WEBVTT - Barry Ritholtz's Masters in Business: Bethany McLean Interview 0:00:03.240 --> 0:00:07.560 This is Masters in Business with Barry Ridholes on Bloomberg Radio. 0:00:08.080 --> 0:00:10.760 This week on the podcast, I sit down with a 0:00:10.960 --> 0:00:17.360 delightful and really incredibly knowledgeable journalist, Bethany McClain. You may 0:00:17.360 --> 0:00:20.160 not be familiar with the name unless you read bylines 0:00:20.239 --> 0:00:23.560 like I do. Bethany wrote one of the best selling 0:00:23.640 --> 0:00:28.120 books on finance. Um it was about Enron, The smartest 0:00:28.120 --> 0:00:33.120 guys in the Room, the spectacular rise and scandalous fall 0:00:33.800 --> 0:00:38.680 of Enron. And you may be familiar with her if 0:00:38.680 --> 0:00:40.519 you're a little older, maybe you were a traitor in 0:00:40.560 --> 0:00:44.440 the late nineties early two thousand's Bethany was. Her background 0:00:44.440 --> 0:00:46.800 is really fascinating. She graduates with a degree in both 0:00:46.840 --> 0:00:51.040 English and mathematics, ends up at Goldman sachs Uh as 0:00:51.040 --> 0:00:54.200 an m and a analyst, before she decides that's not 0:00:54.240 --> 0:00:57.160 what her future is going to be and she becomes 0:00:57.200 --> 0:01:01.760 a journalist. She's writing a fortune and in two thousand 0:01:01.840 --> 0:01:07.720 one publishes a article that at the time Enron was 0:01:07.920 --> 0:01:13.959 a skyrocket, a moon, a moonshot, really questions the valuation 0:01:14.000 --> 0:01:17.640 of Enron. She never alleges fraud. She points out how 0:01:17.720 --> 0:01:22.160 challenging it is to actually find out anything about about 0:01:22.160 --> 0:01:25.959 the company. Itself and really just raises a lot of 0:01:26.040 --> 0:01:30.760 questions as to how can this company that's essentially positioning 0:01:30.760 --> 0:01:35.160 itself as a utility be such a fast grower and 0:01:35.240 --> 0:01:38.759 yet not reveal much to the investing public. And and 0:01:38.800 --> 0:01:41.440 really that's where you start pulling the string on the 0:01:41.480 --> 0:01:46.440 sweater and eventually the entire Enron house of cards collapses. Uh. 0:01:46.560 --> 0:01:49.080 Obviously that's a hell of a way for a journalist 0:01:49.080 --> 0:01:52.480 to make a name for herself bring down Enron. She 0:01:53.000 --> 0:01:56.000 is rather humble about this. She said it would have 0:01:56.040 --> 0:02:00.600 collapsed eventually. Anyway. You can't have that my fraud and 0:02:00.880 --> 0:02:04.040 get away with it forever. But her book is really 0:02:04.080 --> 0:02:08.079 well regarded. She's subsequently written a number of books, one 0:02:08.120 --> 0:02:12.200 with Jonah Sarah about uh, Fannie May and Freddy Mack, 0:02:12.240 --> 0:02:15.800 which is really quite fascinating. She wrote another book on 0:02:16.560 --> 0:02:20.800 the financial crisis. UM. I find her to be tremendously 0:02:21.160 --> 0:02:24.560 insightful and really just a pleasure to chat. Without a 0:02:24.600 --> 0:02:27.640 delightful time talking with her about all these things. And 0:02:27.840 --> 0:02:30.680 I think you'll hear that in the interview. I wish 0:02:30.680 --> 0:02:34.880 we had more more time. The hour flew by really quickly, 0:02:35.280 --> 0:02:39.280 So without any further ado, here is my Conversation with 0:02:39.360 --> 0:02:46.560 Bethany McClain. This is Masters in Business with Barry Ridholds 0:02:46.760 --> 0:02:51.120 on Bloomberg Radio. My special guest today is Bethany McClain. 0:02:51.480 --> 0:02:55.320 She is currently a contributing editor at Vanity Fair, but 0:02:55.400 --> 0:02:59.480 she is also the author of a number of fascinating books. 0:02:59.560 --> 0:03:03.720 I would say she's probably best known for Smartest Guys 0:03:03.760 --> 0:03:07.080 in the Room, The Amazing Rise and Scandalous Fall of 0:03:07.120 --> 0:03:10.800 and Ron No. Not only was it a award winning book, 0:03:10.840 --> 0:03:14.160 but it also became a documentary that was nominated for 0:03:14.200 --> 0:03:18.679 the Academy Awards in two thousand and six. She graduated 0:03:18.680 --> 0:03:22.359 Williams College and was a double major in math and English. 0:03:22.760 --> 0:03:26.520 Spent three years at Goldman Sachs as an investment banking 0:03:26.720 --> 0:03:32.320 m and a analyst before joining Fortune Uh, where she 0:03:32.520 --> 0:03:37.360 pens a very famous article called is in Run over 0:03:37.440 --> 0:03:42.920 Priced that ultimately pre sage the collapse of that company 0:03:42.960 --> 0:03:46.720 and a huge scandal. She's also the author of Shaky Ground, 0:03:46.840 --> 0:03:50.440 The Strange Saga of US Mortgage Giants, and All the 0:03:50.480 --> 0:03:54.080 Devils Are Here, The Hidden History of the Financial Crisis. 0:03:54.160 --> 0:03:57.560 Bethany McClain, Welcome to Bloomberg. Thanks for having me. So 0:03:57.560 --> 0:04:01.320 so that's quite a fast, sedating background, and there's so 0:04:01.360 --> 0:04:05.440 many places to go. I have to start with double 0:04:05.520 --> 0:04:08.600 major English and math, which a lot of people are 0:04:08.600 --> 0:04:12.920 either word people or number of people. You're both sign 0:04:12.960 --> 0:04:15.960 of a confused mind. But no, seriously, I don't think 0:04:16.040 --> 0:04:17.880 you should be one or the other. Somebody asked me 0:04:17.960 --> 0:04:21.920 recently random question, what what influenced me more being an 0:04:21.920 --> 0:04:24.159 English major being a math major? And I actually think 0:04:24.160 --> 0:04:27.440 my math major influences my writing in some ways more 0:04:27.600 --> 0:04:31.120 because math, particularly theoretical upper level math where it's proofs, 0:04:31.520 --> 0:04:34.680 is very logical. And I was thinking, I don't have 0:04:34.720 --> 0:04:38.520 a very aggressive personality, but what makes me aggress But 0:04:38.640 --> 0:04:40.920 what makes me aggressive is when a doesn't lead to be, 0:04:41.080 --> 0:04:43.080 doesn't lead to see, And I think that's my training 0:04:43.080 --> 0:04:45.120 as a math major. And then I can't stand it 0:04:45.240 --> 0:04:48.040 because I'm looking for the proof right or I'm looking 0:04:48.040 --> 0:04:50.680 for the logic the logic, and when the logic doesn't 0:04:50.720 --> 0:04:54.000 add up, that's what will make me dig in and 0:04:54.000 --> 0:04:56.520 and ask aggressive questions in a way that perhaps isn't 0:04:56.640 --> 0:04:59.760 isn't my natural personality. I suffer from the same condition. 0:05:00.279 --> 0:05:02.320 It is a confused state of mind. Because people are 0:05:02.400 --> 0:05:05.279 usually left the right brain and if you're English and math, 0:05:05.320 --> 0:05:07.719 it means you're a little of both, and it certainly 0:05:07.800 --> 0:05:11.280 is confusing. So let's talk a little bit about that 0:05:11.360 --> 0:05:14.640 takes you to Goldman Sachs in the early nineties, a 0:05:14.839 --> 0:05:17.680 really tough place to break in. How do you go 0:05:18.160 --> 0:05:21.880 straight from college to Goldman Sachs's banking division. Well, at 0:05:21.920 --> 0:05:24.360 that time, Goldman Sachs had an analyst program where they 0:05:24.400 --> 0:05:27.080 hired people right out of college into their two year 0:05:27.120 --> 0:05:31.240 analyst program, So there was a pretty established track for 0:05:31.240 --> 0:05:33.320 for doing that. I don't think I was a natural 0:05:33.440 --> 0:05:36.480 candidate to be on that track. I think that's true. 0:05:36.520 --> 0:05:39.520 I didn't I didn't know what investment banking was. Quite frankly, 0:05:39.560 --> 0:05:41.000 I think I got a job because I was a 0:05:41.000 --> 0:05:43.120 female math major, and that was rare enough in one 0:05:43.120 --> 0:05:46.320 of those days that they thought, oh, she must be suitable. 0:05:46.440 --> 0:05:50.000 It's still relatively rare today, and less so than it was. 0:05:50.560 --> 0:05:52.680 Um I think I was not very suitable. I think 0:05:52.760 --> 0:05:54.600 Goldman was a tough place, and I think I made 0:05:54.640 --> 0:05:59.839 it tougher on myself. I came unprepared. I would say, 0:06:00.320 --> 0:06:01.600 you knew when you were going in that you were 0:06:01.600 --> 0:06:03.159 going to work a hundred hour weeks and that the 0:06:03.200 --> 0:06:05.240 environment was going to be tough. But I don't think 0:06:05.279 --> 0:06:07.479 I expected it to be quite as as as tough 0:06:07.520 --> 0:06:11.719 as it was. Um. And you you subsequently called something 0:06:12.560 --> 0:06:15.880 from that era of the Goldman Sachs post traumatic stress 0:06:15.920 --> 0:06:19.479 disorder condition? Is that a function of how difficult and 0:06:19.560 --> 0:06:22.679 challenging a place which I got roundly and perhaps rightly 0:06:22.720 --> 0:06:29.359 criticized by veterans for for appropriating a term military military veterans, 0:06:29.640 --> 0:06:32.800 not not not Goldman veterans. But it was. It was. 0:06:32.880 --> 0:06:35.039 It was. It was a tough environment, yes, but but 0:06:35.279 --> 0:06:37.120 look I learned a lot. I'm grateful to the place 0:06:37.160 --> 0:06:39.200 In some ways. I think I grew up quickly there. 