WEBVTT - S4E18: Adam Grant and The OG Ponzi Scheme 0:00:01.040 --> 0:00:04.400 That's exactly the kind of weaponization of charisma that makes 0:00:04.440 --> 0:00:06.920 me extremely uncomfortable. In fact, I need to go take 0:00:06.920 --> 0:00:07.760 a shower right now. 0:00:08.039 --> 0:00:08.760 Can you hold. 0:00:11.200 --> 0:00:14.240 No, we can't wait for you to take We're gonna 0:00:14.240 --> 0:00:16.120 have to go with you into the shower. I'm afraid 0:00:16.280 --> 0:00:29.680 it's just the rules. That's also very creepy. All right, 0:00:29.760 --> 0:00:34.440 Welcome to Snafu, your favorite podcast about history's greatest screw 0:00:34.520 --> 0:00:37.280 ups and a little bit of reflection about what those 0:00:37.320 --> 0:00:42.000 screw ups say about us as human beings. Spoiler alert, 0:00:42.040 --> 0:00:45.960 most of it's not good. Most of the podcast is 0:00:46.040 --> 0:00:48.360 very good. What it says about us not so good. 0:00:48.600 --> 0:00:51.400 I'm at Helms, your host, and today I am joined 0:00:51.400 --> 0:00:53.760 by someone I've gotten to know over the past several years, 0:00:54.520 --> 0:00:58.160 mostly through a delightful pattern of us helping each other 0:00:58.240 --> 0:01:02.480 out with our book events, and last spring he even 0:01:02.560 --> 0:01:05.480 hosted me at Wharton and Philly to talk about my 0:01:05.600 --> 0:01:09.200 Snafu book, which I think makes me a visiting scholar 0:01:09.280 --> 0:01:14.080 at Wharton. Don't fact check that he's also best selling author, 0:01:14.160 --> 0:01:17.319 a tenured professor at the Wharton School of Business, an 0:01:17.480 --> 0:01:21.000 organizational psychologist, and truly one of the most thoughtful, perceptive 0:01:21.080 --> 0:01:25.360 voices on human behavior and culture. His latest book, Hidden Potential, 0:01:25.560 --> 0:01:29.080 The Science of Achieving Greater Things, debuted as a New 0:01:29.160 --> 0:01:32.560 York Times bestseller, which, by the way, is his sixth 0:01:32.720 --> 0:01:36.559 book to do so. I believe he is the wise, witty, 0:01:36.640 --> 0:01:40.319 and dangerously insightful Adam Grant. Adam, thanks so much for 0:01:40.360 --> 0:01:40.840 being here. 0:01:41.280 --> 0:01:45.360 Wow, that's quite an introduction. I feel like if I fail, 0:01:45.680 --> 0:01:48.000 I'll be living up to the podcast, but not my bio. 0:01:50.120 --> 0:01:54.680 I gotta ask the work you do falls under this 0:01:55.080 --> 0:02:00.400 rubric organizational psychology, which to me like I I feel 0:02:00.440 --> 0:02:01.720 like I have a sense of what you do, but 0:02:01.840 --> 0:02:04.960 that term is still kind of cryptic to me. How 0:02:05.000 --> 0:02:06.280 do you define it exactly? 0:02:06.400 --> 0:02:06.480 Like? 0:02:06.520 --> 0:02:09.520 What is your area of expertise? Exactly? 0:02:10.040 --> 0:02:12.120 Yeah, I'm here to figure out why your closet is 0:02:12.160 --> 0:02:16.600 a mess and then clean it up. No, I think 0:02:16.600 --> 0:02:18.360 the easiest way to describe what I do is I 0:02:18.400 --> 0:02:20.120 study how to make work not suck. 0:02:20.560 --> 0:02:22.480 And do you have a pithy answer? Is it just 0:02:22.480 --> 0:02:23.240 pay people more? 0:02:23.400 --> 0:02:25.520 I try to reform the Michael Scott's of the world. 0:02:26.000 --> 0:02:29.160 That's one I can I get. I can latch onto that. 0:02:29.560 --> 0:02:32.680 In your capacity as a business school professor, it's about 0:02:32.720 --> 0:02:37.720 sort of just deconstructing why and how people behave in 0:02:37.960 --> 0:02:40.359 good or bad ways? I guess is that fair? 0:02:40.520 --> 0:02:40.720 Well? 0:02:40.720 --> 0:02:43.960 Put, that's what I should have said. Okay, good, thanks 0:02:44.000 --> 0:02:45.040 for writing my lines for me. 0:02:45.200 --> 0:02:48.400 Ed Well, I also just copyrighted that so so I 0:02:48.400 --> 0:02:50.440 can't use it. You can, but you just have to 0:02:50.480 --> 0:02:51.200 pay me, that's all. 0:02:51.320 --> 0:02:51.480 Yeah. 0:02:51.760 --> 0:02:54.120 I should start by saying, I think you're the perfect 0:02:54.120 --> 0:02:57.640 guest for today's story because we're going to talk about scams, 0:02:58.160 --> 0:03:02.200 and it strikes me that your training and research and 0:03:02.280 --> 0:03:06.040 expertise in human behavior and psychology. Would that make you 0:03:06.080 --> 0:03:07.720 bulletproof from scams? 