WEBVTT - The Hand of Leonardo 0:00:15.276 --> 0:00:21.476 Pushkin, and so ladies and gentlemen, we moved to the 0:00:21.556 --> 0:00:25.156 Leonardo da Vinci the Sabotomunday, the masterpiece by Leonardo of 0:00:25.236 --> 0:00:28.396 Christ's Savior, previously in the collections of three Kings of England, 0:00:28.996 --> 0:00:33.636 art at ninety million, being auctioned, the parting of rich 0:00:33.676 --> 0:00:38.276 people from their money, and I go one over. It 0:00:38.316 --> 0:00:41.516 takes me back to the early nineteen eighties and my 0:00:41.636 --> 0:00:45.316 first job after college. I was the stock boy for 0:00:45.396 --> 0:00:48.796 a New York art dealer called Wildenstein. Just about everything 0:00:48.796 --> 0:00:51.276 about the place felt like a secret, except for how 0:00:51.276 --> 0:00:53.836 it had started. At the end of the nineteenth century, 0:00:53.876 --> 0:00:57.436 a Jewish street peddler in Paris named Nathan Wildenstein traded 0:00:57.556 --> 0:01:01.516 rags for paintings with some odd ball artists. They called 0:01:01.556 --> 0:01:06.076 themselves the Impressionists. He did this so well that by 0:01:06.076 --> 0:01:08.956 the time I got to the Wildenstein's the family had 0:01:08.996 --> 0:01:11.596 the most valuable private collection of art in the world. 0:01:12.396 --> 0:01:16.676 Huge vaults lined with racks of Monais and Renoirs and 0:01:16.796 --> 0:01:21.676 Pizarros that no one had ever seen. They had Rembrandts, 0:01:21.716 --> 0:01:26.676 they had Raphael's, They had sixty nine Fragonards. Today the 0:01:26.676 --> 0:01:31.236 whole collection would fetch fifty billion dollars easily, but it 0:01:31.316 --> 0:01:36.156 was a strange business selling art so guarded the Wildenstein 0:01:36.276 --> 0:01:38.996 family didn't even really want customers to know what they 0:01:39.036 --> 0:01:42.196 had for sale. To keep their tax status as a 0:01:42.236 --> 0:01:45.316 public gallery, they stuck a few obscure paintings on the 0:01:45.316 --> 0:01:49.676 downstairs walls. The rest they kept hidden upstairs with me. 0:01:50.956 --> 0:01:53.316 And so when people asked me what I actually did 0:01:53.516 --> 0:01:56.596 for the Wildenstein Gallery, I found it hard to explain. 0:01:57.556 --> 0:01:59.796 One of my predecessors had put his foot through us 0:01:59.956 --> 0:02:02.836 is on. Clearly my job was not to do that. 0:02:04.316 --> 0:02:06.636 But most of the time I just sat in a 0:02:06.716 --> 0:02:09.996 small cubby upstairs and waited to be asked to move 0:02:10.036 --> 0:02:14.036 the art around. There was the aroma of Cologne worn 0:02:14.116 --> 0:02:17.156 by rich Frenchmen, but otherwise the place was a sensory 0:02:17.196 --> 0:02:23.276 deprivation chamber. Weeks would pass without anyone showing up. Then 0:02:23.356 --> 0:02:28.276 one day Thomas Hoving appeared. Hoving had just spent a 0:02:28.356 --> 0:02:31.756 decade running the Metropolitan Museum of Art and was still 0:02:31.796 --> 0:02:35.996 a huge deal in the art world. The Wildenstein's told 0:02:35.996 --> 0:02:38.876 me to show him whatever he wanted to see. No 0:02:38.916 --> 0:02:42.556 one else got that sort of treatment. Hoving trusted his 0:02:42.636 --> 0:02:46.556 first impressions. Actually, that's not quite right. He made a 0:02:46.596 --> 0:02:50.996 fetish of his first impressions. As I hauled paintings in 0:02:51.036 --> 0:02:53.196 and out of the viewing room, he stood with his 0:02:53.276 --> 0:02:56.716 back to me. He refused so much as to glimpse 0:02:56.756 --> 0:02:59.516 the pictures until I had them set up on the easel. 