War on Cops, Risk in Finance, Be Happy, Casablanca

Sunday June 13, 2021

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What Happens Next offers listeners an in-depth analysis of the most pressing issues of the day.
Our experts are given just SIX minutes to present. This is followed by a Q&A period for deeper engagement.

This week’s topics include Good Policing, Risks in Finance, Being Happier, and the Movie Casablanca.

Our first speaker today is Heather Mac Donald who is the Thomas W, Smith Fellow at the Manhattan Institute and Contributing Editor of the City Journal. She has written several books but today I want to focus on her book The War on Cops: How the New Attack on Law and Order Makes Everyone Less Safe. On What Happens Next, we have discussed policing and issues of race, and today, I hope to learn about why attacking the police might undermine the safety of minority communities.

Our second speaker is Chris Varelas who was a colleague of mine at Salomon Brothers in the 1990s. Chris has a new book entitled How Money Became Dangerous: The Inside Story of our Turbulent Relationship with Modern Finance. I’ve asked Chris to tell a couple of stories from this storied career that will help us appreciate how much banking has changed from an entrepreneurial culture to a stodgy and boring business.

Our third speaker is Tal Ben-Shahar who is a positive psychologist. Tal has a new book called Happier, No Matter What: Cultivating Hope, Resilience, and Purpose in Hard Times. Tal will give us some tips on how to enjoy life and deal with catastrophe like COVID or the next unexpected problem that affects us individually or collectively.

Our final speaker is Aljean Harmetz who previously was the NY Times Hollywood Correspondent and is one of the pre-eminent film historians. She wrote the definitive history of a movie classic entitled The Making of Casablanca: Bogart, Bergman, and WW2. I hope to learn from Aljean how Casablanca had one of the greatest scripts in the history of film, despite having multiple writers working on the script simultaneously. I also want to find out why the 1943 best picture became a cult classic.

I would like to expand our audience of What Happens Next so that more people can enjoy our programming. I started a social media outreach using Twitter. We want to increase user engagement and we want you to be part of a community of interested listeners. I am going to continue an experiment today where I include twitter questions on the live program, so please tweet me and I will do my best to include your comments.

With that I would like to introduce our first speaker Heather Mac Donald to speak about the ongoing War with the Cops, and why this fight will make us all less safe.


Heather Mac Donald

Bio: Thomas W, Smith Fellow at the Manhattan Institute and Contributing Editor of the City Journal.
Topic: Defending the Police, and Law and Order
Reading: The War on Cops: How the New Attack on Law and Order Makes Everyone Less Safe ishere


Larry Bernstein:
With that I would like to introduce our first speaker Heather Mac Donald to speak about the ongoing War with the Cops, and why this fight will make us all less safe.

Heather Mac Donald:
Today, I’m going to examine the claim that policing is systemically biased, particularly when it comes to the use of lethal force. I’m going to argue that the claim is an optical illusion, created by selective media coverage. I’m going to throw some numbers out here because I infer this is a crowd that can handle it.

Every year, the police fatally shoot about a thousand people, the vast majority of whom are threatening the officer or a bystander with deadly force. About 50% of those police fatalities are white and about 25% are black. The Black Lives Matter folks look at that 25% number and proclaim police bias, since blacks are about 12% of the population. That is the wrong benchmark, however.

Police activity should be measured against crime, not population ratios. And if there’s one thing to take away from this talk, it’s that, the problem of the benchmark. Policing today is data driven. Officers are deployed to where people are most being victimized and that is in minority neighborhoods. And it is in minority neighborhoods where officers are most likely to interact with armed, violent, and resisting suspects, which predicts officers’ own use of force.

In the 75 largest US counties, which is where most of the population resides, blacks constitute around 60% of all murder and robbery defendants, though they are only 15% of the population in those counties. Nationwide, blacks commit homicide at eight times the rate of whites and Hispanics combined. In Chicago, blacks commit about 80% of all shootings and homicides, though they are less than a third of the population. Whites commit about 2% of all shootings and homicides in Chicago. A black Chicagoan is 50 times more likely to commit a shooting than a white Chicagoan.

These disparities are repeated in every American city and they have enormous consequences for police use of force. The greater the chance that officers confront armed and resisting suspects, the more likely they are to escalate their own use of force and that chance is far higher in black communities. So that 25% or so share of fatal police shootings each year comprised of black victims, when measured against a crime benchmark, does not support the Black Lives Matter narrative.

What about individual cases? George Floyd’s death was immediately portrayed as a symbol of systemic anti-black police violence, but if we conclude from an individual case that the police are biased against black men, we could just as easily conclude from other individual cases that the police are biased against white men.

