Speaker 1: This is Masters in Business with Barry Ridholes on Bloomberg Radio.
Speaker 1: This week on the podcast, I sit down with a
Speaker 1: delightful and really incredibly knowledgeable journalist, Bethany McClain. You may
Speaker 1: not be familiar with the name unless you read bylines
Speaker 1: like I do. Bethany wrote one of the best selling
Speaker 1: books on finance. Um it was about Enron, The smartest
Speaker 1: guys in the Room, the spectacular rise and scandalous fall
Speaker 1: of Enron. And you may be familiar with her if
Speaker 1: you're a little older, maybe you were a traitor in
Speaker 1: the late nineties early two thousand's Bethany was. Her background
Speaker 1: is really fascinating. She graduates with a degree in both
Speaker 1: English and mathematics, ends up at Goldman sachs Uh as
Speaker 1: an m and a analyst, before she decides that's not
Speaker 1: what her future is going to be and she becomes
Speaker 1: a journalist. She's writing a fortune and in two thousand
Speaker 1: one publishes a article that at the time Enron was
Speaker 1: a skyrocket, a moon, a moonshot, really questions the valuation
Speaker 1: of Enron. She never alleges fraud. She points out how
Speaker 1: challenging it is to actually find out anything about about
Speaker 1: the company. Itself and really just raises a lot of
Speaker 1: questions as to how can this company that's essentially positioning
Speaker 1: itself as a utility be such a fast grower and
Speaker 1: yet not reveal much to the investing public. And and
Speaker 1: really that's where you start pulling the string on the
Speaker 1: sweater and eventually the entire Enron house of cards collapses. Uh.
Speaker 1: Obviously that's a hell of a way for a journalist
Speaker 1: to make a name for herself bring down Enron. She
Speaker 1: is rather humble about this. She said it would have
Speaker 1: collapsed eventually. Anyway. You can't have that my fraud and
Speaker 1: get away with it forever. But her book is really
Speaker 1: well regarded. She's subsequently written a number of books, one
Speaker 1: with Jonah Sarah about uh, Fannie May and Freddy Mack,
Speaker 1: which is really quite fascinating. She wrote another book on
Speaker 1: the financial crisis. UM. I find her to be tremendously
Speaker 1: insightful and really just a pleasure to chat. Without a
Speaker 1: delightful time talking with her about all these things. And
Speaker 1: I think you'll hear that in the interview. I wish
Speaker 1: we had more more time. The hour flew by really quickly,
Speaker 1: So without any further ado, here is my Conversation with
Speaker 1: Bethany McClain. This is Masters in Business with Barry Ridholds
Speaker 1: on Bloomberg Radio. My special guest today is Bethany McClain.
Speaker 1: She is currently a contributing editor at Vanity Fair, but
Speaker 1: she is also the author of a number of fascinating books.
Speaker 1: I would say she's probably best known for Smartest Guys
Speaker 1: in the Room, The Amazing Rise and Scandalous Fall of
Speaker 1: and Ron No. Not only was it a award winning book,
Speaker 1: but it also became a documentary that was nominated for
Speaker 1: the Academy Awards in two thousand and six. She graduated
Speaker 1: Williams College and was a double major in math and English.
Speaker 1: Spent three years at Goldman Sachs as an investment banking
Speaker 1: m and a analyst before joining Fortune Uh, where she
Speaker 1: pens a very famous article called is in Run over
Speaker 1: Priced that ultimately pre sage the collapse of that company
Speaker 1: and a huge scandal. She's also the author of Shaky Ground,
Speaker 1: The Strange Saga of US Mortgage Giants, and All the
Speaker 1: Devils Are Here, The Hidden History of the Financial Crisis.
Speaker 1: Bethany McClain, Welcome to Bloomberg. Thanks for having me. So
Speaker 1: so that's quite a fast, sedating background, and there's so
Speaker 1: many places to go. I have to start with double
Speaker 1: major English and math, which a lot of people are
Speaker 1: either word people or number of people. You're both sign
Speaker 1: of a confused mind. But no, seriously, I don't think
Speaker 1: you should be one or the other. Somebody asked me
Speaker 1: recently random question, what what influenced me more being an
Speaker 1: English major being a math major? And I actually think
Speaker 1: my math major influences my writing in some ways more
Speaker 1: because math, particularly theoretical upper level math where it's proofs,
Speaker 1: is very logical. And I was thinking, I don't have
Speaker 1: a very aggressive personality, but what makes me aggress But
Speaker 1: what makes me aggressive is when a doesn't lead to be,
Speaker 1: doesn't lead to see, And I think that's my training
Speaker 1: as a math major. And then I can't stand it
Speaker 1: because I'm looking for the proof right or I'm looking
Speaker 1: for the logic the logic, and when the logic doesn't
Speaker 1: add up, that's what will make me dig in and
Speaker 1: and ask aggressive questions in a way that perhaps isn't
Speaker 1: isn't my natural personality. I suffer from the same condition.
Speaker 1: It is a confused state of mind. Because people are
Speaker 1: usually left the right brain and if you're English and math,
Speaker 1: it means you're a little of both, and it certainly
Speaker 1: is confusing. So let's talk a little bit about that
Speaker 1: takes you to Goldman Sachs in the early nineties, a
Speaker 1: really tough place to break in. How do you go
Speaker 1: straight from college to Goldman Sachs's banking division. Well, at
Speaker 1: that time, Goldman Sachs had an analyst program where they
Speaker 1: hired people right out of college into their two year
Speaker 1: analyst program, So there was a pretty established track for
Speaker 1: for doing that. I don't think I was a natural
Speaker 1: candidate to be on that track. I think that's true.
Speaker 1: I didn't I didn't know what investment banking was. Quite frankly,
Speaker 1: I think I got a job because I was a
Speaker 1: female math major, and that was rare enough in one
Speaker 1: of those days that they thought, oh, she must be suitable.
Speaker 1: It's still relatively rare today, and less so than it was.
Speaker 1: Um I think I was not very suitable. I think
Speaker 1: Goldman was a tough place, and I think I made
Speaker 1: it tougher on myself. I came unprepared. I would say,
Speaker 1: you knew when you were going in that you were
Speaker 1: going to work a hundred hour weeks and that the
Speaker 1: environment was going to be tough. But I don't think
Speaker 1: I expected it to be quite as as as tough
Speaker 1: as it was. Um. And you you subsequently called something
Speaker 1: from that era of the Goldman Sachs post traumatic stress
Speaker 1: disorder condition? Is that a function of how difficult and
Speaker 1: challenging a place which I got roundly and perhaps rightly
Speaker 1: criticized by veterans for for appropriating a term military military veterans,
Speaker 1: not not not Goldman veterans. But it was. It was.
Speaker 1: It was. It was a tough environment, yes, but but
Speaker 1: look I learned a lot. I'm grateful to the place
Speaker 1: In some ways. I think I grew up quickly there.
Speaker 1: I can imagine. So you're there for all of three
Speaker 1: years and you say, hey, this is interesting, but I'm
Speaker 1: going to give this writing thing a shot, and you
Speaker 1: end up at Fortune. I actually said, I was out
Speaker 1: on my way to business school. I was in I
Speaker 1: had a roommate UM, and I thought, you know, I'm
Speaker 1: going to graduate from business school with a lot of debt,
Speaker 1: and I'm going to be right back where I started
Speaker 1: because I'm gonna need to get a high paying job
Speaker 1: in order to pay off the deck. So if there's
Speaker 1: if I want to do something else, now's the time.