0:03:08.480 --> 0:03:11.600 No, it just makes me better at analyzing why I 0:03:11.639 --> 0:03:12.200 fell for them. 0:03:12.560 --> 0:03:15.560 Okay, it makes you more arrogant as you walk right 0:03:15.600 --> 0:03:16.320 into them. 0:03:17.600 --> 0:03:19.680 I'm immune to this. This will never affect me. 0:03:19.840 --> 0:03:23.000 And then oh, I have the language and the evidence 0:03:23.440 --> 0:03:25.840 to explain exactly where I just made it. 0:03:25.960 --> 0:03:26.240 Yes. 0:03:26.760 --> 0:03:29.919 Wait, so have you ever? Have you fallen for any 0:03:30.320 --> 0:03:32.200 scams You've been taken in in some way? 0:03:32.320 --> 0:03:36.200 I don't think I've fallen for a major scam like 0:03:36.240 --> 0:03:40.920 those Nigerian prints emails or a Ponzi scheme, but I've 0:03:40.920 --> 0:03:44.480 definitely been duped by people who take advantage of my 0:03:44.800 --> 0:03:48.000 tendency to trust other people. So sure I overpaid for 0:03:48.080 --> 0:03:52.000 my first car, did not realize it was possible to 0:03:52.040 --> 0:03:54.560 negotiate my first job offer. I don't know if those 0:03:54.600 --> 0:03:57.000 are scams, but I definitely got the short end of 0:03:57.000 --> 0:03:58.360 the stick in those situations. 0:03:58.720 --> 0:04:01.160 I feel like some of that that stuff kind of 0:04:01.280 --> 0:04:05.200 rides into scammy territory. Like I agree with you, I 0:04:05.800 --> 0:04:09.000 feel pretty vigilant about this kind of thing in general. 0:04:09.040 --> 0:04:11.480 But I had a plumber up sell me on this 0:04:11.600 --> 0:04:16.680 huge water filter system, and like I had hired him 0:04:16.720 --> 0:04:18.200 to do this thing, and then he was like, by 0:04:18.240 --> 0:04:20.080 the way, you don't have a water filter in your house, 0:04:20.080 --> 0:04:22.000 and if you thought about it in your neighborhood, you 0:04:22.040 --> 0:04:24.880 should have it. I was like, yeah, okay, great, and 0:04:24.920 --> 0:04:27.440 then I wound up having to hire another plumber like 0:04:27.480 --> 0:04:30.080 six months later for a different little job, and he 0:04:30.120 --> 0:04:33.560 immediately launches into his water filter speech, and I was like, 0:04:34.560 --> 0:04:37.040 oh God, and I felt like kind of a sucker. 0:04:37.440 --> 0:04:41.440 I don't know. And also, as I'm ADHD, and I 0:04:42.000 --> 0:04:45.720 feel like there's so much out there that sort of 0:04:46.120 --> 0:04:50.760 tries to prey upon the ADHD mind in a way 0:04:51.560 --> 0:04:54.839 that's like supposed to help an ADHD person. 0:04:55.360 --> 0:04:56.080 So interesting. 0:04:56.120 --> 0:05:00.680 I never connected this to neurodivergence before, but yeah, I 0:05:00.720 --> 0:05:04.039 can see the shiny object sort of put it in 0:05:04.040 --> 0:05:04.440 front of you. 0:05:04.880 --> 0:05:06.680 Oh I want one of those. 0:05:07.040 --> 0:05:10.480 Yeah, Well, it's targeting your shame. It's like the thing 0:05:10.520 --> 0:05:14.359 that has brought you this like sense of discomfort or 0:05:14.400 --> 0:05:18.320 shame or sort of fear in the world. And they're 0:05:18.320 --> 0:05:21.440 saying like, here's a like this app will fix it 0:05:21.480 --> 0:05:23.240 for you or this whatever. 0:05:23.640 --> 0:05:26.120 Well, I feel like this is the appropriate time to 0:05:26.160 --> 0:05:28.840 tell you about the productivity app that I've been building. 