Podcast appearances and mentions of jeff skilling

As a co-teacher of Stanford University's Introduction to Cybersecurity course, Riana Pfefferkorn regularly had to guide enterprising students away from violating the law. And it was one of those laws, the federal wire fraud statute, that initially caused her to connect with Caleb and Greg. In this conversation, the three of them discuss Jeff Skilling, cybersecurity, hacker movies, and more. SponsorsMakersHub- https://ohmyfraud.promo/makershubRightRev - https://ohmyfraud.promo/rightrevSettle - https://ohmyfraud.promo/settleHOW TO EARN FREE CPEIn less than 10 minutes, you can earn 1 hour of NASBA-approved accounting CPE after listening to this episode. Download our mobile app, sign up, and look for the Oh My Fraud channel. Register for the course, complete a short quiz, and get your CPE certificate.Download the app:Apple: https://apps.apple.com/us/app/earmark-cpe/id1562599728Android: https://play.google.com/store/apps/details?id=com.earmarkcpe.appQuestions? Need help? Email support@earmarkcpe.com.CONNECT WITH RIANNARianna Pfefferkorn [LinkedIn]https://cyberlaw.stanford.edu/about/people/riana-pfefferkornCONNECT WITH THE HOSTSGreg Kyte, CPATwitter: https://twitter.com/gregkyteLinkedIn: https://www.linkedin.com/in/gregkyte/Caleb NewquistTwitter: https://twitter.com/cnewquistLinkedIn: https://www.linkedin.com/in/calebnewquist/Email us at ohmyfraud@earmarkcpe.comSources:Stanford University Institute for Human-Centerd Artificial IntelligenceHack Lab: Introduction to Cybersecurity [Stanford Law School]Riana Pfefferkorn, Shooting the Messenger: Remediation of Disclosed Vulnerabilities as CFAA “Loss” [Richmond Journal of Law & Technology]Skilling v. United States [Wikipedia]

I had Travis on the podcast and we just name dropped for an hour.  Yeah, we talked a bunch of energy stuff - Halcon and the shale revolution, debt deals with Oak Tree, nuclear powering tech, hydrocarbons powering the developing world - but then we went through celebrity encounters - Justin Timberlake, Jeff Skilling, Michael Milken, Bret Michael, David Lee Roth.  The only thing strange about this energy finance bro hash session was we weren't wearing Pickering Energy vests.Find us here

It's hard to talk about corporate gossip without talking about McKinsey. They're everywhere! They advise the biggest companies in every industry in practically every company in America (90% of the Fortune 100 companies use Mckinsey). From Las Vegas Casinos to the Vatican, McKinsey consultants, armed with their Thinkbooks and Tumi rollerbags, dispense their advice on maximizing the bottom line under a veil of secrecy. That is until recently, when dogged reporters sifted through thousands of documents made public as part of a series of lawsuits and criminal investigations into the firm. Becca and Adam read through it all and are bringing you the juiciest stories. They find out that when it comes to systemic corporate malfeasance, McKinsey isn't the one who lit the match, but they're often found fanning the flames. Pictures & links on our substack Support the pod by buying us a coffee Check out our reading list  Follow us on youtube, instagram, and tiktok Hosts: Becca Platsky (Becca@nitetoast.com) Adam Platsky (Adam@nitetoast.com)  Produced by: Michael Albanese @bigmanmike Timestamps:  10:00 - Corporate Gossip #1: McKinsey, this is why we can't have nice things (Intro and background)  30:00 - Corporate Gossip #2: If Jack Welch is Theresa Giudice, McKinsey is Juicy Joe and today's billionaire boss-boys are 4 year-old Melania (How McKinsey influences the world's largest companies)  52:00 - Corporate Gossip #3: McKinsey: Our consultants are happy to provide clean pee for your patients who are addicted to heroin!! (McKinsey's role in the Opiod Crisis)  1:05:00 - Corporate Gossip #4: Enron is basically a McKinsey spinoff in which Jeff Skilling visits Ken Lay at the summer house in Montauk (McKinsey's role in the Enron rise & fall)  1:09:00 - Corporate Gossip #5: If you're looking for the Lizard people controlling the American economy it's not the west coast elites… it's McKinsey! (McKinsey as a Corporate Villian)  1:15:00 - Corporate Gossip #6: Clarence Thomas really went - guys know what would make McKinsey better??? If they had access to more white men!! Hey now… white men who can take me on Yachts. (How the overturning of affirmative action plays into McKinsey's ability to continue weaponizing capitalism)   

