Inside the mind of Michael Morell

You read a lot in the newspaper, but there’s nothing like getting views from someone who’s been at the coalface. One of those people is Michael Morell. As former Deputy Director of the CIA, Michael has been connected to some of the biggest issues in the world, including one of America’s best kept secret – the location of Osama Bin Laden.

At a recent Magellan Investor Conference themed, “Are we being Trumped?”, Michael was invited to speak with Hamish Douglass to discuss some of the biggest themes in the United States today. Alongside sharing some fascinating stories, Michael gives insight into the strategy behind Trump’s rise to power, his thoughts on the current trade wars, and the number one national security threat facing the US and its Allies.

Watch the full interview or read the edited transcript below.

Hamish: I will start with just a little bit of background. Michael, you've seen so many big events over the last 20 or 30 years. You've been at the coalface in very senior positions in the CIA. Could I just ask you, where were you on September 11th?

Michael: From January 2001 to January 2002, I was President Bush's daily intelligence briefer. So I was with the President every morning, six days a week, no matter where he was in the world, in the Oval Office, at Camp David, at his ranch in Texas, travelling overseas, or travelling in the United States. So, on September 11th I was with him. All day long.

Hamish: And what are the memories from that day? What most stands out to you?

Michael: You won't be surprised that it's etched in my memory as if it were yesterday. But if I were going to summarise, I'd say that it was a mixture of the intensity of doing my job with the surreal. So, an example of the intensity of doing my job was very early in the day, on Air Force One, the President asked to see me in his private office.

He looked at me in the eye, and he said "Michael, who did this?" The kind of direct question you get from a president. I said, "Mr. President, I haven't seen any intelligence that would take us to a perpetrator, so what you're going to get is my best guess." And he said, "I understand the caveat, now get on with it." I told him there were two nation-states in the world, Iran and Iraq that had the capability to do this. But neither of them had anything to gain, and both of them had everything to lose, so I didn't think it was one of them.

I told him that when we got to the end of the trail, I thought we would find Al Qaeda and Bin Laden. And I told him that I would bet my children's future on that. I haven't told my kids that. He then looked at me and said, "When will we know?" Which is again the kind of direct question you get. There is no answer to that, obviously, so I tried to give him some context. I went back in time to previous attacks on the United States, and how long it took us to find out who did it. So, in the case of the bombing of our embassies in East Africa, it took two days. In the case of the bombing of a US warship in Yemen, it took us several months. And in the case of the military barracks in Saudi Arabia, it took us almost a year to figure out who did it. So I said, "Mr. President, we may know soon, and then again, it may take us some time." So there was several intense moments like that during the day.

An example of the surreal, and there were many, was on final approach to Andrews Air Force Base, back in Washington D.C. that evening. I saw the presidents' military aide looking out the window. The presidents' military aide is the guy who carries the nuclear football, with the nuclear codes. He was looking out the window and he saw me looking at him, and he waved me over. So I go the window, and he said "Look." And I looked out and there was a fighter jet on the wingtip of Air Force One. It was close enough that you could see the pilot. You could see his facial features and you could see him looking at us. The presidents' military aide told me that there was another fighter jet on the other wingtip. 

One of the surreal aspects of it was, if you looked beyond the fighter jet, you could see the still-burning Pentagon. Then the military aide asked me "Do you know what the purpose of those fighters are?" Because, by that point in the day every civilian aircraft in the United States had been grounded. I said "No, what's the purpose?" He said, "If somebody fires a surface to air missile at Air Force One as we are landing, It is the job of those fighter jets to put themselves between that missile and the plane." So that was an example of the surreal.

Hamish: And, you were also with the Obama administration. You were in an even more senior role within the CIA at that point in time. Do you have any memories that stand out during the Obama times?