0:05:29.279 --> 0:05:33.520 I would trust you. Today's story is about a man 0:05:33.560 --> 0:05:38.720 whose legacy is so shady that practically every major grift 0:05:39.000 --> 0:05:42.320 of the last century bears his actual name. And yes, 0:05:42.520 --> 0:05:46.160 we're talking about the patron saint of financial flim flam 0:05:46.520 --> 0:05:50.719 ladies and gentlemen, the one and only Charles Ponzi. So 0:05:51.760 --> 0:05:58.640 buckle up. We're going to dive into sort of the 0:05:58.680 --> 0:06:02.120 origin of the Ponzi scheme and it is. It all 0:06:02.120 --> 0:06:05.280 starts with this guy, Charles Ponzi born in eighteen eighty 0:06:05.279 --> 0:06:10.560 two in Lugo, Italy as Carlo Pietro, Giovanni Guglielmo Tebaldo 0:06:10.760 --> 0:06:14.920 Ponzi and that's that's a lot of name right there. 0:06:15.600 --> 0:06:20.119 They're not messing around with that. His family had once 0:06:20.279 --> 0:06:23.000 been comfortable, but by the time he was in college 0:06:23.040 --> 0:06:26.240 at the University of Rome, they were not so well off. 0:06:26.320 --> 0:06:29.479 Instead of studying, the young Ponzi spent most of his 0:06:29.560 --> 0:06:34.680 time schmoozing with his rich friends in cafes and drawing 0:06:34.720 --> 0:06:38.520 down with little cash he had. Upon graduation. Broken restless, 0:06:38.839 --> 0:06:41.719 he did what generations of dreamers have done. He bet 0:06:42.200 --> 0:06:44.960 on America, and so off he went, landing in Boston 0:06:45.000 --> 0:06:47.520 in nineteen oh three. After a few years bouncing between 0:06:47.560 --> 0:06:50.840 odd jobs, he drifted north to Canada, and that, as 0:06:50.880 --> 0:06:57.120 it turned out, is where his real financial education would begin. Now, Adam, 0:06:57.400 --> 0:07:02.280 people who knew Ponzi just described him as unbelievably charismatic, 0:07:02.360 --> 0:07:04.039 like he's the kind of guy who could charm the 0:07:04.080 --> 0:07:06.520 paint off a wall. And I feel like we've all 0:07:06.600 --> 0:07:10.520 known these people and they can really cast the spell 0:07:10.560 --> 0:07:13.840 on us. So I'm just curious, like, from your vantage point, 0:07:14.240 --> 0:07:17.600 how do you see that level of charisma? Is it 0:07:17.640 --> 0:07:21.600 in an innate wiring or is it conditioning, or is 0:07:21.640 --> 0:07:24.200 it something we can sort of learn. I would imagine 0:07:24.240 --> 0:07:28.760 in a business school. Charisma is an extremely hot commodity. 0:07:28.880 --> 0:07:30.880 It can be so it is, it being a mix 0:07:31.000 --> 0:07:33.880 like everything else in human psychology of nurture and nature. 0:07:34.800 --> 0:07:38.000 Some people are born more naturally charismatic than others. They 0:07:38.120 --> 0:07:41.680 exude energy and enthusiasm, and they're very quick on their 0:07:41.720 --> 0:07:46.440 feet and flattering, and they often have superficial charm. But 0:07:46.680 --> 0:07:48.640 it does turn out to be a teachable skill. Wherever 0:07:48.680 --> 0:07:51.560 you start, you can improve from that baseline. Actually, it's 0:07:51.640 --> 0:07:55.679 some experiments by John Antinachus and colleagues where they take 0:07:55.800 --> 0:07:59.200 students and they teach them kind of the memes of charisma. 0:08:00.040 --> 0:08:02.040 They you know, they teach them to like to use 0:08:02.080 --> 0:08:05.920 the right vocal inflection and to make eye contact at 0:08:06.000 --> 0:08:09.760 critical moments, and you know, to master the nonverbal cues 0:08:10.440 --> 0:08:13.400 in terms of their gestures. And then they show that 0:08:13.840 --> 0:08:16.920 even six weeks later, when those students are giving a speech, 0:08:16.920 --> 0:08:18.480 they're judged is more charismatic. 0:08:19.240 --> 0:08:19.920 And huh. 0:08:19.960 --> 0:08:22.560 I'd become more and more reluctant to teach that skill because, 0:08:22.680 --> 0:08:26.840 as I think your description of ponzi is foreshadowing, it 0:08:27.200 --> 0:08:29.600 can be used for evil as well as good, and 0:08:29.920 --> 0:08:32.880 even if the intentions of the person wielding it are good. 0:08:33.600 --> 0:08:36.559 It tends to shut down the critical thinking of the audience. 