0:00 -- Intro. *reference to our episodes reviewing Succession Season 1: E98 of this podcast (May 22, 2023) and Season 2: E102 (June 26, 2023).2:00 -- Start of interview. 3:50 -- About Sean Berkowitz and the Enron Case: prosecuting Ken Lay and Jeff Skilling (2006).7:05 -- On whistleblowers and avoiding retaliation. "Whistleblowers are one of the trickiest things you can deal with as counsel representing a corporation."11:05 --  Kendall's whistleblower scenario. Conducting internal investigations.15:02 -- On government relations and political interference with federal investigations. "It essentially doesn't work." "The discretion and judgment of a line prosecutor is always going to rule the day."17:22 -- Cooperating with Federal investigations. 21:12 -- The role of the board of a public company under federal investigation.22:52 -- On "shifting to legals", internal investigations by outside counsel, and creating a special committee of the board to remove conflicts of interest.29:16 -- Explaining joint defense agreements. The Archer-Daniels-Midland case (reference to movie The Informant).33:34 -- On the link between good governance and how shareholders value the company, including activists (Josh Aronson scene) and the proxy battle.43:36 -- On sexual harassment complaints (situation between Roman and Gerri involving explicit pictures). The factor of CEO succession and how the board should conduct their selection.50:30 -- On potential GoJo red flags and need for due diligence, including leadership assessment and kicking the tires on their numbers. What could/should board be doing in this situation?55:33 -- Dealing with moguls and founders like Lukas Matsson. "I think that one of the elements at the heart of corporate governance is personal integrity and character... and Matsson is not a good guy."59:49 -- Family governance within public companies. "Ultimately it all comes down to the documents: who can vote what, who has control, who has the ability in a tie break, etc." The problem with "rubber stamping boards." Question: "would any of us invest in a company run by Kendall or Roman?"01:06:11 -- Kendall's Unreliable Testimony to the DOJ ("Queen for a day" opportunity) and Preparation Failure.Kate O'Leary is the Global Executive Litigation Counsel at General Electric Company.Sean Berkowitz is a Partner at Latham & Watkins and the Global Chair of the Complex Commercial Litigation Practice. He represents clients in complex litigation and regulatory investigations.__ You can follow Evan on social media at:Twitter: @evanepsteinLinkedIn: https://www.linkedin.com/in/epsteinevan/ Substack: https://evanepstein.substack.com/__Music/Soundtrack (found via Free Music Archive): Seeing The Future by Dexter Britain is licensed under a Attribution-Noncommercial-Share Alike 3.0 United States License

Welcome to The Nonlinear Library, where we use Text-to-Speech software to convert the best writing from the Rationalist and EA communities into audio. This is: Evidence under Adversarial Conditions, published by PeterMcCluskey on January 9, 2023 on LessWrong. I recently noticed similarities between how I decide what stock market evidence to look at, and how the legal system decides what lawyers are allowed to tell juries. This post will elaborate on Eliezer's Scientific Evidence, Legal Evidence, Rational Evidence. In particular, I'll try to generalize about why there's a large class of information that I actively avoid treating as Bayesian evidence. Here's an example of a briefly popular meme that helped teach me to ignore certain types of information: Companies need to be forgetting organizations. Enron Corp., which has repeatedly been tagged as the nation's most innovative corporation, is exhibit A as a world-class forgetting organization. It's not wedded to what it did yesterday. Enron chiefs Kenneth Lay and Jeff Skilling have figured out how to operate like a band of pirates. Got an idea? Don't dally. Go for it while it's an original! Everything here seems at least technically true (The Media Very Rarely Lies). I suspect it was mostly intended to be honest and helpful. But as a reader, I found it discouraged me from focusing on some key questions, such as: who was tagging Enron as innovative? What were the goals of those taggers? What was their track record at helping readers identify good investments? How much of a connection is there between innovation and good investments? What are some examples of Enron's innovation, and how do they resemble the kind of innovations that have caused other companies to succeed? Enron seems to have done a few things which qualify as fraud. But most of the Enron stock price bubble was generated through misdirecting investor's attention (and maybe the attention of Lay and Skilling) away from the risks that Enron was taking. I was in fact tempted to invest in Enron when I listened to that kind of meme. Whenever I felt that temptation, I looked at its financial statements and charts of its stock price, and decided I wouldn't miss much if I waited for better evidence. The standard Bayesian worldview asks me to update on all relevant information. Why do both I as an investor and the legal system exclude large classes of information from that rule? Both contexts involve some zero sum or negative sum conflicts. That makes it likely that someone is packaging information in order to mislead. If I, or a jury, only notice a datum because someone thought it would mislead me or the jury, odds are that updating on that information would reduce the accuracy of my (or the jury's) beliefs. We reject that information in order to ensure that its expected value will be zero, because the alternative tends to be that its expected value is negative. In