0:06:39.560 --> 0:06:42.120 I can imagine. So you're there for all of three 0:06:42.200 --> 0:06:46.599 years and you say, hey, this is interesting, but I'm 0:06:46.600 --> 0:06:49.279 going to give this writing thing a shot, and you 0:06:49.400 --> 0:06:52.120 end up at Fortune. I actually said, I was out 0:06:52.120 --> 0:06:53.800 on my way to business school. I was in I 0:06:53.839 --> 0:06:56.240 had a roommate UM, and I thought, you know, I'm 0:06:56.279 --> 0:06:58.320 going to graduate from business school with a lot of debt, 0:06:58.360 --> 0:07:00.479 and I'm going to be right back where I started 0:07:00.560 --> 0:07:02.360 because I'm gonna need to get a high paying job 0:07:02.360 --> 0:07:04.800 in order to pay off the deck. So if there's 0:07:05.040 --> 0:07:07.760 if I want to do something else, now's the time. 0:07:08.240 --> 0:07:10.320 And I didn't grow up in a family that necessarily 0:07:10.400 --> 0:07:13.640 encouraged artsy things like journalism. But I thought, now is 0:07:13.640 --> 0:07:15.240 my time to give it a try, and if I 0:07:15.240 --> 0:07:17.600 don't like it, I'll go to business school. So I 0:07:17.680 --> 0:07:19.560 took a huge pay cut and got a job at 0:07:19.560 --> 0:07:22.080 Fortune as a fact checker. And they were willing to 0:07:22.120 --> 0:07:25.000 hire me back in those days of well funded, glossy 0:07:25.080 --> 0:07:27.760 magazines with lots of time to fact check stories before 0:07:27.760 --> 0:07:30.320 they went out the door, because I had my experience 0:07:30.320 --> 0:07:32.320 at Goldman, and they thought, well, she may not be 0:07:32.360 --> 0:07:34.280 able to write, and she may not even be smart, 0:07:34.320 --> 0:07:36.840 but she at least understands what we're writing about. And 0:07:36.880 --> 0:07:41.239 this was really little bit pre inter internet, not quite 0:07:41.240 --> 0:07:43.840 the same cost squeeze that we see today. It was 0:07:43.920 --> 0:07:47.400 the last golden age of journalism. And so you're there 0:07:47.480 --> 0:07:51.000 for five or so years. When did you before this 0:07:51.120 --> 0:07:53.560 story comes out, when did they move you to say, 0:07:53.760 --> 0:07:55.960 all right, kid, let's see if you can write sort 0:07:56.000 --> 0:07:59.240 of slowly, but I still definitely I did writing for 0:07:59.240 --> 0:08:01.360 the Personal Finance section, which at that time was sort 0:08:01.400 --> 0:08:03.800 of a backwater where nobody wanted to write right for 0:08:04.040 --> 0:08:06.280 so you could get in the door writing wise if 0:08:06.280 --> 0:08:08.280 you were willing to do it. And I did this 0:08:08.320 --> 0:08:10.360 column called Companies to Watch, where I was supposed to 0:08:10.440 --> 0:08:13.800 pick two stocks every three stocks every two weeks, which 0:08:13.840 --> 0:08:16.240 is unfortune was published that We're gonna double or triple 0:08:16.320 --> 0:08:20.880 or quadruple and value. But it was It was easy 0:08:21.000 --> 0:08:22.760 because of all the people who come by and pitch 0:08:22.800 --> 0:08:25.960 you right, the analysts and the portfolio managers and the 0:08:26.320 --> 0:08:28.440 and the company executives, and you can write up these 0:08:28.480 --> 0:08:31.360 really charming little stories that are great and then you 0:08:31.400 --> 0:08:33.840 watch the stock goes in the opposite direction. So I 0:08:33.880 --> 0:08:37.080 began to realize that there was this whole Wall Street 0:08:37.120 --> 0:08:39.920 by machine that I was inadvertently becoming part of, and 0:08:39.960 --> 0:08:41.840 I didn't want to be part of it. So in 0:08:41.880 --> 0:08:44.760 the last minute we have in this segment, you put 0:08:44.760 --> 0:08:48.960 out the piece is and run over priced. And you've 0:08:49.000 --> 0:08:53.680 worked with very famous short seller Jim Chanos, a previous 0:08:53.720 --> 0:08:57.680 guest on the show. How how did he approach you 0:08:57.800 --> 0:09:00.600 to say, hey, you're probably hearing a lot of positive stuff. 0:09:00.679 --> 0:09:02.760 Use a story that might not be quite as savory 0:09:02.800 --> 0:09:06.160 as the others. So I met a guy named Doug Millette, 0:09:06.200 --> 0:09:09.240 who has since passed away, who worked for Jim Um 0:09:09.280 --> 0:09:12.480 and I hounded Doug mercilessly to talk to me and 0:09:12.520 --> 0:09:16.440 help me come up with ideas, and um, finally Doug said, Hey, 0:09:16.600 --> 0:09:18.640 you know, we're looking at this company called Enron. If 0:09:18.679 --> 0:09:20.480 you can tell us how it makes money, what would 0:09:20.520 --> 0:09:22.480 love to hear it? And so that was that was 0:09:22.520 --> 0:09:25.320 actually how it came about. I'm Barry Ridhults. You're listening 0:09:25.360 --> 0:09:28.520 to Masters in Business on Bloomberg Radio. My special guest 0:09:28.520 --> 0:09:32.960 today is Bethanie McClean. She is a journalist and author 0:09:33.120 --> 0:09:37.800 of Smartest Guys in the Room, Amazing Rise and Scandalous 0:09:37.800 --> 0:09:42.520 Fall of Enron. And we were talking um earlier about 0:09:42.679 --> 0:09:45.120 when the book came out. It kind of came out 0:09:45.480 --> 0:09:50.520 in two way dot com implosion void And despite how 0:09:50.800 --> 0:09:53.520 well regarded the book is today, not a lot of 0:09:53.559 --> 0:09:56.440 people really saluted when that came out. No, the book 0:09:56.440 --> 0:09:58.880 came out into a weird vacuum. I would say people 0:09:58.920 --> 0:10:01.679 were really interest didn't end round when it went bankrupt, right, 0:10:01.920 --> 0:10:03.800 and it was all over the front page of every paper. 0:10:04.000 --> 0:10:07.480 Fastest Bankruptcy in American His Your Biggest Bankruptcy, just all 0:10:07.559 --> 0:10:09.680 sorts of it on the front page of the paper 0:10:09.720 --> 0:10:11.640 for a year. Everybody was covering by the by the 0:10:11.640 --> 0:10:13.160 time our book came out in the fall of two 0:10:13.160 --> 0:10:15.520 thousand and three, I think people had end round fatigue, 0:10:15.520 --> 0:10:17.840 and I think she had scandal fatigue. And I think 0:10:17.880 --> 0:10:19.960 we were all in that awful period after the dot 0:10:19.960 --> 0:10:22.040 com implosion where the last thing you wanted was more 0:10:22.080 --> 0:10:24.439 bad news. Plus you had the world com collapse, and 0:10:24.480 --> 0:10:26.439 you had the analyst scandal, and there was all these 0:10:26.440 --> 0:10:29.319 other things, and people might have been really like right, 0:10:29.440 --> 0:10:32.000 So the book barely cracked the best seller list and 0:10:32.040 --> 0:10:35.200 then it it sort of disappeared, but it continued to 0:10:35.200 --> 0:10:37.400 sell over the years, and actually, because it sold so 0:10:37.440 --> 0:10:39.199 well over the years, it ended up doing really well. 0:10:39.240 --> 0:10:41.600 But it was a slow thing, not a not an 0:10:41.600 --> 0:10:45.360 immediate explosion of interest. It ultimately ended up on a 0:10:45.440 --> 0:10:49.160 number of either college or business school reading lists. So 0:10:49.480 --> 0:10:54.320 it's a regular, literally required reading for certain students, I hope. 0:10:54.320 --> 0:10:57.520 So so, so let's talk a little bit about the 0:10:57.559 --> 0:11:01.200 initial article. Was it a function when you were reading 0:11:01.200 --> 0:11:06.400 it of overvaluation or did you think fraud? I was 0:11:06.480 --> 0:11:09.120 too naive to think fraud, I think, but if you 0:11:09.520 --> 0:11:11.560 if you try to put yourself back at that point 0:11:11.559 --> 0:11:14.520 in time. We hadn't had fraud in a major American 0:11:14.559 --> 0:11:17.280 business for such a long time. The idea that a 0:11:17.320 --> 0:11:20.000 company could be fraudulent, that the accountants and lawyers could 0:11:20.000 --> 0:11:22.680 have signed off on things, I just I wouldn't have 0:11:22.720 --> 0:11:25.640 believed it. I remember reading through the description of the 0:11:25.640 --> 0:11:28.840 transactions that the CFO, Andy Fasta, was doing with with 0:11:28.880 --> 0:11:31.520 the company and thinking, Yeah, but the accountants and lawyers 0:11:31.520 --> 0:11:33.360 signed off on this, I must I must just not 0:11:33.440 --> 0:11:36.839 get it. So these weird disclosures about these transactions that 0:11:36.920 --> 0:11:38.560 ended up being very central to the end Roun story, 0:11:38.600 --> 0:11:41.079 I didn't even write about in my story. I instead 0:11:41.160 --> 0:11:45.080 focused on end Roun's price and it's pe ratio relative 0:11:45.160 --> 0:11:47.600 to the fact that people didn't understand its business, didn't 0:11:47.640 --> 0:11:50.160 understand how it made money, and that although the company 0:11:50.240 --> 0:11:53.200 said it wasn't a trading business because Jeff Skilling, the 0:11:53.200 --> 0:11:55.439 then CEO, wanted it to have a higher stock price, 0:11:55.720 --> 0:11:58.160 it was very much a trading business. So I focused 0:11:58.160 --> 0:12:01.559 on that fraud. I think it would have I think 0:12:01.600 --> 0:12:04.600 it would have surprised me. Well, it's certainly surprised a 0:12:04.600 --> 0:12:07.040 lot of people, especially those who were long the stock. 0:12:07.120 --> 0:12:12.760 And we mentioned the previous segment, um uh, folks from 0:12:12.840 --> 0:12:16.480 Jim Chainos's funds, can A Coast Partners? Had you had 0:12:16.520 --> 0:12:19.040 reached out to them? This wasn't them shopping and around 0:12:19.040 --> 0:12:21.560 you had tag them? What made you go to them 0:12:21.760 --> 0:12:24.640 of all people? Well, I think going back to this column, 0:12:24.679 --> 0:12:27.040 I did companies to watch where I was selecting these 0:12:27.040 --> 0:12:29.640 stocks to write about. I felt burned. I felt like 0:12:29.640 --> 0:12:32.240 I was inadvertently becoming part of this buy machine that 0:12:32.280 --> 0:12:35.560 was succoring the American public by writing these positive stories 0:12:35.600 --> 0:12:38.160 about companies that were soon to implode. So I began 0:12:38.200 --> 0:12:39.880 to seek out short sellers and try to get to 0:12:39.920 --> 0:12:42.439 know them because I thought I need another source of information. 