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