Pour mon premier jour dans le secteur de la gestion financière, ma nouvelle patronne m'a invité dans son grand bureau d'angle avec vue imprenable. Elle était directrice de la recherche macroéconomique, et son attitude joyeuse, aimable et sage avait joué un rôle important dans mon acceptation du poste de macroanalyste pour l'Asie ex-Japon, bien que je n'aie jamais visité l'Asie, étudié la macroéconomie ou investi dans des actions ou des obligations. J'étais impatient de recevoir les conseils qu'elle pouvait m'offrir. Ce jour-là, elle m'a donné une liste de personnes à rencontrer et m'a remis un épais dossier détaillant mes avantages. Elle m'a ensuite donné un conseil : Placez toutes vos économies de retraite sur le marché boursier et laissez-les là parce que le marché monte avec le temps.
Ce dernier conseil m'a semblé étrange. D'une part, c'était gentil de sa part de me guider, de veiller à mon bien-être financier. D'autre part, n'étais-je pas là pour savoir si les marchés allaient monter ou descendre ? J'avais passé la douzaine d'années précédentes dans des environnements beaucoup moins prestigieux à apprendre comment et pourquoi certaines organisations, villes, marchés et pays entiers avaient terriblement mal tourné. J'avais pensé que ces expériences seraient utiles à mes collègues et aux clients du cabinet. Mais si les marchés allaient monter de toute façon, qu'est-ce que je faisais là ? Cette attitude optimiste, "tout va s'arranger", me laissait perplexe. Cela semblait trop beau pour être vrai, mais qu'en savais-je ? Nous étions en 1999 et j'avais l'impression que je venais d'arriver à une belle fête pleine de gens qui avaient bu un ou deux verres.
Comme je l'ai compris dans les années qui ont suivi, ce conseil personnel était un aperçu puissant de l'état d'esprit et du modèle d'entreprise, non seulement de la société pour laquelle je travaillais, mais aussi du secteur de la gestion financière aux États-Unis depuis les années 1990 : Le marché boursier va monter quoi qu'il arrive, mais vous pouvez devenir très riche en essayant de rendre les bons moments encore meilleurs.
J'ai revisité cette époque récemment parce que je suis très inquiet pour l'avenir et que je remarque que les marchés financiers ne le sont pas. La finance est censée être l'un des rares secteurs de la société qui se concentre entièrement sur l'avenir, mais si les gens, les institutions, les produits et les réglementations du secteur, et surtout sa culture, sont tous orientés vers l'hypothèse que tout va bien se passer, attendre que les marchés signalent un danger à venir est une mauvaise stratégie. Il n'est pas judicieux d'attendre des personnes qui n'ont connu que la bonne fortune qu'elles prévoient le malheur.
Pendant 25 ans, je me suis félicité d'avoir suivi les conseils de mon patron : La bourse a grimpé, et ma fortune a suivi le mouvement. Mais toute cette chance reposait sur un climat stable, un environnement politique clément et une structure institutionnelle foncièrement optimiste. Aujourd'hui ? Il est temps de penser de manière plus critique et plus imaginative. J'ai quelques histoires qui pourraient vous aider.
Un autre côté des rails
The first time I went to Russia, I had to bribe my way in.
From 1987 to 1991, I researched the declining state of American manufacturing, worked in two dysfunctional factories, and walked through and studied the histories of some of the worst public housing in Chicago. Those experiences sent me on a quest to find places where life was orderly instead of chaotic, manufactured goods were reliable, and everyone could expect to join a robust middle class. So I learned German and applied for a research grant. In Germany, I made friends with Paul and Josh, two similarly restless Americans who had also received research grants (Paul to study the German Romantics; Josh to learn how Germans taught their children about the Holocaust). After a few months of German predictability, we were tempted to experience Russia as the Soviet Union transmuted into something unpredictable. We just needed visas and train tickets.
Visas required a formal invitation from a Russian citizen who would vouch for the applicants and be responsible for their good behavior when in Russia. We didn’t know any such Russian citizens, but Josh’s stepfather was volunteering in Moscow helping Jewish people brutally suppressed under Soviet rule to reestablish synagogues. He was happy to write a letter of invitation but made no promise that it would do the trick. I lived nearest to the Russian embassy in Bonn, so Paul and Josh mailed me their passports and the letter of invitation. I was nervous as I walked up to the embassy counter when my number was called.
In hindsight, I feel great sympathy for the man behind that counter. It must have been a bewildering time for him. He had been educated and trained in the USSR, had joined the Soviet diplomatic corps to serve the state, had been a gatekeeper on the front lines of the Cold War, and now was doing what exactly? Representing a country that wasn’t sure what it stood for or who was really in charge? What was his mission? Whom should he keep out, and whom should he let in? More fundamentally, would the nearly bankrupt Russian state be able to pay for him to keep living in Bonn? I can’t imagine how trivial he would have found my anxiety.
At that time, however, I doubt that I had very emotionally intelligent thoughts about his interior life. I was a 22-year-old American bringing three U.S. passports and a dubious letter to a Russian authority behind bulletproof glass. I explained in my best formal German that my friends and I wanted to visit Russia for a month and that we had a letter of invitation. He silently pointed to the opening in the glass, and I slid the four documents through to the other side. He looked at the passports, looked at the letter (which was written in English), and looked at me with what I interpreted as bureaucratic disinterest. “Is everything in order?” I asked. He shook his head. I then discreetly revealed the 200 Deutschmarks (about $120) I had hidden in my left hand and asked if there was anything I could do to make it in order. He pointed to the opening in the glass. Ten minutes later I had the visas and felt about as cool as I ever had. I was a grownup. I was doing something dangerous. I had bribed a Russian diplomat! In my self-congratulatory state, I accidentally left the case containing our passports on the train when I disembarked, only to be saved by a trustworthy German who gave them to a train official, who put them in what was probably the world’s best-run lost and found. I retrieved them a couple of hours later, humiliated both by having screwed up and by the reminder that my most distinguishing characteristic was not courage but good fortune.