0:12:42.760 --> 0:12:44.920 You know, I'm tired of writing this glowing story about 0:12:44.920 --> 0:12:46.880 this company, not hearing another point of view, only to 0:12:46.920 --> 0:12:48.880 have my phone ring and somebody start, you know, swearing 0:12:48.880 --> 0:12:50.760 at me on the other end, being like you stupid whatever, 0:12:50.760 --> 0:12:52.719 How could you not have known that this is? Did 0:12:52.760 --> 0:12:54.760 that really? Have? It did a couple of times, and 0:12:54.800 --> 0:12:56.840 I thought, you know, I need to at least understand 0:12:56.880 --> 0:12:58.720 the other side of the story, even if they're wrong. 0:12:58.800 --> 0:13:00.280 I want to know it and then I can do 0:13:00.400 --> 0:13:02.560 my own thinking to figure out if they're right or wrong. 0:13:02.640 --> 0:13:04.840 So trying to get to know Jim was part of 0:13:04.880 --> 0:13:06.839 a broader effort on my part of trying to get 0:13:06.880 --> 0:13:08.760 to know people who are skeptics so that I could 0:13:08.800 --> 0:13:11.360 doom with things that were more accurate. So with with 0:13:11.520 --> 0:13:14.840 the benefit of hindsight, it seems kind of ridiculous that 0:13:14.920 --> 0:13:19.040 here's a company. They make money in ways that no 0:13:19.080 --> 0:13:24.520 one really knows. Their books are completely forget transparent, they're impenetrable. 0:13:24.640 --> 0:13:27.280 Nobody has any idea what's going on with that? How 0:13:27.440 --> 0:13:31.600 did the best and brightest of corporate America, of Wall Street, 0:13:31.760 --> 0:13:35.600 of the investment community not stop to think, Hey, what's 0:13:35.640 --> 0:13:39.000 really going on here? How did everybody buying into the 0:13:39.240 --> 0:13:43.319 story which turns out to just be complete and total fraud. 0:13:44.040 --> 0:13:45.480 I think there are a bunch of answers to that. 0:13:45.520 --> 0:13:47.560 I think one thing is that we like the story, right. 0:13:47.880 --> 0:13:50.040 We all want to believe in the story of this 0:13:50.120 --> 0:13:52.959 company that's revolutionizing markets and that's going to make everybody 0:13:52.960 --> 0:13:55.480 a fortune. What could possibly be wrong with that? But 0:13:55.559 --> 0:13:57.400 I think underneath it there are some things that are 0:13:57.400 --> 0:13:59.520 specific to end Run. I think Jeff Skilling was a 0:13:59.559 --> 0:14:05.160 really powerful personality and the biggest a very intellectually convincing personality, 0:14:05.160 --> 0:14:09.520 and charismatic personality and intimidating personality, and the most the 0:14:09.559 --> 0:14:12.120 greatest compliment he could give you was that you got it, 0:14:12.160 --> 0:14:13.840 was that you you were part of the team. You 0:14:13.960 --> 0:14:16.240 got it, you understood what they were doing. The biggest 0:14:16.280 --> 0:14:18.280 insult he could give was that you didn't get it. 0:14:18.440 --> 0:14:21.000 You're too stupid. You're too stupid. And so people, because 0:14:21.040 --> 0:14:22.960 we get it, we're the smartest guys in the room, 0:14:23.080 --> 0:14:25.760 you don't write. And he would say this to people 0:14:26.240 --> 0:14:30.960 who were Harvard, M. I. T. Wharton, like really the 0:14:31.000 --> 0:14:35.160 best and brightest, and literally intimidate them into thinking, you're 0:14:35.160 --> 0:14:37.360 not smart enough to understand what we do, right, And 0:14:37.400 --> 0:14:39.840 so people were afraid of feeling like that, are being 0:14:39.840 --> 0:14:41.520 made to look like that in a crowd, and so 0:14:41.560 --> 0:14:43.200 I think a lot of people pretended to get it 0:14:43.240 --> 0:14:46.120 when they really didn't get it because they wanted to 0:14:46.160 --> 0:14:49.440 bask in Jeff Skillings admiration. I think it happens far 0:14:49.480 --> 0:14:51.680 more frequently than you would think, even today, though I 0:14:51.680 --> 0:14:54.480 think it's a common phenomenon. It's the Emperor's new clothes 0:14:54.560 --> 0:14:58.560 right when we live with it today, that is um 0:14:59.040 --> 0:15:02.640 absolutely stun so. Someone I mentioned I was interviewing you, 0:15:02.760 --> 0:15:05.280 and someone said to me and we talked about the article, 0:15:05.280 --> 0:15:07.960 and the question that this person asked was interesting enough 0:15:07.960 --> 0:15:12.160 that I'm gonna pass it along. Assume your article never 0:15:12.240 --> 0:15:15.640 came out. Is en run over priced? How long could 0:15:15.680 --> 0:15:20.360 this have continued before someone would have noticed that the 0:15:20.400 --> 0:15:23.600 emperor was not wearing any clothes. I actually don't think 0:15:23.600 --> 0:15:27.080 that my article influenced en Roun's trajectory at all. I 0:15:27.120 --> 0:15:29.120 think what my article did was pick up on the 0:15:29.200 --> 0:15:32.960 underlying skepticism about en Ron that was growing in the marketplace. 0:15:33.240 --> 0:15:34.880 And in the end, what brought en run down was 0:15:34.920 --> 0:15:37.200 a funding crisis, right, they couldn't roll their debt, and 0:15:37.240 --> 0:15:40.080 then the rating agencies rating agencies downgraded them, and that 0:15:40.160 --> 0:15:43.400 was the final nail in the coffin um. But I 0:15:43.440 --> 0:15:46.600 think my article highlighted because it was at that that 0:15:46.640 --> 0:15:49.920 time where it was becoming undeniable that the broadband business, 0:15:49.960 --> 0:15:52.680 for instance, was collapsing, and Jeff Skilling was continuing to say, 0:15:52.680 --> 0:15:55.040 this is a great business for en Ron. We're defying 0:15:55.080 --> 0:15:57.520 the industry, and it was becoming more and more apparent 0:15:57.560 --> 0:15:59.400 than what he was saying was at odds with what 0:15:59.440 --> 0:16:02.560 everybody in the industry was was was saying. So I 0:16:02.840 --> 0:16:05.840 guess I believe it probably didn't. My article probably didn't 0:16:05.840 --> 0:16:08.080 influence the trajectory of events at all. I think it. 0:16:08.280 --> 0:16:10.400 I think it explained what was starting to happen. So 0:16:10.560 --> 0:16:13.320 at the time he was saying that you already had Metromedia, 0:16:13.360 --> 0:16:15.600 Fiber Go belly up, you had Global Cross and go 0:16:15.720 --> 0:16:19.160 belly up. They were spending thousands of dollars per mile 0:16:19.600 --> 0:16:22.160 to lay this dark cable that will eventually light up 0:16:22.200 --> 0:16:24.560 with all this content, which turned out to be true 0:16:24.640 --> 0:16:27.080 Facebook and YouTube and all these things a decade later. 0:16:27.560 --> 0:16:30.400 But that was brought up for pennies on the dollar later. 0:16:31.120 --> 0:16:34.280 How can someone be so brazen as to make that 0:16:34.480 --> 0:16:38.360 claim in the face of collapse. Was it just oh, 0:16:38.360 --> 0:16:40.920 those were poorly run companies and people brought into that. 0:16:41.480 --> 0:16:44.480 I think that Jeff Jeff was the ultimate stock salesman. 0:16:44.520 --> 0:16:47.080 He could sell and run better than anybody else, and 0:16:47.120 --> 0:16:49.440 he desperately needed to keep the stock price high or 0:16:49.520 --> 0:16:53.640 high because all these complicated financial things Andi Fasto the 0:16:53.640 --> 0:16:56.480 CFO had built depended on keeping the stock price above 0:16:56.520 --> 0:16:58.840 a certain level, and if the stock price started to decline, 0:16:58.880 --> 0:17:01.280 all these losses would come back on and Ron's balance sheet. 0:17:01.640 --> 0:17:03.840 So I think Jeff was very aware of the need 0:17:03.920 --> 0:17:07.280 to keep Enron's and Roun stock price high UM, and 0:17:07.320 --> 0:17:09.359 I think that was part of it. Just share desperation 0:17:09.680 --> 0:17:12.280 UM to en Ron was is a great example of 0:17:12.320 --> 0:17:15.439 you know, the famous quote is a Pendiman Graham that 0:17:15.480 --> 0:17:17.399 a stock in a company are two different things. And 0:17:17.520 --> 0:17:20.440 Enron's case, the company became the stock to say the least. 0:17:20.760 --> 0:17:23.399 I'm Barry Hults. You're listening to Masters in Business on 0:17:23.440 --> 0:17:26.800 Bloomberg Radio. My special guest today is Bethany McClain. She 0:17:27.000 --> 0:17:31.000 is a former Goldman Sachs analyst and Fortune magazine reporter 0:17:31.080 --> 0:17:35.040 who broke the big story on en Ron, ultimately writing 0:17:35.400 --> 0:17:38.080 a number of really well regarded books. And let's talk 0:17:38.080 --> 0:17:42.200 about a different book of yours, which is shaky ground. 0:17:42.720 --> 0:17:47.800 The strange saga of the US mortgage giants. Now, I've 0:17:47.840 --> 0:17:52.399 covered subprime, and I've covered mortgages, and whenever I talked 0:17:52.400 --> 0:17:57.719 about Fannie or Freddie, the two government sponsored enterprises that 0:17:57.840 --> 0:18:00.600 handle most of the mortgages in the country, they are 0:18:00.600 --> 0:18:03.800 one of two reactions. Either people are furious and they 0:18:03.840 --> 0:18:05.920 want to shut them down, and let's turn this over 0:18:06.000 --> 0:18:09.080 the free market or their eyes glaze over and they 0:18:09.280 --> 0:18:11.919 lovingly slip into a coma never to be seen again. 