Speaker 1: And I didn't grow up in a family that necessarily
Speaker 1: encouraged artsy things like journalism. But I thought, now is
Speaker 1: my time to give it a try, and if I
Speaker 1: don't like it, I'll go to business school. So I
Speaker 1: took a huge pay cut and got a job at
Speaker 1: Fortune as a fact checker. And they were willing to
Speaker 1: hire me back in those days of well funded, glossy
Speaker 1: magazines with lots of time to fact check stories before
Speaker 1: they went out the door, because I had my experience
Speaker 1: at Goldman, and they thought, well, she may not be
Speaker 1: able to write, and she may not even be smart,
Speaker 1: but she at least understands what we're writing about. And
Speaker 1: this was really little bit pre inter internet, not quite
Speaker 1: the same cost squeeze that we see today. It was
Speaker 1: the last golden age of journalism. And so you're there
Speaker 1: for five or so years. When did you before this
Speaker 1: story comes out, when did they move you to say,
Speaker 1: all right, kid, let's see if you can write sort
Speaker 1: of slowly, but I still definitely I did writing for
Speaker 1: the Personal Finance section, which at that time was sort
Speaker 1: of a backwater where nobody wanted to write right for
Speaker 1: so you could get in the door writing wise if
Speaker 1: you were willing to do it. And I did this
Speaker 1: column called Companies to Watch, where I was supposed to
Speaker 1: pick two stocks every three stocks every two weeks, which
Speaker 1: is unfortune was published that We're gonna double or triple
Speaker 1: or quadruple and value. But it was It was easy
Speaker 1: because of all the people who come by and pitch
Speaker 1: you right, the analysts and the portfolio managers and the
Speaker 1: and the company executives, and you can write up these
Speaker 1: really charming little stories that are great and then you
Speaker 1: watch the stock goes in the opposite direction. So I
Speaker 1: began to realize that there was this whole Wall Street
Speaker 1: by machine that I was inadvertently becoming part of, and
Speaker 1: I didn't want to be part of it. So in
Speaker 1: the last minute we have in this segment, you put
Speaker 1: out the piece is and run over priced. And you've
Speaker 1: worked with very famous short seller Jim Chanos, a previous
Speaker 1: guest on the show. How how did he approach you
Speaker 1: to say, hey, you're probably hearing a lot of positive stuff.
Speaker 1: Use a story that might not be quite as savory
Speaker 1: as the others. So I met a guy named Doug Millette,
Speaker 1: who has since passed away, who worked for Jim Um
Speaker 1: and I hounded Doug mercilessly to talk to me and
Speaker 1: help me come up with ideas, and um, finally Doug said, Hey,
Speaker 1: you know, we're looking at this company called Enron. If
Speaker 1: you can tell us how it makes money, what would
Speaker 1: love to hear it? And so that was that was
Speaker 1: actually how it came about. I'm Barry Ridhults. You're listening
Speaker 1: to Masters in Business on Bloomberg Radio. My special guest
Speaker 1: today is Bethanie McClean. She is a journalist and author
Speaker 1: of Smartest Guys in the Room, Amazing Rise and Scandalous
Speaker 1: Fall of Enron. And we were talking um earlier about
Speaker 1: when the book came out. It kind of came out
Speaker 1: in two way dot com implosion void And despite how
Speaker 1: well regarded the book is today, not a lot of
Speaker 1: people really saluted when that came out. No, the book
Speaker 1: came out into a weird vacuum. I would say people
Speaker 1: were really interest didn't end round when it went bankrupt, right,
Speaker 1: and it was all over the front page of every paper.
Speaker 1: Fastest Bankruptcy in American His Your Biggest Bankruptcy, just all
Speaker 1: sorts of it on the front page of the paper
Speaker 1: for a year. Everybody was covering by the by the
Speaker 1: time our book came out in the fall of two
Speaker 1: thousand and three, I think people had end round fatigue,
Speaker 1: and I think she had scandal fatigue. And I think
Speaker 1: we were all in that awful period after the dot
Speaker 1: com implosion where the last thing you wanted was more
Speaker 1: bad news. Plus you had the world com collapse, and
Speaker 1: you had the analyst scandal, and there was all these
Speaker 1: other things, and people might have been really like right,
Speaker 1: So the book barely cracked the best seller list and
Speaker 1: then it it sort of disappeared, but it continued to
Speaker 1: sell over the years, and actually, because it sold so
Speaker 1: well over the years, it ended up doing really well.
Speaker 1: But it was a slow thing, not a not an
Speaker 1: immediate explosion of interest. It ultimately ended up on a
Speaker 1: number of either college or business school reading lists. So
Speaker 1: it's a regular, literally required reading for certain students, I hope.
Speaker 1: So so, so let's talk a little bit about the
Speaker 1: initial article. Was it a function when you were reading
Speaker 1: it of overvaluation or did you think fraud? I was
Speaker 1: too naive to think fraud, I think, but if you
Speaker 1: if you try to put yourself back at that point
Speaker 1: in time. We hadn't had fraud in a major American
Speaker 1: business for such a long time. The idea that a
Speaker 1: company could be fraudulent, that the accountants and lawyers could
Speaker 1: have signed off on things, I just I wouldn't have
Speaker 1: believed it. I remember reading through the description of the
Speaker 1: transactions that the CFO, Andy Fasta, was doing with with
Speaker 1: the company and thinking, Yeah, but the accountants and lawyers
Speaker 1: signed off on this, I must I must just not
Speaker 1: get it. So these weird disclosures about these transactions that
Speaker 1: ended up being very central to the end Roun story,
Speaker 1: I didn't even write about in my story. I instead
Speaker 1: focused on end Roun's price and it's pe ratio relative
Speaker 1: to the fact that people didn't understand its business, didn't
Speaker 1: understand how it made money, and that although the company
Speaker 1: said it wasn't a trading business because Jeff Skilling, the
Speaker 1: then CEO, wanted it to have a higher stock price,
Speaker 1: it was very much a trading business. So I focused
Speaker 1: on that fraud. I think it would have I think
Speaker 1: it would have surprised me. Well, it's certainly surprised a
Speaker 1: lot of people, especially those who were long the stock.
Speaker 1: And we mentioned the previous segment, um uh, folks from
Speaker 1: Jim Chainos's funds, can A Coast Partners? Had you had
Speaker 1: reached out to them? This wasn't them shopping and around
Speaker 1: you had tag them? What made you go to them
Speaker 1: of all people? Well, I think going back to this column,
Speaker 1: I did companies to watch where I was selecting these
Speaker 1: stocks to write about. I felt burned. I felt like
Speaker 1: I was inadvertently becoming part of this buy machine that
Speaker 1: was succoring the American public by writing these positive stories
Speaker 1: about companies that were soon to implode. So I began
Speaker 1: to seek out short sellers and try to get to
Speaker 1: know them because I thought I need another source of information.