We bought tickets as far as Warsaw because tickets to Poland were inexpensive. Understandably, the cash-strapped Russian rail system was charging high prices to German buyers, but Josh had heard a rumor that every Russian railcar had a kind of steward who managed the car and could be bribed to give passage much more cheaply. Given the success of my first bribe, this sounded great to me. (I didn’t tell either of them about the lost passport snafu.)
In the Warsaw station, we found a train bound for Moscow and, after one or two unsuccessful attempts, seemed to reach an understanding with a kind woman standing next to a railcar entrance who spoke none of the languages that we spoke. Looking over both shoulders, she quickly led us into a sleeper compartment, took our money, and made signals that we understood to mean “stay quiet and keep the door closed.” A little while later, the train started rolling. We were giddy with a sense of adventure.
Around 2 a.m., when the train stopped at the Poland-Belarus border, armed Russian soldiers came to our cabin and took our passports, closed the door, and left. Shortly thereafter, our car was hoisted up about 10 feet so that the undercarriage could be changed from the 4’8½” European gauge to the 5’ gauge that the Russian Tsar chose in 1842 on the recommendation of American engineer George Washington Whistler. We dangled in the air, and from that vantage point we could see that there was some kind of unruly commerce going on outside. People were buying, selling, and shouting at each other in the dim light of the border railyard. We surmised that it was a kind of informal night market to avoid customs duties. We worried that we would soon be kicked off the train into this scene, possibly without our passports.
Paul, Josh, and I were not kicked off the train; the soldiers came back to our cabin and gave us our documents; and we wound up having an amazing, memorable adventure thanks to people who were clearly taking risks by offering us hospitality. Russia taught me that the spectrum of hardship, confusion, anxiety, and bewilderment was far wider than any recent American experience. I hadn’t yet read any Tolstoy, but this trip would be my first exposure to the opening line of Anna Karenina, “All happy families are alike; each unhappy family is unhappy in its own way.”
This experience was crucial to my understanding of the world as it is and, more importantly, as it could be. One of the most valuable skills a person can have is the ability to imagine how things can go badly. Optimism is a winning strategy during good times, but when we assume that they’ll keep rolling, we grow complacent, unimaginative, and vulnerable to lean futures.
La vie à l'intérieur de la boîte
Cette aventure de jeunesse en Russie m'a incité à élargir mon champ d'intérêt à la tragédie, à la corruption et au mal. Mais lorsque je me suis installé dans le secteur de l'investissement au début du 21e siècle, j'ai réalisé que les intérêts des gens étaient unilatéraux : Ils s'intéressaient presque exclusivement aux choses dont le prix allait augmenter. Un petit artefact me reste en mémoire. Vers 2002, des dizaines d'exemplaires d'un livre à couverture rigide sont apparus dans l'entreprise. Je n'ai jamais su d'où ils venaient, mais pendant des années, je les ai remarqués dans des endroits bizarres, comme si un Johnny Appleseed financier les avait lancés. Le livre s'intitulait The Triumph of the Optimists : 101 Years of Global Investment Returns (Le triomphe des optimistes : 101 ans de rendement des investissements mondiaux).
Il était rempli de tableaux, de diagrammes et de graphiques qui découpaient les marchés financiers en sous-composantes, en moteurs et en corrélations. La simple masse de chiffres offrait ce qui semblait être une preuve écrasante que l'arc de l'histoire s'incline vers la richesse. Si je n'avais pas été sur les marchés financiers, j'aurais considéré ce livre comme un texte ennuyeux, mais entre la fin des années 1990 et le milieu des années 2020, le secteur de la gestion des investissements a subi une transformation étrange et magique : Il est devenu comme le livre. Les marchés de capitaux et leurs praticiens ont été réduits à une collection de tableaux et de graphiques, fragmentés en indices de référence de plus en plus étroits, qui ont ensuite été "produits" en "bêtas" spécifiques - des boîtes en dehors desquelles ni les ordinateurs ni les analystes humains n'étaient incités à penser. Sous l'impulsion des consultants et des outils numériques, le monde de l'investissement est devenu de plus en plus autoréférentiel - la performance de l'investissement n'est pas mesurée principalement par le risque et le rendement, mais par la performance par rapport à un indice de référence et par rapport aux concurrents. La hausse des marchés étant devenue une hypothèse, et les optimistes ayant triomphé, la force motrice de l'activité est devenue le FOMO financier.
Ces changements dans l'industrie se sont accompagnés de changements dans la culture et les mentalités des personnes en charge. La hausse des marchés a propulsé les optimistes au sommet du secteur, tandis que les inquiets et les personnes qui envisageaient l'avenir avec imagination ont été relégués à la marge. Les plus grands gestionnaires d'actifs du monde, Blackrock, Vanguard et Fidelity, se sont développés en offrant de plus en plus de produits financiers qui regroupaient des actifs optimistes pour les clients. Comme je l'ai dit un jour au PDG de Blackrock, Larry Fink, "Félicitations pour vous être enrichi à l'époque la plus facile de l'histoire de l'humanité".
Mon prédécesseur à la société d'investissement a été embauché au beau milieu de ce que l'on appelait alors le miracle de l'Asie du Sud-Est. Les marchés boursiers, de l'Indonésie à la Corée du Sud, ont atteint des sommets exaltants, et il s'est fait l'avocat de leur hausse continue.
Lorsque la crise financière asiatique a commencé, il a dit à la société de ne pas vendre. Lorsque le baht thaïlandais s'est effondré, il a déclaré qu'il s'agissait d'une brève panique et que les tigres asiatiques allaient bientôt reprendre du poil de la bête. La situation a empiré. Il arrivait tôt au travail, fermait sa porte et restait là toute la journée, envoyant de temps en temps des courriels insistant sur le fait que la crise n'était pas vraiment en train de se produire, et ne quittant son bureau que lorsque tout le monde était rentré chez soi. Il avait poussé l'optimisme jusqu'à sa conclusion illogique extrême : le déni pur et simple de la réalité. J'ai pensé à lui récemment, alors que j'observais d'autres optimistes faire face à des risques qui augmentaient depuis des années.
