Malcolm Gladwell on Preventing Financial Fraud … and Worse – ValueWalk Premium
Fraud

Malcolm Gladwell on Preventing Financial Fraud … and Worse

“There’s always an easy solution to every human problem – neat, plausible and wrong.” – H.L. Mencken, in The Divine Afflatus

Q3 2019 hedge fund letters, conferences and more

Fraud

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In his latest book, Malcolm Gladwell turns to a theme that matters greatly to financial advisors – preventing financial fraud and abuse. It is part of his broader inquiry into how we can avoid placing our trust in the wrong people.

Talking to Strangers is not about talking to strangers. It is a manual on how to avoid being victimized or bamboozled by evil, slippery, or amoral people. Well-written (Gladwell is always entertaining) and opinionated, it is an annotated compendium of case studies on how some of the world’s worst people got others – strangers – to believe their lies and get sucked into situations that range from profoundly tragic to merely unfortunate.

If you don’t talk to strangers because you’re afraid you’ll become a victim, you’ll never learn anything. Everyone except your mother was a stranger at some point in your life, and you only can learn by listening. The University of Chicago behavioral psychologist Nicholas Epley has a relevant take on talking to strangers, available here. According to Epley, talking to strangers will make you happier (that is my experience). Now, back to Gladwell, who does provide a helpful service, although not as helpful as one might want and certainly not the one advertised in the title.

The book has has considerable flaws. Like much of Gladwell’s work, it oversimplifies complex problems and overcomplicates simple ones.

Investors will be most interested in Gladwell’s recounting of how Bernie Madoff fleeced rich people and philanthropic institutions out of an astonishing $50 billion, providing a billion-dollar windfall for lawyers and misery for everyone else involved. But I’ll start with Adolf Hitler, because he continues to fascinate and horrify, and Gladwell has much to say about him.

Gladwell introduces a couple of psychosocial concepts that he finds useful in explaining the behavior revealed in his stories. One is “default to truth,” the idea that we assume, at least until we encounter contrary evidence, that what someone is telling us is true. The other is “mismatch,” a conflict between a person’s inner intentions and the way they present themselves. Hitler was a spectacular example of mismatch, in that, unless you were looking closely, his public persona seemed to belie his genocidal intent.

The consummate attractor

So, how did Adolf Hitler, a deranged man with murderous intent, come to rule one of the world’s most literate and cultured countries? Didn’t his history provide some clues?

Of course it did. A quick glance at his manifesto, Mein Kampf (1925), reveals that it prefigured almost everything he said and did as führer.1 Yet even the sophisticated Jewish newspapers of 1920s Germany pretty much ignored the book. The Times of Israel recently reported:

[W]hen Mein Kampf came out for the first time, 91 years ago, German Jews hardly noticed it… [T]he Jews’ reaction to Hitler’s screed, or rather the lack thereof, …said Othmar Plöckinger, who recently published a 700-page book with many historical sources dealing with Mein Kampf, “was a kind of not wanting to waste time with such nonsense.”2

And, although Mein Kampf did not specifically discuss genocide, Lorraine Boissoneault writes in The Smithsonian that “as early as 1922, [he told] journalist Josef Hell, ‘Once I really am in power, my first and foremost task will be the annihilation of the Jews.’”3

Gladwell suggests the probable reason that Hitler succeeded in coming to power despite flashing all the warning signs of a madman was that he epitomized the mismatch between intent and presentation that characterizes bad guys. He was “a consummate attractor,” said Sir Martin Gilbert, the official biographer of Churchill. Neville Chamberlain, the British prime minister who infamously sought to appease Hitler, was not the only one fooled. Gilbert recalled that other world leaders who met Hitler, having prepared themselves for a monster, thought he was “not such a bad chap.”4

Read the full article here by Laurence B. Siegel, Advisor Perspectives


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