0:03:00.396 --> 0:03:04.396 I grunt and groan under some laughing cavalier by Franz Halls, 0:03:04.676 --> 0:03:08.596 and hoisted onto the red velvet easel. Then I'd say ready, 0:03:09.196 --> 0:03:12.156 and he'd swivel kind of like a gunfighter, and blurt 0:03:12.236 --> 0:03:18.956 whatever popped into his head, sublime, luminous nineteenth century copy, 0:03:19.916 --> 0:03:23.116 and every now and then he'd swivel in holler. Fake 0:03:25.276 --> 0:03:28.956 life in the art world had made Thomas Hoving wary. 0:03:29.516 --> 0:03:31.156 As he stood in front of art works in the 0:03:31.196 --> 0:03:34.116 Wildenstein Vault, he told me that half the paintings in 0:03:34.156 --> 0:03:37.436 American museums were not by the person whose name was 0:03:37.476 --> 0:03:41.276 on the wall. They were by someone else, an assistant, 0:03:41.556 --> 0:03:46.076 a follower, a forger. Hoving said that was the point 0:03:46.156 --> 0:03:49.196 of all the secrecy, to hide the way the art 0:03:49.196 --> 0:03:52.316 world really worked, And the way it worked was that 0:03:52.396 --> 0:03:55.636 the referees in the art market, the experts, who declared 0:03:55.636 --> 0:03:57.836 a painting was by this old master or that one. 0:03:58.516 --> 0:04:02.636 Those experts were encouraged to make mistakes. A ref who 0:04:02.636 --> 0:04:05.236 attributed a painting to a famous artist was paid a 0:04:05.276 --> 0:04:07.316 lot better than a ref who said it was by 0:04:07.356 --> 0:04:12.036 some obscure assistant. Hoving may have been the single savvaus 0:04:12.116 --> 0:04:15.916 player the art market has ever seen. By my time 0:04:15.916 --> 0:04:20.196 at Wildenstein, he was representing private collectors and he didn't 0:04:20.196 --> 0:04:23.836 want his clients to be fleeced. He trusted his first 0:04:23.836 --> 0:04:27.596 impressions because there was nothing else to trust. The art world, 0:04:27.636 --> 0:04:30.516 more or less was rigged. That's what he was saying, 0:04:31.356 --> 0:04:36.876 and the referees helped to rig it. The rests were 0:04:36.876 --> 0:04:41.596 paid to say, yes, yes, it's a Rembrand, Yes it's 0:04:41.596 --> 0:04:46.956 a mone Yes it's a Leonardo. Where is that? One 0:04:47.156 --> 0:04:49.956 fifty welcome at one hundred fifty million On the left, 0:04:49.996 --> 0:04:52.596 one sixty might take it at one hundred and fifty million. 0:04:52.876 --> 0:04:57.916 Many places. Still, I'm Michael Lewis, and this is against 0:04:57.916 --> 0:05:01.236 the rules, A show about the attack on the authority 0:05:01.276 --> 0:05:04.716 of the referees in American life and what that's doing 0:05:04.996 --> 0:05:10.436 to our idea of fairness. Minute these two hundred been 0:05:10.436 --> 0:05:13.036 in his bid, give me ten at two hundred mien. 0:05:13.076 --> 0:05:15.076 In his bid two hund have been in his here 0:05:15.396 --> 0:05:18.036 currently hanging with Alex on my right at two hundred 0:05:18.036 --> 0:05:21.796 million or Leonardo at two hundred million for two tens, 0:05:21.796 --> 0:05:24.316 so you're coming back in at two hundred forty millions. 0:05:28.836 --> 0:05:35.036 Connoisseurs used to be the ultimate arbitrary, especially in legal cases. 0:05:35.076 --> 0:05:39.036 Even this is Walter Isaacson. He's written books about Ben 0:05:39.076 --> 0:05:42.796 Franklin and Albert Einstein and Steve Jobs, and now he's 0:05:42.796 --> 0:05:46.356 written about Leonardo da Vinci and told the story of 0:05:46.356 --> 0:05:52.276 this mysterious painting supposedly by Leonardo of Jesus Christ. Walter's 0:05:52.356 --> 0:05:56.236 interested in who gets to decide who painted what and 0:05:56.396 --> 0:06:00.316 how they decide the art refs. They would bring in 0:06:00.356 --> 0:06:04.116 Thomas Hoving or people like that, and they would make 0:06:04.156 --> 0:06:08.756 a pronouncement and then just not not brook any descent 0:06:09.156 --> 0:06:11.916 till ever, as it happens, Walter and I went to 0:06:11.956 --> 0:06:14.676 the same high school in New Orleans. He was eight 0:06:14.756 --> 0:06:18.476 years ahead of me. Every couple of years, the entire 0:06:18.636 --> 0:06:21.996 student body of the Isidore Newman School would be herded 0:06:21.996 --> 0:06:26.436 into the school auditorium to hear Walter speak. There we 0:06:26.436 --> 0:06:29.436 were told all over again that we should all be 0:06:29.476 --> 0:06:33.836 a bit more like Walter and every time Walter had 0:06:33.876 --> 0:06:37.636 some new achievement. First had gone to Harvard, then had 0:06:37.636 --> 0:06:40.876 been a Rhodes scholar, then had been the youngest editor 0:06:40.916 --> 0:06:44.476 ever at Time magazine. God