Speaker 1: You know, I'm tired of writing this glowing story about
Speaker 1: this company, not hearing another point of view, only to
Speaker 1: have my phone ring and somebody start, you know, swearing
Speaker 1: at me on the other end, being like you stupid whatever,
Speaker 1: How could you not have known that this is? Did
Speaker 1: that really? Have? It did a couple of times, and
Speaker 1: I thought, you know, I need to at least understand
Speaker 1: the other side of the story, even if they're wrong.
Speaker 1: I want to know it and then I can do
Speaker 1: my own thinking to figure out if they're right or wrong.
Speaker 1: So trying to get to know Jim was part of
Speaker 1: a broader effort on my part of trying to get
Speaker 1: to know people who are skeptics so that I could
Speaker 1: doom with things that were more accurate. So with with
Speaker 1: the benefit of hindsight, it seems kind of ridiculous that
Speaker 1: here's a company. They make money in ways that no
Speaker 1: one really knows. Their books are completely forget transparent, they're impenetrable.
Speaker 1: Nobody has any idea what's going on with that? How
Speaker 1: did the best and brightest of corporate America, of Wall Street,
Speaker 1: of the investment community not stop to think, Hey, what's
Speaker 1: really going on here? How did everybody buying into the
Speaker 1: story which turns out to just be complete and total fraud.
Speaker 1: I think there are a bunch of answers to that.
Speaker 1: I think one thing is that we like the story, right.
Speaker 1: We all want to believe in the story of this
Speaker 1: company that's revolutionizing markets and that's going to make everybody
Speaker 1: a fortune. What could possibly be wrong with that? But
Speaker 1: I think underneath it there are some things that are
Speaker 1: specific to end Run. I think Jeff Skilling was a
Speaker 1: really powerful personality and the biggest a very intellectually convincing personality,
Speaker 1: and charismatic personality and intimidating personality, and the most the
Speaker 1: greatest compliment he could give you was that you got it,
Speaker 1: was that you you were part of the team. You
Speaker 1: got it, you understood what they were doing. The biggest
Speaker 1: insult he could give was that you didn't get it.
Speaker 1: You're too stupid. You're too stupid. And so people, because
Speaker 1: we get it, we're the smartest guys in the room,
Speaker 1: you don't write. And he would say this to people
Speaker 1: who were Harvard, M. I. T. Wharton, like really the
Speaker 1: best and brightest, and literally intimidate them into thinking, you're
Speaker 1: not smart enough to understand what we do, right, And
Speaker 1: so people were afraid of feeling like that, are being
Speaker 1: made to look like that in a crowd, and so
Speaker 1: I think a lot of people pretended to get it
Speaker 1: when they really didn't get it because they wanted to
Speaker 1: bask in Jeff Skillings admiration. I think it happens far
Speaker 1: more frequently than you would think, even today, though I
Speaker 1: think it's a common phenomenon. It's the Emperor's new clothes
Speaker 1: right when we live with it today, that is um
Speaker 1: absolutely stun so. Someone I mentioned I was interviewing you,
Speaker 1: and someone said to me and we talked about the article,
Speaker 1: and the question that this person asked was interesting enough
Speaker 1: that I'm gonna pass it along. Assume your article never
Speaker 1: came out. Is en run over priced? How long could
Speaker 1: this have continued before someone would have noticed that the
Speaker 1: emperor was not wearing any clothes. I actually don't think
Speaker 1: that my article influenced en Roun's trajectory at all. I
Speaker 1: think what my article did was pick up on the
Speaker 1: underlying skepticism about en Ron that was growing in the marketplace.
Speaker 1: And in the end, what brought en run down was
Speaker 1: a funding crisis, right, they couldn't roll their debt, and
Speaker 1: then the rating agencies rating agencies downgraded them, and that
Speaker 1: was the final nail in the coffin um. But I
Speaker 1: think my article highlighted because it was at that that
Speaker 1: time where it was becoming undeniable that the broadband business,
Speaker 1: for instance, was collapsing, and Jeff Skilling was continuing to say,
Speaker 1: this is a great business for en Ron. We're defying
Speaker 1: the industry, and it was becoming more and more apparent
Speaker 1: than what he was saying was at odds with what
Speaker 1: everybody in the industry was was was saying. So I
Speaker 1: guess I believe it probably didn't. My article probably didn't
Speaker 1: influence the trajectory of events at all. I think it.
Speaker 1: I think it explained what was starting to happen. So
Speaker 1: at the time he was saying that you already had Metromedia,
Speaker 1: Fiber Go belly up, you had Global Cross and go
Speaker 1: belly up. They were spending thousands of dollars per mile
Speaker 1: to lay this dark cable that will eventually light up
Speaker 1: with all this content, which turned out to be true
Speaker 1: Facebook and YouTube and all these things a decade later.
Speaker 1: But that was brought up for pennies on the dollar later.
Speaker 1: How can someone be so brazen as to make that
Speaker 1: claim in the face of collapse. Was it just oh,
Speaker 1: those were poorly run companies and people brought into that.
Speaker 1: I think that Jeff Jeff was the ultimate stock salesman.
Speaker 1: He could sell and run better than anybody else, and
Speaker 1: he desperately needed to keep the stock price high or
Speaker 1: high because all these complicated financial things Andi Fasto the
Speaker 1: CFO had built depended on keeping the stock price above
Speaker 1: a certain level, and if the stock price started to decline,
Speaker 1: all these losses would come back on and Ron's balance sheet.
Speaker 1: So I think Jeff was very aware of the need
Speaker 1: to keep Enron's and Roun stock price high UM, and
Speaker 1: I think that was part of it. Just share desperation
Speaker 1: UM to en Ron was is a great example of
Speaker 1: you know, the famous quote is a Pendiman Graham that
Speaker 1: a stock in a company are two different things. And
Speaker 1: Enron's case, the company became the stock to say the least.
Speaker 1: I'm Barry Hults. You're listening to Masters in Business on
Speaker 1: Bloomberg Radio. My special guest today is Bethany McClain. She
Speaker 1: is a former Goldman Sachs analyst and Fortune magazine reporter
Speaker 1: who broke the big story on en Ron, ultimately writing
Speaker 1: a number of really well regarded books. And let's talk
Speaker 1: about a different book of yours, which is shaky ground.
Speaker 1: The strange saga of the US mortgage giants. Now, I've
Speaker 1: covered subprime, and I've covered mortgages, and whenever I talked
Speaker 1: about Fannie or Freddie, the two government sponsored enterprises that
Speaker 1: handle most of the mortgages in the country, they are
Speaker 1: one of two reactions. Either people are furious and they
Speaker 1: want to shut them down, and let's turn this over
Speaker 1: the free market or their eyes glaze over and they
Speaker 1: lovingly slip into a coma never to be seen again.
Speaker 1: But nothing in the middle. What do you find when
Speaker 1: you talk about mortgages? I went to a housing finance conference,
Speaker 1: the Goldman Sachs speaking of which hosted um when in
Speaker 1: the winter, when I was working on the book, I
Speaker 1: guess it was last winter, and the Goldman Pierre guy
Speaker 1: said what are you doing here? And I said, well,
Speaker 1: I'm writing a book about Fanny and Freddie. And he
Speaker 1: looked at me and he said, well, no one's going
Speaker 1: to read that, and just how book sales going, you
Speaker 1: know what? For what it is, so I published it
Speaker 1: through this upstart publishing press called Columbia Global Reports, which
Speaker 1: seeks to write mini books. So it's not a long book.
