Fraud, lies and credulity: The Glass Hotel, by Emily St. John Mandel

 I expend enough virtual ink complaining about books that bother me for one reason or another.  Enough of that.  Today, let's have some fun with an outstanding book.  The Glass Hotel, by Emily St. John Mandel.  Perhaps the name sounds familiar.  Mandel received some well-deserved acclaim for Station Eleven, which came back to prominence when COVID hit because it describes a post-pandemic world, but the book really was great.  Mandel was no flash in the pan, and The Glass Hotel is, in some ways, even more impressive.  Could I nit-pick?  Of course.*  However, you absolutely should read it.

In the most general terms, the book is about the people affected by a Bernie Madoff-like Ponzi scheme, but of course, it is much more.  The titular hotel is a luxury hotel in the middle of the British Columbia wilderness where the con man, Jonathan Alkaitis, meets the characters at the center of the book.  A place out of time, metaphorically speaking, and those metaphors play throughout the novel.  Mandel plays with memories, fantasies and what-ifs as metaphors for science fiction plot devices while examining a wide cast of characters connected to the Ponzi scheme, including some characters from Station Eleven as though this really is an alternate timeline.  Mandel is establishing herself as one of the most interesting writers around.  Read it.

Let's deal with Jonathan Alkaitis, though.  Alkaitis is the quintessential con man.  Charming, intelligent and composed in a way that suggests that those around him are inclined to trust him because of how he is.  Yet it goes beyond that.  I mean, a Ponzi scheme like Madoff's should have been obvious, right?

For reference, here is how a Ponzi scheme works.  I tell you that I have an investment system, and you should give me your money to invest for you.  I promise you, say, 25% annually.  That'd be a stupidly high rate of return, given the market.  But instead of actually investing your money, I just pocket it.  But you want your 25%, right?  I find some more investors to give me their money, and I pay you your 25% out of their "investment," and keep the rest of their investment.  I just got richer.  Now I need to keep paying you 25% per year, along with the new people I just brought into the scheme in order to pay you.  How do I do that?  More investors!

I can keep the scheme going, making myself richer and richer as long as I keep finding more "investors," but as soon as the flow of new "investors" fails to keep up with the payments I need to make, the whole thing collapses.

This, by the way, is all illegal.  Don't do it.  There.  My ass = covered.

Anyway, with Madoff, and with Alkaitis in the novel, the whole thing unravels with the financial collapse of 2008, when neither the real guy nor the literary con man can keep finding new dupes.

So here's the thing about the Madoff Ponzi, and the Alkaitis Ponzi.  When some con man comes to you and says, "lookie here!  I've solved the math of the stock market!  No matter what happens, I will always return 25% per year, every year, it never fails!"  This really should set off your bullshit detector.  Or... your "con" detector.  In fact, in the novel, Ella Kaspersky follows up on Alkaitis's proposal after meeting him at the Hotel Caiette because she will not be conned, but the SEC bungles the investigation, so the con goes on for years longer.  Somehow, people keep falling for what should be an obvious scam.

Why?

The best explanation is given by Leon Prevant, who will be familiar to fans of Station Eleven.  Miranda's boss makes an appearance here, in this... let's call it an alternate timeline.  Sure.  Whatever.  Anyway, in this timeline, Prevant meets Alkaitis at the Hotel Caiette, and gets taken in by the Ponzi scheme.  Alkaitis is charming and friendly, and all that, but most of all, he just... bullshits Prevant, and Prevant doesn't want to look stupid.  He flatters Prevant, telling Prevant that of course Prevant really understands the system!  The complicated ins-and-outs of a stock scheme, even though Prevant is a shipping executive...  And Prevant, rather than doing what Kaspersky does-- the fuckin' research....-- goes along, in order to not look stupid.

It is that deadly combination.  Alkaitis's charm, and Prevant's desire to not look stupid in the face of someone who just seems to know what he's doing, while performing ritual flattery.

Perhaps you are remembering the story of the Emperor's new suit?  You gotta be willing to look stupid.  I'm getting to that.  With plenty of bad writing and specious reasoning along the way!

Anyway, the most effective con men prey on fear of embarrassment, and its mirror image, vanity.  It is amazing how one's rational judgment can be clouded by vanity and the desire to avoid embarrassment.  You notice that I haven't even mentioned greed!  Why not?  Because that isn't the point.  The point is the question of how a clever con man can get you to make irrational decisions.

Rationality.  Rationality means having well-ordered preferences and selecting the option that maximizes your utility when presented with a set of choices.  What you call "greed" is merely a normatively loaded term that you attach to money because you are a commie pinko.  The Soviet Union failed and capitalism works.  Get over it, Karl.  If you are presented with a choice between getting more money, and getting less money, you will choose more money, not because you are "greedy," but because you are rational.  Unless you are irrational, but I'll give you the benefit of the doubt and assume that you are rational, because while there is a faction that has decided that rationality is a tool for oppression, I've probably driven them away with my constant derision.  If not... speak up!  Whatever.  Anyway, "greed" is irrelevant.  Meaningless labels.