Take the death of Tony Timpa, which adumbrated the death of Mr. Floyd. In 2016, the 32-year-old schizophrenic called 911 in Dallas to report that he was off his medication, frightened, and in need of help. Three Dallas police officers responded and kept him face down on the ground for 13 minutes with a knee to his back, all the while joking about Timpa’s mental illness. Timpa was handcuffed and had not resisted or threatened the officers. He pleaded for help more than 30 times, exclaiming that the cops were killing him. He was dead by the time the officers loaded him into the ambulance.

Very few Americans outside of Timpa’s family know his name. His death did not make international news or spur widespread riots. Because Timpa was white, his death did not fit the Black Lives Matter narrative and this was of no interest to the activists or to the press. There are many more Tony Timpas. The perception that questionable police tactics occur almost exclusively against black males is a function of what the media choose to cover.

The charge that blacks are at daily risk of white supremacy extends beyond police/civilian interactions to civilian-on-civilian interactions. As Lebron James tweeted, quote, “We are literally hunted every day, every time we step outside the comfort of our homes.” This, too, is a sentiment at odds with the data. In the universe of all non-lethal, interracial violence between blacks and whites, blacks commit 88% of that interracial violence, whites 12%. It also bears noting that a police officer is anywhere from 15 to 30 times more likely, depending on the year, to be killed by a black male than an unarmed black male is to be killed by a police officer.

In conclusion, the deligitimation of law enforcement, the constant message that officers are racist simply for fighting crime have led to demoralization and depolicing. Last year, homicides in the US saw the largest annual percentage increase in recorded history. That crime increase is continuing into 2021. The law-abiding residents of high-crime communities have been the initial victims of this growing wave of lawlessness. Last year, over four dozen black children nationally were fatally gunned down in drive-by shootings, shot in their bedrooms, back porches, and at birthday parties. None of them was killed by a cop or by a white criminal. They were all shot by black gang bangers.

The only thing that will slow this false narrative about police racism is if white children start being gunned down in drive-by shootings, as well. The allegedly anti-racist press ignores young black victims, but goes into crisis mode when white children are shot, as the reaction to rare school shootings shows. Cumulatively, there are several Newton, Connecticuts every year in the black community. Only police pay consistent attention. It is not just lives that are at stake. This attack on law enforcement undermines our justice system and fundamental rights. It is essential, therefore, to counter the lies about the police and to hope that reason still has a place in public discourse. Thank you, Larry, for this opportunity to address our audience.

Questions for Mac Donald

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Chris Varelas

Bio: Co-Founder of Riverwood Capital and former Salomon/Citi Investment Banker in Media and Technology and former head of Citi’s National Investment Bank
Topic: Lessons Learned at Salomon Brothers. And Current Risks to the Financial System
Reading: How Money Became Dangerous: The Inside Story of our Turbulent Relationship with Modern Finance is here.


Larry Bernstein:
We’re going to go on our next speaker. Christopher Varelas. Chris is a former Salomon Brothers and Citibank Investment Banker, where we worked on the same team. He worked in the media technology group and is the former Head of Citibank’s National Investment Bank. Chris has a new book out entitled How Money Became Dangerous: The Inside Story of Our Turbulent Relationship with Modern Finance.

Chris Varelas:
I would like to talk about how the financial system has become extremely complex beyond the comprehension of oversight of any one person or institution, friends and colleagues, both inside and outside the industry, lament this complexity, feeling vulnerable and exposed to it. Seemingly random volatility. This is a relatively recent phenomenon. Much of the complexity has arisen over the past generation. My parents and most in their generation only concern themselves with two numbers. Interestingly, they were both years. The year they paid off their mortgage and the year they qualified for their pension, but that is no longer enough. I now receive endless questions about all aspects of the financial world, as I’m sure many of the people on this call do as well. I get questions about inflation, deflation, MMT, SPACs, crypto, meme stocks. What is one to do in a rapidly evolving world that one does not know, or understand well enough, to make informed decisions?

The answers are not simple. They’re never easy and seldom satisfying. Each financial complexity seems built on in a function of many interrelated forces. To help explain this complexity, and how we got to this point, I wrote the book, How Money Became Dangerous, to explain the most important 10 plus evolutions in the financial system over the past 35 plus years. I start with a simple creation of the computer spreadsheet in the eighties. The computer spreadsheets, super-charged financial innovation, it allowed us to ask and model what is possible rather than being confined to the single scenario analysis of what is most likely. It also removed the incentive to include character assessment, and financial analysis, as there is no column for character in a spreadsheet. We all know what happens to those things not measured. From there, I go on to Salomon Brothers, arguably the most freewheeling Darwinistic firm in the history of the corporate world, of which much has been written.