La finance est censée être un secteur objectif, dénué d'émotions, qui évalue les risques et les rendements, mais la hausse des marchés a des effets étranges sur les gens. Le fait d'être associé à une action, à une classe d'actifs ou à une région entière du monde dont les prix sont en hausse fait que les investisseurs de ces régions se sentent spéciaux. Ils sont perçus différemment par les autres. Ils attirent de nouvelles personnes vers eux. Cela leur donne un air d'autorité, même en dehors de leur domaine. Ils ont tendance à se préoccuper davantage de leur statut parmi les autres investisseurs dont la fortune a augmenté. Il devient plus difficile d'envisager les périodes difficiles, même après qu'elles soient devenues visibles. Pendant des décennies, les marchés américains n'ont cessé de monter, les paris risqués ont semblé de plus en plus intelligents, et une attention toujours plus grande a été accordée aux prétendus génies associés aux plus grands gagnants. Il n'est donc pas surprenant que de nouvelles personnes aient afflué vers la finance, car quoi de mieux que de s'enrichir en pariant l'argent d'autres personnes sur un jeu qui produisait toujours un gain ?
Des montagnes de miettes dorées
It wasn’t always so. Before that first day in my new office as Asia ex-Japan Macroanalyst, most of what I knew about the bond market came from Tom Wolfe’s The Bonfire of the Vanities, a tale of 1980s New York City finance, social stratification, justice, and injustice. Recently, I reread it. It’s juicy and brash, full of broad stereotypes and sharp observations about human nature. But the thing that strikes me now is the looming sense of peril in society in general and the financial markets in particular. Wolfe’s wealthy characters are keenly aware of the surrounding risks posed by a New York City full of poverty and crime, and the bond market looks like a wild game of chance.
The main character is Sherman McCoy, a bond salesman at fictional New York investment bank Pierce & Pierce. Bond salespeople make money by helping investors who own bonds sell them to another investor or by buying bonds speculatively and selling them quickly at a higher price. At one point Pierce & Pierce buys $6 billion worth of U.S. government bonds at $99.62643 per $100 and sells $2.4 billion of them at $99.75062 later the same day. The $0.12419 difference made them a fortune.
To Pierce & Pierce, it meant a profit of almost $3 million for an afternoon’s work. And it wouldn’t stop there. The market was holding firm and edging up. Within the next week, they might easily make another $5 to $10 million on the 3.6 billion bonds remaining.
By five o’clock, Sherman was surging on adrenaline. He was part of the pulverizing might of Pierce & Pierce, Masters of the Universe.
Squeezing out those 12.419 cents on the dollar is interpreted on the trading floor as an act of skill and daring. Yet “the market was holding firm and edging up” is finance speak for “interest rates are going down,” which is a technical way of saying that virtually every asset is rising in value. Wolfe, his fictional characters, and all of the actual people in finance had no idea that interest rates would fall for the next 40 years. 40 years! The market was essentially a one-way bet for entire careers. Starting in the early 1980s, people in finance kept experiencing one windfall after another, only briefly interrupted by what gradually became known as “dips.” Even the so-called Global Financial Crisis of 2008 proved to be a buying opportunity once the government bailed out the banks and insurance companies. Over and over again, the investors who bet on the upside were rewarded—and promoted.
The feeling of power, might, and superiority that Sherman and the other members of this group’s real-life inspiration felt at this time has had a lasting impact on our society. When we meet Sherman, he has started referring to himself as a “Master of the Universe” because of the large sums of money he makes in commissions. In truth, though, the job of bond salesman is a mix of middleman and short-term speculator dealing in decimal places. During a family outing on a beautiful day in the Hamptons, Sherman’s six-year-old daughter Campbell asks him a pointed question, “Daddy, what do you do?” She has just learned that the daddy of her playmate MacKenzie makes books and employs 80 people (he runs a publishing house), which causes Campbell to realize that she doesn’t know what her daddy does. She is eager to learn so that she can have the same daughterly pride as MacKenzie.
What follows is painful for both Sherman and Campbell. He’s not sure where to begin and immediately uses arcane terminology. Campbell starts to get the uneasy impression that her father’s employment doesn’t make any sense. Eventually, he manages to say:
“A bond is a way of loaning people money. Let’s say you want to build a road, and it’s not a little road but a big highway, like the highway we took up to Maine last summer. Or you want to build a big hospital. Well, that requires a lot of money, more money than you could ever get by just going to a bank. So what you do is, you issue what are called bonds.”
“You build roads and hospitals, Daddy? That’s what you do?”
“Well, in a way.”
“Which ones?”
“Which ones?”
To calm her increasingly distraught daughter, Sherman’s wife, Judy, steps in.
“Darling, Daddy doesn’t build roads or hospitals, and he doesn’t help build them, but he does handle the bonds for the people who raise the money.”
“Bonds?”
“Yes. Just imagine that a bond is a slice of cake, and you didn’t bake the cake, but every time you hand somebody a slice of the cake a tiny little bit comes off, like a little crumb, and you can keep that… If you pass around enough slices of cake, then pretty soon you have enough crumbs to make a gigantic cake.”
As interest rates fell, communism collapsed, markets expanded, and the Baby Boomers plowed their money into markets, the golden cake grew so huge that the millions that excited Sherman McCoy stopped being so impressive. Blackrock now manages about $12 trillion, Vanguard $10T, and Fidelity $5T. One would think, with assets in the trillions, these companies must have a lot of power. But those numbers are deceptive. As the cake grew, the slices got more orthodox and precise, and the clients (the people whose money the firms invest) changed their behavior. Instead of handing over their money to a guy in a suit and saying, “Invest as you see fit,” most chose to diversify and focus on fees. The big winners in the asset management industry excelled at technology, marketing, and product innovation, selling index funds, exchange-traded funds (ETFs), and thematic funds. Many people look to these companies’ leaders for guidance, but their companies sell market access, not insight, and certainly not foresight. To them, the market—its investors, its companies, its risks—is a set of statistics housed in databases, expressed in spreadsheets, and informed by the recent past. It’s all very orderly, logical, and sterile.
