Sais assist up on her book tour. I had the pleasure of traveling with michelle in the uae last fall and hurt about this book, and so its been anticipating it and its an exciting read. I think, through asking the question why we ignore crises that we can see coming until they literally stampede is can i think shes got a new paradigm for thinking about risk, and im excited to hear her discuss some of her ideas and this evening. This book follows two others that i read the one on haitians and dominicans, and i bet put that together. I didnt realize that youre the author of that exquisitely written book she wrote a book on immigration that asks why we get immigration so wrong, even though our prosperity depends on our getting it right. Shes a prolific writer. Shes had a distinguished career in journalism and has also received numerous awards for her leadership, including young Global Leaders aboard for the World Economic forum, and she has also been recognized as a guggenheim fellow, and has been the president of the World Policy Institute among other leadership roles youre welcome, michel. And leading our conversation this evening is dr. Jeff leonard. Dr. Leonard is the ceo of the Global Environment fund which is a private equity fund that invests in Growth Companies that focus on Renewable Energy and environmental cleanup, as well as energy efficiency. He is chairman of a number of boards, including the board of the washington monthly. He also serves on the board of new america, and he is himself a prolific writer. He has produced five books including the awardwinning collusion and the struggle of work product. So we are you very grateful to have him leave the conversation this evening. I hope that all of you will stay and continue it at the end of the discussion and the q a. Were going to have a raffle and raffle off some books that micheles publisher was kind enough to make available to us. So she will sign books and hope you will enjoy the reception and discuss the ideas that were going to talk about this evening. So welcome. Thank you very much everyone for coming. Its great for me as a washington person and to be are at sais. Also i should say we have hired a number of sais people, special people bond has been done to the Financial Program at the Transit Program because the worldliness of a sais in the per is what really made. We have found the big policy pictures and so but also the ability to do what really serious financial skills. Michele, very fortunate because ive been able to come as sort of an idle friend of micheles, we get together periodically. We been often about ideas. And so ive been able to be present since the early part of the the gestation of this book and its very exciting. Its an extraordinarily wellwritten book come at a dont you just say that about policy books or books like this, but its very well written. It unfolds in so many profound layers come and we will only scratch the surface of the gray rhino centrum today in our conversation, but you we could apply, going to try to keep it to Foreign Policy but the book itself, so the richest parts of the book on corporate behavior and on domestic policy. And even down to individual behavior and political settings and so on. So i think its really going to be fun today because we will elicit from you we hope ideas about how to apply this into Foreign Policy. The concept im going to let michele defined for you and then tell us a little bit about how she found her way to it, i just want to say about thirtysomething years ago as a graduate student, i was traveling in what was then yugoslavia. I kept a journal and as i was studying Political Economic system and we wanted to understand socialist economics and what was going on with reform in the social systems, so i traveled all over yugoslavia. I kept a journal. I wrote prolifically about it. I wrote articles and so on but one of the things that stand in the journal, i still have it today, it says everybody i talk to hates everyone else. And i said, this country is going to blow skyhigh when tito died. So thats kind of the gray rhino. Anybody who was present there could see, could feel that this is a country only held together by the force of one man. By 1980 of course he died and then we had bosnia, all these horrors and terrible situations but the gray rhino was so apparent and yet nobody talked about it. So to me that is the epitome of what michele is going to talk about today. So i would like to start may be with you telling us, defined the gray rhino, didnt have to do that tell us how you found it. Sure. And had to say, the praise from jeff is Something Else which is quite an accomplished writer himself. So thank you for that. The gray rhino something thats really big its coming at you, its got a big corn, chili dangerous. As if you think of the elephant in the room, the big obvious thing that nobody wants to talk about and we take for granted that nobody is going to do anything about but it just is kind of standing still. You get the elephant in the room together with the black swan, a book that came out about 10 years ago that said we need to pay more attention to highly improbable, unpredictable, high impact events that as an individual its hard to predict, but as a group happens much more than we think. You get the elephant in the room together with the black swan and the love child is the gray rhino. Its something thats highly probable, predictable within reason of course. You might not know every single contour of the detail but its going to happen. Its a matter of when, not if, unless somebody does something pretty big and dramatic to deal with it. But its not getting attention that it needs. This might not mean it is completely ignored but if something that is not being dealt with properly. Its sort do not resolve. The way i came to the rhino was looking at sovereign debt crises. And a former life i was a financial journalist writing about the merging market and get an assassin by argentina. As many of you