0:08:36.600 --> 0:08:40.640 There's a paper on the awestruck effect that I loved 0:08:41.400 --> 0:08:44.000 showing that if if you're talking to somebody who's charismatic, 0:08:44.440 --> 0:08:47.679 you actually scrutinize their message less carefully. And so I 0:08:48.000 --> 0:08:49.760 like to think of that as the dumbstruck afact, and 0:08:49.960 --> 0:08:51.719 I think we should all be cautious about that. 0:08:51.840 --> 0:08:53.320 Wow, that is fascinating. 0:08:53.400 --> 0:08:56.040 I mean, I've look when we were talking earlier about 0:08:56.720 --> 0:09:00.000 have I ever been scammed? Like, the closest I've been 0:09:00.200 --> 0:09:03.960 scammed is kind of falling, falling for the spell of 0:09:04.000 --> 0:09:08.120 somebody who's very charismatic. Sure, and I think the best 0:09:08.120 --> 0:09:12.199 defense against that spell is not to interact with somebody directly. 0:09:12.240 --> 0:09:15.559 It's to read their writing, because then you strip away 0:09:16.360 --> 0:09:18.800 a lot of the you know, a lot of the 0:09:19.280 --> 0:09:22.319 kind of the irrelevant information that they might use to 0:09:22.360 --> 0:09:26.680 seduce you. And frankly, AI tools that made that much 0:09:26.679 --> 0:09:29.920 more difficult now. But I almost only want to teach 0:09:29.960 --> 0:09:34.480 charisma to people who have already demonstrated generosity, humility, integrity, 0:09:34.920 --> 0:09:36.560 the basic foundations of character. 0:09:37.000 --> 0:09:40.640 Wow, that's really cool. I have to say, if we 0:09:40.679 --> 0:09:44.559 could teach those people to be the most charismatic, then 0:09:44.960 --> 0:09:48.120 we might have hope for humanity. There was that famous 0:09:49.520 --> 0:09:53.720 Neil Strauss right The Game. The Game, which was essentially 0:09:53.760 --> 0:09:56.040 a version of this right, a kind of teaching of 0:09:56.480 --> 0:10:00.960 teaching people to like pick up women was a a 0:10:01.120 --> 0:10:05.319 very sort of skeazy version of charisma, I guess. 0:10:05.360 --> 0:10:10.480 A twisted version of it, where you wear odd clothes 0:10:10.520 --> 0:10:15.280 like goggles on your head to signal I'm above worrying 0:10:15.320 --> 0:10:16.680 about what other people think of me. 0:10:16.760 --> 0:10:19.200 I set my own trends. I'm a nonconformist. 0:10:19.720 --> 0:10:23.880 And then you go and insult women because it suggests 0:10:23.920 --> 0:10:26.079 that you're out of their league, and then all of 0:10:26.120 --> 0:10:29.400 a sudden, they, in some cases seem to take an 0:10:29.440 --> 0:10:32.800 interest in you. And that's exactly the kind of weaponization 0:10:32.840 --> 0:10:36.360 of charisma that makes me extremely uncomfortable. In fact, I 0:10:36.400 --> 0:10:38.800 need to go take a shower right now, can you hold. 0:10:41.160 --> 0:10:44.240 No, We can't wait for you to think we're gonna 0:10:44.240 --> 0:10:46.080 have to go with you into the shower. I'm afraid 0:10:46.240 --> 0:10:49.480 it's just the rules. That's also very creepy. So in 0:10:49.559 --> 0:10:53.439 nineteen oh seven, Ponzi landed in Montreal and scored a 0:10:53.520 --> 0:10:55.800 job as an assistant teller at a small bank serving 0:10:55.840 --> 0:10:59.120 Italian immigrants, and it was there that he witnessed the 0:10:59.160 --> 0:11:03.040 original model of the scam he would later perfect. His boss, 0:11:03.120 --> 0:11:08.840 Luigi Zorosi, lured depositors with absurdly generous interest rates, and 0:11:09.240 --> 0:11:13.520 amazingly he would pay them, of course, by funneling new 0:11:13.559 --> 0:11:17.800 deposits straight to the earlier investors. It was a beautifully 0:11:17.880 --> 0:11:22.360 unsustainable system. So when the bank inevitably crashed and Zorosi 0:11:22.480 --> 0:11:26.920 bolted for Mexico to avoid accountability, Ponzi