What does it take to get you to abandon rationality, presuming you otherwise behave rationally?  Bullshit, bluster... flattery and fear of embarrassment should you show the flattery to be unwarranted.  That's the key.  That's how Alkaitis did it.

So here's what would happen if Alkaitis tried his shit on me.  He'd bullshit and bluster.  He'd probably lose me somewhere.  Just straight up, I know more than most about investment, but here's the deal.  I'm an academic.  Long ago, I decided I needed to learn about investment, so I read.  What I learned was that in "active management"-- when a fund manager trades in order to try to beat the baseline-- the fund generally underperforms.  Most active managers suck, and they suck at a rate that strongly statistically suggests that the ones who beat the market either do so through dumb luck are criminality.  I study the topic as a statistician, because that's my training, and that is the conclusion I reach.  What should you do, then?  Invest in passively managed funds, like a simple S&P index fund.  Perhaps go a bit beyond that, depending, but not much.  In other words, I read enough to make myself well-educated on investment as an academic topic, and my conclusion is that active managers are generally either a) incompetent, b) lucky, or c) crooks.  Show me a can't-lose investment, then, and I may not be able to follow every detail of the plan itself, because that is not the process by which I educated myself.  But I'm gonna call bullshit anyway, by the numbers.

And so should everyone.

You know what I'm not going to do?  I'm not going to expend any effort thinking about Alkaitis himself.  The man.  The charm.  The easy-going manner, the conversation, the seeming ease with which he talks about the market, his plan, and all that.  I don't give a flying fuck.  I don't give a flying fuck about the flattery, the fear of embarrassment, or any of that.  Alkaitis himself is irrelevant to any of the assessment process.

All that is relevant is that anyone who promises 25% per year every year is a fucking liar and anyone who believes him is a fucking idiot.  Even the "smart" people who believe him.

This brings me back to a topic I addressed rather frequently back on The Unmutual Political Blog.  Do you think you can spot a liar?  Plenty of people believe they can, and there is a body of work in "psychology" (sure, let's put that joke of a discipline in sarcasm-quotes) that tries to connect body language and such to dishonesty.  Might there be statistical correlations, with big enough numbers?  Sure, but do you actually, seriously, think you can spot a liar outside a lab?  You can't.  Sorrynotsorry, but you can't.  Signal versus noise, random variation, random error, and all that, and you can't.  You can't just look at whether or not someone's eyes are shifty and decide you can detect truth like some spell in Dungeons & Dragons.  And if you act as though you can, you're gonna get conned.

Mostly, you're going to decide that you want to believe someone.  Whatever the reason, you will want to believe someone.  That's the worst time.  The most dangerous time.  Alkaitis didn't just dangle high investment returns in front of his dupes.  He dangled flattery, and the fear of embarrassment on the other side.  Manipulation.  After all, if you have money, all you have to do is put that money in a real investment.  You don't need Jonathan fucking Alkaitis.  Yeah, he promised more, but it wasn't the "greed."  It was the vanity, and the fear of embarrassment.

Which means that the danger is looking at the person.  I have made this point many times before, but the reason my method works is that I don't look at the person.  I don't care about the person.  The "research" on detection of lies is bullshit.  But since I know that, and since I know that I can't detect lies by tracking eye movements, or any of that, I ignore it.  I ignore tone of voice, and all of that.  Tell me your investment system gives 25% and you've already lost me, regardless of your mannerisms because I know the research.

And in politics, or really anything, the answer to a potential liar is outside fact-checking.  Ella Kaspersky did that.  That's why she was the badass of the novel.  Oh, and when Alkaitis gave her his pitch... she was drunk!  And she still didn't fall for his shit!  Total badass!  Fuckin' Ella Kaspersky!

The point, then, is due diligence versus credulity.  The way you avoid being conned is due diligence.  When presented with a statement, the veracity of which has consequences for you, you need to consider the extent of due diligence you must perform to assess its veracity.  That means outside fact-checking, without consideration to the speaker.  To believe a person when you have something at stake, without that fact-checking... well, that's pretty damned risky.  And to do that for fear of embarrassment?  Like Leon Prevant?

This is why I frequently say it is important to be willing to look stupid.  Hi!  Behold, the ramblings of a person willing to look stupid!  Of course, nobody reads this damned blog, so I suppose I don't really look stupid, do I?  If a schlub shouts into the void and nobody listens, does he actually sound stupid?  Meditate on this, void-grasshopper.