knows if that was even true, 0:06:44.516 --> 0:06:46.956 but that's what they told us. And here he and 0:06:46.996 --> 0:06:50.556 I are again. He's somehow now written the best biography 0:06:50.556 --> 0:06:54.316 of Leonardo da Vinci, which brings us to this painting 0:06:54.676 --> 0:07:01.636 called Salvador Mundi and a question who painted it. There 0:07:01.636 --> 0:07:03.436 are a few facts you need to know about the 0:07:03.436 --> 0:07:06.876 Salvador Mundi. The first is that it depicts a common 0:07:06.916 --> 0:07:09.996 subject in the history of Western art, Christ as the 0:07:10.036 --> 0:07:13.636 Savior of the World, been painted thousands and thousands of 0:07:13.676 --> 0:07:17.796 times in more or less the same way. Jesus, looking 0:07:17.876 --> 0:07:22.116 bored or even a bit stoned, stares straight ahead. His 0:07:22.196 --> 0:07:25.116 left hand holds a globe and his right hand is 0:07:25.156 --> 0:07:28.276 held up by his side. In the version I'm talking about, 0:07:28.876 --> 0:07:31.916 Jesus has his fingers crossed, like maybe he's just fibbing. 0:07:33.316 --> 0:07:35.676 The second thing you need to know about this particular 0:07:35.716 --> 0:07:39.916 painting called Salvador Mundi. It was auctioned by Christie's in 0:07:39.996 --> 0:07:43.836 November two and seventeen. Up to that point, there was 0:07:43.876 --> 0:07:47.756 no record of Leonardo da Vinci having painted it. Most 0:07:47.836 --> 0:07:51.356 paintings by Leonardo can be linked to documents that describe 0:07:51.476 --> 0:07:54.916 Leonardo working on it, or promising to work on it, 0:07:55.036 --> 0:07:58.156 or at least pretending to work on it. He painted 0:07:58.196 --> 0:08:02.236 so little and so reluctantly that whatever he did paint 0:08:02.316 --> 0:08:07.036 usually struck his contemporaries as worth mentioning the Salvador Mundi 0:08:07.236 --> 0:08:09.876 has got nothing, not so much as a footnote. In 0:08:09.956 --> 0:08:15.036 Leonardo's diaries, one of Leonardo's assistants mentions Leonardo being asked 0:08:15.316 --> 0:08:19.436 to paint something called Christ the Father, and that's it. 0:08:20.676 --> 0:08:24.956 Last thing. Most of Leonardo's paintings have his actual fingerprints 0:08:24.996 --> 0:08:28.356 on them. He liked to smudge the paint. Are there 0:08:28.396 --> 0:08:31.956 any fingerprints on the Salvador Monday Is or anybody? Now? Well, 0:08:32.076 --> 0:08:37.036 now there's no Leonardo fingerprint that authenticates it now. The 0:08:37.116 --> 0:08:40.196 first mention of what might be the painting comes in 0:08:40.276 --> 0:08:44.356 sixteen fifty one, that's one hundred and thirty two years 0:08:44.876 --> 0:08:50.396 after Leonardo died. A piece of Christ done by Leonardo 0:08:50.996 --> 0:08:53.436 was listed along with the rest of Charles the First's 0:08:53.436 --> 0:08:57.956 possessions after he was beheaded in London for treason, but 0:08:58.036 --> 0:09:02.476 it's unclear exactly which piece of christ it was. Around 0:09:02.516 --> 0:09:06.516 the same time, a check artist named Wenceslaus Holler made 0:09:06.556 --> 0:09:10.556 an engraving of Jesus as Savior of the World. That 0:09:10.676 --> 0:09:13.476 engraving was said to be a copy of a Leonardo, 0:09:14.356 --> 0:09:17.916 But that engraving also looks like any number of Salvador Mundi's. 0:09:18.396 --> 0:09:21.156 It was a genre by this point, and if anyone 0:09:21.196 --> 0:09:24.116 back in those days had any conviction that Leonardo painted 0:09:24.116 --> 0:09:27.676 this particular Salvador Mundi, they did a really good job 0:09:27.716 --> 0:09:32.556 of hiding their feelings. Meanwhile, the painting that Christie's eventually sold, 0:09:33.516 --> 0:09:36.076 that got tossed around for years as if it had 0:09:36.116 --> 0:09:40.556 no special value. Right through the eighteenth and nineteenth centuries, 0:09:41.036 --> 0:09:43.956 the picture was identified as the work of someone called 0:09:44.356 --> 0:09:49.076 Bernardino Luini, then later as the copy of a work 0:09:49.156 --> 0:09:54.396 by someone else called Boltraffio, and no one really bothered 0:09:54.436 --> 0:09:57.676 to keep track of it. By the nineteen fifties it 0:09:57.716 --> 0:10:01.836 was officially lost. Oh but it wasn't lost. It was 0:10:01.876 --> 0:10:04.916 in New Orleans, hanging, just a short walk from the 0:10:04.956 --> 0:10:07.796 houses where Walter and I live, right through our childhoods. 