Speaker 1: But many books on topics of global importance that are
Speaker 1: there are meant to be walkier. So for what it is,
Speaker 1: it's actually done quite well. Okay, that's great. It's every
Speaker 1: time the conversation comes up, it's just so difficult, and
Speaker 1: it's amazing because mortgages. Look, anybody should care about Fannie
Speaker 1: and Freddie. I don't care who you are, if you
Speaker 1: have a mortgage or if you want to buy a
Speaker 1: ho If you want to buy a house, you should care.
Speaker 1: If you just own a house, you should care about
Speaker 1: what the government's going to do with mortgage finance because
Speaker 1: the availability of financing determines the value of your house.
Speaker 1: And if you're in none and homes are still, by
Speaker 1: the way, the most important asset to most Americans for
Speaker 1: the vast majority. And if you are in neither of
Speaker 1: those camps, but you care about the economy, you should
Speaker 1: still care about housing because it's still fift our g
Speaker 1: d P and so whatever the government does full fifth.
Speaker 1: So whatever the government does to resolve we are still
Speaker 1: housing is still There was a great quote Mariner Mariner
Speaker 1: Echoes back in the nineteen thirties who said housing is
Speaker 1: the wheel within the wheel of our economy. And it
Speaker 1: and it still is. And so even if you care
Speaker 1: about the just care about the economy, you should care
Speaker 1: about what the government does with Fannie and Freddie. Ultimately,
Speaker 1: that's it's it's a big topic. I did a column
Speaker 1: don't care here right. I did a column not too
Speaker 1: long ago. I moved a year ago. We bought a
Speaker 1: new house, and the experience with that house, the hoops
Speaker 1: you had to jump through in versus the experience with
Speaker 1: the prior house we did. I recalled doing the refinancing
Speaker 1: in OH five or oh four, where literally the guy
Speaker 1: would pull up in the driveway, you left the engine running,
Speaker 1: flung open the door, ran in with papers here initial
Speaker 1: initial sign sign I apologize, I have a closing around
Speaker 1: the corner. I disappeared, left us with the check for
Speaker 1: thirty dollars was gone, and I looked at my wife.
Speaker 1: Did that really happen? Contrast eight years later, where you know,
Speaker 1: I've had colonoscopies that were gentler and easier and less
Speaker 1: intrusive than than these sort of um experiences. So that
Speaker 1: raises the question, why has financing, the most important purchase
Speaker 1: most Americans make, become so insane? Well, there are a
Speaker 1: bunch of answers to that. The fate of Fannie and Freddie,
Speaker 1: as most people know, it's unresolved. They were put into
Speaker 1: a state called conservatorship during the dark depths of the
Speaker 1: financial crisis. It was supposed to be temporary. There they
Speaker 1: still said, they're making lots of government money. The government
Speaker 1: is using their money to reduce the overall budget deficit.
Speaker 1: I think it's a huge scandal, But that's but and
Speaker 1: that's been reported that, but that's out there. But the
Speaker 1: big problem is that the government's been schizophrenic and what
Speaker 1: it wants out of the mortgage market. So politicians, including
Speaker 1: President Obama have said repeatedly, we want more private capital
Speaker 1: in the market. At the same time they've done everything
Speaker 1: possible to discourage private capital from getting involved in the market. Again,
Speaker 1: witnessed the huge fines the big banks have paid, um so,
Speaker 1: and so what are the big banks paying fines? Well
Speaker 1: for for behavior for which they should pay fines. But nonetheless,
Speaker 1: if you realize suddenly that you Mr. Bank may have
Speaker 1: to pay billions of dollars in fines because you screwed
Speaker 1: up on some lending to subprime customers, you're probably gonna say,
Speaker 1: you know, I don't think I'm gonna do that. Len,
Speaker 1: Let let me push back on that a little bit,
Speaker 1: because I know you've written about foreclosure gate, which is
Speaker 1: one of my big pet peeves. Yes, as it turns out,
Speaker 1: if you actually commit fraud and take these signed documents
Speaker 1: and present them to a court, they're usually a penalty
Speaker 1: for for lying under oath that way. And yet it
Speaker 1: seems there has been no one woman one mid level
Speaker 1: executive who was just a irrelevant to the whole story
Speaker 1: got prosecuted. But the vast majority of people who said,
Speaker 1: just make up documents, throw people out of the house.
Speaker 1: We'll probably get the right people agreed. Agreed. I'm not
Speaker 1: defending the big banks. Nonetheless, if you say, if you
Speaker 1: penalize something for doing something bad, they're probably going to say,
Speaker 1: I'm not going anywhere near that bad thing in the future.
Speaker 1: And maybe we'll get there, But before we get there,
Speaker 1: the government has to figure out what it's for. All
Speaker 1: in the market is going to be right and right now,
Speaker 1: there's no resolve about what the government's going to do
Speaker 1: with Fannie and Freddie. So the present political function, or
Speaker 1: a political malfunction, is that what it is. It's not economic,
Speaker 1: it's it's basically nobody in Washington knows what to do
Speaker 1: with these two companies, and so we have complete and
Speaker 1: total stalemate. Everybody knows we need Fannie and Freddie to
Speaker 1: keep providing a thirty or fixed rate mortgage to the
Speaker 1: majority of Americans. Nobody really seriously wants to risk ripping
Speaker 1: that underpinning out from under the mortgage market and see
Speaker 1: what happens. And yet nobody can say, actually, we probably
Speaker 1: need Fannie and Freddie either. So we sit in the
Speaker 1: state of dysfunction, made worse by the fact that the
Speaker 1: government has gotten two hundred plus billion dollars in profits
Speaker 1: from Fannie and Freddie because they're seizing all the profits,
Speaker 1: and so what politician wants to get rid of that
Speaker 1: source of money. So I think it's it's it's not
Speaker 1: a great situation. I'm Barry rid Halts. You're listening to
Speaker 1: Masters in Business on Bloomberg Radio. My special guest today
Speaker 1: is Bethany McLean. She is a contributing editor at Vanity
Speaker 1: Fair and uh well regarded journalist and author. Let's talk
Speaker 1: about one more book of yours, which I happened to
Speaker 1: have pulled off my bookshelf. All the Devils Are Here,
Speaker 1: The Hidden History of the Financial Crisis, which you actually
Speaker 1: wrote with the Jonah Sarah. He's a really interesting Uh.
Speaker 1: Joe was my longtime editor at Fortune and he actually
Speaker 1: edited the End Round book. Oh really, I didn't know that.
Speaker 1: I'm a fan of his only because I have big
Speaker 1: issues with the n c a A. And he's been
Speaker 1: well for many reasons, but most recently he's been torching
Speaker 1: them read his new book in Denschard. It just came out,
Speaker 1: just came out presolutely. He's absolutely I love the fact
Speaker 1: that these guys have gotten away with so much for
Speaker 1: so long, and suddenly one person comes along and completely changes,
Speaker 1: you know, the narrative. The story is something wholly different,
Speaker 1: and that's it's nice having a free press. So let's
Speaker 1: talk a little bit about this book because it's really interesting,
Speaker 1: and we could talk about a number of other columns
Speaker 1: that you've released following the financial crisis, some of which
Speaker 1: I find endlessly fascinating. Let's just jump right to this.