0:18:12.200 --> 0:18:14.840 But nothing in the middle. What do you find when 0:18:14.840 --> 0:18:17.920 you talk about mortgages? I went to a housing finance conference, 0:18:17.960 --> 0:18:20.760 the Goldman Sachs speaking of which hosted um when in 0:18:20.760 --> 0:18:22.040 the winter, when I was working on the book, I 0:18:22.040 --> 0:18:24.320 guess it was last winter, and the Goldman Pierre guy 0:18:24.359 --> 0:18:25.720 said what are you doing here? And I said, well, 0:18:25.720 --> 0:18:27.480 I'm writing a book about Fanny and Freddie. And he 0:18:27.520 --> 0:18:28.840 looked at me and he said, well, no one's going 0:18:28.880 --> 0:18:32.639 to read that, and just how book sales going, you 0:18:32.680 --> 0:18:34.600 know what? For what it is, so I published it 0:18:34.640 --> 0:18:38.120 through this upstart publishing press called Columbia Global Reports, which 0:18:38.160 --> 0:18:40.720 seeks to write mini books. So it's not a long book. 0:18:40.840 --> 0:18:43.880 But many books on topics of global importance that are 0:18:43.920 --> 0:18:45.960 there are meant to be walkier. So for what it is, 0:18:45.960 --> 0:18:49.639 it's actually done quite well. Okay, that's great. It's every 0:18:49.680 --> 0:18:53.280 time the conversation comes up, it's just so difficult, and 0:18:53.320 --> 0:18:56.639 it's amazing because mortgages. Look, anybody should care about Fannie 0:18:56.640 --> 0:18:58.159 and Freddie. I don't care who you are, if you 0:18:58.200 --> 0:18:59.920 have a mortgage or if you want to buy a 0:19:00.000 --> 0:19:01.680 ho If you want to buy a house, you should care. 0:19:01.720 --> 0:19:03.919 If you just own a house, you should care about 0:19:04.160 --> 0:19:06.359 what the government's going to do with mortgage finance because 0:19:06.359 --> 0:19:08.880 the availability of financing determines the value of your house. 0:19:09.200 --> 0:19:11.280 And if you're in none and homes are still, by 0:19:11.280 --> 0:19:13.439 the way, the most important asset to most Americans for 0:19:13.480 --> 0:19:15.359 the vast majority. And if you are in neither of 0:19:15.400 --> 0:19:17.560 those camps, but you care about the economy, you should 0:19:17.600 --> 0:19:20.600 still care about housing because it's still fift our g 0:19:20.680 --> 0:19:24.080 d P and so whatever the government does full fifth. 0:19:24.359 --> 0:19:26.840 So whatever the government does to resolve we are still 0:19:26.880 --> 0:19:29.719 housing is still There was a great quote Mariner Mariner 0:19:29.760 --> 0:19:32.600 Echoes back in the nineteen thirties who said housing is 0:19:32.600 --> 0:19:34.600 the wheel within the wheel of our economy. And it 0:19:34.680 --> 0:19:37.400 and it still is. And so even if you care 0:19:37.400 --> 0:19:39.439 about the just care about the economy, you should care 0:19:39.440 --> 0:19:41.880 about what the government does with Fannie and Freddie. Ultimately, 0:19:41.920 --> 0:19:44.200 that's it's it's a big topic. I did a column 0:19:44.240 --> 0:19:46.360 don't care here right. I did a column not too 0:19:46.359 --> 0:19:48.240 long ago. I moved a year ago. We bought a 0:19:48.280 --> 0:19:51.840 new house, and the experience with that house, the hoops 0:19:51.840 --> 0:19:56.399 you had to jump through in versus the experience with 0:19:56.480 --> 0:19:59.720 the prior house we did. I recalled doing the refinancing 0:19:59.720 --> 0:20:03.080 in OH five or oh four, where literally the guy 0:20:03.080 --> 0:20:05.639 would pull up in the driveway, you left the engine running, 0:20:05.640 --> 0:20:08.720 flung open the door, ran in with papers here initial 0:20:08.720 --> 0:20:11.400 initial sign sign I apologize, I have a closing around 0:20:11.400 --> 0:20:14.159 the corner. I disappeared, left us with the check for 0:20:14.240 --> 0:20:17.720 thirty dollars was gone, and I looked at my wife. 0:20:17.720 --> 0:20:22.439 Did that really happen? Contrast eight years later, where you know, 0:20:22.720 --> 0:20:26.840 I've had colonoscopies that were gentler and easier and less 0:20:26.840 --> 0:20:32.120 intrusive than than these sort of um experiences. So that 0:20:32.200 --> 0:20:38.160 raises the question, why has financing, the most important purchase 0:20:38.359 --> 0:20:42.600 most Americans make, become so insane? Well, there are a 0:20:42.600 --> 0:20:45.000 bunch of answers to that. The fate of Fannie and Freddie, 0:20:45.040 --> 0:20:47.080 as most people know, it's unresolved. They were put into 0:20:47.200 --> 0:20:49.720 a state called conservatorship during the dark depths of the 0:20:49.760 --> 0:20:52.480 financial crisis. It was supposed to be temporary. There they 0:20:52.480 --> 0:20:55.040 still said, they're making lots of government money. The government 0:20:55.080 --> 0:20:57.680 is using their money to reduce the overall budget deficit. 0:20:58.000 --> 0:21:00.399 I think it's a huge scandal, But that's but and 0:21:00.440 --> 0:21:03.560 that's been reported that, but that's out there. But the 0:21:03.720 --> 0:21:06.280 big problem is that the government's been schizophrenic and what 0:21:06.359 --> 0:21:09.280 it wants out of the mortgage market. So politicians, including 0:21:09.320 --> 0:21:12.159 President Obama have said repeatedly, we want more private capital 0:21:12.240 --> 0:21:14.479 in the market. At the same time they've done everything 0:21:14.520 --> 0:21:18.119 possible to discourage private capital from getting involved in the market. Again, 0:21:18.280 --> 0:21:21.480 witnessed the huge fines the big banks have paid, um so, 0:21:21.600 --> 0:21:25.320 and so what are the big banks paying fines? Well 0:21:25.359 --> 0:21:28.520 for for behavior for which they should pay fines. But nonetheless, 0:21:28.680 --> 0:21:31.080 if you realize suddenly that you Mr. Bank may have 0:21:31.160 --> 0:21:33.919 to pay billions of dollars in fines because you screwed 0:21:34.000 --> 0:21:36.359 up on some lending to subprime customers, you're probably gonna say, 0:21:36.400 --> 0:21:37.520 you know, I don't think I'm gonna do that. Len, 0:21:37.680 --> 0:21:39.959 Let let me push back on that a little bit, 0:21:39.960 --> 0:21:42.879 because I know you've written about foreclosure gate, which is 0:21:42.920 --> 0:21:46.240 one of my big pet peeves. Yes, as it turns out, 0:21:46.359 --> 0:21:51.480 if you actually commit fraud and take these signed documents 0:21:51.520 --> 0:21:55.560 and present them to a court, they're usually a penalty 0:21:55.680 --> 0:21:58.520 for for lying under oath that way. And yet it 0:21:58.560 --> 0:22:02.240 seems there has been no one woman one mid level 0:22:02.320 --> 0:22:06.040 executive who was just a irrelevant to the whole story 0:22:06.200 --> 0:22:09.400 got prosecuted. But the vast majority of people who said, 0:22:09.480 --> 0:22:12.040 just make up documents, throw people out of the house. 0:22:12.080 --> 0:22:15.080 We'll probably get the right people agreed. Agreed. I'm not 0:22:15.160 --> 0:22:19.080 defending the big banks. Nonetheless, if you say, if you 0:22:19.160 --> 0:22:21.920 penalize something for doing something bad, they're probably going to say, 0:22:21.960 --> 0:22:24.280 I'm not going anywhere near that bad thing in the future. 0:22:24.480 --> 0:22:26.440 And maybe we'll get there, But before we get there, 0:22:26.440 --> 0:22:28.000 the government has to figure out what it's for. All 0:22:28.040 --> 0:22:30.040 in the market is going to be right and right now, 0:22:30.080 --> 0:22:32.159 there's no resolve about what the government's going to do 0:22:32.160 --> 0:22:34.920 with Fannie and Freddie. So the present political function, or 0:22:34.960 --> 0:22:38.760 a political malfunction, is that what it is. It's not economic, 0:22:38.800 --> 0:22:41.400 it's it's basically nobody in Washington knows what to do 0:22:41.520 --> 0:22:43.800 with these two companies, and so we have complete and 0:22:43.840 --> 0:22:47.080 total stalemate. Everybody knows we need Fannie and Freddie to 0:22:47.200 --> 0:22:49.520 keep providing a thirty or fixed rate mortgage to the 0:22:49.520 --> 0:22:53.399 majority of Americans. Nobody really seriously wants to risk ripping 0:22:53.400 --> 0:22:55.840 that underpinning out from under the mortgage market and see 0:22:55.840 --> 0:22:59.760 what happens. And yet nobody can say, actually, we probably 0:22:59.800 --> 0:23:02.000 need Fannie and Freddie either. So we sit in the 0:23:02.119 --> 0:23:04.639 state of dysfunction, made worse by the fact that the 0:23:04.680 --> 0:23:08.160 government has gotten two hundred plus billion dollars in profits 0:23:08.160 --> 0:23:10.600 from Fannie and Freddie because they're seizing all the profits, 0:23:10.760 --> 0:23:12.800 and so what politician wants to get rid of that 0:23:12.840 --> 0:23:15.479 source of money. So I think it's it's it's not 0:23:15.520 --> 0:23:18.359 a great situation. I'm Barry rid Halts. You're listening to 0:23:18.480 --> 0:23:22.040 Masters in Business on Bloomberg Radio. My special guest today 0:23:22.080 --> 0:23:25.920 is Bethany McLean. She is a contributing editor at Vanity 0:23:25.960 --> 0:23:30.960 Fair and uh well regarded journalist and author. Let's talk 0:23:31.000 --> 0:23:34.000 about one more book of yours, which I happened to 0:23:34.080 --> 0:23:38.520 have pulled off my bookshelf. All the Devils Are Here, 0:23:38.600 --> 0:23:41.840 The Hidden History of the Financial Crisis, which you actually 0:23:41.920 --> 0:23:45.440 wrote with the Jonah Sarah. He's a really interesting Uh. 0:23:45.520 --> 0:23:48.360 Joe was my longtime editor at Fortune and he actually 0:23:48.480 --> 0:23:51.320 edited the End Round book. Oh really, I didn't know that. 0:23:52.000 --> 0:23:55.160 I'm a fan of his only because I have big 0:23:55.160 --> 0:23:57.399 issues with the n c a A. And he's been 0:23:57.920 --> 0:24:01.960 well for many reasons, but most recently he's been torching 0:24:02.040 --> 0:24:04.680 them read his new book in Denschard. It just came out, 0:24:04.840 --> 0:24:09.399 just came out presolutely. He's absolutely I love the fact 0:24:09.440 --> 0:24:12.000 that these guys have gotten away with so much for 0:24:12.040 --> 0:24:16.080 so long, and suddenly one person comes along and completely changes, 0:24:17.080 --> 0:24:20.000 you know, the narrative. The story is something wholly different, 0:24:20.040 --> 0:24:23.120 and that's it's nice having a free press. So let's 0:24:23.119 --> 0:24:25.919 talk a little bit about this book because it's really interesting, 0:24:26.480 --> 0:24:29.879 and we could talk about a number of other