was left behind, 0:11:27.160 --> 0:11:32.040 unemployed but newly educated in the fine art of financial 0:11:32.080 --> 0:11:35.520 tom foolery. Now most of us would look at this 0:11:35.559 --> 0:11:41.280 whole mess and think, okay, well that backfired. Maybe crime 0:11:41.480 --> 0:11:44.600 doesn't pay. What can you tell us about the psychology 0:11:44.640 --> 0:11:48.120 of someone who definitely does not learn that lesson, in 0:11:48.160 --> 0:11:52.040 fact sort of learns the opposite lesson of like here's 0:11:52.160 --> 0:11:56.640 more opportunity. I mean, do you see like sociopathy at 0:11:56.720 --> 0:11:59.960 play or is it just sort of that healthy or 0:12:00.080 --> 0:12:03.080 or maybe unhealthy ego with a kind of rules don't 0:12:03.120 --> 0:12:06.200 apply swagger. I mean, how dark is that? 0:12:07.000 --> 0:12:10.040 So there are three traits that would normally predict being 0:12:10.120 --> 0:12:14.560 attracted to that kind of that kind of scheme and 0:12:14.760 --> 0:12:17.400 The psychologists call them the dark Triad, and you hit 0:12:17.440 --> 0:12:21.240 on one of them pretty closely. Anyway, they're being a narcissist, 0:12:21.440 --> 0:12:26.920 being Machiavelian, and being a psychopath. H And I think 0:12:27.240 --> 0:12:31.280 we're probably talking about Machiamelianism here more than we are 0:12:31.720 --> 0:12:35.920 being a narcissist or a psychopath or sociopath, because what 0:12:35.920 --> 0:12:38.080 this kind of scheme is really about is it's about 0:12:38.160 --> 0:12:41.679 manipulating other people and using them for personal gain. And 0:12:42.160 --> 0:12:44.280 you don't have to have a giant inflated ego to 0:12:44.320 --> 0:12:47.160 want to do that. You don't have to feel no 0:12:47.280 --> 0:12:50.640 empathy for other people. You just have to be a 0:12:50.679 --> 0:12:54.520 little bit callous around, feeling like, you know what, I 0:12:54.920 --> 0:12:57.640 can use other people a little bit. And in fact, 0:12:58.080 --> 0:12:59.839 I think part of the appeal of a Ponzi scheme 0:12:59.920 --> 0:13:02.440 is you look at that and you say, well, you know, 0:13:02.679 --> 0:13:05.079 if I can keep it going, actually I'm going to 0:13:05.120 --> 0:13:07.480 profit and no one else is going to get hurt 0:13:07.720 --> 0:13:11.160 because each like each each former investor is going to 0:13:11.160 --> 0:13:12.720 get their money back because of a new one. And 0:13:12.760 --> 0:13:14.480 so all I have to do is perpetuate it. And 0:13:15.080 --> 0:13:17.800 you know, I'm just I'm exploiting a loophole in the system. 0:13:17.880 --> 0:13:20.720 I'm not exploiting people so much. And I think if 0:13:20.760 --> 0:13:23.439 you tell yourself that story, you probably sleep at night. 0:13:23.520 --> 0:13:26.600 And it doesn't it doesn't require much more than a 0:13:26.640 --> 0:13:28.079 little bit of machiavellianism. 0:13:28.440 --> 0:13:32.559 Now we're still in Montreal. Ponzi happened to wander into 0:13:33.960 --> 0:13:37.360 a one of the former client's office from the failed 0:13:37.440 --> 0:13:40.240 bank he had been working at, and he found it 0:13:40.280 --> 0:13:45.360 completely unattended peak early nineteen hundred's security at work. He 0:13:45.400 --> 0:13:49.240 poked around, spotted an unguarded check book and thought, well, 0:13:50.120 --> 0:13:52.320 no mind of ad and he wrote himself a check 0:13:52.360 --> 0:13:55.000 for four hundred and twenty three dollars and fifty eight cents, 0:13:55.040 --> 0:13:59.199 which I love the specificity because that seems so official. 0:14:00.559 --> 0:14:03.679 That's like such an amount, right, it seems like something 0:14:03.679 --> 0:14:06.520 that would be like, oh, that's a no, one would 0:14:06.520 --> 0:14:08.400 just make up that number. But that's a lot of money. 