0:10:08.356 --> 0:10:10.396 It had been bought in the late nineteen fifties in 0:10:10.476 --> 0:10:14.636 London for forty five pounds by a New Orleans couple 0:10:14.756 --> 0:10:18.476 named Warren and Minnie Koots. The Koots has lived on 0:10:18.516 --> 0:10:21.956 the same street as my parents, six blocks away. Every 0:10:22.036 --> 0:10:24.636 day for roughly eight years, I rode my bicycle to 0:10:24.676 --> 0:10:30.636 school past this mysterious painting. Who knew? Not me, not Walter, 0:10:31.556 --> 0:10:36.916 no one anyway. Warren and Mini Koonts died and left 0:10:36.956 --> 0:10:40.076 their art collection to their nephew in two thousand and four. 0:10:40.316 --> 0:10:42.916 The nephew died and his heirs sold it through a 0:10:42.956 --> 0:10:46.356 New Orleans auction house. That's where a New York art dealer, 0:10:46.436 --> 0:10:49.596 Robert Simon, paid ten thousand dollars for It's hard to 0:10:49.636 --> 0:10:53.276 say what it was. It was a severely damaged torso 0:10:53.516 --> 0:10:59.316 and head of a sad looking stoner holding a crystal orb. Yeah, 0:10:59.396 --> 0:11:01.916 it started with Robert Simon and a couple of the 0:11:01.996 --> 0:11:05.676 dealers who kind of found it, had a sense of 0:11:05.716 --> 0:11:08.676 what it might be. Then they have it cleaned, cleaned, 0:11:08.716 --> 0:11:11.876 I mean, exactly did they do well? They overcleaned it 0:11:11.956 --> 0:11:16.476 and overrestored it. Many critics would say, the question is 0:11:16.716 --> 0:11:20.796 how many current brush drugs on that piece of wood 0:11:21.116 --> 0:11:24.636 actually were from a brush being held by the hand 0:11:24.796 --> 0:11:29.836 of Leonardo and I suspect not many, because you know, 0:11:30.476 --> 0:11:33.836 probably done by artists in the studio, and certainly the 0:11:33.996 --> 0:11:39.076 restoration when it was found in Louisiana, Jesus had a beard, 0:11:39.156 --> 0:11:41.276 so they take the beard off of him in the 0:11:41.396 --> 0:11:46.116 restoration because the lencis lost Holler copy done three or 0:11:46.156 --> 0:11:49.236 four centuries ago didn't have a beard, so when they 0:11:49.276 --> 0:11:52.716 restore it, they take the beard off. So it begins 0:11:52.756 --> 0:11:58.676 to get more amusing. Maybe, But even after the Salvador 0:11:58.756 --> 0:12:01.516 Mundi has been repainted to feel more like a Leonardo, 0:12:01.876 --> 0:12:04.876 it still doesn't feel much like a Leonardo. For example, 0:12:04.916 --> 0:12:07.956 the crystal orb is a real problem, at least if 0:12:07.956 --> 0:12:11.036 you want to believe Leonardo hated it. Reading your book, 0:12:11.516 --> 0:12:15.836 the person I'm reading about would revel in showing the 0:12:15.876 --> 0:12:19.596 optical effects of the clear globe on the other side 0:12:19.596 --> 0:12:22.556 of the globe, and he doesn't do that right, And 0:12:22.596 --> 0:12:24.476 that's a bit of a mystery what you have. There 0:12:24.596 --> 0:12:28.956 is a crystal orb that Jesus is holding, and a 0:12:29.076 --> 0:12:33.516 crystal as Leonardo very well knew because he studied lenses 0:12:33.556 --> 0:12:37.316 and the focusing of light would have distorted the robe 0:12:37.436 --> 0:12:42.676 of Jesus. And yet there's not the tiniest bit of 0:12:42.716 --> 0:12:47.036 distortion in the robes of Jesus. But what the restorer 0:12:47.196 --> 0:12:49.796 does to the painting may be less important than what 0:12:49.916 --> 0:12:52.756 she doesn't do. This would be the moment to test 0:12:52.796 --> 0:12:54.876 the paint to see if it's the sort of stuff 0:12:54.916 --> 0:12:58.556 that Leonardo used, to test the wood to see how 0:12:58.556 --> 0:13:01.676 old it is, and to do this out in the open. 0:13:02.116 --> 0:13:05.076 The people who had this painting, the dealers who discovered 0:13:05.116 --> 