Michael: So, I was with President Obama on May 1st, so I kind of book-ended 9/11 and then bringing Bin Laden to justice. I think most people think that that's the most memorable moment for me and for Obama, but it really wasn't. The most memorable moment was the previous September, so September of 2010, when Leon Panetta, who was then the Director of the CIA and I, went to tell the President in the situation room with only three of his aides, to tell the President that we think we found Bin Laden. And we gave him all of the reasons why we suspected that Bin Laden might be hiding in this particular compound in Pakistan. But we told him that we think he's there, but we're not sure. And I remember very, very clearly that at the end of that meeting, the president gave us two orders. And they came across as orders, not suggestions.

He said, "Number one, find out what's going on inside that compound." Those are the exact words he used. And then, number two, “Don't tell anyone. Don't tell the Secretary of State, don't tell the Secretary of Defence, don't tell the Attorney General, don't tell the Director of the FBI, don't tell anyone”. This was the best kept secret in my 33 years in government. But that day stands out to me, actually more than the day we got Bin Laden.

“Don't tell anyone. Don't tell the Secretary of State, don't tell the Secretary of Defence, don't tell the Attorney General, don't tell the Director of the FBI, don't tell anyone”

Hamish: How we've been trumped is the theme of today, and a lot of people talk about the unpredictability of Trump and not understanding what he's doing. What do you actually think is going on in the White House and what do you think is driving the president's agenda?

Michael: So, I'm not in these meetings in the White House, obviously. This is me assessing my own country, the way I used to assess others. But my best sense, based on what I read and what I see, is that most of what he does every day is playing to his political base. And there are two dynamics at play, I think, with his political base that are very important to understand when you think about what he is doing and what he might do going forward. And those two dynamics are number one, deep economic anxiety on the part of a significant number of Americans. What's deep economic anxiety? It's a sense that your economic life is not going to get any better. And more importantly, a sense that your children's economic life is not going to be any better than yours.

So, kind of the destruction of the American dream, right? Many of these people used to vote Democratic. Many of these people voted for Barack Obama twice, thought Barack Obama did not deliver, did not make their life any better, and they turned to Trump. And they blame, not the thing that is largely driving where they are, automation, but they blame trade and immigration for their economic condition. So not surprising the president has focused on those.

The fundamental issue here, I think many of you know, is that it used to be possible to be an unskilled worker in the United States and be in the middle class. That's where my father was as an autoworker. It is no longer possible to be unskilled and be in the middle class. Right? The modern economic world has left you behind if you're unskilled. So that's one of the two dynamics. It's actually not the most important. If you told pollsters on Election Day in 2016 that you had economic anxiety, you were two-and-a-half times more likely to vote for Trump than Clinton. The second dynamic is social anxiety. The second dynamic is a belief on the part of white, working class, Christian Americans, which make up 33% of the adult population, a belief on their part, a fear on their part that the far left, the rise of women, the growing proportion of minorities in our population, immigration, foreign countries, pose an existential threat to their values and their culture.

So these people are anti-abortion, they're anti-gay rights. When you ask them what decade would you like to live in if you could choose any decade, they say the 1950s. Barack Obama, when he left office, gave a speech in which he said, "The best time in history, if you could choose to be born in any time in history, you would choose now." You can see the fundamental difference there. If you told a pollster on Election Day in 2016 that you had social anxiety, you were four-and-a-half times more likely to vote for Donald Trump.

 

If you told a pollster on Election Day in 2016 that you had social anxiety, you were four-and-a-half times more likely to vote for Donald Trump.

So, hence the focus on immigration. Hence the playing of the race card. Hence the focus on playing to the far right with the choice of Supreme Court justices. Right? That's what I think's driving his decisions.

Hamish: So, he really has a coalition of the far right in terms of deep conservatives and that was a Kavanaugh issue, plus the people that are being left behind, there are about 33% of the population now, so that nearly gets him to 50% of the population. And the rest he doesn't care who he offends. Because they're just not the coalition.

