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Complacency and the Stress Curve: Get Ready to Act Smart and Fast

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By Moshe Abudarham

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Confidence is an admirable quality that has driven humanity’s greatest achievements. It’s not entirely necessary for success, yet successful people rarely succeed without it. Arrogance, confidence’s ugly stepsister, is an oft-despised trait that has driven humanity’s greatest failures. Yet plenty of arrogant people achieve success, so what’s the problem?

Well, whereas confident people are able to admit when they are wrong, recognize the contributions others have made, resist embarrassing someone else for making mistakes, and readily learn from their own… arrogant people exaggerate their accomplishments, skills, and abilities to the eventual detriment of everyone who associates with them.

Ultimately, when things “get real,” confident people pivot and adapt, and more importantly, maintain the trust of the people around them. Arrogant people fall short, wearing the finest clothes the tailor never sewed, for like Hans Christian Andersen’s proverbial Emperor, they have been found lacking in substance and character.

So what makes one person confident and another arrogant? The key to unlocking the difference is complacency.

Complacency comes in many colors

Just as there is more than one way to express belief in one’s own abilities, there are many ways for people – individually or collectively – to be complacent.

Financial complacency

The fraud and malfeasance of Enron’s creative accounting and Madoff’s Ponzi scheme are criminal examples of arrogance and complacency that led to high profile bankruptcies, for sure. But legal as they were, Lehman’s subprime mortgage positions – which helped wipe out 93 percent of the bank’s value in three days in September 2008 – bankrupted the 164-year-old banking institution, panicked counterparties, rocked stock markets, and exacerbated the biggest financial crisis in almost a century. (Deutsche Bank has fallen a similar percentage since 2007.)

Political complacency

History is replete with examples of political complacency, such as Julius Caesar’s trust in his friend Brutus that led to his ‘Et tu, Brute’ moment, or Troy’s complacency-in-victory that allowed the proud nation state to fall to its arch nemesis thanks to a wooden horse, to name just two.

But we don’t have to go back that far – within the past five years, complacency changed the course of the political landscape in both the U.S. and the UK:

  • In June 2015, Donald Trump announced his presidential bid. Career politician Hillary Clinton dismissed “deplorables” before slighting swing states such as Michigan and Wisconsin, losing POTUS to a controversial real estate tycoon-turned-reality TV star in November 2016. President Trump was inaugurated two months later.
  • In February 2016, Prime Minister David Cameron announced a June referendum on ending the UK’s EU membership, fully expecting it to be rejected by the British public. In a gross misjudgment, by March 2017, BREXIT was official, and by January 2020, it was final.

Both events percolated over years, accelerated in a matter of months, and divided political opinion – from main street to the halls of power – in an instant.

National complacency

Perhaps the ultimate symbol of our national complacency – bipartisan-in-fact, if not by professed principles – is the U.S. National Debt, which quietly surpassed $25 trillion in early May. Financial and political complacency are dangerous enough on their own, but combine the two and you have a recipe for disaster. Throw in a black swan pandemic onto years of kicking the can down the road, and the numbers are truly terrifying.

As noted by the Peter G. Peterson Foundation:

“America’s high and rising debt matters because it threatens our economic future. The interest that we pay on the federal debt is now the fastest growing part of the budget. In fact, we spend over $1 billion per day, just on interest.”

When the stress curve gets stressed

In When the Risk of Inaction Suddenly Outweighs the Risk of Action, we looked at the impact an event like the coronavirus crisis has on the adoption curve, “skewing it to the right – rapidly ensnaring the early and late majority in the laggards’ predicament.” In Playing Devil’s Advocate in a Time of Mass Adversity, we looked at Maslow’s Hierarchy of Needs, and how “all across America, people are experiencing a gravitational pull towards financial instability and economic chaos.”

There’s a third concept chart that bears considering in the current climate – the stress curve – which measures performance against increasing pressure levels. Similar to the adoption curve, the stress curve creates a bell shape and features a relative “safe zone” in the middle (early and late majorities and optimal performance, respectively).

But for the stress curve, the left tail represents low pressure-low performance (instead of early adoption-few in number), and the right tail represents high pressure-low performance (instead of laggards-few in number).