0:13:07.756 it and would try to authenticate it. They had it 0:13:07.876 --> 0:13:12.276 restored by stores, but all done in secret. It wasn't 0:13:12.316 --> 0:13:14.756 as if we have what we think as a Leonardo 0:13:14.836 --> 0:13:16.636 and we want a hundred experts in and we're going 0:13:16.676 --> 0:13:20.076 to invite television crews in and scientists and as we 0:13:20.156 --> 0:13:22.996 strip off parts of the paint and take his beard 0:13:23.076 --> 0:13:27.116 off and repaint some of the strokes. That would have 0:13:27.116 --> 0:13:29.916 been a period where you probably could have had more 0:13:30.036 --> 0:13:33.996 independent scientific and technical analysis. But I think they were 0:13:34.076 --> 0:13:36.756 keeping it under wraps, and for reasons I understand but 0:13:36.836 --> 0:13:40.396 aren't totally perfect reasons. What would be the good reason 0:13:40.436 --> 0:13:44.556 to do that. I think that they wanted to keep 0:13:44.556 --> 0:13:48.236 it under wraps because they hadn't finished authenticating, They hadn't 0:13:48.236 --> 0:13:52.156 put it up for sale. It's pretty great, you find 0:13:52.196 --> 0:13:56.316 this painting in Louisiana. You really hope it's a Leonardo, 0:13:56.796 --> 0:13:59.716 so you can sell it as a Leonardo. But the 0:13:59.796 --> 0:14:02.116 smart way to do this is to keep it in 0:14:02.236 --> 0:14:07.476 hiding for a while. Then they first go to the experts, 0:14:07.516 --> 0:14:11.236 the referees, and only now after the painting has been 0:14:11.236 --> 0:14:15.356 gussied up by its new owners do the authenticators get involved, 0:14:16.036 --> 0:14:19.036 but not openly. The new owners don't just call in 0:14:19.076 --> 0:14:21.876 any referee who might have something useful to say about 0:14:21.956 --> 0:14:27.116 Leonardo era paintings. After Jesus has been repainted heavily and 0:14:27.196 --> 0:14:29.196 he looks a lot more like a Leonardo than he 0:14:29.236 --> 0:14:32.636 did before, the new owners hand pick the refs. They 0:14:32.676 --> 0:14:34.796 want to see the painting in a way that makes 0:14:34.796 --> 0:14:38.076 the refs feel like they're being invited into an exclusive club. 0:14:38.836 --> 0:14:42.636 They send them this note saying, we are convinced that 0:14:42.756 --> 0:14:46.276 it is Leonardo's original version, although some of us consider 0:14:46.356 --> 0:14:48.596 that there may be parts which are by the workshop. 0:14:48.756 --> 0:14:50.716 Would you be free to come to London at any 0:14:50.716 --> 0:14:53.596 time in this period. We are only inviting two or 0:14:53.636 --> 0:14:59.036 three scholars, Only two or three scholars. That wasn't against 0:14:59.076 --> 0:15:02.836 the rules reenactment. By the way, one of the authenticators 0:15:02.916 --> 0:15:06.796 later declares the painting look to him uniquely Leonardo in 0:15:06.876 --> 0:15:09.916 conceptual terms, in the way it looked at, the sheer 0:15:10.036 --> 0:15:14.356 complexity of seeing what stands out for me. No one 0:15:14.396 --> 0:15:17.396 seems to object to these authenticators assessing the painting in 0:15:17.436 --> 0:15:20.876 the presence of people with a financial stake in their judgments, 0:15:22.596 --> 0:15:25.676 and by the time the scholars show up, the stakes 0:15:25.796 --> 0:15:29.636 are huge. If two or three refs declare the picture 0:15:29.636 --> 0:15:33.276 of Leonardo, it will be included in a blockbuster Leonardo 0:15:33.356 --> 0:15:38.276 show at the National Gallery in London, and the experts declare, yes, 0:15:39.116 --> 0:15:41.956 it's a Leonardo. Well that's not a queuing at one 0:15:41.956 --> 0:15:45.596 o'clock this morning, blinds. I think there was seven hundred 0:15:45.676 --> 0:15:48.156 when we've got here, people camping out on museum steps 0:15:48.156 --> 0:15:50.156 for a spot. But they all seem perfectly happy to 0:15:50.236 --> 0:15:54.436 que videos on the National Gallery's website for years to come. 0:15:54.756 --> 0:15:56.876 There are all people who go to expersitions like this 0:15:57.556 --> 0:16:05.836 page to contact with a genius from the pasture. So 0:16:05.876 --> 0:16:08.636 that was the twenty eleven show at the National Gallery. 