Salomon was the first partnership that turned into a public company to tie compensation to individual rather than firm performance. The balance sheet became other people’s money, which combined with an eat what you kill corporate compensation structure led directly to the US Treasury bond scandal in the early 1990s. Arguably, the first time the poorly supervised actions of just one person with access to vast resources shook the financial world. Salomon Brothers, where Larry and I both worked, highlight perhaps better than any firm the dual nature of finance. Both the good and the bad, which the world of money provides us. Larry and I both had the good fortune of working there at its zenith. People were truly amazing, brilliant, and unique. Always pushing the envelope. Their talents proven out by the amazing things alumni have gone on to do. Michael Bloomberg, just to name one. In the book, I use the legendary, now legendary fortune cookie’s story, at a critical point in its corporate history, Salomon was advising Northrop on his strategic alternative.

We of course, created an analysis with hundreds of pages, computer spreadsheets, built burning hundreds of man hours. At the point of the big meeting, circumstance left Eduardo Mestre, the Head of Mergers and Acquisition, and myself, a lowly associate alone without the presentation for the big meeting. We had nothing. While commiserating as to what we should do, I showed Eduardo a fortune cookie, joking how it seemed to summarize ours and Northrup’s current situation. Eduardo’s eyes lit up and he told me to blow the fortune cookie up on one page and make a bunch of copies and said, “Let’s go in with that.” We went into the boardroom with just a fortune cookie and convinced Northrup, in arguably its most important meeting of its corporate history, to go hostile on Grumman, which changed the arc of Northrup and the entire aerospace industry. That was pure Salomon Brothers.

With freedom comes risk. Individuals left to their own devices combined with a large balance sheet, low accountability, and limited oversight is a recipe for bad outcomes in crisis. The creation of the financial supermarket was the inevitable result. These supermarkets hope to get the scale and scope to achieve the benefits of a globalizing economy, but needed to create a limiting culture and standardized process of oversight. Salomon was absorbed by Travelers Insurance and Citibank to become Citigroup, the largest financial institution at the time, with over 400,000 employees operating in over 100 countries. The only company I believe to have more locations in other countries than McDonald’s. My career did benefit from that scale and scope. I was able to offer my clients everything they could possibly need, but it came with a stifling bureaucracy. What is better? The complete freedom and liberty to constantly push the envelope of innovation and risk? Or the scale and scope of the financial supermarket in the globalizing world?

Not an easy question, but it has huge implications for the ability to attract talent and manage risk. I cover many other changes, and bring it all together in the end, with a focus on the pension system told through an inside perspective on the Orange County and Stockton California bankruptcies, which together truly highlight how the state and local pension system is broken. In short, return assumptions for most pension funds are bogusly high in order to avoid cash pressures on the cities, unions, and other entities funding those pension programs. Nobody in charge has the incentive to call it out. The politicians in charge that influence, or often sit on the pension board themselves, in fact, make it worse by using the aggressive return assumptions to issue even more pension benefits, making the hole bigger while kicking it down the road, knowing they won’t be around when the bill comes. This in turn creates dangerous knock-on effects, pension fund investments are moving further down the risk curve in search of yield in hopes of achieving their unrealistic return assumptions.

This is one of the reasons we see so much wealth being allocated and invested in the illiquid space of private equity, venture capital, and hedge funds. This dynamic is also certain. This is setting up with a certain, to be a huge political value battle over who is responsible for filling a multi-trillion-dollar gap. In close, the financial world has fascinated me for over my 35-year career spanning almost every vertical within the industry from commercial banking, to trading, to M&A, to private equity. I love it, because this is where practice and principle most often collide with a constant instantaneous scorecard. The next 35 years, it’ll be just as interesting. Let’s hope it goes well. As of now, the outcome is highly uncertain.

Questions for Varelas

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Tal Ben-Shahar

Bio: Pioneering Positive Psychologist
Topic: Be Happier
Reading: Happier, No Matter What: Cultivating Hope, Resilience, and Purpose in Hard Times is here

Larry Bernstein:
Our next speaker is Tal Ben-Shahar. He is a Pioneering Positive Psychologist, and he’s the author of Happier, No Matter What: Cultivating Hope, Resilience, and Purpose in Hard Times. Tal, why don’t you tell us how to be happy?