Michael: I think there were three pieces to his coalition. One is his base, which I just described to you. That's probably low 30s. Maybe a little bit more, 35%. Then there are the conservative Republicans who really cared most about his economic policies, right? That he was going to have more market-oriented economic policies in terms of tax policy, in terms of deregulation, than Secretary Clinton would have. And so, they swallowed hard with his character and with his demagoguery. And then the third part were a group of people that simply didn't like Secretary Clinton, quite frankly most of them women. So that was his coalition. So I think the first two pieces hold in 2020. We'll see about that third piece, depending on who the Democrats choose.

Hamish: I might move to China now, and I spoke about China earlier. In 2014, James Comey who was then the Director of the FBI, made a very famous quote about China. He said, "I mean, there are two kinds of big companies in the United States. There are those who are being hacked by the Chinese, and those who don't know they're being hacked by the Chinese." Alex, from your former role, do you believe that China is posing a major strategic threat to the U.S. and other western countries? I spoke about the trade issues being different. Do you see it as a major strategic threat or is it just rhetoric here?

Michael: So, I do. I see China as the number one national security threat challenge facing the United States and our allies, of which Australia is a very important one. If I were to make a list of all the national security threats and challenges we face, there'd probably be 20 or 25 on the list. China would be number one, and there'd be a huge gap between number one and number two. There are three fundamental issues that we have with the Chinese, and all of them are long term and all of them are difficult to think about how you deal with it. The first is the one you talked about [Hamish]. You know, 25 years ago, the U.S. was capital rich, China was labour rich, those two things fit together like a glove. So the two economies were complements to each other. That's exactly what we saw play out over the last 20 years. But now, we're competing in the same areas. All the ones you put up on the screen, right?

25 years ago, the U.S. was capital rich, China was labour rich, those two things fit together like a glove. So the two economies were complements to each other. But now, we're competing in the same areas.

So we're no longer complements, we're competitors. In a very deep way, with two completely different models. One an industrial policy model, and the other a market-oriented model. So you have this competition over future high-tech industries. The second is the Chinese military. The second is a military issue. The Chinese military has grown more rapidly in a more sophisticated way than any other military in human history. I would not want to fight the Chinese in a war today in East Asia. And because the United States and China have large militaries in the same place in the planet, we have to plan for war against each other, we have to equip ourselves for war against each other in terms of the weapon systems we buy and we have to exercise those plans and those weapon systems.

And guess what? Both sides see the other side doing those three things. That creates a natural tension in the relationship, a natural inertia in the relationship in the wrong direction. And then you get to the third big issue, which is the really tough one. Compared to the other two, as hard as they are, is the really tough one. And the really tough one, the third issue, is that the United States is a status quo power, China's a rising power and because China's a rising power, it wants a greater say in the world around it. And guess who has that say today? United States and our allies.

So, how does that fundamental problem of there's only so much power, there's only so much influence to go around and how are we going to share it. How does that get resolved? Let me just add one more thing that I think drives the point home. Why are we so worried about China playing a significant leadership role in the world? Why does that matter? And it matters for two reasons. First, it matters because, is there anybody here who believes that China is going to treat the rest of the world any differently than it treats its own people? And you all know how it treats its own people.

And then, number two, as China takes a larger leadership role in the world, it becomes more of a role model for other countries in terms of how you organise yourself politically, in an authoritarian way, versus a democratic way, and how you model yourselves in terms of an economic system. Managed capitalism verses free market capitalism. So, none of that, I think in my view, is healthy.

Hamish: In my presentation there was a slide of deal or no deal with the trade dispute. With markets being very complacent around this risk, two questions. Do you think President Xi's going to effectively back off China's ambitions and give a comprehensive back down to the United States in a deal here, or do you think Trump's going to back down here and do a USMCA style deal, which is cosmetic, or are both sides going to dig in here? You know, where do you sort of sit on the spectrum of a quick deal being done verse a no deal?