remember in 2001 it had a pretty dramatic falling apart. About nine months before that there was a proposal that went around wall street, some very, very smart bankers and academics some direction things are going to do was no way argentina was going to be able to pay its debt if it kept going to same directions as they said 30 proposal, lets write down 30 of this debt and thats what they will take to turn the situation are rounded. Argentina want to save face, so they said no. The banks are doing all sorts of crazy restructuring the wood river expensive and were not really solving the problem. It didnt happen. Of course, nine months later argentina collapsed and the banks lost 70 of face value instead of 30 , which that idea 30 versus 70 was a pretty clear example of a stitch in time saves nine, to me. Fastforward 10 years, 2011, and greece as having the same dynamic happening. And in this case it threatened the entire European Union. I bought a paperback is for the new America Foundation saying basically, greece, you can learn from argentinas example. If you dont, the consequences are going to be bad. It went right down to the last minute i think they were already have a off the cliff and people got together and pulled them back off the edge. The private creditors increase came to an agreement that was not perfect and that everything was all but it certainly helped keep greece from defaulting and turnout the European Union from falling apart. So i started asking myself whats the difference, whats the difference between people who see this big scary thing coming at them into something, and the ones who dont . You said actually not about weak signals. So in both of those cases the signals were there. Its about weak perception or weak action to the signals. I presume thats kind of how when we would distinguish a gray rhino from a black swan. What theres one paragraph early in your book after you defined where you say many of the Biggest Challenges we face in this world today are gray rhinos. It is breathless. Its painting Climate Change can unsustainable debt levels, labor market dynamics. Youth unemployment. On and on and on. So we know of course, if you get a split everything cant explain anything. I want you to help because since his earlier book, the whole rest of the described why it doesnt find everything. Take us through the broad sort of stages of the recognizing india with a gray rhino. And do also healthy, because theres one great point where you say behind every black swan is a crash of gray rhinos. Likely out of the part the book the said our rhino group is called a crash. But, so what is a crash of gray rhinos behind every black swan . Anconventional side recognize te black swan, distinguish it and cope with it. When you see obvious things coming together, when they meet you might not be able to predict exactly how the need for exactly what the consequences are, but it become a nation of predictable things coming together. The 2000 financial crisis is just a classic example of that. You had the subprime crisis. Unit questionable use of derivatives. Unit loses a provision of thanks, a lot of reckless behavior. You also had a lot of warning. A few months, of course everything went into Christine Lagarde said we are facing a financial tsunami. If you do a nexis search of news stories at the time and references to crisis, subprime mortgages, credit default swaps, its very clear that yes, we saw it coming, despite what so many people said in hindsight. The black swan had just come out at the time and everyone was talking about black swan, financial crisis, this is a black swan. Nobody saw it coming. Even though people did. I felt that they misused the black swan concept a little bit. First of all its improbable and unpredictable. So that many you can actually see it coming and imagine it happening, its definitely not a black swan anymore. But then on the flip side using almost perfectly opposite logic, you have people after something happened was a that was a black swan. Perfectly unpredictable, unforeseeable. 2008 really was a crash of gray rhinos. I think that certainly even people who saw lots of elements of that happening probably didnt quite have the sense of exactly how extensive the damage is going to be. But a lot of people knew it wasnt going to be good. I was living in new york city and had an apartment at about the figures earlier and it almost doubled in value. Its a very small example but i sold my apartment. I think there are some of the people who made much bigger bets on the fact that things were going to keep going the direction that they were. The way you describe it though its almost as though people at the beginning stages you talk about denial and then theres a modeling phase, especially sometimes thats benign. People dont want to admit and sometimes its more negative. We have a lot of examples of how institutions systematically fail or dont allow people to call these things attention. I want to give you one example that so striking about 2008. I was the chairman of the board of a merging Market Association of the time and my board was filled with some of the smartest investor people on the planet. We had an off the record dinner one night here in washington, d. C. With the chief economist at standard poors. In 2007. Some of the people on board were just saying what the hell is in this shelter raging . They were pilloried him the whole night. That guy is a present on the second we dont know. We are as weird as your. Are all these comments that made you, these institutions were unaware. They were just praying it would go away. Like that gray right outcome we are praying it turns the other way and not come away. Sooner or later you have to deal with it. Help us out on the. How did it unfold . I think the s p example disaffected when. A lot of people did know what was going on. There were certainly a lot of journalists who wrote about things. This denial is very interesting. Its first stage. When mr. Think about this