both contexts, rules have been developed to admit evidence only if it's hard to manipulate or if it comes from a source that's unlikely to manipulate it. Accounting rules strongly limit how many ways key information can be presented. They also ensure that someone can in principle be punished if the information misleads. Similar rules ensure that company press releases are fairly safe for investors to read. The company will often be sued if the press release contains questionable claims that subsequently become linked to investor losses. That deters a wide variety of harmful propaganda (and presumably a fair amount of helpful evidence). It still leaves some gray areas for vaguely misleading memes, such as talk of Enron's innovation. Companies have mostly shifted to getting other respected sources to promote those ideas for them, rather than putting them in their own press releases. Still, I consider it an important skill to read those press releases in somewhat the same way that courts admit evidence: carefully distinguishing between "facts" and everything else....

Link to original articleWelcome to The Nonlinear Library, where we use Text-to-Speech software to convert the best writing from the Rationalist and EA communities into audio. This is: Evidence under Adversarial Conditions, published by PeterMcCluskey on January 9, 2023 on LessWrong. I recently noticed similarities between how I decide what stock market evidence to look at, and how the legal system decides what lawyers are allowed to tell juries. This post will elaborate on Eliezer's Scientific Evidence, Legal Evidence, Rational Evidence. In particular, I'll try to generalize about why there's a large class of information that I actively avoid treating as Bayesian evidence. Here's an example of a briefly popular meme that helped teach me to ignore certain types of information: Companies need to be forgetting organizations. Enron Corp., which has repeatedly been tagged as the nation's most innovative corporation, is exhibit A as a world-class forgetting organization. It's not wedded to what it did yesterday. Enron chiefs Kenneth Lay and Jeff Skilling have figured out how to operate like a band of pirates. Got an idea? Don't dally. Go for it while it's an original! Everything here seems at least technically true (The Media Very Rarely Lies). I suspect it was mostly intended to be honest and helpful. But as a reader, I found it discouraged me from focusing on some key questions, such as: who was tagging Enron as innovative? What were the goals of those taggers? What was their track record at helping readers identify good investments? How much of a connection is there between innovation and good investments? What are some examples of Enron's innovation, and how do they resemble the kind of innovations that have caused other companies to succeed? Enron seems to have done a few things which qualify as fraud. But most of the Enron stock price bubble was generated through misdirecting investor's attention (and maybe the attention of Lay and Skilling) away from the risks that Enron was taking. I was in fact tempted to invest in Enron when I listened to that kind of meme. Whenever I felt that temptation, I looked at its financial statements and charts of its stock price, and decided I wouldn't miss much if I waited for better evidence. The standard Bayesian worldview asks me to update on all relevant information. Why do both I as an investor and the legal system exclude large classes of information from that rule? Both contexts involve some zero sum or negative sum conflicts. That makes it likely that someone is packaging information in order to mislead. If I, or a jury, only notice a datum because someone thought it would mislead me or the jury, odds are that updating on that information would reduce the accuracy of my (or the jury's) beliefs. We reject that information in order to ensure that its expected value will be zero, because the alternative tends to be that its expected value is negative. In both contexts, rules have been developed to admit evidence only if it's hard to manipulate or if it comes from a source that's unlikely to manipulate it. Accounting rules strongly limit how many ways key information can be presented. They also ensure that someone can in principle be punished if the information misleads. Similar rules ensure that company press releases are fairly safe for investors to read. The company will often be sued if the press release contains questionable claims that subsequently become linked to investor losses. That deters a wide variety of harmful propaganda (and presumably a fair amount of helpful evidence). It still leaves some gray areas for vaguely misleading memes, such as talk of Enron's innovation. Companies have mostly shifted to getting other respected sources to promote those ideas for them, rather than putting them in their own press releases. Still, I consider it an important skill to read those press releases in somewhat the same way that courts admit evidence: carefully distinguishing between "facts" and everything else....