0:16:09.476 --> 0:16:12.996 And guess what happens after it. The Salvador Mundi is 0:16:13.036 --> 0:16:17.156 sold in secret to a Russian billionaire for one hundred 0:16:17.196 --> 0:16:21.116 and ten million dollars. The Russian billionaire sticks it in 0:16:21.116 --> 0:16:24.036 a Swiss warehouse for a few years and then puts 0:16:24.076 --> 0:16:26.396 it up for auction at Christie's. For those of you 0:16:26.476 --> 0:16:28.516 following online, you may not have heard it. The bid 0:16:28.556 --> 0:16:30.956 was three hundred and fifty was called on the telephone 0:16:30.996 --> 0:16:34.196 at three hundred and fifty million for Leonardo Salvador Monday 0:16:34.356 --> 0:16:38.676 at three hundred and fifty million, Harry Christie's at three 0:16:38.756 --> 0:16:41.636 hundred and fifty million, and looking for another bid, Police 0:16:41.636 --> 0:16:47.356 Francois at three fifty. When that painting was being sold, 0:16:47.716 --> 0:16:51.676 you didn't hear whispers of doubt. It was definitely by Leonardo. 0:16:51.716 --> 0:16:54.156 By the time it was sold. Yeah, well, they did 0:16:54.156 --> 0:16:56.716 a very good publicity job, and even I was on 0:16:56.836 --> 0:17:00.276 some panels that they organized, and you know, they rolled 0:17:00.276 --> 0:17:02.636 it out beautifully and brought it to San Francisco, and 0:17:02.716 --> 0:17:06.076 Leonardo DiCaprio looked at it, and you know, it was 0:17:07.156 --> 0:17:10.396 very well handled, not just the going through the traps 0:17:10.436 --> 0:17:15.716 of authentication, but also the publicity traps. And then I 0:17:15.876 --> 0:17:20.676 realized this wasn't because it was even Leonardo or because 0:17:20.716 --> 0:17:24.316 of the inherent value of the painting. It was because 0:17:24.836 --> 0:17:27.716 it was called the last Leonardo was the way they 0:17:27.836 --> 0:17:30.996 marketed this at the auction. The point isn't whether or 0:17:31.036 --> 0:17:34.196 not this particular Salvadroom Monday is a Leonardo. I have 0:17:34.396 --> 0:17:36.476 no idea if a brush attached to the hand of 0:17:36.596 --> 0:17:39.596 Leonardo da Vinci was responsible for any of the strokes 0:17:39.636 --> 0:17:42.516 on the thing. The point is that no one else 0:17:42.556 --> 0:17:45.796 does either. There is no good evidence one way or 0:17:45.836 --> 0:17:49.636 the other, only the opinions of a few refs, and 0:17:49.716 --> 0:17:53.476 the refs are clearly more compromised than you'd ideally want 0:17:53.516 --> 0:17:56.236 such a person to be. You know, you have many 0:17:56.316 --> 0:17:58.476 ways of making money off of you get to write 0:17:58.516 --> 0:18:01.076 the book, the catalog. If it turns out to be 0:18:01.116 --> 0:18:03.356 a Leonardo, it's much better than saying, hey, no, no, 0:18:03.436 --> 0:18:07.476 that's just a twentieth century fake. They may or may 0:18:07.516 --> 0:18:10.596 not have been paid directly for their opinions, but they 0:18:10.636 --> 0:18:14.716 do much better for themselves if they say, yes, yes, 0:18:14.796 --> 0:18:20.196 it's a Leonardo. Until now, this entire podcast has been 0:18:20.196 --> 0:18:23.756 about the death of the referee. Everywhere you turn you 0:18:23.796 --> 0:18:29.716 can find referees under assault. They're authority questioned, their expertise doubted. 0:18:30.876 --> 0:18:34.956 But there's an exception. A certain kind of ref still 0:18:34.996 --> 0:18:40.876 retains enormous power and prestige, the authenticator, the people who 0:18:40.876 --> 0:18:43.716 are there to assure us that a thing is real. 0:18:44.716 --> 0:18:47.156 Once you start looking for these sorts of refs, you 0:18:47.196 --> 0:18:50.996 see them everywhere, and the money they can manufacture more 0:18:51.116 --> 0:19:00.356 or less out of thin air. Let's consider the market 0:19:00.396 --> 0:19:04.076 for used cars just for a minute. So I buy 0:19:04.116 --> 0:19:06.876 the car, I drive an off the lot. I'm not 0:19:06.956 --> 0:19:10.876 doing anything crazy. Nothing happens to the car. Then I 0:19:10.916 --> 0:19:14.436 can't