0:14:08.440 --> 0:14:11.840 It's worth about fifteen grand in today's money. So he 0:14:12.000 --> 0:14:14.840 forged the manager's signature and he strolled out just like 0:14:14.920 --> 0:14:17.840 he'd been picking up dry cleaning. He was caught almost 0:14:17.840 --> 0:14:21.360 instantly because he spent this dolen money so loudly that 0:14:21.400 --> 0:14:25.320 Montreal police were basically like, how is this broke guy 0:14:25.560 --> 0:14:29.720 suddenly like flashing wads of money and eating in fancy restaurants. 0:14:30.560 --> 0:14:33.160 So Ponzi was arrested and he spent the next three 0:14:33.280 --> 0:14:38.240 years in a bleak penitentiary outside of Montreal. Not a 0:14:38.280 --> 0:14:43.440 great return on investment so far. Here's a mug shot 0:14:43.440 --> 0:14:47.800 from nineteen ten. Let's take a look. I mean, how 0:14:47.800 --> 0:14:49.880 do you not love this guy? Look at the twinkle 0:14:49.920 --> 0:14:53.520 in his eye and the mustache. This is a mug 0:14:53.560 --> 0:14:55.480 shot and he looks like someone I want to just 0:14:55.520 --> 0:14:56.240 have a beer with. 0:14:56.800 --> 0:14:59.040 I will not be joining you for that vier ed there, 0:14:59.080 --> 0:14:59.840 tell me about. 0:14:59.600 --> 0:15:02.760 His smirk under that mustache. That's like it's got a 0:15:02.800 --> 0:15:04.760 little charmed to it. Yes, wedding. 0:15:04.960 --> 0:15:09.640 He sort of reminds me of mister Bean. Mister Bean, 0:15:10.360 --> 0:15:12.400 he could be Rowan Atkinson in love. 0:15:12.440 --> 0:15:14.360 Actually, there you go. That's what I'm seeing. 0:15:15.960 --> 0:15:20.960 That's not as flattering a the piction. Now this part 0:15:21.040 --> 0:15:23.120 kills me. Rather than tell his mother that he was 0:15:23.160 --> 0:15:26.800 in prison, Bonzi wrote home to Italy, proudly announcing he'd 0:15:26.880 --> 0:15:30.240 landed a job as a special assistant to the warden, 0:15:31.360 --> 0:15:35.760 thus explaining his the letters coming from a prison. I 0:15:35.760 --> 0:15:38.320 think we all lie to our parents, right just to 0:15:38.400 --> 0:15:40.520 kind of make ourselves feel better or look good in 0:15:40.560 --> 0:15:45.520 a situation. Any memorial occasions. Memorable occasions, Yeah, Adam Grant 0:15:45.640 --> 0:15:46.640 lying to mom or Dad. 0:15:47.080 --> 0:15:51.440 Oh, I told a white lie to my mom after 0:15:51.520 --> 0:15:54.560 Halloween one year, that I didn't sneak candy with a 0:15:54.600 --> 0:15:55.920 friend from the candy drawer. 0:15:56.360 --> 0:15:57.760 That's as bad as it gets. 0:15:58.280 --> 0:16:02.160 It's the worst one. I felt so much shame after that. 0:16:02.560 --> 0:16:03.120 Never again. 0:16:03.480 --> 0:16:07.400 Yeah, it's funny these formative things like at that moment, 0:16:07.600 --> 0:16:09.640 how old were you? You were young enough that the 0:16:09.720 --> 0:16:12.120 steaks felt catastrophic. 0:16:12.680 --> 0:16:15.040 I think I was ten, and the friend started it, 0:16:15.120 --> 0:16:18.400 and then the drawer was open, and I felt like, okay. 0:16:18.640 --> 0:16:19.400 Yeah, go for it. 0:16:20.040 --> 0:16:24.680 I remember my friend took like, stole a pack of 0:16:24.720 --> 0:16:27.800 his mom's cigarettes and we were I think I was 0:16:27.800 --> 0:16:32.880 about ten, and and he was like, let's smoke a cigarette. 0:16:33.560 --> 0:16:38.560 And I was like, are you insane? This is crazy. 0:16:38.560 --> 0:16:42.080 We can't smoke. Say, we're children. Cigarettes and candy the 0:16:42.120 --> 0:16:45.200 things that get us in trouble as children. Okay. Charles 0:16:45.240 --> 0:16:49.760 gets out of prison and he heads back down to Boston, 0:16:49.960 --> 0:16:54.200 and this is where he would hatch the truly epic 0:16:54.280 --> 0:16:56.640 scam that would make him a legend, and it all 0:16:56.680 --> 0:17:00.440 began with a quirky little nugget of postal Beueru incracy 0:17:00.520 --> 0:17:04.720 known as the International Reply coupon. This was basically a 0:17:04.760 --> 0:17:07.800 prepaid postage voucher, so you'd buy one at your local 0:17:07.840 --> 0:17:10.440 post office, stick it in your letter to someone overseas, 0:17:10.760 --> 0:17:13.919 and then they could exchange it in their country For 0:17:14.000 --> 0:17:16.440 these stamps needed to write you back, so it was 0:17:16.520 --> 0:17:20.639 kind of like putting a prepaid envelope in your letter 0:17:20.680 --> 0:17:23.520 to someone so that they could write you back more easily. 