Feuilles de calcul et Gogol
The second time I went to Russia, it was because someone else had accepted a bribe.
After my year in orderly Germany, I moved back to Chicago and looked for opportunities to work with people who were trying to turn around urban decline. I was exceptionally lucky to get a job at the South Shore Bank as a credit analyst. The bank had served a largely Jewish community in the South Shore neighborhood for decades, following traditional bank practices: open only from 10 a.m. to 3 p.m. on weekdays with a half day on Wednesday. After Black families started moving into the South Shore in the 1970s and ’80s and the Jewish families moved out, the owners of the bank put it up for sale. A private equity firm offered to buy the bank on the condition that they could move it to downtown Chicago. In a surprising move, the U.S. Federal Reserve, the regulator of American banks, rejected the application. Black people in Chicago had been denied access to financial services for decades due to explicit discrimination (e.g., redlining) and implicit discrimination (e.g., ATMs in Black neighborhoods tended to only dispense cash, not accept deposits), and the regulator, recognizing the risk of this happening again, ruled that any buyer would have to keep the bank in the neighborhood. A group of bankers and socially minded investors seized the opportunity and bought the bank.
My job at the bank was to help commercial loan applicants get their paperwork together and prepare forms for the loan committee. Every week I would meet people who wanted to build or grow a business: Owners of restaurants, muffler shops, used car dealerships, and small manufacturing operations came in with their plans, their ledgers and accounts, and their hopes and dreams. Some were organized and crisp, others were more enthusiastic and impressionistic, and still others were fantastical. No matter how they came in, my job was to translate their story into spreadsheets for U.S. Small Business Association loan applications.
Shortly before I was hired at the bank, it started getting media attention. Bill Clinton and others pointed to it as a model of how business could provide vital social services. It was an inspiring story, and there was a good amount of truth to it, especially in the real estate department, but the commercial lending operations revealed a key challenge of modern business: Spreadsheets leave out—indeed often rule out—the unruly.
I worked with applicants who wanted loans to finance everything from new shops to new hot sauces, but the loans that were approved were almost always for fast-food franchises. McDonald’s, Hardee’s, Domino’s, and the rest provided orderly forms to potential franchise owners that made it easier to start a business. Better yet, the risk to the lender was minimized. The trade-off was that the resulting businesses were not very good for the neighborhood—or even located in the neighborhood at all.
The bank’s positive story kept growing, however, and one day, people from the European Bank for Reconstruction and Development (EBRD) called and asked, “Could you set up a program like this in Russia?” My boss’s boss’s boss, the head of lending, a man named Dick, absolutely should have said no. But if things have been going well, if people are coming your way, it’s easy to be optimistic, to wonder how things could get even better. And so, instead of saying no, Dick asked, “Could I get an all-expenses paid trip to Russia out of this?”
I worked for the loan officers, smart Black bankers who were dedicated to the neighborhood. When Dick asked them if they’d like to move to Russia in a month’s time, they all said no. Instead of going back to EBRD and admitting that this neighborhood Chicago bank wouldn’t be able to kick-start small business lending in Russia, Dick asked me if I would be interested in moving to Nizhny Novgorod, Russia. The job started in three weeks.
The first few years of Russia’s transition away from Soviet life had been bumpy. In hopes of spurring commercial activity and prosperity in former Soviet lands, the EU and G7 had created the EBRD. But after a few years, the only obvious money-making investments in Russia—the ones that made sense on spreadsheets—were in oil and minerals, so by 1994, the money that had been raised to convince formerly communist people of the merits of capitalism had all gone to big corporations and their owners who were becoming known as oligarchs. The EBRD was desperate to demonstrate that it could raise the fortunes of everyday Russians, for which their best strategy, apparently, was calling a small bank in Chicago that rewarded their confidence by sending me—a 24-year-old who had never made a loan but had learned the language of American investors: the spreadsheet.
If I was finding it hard to communicate the potential of non-franchise small businesses in the Chicagoland area, imagine trying to do it in 1994 for brand-new small businesses in a Russian city far from Moscow where the high on an average January day was -20°F. My colleagues and I would say to the business owners who came in to apply, “Fill out what you expect your revenues and itemized costs to be over the next five years on this form.” Many of the applicants would take the papers, give an earnest nod, and go fill them out. Some, however, would stare at the rectangular spreadsheet with its orderly rows and columns, its crisp lines and right angles, and look at us with a weary, wry smile that captured how foolish our request was. Their lives had already included radical changes in authority, safety, and political ideology, on top of hard economic times. It wasn’t clear if they even legally owned their businesses or if the state could seize them at a moment’s notice. How could they possibly predict what would happen to anything five years from now? Some of them simply handed back the form and said, “You should just put whatever numbers you want in those boxes. I have no idea.”
I don’t think it’s possible to overstate how much spreadsheets and simple databases have shaped the world, especially American business culture. To a modern investor, the purpose of a corporation is to generate earnings, and earnings are captured on spreadsheets. Therefore, in essence, businesses exist to populate spreadsheets. A friend of mine who used to run a construction company and now teaches at a business school offered me a perfect illustration of this. He explained that there are two kinds of real estate courses at business schools: ones that teach about actual, physical buildings, and ones that only discuss financial models of buildings. The latter course is the more popular one.