sell the car for what it's worth. So that's 0:19:14.476 --> 0:19:16.756 the point here. You have a case where a market 0:19:16.796 --> 0:19:22.196 has disappeared. That's George Akerloff, professor of economics. He's famous 0:19:22.196 --> 0:19:24.236 in part because he's married to Janet Yellen, who was 0:19:24.236 --> 0:19:27.476 the Chairman of the Federal Reserve. But he's also famous 0:19:27.476 --> 0:19:30.116 for some thoughts he had on his own. Back in 0:19:30.116 --> 0:19:34.236 the late nineteen fifties. A seemingly obvious question crossed his mind. 0:19:34.676 --> 0:19:37.076 Why does a brand new car lose so much value 0:19:37.196 --> 0:19:40.036 the moment it leaves the lot. It's the same car, 0:19:40.436 --> 0:19:44.596 Why should it plummet almost instantly up till then? Economists 0:19:44.596 --> 0:19:47.156 assume that buyers and sellers come to a transaction with 0:19:47.276 --> 0:19:50.876 basically the same information, but with things like used cars. 0:19:50.916 --> 0:19:55.156 That's obviously not true. Maybe the buyer and seller don't 0:19:55.556 --> 0:19:59.236 have the same information. You'd think that the seller has 0:19:59.356 --> 0:20:02.916 more information than the buyer. The seller knows that that 0:20:03.076 --> 0:20:07.556 car just yesterday went over that terrible bump and then 0:20:07.636 --> 0:20:12.476 something else went wrong, and they immediately decided, Huh, I've 0:20:12.476 --> 0:20:14.516 had this car too long. I'm going to see if 0:20:14.556 --> 0:20:17.796 I can sell it to somebody else. So Akerloff wrote 0:20:17.796 --> 0:20:24.396 this paper called the Market for Lemons. It shows that 0:20:24.436 --> 0:20:27.076 when the seller knows more than the buyer and the 0:20:27.156 --> 0:20:31.196 buyer knows that, the buyer lowers the price he's willing 0:20:31.236 --> 0:20:34.396 to pay, and he lowers it to the point where 0:20:34.396 --> 0:20:38.036 only the sellers of really crappy used cars are willing 0:20:38.076 --> 0:20:42.356 to deal, causing the buyers to lower their prices even further. 0:20:43.276 --> 0:20:47.036 It becomes a vicious cycle. Under the weight of all 0:20:47.076 --> 0:20:52.196 those lemons, the market simply collapses. A trusted ref can 0:20:52.236 --> 0:20:54.916 make this kind of market work by making the buyer 0:20:54.996 --> 0:20:58.516 feel protected from whatever secrets the seller might have, by 0:20:58.556 --> 0:21:00.796 making the buyer feel like he's not getting a lemon. 0:21:02.636 --> 0:21:05.396 There's no market for a badly damage painting of Jesus 0:21:05.516 --> 0:21:08.556 Christ until a few art refs step in and say, yes, 0:21:08.796 --> 0:21:13.396 it's Leonardo. The ref exists to restore the illusion that 0:21:13.436 --> 0:21:17.796 there are no secrets. Now, you might think, why would 0:21:17.796 --> 0:21:20.436 a market in need of a neutral reff wind up 0:21:20.476 --> 0:21:24.276 with a REF who actually isn't neutral? But look around 0:21:24.556 --> 0:21:29.476 it happens a lot, just asks Steve Eisman. Although people 0:21:29.476 --> 0:21:33.236 seem to know me as the big short Alah, Michael 0:21:33.276 --> 0:21:36.836 Lewis Steve Correll played Heisman in the movie as a 0:21:36.956 --> 0:21:39.956 character with such a gift for insulting Wall Street big 0:21:39.996 --> 0:21:42.356 shots that the people who work for him would go 0:21:42.356 --> 0:21:45.436 to meetings just to watch. But the bigger point about 0:21:45.476 --> 0:21:48.876 Heisman is that he didn't trust anyone, not even the refs, 0:21:49.196 --> 0:21:52.636 and his distrust made him rich. The crash of two 0:21:52.676 --> 0:21:56.116 thousand and eight gets called a housing crisis, but it 0:21:56.156 --> 0:21:59.956 was more of a trust crisis. People trusted the ratings 0:21:59.956 --> 0:22:03.836 agencies whose job was to evaluate the risk of subprime 0:22:03.916 --> 0:22:07.356 home loans, and they will give different letters to them, 0:22:07.436 --> 0:22:12.596 so the best rating is triple A, which means the 0:22:12.636 --> 0:22:17.956 probability of loss is almost zero. These ratings agencies, Moody's 0:22:17.996 --> 