columns 0:24:29.960 --> 0:24:34.240 that you've released following the financial crisis, some of which 0:24:34.280 --> 0:24:37.639 I find endlessly fascinating. Let's just jump right to this. 0:24:38.280 --> 0:24:42.359 What was the hidden history within the financial crisis? What 0:24:42.400 --> 0:24:46.480 do you think most people just don't realize that took 0:24:46.480 --> 0:24:50.040 place in that whole collapse. I think one of the 0:24:50.080 --> 0:24:52.640 most surprising things, okay, two of the most surprising things 0:24:52.680 --> 0:24:54.800 to me where the whole history of subprime lending, how 0:24:54.840 --> 0:24:57.600 it developed. So even sophisticated people tend to think of 0:24:57.640 --> 0:25:00.600 subprime lending as a phenomenon in the mid tooth, but 0:25:00.640 --> 0:25:02.760 it really wasn't. There was the first wave of subprime 0:25:02.840 --> 0:25:05.119 lending in the nine in the nineties, and then the 0:25:05.160 --> 0:25:07.440 second wave in the two thousands, which was run by 0:25:07.480 --> 0:25:11.520 the executives of the companies that that first proliferated in 0:25:11.520 --> 0:25:15.240 the nineties. So understanding how that happened and the regulatory 0:25:15.320 --> 0:25:18.680 response to it that made it, that made subprime lending 0:25:18.760 --> 0:25:21.480 something that nobody in Washington would would rain in, I 0:25:21.520 --> 0:25:24.360 think to me is a really important part of part 0:25:24.359 --> 0:25:26.840 of this story. It's funny you said one or two 0:25:26.880 --> 0:25:29.800 things that people don't know. I have like listen list 0:25:29.880 --> 0:25:32.280 of things that people are always surprised at. One of 0:25:32.320 --> 0:25:35.080 the things that came up recently, Hey, how come it 0:25:35.240 --> 0:25:38.640 was that all Wall Street banks got killed in subprime 0:25:39.119 --> 0:25:42.280 except one JP Morgan? Why Why is that? Because they 0:25:42.320 --> 0:25:44.919 had their subpront crisis in the early two thousands and 0:25:44.960 --> 0:25:46.720 when they went to get out of it, it was 0:25:46.760 --> 0:25:52.480 actually buyers for their paper. Very interesting. Yeah, a huge 0:25:52.520 --> 0:25:55.680 difference from everybody else, right, But that's a really it's 0:25:55.680 --> 0:25:57.320 a really important part of the story for a bunch 0:25:57.359 --> 0:25:59.920 of reasons. One is because consumer advocates were going to 0:26:00.160 --> 0:26:02.320 Alan Green's fan then the chairman of the FED in 0:26:02.359 --> 0:26:05.240 the nineties and saying basically, look, people are getting loans 0:26:05.240 --> 0:26:07.399 they can't pay back. Something's going wrong in the system. 0:26:07.680 --> 0:26:09.920 And greens Band would say, what a lot of regulators 0:26:09.920 --> 0:26:12.040 and politicians thought, which is that the market doesn't work 0:26:12.080 --> 0:26:15.919 that way. People banks, lenders won't make loans. Banks certainly 0:26:15.960 --> 0:26:18.720 won't buy up loans and securitize them. Investors won't buy 0:26:18.760 --> 0:26:21.560 the resulting securities if the underlying loans aren't sound. A 0:26:21.600 --> 0:26:24.560 market economy doesn't work that way. And so I think 0:26:24.560 --> 0:26:26.720 he let his ideology get in the way of the facts, 0:26:26.720 --> 0:26:28.640 which I think about that a lot is a good 0:26:28.720 --> 0:26:31.159 as a good as a good life lesson. But I 0:26:31.160 --> 0:26:33.600 think a lot of people did not Not only did 0:26:33.680 --> 0:26:37.119 consumer advocates, but on the Federal Reserve Board was a 0:26:37.160 --> 0:26:40.359 gentleman named um was Bill Pool. I thought it was 0:26:40.480 --> 0:26:42.920 Ed Graham Graham. That's right. Bill Pool is still around 0:26:42.960 --> 0:26:46.159 and grahamar unfortunately passed away and Ed grahamlock. I think 0:26:46.200 --> 0:26:48.719 maybe Billpool did the intro to his book. That's why 0:26:48.800 --> 0:26:51.320 it's on my head. Ed Graham look was saying, hey, 0:26:51.960 --> 0:26:55.080 none of these things makes sense. I understand what you're saying, 0:26:55.440 --> 0:27:00.359 but look, here's all of your predatory, predatory owns that 0:27:00.400 --> 0:27:04.919 are defaulting in these huge numbers, and amongst the many 0:27:05.040 --> 0:27:09.080 things that people don't realize in oh five, uh, I 0:27:09.080 --> 0:27:11.560 think it was the o c C issued an edict 0:27:11.560 --> 0:27:15.160 to the States that said, you cannot enforce predatory lending 0:27:15.240 --> 0:27:19.040 laws against banks. That's our it was. It was preemption 0:27:19.400 --> 0:27:23.440 and and the o c C thought that subprime lending 0:27:23.600 --> 0:27:26.040 was contained outside the banking system. And I think that's 0:27:26.080 --> 0:27:29.119 another huge lesson for the modern world. You know, our market, 0:27:29.240 --> 0:27:32.040 the global markets are very complex place, and people don't 0:27:32.119 --> 0:27:35.400 see all the interdependencies and interconnectedness until it's too late. 0:27:35.760 --> 0:27:38.120 And that's one reason why the financial crisis is still 0:27:38.160 --> 0:27:41.160 so relevant because people said, oh, the subprime lending thing, Well, 0:27:41.160 --> 0:27:44.200 it's all these lenders, these little shops out in California, 0:27:44.400 --> 0:27:46.880 and so it really cares. It's not infiltrating our precious 0:27:46.880 --> 0:27:49.800 banking system. But oh yes it was. That's right on 0:27:50.040 --> 0:27:52.879 one another. One of the many things that people probably 0:27:52.880 --> 0:27:55.760 didn't know when they were selling these thirty year mortgages 0:27:55.800 --> 0:27:58.679 to Wall Street to securitize into a new new paper, 0:27:59.280 --> 0:28:04.480 um came with a warranty like a toaster. Wait, I'm 0:28:04.480 --> 0:28:08.679 warranting that this thirty year loan against a house that 0:28:08.720 --> 0:28:11.439 could last a hundred years at the last three months, 0:28:11.440 --> 0:28:14.160 so we promised they'll make the first three payments. How 0:28:14.200 --> 0:28:18.160 crazy is that it's astonishing. It's completely astonishing. And it's 0:28:18.200 --> 0:28:20.320 interesting in light of Fannie and Freddie, as we discussed, 0:28:20.359 --> 0:28:22.840 because you know, there's been a whole political movement to 0:28:22.840 --> 0:28:26.119 blame Fanny and Freddie, blame low income and lending to 0:28:26.200 --> 0:28:29.000 low income borrowers and home ownership for the financial crisis, 0:28:29.240 --> 0:28:30.919 and when you actually look at the history of it, 0:28:31.119 --> 0:28:33.439 I might have gone into my book thinking that was true. 0:28:33.840 --> 0:28:36.640 When you look at the history of it, then you see, oh, no, no, no. 0:28:36.720 --> 0:28:39.440 This whole subprime lending thing that started in the ninety 0:28:39.560 --> 0:28:41.760 nineties was enabled by Wall Street, had nothing to do 0:28:41.840 --> 0:28:44.880 with Fanny and Freddie. It started outside Fanny and Freddie. 0:28:45.120 --> 0:28:46.960 The other fascinating thing to me that I think most 0:28:46.960 --> 0:28:49.160 people don't realize about the subprime crisis was that it 0:28:49.200 --> 0:28:52.200 was not about home ownership. If risky loans had been 0:28:52.200 --> 0:28:54.400 limited to first time homebuyers, we never would have had 0:28:54.400 --> 0:28:57.440 a crisis. It was cash out refies. So this so 0:28:57.560 --> 0:29:00.880 this the crisis doesn't prove that giving mortgages to poor 0:29:00.880 --> 0:29:02.760 people as a bad idea, as a lot of people 0:29:02.760 --> 0:29:04.840 seem to think. It doesn't prove home ownership one way 0:29:04.920 --> 0:29:07.320 or the other. What it proves is that extending credit 0:29:07.320 --> 0:29:09.360 to people of any income level who can't afford to 0:29:09.360 --> 0:29:12.080 pay it back. It's a really bad idea. So I 0:29:12.120 --> 0:29:14.920 think that's another huge misconception and kind of an evil 0:29:14.960 --> 0:29:18.480 misconception about the crisis. Right, So there's so many components 0:29:18.480 --> 0:29:22.280 to that. One is, you have a population that's not 0:29:22.360 --> 0:29:25.480 seeing their wages go up, especially in the two thousands 0:29:25.480 --> 0:29:29.640 when there's really high inflation. So flat wage is high 0:29:29.680 --> 0:29:32.720 inflation means your standard of living is falling unless you 0:29:32.760 --> 0:29:34.480 have a way to get more money. And the cash 0:29:34.520 --> 0:29:38.160 out reflies, which, like Endron, it works as long as 0:29:38.200 --> 0:29:41.800 this price keeps going up. Once that stops, well, when 0:29:41.840 --> 0:29:43.840 the music stops, that's where the real trouble comes. And 0:29:43.920 --> 0:29:46.240 you drive through Chicago streets and you see in the 0:29:46.280 --> 0:29:49.880 dirty snow, flat flapping banner from Chase that says let 0:29:49.920 --> 0:29:52.360 your home, take you on vacation, and you say, not 0:29:52.480 --> 0:29:54.560 so much. Take you on vacation, get you a big 0:29:54.600 --> 0:29:58.080 screen TV, buy you a new car, all standard of 0:29:58.160 --> 0:30:00.520 living things, and that's really eating your sat coorn. But 0:30:00.560 --> 0:30:03.680 you're absolutely right. The underlying stories of the stagnation and 0:30:03.720 --> 0:30:06.640 American incomes, right, that was masked for a while by 0:30:06.680 --> 0:30:08.760 the creation of credit, and I think that's a huge 0:30:08.800 --> 0:30:11.160 underlying story that we have yet to see play out. 0:30:11.640 --> 0:30:14.880 Creation of credit, flat wages, and when people are talking 0:30:14.880 --> 0:30:18.240 about income inequality, there are two sides. Yeah, the top 0:30:18.320 --> 0:30:22.200 one tenth doing great with stock market and all sorts 0:30:22.200 --> 0:30:24.720 of other things, but there's a huge swath of the 0:30:24.760 --> 0:30:28.280 country that's just seeing stagnant wages. And when you say 0:30:28.280 --> 0:30:32.160 to people who aren't used to having free money, hey, 0:30:32.200 --> 0:30:35.080 here's free money, I mean that story I mentioned about 0:30:35.120 --> 0:30:39.960 us doing the cash out refly, so we got starter house, 0:30:40.080 --> 0:30:44.840 replaced a kitchen, and I know neighbors who were why 0:30:44.880 --> 0:30:48.840 is there a portion your little starter house driveway? Well, 0:30:48.880 --> 0:30:51.360 because I can't. And it gets to another huge issue 0:30:51.360 --> 0:30:53.480 about our society too, which is that a lot of 0:30:53.520 --> 0:30:56.960 people aren't financially sophisticated enough to understand these products. So 0:30:57.000 --> 0:30:59.000 they assume if the lender is giving them the money, 0:30:59.000 --> 0:31:01.400 then the lenders that and the lender knows that they 0:31:01.400 --> 0:31:03.160 can pay it back and the lender has done the work. 0:31:03.160 --> 0:31:06.160 And that's obviously a really bad assumption. But lenders, especially 0:31:06.960 --> 0:31:08.920 mortgage brokers, are trained to be your friend and say 0:31:08.960 --> 0:31:10.840 it's all going to be okay in the end. So 0:31:11.000 --> 0:31:13.680 I'm a big believer in personal responsibility, but I think 0:31:13.680 --> 0:31:16.160 responsibility has to go two ways. And you can't put 0:31:16.200 --> 0:31:19.160 it all on people and then have financial services institutions 0:31:19.400 --> 0:31:22.280 out there selling bad products that they're trying it just 0:31:22.360 --> 0:31:24.840 it doesn't work that way. Responsibility is a two way story. 0:31:24.880 --> 0:31:28.360 Thanks to the Consumer Finance Protection Board, is a direct 0:31:28.520 --> 0:31:31.920 result of the exact sentiment you mentioned the other the 0:31:31.920 --> 0:31:35.240 other thing that people forget when we talk about or 0:31:35.480 --> 0:31:38.360 or don't know. You know, Fannie and Freddie they got 0:31:38.360 --> 0:31:41.560 into subprime. Yeah, they got into subprime. They petition o 0:31:41.680 --> 0:31:45.000 FAIO later oh five because they were losing so much 0:31:45.040 --> 0:31:48.200 market share to Wall Street. Hey, the subprime is where 0:31:48.200 --> 0:31:50.680 the growth is. All our business is going away. If 0:31:50.680 --> 0:31:53.320 you don't let us compete with them in the subprime space, 0:31:53.800 --> 0:31:56.200 we're not gonna have any business. So they jumped in 0:31:56.240 --> 0:31:59.680 around oh six just as the market was topping the 0:31:59.680 --> 0:32:01.520 time and couldn't have been better. And that's why their 0:32:01.560 --> 0:32:04.440 losses were so bad. But that's actually fascinating because you know, 0:32:04.480 --> 0:32:06.640 there are forces in the government that wanted to see 0:32:06.760 --> 0:32:09.560 the private label Wall Street market take over Fanny and 0:32:09.600 --> 0:32:12.000 Freddy's market share, and there was a big change in 0:32:12.040 --> 0:32:13.800 around I think it went into effect around O one 0:32:13.880 --> 0:32:17.160 or O two that allowed these Wall Street created mortgage 0:32:17.160 --> 0:32:20.760 backed securities that got triple A ratings to be treated 0:32:20.800 --> 0:32:23.160 the same way for capital purposes as Fanny and Freddy 0:32:23.240 --> 0:32:26.560 back securities. The two things are obviously totally different. One 0:32:26.640 --> 0:32:29.040 is a creation of the credit rating agency process. The 0:32:29.080 --> 0:32:31.960 other actually had two companies standing behind them saying we'll 0:32:31.960 --> 0:32:34.760 pay if the homeowner can't. Plus the United States government 0:32:34.760 --> 0:32:37.880 behind those two, right, But the banking lobby got them 0:32:37.920 --> 0:32:40.320 treated the same way for capital purposes. And that's what 0:32:40.440 --> 0:32:42.920 unleash the crave of craze of some prime lending. So 0:32:43.200 --> 0:32:45.360 let's use that as a leaping off point to look 0:32:45.360 --> 0:32:47.600 at some of the columns you have written and on 0:32:47.800 --> 0:32:52.680 the rating agencies UM subject you wrote, if everyone hates 0:32:52.720 --> 0:32:57.000 the creating credit rating agencies, why won't anyone enforced dot 0:32:57.040 --> 0:32:59.840 frank provisions to dethrone them? So I have to ask 0:32:59.880 --> 0:33:03.600 you what are the provisions and why has that not happened? Well, 0:33:03.680 --> 0:33:08.760 some of it has in limited ways. The SEC is trying, um, 0:33:08.800 --> 0:33:12.560 but very ineffectively. Um. The main thing that was supposed 0:33:12.600 --> 0:33:14.680 to happen, and the big issue is the way credit 0:33:14.800 --> 0:33:18.320 rating agencies have been enshrined in regulations, making them making 0:33:18.360 --> 0:33:21.440 them critical arbiters. And the idea and Dodd Frank was 0:33:21.480 --> 0:33:22.800 we were going to take them out of all the 0:33:22.840 --> 0:33:25.680 regulatory framework, and that is not happening. People have basically 0:33:25.680 --> 0:33:28.800 admitted it's really difficult. It's really hard to do. And 0:33:28.840 --> 0:33:32.160 part of the problem is that institutional investors love being 0:33:32.200 --> 0:33:34.320 able to blame the credit rating agencies when it all 0:33:34.360 --> 0:33:37.280 goes wrong, and so they don't necessarily they kind of 0:33:37.320 --> 0:33:39.400 like being able to say, but the credit rating agencies 0:33:39.440 --> 0:33:41.360 said it was so um. So there are a lot 0:33:41.400 --> 0:33:44.440 of forces against any any reform. And the clearest way 0:33:44.440 --> 0:33:47.120 you can see that is if you remember that the 0:33:47.120 --> 0:33:50.480 credit rating agencies were already reformed before the financial crisis. 0:33:50.480 --> 0:33:52.960 In the wake of en Run, when they famously rated 0:33:53.040 --> 0:33:55.520 en Run's debt investment grade up until two days before 0:33:55.520 --> 0:33:58.000 it's collapsed, there was a huge outcry about the credit 0:33:58.080 --> 0:34:00.800 rating agencies, and in two thousand and set Congress past 0:34:00.880 --> 0:34:03.960 the credit rating agency reformat. So did you know that 0:34:04.040 --> 0:34:06.840 heading into the financial crisis, the credit rating agencies has 0:34:06.880 --> 0:34:09.600 had already been reformed. And once once you know that, 0:34:09.640 --> 0:34:12.120 you realize why nothing is happening. If people want to 0:34:12.160 --> 0:34:16.080 find your work, where would they track you down? Mainly 0:34:16.120 --> 0:34:19.480 through Vanity Fair, but I guess you can google me. 0:34:19.560 --> 0:34:22.040 You can buy my books on Amazon if you're interested. 0:34:22.560 --> 0:34:25.160 If you've enjoyed this conversation, be sure and hang around 0:34:25.200 --> 0:34:27.480 for the podcast extras, where we keep the tape rolling 0:34:27.520 --> 0:34:30.880 and continue chatting. Be sure and check out my daily 0:34:30.960 --> 0:34:34.040 column on Bloomberg View dot com or follow me on 0:34:34.080 --> 0:34:37.000 Twitter at rid Halts, where I tweet a little more 0:34:37.040 --> 0:34:39.600 than once a week or so. I'm Barry rid Halts. 0:34:39.640 --> 0:34:42.880 You've been listening to Masters in Business on Bloomberg Radio. 0:34:43.440 --> 0:34:46.239 Welcome to the podcast portion of the show. This is 0:34:46.280 --> 0:34:48.600 where we take off our shoes and kick back a 0:34:48.600 --> 0:34:51.560 little bit. I'm literally taking my shoes off, Bethany. Thank 0:34:51.560 --> 0:34:53.800 you so much for doing this. This is really quite 0:34:54.040 --> 0:34:57.319 interesting stuff. You and I have an interest in a 0:34:57.360 --> 0:35:03.400 lot of similar wonky, tedious, boring stuff. That's true. The 0:35:04.000 --> 0:35:06.880 Dick Fold thing, So did you know that about it? 0:35:07.000 --> 0:35:09.239 I did not know that story. There was a Bloomberg 0:35:09.560 --> 0:35:13.960 article on it, and I've had this conversation with countless people. 0:35:14.280 --> 0:35:17.800 They're like, no, no, if he was offered money by Buffett, 0:35:17.840 --> 0:35:19.640 he would have had to take it. Not only was 0:35:19.680 --> 0:35:23.600 he offered money by Buffett, he was offered more money 0:35:23.760 --> 0:35:27.799 then a better deal than what ultimately now six months 0:35:27.840 --> 0:35:32.279 later obviously was a much uglier situation after following the 0:35:32.280 --> 0:35:36.600 collapse of Lehman Brothers. But um talk talk about reality 0:35:36.640 --> 0:35:40.319 distortion field and being a salesman and surrounding yourself with 0:35:40.360 --> 0:35:43.680 people who are afraid to say no to you. That's 0:35:43.719 --> 0:35:48.160 a This is a not uncommon set of circums now 0:35:48.280 --> 0:35:50.920 except now, which I think is almost worse. If you 0:35:50.960 --> 0:35:52.799 talk to any leader, they're going to tell you that 0:35:52.840 --> 0:35:54.960 they surround themselves with people who challenge them and that 0:35:55.000 --> 0:35:57.520 they really like being challenged. And as soon as I 0:35:57.600 --> 0:36:00.480 hear that, my bsmter goes off because I know it's 0:36:00.520 --> 0:36:02.920 not true. Nobody likes being challenged. The trick is to 0:36:02.960 --> 0:36:04.920 do it anyway. So if I hear an honest leader, 0:36:05.040 --> 0:36:07.440 they say, I really hate being challenged, but I make 0:36:07.520 --> 0:36:11.440 myself undergo it anyway. Now that's honesty. The other if you, 0:36:11.600 --> 0:36:14.320 if you've read some of the Bridgewater stuff, what what 0:36:14.600 --> 0:36:18.319 Dahio has created in terms of some people have called 0:36:18.360 --> 0:36:20.640 it a cult. I think that goes too far, but 0:36:20.760 --> 0:36:24.760 it's a really interesting culture. Where so there's another book 0:36:24.920 --> 0:36:28.160 Um Originals by Adam Grant that I'm just starting, where 0:36:28.200 --> 0:36:32.520 he references how like a junior analyst sends an email 0:36:32.560 --> 0:36:36.440 to Dahio like screaming in him, essentially saying, we told 0:36:36.440 --> 0:36:39.560 you this was a really important presentation, and you muffed 0:36:39.560 --> 0:36:42.520 it and you came in unprepared and you were unfocused. 