In other words, outside the “safe zone” of the stress curve, low stress tends towards apathy via boredom and high stress tends towards burnout. And this reveals the relationship between the stress curve and Maslow’s hierarchy of needs:

  1. You can only progress up the hierarchy while operating in the “safe zone” of the stress curve
  2. Being too stressed or not stressed enough to be productive disturbs foundational psychological and safety needs
  3. ‘Wants’-needs – love and belonging, esteem, and self-actualization – are put at risk and directly or indirectly deprioritized

And this is where the financial, political, and national complacencies left to fester since at least the turn of the millennium meet a system under extreme stress. You need only look to one of a host of Fed Chair Jerome Powell’s quotes to understand that the entire economy will remain under stress beyond the national health emergency:

“There is no precedent in post-World War II American history that’s even close to what Congress has done. They have passed $3 trillion in stimulus, which is 14% of GDP. It is vastly larger than anything they’ve ever done.”

Powell did provide a silver lining for the banks: “After the last financial crisis, the banks more than doubled their capital and liquidity and they’re far more aware and better at managing the risks they’re taking.”

But in an article the Wall Street Journal titled The Mortgage Market Never Got Fixed After 2008. Now It’s Breaking Again., Ben Eisen pointed out the systemic fragility of the wider lender community, nearly 60 percent of which is made up of nonbanks:

“Many of them are nonbanks that don’t have deposits or other business lines to cushion them, and they have raised concerns that fronting payments for struggling borrowers… will quickly drain them of capital.”

And as Redfin CEO, Glenn Kelman, acknowledged when talking about the recent rapid surge in interest in rural locations

“Nobody wants to service loans right now because they can’t front the cash. There’s 12 months of forbearance available for the consumer – which is great for the consumer, we should definitely do that – but it means that credit standards are tightening up right when houses are getting affordable.”

Time to act smart and fast

States Title recently had the privilege of hosting John Kanas, Vice Chairman at The Carlyle Group, in the second Ask the Expert (in a crisis) live Q&A webinar. Our CEO, Max Simkoff, asked Kanas the one thing executives don’t likely want to hear but need to hear to help their businesses survive in the current environment. As you might expect from a former bank CEO, tapped by then-FDIC Chair Sheila Bair to save BankUnited from bankruptcy mid-GFC, his answer was suitably anti-complacent:

“You know, most of us, when we sit down and try to plan our way through circumstances like this, we devise several different scenarios, right? The best case scenario, the most likely scenario, and the worst case scenario. Given what’s going on and given what we’re facing moving into the summer and into the fall, I think the best advice I can give people is throw away the best case and the most likely case, and prepare your company to cope with and survive and hopefully flourish in the worst case scenario.”

We heard a similar message two weeks earlier from Former U.S. Treasury Secretary, Lawrence H. Summers when explaining how to forecast economic outcomes in uncertain times:

“There’s a famous quote, that’s attributable to Eisenhower, that plans are absolutely useless when the battle comes, but it’s nonetheless essential to have them and to make them. I guess my general views and general experience would be whatever you think you’re going to have to do in two months, you should probably do today. And that if your idea is that there’s something that you don’t have to do yet, but you’re very likely to have to do in the future, it’s probably better if you face it and do it today. The corollary of that is you can’t bounce till you hit the floor.”

And a week before that, Brendan Wallace, Co-Founder and Managing Partner at Fifth Wall, pointed out on a video call that the technology most mortgage brokers need is already available:

“It feels like every broker that’s doing a digital transaction right now, they’re going to realize, ‘Oh this has been around for a while, I can’t believe I didn’t use this,’ and there’s almost been this leapfrog effect of, now the technology is so good, that what they’re adopting for the first time isn’t some experimental solution. It’s a durable long-term solution.”

But if you really want to know how to ride out the current crisis and be an architect of the new normal in residential real estate and mortgage financing, tune in to our next Ask the Expert (in a crisis) webinar with Silicon Valley pioneer, Karen Richardson, as Max Simkoff asks questions around the topic: “How to drive innovation during a crisis.”