Speaker 1: What was the hidden history within the financial crisis? What
Speaker 1: do you think most people just don't realize that took
Speaker 1: place in that whole collapse. I think one of the
Speaker 1: most surprising things, okay, two of the most surprising things
Speaker 1: to me where the whole history of subprime lending, how
Speaker 1: it developed. So even sophisticated people tend to think of
Speaker 1: subprime lending as a phenomenon in the mid tooth, but
Speaker 1: it really wasn't. There was the first wave of subprime
Speaker 1: lending in the nine in the nineties, and then the
Speaker 1: second wave in the two thousands, which was run by
Speaker 1: the executives of the companies that that first proliferated in
Speaker 1: the nineties. So understanding how that happened and the regulatory
Speaker 1: response to it that made it, that made subprime lending
Speaker 1: something that nobody in Washington would would rain in, I
Speaker 1: think to me is a really important part of part
Speaker 1: of this story. It's funny you said one or two
Speaker 1: things that people don't know. I have like listen list
Speaker 1: of things that people are always surprised at. One of
Speaker 1: the things that came up recently, Hey, how come it
Speaker 1: was that all Wall Street banks got killed in subprime
Speaker 1: except one JP Morgan? Why Why is that? Because they
Speaker 1: had their subpront crisis in the early two thousands and
Speaker 1: when they went to get out of it, it was
Speaker 1: actually buyers for their paper. Very interesting. Yeah, a huge
Speaker 1: difference from everybody else, right, But that's a really it's
Speaker 1: a really important part of the story for a bunch
Speaker 1: of reasons. One is because consumer advocates were going to
Speaker 1: Alan Green's fan then the chairman of the FED in
Speaker 1: the nineties and saying basically, look, people are getting loans
Speaker 1: they can't pay back. Something's going wrong in the system.
Speaker 1: And greens Band would say, what a lot of regulators
Speaker 1: and politicians thought, which is that the market doesn't work
Speaker 1: that way. People banks, lenders won't make loans. Banks certainly
Speaker 1: won't buy up loans and securitize them. Investors won't buy
Speaker 1: the resulting securities if the underlying loans aren't sound. A
Speaker 1: market economy doesn't work that way. And so I think
Speaker 1: he let his ideology get in the way of the facts,
Speaker 1: which I think about that a lot is a good
Speaker 1: as a good as a good life lesson. But I
Speaker 1: think a lot of people did not Not only did
Speaker 1: consumer advocates, but on the Federal Reserve Board was a
Speaker 1: gentleman named um was Bill Pool. I thought it was
Speaker 1: Ed Graham Graham. That's right. Bill Pool is still around
Speaker 1: and grahamar unfortunately passed away and Ed grahamlock. I think
Speaker 1: maybe Billpool did the intro to his book. That's why
Speaker 1: it's on my head. Ed Graham look was saying, hey,
Speaker 1: none of these things makes sense. I understand what you're saying,
Speaker 1: but look, here's all of your predatory, predatory owns that
Speaker 1: are defaulting in these huge numbers, and amongst the many
Speaker 1: things that people don't realize in oh five, uh, I
Speaker 1: think it was the o c C issued an edict
Speaker 1: to the States that said, you cannot enforce predatory lending
Speaker 1: laws against banks. That's our it was. It was preemption
Speaker 1: and and the o c C thought that subprime lending
Speaker 1: was contained outside the banking system. And I think that's
Speaker 1: another huge lesson for the modern world. You know, our market,
Speaker 1: the global markets are very complex place, and people don't
Speaker 1: see all the interdependencies and interconnectedness until it's too late.
Speaker 1: And that's one reason why the financial crisis is still
Speaker 1: so relevant because people said, oh, the subprime lending thing, Well,
Speaker 1: it's all these lenders, these little shops out in California,
Speaker 1: and so it really cares. It's not infiltrating our precious
Speaker 1: banking system. But oh yes it was. That's right on
Speaker 1: one another. One of the many things that people probably
Speaker 1: didn't know when they were selling these thirty year mortgages
Speaker 1: to Wall Street to securitize into a new new paper,
Speaker 1: um came with a warranty like a toaster. Wait, I'm
Speaker 1: warranting that this thirty year loan against a house that
Speaker 1: could last a hundred years at the last three months,
Speaker 1: so we promised they'll make the first three payments. How
Speaker 1: crazy is that it's astonishing. It's completely astonishing. And it's
Speaker 1: interesting in light of Fannie and Freddie, as we discussed,
Speaker 1: because you know, there's been a whole political movement to
Speaker 1: blame Fanny and Freddie, blame low income and lending to
Speaker 1: low income borrowers and home ownership for the financial crisis,
Speaker 1: and when you actually look at the history of it,
Speaker 1: I might have gone into my book thinking that was true.
Speaker 1: When you look at the history of it, then you see, oh, no, no, no.
Speaker 1: This whole subprime lending thing that started in the ninety
Speaker 1: nineties was enabled by Wall Street, had nothing to do
Speaker 1: with Fanny and Freddie. It started outside Fanny and Freddie.
Speaker 1: The other fascinating thing to me that I think most
Speaker 1: people don't realize about the subprime crisis was that it
Speaker 1: was not about home ownership. If risky loans had been
Speaker 1: limited to first time homebuyers, we never would have had
Speaker 1: a crisis. It was cash out refies. So this so
Speaker 1: this the crisis doesn't prove that giving mortgages to poor
Speaker 1: people as a bad idea, as a lot of people
Speaker 1: seem to think. It doesn't prove home ownership one way
Speaker 1: or the other. What it proves is that extending credit
Speaker 1: to people of any income level who can't afford to
Speaker 1: pay it back. It's a really bad idea. So I
Speaker 1: think that's another huge misconception and kind of an evil
Speaker 1: misconception about the crisis. Right, So there's so many components
Speaker 1: to that. One is, you have a population that's not
Speaker 1: seeing their wages go up, especially in the two thousands
Speaker 1: when there's really high inflation. So flat wage is high
Speaker 1: inflation means your standard of living is falling unless you
Speaker 1: have a way to get more money. And the cash
Speaker 1: out reflies, which, like Endron, it works as long as
Speaker 1: this price keeps going up. Once that stops, well, when
Speaker 1: the music stops, that's where the real trouble comes. And
Speaker 1: you drive through Chicago streets and you see in the
Speaker 1: dirty snow, flat flapping banner from Chase that says let
Speaker 1: your home, take you on vacation, and you say, not
Speaker 1: so much. Take you on vacation, get you a big
Speaker 1: screen TV, buy you a new car, all standard of
Speaker 1: living things, and that's really eating your sat coorn. But
Speaker 1: you're absolutely right. The underlying stories of the stagnation and
Speaker 1: American incomes, right, that was masked for a while by
Speaker 1: the creation of credit, and I think that's a huge
Speaker 1: underlying story that we have yet to see play out.