0:17:23.800 --> 0:17:25.960 Here's where things got interesting. The system was created in 0:17:26.040 --> 0:17:28.960 nineteen oh six with fixed exchange rates, but after World 0:17:29.040 --> 0:17:33.480 War One those rates went completely out of whack across Europe. 0:17:34.000 --> 0:17:38.160 So cut to nineteen nineteen. Ponzi received a reply coupon 0:17:38.440 --> 0:17:41.800 from Spain which had been purchased for about one cent 0:17:42.119 --> 0:17:46.600 in Spain, but it was redeemable for six cents worth 0:17:46.640 --> 0:17:52.800 of US stamps, and that tiny arbitrage flicked a switch 0:17:53.240 --> 0:17:57.600 in Ponzi's brain, so he launches a company to buy 0:17:57.720 --> 0:18:01.680 reply coupons in bulk overseas, send them back here to America, 0:18:01.720 --> 0:18:04.280 and then redeem them for a tidy prophet. Not a 0:18:04.280 --> 0:18:08.760 bad idea. But then comes the big leap. Ponzi scales 0:18:08.880 --> 0:18:13.520 up like bigle He invites investors, promising and eye popping 0:18:13.720 --> 0:18:18.200 fifty percent return in forty five days. Bostonians are flocking 0:18:18.240 --> 0:18:21.200 to him, and soon he has started a company called 0:18:21.200 --> 0:18:26.280 the Securities Exchange Company, which has a very sophisticated and 0:18:26.440 --> 0:18:29.480 legit ring to it, and he had offices stretching from 0:18:29.520 --> 0:18:32.719 Maine to New York. Now it's worth pointing out that 0:18:33.200 --> 0:18:38.840 this business model was definitely cheeky, but it was not illegal. 0:18:39.640 --> 0:18:43.760 Investors were getting paid as promised. In fact, and this 0:18:43.880 --> 0:18:46.879 is very wild. A few government officials who went poking 0:18:46.880 --> 0:18:50.960 around to verify the legitimacy of Ponzi's operations actually ended 0:18:51.040 --> 0:18:55.480 up investing with him. For a while there, everything was 0:18:55.520 --> 0:18:58.280 coming up Ponzi. You know, he's got all this newfound 0:18:58.280 --> 0:19:03.480 wealth and in a tasteful new mansion with enough room 0:19:03.520 --> 0:19:06.520 for his wife Rose and his mother, who he brought 0:19:06.560 --> 0:19:09.879 over from Italy. I mean, come on, this guy's what 0:19:09.960 --> 0:19:12.080 a gentleman. He's taking care of his own mother. But 0:19:12.880 --> 0:19:18.520 Ponzi's projected squeaky clean, charitable image was not going to last. 0:19:18.840 --> 0:19:22.280 What's happening behind the scenes is actually getting pretty shady, 0:19:22.400 --> 0:19:25.760 and even the pros who are coming to investigate him 0:19:26.200 --> 0:19:30.200 are missing the signs. So I'm just curious, like from 0:19:30.240 --> 0:19:34.359 your Wharton perspective, like, what are the red flags that 0:19:34.400 --> 0:19:37.320 you can actually you know, like you talked about the 0:19:37.440 --> 0:19:41.040 what was it the triangle of the dark triad? The 0:19:41.119 --> 0:19:44.480 dark triad? Excuse me, but those are things that might 0:19:44.560 --> 0:19:47.960 exist in someone that we can't immediately perceive. So what 0:19:48.160 --> 0:19:51.200 are red flags that we might jump out at us 0:19:52.119 --> 0:19:56.640 when somebody might be perpetrating a scam apart from the obvious, 0:19:56.800 --> 0:19:58.920 like you know, mustache twirling, et cetera. 0:20:00.160 --> 0:20:03.160 Yeah, the best data on this actually are hedge fund 0:20:03.240 --> 0:20:08.440 managers being interviewed, where you see that the most self 0:20:08.480 --> 0:20:10.600 centered ones, the ones who are most likely to take 0:20:10.600 --> 0:20:14.360 advantage of other people, are the ones who just spontaneously 0:20:14.400 --> 0:20:17.240 start grinning when talking about other people failing. 