Podcast: The Lunar Society (LS 37 · TOP 2.5% )Episode: [Best] Bethany McLean - Enron, FTX, 2008, Musk, Frauds, & VisionariesRelease date: 2022-12-21This was one of my favorite episodes ever.Bethany McLean was the first reporter to question Enron's earnings, and she has written some of the best finance books out there. We discuss:* The astounding similarities between Enron & FTX,* How visionaries are just frauds who succeed (and which category describes Elon Musk),* What caused 2008, and whether we are headed for a new crisis,* Why there's too many venture capitalists and not enough short sellers,* And why history keeps repeating itself.McLean is a contributing editor at Vanity Fair (see her articles here) and the author of The Smartest Guys in the Room, All the Devils Are Here, Saudi America, and Shaky Ground.Watch on YouTube. Listen on Spotify, Apple Podcasts, or your favorite podcast platform.Follow McLean on Twitter. Follow me on Twitter for updates on future episodes. If you enjoyed this episode, please share. Helps out a ton.Timestamps(0:04:37) - Is Fraud Over? (0:11:22) - Shortage of Shortsellers(0:19:03) - Elon Musk - Fraud or Visionary?(0:23:00) - Intelligence, Fake Deals, & Culture(0:33:40) - Rewarding Leaders for Long Term Thinking(0:37:00) - FTX Mafia?(0:40:17) - Is Finance Too Big?(0:44:09) - 2008 Collapse, Fannie & Freddie(0:49:25) - The Big Picture(1:00:12) - Frackers Vindicated?(1:03:40) - Rating Agencies(1:07:05) - Lawyers Getting Rich Off Fraud(1:15:09) - Are Some People Fundamentally Deceptive?(1:19:25) - Advice for Big Picture ThinkersTranscriptThis transcript was autogenerated and thus may contain errors.Dwarkesh Patel: the rapid implosion of a company worth tens of billions of dollars. Insider dealing and romantic entanglements between sister companies, a politically generous c e o, who is well connected in Washington, the use of a company's own stock as its collateral, the attempt, the short-lived attempt to get bought out by a previous competitor, and the fraudulent abuse of mark to market account.[00:01:00] We are not talking about ftx, we are talking about Enron, which my guest today, Bethany McClean, uh, first broke the story of and has written an amazing and detailed book about, uh, called The Smartest Guys in the Room. And she has also written, uh, a book about the housing crisis. All the devils are here, a book about Fannie and Freddy Shaky Ground, and a book about fracking Saudi America, all of which we'll get into.She's, in my opinion, the best finance nonfiction writer out there, and I'm really, really excited to have this conversation now. So, Bethany, thank you so much for coming on the podcast. Bethany McLean: Thank you so much for the, for the probably Undeserved Conference, for having me on the show. Dwarkesh Patel: My first question, what are the odds that Sbf read the smartest guys in the room and just followed it as a playbook, given the similarities there?Bethany McLean: You, you know, I, I love that idea. I have to, I have to admit, I guess I love that idea. I don't know. That would make me responsible for what, for what happened, . So maybe I don't love that idea. L let me take that back . [00:02:00] Anyway, but I, I, I actually think that, that, that even if he had read the book, it would never have occurred to him that, that there was a similarity because self-delusion is such a, Strong component of all of these stories of business gone wrong.It's very rare that you have one of the characters at the heart of this who actually understands what they're doing and understands that they're moving over into the dark side and thinks about the potential repercussions of this and chooses this path. Anyway, that's usually not the way these stories go.So it's entirely possible that Sbf studied Enron, knew all about it, and never envisioned that there were any similarities between that and what he was doing. Dwarkesh Patel: Oh, that's a fascinating, um, which I guess raises the question of what are we doing when we're documenting and trying to learn from books like yours?If somebody who is a, about to commit the same exact kind of thing can read that book and not realize that he's doing the same exact thing, is there something that just [00:03:00] prevents us from learning the lessons of history that we, we can never just, uh, get the analogy right, and we're just guided by our own delusions.Bethany McLean: Wasn't there a great quote that history rhymes, but it doesn't repeat. I'm Yeah. Relying on who it is who said that, but I think that's, that's absolutely true. Oh, I think it's important for all of us, those of us who are not gonna find ourselves at the center of, uh, giant fraud or, so, I hope, I think my time for that has passed.Maybe not you, but, um, I think it's important for all of us to understand what went wrong. And I, I do think these, I do think just there, there's a great value and greater understanding of the world without necessarily a practical payoff