Speaker 1: Creation of credit, flat wages, and when people are talking
Speaker 1: about income inequality, there are two sides. Yeah, the top
Speaker 1: one tenth doing great with stock market and all sorts
Speaker 1: of other things, but there's a huge swath of the
Speaker 1: country that's just seeing stagnant wages. And when you say
Speaker 1: to people who aren't used to having free money, hey,
Speaker 1: here's free money, I mean that story I mentioned about
Speaker 1: us doing the cash out refly, so we got starter house,
Speaker 1: replaced a kitchen, and I know neighbors who were why
Speaker 1: is there a portion your little starter house driveway? Well,
Speaker 1: because I can't. And it gets to another huge issue
Speaker 1: about our society too, which is that a lot of
Speaker 1: people aren't financially sophisticated enough to understand these products. So
Speaker 1: they assume if the lender is giving them the money,
Speaker 1: then the lenders that and the lender knows that they
Speaker 1: can pay it back and the lender has done the work.
Speaker 1: And that's obviously a really bad assumption. But lenders, especially
Speaker 1: mortgage brokers, are trained to be your friend and say
Speaker 1: it's all going to be okay in the end. So
Speaker 1: I'm a big believer in personal responsibility, but I think
Speaker 1: responsibility has to go two ways. And you can't put
Speaker 1: it all on people and then have financial services institutions
Speaker 1: out there selling bad products that they're trying it just
Speaker 1: it doesn't work that way. Responsibility is a two way story.
Speaker 1: Thanks to the Consumer Finance Protection Board, is a direct
Speaker 1: result of the exact sentiment you mentioned the other the
Speaker 1: other thing that people forget when we talk about or
Speaker 1: or don't know. You know, Fannie and Freddie they got
Speaker 1: into subprime. Yeah, they got into subprime. They petition o
Speaker 1: FAIO later oh five because they were losing so much
Speaker 1: market share to Wall Street. Hey, the subprime is where
Speaker 1: the growth is. All our business is going away. If
Speaker 1: you don't let us compete with them in the subprime space,
Speaker 1: we're not gonna have any business. So they jumped in
Speaker 1: around oh six just as the market was topping the
Speaker 1: time and couldn't have been better. And that's why their
Speaker 1: losses were so bad. But that's actually fascinating because you know,
Speaker 1: there are forces in the government that wanted to see
Speaker 1: the private label Wall Street market take over Fanny and
Speaker 1: Freddy's market share, and there was a big change in
Speaker 1: around I think it went into effect around O one
Speaker 1: or O two that allowed these Wall Street created mortgage
Speaker 1: backed securities that got triple A ratings to be treated
Speaker 1: the same way for capital purposes as Fanny and Freddy
Speaker 1: back securities. The two things are obviously totally different. One
Speaker 1: is a creation of the credit rating agency process. The
Speaker 1: other actually had two companies standing behind them saying we'll
Speaker 1: pay if the homeowner can't. Plus the United States government
Speaker 1: behind those two, right, But the banking lobby got them
Speaker 1: treated the same way for capital purposes. And that's what
Speaker 1: unleash the crave of craze of some prime lending. So
Speaker 1: let's use that as a leaping off point to look
Speaker 1: at some of the columns you have written and on
Speaker 1: the rating agencies UM subject you wrote, if everyone hates
Speaker 1: the creating credit rating agencies, why won't anyone enforced dot
Speaker 1: frank provisions to dethrone them? So I have to ask
Speaker 1: you what are the provisions and why has that not happened? Well,
Speaker 1: some of it has in limited ways. The SEC is trying, um,
Speaker 1: but very ineffectively. Um. The main thing that was supposed
Speaker 1: to happen, and the big issue is the way credit
Speaker 1: rating agencies have been enshrined in regulations, making them making
Speaker 1: them critical arbiters. And the idea and Dodd Frank was
Speaker 1: we were going to take them out of all the
Speaker 1: regulatory framework, and that is not happening. People have basically
Speaker 1: admitted it's really difficult. It's really hard to do. And
Speaker 1: part of the problem is that institutional investors love being
Speaker 1: able to blame the credit rating agencies when it all
Speaker 1: goes wrong, and so they don't necessarily they kind of
Speaker 1: like being able to say, but the credit rating agencies
Speaker 1: said it was so um. So there are a lot
Speaker 1: of forces against any any reform. And the clearest way
Speaker 1: you can see that is if you remember that the
Speaker 1: credit rating agencies were already reformed before the financial crisis.
Speaker 1: In the wake of en Run, when they famously rated
Speaker 1: en Run's debt investment grade up until two days before
Speaker 1: it's collapsed, there was a huge outcry about the credit
Speaker 1: rating agencies, and in two thousand and set Congress past
Speaker 1: the credit rating agency reformat. So did you know that
Speaker 1: heading into the financial crisis, the credit rating agencies has
Speaker 1: had already been reformed. And once once you know that,
Speaker 1: you realize why nothing is happening. If people want to
Speaker 1: find your work, where would they track you down? Mainly
Speaker 1: through Vanity Fair, but I guess you can google me.
Speaker 1: You can buy my books on Amazon if you're interested.
Speaker 1: If you've enjoyed this conversation, be sure and hang around
Speaker 1: for the podcast extras, where we keep the tape rolling
Speaker 1: and continue chatting. Be sure and check out my daily
Speaker 1: column on Bloomberg View dot com or follow me on
Speaker 1: Twitter at rid Halts, where I tweet a little more
Speaker 1: than once a week or so. I'm Barry rid Halts.
Speaker 1: You've been listening to Masters in Business on Bloomberg Radio.
Speaker 1: Welcome to the podcast portion of the show. This is
Speaker 1: where we take off our shoes and kick back a
Speaker 1: little bit. I'm literally taking my shoes off, Bethany. Thank
Speaker 1: you so much for doing this. This is really quite
Speaker 1: interesting stuff. You and I have an interest in a
Speaker 1: lot of similar wonky, tedious, boring stuff. That's true. The
Speaker 1: Dick Fold thing, So did you know that about it?
Speaker 1: I did not know that story. There was a Bloomberg
Speaker 1: article on it, and I've had this conversation with countless people.
Speaker 1: They're like, no, no, if he was offered money by Buffett,
Speaker 1: he would have had to take it. Not only was
Speaker 1: he offered money by Buffett, he was offered more money
Speaker 1: then a better deal than what ultimately now six months
Speaker 1: later obviously was a much uglier situation after following the
Speaker 1: collapse of Lehman Brothers. But um talk talk about reality
Speaker 1: distortion field and being a salesman and surrounding yourself with
Speaker 1: people who are afraid to say no to you. That's
Speaker 1: a This is a not uncommon set of circums now
Speaker 1: except now, which I think is almost worse. If you
Speaker 1: talk to any leader, they're going to tell you that
Speaker 1: they surround themselves with people who challenge them and that
Speaker 1: they really like being challenged. And as soon as I
Speaker 1: hear that, my bsmter goes off because I know it's
Speaker 1: not true. Nobody likes being challenged. The trick is to
Speaker 1: do it anyway. So if I hear an honest leader,
Speaker 1: they say, I really hate being challenged, but I make
Speaker 1: myself undergo it anyway. Now that's honesty. The other if you,
Speaker 1: if you've read some of the Bridgewater stuff, what what
Speaker 1: Dahio has created in terms of some people have called
Speaker 1: it a cult. I think that goes too far, but
Speaker 1: it's a really interesting culture. Where so there's another book
Speaker 1: Um Originals by Adam Grant that I'm just starting, where
Speaker 1: he references how like a junior analyst sends an email
Speaker 1: to Dahio like screaming in him, essentially saying, we told
Speaker 1: you this was a really important presentation, and you muffed
Speaker 1: it and you came in unprepared and you were unfocused.