Tal Ben-Shahar:
Thank you, Larry. I’ll actually tell you how to be happier rather than happy. I started off in this field of Positive Psychology, the science of happiness, because of my own unhappiness. Many people ask me today, “Tal, 30 years hence. Are you finally happy?” My answer to that is that I don’t know, because I don’t think there is a point before, which we’re unhappy after which we are happy. In other words, it’s not a binary zero one, rather it is a continuum. The continuum means that this is a journey. A journey that ends when life ends. How do we become happier? It’s not easy talking about this question today in our predicament. One of my friends recently said to me, “Tal, shouldn’t we quarantine happiness. At least until this whole COVID-19 is over, or the social unrest phase is over?”

My answer to that is no. I actually think that the science of happiness is more important than ever. Here is why. I want to draw on a term that was coined by NYU professor Nassim Taleb. The term is anti-fragility. What is anti-fragility? Anti-fragility, the opposite of fragility, is essentially taking resilience to the next level. When we talk about resilience, a term actually taken from engineering, we’re talking about the ability of certain material to go back to its original form after pressure, or stress, has been put on it. You squish a piece of rubber, and it goes back to its original form subsequently, or you throw down a ball and the ball’s resilient. It bounces back up. That’s why when we talk about resilience, we talk about bouncing back. Anti-fragility takes this idea a step further. It’s about putting pressure on a system, on material, and as a result of that pressure, it doesn’t just go back to where it was before.

It actually grows stronger, bigger, better as a result of that pressure. You drop a ball. If it’s anti-fragile, it doesn’t just bounce back to where it was before. It bounces back higher. Now, it turns out that there are anti-fragile systems all around us and within us. A very simple example is our muscular system. You go to the gym and you put pressure on your muscles. As a result of that pressure, subsequently after, maybe a week, a month, a year, you grow stronger, bigger, healthier, better as a result of the pressure that was put on your system. We are physiologically and anti-fragile system, but not just physiologically, also psychologically. Most of the students that I teach most, not all, are psychology majors.

I always ask them the following. I say to them, “I’d like you to put your hand up if you know what PTSD is.” All hands, almost psychologists or non-psychologist, go up. PTSD. Post-Traumatic Stress Disorder. They studied it in psych one, or they read about it in the newspapers. They know what it is. Then I say, “Okay, put your hands down. I have a second question for you. The second question is, put your hand up if you know what PTG is.” Very few, if any, hands go up. PTG stands for Post-Traumatic Growth. Now, here’s the thing. Post-traumatic Growth is potentially twice as likely as post-traumatic stress disorder. In other words, growing through trauma from trauma, anti-fragility, is twice as likely as breaking down as a result of trauma for agility. If, and this is a big if, two things happen. The first thing is that we know about the possibility of post-traumatic growth.

We know about the very existence of anti-fragility. Just knowing about it significantly increases the likelihood there off. Now, as I pointed out earlier, very few people know about the PTG and therefore the potential for anti-fragility, for growth following hardships and difficulties, is not realized. Second, there are certain conditions that we can put in place in order to increase the likelihood, significantly increase the likelihood, not guaranteed, but increase the likelihood of post-traumatic growth of anti-fragility. Here lies the purpose of the science of happiness during difficult times, whether we’re talking COVID, whether we’re talking about economic downturn, whether we’re talking personal difficulties in our relationships, in our work.

It’s easy in our relationships, in our work. What’s important, and this is what the signs of happiness can teach us, is first of all to know that it is possible to grow as an individual, within a relationship, as an organization, as well as collectively as a nation, a society. It’s possible to grow. First of all, if we know about the possibility and second, if we know what conditions to put in place in order to increase the likelihood, significantly increase the likelihood, that we grow from hardship that we’d become anti-fragile.

Questions for Ben-Shahar

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Aljean Harmetz

Bio: Former NY Times Hollywood Correspondent
Topic: Why the film Casablanca is a Masterpiece
Reading: The Making of Casablanca: Bogart, Bergman, and WW2 is here


Larry Bernstein:
Our next speaker is Aljean Harmatz. She is the author of the book, The Making of Casablanca: Bogart, Bergman, and World War II. In previous episodes of What Happens Next, we discussed literature and film, and I thought it would be fun to re-examine the classic, Casablanca, with a preeminent film historian. Aljean was formerly the Hollywood correspondent for the New York Times. Aljean, please lead us off with a discussion about why Casablanca is still relevant today.