A couple of years ago, I was invited by the chief risk officer of one of the world’s largest banks to give a talk about the impacts of climate change on financial markets. He had assembled the heads of each asset class at his bank. I detailed how risks would rise in low-lying places, in hot, humid places, in places that would become more prone to drought or fire or both, and in global financial systems like insurance, sovereign bonds, municipal bonds, and securitized lending. I explained that these risks were unprecedented because the climate had been so stable for the past several millennia and that every asset class would face new challenges. The people on the Zoom call nodded along, asked good questions, and were clearly concerned. Then we got to the crux of the matter. The head of mortgage-backed securities said, “This is all interesting, but I need to know what to put into my spreadsheets.” I explained that there was no one number, no one special column to add to capture climate risk, that it would require thinking in scenarios and dealing with genuine uncertainty. I had lost him. “If I can’t put it in the spreadsheet, it doesn’t exist,” he said.
In the winter of 1994, snow was piled so high that many of Nizhny Novgorod’s roads felt like canyons, which meant that come spring everything would be covered in slippery mud. One April day, my Russian colleagues and I set out to see an applicant who ran a brick factory. The driver, an enormous man whom I had often seen carrying a huge gun at the bank (this local bank was openly run by the mafia), drove the black, rear wheel drive Volga sedan with astonishing speed and control over roads that would have left Americans in Range Rovers calling for a tow truck. The owner of the factory, a clearly bright man in his mid-40s, gave us a tour of the rough but functional facility and answered our questions. As we got ready to leave, I asked him if there was anything else he wanted us to know. He smiled a smile I now associate with Russian spreadsheets and said, “Your decision is very simple. It’s like Gogol said, ‘Russia only has two problems: fools and bad roads.’ You have seen that my road is shit, so you only have to decide if I’m a fool.” We approved his loan.
Mauvais concours
Our financial institutions are run by extraordinarily fortunate people. During their careers, the best strategy has almost always been to take the risk, buy on the dips, and be optimistic. Yes, they still monitor risk, but the concept of risk grew ever more abstract, expressed in correlation matrices and deviations from a benchmark (what’s called tracking risk). In essence, virtually all of the risk in finance is now career risk: It’s not your money, and your investment is only a part of your clients’ assets, and you’re sticking close to the benchmark, so the big risk if you’re wrong about something is losing your bonus or maybe your job. In a setting like that, talking about the likelihood of mass extinction or even rising seas is akin to starting a watercooler conversation about death: The other person is either going to walk away or things are going to get deep. Indeed, the more I talked in investment meetings about climate change, the more colleagues and clients would come to me privately to talk about their kids, the farm in upstate New York that they were rewilding, their childhood memories, or their acceptance that their place on Cape Cod would be taken over by the ocean, not their descendants. Climate change was on their minds, but it wasn’t in portfolios they managed or sold to clients.
I finally gave up on finance in 2015 after I heard former Goldman Sachs Managing Partner and U.S. Treasury Secretary Hank Paulson passionately tell a group of investors that “climate change could be as bad as the 2008 Great Financial Crisis.” He was comparing the likely death of hundreds of millions or billions of people, the dislocation of billions more, the death of trillions of other living organisms, and a very real risk that the changing climate will radically reshape all life on earth with an episode of excessive issuance of mortgages and collateralized bonds. Statements like these so dilute our sense of extremes (“crisis”) that every comparison is flattened. Also, the people in that room were certainly richer in 2015 than they were in 2007. For them, 2008 had presented yet another great buying opportunity.
I recently participated in a good conference put on by a climate-focused investment firm whose managing director set the tone with a series of dramatic PowerPoint slides. He made references to drought and fire, but the audience was a bunch of investors. They wanted numbers. And the number he offered them was $200B. The digits must have been 10 feet high on the huge screen next to the stage. The small print explained that this was an estimate of annual GDP losses if the atmosphere warmed to 3.0°C above the preindustrial average. But global GDP is already over $100 trillion. $200B in a few decades barely counts as a pile of prospective crumbs. The recent Los Angeles fires cost $200B. Numbers like these are the dangerous result of a well-meaning, dutiful effort to portray the future in spreadsheets and simple databases. I wish I could offer a more precise, insightful, realistic estimate of future economic costs of climate change, but the past offers scant statistical insight into the future we now face.
Virtually all investment decisions and economic analyses are based on two-dimensional models. An analyst, investor, or economist creating such a model takes estimates from what he or she deems to be a comparable situation (a comp) in the recent past and applies those estimates into a slightly different context. Then comes the spreadsheet magic: Almost all such models take Year 1’s estimates of revenues and itemized costs and project them out into the future with the equation: [This year’s value] = [Last year’s value] x 1.02. In other words, every category of revenue and expenditure is expected to grow gradually, by about the level that inflation stayed during the glory years of falling interest rates. Some analysts might use 1.025 or 1.03 instead of 1.02, but the future of every variable in the spreadsheet is always smooth.
This means that a cash flow model of a portfolio of assisted living facilities across coastal Texas, Florida, Georgia, and North Carolina that was created in 2020 took insurance costs from 2019 and projected them out to 2049 with small annual increases that remained proportional to all the other costs. What happens to that spreadsheet when insurance simply isn’t available any longer in those places? We are starting to find out. After I made a presentation to investors, the CEO of a company that managed exactly that kind of portfolio asked me, “Is climate change why I have to go to Lloyd’s of London in person to get insurance now?”
Climate science tells us that the future will be very different from the past. Thanks to paleo climate science, we know that from about 10000 BCE until about 2012, the global atmosphere was in a stable, narrow temperature range around what is known as the preindustrial average. This range was bounded on the bottom by -1.0°C and on the top by +1.0°C, and its stability and narrowness made forecasting easy. Climate stability is the reason that the same plants grew in the same places for thousands of years and that we have bond markets. In essence, all the past economic and financial data, all those upward trends in prices, were enabled by the low volatility of the climate.