Speaker 1: Then that's the culture, and it makes them it's not
Speaker 1: a coincidence that they've become the biggest hedge fund in
Speaker 1: the world. It would be very hard to execute, but
Speaker 1: it's a powerful idea. Yeah, very hard to execute. So
Speaker 1: so let's talk about some other things that are a
Speaker 1: little hard to execute or easy to execute. What one
Speaker 1: of the columns of yours that I really liked, just
Speaker 1: want to buy the new Jersey Turnpike privatization and it's
Speaker 1: discontent And I don't know if that's your subhead or mine,
Speaker 1: but I just remember that column being fascinated. And you
Speaker 1: see this for cash strapped states, municipalities around the country
Speaker 1: selling these really impossible to replace things to the private sector,
Speaker 1: and these are disasters, aren't they. Well, we did it
Speaker 1: in Chicago, right, And the problem is if you really
Speaker 1: actually did take the money and invest it as a
Speaker 1: city and do what you were supposed to do with it,
Speaker 1: then maybe at least financially for the city, it wouldn't
Speaker 1: be such a problem. But all you're doing is getting
Speaker 1: rid of your long term assets in exchange for a
Speaker 1: quick cash infusion, right, And so it ends up being
Speaker 1: a complete disaster because then the assets are gone and
Speaker 1: the money's gone, and all it does is bridge a
Speaker 1: short term gap instead of funding anything for the future.
Speaker 1: And then there are a lot of questions about how
Speaker 1: well the private owners actually do. Horror stories with enforcements
Speaker 1: of traffic tickets and and parking tickets and raising rates
Speaker 1: and everything. Real real horror stories about about how it works. Um.
Speaker 1: And there was quite a push a few years ago
Speaker 1: for the banks to get more into this business, and
Speaker 1: everybody was talking about setting up an infrastructure fund. So
Speaker 1: it'll be interesting to see how it pans out. If
Speaker 1: we've got another economic downturn, it won't do well. The
Speaker 1: other title I really liked squid Love, Why Aren't Clients
Speaker 1: Fleeing Goldman Sacks. It's a great title, but the point
Speaker 1: it raises, why didn't clients fleet Goldman Sacks? Well, you
Speaker 1: could have two different interpretations. One could be that clients
Speaker 1: didn't care even though the rest of us did. When
Speaker 1: you say didn't care, didn't care about them taking the
Speaker 1: other side of the trades, didn't care about how Goldman
Speaker 1: behaved in the financial crisis. When I think by any characterization,
Speaker 1: they looked out for their own interest and didn't look
Speaker 1: out for their client interests. That a given is and
Speaker 1: everyone assume, hey, that's what they're doing. I know who
Speaker 1: I'm in bed with. Well, look in Goldman and Goldman's defense,
Speaker 1: they say that's the trading business, and the clients knew
Speaker 1: what they were doing. But Goldman has always said is
Speaker 1: one of its ten principles. I think the number one
Speaker 1: principle is our client's interests come first. They don't say
Speaker 1: our client's interests come first in our investment banking business.
Speaker 1: They come way down the list in every other business.
Speaker 1: And so it's hypocrisy, right, I think they mean their
Speaker 1: client's interest in principal payment. Until we get those payments,
Speaker 1: we just can't even chut it. That's really funny. But
Speaker 1: but but Goldman has done fine in the years since
Speaker 1: the cis there still at the time, still at the
Speaker 1: top of the M and A leagues, they haven't lost
Speaker 1: client business at all. And I think if my there's
Speaker 1: no way to know what the answer to that is,
Speaker 1: my guests would be that clients still want what they
Speaker 1: perceive as the best advice. They still think Goldman is
Speaker 1: the best, and they're willing to take the whatever risks
Speaker 1: come with that. I think the other part of it
Speaker 1: is that it's not like any investment bank came out
Speaker 1: of the crisis well, right, So it's not like you
Speaker 1: have the super Goldman who did perfectly and behave beautifully
Speaker 1: during the crisis. Don't everybody you have Wells Fargo as
Speaker 1: as a survivor did really well, and you had JP Morgan,
Speaker 1: but not among the top investment banks. So Morgan, Stanley, Maryland,
Speaker 1: I mean far worse behavior, right, can you go down
Speaker 1: that hole? List Ubs and Credit Swiss Following shortly after
Speaker 1: the crisis, the Buffett quote that when the Todd goes out,
Speaker 1: you see who swimming naked. Suddenly a lot of warts
Speaker 1: that were not seen previously to the crisis, we're all revealed.
Speaker 1: And you have to think no one would have noticed
Speaker 1: but for the crisis. Right. So if a client were
Speaker 1: going to leave Goldman SAX after the crisis, they would
Speaker 1: have had to go somewhere else. Where is that somewhere else?
Speaker 1: Deutsche Bank, Royal Bank of Scotland, they do great work.
Speaker 1: It's it's well so. In other words, there there are
Speaker 1: no options. And as long as you're dealing with the sharpie,
Speaker 1: they might as well be your sharp right. And you
Speaker 1: do have um a bunch of independent investment banks, boutique
Speaker 1: investment banks that have been set up, particularly in recent years,
Speaker 1: some of them populated by ex Golmen bankers. It will
Speaker 1: be interesting to see how that plays out, but there is,
Speaker 1: you know, there is some truth to the idea that
Speaker 1: a global client base they want financing when they come
Speaker 1: to you for adeal. They want the whole package that
Speaker 1: a big bank like Goldman can offer. They don't want
Speaker 1: a boutique and you can't get that with a potique.
Speaker 1: I've also noticed that there have been a number of
Speaker 1: companies seeded, but it's it's like when there's a super
Speaker 1: over in a star, all that star dust eventually becomes
Speaker 1: another star. When AI g blew up, there's a whole
Speaker 1: bunch of other little companies, including I think it's called
Speaker 1: Pure Coincidentally, an insurance company that's trying to compete with
Speaker 1: chub on the high end for residential real estate insurance
Speaker 1: x A I G. Guy so following, and I think
Speaker 1: that began long before the crisis. But it's fascinating how
Speaker 1: every time there's a disaster, you have good people, you
Speaker 1: have less than good people when some of the good
Speaker 1: people ultimately end up. There've been a couple of stories
Speaker 1: that have been interesting, one tracking former Drexel people, another
Speaker 1: tracking former end Round people, a lot of whom have
Speaker 1: gone on to do really interesting things. I mean circling
Speaker 1: back to end Round to me that the that company
Speaker 1: is just such a tragedy. There are a lot of
Speaker 1: good ideas and a lot of brilliant people. They just
Speaker 1: couldn't wait for the ideas to actually produce revenue, so
Speaker 1: they accelerated the revenue through ways both legitimate but sketchy
Speaker 1: and totally illegitimate. And that's why I understanding you correctly.
Speaker 1: You're saying there were a lot of really good ideas.