But consider one of Donald Trump's canned lines:  "as you know."  I can no longer hear this three-word phrase without Trump's voice, in a failure of the Turing test, but consider its application.  As you know.  Trump usually used the phrase to preface a falsehood, and not just because he was usually lying.  The point was to suborn agreement with the lie.  One of the things that would happen in a Trump interview is that in any five minute rambling answer, Trump would spew so many lies that the act of fact-checking any given answer would take hours.  Moreover, few interviewers would have every given fact at their disposal during the interview to fact-check in real time.  If Trump makes up a number, do you know the real number on the spot?  Probably not.  And if he prefaces it with, "as you know," he is both flattering you, and attempting to suborn your agreement with a lie, daring you to embarrass yourself by proclaiming ignorance.  This is the Jonathan Alkaitis trick, albeit less sophisticated, because... it's Trump.

The puzzle, of course, is that Donald Trump is so boorish and obvious about his lies that, in contrast with Alkaitis, anyone with a brain wonders how anyone else could be stupid enough to believe him.  And yet... how could anyone be stupid enough to hand their money to Alkaitis?  Isn't it obvious that he's running a Ponzi scheme?  In fact, while mentally deteriorating in prison, Alkaitis justifies himself by stating that it was so obvious that anyone who did lose their money had only themselves to blame.

In a sense, they did share some blame.  The blame of those who let themselves be conned because of fear of embarrassment.  They couldn't admit when they didn't understand Alkaitis, as he gave them a snow-job.  If you don't understand, say so.  One of a few things will happen.  Maybe you get a clearer explanation.  Maybe you uncover a bullshit artist.  Or maybe you get embarrassed.  What's the cost of that third possibility?  Really?  Who the fuck cares?

Yes, it takes a hell of a lot of self-confidence.  It takes confidence to say, I don't understand, and it isn't because I'm stupid.  It's because the explanation was unclear, or possibly bullshit.  But without that... Leon Prevant goes from rich as hell, to livin' in a van, down by the river an RV, taking menial jobs when he had been looking forward to a comfortable retirement.  What might any cost be to you?  It depends on the circumstance.  But trusting the wrong person can cost you a lot.  Asking a follow-up question?  How costly is that?  Fact-checking?  The cost of credulity far outweighs the risk of asking a fucking question.

One of the topics I plan to address, at some point, is the concept of admiration and its metamorphosis into hero worship.  The core observation here is that you can't assess truth by engaging with the person.  That opens you up to so many manipulative tricks.  Jonathan Alkaitis is presented as charming and engaging.  It is at least comprehensible why people trust him, once you understand the cognitive error that occurs when people fail to check facts, even when presented with an obvious falsehood.  Donald Trump?  He has always been the puzzle.  One of my common references has been the twin cons of the Nigerian Prince email scam, and Mr. Wednesday's jewelry store con, from the book version of Neil Gaiman's American Gods.**  A store clerk could have fallen for Wednesday's con without being, as Londo Mollari put it, the heir to the throne of the kingdom of idiots, but only the heir to the throne of the kingdom of idiots would fall for the Nigerian Prince email scam.  Donald Trump is so obvious that he is the Nigerian Prince email scam.  You have to be stupid enough to fall for the Nigerian Prince email scam not to see through him.

And yet people do.  Because... they... admire him, in his sociopathy.

At some point soon, I'm going to write about admiration.  Don't do it.  Don't admire people.  There are good actions, and while Donald Trump is very nearly unique in the totality of his evil, there are bad people, but once you decide to look up to a person, errors in judgment will follow.

They led to errors in the assessment of Jonathan Alkaitis.  They lead to errors in the assessment of politicians, social figures, and... well, I'll come back to this.

For now, go and read The Glass Hotel.  Best book I've read in months.  Emily St. John Mandel rules.  Fuck.  I just admired her.  Scratch that.  Her books rule.  That's better.

*FBI agents are "Special Agents," not, "Detectives."  Come on, Emily.  I know you're Canadian, but seriously.  Yeah, I'm really nit-picking here, but I notice stuff like this.

**A man dressed as a priest walks into a jewelry store with real cash, smudged with ink, to buy some jewelry.  The jeweler has the cash checked, because it looks potentially counterfeit, but sells the jewelry upon confirming the authenticity of the bills.  Some time later, a co-conspirator dressed as a cop shows up, with the "priest" in tow, claiming that it was counterfeit, and asks for the bills, keeping both the very-real bills and the jewelry as evidence.  The "priest" and the "cop" walk away with real cash and the jewelry.  In the book, Wednesday explains that the con was a relic of the past, and nobody could pull the con anymore, bemoaning the glory days when his favorite cons were still options.  As I understand it, the tv show actually had the characters do a version of the con, which missed the point completely.  Grumble.  I wonder what a mess they'll make of Sandman...