0:36:42.520 --> 0:36:46.520 Then that's the culture, and it makes them it's not 0:36:46.600 --> 0:36:49.600 a coincidence that they've become the biggest hedge fund in 0:36:49.600 --> 0:36:51.960 the world. It would be very hard to execute, but 0:36:52.040 --> 0:36:56.000 it's a powerful idea. Yeah, very hard to execute. So 0:36:56.000 --> 0:36:57.840 so let's talk about some other things that are a 0:36:57.880 --> 0:37:01.319 little hard to execute or easy to execute. What one 0:37:01.320 --> 0:37:05.120 of the columns of yours that I really liked, just 0:37:05.480 --> 0:37:09.680 want to buy the new Jersey Turnpike privatization and it's 0:37:09.760 --> 0:37:13.439 discontent And I don't know if that's your subhead or mine, 0:37:14.000 --> 0:37:17.440 but I just remember that column being fascinated. And you 0:37:17.520 --> 0:37:21.720 see this for cash strapped states, municipalities around the country 0:37:22.120 --> 0:37:26.280 selling these really impossible to replace things to the private sector, 0:37:26.920 --> 0:37:29.480 and these are disasters, aren't they. Well, we did it 0:37:29.480 --> 0:37:32.879 in Chicago, right, And the problem is if you really 0:37:32.920 --> 0:37:36.200 actually did take the money and invest it as a 0:37:36.239 --> 0:37:38.560 city and do what you were supposed to do with it, 0:37:38.600 --> 0:37:41.160 then maybe at least financially for the city, it wouldn't 0:37:41.160 --> 0:37:43.560 be such a problem. But all you're doing is getting 0:37:43.680 --> 0:37:45.759 rid of your long term assets in exchange for a 0:37:45.800 --> 0:37:49.000 quick cash infusion, right, And so it ends up being 0:37:49.040 --> 0:37:51.319 a complete disaster because then the assets are gone and 0:37:51.320 --> 0:37:53.520 the money's gone, and all it does is bridge a 0:37:53.560 --> 0:37:56.320 short term gap instead of funding anything for the future. 0:37:56.560 --> 0:37:58.439 And then there are a lot of questions about how 0:37:58.440 --> 0:38:02.919 well the private owners actually do. Horror stories with enforcements 0:38:03.640 --> 0:38:07.960 of traffic tickets and and parking tickets and raising rates 0:38:07.960 --> 0:38:12.959 and everything. Real real horror stories about about how it works. Um. 0:38:13.000 --> 0:38:14.799 And there was quite a push a few years ago 0:38:14.880 --> 0:38:16.920 for the banks to get more into this business, and 0:38:17.000 --> 0:38:20.040 everybody was talking about setting up an infrastructure fund. So 0:38:20.120 --> 0:38:21.880 it'll be interesting to see how it pans out. If 0:38:21.920 --> 0:38:26.239 we've got another economic downturn, it won't do well. The 0:38:26.280 --> 0:38:31.040 other title I really liked squid Love, Why Aren't Clients 0:38:31.320 --> 0:38:35.520 Fleeing Goldman Sacks. It's a great title, but the point 0:38:35.520 --> 0:38:39.520 it raises, why didn't clients fleet Goldman Sacks? Well, you 0:38:39.560 --> 0:38:43.040 could have two different interpretations. One could be that clients 0:38:43.040 --> 0:38:45.680 didn't care even though the rest of us did. When 0:38:45.719 --> 0:38:48.239 you say didn't care, didn't care about them taking the 0:38:48.280 --> 0:38:51.400 other side of the trades, didn't care about how Goldman 0:38:51.480 --> 0:38:55.319 behaved in the financial crisis. When I think by any characterization, 0:38:55.320 --> 0:38:57.560 they looked out for their own interest and didn't look 0:38:57.560 --> 0:39:00.160 out for their client interests. That a given is and 0:39:00.239 --> 0:39:02.239 everyone assume, hey, that's what they're doing. I know who 0:39:02.320 --> 0:39:05.080 I'm in bed with. Well, look in Goldman and Goldman's defense, 0:39:05.200 --> 0:39:07.680 they say that's the trading business, and the clients knew 0:39:07.719 --> 0:39:10.080 what they were doing. But Goldman has always said is 0:39:10.120 --> 0:39:12.040 one of its ten principles. I think the number one 0:39:12.120 --> 0:39:14.560 principle is our client's interests come first. They don't say 0:39:14.560 --> 0:39:17.200 our client's interests come first in our investment banking business. 0:39:17.400 --> 0:39:20.400 They come way down the list in every other business. 0:39:20.600 --> 0:39:22.480 And so it's hypocrisy, right, I think they mean their 0:39:22.520 --> 0:39:26.520 client's interest in principal payment. Until we get those payments, 0:39:26.560 --> 0:39:29.600 we just can't even chut it. That's really funny. But 0:39:29.600 --> 0:39:32.239 but but Goldman has done fine in the years since 0:39:32.320 --> 0:39:34.360 the cis there still at the time, still at the 0:39:34.360 --> 0:39:36.080 top of the M and A leagues, they haven't lost 0:39:36.080 --> 0:39:39.080 client business at all. And I think if my there's 0:39:39.120 --> 0:39:40.759 no way to know what the answer to that is, 0:39:40.840 --> 0:39:43.879 my guests would be that clients still want what they 0:39:43.920 --> 0:39:46.319 perceive as the best advice. They still think Goldman is 0:39:46.360 --> 0:39:49.680 the best, and they're willing to take the whatever risks 0:39:49.680 --> 0:39:51.799 come with that. I think the other part of it 0:39:51.840 --> 0:39:53.680 is that it's not like any investment bank came out 0:39:53.680 --> 0:39:55.960 of the crisis well, right, So it's not like you 0:39:56.000 --> 0:39:58.960 have the super Goldman who did perfectly and behave beautifully 0:39:59.000 --> 0:40:02.239 during the crisis. Don't everybody you have Wells Fargo as 0:40:02.400 --> 0:40:05.520 as a survivor did really well, and you had JP Morgan, 0:40:05.880 --> 0:40:09.880 but not among the top investment banks. So Morgan, Stanley, Maryland, 0:40:10.600 --> 0:40:14.319 I mean far worse behavior, right, can you go down 0:40:14.360 --> 0:40:17.959 that hole? List Ubs and Credit Swiss Following shortly after 0:40:18.000 --> 0:40:21.200 the crisis, the Buffett quote that when the Todd goes out, 0:40:21.200 --> 0:40:24.360 you see who swimming naked. Suddenly a lot of warts 0:40:24.440 --> 0:40:28.400 that were not seen previously to the crisis, we're all revealed. 0:40:28.440 --> 0:40:30.200 And you have to think no one would have noticed 0:40:30.400 --> 0:40:33.399 but for the crisis. Right. So if a client were 0:40:33.480 --> 0:40:35.759 going to leave Goldman SAX after the crisis, they would 0:40:35.760 --> 0:40:37.799 have had to go somewhere else. Where is that somewhere else? 0:40:37.840 --> 0:40:41.400 Deutsche Bank, Royal Bank of Scotland, they do great work. 0:40:42.280 --> 0:40:45.080 It's it's well so. In other words, there there are 0:40:45.080 --> 0:40:48.520 no options. And as long as you're dealing with the sharpie, 0:40:48.560 --> 0:40:50.600 they might as well be your sharp right. And you 0:40:50.680 --> 0:40:53.760 do have um a bunch of independent investment banks, boutique 0:40:53.800 --> 0:40:56.279 investment banks that have been set up, particularly in recent years, 0:40:56.280 --> 0:40:58.480 some of them populated by ex Golmen bankers. It will 0:40:58.520 --> 0:41:01.560 be interesting to see how that plays out, but there is, 0:41:01.880 --> 0:41:04.040 you know, there is some truth to the idea that 0:41:04.360 --> 0:41:07.719 a global client base they want financing when they come 0:41:07.760 --> 0:41:09.480 to you for adeal. They want the whole package that 0:41:09.560 --> 0:41:11.440 a big bank like Goldman can offer. They don't want 0:41:11.440 --> 0:41:13.320 a boutique and you can't get that with a potique. 0:41:13.320 --> 0:41:15.160 I've also noticed that there have been a number of 0:41:15.200 --> 0:41:18.360 companies seeded, but it's it's like when there's a super 0:41:18.440 --> 0:41:21.360 over in a star, all that star dust eventually becomes 0:41:21.400 --> 0:41:24.640 another star. When AI g blew up, there's a whole 0:41:24.680 --> 0:41:27.799 bunch of other little companies, including I think it's called 0:41:27.880 --> 0:41:31.920 Pure Coincidentally, an insurance company that's trying to compete with 0:41:32.080 --> 0:41:35.480 chub on the high end for residential real estate insurance 0:41:36.200 --> 0:41:38.920 x A I G. Guy so following, and I think 0:41:38.960 --> 0:41:42.440 that began long before the crisis. But it's fascinating how 0:41:42.440 --> 0:41:45.200 every time there's a disaster, you have good people, you 0:41:45.239 --> 0:41:46.920 have less than good people when some of the good 0:41:46.960 --> 0:41:49.560 people ultimately end up. There've been a couple of stories 0:41:49.560 --> 0:41:52.880 that have been interesting, one tracking former Drexel people, another 0:41:52.920 --> 0:41:55.440 tracking former end Round people, a lot of whom have 0:41:55.520 --> 0:41:58.360 gone on to do really interesting things. I mean circling 0:41:58.360 --> 0:42:00.480 back to end Round to me that the that company 0:42:00.520 --> 0:42:01.960 is just such a tragedy. There are a lot of 0:42:01.960 --> 0:42:04.279 good ideas and a lot of brilliant people. They just 0:42:04.360 --> 0:42:07.080 couldn't wait for the ideas to actually produce revenue, so 0:42:07.160 --> 0:42:10.920 they accelerated the revenue through ways both legitimate but sketchy 0:42:10.960 --> 0:42:14.760 and totally illegitimate. And that's why I understanding you correctly. 0:42:14.760 --> 0:42:16.920 You're saying there were a lot of really good ideas. 