denial was the first thing i did was go and buy a copy of the book on death and dying. Everybody knows about the five stages of greece. She said it should be a temporary phase. Its so protected that it gives you enough of a cushion that you can start absorbing whats happening. If you absorb it all at once its too much and a lot of people would freak out and break down. Some of the psychological mechanisms humans have for dating with problems are that denial. But we also set up decisionmaking systems, and there are also some unconscious of things that we do. I spent a lot of time looking at denial and seven the Cognitive Biases that we have to get a wacom one of the biggest ones have the with the decisionmaking structure that we set up, a groupthink which is going to get about the people who are some of them have some perspectives, look like them come from the same places, whatever measure is similar to you want to use, when one person says something, its much more likely to choose the all the heads and not all the way around the table. It becomes very difficult to Say Something that is not what people want to hear. And i think that is certainly something that happens in markets. We i very tempted to think that the party issues keep going on and nobody is going to take the punch bowl away. But its inevitable. I look back, some of the people who made this proposal on argentina in 2001 were very much fans. I feel like anyone would ever read charles had to recognize that. Of course, his classic book was rereleased bracelet. The first stage is to know. There are other reasons that i think there were a lot of people who take revenge on this human tendency towards to now. Youve got the monkey, hear no evil, see no evil, speak no evil monkeys. You get the oscars with head in the sand. This wonderful menage every hanging out with a black rhino, the great writer, a black swan, alvin in the room. But once you go on what you realize people are so susceptible to get you can manipulate that. You look at the tobacco company. You look at some of the testimony thats been coming out about the Oil Companies that new insight very well at the risk were and what were going to happen. Really conceal that. So theres a certain sort of manufactured denial that we can either take advantage of our we can be aware of and question much more actively why are we denying this. Wishful thinking. And wishful thinking. If it just went away it would be a lot better than for me to have to fess up. Up. I think our culture is like that. You look at income inequality today, and you look at the people who look up to certain candidates, millionaires, billionaires, very wealthy business people. You look at the debate over taxes. You look at the debates over trying to address this problem of income inequality, which is affecting growth, which is helping to create the poisonous political climate. Of other people dont want to make some of the hard decision to even people who would benefit from the because i could someday have a big shiny building with my name on it. You cite the role of one of my older professors when you say the crisis takes much longer in common than you think, and it happens much faster than using. This is the challenge in markets come in the financial markets. I can never be a Hedge Fund Manager because her so many times when im right but it takes three years to be right. I remember in the 1990s we went to investors in private equity and we said we think the u. S. Stock market is completely and totally overvalued, you know, blah, blah, blah, blah, blah. Two years later, three years later they were still saying, the private market, on the Public Markets are outperforming you by 280 basis points every year. We were sure they were overvalued but it was way too early. How do you deal with that . When you arrive and you see this crisis the early but others dont or they are not ready to act, or the institutions are not ready to hear you. Its very common, and in many cases its a matter of win. But exactly when, thats a little, you know, double on your shoulder. Thats were i think you need to come into understanding some of the later phases of gray rhino. Start with denial. I was just so inspired by the book i thought maybe i could have five stages come to. Get it worked out well that way. So the second stage is modeling. Is when edwin is saying this is a problem but they come up with all sorts of reasons not to do anything about it. Muddling. Estate after that i called diagnosing but you could think of it as blaming or bargaining. Its the what do you do . Its making sure you have the right solution. The fourth stage is panic. Its a time when the rhino is just about on top of you and its a double edge sword. On the one hand, you are much more likely to make missteps, make bad decisions. We see that often in financial crisis and Economic Crises when the economy is booming. Nobody plans to cut the budget. Nobody wants to be responsible, and its just on the way down to all want to cut the budget and they treat this Snowball Effect that gets worse and worse. The final stage of course is action. Its when you do something. You should action happens in such a way that a small group of people start acting. You want to create a ripple effect. How do you get these leaders, how do you convince other people that its in their interest to actually do something, to make the hard decisions. Thats a great transition to what you and i both said was the biggest Inconvenient Truth of all, or the biggest elephant in the room, which is Climate Change. The reason i say that is because we are actually 20 years into a more into the diagnosis. So i remember taking a course at harvard in the 70s with roger revell. Because he was talking about Climate Change and Greenhouse Gas effect and so on. But here we are. This year we have is monumental set of agreements. So how do you see where we are with Climate Change and we go in coming years and sort of the schema for framework . Climate change is a g