for it. So I think when something goes wrong on a massive societal level, it's really important to try to, to try to explain it.Human beings have needed narrative since the dawn of time, and we need narrative all, all, all the more now we need, we need to make sense of the world. So I like to believe. Process of making, trying to make sense of the world. , um, [00:04:00] has a value in, in and of itself. Maybe there is small, some small deterrence aspect to it in that I often think that if people understand more the process by which things go go wrong, that it isn't deliberate, that it's not bad people setting out to do bad things.It's human beings, um, at first convincing themselves even that they're doing the right thing and then ending up in a situation that they, they never meant to be in. And maybe on the margin that does, maybe on the margin that does, that does help because maybe it has deterred some people who, who would've started down that path, but for the fact that they now see that that's the, that's the usual path.Dwarkesh Patel: Yeah. Yeah. That actually raises the next question I wanted to ask you. Bern Hobart, uh, he's a finance writer as well. He wrote a blog post, um, about, uh, I mean this was before FTX obviously, and he was talking about Enron and he said in the end, it actually looks like we fixed the precise problem. Enron represented.Nobody I know solely looks at gap [00:05:00] financials. Everybody ultimately models based on free cash flow, we're much more averse to companies that set up a deliberate conflict of interest between management and shareholders. And I guess there's a way in which you can read that and say, oh, it doesn't FTX prove I'm wrong.But, you know, there's another way you can look at it is that FTX deliberately set up outside the us. So there's a story to be told that actually we learned the lessons of Enron and, you know, uh, so remains obviously worked. Uh, that's why, you know, they were in The Bahamas and we haven't seen the scale fraud of that scale in, you know, the continental United States.Um, do, do you think that the FTX saga and I guess the absence of other frauds of that scale in America shows that. The regulations and this changed business and investment practices in the aftermath of Enron have actually. Bethany McLean: Well, I think they've probably worked in narrowly, written in, in the way in which the writer you quoted articulated, I think it would be very hard for the cfo, F O of a publicly traded company to set up other private [00:06:00] equity firms that he ran, that did all their business with his company.Because everybody would say That's Enron and it would be completely. On the nose. And so, and Sarbanes Oxley in the sense of, in the sense of helping to reign in corporate fraud of the sort that was practiced by Enron, which was this abuse of very specific accounting rules. Um, I think I, I, I think that worked.But you know, you say there hasn't been fraud on a scale like Enron up until perhaps f ftx, but you're forgetting the global financial crisis. Yeah. And then the end, the line between what happened at Enron. and, and what happened in the global financial crisis. It's not a matter of black and white. It's not a matter of, one thing was clear cut fraud and one thing great.We love these practices. Isn't this fantastic? This is the way we want business to operate. They're both somewhere in the murky middle. You know, a lot of what happened at Enron wasn't actually outright fraud. I've coined this phrase, legal fraud to describe, um, to describe what it is that, that, that, that happened at Enron.And a lot of what [00:07:00] happened in the global financial crisis was legal, hence the lack of prosecutions. But it's also not behavior that that leads to a healthy market or mm-hmm. , for that matter, a a a a healthy society. And so there's a reason that you had Sarbanes Oxley and what was it, eight short, short years later you had Dodd-Frank and so Riri broadly.I'm not sure Sarbanes actually did that much good. And what I mean by that is when President George Bush signed it into law in the Rose Garden, he gave this speech about how investors were now protected and everything was great and your, your ordinary investors could take comfort that the laws were meant to protect them from wrongdoing.And you compare that to the speech that President Barack Obama gave eight years later when he signed Don Frank into law in the Rose Garden. And it's remarkably similar that now ordinary investors can count on the rules and regulations keeping themself from people who are prey on their financial wellbeing.