A little more than a decade ago, we broke out of that range, and climate volatility began rising. Last year we crossed 1.5°C, and we can already see how natural and human systems are straining. The next 0.5°C of warming—which we should expect over the coming 10 to 15 years—will bring substantially more disruption and suffering. The probability of drought and deluge will rise substantially; it will be too hot and humid to be outside in places where hundreds of millions of people currently live; pests will be on the move, and plants will be struggling. It’s easy to foresee that these changes will eventually wreck many beautiful, smooth spreadsheets. I’ve talked to hundreds of investors who shake their heads when they see maps of these phenomena and nod their heads when I say it will have massive financial implications, but almost without exception investors then say that it’s not in their universe.
Mon univers
Je pense que la principale raison pour laquelle nous ne devrions pas nous tourner vers les investisseurs pour obtenir des avertissements sur l'avenir est que le secteur moderne de l'investissement déforme la façon dont les professionnels de l'investissement voient le monde et ce qui les préoccupe. Lorsque je repense aux 20 années que j'ai passées dans le secteur de l'investissement, je ne suis pas sûr que les analyses ou les recommandations que j'ai faites aient vraiment eu de l'importance. En revanche, je suis certain que je me réveillais tous les jours pour consulter les nouvelles et les marchés, terrifié à l'idée d'avoir fait une erreur dans mon sommeil (souvent agité). Si l'une des recommandations d'investissement que je faisais à mes collègues se révélait erronée, j'agonisais. À un moment donné, j'ai comparé, en plaisantant à moitié, mon incapacité à anticiper les implications financières d'une élection taïwanaise à la bataille meurtrière de Dien Bien Phu en 1954.
Mes erreurs étaient peu nombreuses et rarement remarquées parce que je couvrais la Chine juste au moment où elle devenait un facteur de rendement massif pour les marchés du monde entier. J'étais un peu en avance sur la courbe, principalement parce que mon patron m'avait placé à ce poste. Mais quelle que soit la raison, j'ai reçu des éloges et des miettes d'or, et le fait d'être "le gars de la Chine" est devenu cool. On pourrait penser que ma bonne fortune me mettrait à l'aise, mais au cours des années qui ont suivi, alors que les taux d'intérêt baissaient, que les marchés montaient et que les salaires augmentaient, j'étais toujours aussi anxieux, tout comme mes collègues. La raison en est simple : Les êtres humains peuvent donner à n'importe quoi des enjeux importants. Aucun domaine n'est trop étroit ou isolé pour être perçu comme un monde à part entière. Tom Wolfe n'avait probablement aucune idée de la façon dont le monde réel de l'investissement utiliserait le mot "univers".
Bien que le mot "univers" ait été inventé explicitement pour englober la totalité des choses existantes, non seulement sur cette planète mais partout, les investisseurs modernes disent souvent des choses comme "Mon univers, ce sont les actions de croissance à petite capitalisation" ou "Dans mon univers, toutes les obligations sont surévaluées". Pendant des années, je me suis demandé pourquoi un terme un peu moins grandiose comme "système solaire" ou "galaxie" n'avait pas suffi à rendre compte de leur sens de la réalité, mais au bout d'un moment, j'ai fini par admettre qu'ils utilisaient le mot "univers" de manière assez précise : Ils passaient leur temps à être obsédés par les actions de leur tranche du Russell 200, du S&P 500 ou de l'indice MSCI World. Les clients ne les payaient pas pour comprendre le monde, ils les payaient pour choisir entre une action et une autre au sein d'un indice, et ne pas posséder suffisamment d'actions NVIDIA lorsqu'elles passaient de 3 $/action à 140 $/action pouvait ressembler à la fin du monde.
C'est le petit secret ennuyeux de la quasi-totalité de la finance : La grande majorité des investisseurs modernes ne maîtrisent rien. Ils passent leur temps à se concentrer sur un champ de vision étroit qui, pourtant, leur semble être un univers entier. Leurs batailles, leurs luttes, leurs victoires et leurs défaites ont un impact émotionnel. Il peut être très éprouvant de reproduire (ou de faire légèrement mieux ou moins bien) un indice qu'un ordinateur pourrait produire sans émotion tout en prenant beaucoup moins de miettes. C'est un travail difficile que d'interviewer en permanence des candidats au financement par capital-risque, sans savoir lequel sera "le prochain Airbnb" ou un échec total. Il peut être exaspérant de prédire si les taux d'intérêt vont augmenter ou diminuer, maintenant que 40 années de baisse des taux sont terminées. Il n'est donc pas étonnant que les investisseurs aient du mal à imaginer que la planète puisse être en danger. Ce genre de choses ne fait pas partie de leur univers.
Riche et puissant, ce n'est pas la même chose
La dernière fois que je suis allé en Russie, les oligarques étaient incroyablement riches, les pots-de-vin étaient omniprésents et tout le monde regardait par-dessus son épaule.
La fortune de la Russie s'est accrue à mesure que le boom économique de la Chine alimentait la demande - et la flambée des prix - de matières premières telles que le pétrole, le nickel et d'autres minerais. En 2007, mon programme de recherche au sein de l'entreprise s'était élargi et j'étais curieux de savoir comment l'afflux de liquidités avait affecté le pays dans lequel j'avais pénétré par la corruption 15 ans plus tôt.
Les premiers prêts que mon équipe et moi-même avons accordés ont été en grande partie remboursés, mais il est devenu de plus en plus difficile de trouver des emprunteurs capables de faire face au tumulte et à l'incertitude causés par l'instabilité économique et politique de la Russie, de sorte que la BERD a mis fin au programme. Les entreprises monopolistiques de matières premières dirigées par la nouvelle oligarchie russe étaient les seules valeurs sûres. Toutefois, lorsque j'ai atterri à Moscou, il était clair que même les oligarques ne maîtrisaient pas grand-chose. Mikhaïl Khodorkovski avait réussi à passer du statut d'organisateur de jeunesse léniniste à celui de propriétaire d'immenses champs pétrolifères, mais lorsqu'il a suggéré qu'il devrait y avoir un parti d'opposition sain et que Vladimir Poutine devrait peut-être avoir des pouvoirs limités, il a été emprisonné. Les autres oligarques l'ont remarqué et sont rentrés dans le rang.