0:42:16.960 --> 0:42:20.120 It's just a shame it was all a fraud. Is 0:42:20.160 --> 0:42:22.360 that what you're actually saying. I'm sort of saying that 0:42:22.400 --> 0:42:24.399 except Ron, you know, it was a fraud and very 0:42:24.520 --> 0:42:26.279 it was a legal fraud. A lot of what they 0:42:26.280 --> 0:42:28.960 did technically met the letter of the law. It was legal, 0:42:29.239 --> 0:42:32.839 so it's still a very complicated scam. But but yes, 0:42:32.920 --> 0:42:35.839 there were the ideas were good. It's just that they 0:42:35.840 --> 0:42:38.359 couldn't wait to show revenue and profits that they came 0:42:38.440 --> 0:42:40.560 up with scammy ways to make it look like they 0:42:40.560 --> 0:42:43.640 were producing more profits than they were. But the ideas 0:42:43.800 --> 0:42:45.120 and the people who were there, there are a lot 0:42:45.120 --> 0:42:47.759 of good people. I'm fond of saying one of the 0:42:47.760 --> 0:42:50.920 biggest problems in finance is that no one's willing to 0:42:50.960 --> 0:42:53.319 wait to get rich slowly. And it's really Oh, I 0:42:53.360 --> 0:42:58.160 love that life. Every time people run into trouble, I've 0:42:58.320 --> 0:43:00.759 I've met and worked with and been on the other 0:43:00.840 --> 0:43:06.120 sides of discussions with people who are just incredibly talented salespeople, 0:43:06.719 --> 0:43:10.720 and invariably some of these guys end up getting into trouble. 0:43:10.840 --> 0:43:14.480 And it's almost always guys, and it's the question is 0:43:14.480 --> 0:43:16.640 always all you have to do is put your head 0:43:16.640 --> 0:43:22.840 down and be a reasonable human and not do really stupid, 0:43:23.680 --> 0:43:29.080 ethically dubious, legally questionable things, and eventually you become very wealthy. 0:43:29.160 --> 0:43:31.840 What what is so challenging about that? I don't know. 0:43:31.880 --> 0:43:34.080 I've been thinking a lot lately about the difference between 0:43:34.080 --> 0:43:36.439 being smart and why being wise. And I think there's 0:43:36.480 --> 0:43:38.400 a lot of smarts out there, but there's not a 0:43:38.400 --> 0:43:41.400 lot of wisdom. So how many how much time do 0:43:41.400 --> 0:43:44.040 we have left? So in the last few minutes we 0:43:44.120 --> 0:43:46.800 have let me get to some of my favorite questions 0:43:47.160 --> 0:43:50.880 that I asked for of all my guests. UM, and 0:43:50.960 --> 0:43:53.640 I have I have us with Oh, you're right about 0:43:53.680 --> 0:43:56.760 the time. UM, So let's talk a little bit about mentors. 0:43:56.760 --> 0:43:59.439 Any mentors stand out in your mind? I think i'd 0:43:59.480 --> 0:44:02.799 have to say Joe No, Sarah is the the is 0:44:02.840 --> 0:44:05.879 probably and John Huey too, who ran Fortune magazine when 0:44:05.880 --> 0:44:08.400 I got there. I still remember John Pulling calling a 0:44:08.400 --> 0:44:11.399 big meeting of Fortune right when I started and basically saying, 0:44:11.440 --> 0:44:13.440 if you don't know what you're doing, there's no place 0:44:13.480 --> 0:44:15.200 for you here at this magazine. And I was like, 0:44:15.239 --> 0:44:17.640 I don't have a clue. I'm not gonna last long here, 0:44:17.680 --> 0:44:20.759 and this this is my my new job. But Joe 0:44:20.840 --> 0:44:23.399 too has always been really good both on the big 0:44:23.440 --> 0:44:25.520 picture He's the one who encouraged me to write the 0:44:25.560 --> 0:44:28.359 un Run book, but also really good at sorting through 0:44:28.480 --> 0:44:30.279 ideas because I have a lot of ideas and I 0:44:30.320 --> 0:44:32.600 need someone to say this one sucks. Go for this one. 0:44:32.719 --> 0:44:34.960 So let's talk about books. Since you mentioned what are 0:44:34.960 --> 0:44:40.000 some of your favorite books, fiction or nonfiction? Let's see. Um. Okay, 0:44:40.000 --> 0:44:43.040 so I'm a total sucker for The Lord of the Rings. Okay, 0:44:43.239 --> 0:44:45.879 I think it's one of the one of the best, 0:44:47.239 --> 0:44:49.520 and thinking about it again and I actually am Now 0:44:49.680 --> 0:44:51.759 I have enough distance between the movies and I'm willing 0:44:51.800 --> 0:44:57.040 to watch the first three movies again. The Hobbit. Hobbit 0:44:57.480 --> 0:44:59.480 not as not as great as the first three. Lord 0:44:59.480 --> 0:45:01.120 of the Ring now, no, no, no, But the Lord 0:45:01.120 --> 0:45:05.080 of the Rings is absolutely amazing. Game of Thrones is awesome. 0:45:05.480 --> 0:45:07.440 I haven't been able to watch the TV show because 0:45:07.480 --> 0:45:10.880 I found I found the book so stressful. Um on 0:45:11.000 --> 0:45:15.480 a on a more series friend, Um Middle March obviously amazing. 0:45:15.600 --> 0:45:19.160 I love biographies. There's a great biography of Collette that 0:45:19.320 --> 0:45:21.600 really made me think about called Secrets of the Fresh 0:45:21.719 --> 0:45:24.000 of the Flesh, that really made me think differently about 0:45:24.080 --> 0:45:27.520 how biographies can be done. But I think life stories. 0:45:28.120 --> 0:45:30.719 Secrets of the Flesh, yes, but I think I think 0:45:30.760 --> 0:45:35.000 stories about fascinating people that explore the nuances of their lives, 0:45:35.000 --> 0:45:39.160 particularly fascinating, controversial people are are just great. And then 0:45:39.280 --> 0:45:42.279 I loved UM recently All the Light We Cannot See. 0:45:42.360 --> 0:45:45.080 I think that's one of the most beautiful books, although 0:45:45.200 --> 0:45:47.600 deeply sad, books, that I've read in a long time. 0:45:48.000 --> 0:45:50.560 I gave one of the people in my office The 0:45:50.680 --> 0:45:55.520 Right Brothers book for the holidays, and he raved about 0:45:55.520 --> 0:45:58.000 So now I have to everything. All rights is great, 0:45:58.000 --> 0:46:00.600 but now I have to I gave it as a gift. 0:46:00.640 --> 0:46:02.200 Now I actually have to wait. Now you have to 0:46:02.200 --> 0:46:05.360 go read it. UM. So, millennials, you've been doing this 0:46:05.400 --> 0:46:07.279 for a couple of years. If a millennial comes to 0:46:07.320 --> 0:46:10.320 you and says, hey, I want to get into your field, 0:46:10.400 --> 0:46:12.800 what sort of advice would you give, either a recent 0:46:12.840 --> 0:46:16.960 college graduate or a millennial. Seriously, now what what I 0:46:17.040 --> 0:46:19.520 What I actually say is that you have to be 0:46:19.560 --> 0:46:22.239 really committed to this, and you can't expect it to 0:46:22.280 --> 0:46:24.480 be something where there's a set career path, and there 0:46:24.480 --> 0:46:26.560 never really has been. Right, You've found your way into 0:46:26.840 --> 0:46:29.440 showing this in a totally different way I did. Some 0:46:29.480 --> 0:46:31.760 people go to journalism school and train to be journalists 0:46:31.760 --> 0:46:34.520 all their life, so it always has been a flexible 0:46:34.560 --> 0:46:36.560 career path, but now so that more than ever right, 0:46:36.640 --> 0:46:38.520 we don't know where our industry is going. It's not 0:46:38.600 --> 0:46:40.680 like there's while you start on the bottom run here 0:46:40.680 --> 0:46:42.799 and then you get a job here. It's it's all 0:46:42.960 --> 0:46:45.600 made up, All bets are off. So I think you 0:46:45.640 --> 0:46:47.839 have to have a real passion to want to tell 0:46:47.920 --> 0:46:51.799 stories and learn things and be curious and and not 0:46:51.920 --> 0:46:54.399 to and to be willing to work hard, to say 0:46:54.400 --> 0:46:58.279 the least. And our final question that I ask everybody, 0:46:58.480 --> 0:47:04.880 what is it that you wish you knew about investing companies, journalism? 0:47:04.920 --> 0:47:06.879 What is it that you wish you knew twenty years 0:47:06.920 --> 0:47:11.759 ago that you know today? I think I had wish 0:47:11.800 --> 0:47:13.279 I had known. I think I wish I had known 0:47:13.280 --> 0:47:16.040 how to be more skeptical. And I still sometimes think 0:47:16.080 --> 0:47:19.239 I should be more skeptical even than I am. Not 0:47:19.320 --> 0:47:22.000 only do people not always tell the truth, but sometimes 0:47:22.000 --> 0:47:24.360 people don't even know that they're not telling the truth. 0:47:24.880 --> 0:47:28.799 And so I wish I knew to listen more and 0:47:28.880 --> 0:47:32.320 really challenge things that don't appear to that don't make sense. 0:47:32.560 --> 0:47:34.560 And you know what, sometimes you're an idiot because you 0:47:34.680 --> 0:47:37.239 just missed something somebody said and you didn't understand and 0:47:37.239 --> 0:47:39.959 you actually didn't get it. But sometimes if you're really 0:47:39.960 --> 0:47:42.000 willing to say that doesn't make sense to me, can 0:47:42.000 --> 0:47:46.040 you repeat that you'll really learn something? And I wish 0:47:46.080 --> 0:47:49.359 I were better at that than I am. That's quite fascinating. 0:47:50.200 --> 0:47:53.319 For those of you who have enjoyed this conversation, be 0:47:53.400 --> 0:47:56.640 sure and check out Bethany's various books. You can look 0:47:56.719 --> 0:47:59.400 Up an Inch or Down an Inch on Apple iTunes 0:47:59.440 --> 0:48:03.120 and see the other eighty or so conversations we've had. 0:48:03.719 --> 0:48:06.680 H be sure and check out my daily column. I 0:48:06.680 --> 0:48:09.520 already said that, so I don't need to say that again. UM. 0:48:09.560 --> 0:48:11.720 I want to thank Mike bat Nick, my head of research, 0:48:11.800 --> 0:48:15.480 for helping me um do the deep dive into this, 0:48:15.560 --> 0:48:18.000 as well as Charlie Vollmer, who is about to kick 0:48:18.040 --> 0:48:21.040 me out of the studio. I'm Barry Ridholts. You're listening 0:48:21.080 --> 0:48:23.480 to Masters in Business on Bloomberg Radio.