Michael: It's hard in my mind to see an overlap where a deal would be possible, right? Certainly, Xi Jinping would be, as you said, be willing to sign a deal that said we will buy billions of dollars more in American exports. We will work over five years to get rid of that deficit. He'd sign that deal in a heartbeat. But he's not going to give up their ambitions for technological leadership, right? And while Trump has an incentive to show that he's a great deal maker, show the electorate that before 2020 that he's a great deal maker, he's constrained by the fact that it is now an accepted view in the United States across the political spectrum, with economic types, with national security types, that China poses a long-term threat. So the president's constrained in that limited deal that he could make. So, could there be a deal? Absolutely. I don't think so.

I think more importantly, this relationship over the long term is evolving into a cold war. That's where I think we're heading. Not the kind of cold war we had with the Soviet Union based on nuclear weapons and proxy wars in Latin America and Africa, but a cold war based on economics.

I think more importantly, this relationship over the long term is evolving into a cold war. That's where I think we're heading. Not the kind of cold war we had with the Soviet Union based on nuclear weapons and proxy wars in Latin America and Africa, but a cold war based on economics.

Hamish: A little concerning. More of a stand-off relationship.

Michael: I think so. For a long time.

Hamish: But not a physical war, an economic war.

Michael: So, a physical war is certainly possible. Over Taiwan, over the South China Sea, over North Korea? But it would take miscalculation on both parts.

Hamish: I'd like to now move on to something that I don't think's getting a lot of commentary in the markets, and that's really the cyber threats in the world and cyber warfare. Have you read a fabulous book by David Sanger called The Perfect Weapon?

Michael: Yes, I have.

Hamish: I’m pleased Michael has, he was featured in the book. It outlines a number of the capabilities of nations, and how sophisticated they are, countries like the United States and the U.K., Israel, but also the adversaries, Iran, North Korea, Russia, China, and it goes through in some detail of some recent cyber-attacks that have been perpetrated. Some of them were Russia taking down the critical infrastructure of the Ukraine, Russia hacking the Pentagon's network in 2008, of course the interference in 2016 U.S. elections, Chinese hacking Lockheed Martin, hacking a grid software company that held the blueprints for half the oil and gas pipelines in the western world. They hacked the U.S. Office of Personnel Management and took 22 million records of U.S. citizens. North Korea hacked Sony and then released the WannaCry virus that infected many western businesses in the world. Iran's been at it, they hacked Saudi Aramco and took their main entire computer infrastructure of the largest oil and gas enterprise in the world. And they actually hacked Bank of America and JP Morgan and took down their banking system. So I don't think that got a lot of press, you know. As you were looking at it from an intelligence and security point of view, and I assume these things are real in this book, are they?

Michael: They're all real.

Hamish: So, they're all real. What are the ones, or what stood out for you, of something that really gave you concern of what's happening?

Michael: So, I think there's two things about the list that stand out to me. One is, how long it is. How significant all of those were. Truth of the matter is, there are millions of cyber-attacks every day against governments, against companies and against individuals. It's a new tool, so we're just learning to defend ourselves against it. There aren't international norms yet. It has a couple of huge advantages as a tool. Offence gets to move before defence, right? So the adversary is always upgrading how they do attacks. And the defence is catching up. Think of the sport where the offence gets to move a half-second before the defence. Think about that advantage. It has another advantage. It's tough to attribute. So, in each one of those cases, it took some time to figure out who did those attacks. And in some cases, you know with high confidence who did the attacks, in some cases you don't.

So, this is a really big deal. This problem is going to get worse before it gets better. It used to be only that big nation-states, nation-states that were willing to invest the resources to develop these tools were a threat, now you can buy these tools. You can buy tools to get into a network, to steal information from a network, do damage to a network on the dark web. The tools are actually pretty cheap. So, smaller nation-states are getting into this business.

 

What else is possible in the cyber world that we're not yet imagining?

Organised crime is into this business in a very significant way. In 2014, something significant happened. Organised crime made more money via cyber extortion than it did in the illicit drug trade. So this is big dollars for organised crime. It's a huge internal rate of return for organised crime. If it were a legal business, you would get your clients into it. It's that kind of rate of return. It's big business, so you're going to see more of that.

