have been better
at running the bank or at getting themselves paid? Wow?
City Group, what an example? I mean, this is an
extreme example of CEO pay in the bank industry or
corporate America generally. City Group CEOs over the last two
(34:43):
decades have gotten paid about more than any other bank
CEOs at the same time they've had the absolute worst
stock price performance over that period. When was the first
time you raised, you voiced any kind of complaint with
what a CEO was paid. Nineteen ninety four, I raised
(35:06):
a concern about the CEO of KeyCorp, saying that the
CEO is getting paid too much money in conjunction with
the mergery that they were doing. And my concern was
they did not disclose this information in a way that
people could readily see it. So when you said that,
how did they take it? They cut off all business
with the firm that I was working with. So when's
(35:28):
the next time you did such a thing. Well, then,
in the late nineteen nineties I wrote about compensation in
the banking industry, and some executives were paid too much,
and some CEOs were paid too much, and I thought
that was all fine until I got fired. The Wall
Street analyst who does his job and speaks up about
(35:49):
CEO pay is the analyst who keeps losing his job.
It doesn't make any sense until you realize that the
point of this ref is not to be independent. You're
on your seventh brokerage firm, my seventh brokerage firm, not
at a choice. Do young people ever come to you
and say, Mike, how do I be like you? And
keep my job? Every now and then, but not too often.
(36:12):
I think if I were to go about my career
the way I did starting thirty years ago, then I
think I'd have a hard chime keeping a job. Let's
recap step one. A market in need of a reff
just to survive because the seller might know something the
buyer does not the market for a used car, a
subprime mortgage, an old master painting, or, for that matter,
(36:35):
a CEO. Step two, the seller, in one way or
another captures the reff. Step three, the compromise reff becomes
a stable reff, a happy reff. He's an integral part
of the market and has enough powerful people on his
side that he makes a good living. He absolves both
(36:57):
buyer and seller of blame. Now we arrive at step
four when you hear the first creeks and groans of
a system about to crash under the weight of its
own stupidity. So who is Bernardino Luini? Bernardino Luini had
worked primarily in North Italy and had returned to Milan
in fifteen oh eight to set up studio practice and
(37:22):
paint in a number of churches thereafter, mainly doing frescoes.
Matthew Landrus is a Leonardo scholar at Oxford University that period.
When he returns to Milan, he has the opportunity to
meet Leonardo da Vinci and Leonardo's studio through associates that
Leonardo had there. A funny thing happened after the refs
(37:44):
pronounced the Salvador Mundi a Leonardo. He went up on
the wall of the National Gallery in London in two
and eleven and some other reffs, people just as qualified
as the ones who had proclaimed the painting a Leonardo,
got to look at it for the first time. Landres
was among the experts who first saw the Salvador Mundi
while it was surrounded by gawking tourists when it was
(38:06):
a fete a compli. When he looked at it, his
first thought wasn't of Leonardo, it was of Bernardino Luini.
Landrus suspected Bernardino Luini painted most of the Salvador Mundi,
perhaps supervised by Leonardo, though why Leonardo would have done
this without leaving any record of it is unclear. But
(38:27):
just because Matthew Landrus thought it doesn't mean he's happy
to say it into a microphone. Do you think there's
a chance it's entirely by Louini and Leonardo had nothing
to do with it? Oh? No, no, I would not
want to say that. Of course, there's a chance. There's
a chance it could be by all sorts of other people.
There's no hard evidence that it was even painted in
(38:48):
the sixteenth century. But you can see why Landrus would
no longer want to say it. There is a lot
of pressure on art historians to be careful about commenting
on paintings because people will then skew that information or
change that information into discussions of value, art markets, that
sort of thing. There's a lot of pressure on art historians.
(39:12):
There is, but it's all in one direction. It's not
a pressure to say no, it's not a Leonardo. It's
a pressure to say, yes, yes, it is a Leonardo.
And once someone said it, the pressure only mounts to
the point where it might affect even the most successful
graduate of the Isidore Newman School in New Orleans, Louisiana.
(39:38):
When I got invited by the auction house to be
on the panels and be part of the special shows,
I kept saying, on balance, here's what I think. But
I wasn't going to be a flamethrower at that point.
I wasn't going to say, oh, I think this whole
thing could be a total fraud. You get wrapped up
(39:59):
in the excitement of it. Now. Fortunately, what I wrote
in the book I wrote well before this excitement. So
I stand by every one of those words, but I
suspect on a path. I got a little bit more enthusiastic,
simply because you know you want to be part of
the party. At three hundred and seventy million dollars four
(40:19):
hundred minutes, the last one you will ever be able
to buy, the last one in private hands, four hundred
millionutes a pit and you knew a Saudi prince would
end up buying it. And the piece is so the
(40:41):
Saudi Prince made a gift of his new Leonardo to
the new museum in Abu Dhabi that has arranged to
call itself the Louver thank you according to the Louver
Abu Dhabi or any other inquiry, all of this was
all over the news and then the world moved on,
except for one piece of it, the Salvador MONDI help
(41:03):
you find there, Yes, I wanted to find out if
you know when the Salvator Monday, the Leonardo painting will
be on display. I'm unfortunately we do not have any
information yet, ma'am. So you don't know why the unveiling
was postponed or where where it is now? No one
(41:26):
seems to know. I don't know. I mean, there are
these rumors that the pictures gone missing, and there are
these newspaper reports that the original Louver in Paris has
has some small problems with the idea of it hanging
on the wall of its satellite museum, at least described
as a Leonardo. I'm sorry, man, we do not have
any information. It was postponed previously, but no, we do
(41:46):
not have any opidiot, anything could happen. Okay, do you
know when you might have an update? I think whatever happens,
I'm going to doubt it can anything. I'm Michael Lewis.
Thanks for listening to Against the Rules. Against the Rules
is brought to you by Pushkin Industries. The show was
(42:09):
produced by Audrey Dilling and Katherine Giredo, with research assistance
from Zoe Oliver Gray and Beth Johnson. Our editor is
Julia Barton. Mia Lobell is our executive producer. Our theme
was composed by Nick Brittell, with additional scoring by Seth Samuel,
mastering by Jason Gambrel. Our show was recorded by Tofa
(42:32):
Ruth at Northgate Studios in Berkeley. Special thanks to our founders,
Jacob Weisberg and Malcolm Gladwell. Well, thank you very much.
Thank you, thank you b
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