Speaker 1: It's just a shame it was all a fraud. Is
Speaker 1: that what you're actually saying. I'm sort of saying that
Speaker 1: except Ron, you know, it was a fraud and very
Speaker 1: it was a legal fraud. A lot of what they
Speaker 1: did technically met the letter of the law. It was legal,
Speaker 1: so it's still a very complicated scam. But but yes,
Speaker 1: there were the ideas were good. It's just that they
Speaker 1: couldn't wait to show revenue and profits that they came
Speaker 1: up with scammy ways to make it look like they
Speaker 1: were producing more profits than they were. But the ideas
Speaker 1: and the people who were there, there are a lot
Speaker 1: of good people. I'm fond of saying one of the
Speaker 1: biggest problems in finance is that no one's willing to
Speaker 1: wait to get rich slowly. And it's really Oh, I
Speaker 1: love that life. Every time people run into trouble, I've
Speaker 1: I've met and worked with and been on the other
Speaker 1: sides of discussions with people who are just incredibly talented salespeople,
Speaker 1: and invariably some of these guys end up getting into trouble.
Speaker 1: And it's almost always guys, and it's the question is
Speaker 1: always all you have to do is put your head
Speaker 1: down and be a reasonable human and not do really stupid,
Speaker 1: ethically dubious, legally questionable things, and eventually you become very wealthy.
Speaker 1: What what is so challenging about that? I don't know.
Speaker 1: I've been thinking a lot lately about the difference between
Speaker 1: being smart and why being wise. And I think there's
Speaker 1: a lot of smarts out there, but there's not a
Speaker 1: lot of wisdom. So how many how much time do
Speaker 1: we have left? So in the last few minutes we
Speaker 1: have let me get to some of my favorite questions
Speaker 1: that I asked for of all my guests. UM, and
Speaker 1: I have I have us with Oh, you're right about
Speaker 1: the time. UM, So let's talk a little bit about mentors.
Speaker 1: Any mentors stand out in your mind? I think i'd
Speaker 1: have to say Joe No, Sarah is the the is
Speaker 1: probably and John Huey too, who ran Fortune magazine when
Speaker 1: I got there. I still remember John Pulling calling a
Speaker 1: big meeting of Fortune right when I started and basically saying,
Speaker 1: if you don't know what you're doing, there's no place
Speaker 1: for you here at this magazine. And I was like,
Speaker 1: I don't have a clue. I'm not gonna last long here,
Speaker 1: and this this is my my new job. But Joe
Speaker 1: too has always been really good both on the big
Speaker 1: picture He's the one who encouraged me to write the
Speaker 1: un Run book, but also really good at sorting through
Speaker 1: ideas because I have a lot of ideas and I
Speaker 1: need someone to say this one sucks. Go for this one.
Speaker 1: So let's talk about books. Since you mentioned what are
Speaker 1: some of your favorite books, fiction or nonfiction? Let's see. Um. Okay,
Speaker 1: so I'm a total sucker for The Lord of the Rings. Okay,
Speaker 1: I think it's one of the one of the best,
Speaker 1: and thinking about it again and I actually am Now
Speaker 1: I have enough distance between the movies and I'm willing
Speaker 1: to watch the first three movies again. The Hobbit. Hobbit
Speaker 1: not as not as great as the first three. Lord
Speaker 1: of the Ring now, no, no, no, But the Lord
Speaker 1: of the Rings is absolutely amazing. Game of Thrones is awesome.
Speaker 1: I haven't been able to watch the TV show because
Speaker 1: I found I found the book so stressful. Um on
Speaker 1: a on a more series friend, Um Middle March obviously amazing.
Speaker 1: I love biographies. There's a great biography of Collette that
Speaker 1: really made me think about called Secrets of the Fresh
Speaker 1: of the Flesh, that really made me think differently about
Speaker 1: how biographies can be done. But I think life stories.
Speaker 1: Secrets of the Flesh, yes, but I think I think
Speaker 1: stories about fascinating people that explore the nuances of their lives,
Speaker 1: particularly fascinating, controversial people are are just great. And then
Speaker 1: I loved UM recently All the Light We Cannot See.
Speaker 1: I think that's one of the most beautiful books, although
Speaker 1: deeply sad, books, that I've read in a long time.
Speaker 1: I gave one of the people in my office The
Speaker 1: Right Brothers book for the holidays, and he raved about
Speaker 1: So now I have to everything. All rights is great,
Speaker 1: but now I have to I gave it as a gift.
Speaker 1: Now I actually have to wait. Now you have to
Speaker 1: go read it. UM. So, millennials, you've been doing this
Speaker 1: for a couple of years. If a millennial comes to
Speaker 1: you and says, hey, I want to get into your field,
Speaker 1: what sort of advice would you give, either a recent
Speaker 1: college graduate or a millennial. Seriously, now what what I
Speaker 1: What I actually say is that you have to be
Speaker 1: really committed to this, and you can't expect it to
Speaker 1: be something where there's a set career path, and there
Speaker 1: never really has been. Right, You've found your way into
Speaker 1: showing this in a totally different way I did. Some
Speaker 1: people go to journalism school and train to be journalists
Speaker 1: all their life, so it always has been a flexible
Speaker 1: career path, but now so that more than ever right,
Speaker 1: we don't know where our industry is going. It's not
Speaker 1: like there's while you start on the bottom run here
Speaker 1: and then you get a job here. It's it's all
Speaker 1: made up, All bets are off. So I think you
Speaker 1: have to have a real passion to want to tell
Speaker 1: stories and learn things and be curious and and not
Speaker 1: to and to be willing to work hard, to say
Speaker 1: the least. And our final question that I ask everybody,
Speaker 1: what is it that you wish you knew about investing companies, journalism?
Speaker 1: What is it that you wish you knew twenty years
Speaker 1: ago that you know today? I think I had wish
Speaker 1: I had known. I think I wish I had known
Speaker 1: how to be more skeptical. And I still sometimes think
Speaker 1: I should be more skeptical even than I am. Not
Speaker 1: only do people not always tell the truth, but sometimes
Speaker 1: people don't even know that they're not telling the truth.
Speaker 1: And so I wish I knew to listen more and
Speaker 1: really challenge things that don't appear to that don't make sense.
Speaker 1: And you know what, sometimes you're an idiot because you
Speaker 1: just missed something somebody said and you didn't understand and
Speaker 1: you actually didn't get it. But sometimes if you're really
Speaker 1: willing to say that doesn't make sense to me, can
Speaker 1: you repeat that you'll really learn something? And I wish
Speaker 1: I were better at that than I am. That's quite fascinating.
Speaker 1: For those of you who have enjoyed this conversation, be
Speaker 1: sure and check out Bethany's various books. You can look
Speaker 1: Up an Inch or Down an Inch on Apple iTunes
Speaker 1: and see the other eighty or so conversations we've had.
Speaker 1: H be sure and check out my daily column. I
Speaker 1: already said that, so I don't need to say that again. UM.
Speaker 1: I want to thank Mike bat Nick, my head of research,
Speaker 1: for helping me um do the deep dive into this,
Speaker 1: as well as Charlie Vollmer, who is about to kick
Speaker 1: me out of the studio. I'm Barry Ridholts. You're listening
Speaker 1: to Masters in Business on Bloomberg Radio.