En regardant les oligarques américains de la technologie se ranger derrière Donald Trump lors de l'investiture en janvier, je me suis dit : "J'aurais vraiment aimé que ces techno-optimistes soient moins séduits par l'attrait de l'infini et s'intéressent davantage à la façon dont les choses ont mal tourné ailleurs". Lorsque l'on se lance dans la corruption, il devient généralement plus rentable de se battre pour des parts de gâteau que de faire de plus gros gâteaux. Les broligarques américains ont tous offert leurs pots-de-vin dans l'espoir d'obtenir des faveurs individuelles pour leurs entreprises au lieu de plaider en faveur d'une meilleure gouvernance, de meilleures règles et d'une meilleure réglementation.
Le changement climatique s'aggrave et nous avons encore plus besoin de leadership et de contraintes pour nous empêcher de nous enfoncer dans les dangers visibles qui nous attendent. Mais nos dirigeants n'ont ni l'expérience ni l'imagination des mauvais résultats. Pendant quelques années, les entreprises financières ont eu tendance à parler avec enthousiasme du changement climatique parce qu'elles avaient une histoire optimiste et pouvaient offrir de nouveaux produits "verts" à leurs clients. Mais confrontées pour la première fois à la menace d'une pression politique et à la réalité que le changement climatique est une question de risque, et non une opportunité commerciale gagnant-gagnant, la quasi-totalité d'entre elles ont rapidement battu en retraite.
Je me souviens d'un événement qui s'est déroulé après les heures de travail, quelques mois avant que je ne quitte le secteur de l'investissement. Un gestionnaire de portefeuille de l'entreprise, considéré comme plus posé, patient et ouvert que ses collègues, s'est approché de moi. Il avait manifestement bu plus de deux verres. Il s'est approché de moi, m'a regardé dans les yeux et m'a dit : "J'écoute ce que vous dites sur le changement climatique, mais c'est difficile. Si c'est vrai, nous sommes en train de ruiner la planète pour nos enfants". Je lui ai répondu qu'il m'avait bien entendu et que c'était bien là l'enjeu. Il a alors secoué la tête et a dit : "Je n'ai jamais eu à prendre une décision vraiment difficile de ma vie". Je lui ai dit : "Je sais ce que vous ressentez."
Imagination actuarielle
Tandis que la finance élaborait des définitions de plus en plus étroites du risque, un autre groupe d'experts restait concentré sur la véritable signification du mot. Ces experts ne se sont pas enrichis grâce à la baisse des taux d'intérêt et n'ont jamais été qualifiés de "maîtres de l'univers", mais eux et leurs prédécesseurs ont été chargés, au fil des siècles, de déterminer la probabilité de mauvais résultats, leur impact et la manière dont les organisations et les sociétés pouvaient les éviter. Ces personnes sont des actuaires.
En janvier de cette année, l'Institute and Faculty of Actuaries a publié une évaluation des risques climatiques. Dans ce document, ils évaluent non seulement les risques, mais aussi les évaluations proposées par les économistes et les modélisateurs financiers.
En ce qui concerne le changement climatique, même s'il aura une série d'impacts sociétaux, l'accent est généralement mis sur les conséquences économiques, en cherchant à répondre à la question suivante : "Quel serait l'impact duchangement climatique sur la société ? Quel serait l'impact du changement climatique sur le PIB ?
Malheureusement, de nombreuses évaluations publiques et très médiatisées des risques liés au changement climatique sous-estiment considérablement les risques parce qu'elles excluent un grand nombre des impacts réels du changement climatique.
Ces évaluations des risques sont précisément erronées, plutôt que d'être à peu près correctes. Les résultats bénins mais erronés peuvent renforcer l'idée qu'il s'agit de risques à évolution lente et à impact limité, plutôt que de risques graves nécessitant une action immédiate.
Une telle approche ne répond pas aux exigences des principes de gestion des risques... [car elle exclut] des modèles des événements incertains et de grande gravité, au lieu de faire les meilleures estimations possibles et d'adopter le principe de précaution.
Une approche prudente consisterait à prendre l'estimation la plus élevée de la perte économique et à la réduire lorsqu'il apparaît qu'elle est surestimée, plutôt que l'inverse.
L'estimation de la perte économique qu'ils considèrent comme une estimation de départ raisonnable se situe entre 50 % et 67 % du PIB mondial. Ils mettent toutefois davantage l'accent sur les résultats qui ne peuvent pas être pris en compte dans les feuilles de calcul, notamment les migrations de masse, la mortalité de masse, les phénomènes d'extinction massive et les bouleversements politiques, qui sont tous exclus des modèles économiques et financiers des incidences du climat. Dans un langage étonnamment coloré, les actuaires décrivent les modèles utilisés en finance et en économie comme :
Analogue à une évaluation des risques liés à la collision du Titanic avec un iceberg, mais excluant du modèle la possibilité que le navire coule, le manque de canots de sauvetage et la mort par noyade ou hypothermie.
Je recommande vivement ce rapport, non seulement pour ce qu'il dit du changement climatique, mais aussi pour la façon dont il peut être utilisé. Il s'agit d'une introduction sur la manière d'être un penseur du risque efficace. Au centre de ce rapport se trouve l'importance d'envisager les choses qui pourraient se produire, d'imaginer leurs conséquences potentielles et d'élaborer un plan. Il ne s'agit pas d'une feuille de calcul ou d'un produit financier, mais d'un processus.
De meilleurs modèles, de meilleures pratiques et de meilleurs plans
The main thing I learned in my nearly 20 years in the investment business is that everyone has a model of the world, including you, right now. Each of us takes in information about the world and translates it into a set of feelings, intuitions, and reasoning to inform our decisions. Some people may have more predictive models and other people have less predictive ones; some people have complex analytics and huge databases, while others have gut feelings. But having a better model is of limited value. What matters most is how you plan. I don’t think the 2008 Financial Crisis is a useful analogy for the kinds of damage that climate change will cause, but a particular investment story from 2008 illustrates what I mean. I wish it were about me, but it’s about a competitor.
