Notes of Note from John F. Ince

Serendipity

Serendipity Defines Our Lives … a few examples from my life illustrate this point.

In high school I often sat near the back of the classroom next to, Steve, middle son in the only Chinese American family living in our upper middle class, New York City suburban community.  Steve and I shared an iconoclastic view of the world, sometimes passing cryptic notes to each other commenting on various quirks of our school system and teachers.  One day in social studies class, our teacher was attempting a lesson in economics.   She was describing the wondrous operations of efficient and free markets.  Steve and I both found something lacking in her analysis and “encouraged” her to explain exactly how free markets operated to the benefit of all.  We asked pointed questions based solely on the logic of what she presented, pushing to a point where she grew increasingly flustered.  A few times she got completely lost in her analysis, much to the delight of Steve, me and our fellow students.  That night when I got home, my mother asked me what had happened that day in social studies.   Apparently the teacher had called both my mother and Steve’s to complain that we had intentionally embarrassed her in class.  My mother seemed none too concerned by my precocious nature at the time.  Little did she know what lay ahead.

I lost touch with Steve after graduation and often wondered what had become of him.   Almost 30 years later, I opened up the morning paper to see Steve’s picture on the front page and an article proclaiming to the world that he had just won the Nobel Prize in physics.  Today Steve Chu is President Obama’s choice for head of the Department of Energy, entrusted with the ambitious charge of moving our energy system towards a green, clean and renewable future.  Steve Chu, like me was a contrarian both as a scientist and as a head of the Lawrence Berkeley Lab.  In high school we challenged spoon fed economic ideas.  Today we’re both challenging the status quo again.

*****

While an undergraduate at Harvard in the late sixties, I lived in Dunster House on the Charles River.  Dunster achieved a reputation as a hotbed of radical activity during the student protests.  One evening at the dining hall, rumors spread that the FBI had tapped some students’ phones, including the phone of Al Gore, who lived in Dunster.  Gore’s father was embroiled in a bitter campaign for reelection to the U. S. Senate against a conservative opponent who was making headway by raising the issue the younger Gore’s involvement with anti-war protests.  Operatives from Al Gore senior’s campaign soon showed up on campus and told Al to knock it off.  He may have stopped protesting then, but he hasn’t stopped now and has been recognized for his efforts with a Nobel Prize and an Academy Award.

During the student protests, I cast myself in the role of interested observer and was fascinated by popular unrest as an instrument of systemic change.  I attended teach ins, rallies and mass meetings, because I found the logic of the protests both exciting and compelling.  I was intellectually attracted to the rhetoric about both the protests of the Vietnam war and the larger questioning of the system. Back then, very few of the students understood the system or how it really works, though they more than happy to rail against it.  Their strategy for bringing down the system was to use the sledgehammer of public protest. That’s what the “revolution” was all about.  Somehow, by taking over buildings and organizing rallies, those who ran the system would cave into student demands, abdicate their throne of power and a better system would prevail.  With the benefit of hindsight, it’s clear that the student’s bravado was naive.  But the passion behind the rhetoric was real.

Today, many of those who were then searching for solutions, are ensconced in positions of power.  Ben Bernanke, who would live a few houses away at Harvard, is now Chairman of the Federal Reserve.  John G. Roberts, who would live nearby in another Harvard house is now Chief Justice of the Supreme Court.  A few years later, Barack Obama studied at Harvard Law School and after classes used to play basketball in Hemenway gym, my favorite playground for “jungleball” at Harvard.   Barney Frank, who back then was a tutor in Dunster House, is one of the most powerful members of Congress as Chair of the House Financial Services Committee.  Al Franken, who lived in Dunster a few years after me, is now a U. S. Senator.  Little did we know that future national policy should be so strongly influenced, by a group of precocious students who back then were acting out ill formed ideas.

*****

After graduating from both Harvard College and Harvard Business School, I considered working, like many of my classmates and my father, on Wall Street.  But I rebelled and joined an upstart resort developer, Sea Pines Company, on Hilton Head Island.    At Sea Pines Company, I was as the assistant to the Chief Operating Officer and had a birds-eye view of the fast paced world of condos, clubhouses and credit.  It was a heady few years, flying from one company resort to another in private planes with senior executives who were planning and building entire communities.   Sea Pines had seven resort projects at various stages of development and was making money hand over fist.  We were the darlings of the big banks, who were throwing money at us.  Sound familiar?

