Open Secrets

I recently found and greatly enjoyed this New Yorker article, entitled “Open Secrets: Enron, Intelligence, and the Perils of Too Much Information,” by Malcolm Gladwell (of The Tipping Point and Blink fame). See here for my review of Blink.

Open Secrets is a long (7,000 word) article that goes into considerable depth on the topic of open source intelligence — basically, finding things hidden in plain sight.

Early in the article, Gladwell introduces the distinction between puzzles and mysteries:

The national-security expert Gregory Treverton has famously made a distinction between puzzles and mysteries. Osama bin Laden’s whereabouts are a puzzle. We can’t find him because we don’t have enough information. The key to the puzzle will probably come from someone close to bin Laden, and until we can find that source bin Laden will remain at large.

The problem of what would happen in Iraq after the toppling of Saddam Hussein was, by contrast, a mystery. It wasn’t a question that had a simple, factual answer. Mysteries require judgments and the assessment of uncertainty, and the hard part is not that we have too little information but that we have too much.

He then proceeds to deftly argue that the Enron debacle could easily be mistaken for a puzzle, when in reality it was a mystery. Most or all of the information needed to recognize that Enron was at risk (e.g., the complex special-purpose entities) was disclosed in public documents. The problem with Enron, Gladwell convincingly argues, wasn’t too little information but too much.

He goes on to describe the Screwball Division, a US World War II intelligence outfit that relied entirely on public information:

The analysts listened to the same speeches that anyone with a shortwave radio could listen to. They simply sat at their desks with headphones on, working their way through hours and hours of Nazi broadcasts. Then they tried to figure out how what the Nazis said publicly—about, for instance, the possibility of a renewed offensive against Russia—revealed what they felt about, say, invading Russia.

One journalist at the time described the propaganda analysts as “the greatest collection of individualists, international rolling stones, and slightly batty geniuses ever gathered together in one organization.” And they had very definite thoughts about the Nazis’ secret weapon.

That secret turned out to be the V-1 rocket and most of the inferences the analysts made turned out to be correct. Another excerpt:

The political scientist Alexander George described the sequence of V-1 rocket inferences in his 1959 book “Propaganda Analysis,” and the striking thing about his account is how contemporary it seems. The spies were fighting a nineteenth-century war. The analysts belonged to our age, and the lesson of their triumph is that the complex, uncertain issues that the modern world throws at us require the mystery paradigm.

The article ends with an example that cleverly and clearly supports Gladwell’s hypothesis about Enron. In 1998 six Cornell business school sudents decided to do a term project on Enron for an advanced financial analysis class:

It was about a six-week project, half a semester. Lots of group meetings. It was a ratio analysis, which is pretty standard business-school fare. You know, take fifty different financial ratios, then lay that on top of every piece of information you could find out about the company …

The students’ conclusions were straightforward … There were clear signs that “Enron may be manipulating its earnings.” … The report was posted on the Web site of the Cornell University business school, where it has been, ever since, for anyone who cared to read twenty-three pages of analysis.

The students’ recommendation was on the first page, in boldfaced type: “Sell.”

Gladwell is a delightful writer and this is a topic that should be of interest to virtually everyone. So my recommendation: this is a must read article.