Mohamed El-Arian was born in 1958 in New York City to Egyptian parents, and as a child lived in Egypt, Europe, New York, and England. His father was an international lawyer and diplomat, and El-Arian worked at the International Monetary Fund before going into the investment business in 1998. By that time, he had seen many ways things could go wrong. He joined Pacific Investment Management Company, more commonly known as PIMCO, and helped its clients avoid Argentina’s debt default in 2001. PIMCO distinguished itself in the 2008 financial crisis, and the word on the street and in the press was that PIMCO had better models, understood the world better, and could see what was coming. They predicted that Lehman Brothers was going to fail. El-Arian, the company’s CEO, and its CIO, Bill Gross, were geniuses.
Except that’s not true. Here are El-Arian’s own words from a recent interview:
So on the weekend in which Lehman Brothers failed, we were sitting in the investment committee room, and we were trying to predict what was going to happen. The history books keep on saying that PIMCO predicted the disorderly failure of Lehman because most of PIMCO’s clients made money after the financial crisis… That is simply the wrong interpretation. We never predicted a financial crisis. Let me explain to you what happened.
We had three scenarios on the board, and we had voted on the probabilities that we individually attach to each of those scenarios.
Scenario A, 85 percent probability. That’s the combined probability given that Lehman would not fail, that Lehman would be a repeat of Bear Stearns. A stronger bank would come in, take over the weak Lehman Brothers, and there would be no counterparty risk on Monday morning...
Scenario B, 12 percent probability, Lehman fails but fails in an orderly fashion. Why? Because no regulator would put the payments and settlement system in play. That is paralyzing to the real economy. That is destructive to livelihoods. Surely, if they allow Lehman to fail, it will fail in an orderly fashion.
3 percent was the probability we gave to Lehman failing in a disorderly fashion—the outcome.
So the notion that we predicted Lehman was completely wrong.
But why is it that we were able to completely reposition ourselves? Because we had a very detailed action plan for each of these scenarios. We knew who would be doing what when. Simple things like delivering the notice of failure so that you can re-establish positions, to other things like informing clients and trying to change your portfolio postures before others work out their own action plan.
And I say this because when you face unusual uncertainty, it doesn’t mean you get paralyzed. Nor does it mean you stick to one outcome that may happen, but you ignore everything else. It means that you do the hard work of saying, here are possible scenarios, and let me try and figure out what I would do if these scenarios materialized. And let me keep open-minded and know what data I’m supposed to follow, rather than get stuck to a baseline that ends up to be wrong.
It’s a lot of work, yes. But the cost of that work pales in comparison to the cost of not being ready for an outcome that you did not plan for.
I felt pretty lousy when I heard El-Arian say this. I had been in a senior leadership position at a competitor of PIMCO’s. I had gone with colleagues to the US Federal Reserve to warn the Fed about the bad things that were likely to happen. In fact, I think my colleagues and I had a better estimate of the likelihood of a disruptive outcome, a better model. And yet I didn’t push for a plan. The firm did okay, but we could have done better for our clients.
Some earnest people are trying to create better models to precisely predict how climate change will affect the economy and markets so that they can convince the markets to convince the public to convince politicians to steer us away from danger, much like how people in the past few months have waited for markets to tell us whether random tariffs that undermine international relations are going to raise or lower next year’s corporate earnings. I think this focus on models and market signals is mostly a waste of time and often counterproductive. Instead, we can think in scenarios and assess which outcomes we most want to avoid then figure out what work we can do to achieve that goal. What we must not do is trust the optimists.
Pourquoi j'écris
J'ai commencé à écrire des essais sur les solstices et les équinoxes il y a plus de cinq ans. Je n'ai pas cherché à publier dans des revues économiques, dans la presse financière ou dans des revues spécialisées dans les sciences du climat. J'étais intimement convaincu que tout le monde pouvait comprendre les bases de la science du climat et que la voie à suivre consistait à commencer à planifier, sans attendre que le secteur financier montre la voie. Depuis mes premiers essais, l'incertitude politique et professionnelle dans le monde s'est accrue, tandis que l'éventail des résultats possibles en matière de climat s'est aggravé. Nous sommes à 1,5°C, nous serons probablement à 2,0°C dans une dizaine d'années. En 2024, les émissions étaient plus élevées que jamais. Et les investisseurs sont distraits par une pluie d'informations que leurs modèles ont du mal à traiter.
Avant de monter sur scène lors de la récente conférence sur le climat et de présenter le prix de 200 milliards de dollars pour le climat, j'ai discuté avec un homme qui allait faire partie du panel qui suivrait mes remarques. Il a travaillé pour des entreprises et des gouvernements du monde entier en tant qu'ingénieur pétrolier et gestionnaire de grands projets d'infrastructure, notamment de chemins de fer et de parcs éoliens. Il supervise aujourd'hui la construction de sous-marins nucléaires pour un pays de l'OCDE. Il s'y connaît en matière de risques et de planification de scénarios. Il m'a demandé ce que j'allais dire à ce groupe d'investisseurs. Je lui ai donné les grandes lignes et je lui ai montré quelques cartes de Probable Futures sur mon téléphone. Il a été impressionné, m'a remercié ainsi que mes collaborateurs, puis a esquissé un sourire ironique, a penché la tête vers le public et a déclaré : "Pensez-vous vraiment que ces gens vont écouter ? Tout ce qui intéresse ce groupe, c'est de tirer le maximum de tout." Je lui ai répondu que j'étais absolument certain que cela valait la peine d'essayer. Et que leur choix de nous inviter tous les deux était peut-être un signe que les optimistes étaient en train de reconsidérer la question.
En avant,
Spencer