[00:08:00] And I don't think it was, it's, it's true in either case because our markets, particularly modern markets move and evolve so quickly that the thing that's coming out of left field to get you is never gonna be the thing you are protecting against. Mm. . Dwarkesh Patel: , but given the fact that Enron, as you say, was committing legal fraud, is it possible that the government, um, when they prosecuted skilling and Fastow and lay, they in fact, We're not, uh, they, they prosecuted them to a greater extent than the law as written at the time would have warranted.In other words, were, uh, was there something legally invalid in the, in this, in the quantity of sentence that they got? Is it possible? Bethany McLean: So that's a really, it, it's, it's a, I I get what you're asking. I think it's a really tricky question because I think in absolute terms, um, Enron needed to be prosecuted and needed to be prosecuted aggressively.And while I say it was legal fraud, that is for the most part, there was actually real fraud around, around, uh, but it's on the margin. It doesn't [00:09:00] entire, it doesn't explain the entirety of Enron's collapse. Much of what they did was using and abusing the accounting rules in order to create an appearance of economic reality.Nothing to do with actual, with actual reality. But then there was actual fraud in the sense that Andy Fasta was stealing money from these partnerships to benefit himself. And they were, if you believe, the core tenant of the prosecution, which was their, this agreement called Global Galactic that was signed by, that was between Andy fau and Jeff Skilling, where Jeff agreed that Andy's partnerships would never lose money.Then that invalidated all of the, all of the accounting, and that's the chief reason that that. That skilling was, was, was convicted, um, was that the jury believed the existence of this, of this, of this agreement that in, um, one set of insider stock sales, which, which we can talk about, which was also a really key moment relative to the, so in absolute terms, I don't know, it's, it's hard for me to, to say there was [00:10:00] such, Enron was such a, to a degree that is still surprising to me, such a, a watershed moment in our, in our country, far beyond business itself.it, it, it caused so much insecurity that about our retirements, our retirement assets safe. Can you trust the company where you work? That I think the government did, did have to prosecute aggressively, but relative to the financial crisis where a lot of people made off with a lot of money and never had to give any of it back, does it seem fair that, that, that Jeff Skilling went to jail for over a decade and no one involved in a major way in the financial crisis paid any price whatsoever?People didn't even really have to give up that much of the money they made then. Then it seems a little bit unfair. Yes, so I think it's, it's an absolute versus a relative Dwarkesh Patel: question. Yeah. Yeah. By the way, who do you think made more money? Um, the investment banks, uh, like, uh, Goldman Sachs and Morgan Stanley, um, from doing, [00:11:00] providing their services to Enron as the stock was going up, or Jim Chanos from shorting the stock?In absolute terms, who made more money? Bethany McLean: Oh, I think the investment banks for sure. I mean, they made, they made so much money in investment banking fees from, from, from Enron. But, you know, it's a good question. . , it's a good question actually, because I think Jim made a lot of money too, so, Dwarkesh Patel: Yeah. Yeah. I mean, I, I, you've spoken about, I guess the usefulness and the shortage of short sellers des a sort of, uh, corrective on irrational exuberance.And I'm curious why you think that shortage exists in the first place. Like, if you believe in the efficient market hypothesis, you should think that, you know, if some company has terrible financials and implausible numbers, then people would be lining up to short it. And then you would never have a phenomenon like Enron.And so it's, it's, you know, it's so odd that you can. , you know, reporters who are basically ahead of the market in terms of predicting what's gonna happen. Uh, well, uh, how do you square that with like the efficient [00:12:00] market hypothesis? Well, do you Bethany McLean: believe in the efficient market hypothesis, ? Dwarkesh Patel: I, I, I'd like to, but I'm like trying to , trying to wrap my head around Enron.Bethany McLean: I, I'm, I'm, I'm, I'm not sure how you. Can, unless you, unless you adopt Warren Buffett's point of view, and I'm gonna mangle the quote because, uh, but, but it's that the market in the short term is a voting machine in the long term. It's a weighing machine, right? Mm-hmm. , or is it the other way around? . Anyway, but the idea is that the market may be very efficient for a long, very inefficient, for a long period of time.But, but it does actually, rationality does actually work in, in, in the end. And I think I might believe that, but isn't it John Maynard Cas who said the market can remain irrational for a lot longer than you can remain solvent. And so I think that's true too. I think believing that the market is efficient and rational in the short term is just obviously wrongUm, but back to your question about short sellers, which is, which