But the other one that stands out to me, Hamish, is the Russia attack on our election. And the reason that stands out to me is because all of the other ones were foreseeable. All of the other ones we actually saw coming. So, if you go back and look at the last 10 years of the heads of the U.S. Intelligence Community testifying in public to Congress every January, there's always a big session on cyber. You know, for the last 10 years. And they warned about all of the attacks we're talking about there. Attacks on critical infrastructure, you know, attacks for extortion purposes, attacks to steal information, intellectual property, national defence information. They warned about all of those.

But nobody saw, nobody imagined that Russia would use social media, would weaponize social media. Nobody saw that coming. So, that worries me because it says to me, what else is possible in the cyber world that we're not yet imagining, that somebody's going to think about?

Hamish: Anything can be attacked, anyone can have ransomware put on, anyone with data can have their data stolen and credit card information and customer lists stolen. At the end of the day, it's a war that's going on in terms of cyber defences here. But are there industries you'd be more concerned about that would be very vulnerable for major attack?

Michael: So, critical infrastructure, right, is the area. What's critical infrastructure? We define it as finance, telecommunications and energy. And if you read the paper, you know that the Russians and the Chinese are aggressively putting tools in place to be able to attack that critical infrastructure. But I believe and most national security analysts believe that the Chinese and the Russians would only conduct those attacks if we were in a hot war with them. So, you're not going to wake up tomorrow and the Russians take down the eastern power grid in the United States. That would only happen if we were actually fighting each other.

Hamish: Do you think there's a risk that they do a demonstration of something relatively small in critical infrastructure just to wake up the capabilities there?

Michael: No, because they know they're just as vulnerable.

Hamish: So, the U.S. isn't innocent in this?

Michael: I mean, we behave a little bit differently, but look, we're prepared to fight a cyber war too. And they know that.

Hamish: I may wrap up with one final question. We've got the midterm elections coming up in two weeks. If you believe the opinion polls, with open enrolment lists before, it looks like the Democrats in a pretty strong position in the House, they have to take 23 seats to take the House. I think a lot depends on the women vote and the turnout of what actually happens. Doesn't look like they'll take the Senate because that's a much harder pathway. But if they were to lose, the Republicans lose the House, is this good news for markets or could Trump be even more erratic if the Democrats take the House?

Michael: I think there's a conventional wisdom that I see in Washington and the American media that somehow the Democrats taking the House is going to make things better. Because it will constrain the president. And it will certainly constrain him on some legislation that he would like to get done. But I think in general it's going to make the politics of Washington worse, because the Democrats aren't going to sit by idly. There's going to be two things that's going to happen if they take the House. The first is, they will investigate pretty much everything the Trump administration has done for the last two years that has any sort of question mark about it. So, they will subpoena witnesses from the executive branch, they will subpoena documents, they will go to town on investigations.

And secondly, although it's not set in stone, I think it's highly likely if the Democrats take the house that they will move to impeach the president. And it only takes 50 votes in the House to impeach the president, so I think if they go down that road, they will impeach him just the way Bill Clinton was impeached. And it really doesn't matter what Bob Mueller finds or doesn't find. I think they will head in this direction because there is such animosity between the Democrats and the president. He won't be convicted by the Senate, so he won't be removed from office. But he will probably be impeached. And you put both of those things together, the investigations about pretty much everything and an impeachment process, and it makes the politics of Washington even uglier. And I think it drives the president, it makes the president even more erratic. And I think it drives the president even more to his base. So, even more on anti-immigration, anti-trade, for example.

Hamish: So not exactly a stable environment to be heading into.

Michael: You know, intelligence analysts are known as glass half empty people, so pretty much what I just gave you.

Hamish: Well, I'd like everyone to join me in thanking Michael. For us at Magellan, Michael has just been a tremendous resource. We speak to him at least once a month. You read a lot of things in the newspaper, but there’s nothing like getting views from somebody who’s been at the coalface and some who is still so deeply connected to many regions around the world.

So, Michael, thank you for the time you spent with us and all the insight you give to us.

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