Aljean Harmetz:
Well, the men and women who made Casablanca nearly 80 years ago would not recognize the movie industry today, yet Casablanca endures. The movie is now outlasted the century in which it was made and the people who made it. But the movie only seems to get stronger. Whenever American moviegoers are asked to name their favorite movies, Casablanca, The Wizard of Oz and Gone with the Wind are invariably in the top 10. As a fantasy, Oz is timeless. As a movie that looked backwards 75 years to the Civil War, Gone with the Wind was equally timeless until recently, when audiences were forced to take a deeper look into the movie’s treatment of its black characters. What makes Casablanca’s longevity so remarkable is that it was produced as a current event in 1942, a movie set in 1941, just before America’s entrance into the war that had already engulfed Europe.

Hundreds of forgotten World War II movies and half a dozen other characters played by Humphrey Bogart duplicated Rick Blaine’s journey from isolation to commitment. Yet, although movies, so much of their time and place seem stale decades later, Casablanca refuses to be relegated to film school classes. In 1989, it was one of the first 25 movies designated as a cultural treasure by the National Film Preservation Board. A decade after that, it was the number two movie on the American Film Institute’s list of the top 100 films of the industry’s first 100 years. And more recently, in a Valentine’s Day poll on AOL, men overwhelmingly picked Casablanca as the most romantic movie ever made. The question is why?

The unexpected magnetism between Bogart and Ingrid Bergman is one reason. Bergman was not the producer’s first choice to play Ilsa, but the actress he wanted, Michele Morgan, was asking for $55,000. And David Selznick, who had Bergman under contract, would loan her to Warner Brothers for $25,000. And that was not the movie’s only lucky accident. Based on an unproduced play, Everybody Comes to Rick’s, the movie came with a song attached, As Time Goes By, which Max Steiner, who composed the movie score, hated. Steiner convinced Hal Wallis, Casablanca’s producer, to let him write his own song instead. But Bergman had already had her hair cut short for her role in For Whom the Bell Tolls. So As Time Goes By stayed in the movie and became a classic.

The second reason is the successful tension between the three men who wrote the script. All three were premature anti-fascists, but only Howard Koch would be blacklisted, even though he was not a communist. His idealism permeates this script, but never overwhelms it, because the other writers, Julius and Philip Epstein, undercut it with a cynical approach. It is the twins who are responsible for lines that are still used today. “I’m shocked, shocked about gambling,” says Captain Renault, just before he is handed his gambling winnings. Koch rewrote the Epsteins to give the movie more weight and significance and the Epsteins then rewrote Koch to ease his more ponderous symbols and lighten his earnestness. A perfect example comes when Sydney Greenstreet offers to buy Rick’s Cafe. Koch has Greenstreet ask how much Rick will ask for Sam, his piano player, and Rick responds, “I don’t buy or sell human beings.” The Epsteins then have Greenstreet respond, “That’s too bad. That’s Casablanca’s leading commodity.”

The third reason: Rick’s Cafe was not filled with the usual Hollywood extras. Described as quote “bits on day check,” some had a line or two, some were speechless, but almost all were refugees from Hitler, playing refugees from Hitler. Lotte Palfi had one line in Casablanca. “But can’t you make it just a little more please? as a woman trying to sell her jewels in Rick’s Cafe. She had played numerous theater ingenue roles. Ingrid Gruning who spoke 30 words in Casablanca, had run the second most important drama school in Berlin. Curt Bois, the pickpocket, was a successful comedian in Vienna. Marcel Dalio, Rick’s croupier, had starred for Jean Renoir in Le Grande Illusion. Wolfgang Zilzer, who was shot in the opening scenes of Casablanca and died with his fingers curled around a Free French pamphlet, was a cabaret star. They had all left on the far side of the Atlantic Ocean of celebrity an esteem that could never be reclaimed. Three of the refugees were luckier. Paul Henreid, Conrad Veidt, and Peter Lorre were in the immigrant vernacular St. Bernards, actors whose starring roles in European films gave them a chance for success in Hollywood. And the second most emotional moment in the movie, second, only to the final scene at the airport, is when Henry leads the patrons of Rick’s Cafe in the Marseillaise to drown out the singing of German soldiers.

There is one final ingredient and even today the movie is in some sense, ambiguous. All the way through the movie, Ingrid Bergman did not know which of the actors she was going to end up with. Was it to be Rick Blaine or Victor Laszlo, Humphrey Bogart, or Paul Henreid, who was her husband? She had only met Rick after she thought her husband had died. He was the leader of the underground and he was essential to the war against the Nazis.

In the end, of course, Bogart gave up Bergman for the good of the country. We all feel, I think, that in equivalent situations, we too would give up our own private life for the good of the world. Perhaps we wouldn’t, but it’s nice to think we would.

Questions for Aljean Harmetz

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