0:22:21.236 and Standard and Poor. They were the refs whose calls 0:22:21.316 --> 0:22:25.156 Eisman decided he didn't trust. And what pressures would there 0:22:25.196 --> 0:22:27.076 have been on a Moody's or a standard and poor 0:22:27.076 --> 0:22:30.756 to r rate bonds triple A when maybe they weren't 0:22:30.796 --> 0:22:33.156 going to be triple A. I mean, the pressure was 0:22:33.196 --> 0:22:38.236 simply economic in the sense that you were paid multiples 0:22:38.316 --> 0:22:41.556 more for rating that kind of stuff. So the more 0:22:41.596 --> 0:22:44.476 of the stuff that you that you would do, the 0:22:44.516 --> 0:22:47.236 more money you'd make. And if you didn't do it, 0:22:48.036 --> 0:22:49.516 and if you didn't do it, the guy who so 0:22:49.556 --> 0:22:51.676 if Moody's said, you know what, I don't like this one, 0:22:51.916 --> 0:22:54.236 I'm not going to rate it, SMP would do it. 0:22:54.796 --> 0:22:57.476 The whole point of Moody's in SMP was to be 0:22:57.556 --> 0:23:01.516 independent referees to judge the value of the stuff that 0:23:01.596 --> 0:23:05.276 the Wall Street banks created. They were supposed to assess 0:23:05.356 --> 0:23:08.156 the loans that were inside the bonds and then give 0:23:08.196 --> 0:23:13.236 those bonds a grade. Before the financial crisis, Eisman went 0:23:13.236 --> 0:23:16.276 to S ANDP to ask one of its executives what 0:23:16.356 --> 0:23:19.156 records she got from the banks. Well, we said to her, 0:23:19.236 --> 0:23:22.996 was when in the process of creating the securitizations, don't 0:23:23.036 --> 0:23:26.076 you get the loan tapes so that when you're doing 0:23:26.116 --> 0:23:29.196 the ratings you have a better idea of what's in there. 0:23:29.876 --> 0:23:34.596 And she said we don't have access to that. And 0:23:34.636 --> 0:23:36.996 I said, what do you mean you don't have access 0:23:37.036 --> 0:23:39.836 to that. She says, well, the investment banks won't give 0:23:39.876 --> 0:23:42.196 it to us, and I laugh. I said, what do 0:23:42.236 --> 0:23:45.316 you mean they won't give it to you. You're the 0:23:45.396 --> 0:23:47.996 ratings agencies. I had to give you what you want. 0:23:48.716 --> 0:23:51.476 And she basically mumbled that if they had asked for it, 0:23:51.476 --> 0:23:53.116 they wouldn't get it, and then they would just walk 0:23:53.156 --> 0:23:56.996 across the street and go to Moody's. So this surprised you. 0:23:57.596 --> 0:24:00.756 I was shocked because it would have basically meant the 0:24:00.876 --> 0:24:04.236 ratings agencies didn't have any better data than I did, 0:24:04.916 --> 0:24:08.876 and that stunned me. Back in two thousand and eight, 0:24:09.156 --> 0:24:12.356 when Wall Street was collapsing and Steve Eisman was making 0:24:12.396 --> 0:24:16.996 a fortune, the problem was clear. The ratings agencies had 0:24:16.996 --> 0:24:20.036 been bought and paid for by the game's most powerful players. 0:24:21.356 --> 0:24:25.156 The ref's lack of independence had fueled a world historic 0:24:25.316 --> 0:24:29.116 financial crisis. If someone had told you in I don't 0:24:29.156 --> 0:24:32.876 know early two thousand and nine that the ratings agencies 0:24:32.916 --> 0:24:36.356 would be in the end unscathed by all this, that 0:24:35.916 --> 0:24:38.436 they would there would be no reform of the structure 0:24:38.436 --> 0:24:40.516 of the raidings agencies, and we'd be sitting here ten 0:24:40.596 --> 0:24:42.436 years later, and that could be still being paid by 0:24:42.436 --> 0:24:46.316 the banks to rate the bonds. Would you be surprised, 0:24:46.516 --> 0:24:50.556 I'd be stunned. Stunned, because what's interesting is that there 0:24:50.596 --> 0:24:53.036 have been massive changes that have taken place with respect 0:24:53.036 --> 0:24:56.396 to the banks. I mean truly massive. So then you 0:24:56.436 --> 0:24:59.396 have this other piece, the referees of the securities that 0:24:59.436 --> 0:25:02.596 were at the heart of the problem correct, and the 0:25:02.716 --> 0:25:06.156 referees haven't been reformed. And why do you imagine that is? 0:25:06.916 --> 0:25:10.356