Suddenly things changed and I had my first real awareness of the profound power that Wall Street holds over our lives.  Interest rates soared to 20%, as the economy tanked and defaults soared.  The banks stopped lending to Sea Pines and dramatically cut back lending all across the country.  The first “energy crisis” hit and gas lines formed across the country.  With access to company market and financial information, I could see where we were headed.   Sea Pines’ days were numbered.   In 1975 after just a few years with the company, I left Sea Pines and stepped off the golden path and entered the uncertain world of creativity.  I moved to Marblehead, Massachusetts where I began an inner journey.  I lived in a rehabilitated barn off the New England Coast, finishing a novel I had started writing after hours of work at Sea Pines, while sitting on the rocks beside the ocean.  After a year writing, I learned just how hard it is to create and sell a book, so I reentered the security of the system, but with a different perspective now.  I joined Chase Manhattan Bank in their real estate group and was assigned to work on the Sea Pines account, amongst others.

*****

It was a turbulent time to be working on Wall Street. I found myself sitting in boardrooms lined with anxious bankers acting like predators, picking clean the carcasses of once high flying real estate companies.  New York City was on the verge of defaulting on its municipal bonds.  I recall sitting in on Friday morning meetings, with David Rockefeller discussing the ongoing negotiations of Chase with New York City and Congress over the prospect of a Federal bailout.   Chase and Citibank owned a huge share of New York’s City’s bonds and stood to lose billions if the City defaulted. I was amazed at David Rockefeller’s composure during those meetings.  He was the calm amidst the storm of widespread panic in the financial markets.  It was only years later that I came to realize why he could be so calm – he knew that the system was functioning exactly as it was designed.   Chase, which had taken imprudent risks in it’s real estate and municipal loans, would ultimately be bailed out by the government.  Sound familiar?

David Rockefeller knew this would happen.  At the time I thought this crisis was an isolated instance of the government acting, in a state of crisis, to rescue the system from collapse.  Since then I have come to see that these periodic spasms of the financial markets are entirely predictable.  It is also predictable that in a state of crisis, the government will act to rescue the banks that caused the problems by taking on too much risk.     The Congressional bailout bill was part of a larger pattern which would be repeated.  It had rescued Penn Central and Lockheed in 1970. Later they would rescue Chrysler, Commonwealth Bank of Detroit, First Pennsylvania Bank, Continental Illinois and others.  Then of course there was the savings and loan crisis in the late eighties and Long Term Capital Management in 1998, each of which brought the financial system perilously close to collapse and required federal intervention.  Financial institutions take the risk and reap the rewards during good times.  Taxpayers pay the bill during bad times.  This is the way the system was designed.  Almost 100 years later, it’s still working the way it was designed, benefitting banks that are “too big to fail,” at the expense of taxpayers.

*****

Today young people all over the map are creating a new kind of revolution – a technological revolution.   In many ways, they have been much more effective than the students of the late sixties in creating change, even though (or perhaps because) they are operating with the profit motive.  I was privileged during the peak of the Internet boom, to be covering this revolution as a journalist with Upside Magazine. In that capacity I had a open access to the power elite in the high tech world, interviewing hundreds of entrepreneurs, CEOs and investors of companies that were changing landscape of business and society with new ideas and business models.

*****

When I first contacted Upside Magazine in 1999, my first assignment was to cover an obscure search engine with a quirky name based in Mountainview, California.   Back then few people beyond the Stanford campus or Silicon Valley tech circles had ever heard of Google. As a fledgling startup, Google paid virtually nothing for advertising, instead relying on word of mouth and articles in print magazines like Upside.   So Cindy McCaffrey, then head of Google’s Corporate Communications, was more than happy to block out a two hour slot on the schedule of Google’s co-founders, Sergey Brin and Larry Page.  I also spoke later with Google board members and VC funders, Michael Moritz and John Doerr as well as angel investors Andy Bechtolsheim, David Cheriton and Ram Shriram.  Today, Brin and Page are billionaires and the investors in Google occupy five of the top six slots on the Forbes Midas List, which ranks the best dealmakers in high-tech.

*****

I’ve often reflected on the serendipitous nature of that first Upside Magazine assignment.  I had the opportunity to witness a revolution from the front row, by interviewing these guys at an early stage, before they even had a clear business model. Today, of course, any reporter would kill for that kind of opportunity.  I caught these entrepreneurs at a time when they were relaxed, uninhibited and more than happy to tell their whole amazing story is crisp detail, without any of the filters that now characterize Google’s PR efforts.  Although Brin and Page were obviously taking a crash course in Entrepreneur 101, it was clear to me that they were very smart, and I figured that, with the guidance of seasoned investors like John Doerr and Michael Moritz, Google had a bright future as “a disruptor” or existing systems.   Today Google has a market cap larger than even the largest Wall Street banks. Serendipity is at work again … even in the world of business.

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