0:20:18.080 --> 0:20:19.080 And if you feel. 0:20:18.880 --> 0:20:22.560 That kind of shot in freuda and you enjoy seeing 0:20:22.560 --> 0:20:28.840 other people flop in your language, ed, if like seeing 0:20:28.840 --> 0:20:33.800 somebody else's snafu makes your day, that is I mean 0:20:33.840 --> 0:20:35.639 that to me is a huge red flag. 0:20:36.320 --> 0:20:40.040 Wow, yeah, that feels that feels like pretty much everyone 0:20:40.400 --> 0:20:42.879 we see on the news these days. There's just like 0:20:43.040 --> 0:20:47.679 gloating is a real problem right now, gloating, which is 0:20:47.760 --> 0:20:52.680 essentially sort of like the what it's like the bragging response, 0:20:52.960 --> 0:20:56.399 the bragging articulation of schadenfreude. 0:20:57.080 --> 0:20:59.840 Yeah, and then there's a there's a cousin of that 0:21:00.320 --> 0:21:05.119 in some ways moral grandstanding, you know, kind of like 0:21:06.119 --> 0:21:10.359 sort of self promoting as just morally superior to other people, 0:21:11.000 --> 0:21:14.640 which tends to go hand in hand with narcissism, and 0:21:15.440 --> 0:21:17.240 I think we also see a lot of that today 0:21:17.280 --> 0:21:20.520 in scammers. If you believe that you operate a higher 0:21:20.560 --> 0:21:23.520 moral plane than other people, then it's very easy to 0:21:23.640 --> 0:21:25.200 justify and rationalize what you're doing. 0:21:30.200 --> 0:21:34.040 Eventually, Ponzi's activity caught the canny eye of New York 0:21:34.080 --> 0:21:38.600 City Postmaster Thomas G. Patton, now, being a master of 0:21:38.640 --> 0:21:40.919 the post patent, knew a thing or two about international 0:21:40.960 --> 0:21:46.280 reply coupons, like, for instance, there simply weren't enough in 0:21:46.320 --> 0:21:52.280 circulation to explain the magnitude of Ponzi's outrageous earnings. So 0:21:53.520 --> 0:21:59.359 it just like his business model was completely incompatible with 0:21:59.400 --> 0:22:03.480 the amount of money he was making objectively, just by 0:22:03.480 --> 0:22:06.080 the math. Patten wasn't the only one to notice funny 0:22:06.200 --> 0:22:09.800 math here. It seems one of the business secrets Ponzi 0:22:09.880 --> 0:22:13.359 kept closely guarded was that he was not buying many 0:22:13.800 --> 0:22:16.840 reply coupons at all. Rather, to maintain the illusion of 0:22:16.880 --> 0:22:21.439 abundant prosperity, Ponzi was using deposits from new investors to 0:22:21.640 --> 0:22:25.600 pay out the returns to old investors. And there you 0:22:25.680 --> 0:22:30.639 have it, the classic Ponzi scheme. Adam. What blows my 0:22:30.760 --> 0:22:34.560 mind is that the Ponzi scheme isn't just risky, it 0:22:34.640 --> 0:22:39.240 is literally impossible to sustain. Like it's a financial Jenga 0:22:39.320 --> 0:22:42.000 tower and it's definitely going to fall over. Why do 0:22:42.119 --> 0:22:46.720 smart people convince themselves that somehow it won't. 0:22:47.040 --> 0:22:48.760 I think that there are a couple of ways to 0:22:48.800 --> 0:22:51.240 explain this. One is, you know, it's just a sort 0:22:51.240 --> 0:22:54.600 of tunnel vision, right, You're only focusing on getting the 0:22:54.600 --> 0:22:57.400 next investor on board, and you're not looking far enough 0:22:57.440 --> 0:23:00.919 into the future or maybe wide enough to see that 0:23:02.080 --> 0:23:04.840 somebody is about to come and knock over your Jenka tower, 0:23:05.600 --> 0:23:08.360 or if even one block it gets pulled out, you're screwed. 0:23:09.840 --> 0:23:12.480 I think that's that maybe one one factor I play it. 0:23:12.480 --> 0:23:14.800 I think another one that that stands out though, that 0:23:14.840 --> 0:23:18.879 we don't talk about enough is what psychologists call the 0:23:18.880 --> 0:23:23.560