is interesting, you know, I think part of it is that there is still this, um, there certainly was a couple of [00:13:00] decades ago, and I think it still exists, this idea that. Owning stocks is Mom, American, and apple pie in shorting stocks somehow is bad and evil and rooting, rooting against America.And I remember going back to the Enron days, someone, people criticizing me, even other people in the press saying, but you took a tip from a short seller. They're biased. And I. , I would say. But, but, but wait, the analysts who have buy ratings on stocks and the portfolio managers who own those stocks, they're biased too.They want the stocks to go up. Everybody's biased. So the trick as a journalist is getting information from all sides and figuring out who you think is right and what makes sense. But it's not avoiding anybody with any bias. But it was really interesting that people saw the bias on the part of short sellers and did not see it on the part of, of, of Longs.And I think there is that preconception that exists broadly, that somehow you are doing something wrong and you're somehow rooting for a company's failure. And that this is, I don't know, anti-American if you, if, if you [00:14:00] short a stock. And so I think that's part of why there's, there's, there's a shortage of shortage of, of, of short sellers.Um, I think also, I mean, we've had. Incredible, unprecedented bull market for the last four decades as a result of falling interest rates, and especially in the decade before the pandemic hit, it was very, very difficult to make money shorting anything because everything went to the moon. Didn't matter if its numbers were good, if it was eventually unmasked to be somewhat fraudulent, , it stocks just went to the moon anyway.The riskier the better. And so it is only diehard short sellers that have managed to stick it out . Yeah, and I think, I think lastly, Jim Chano said this to me once, and I, I think it's true that he could find, dozens of people who were skilled enough to come, smart enough to come work for him.There's no shortage of that. People who are technically skilled and really smart, but being able to be contrarian for a long period of time, especially when the market is going against you, is a different sort [00:15:00] of person. It that it requires a completely different mindset to have everybody in the world saying, you're wrong to be losing money because the stock is continuing to go up and to be able to hold fast to your conviction.And I think that's another, uh, part of the explanation for why there are fewer short sellers. Dwarkesh Patel: Yeah, and that raised an interesting question about. Uh, venture capital, for example, where, or private markets in general? Um, at least in the public markets, there's shorting maybe in shortage, but it, it is a possible mechanism, whereas, uh, I'm a programmer.So, you know, if, if like a one guy thinks the company's worth a hundred million dollars and everybody else thinks it's not, you know, the company will still be, uh, the price will still be said by the, you know, the person who's a believer. Um, does that increase the risk of some sort of bubble in venture capital and in technology?Um, and I guess in private markets generally, if they're, they're not public, is that something you worry about that they're, they will be incredible bubbles built up if there's a lot of money that's floating around in these Bethany McLean: circles. . Well, I think we're seeing that now, [00:16:00] right? And I don't think it's a coincidence that FTX and Theranos were not publicly traded companies, right?Mm-hmm. . Um, there's a certain sort of, uh, black box quality to these companies because people aren't charting them and aren't, aren't, and aren't, you know, whispering to journalists about that. That there's something wrong here and there aren't publicly available financials for people to dig through and look, look, and look at the numbers.So now I don't think that's a coincidence. And I do think this gigantic move into private assets has been, um, probably not great for the, for the, for the, for the. for the, for the safety of the system. And you'd say, well, it's just institutional investors who can afford to lose money who are losing money.But it's really not because institutional investors are just pension fund money. Mm-hmm. and in some cases now mutual fund money. So that distinction that the people who are investing in this stuff can afford to lose it is not really true. Um, so I don't, I don't like that rationalization. I think we're gonna see how that plays out.There was [00:17:00] just a really good piece in the Economist about private equity marks on their portfolio companies and how they are still looked to be much higher than what you would think they should be given the carnage in the market. And so all of what, what actually things are really worth in private markets, both for venture capital firms and for private equity firms, Is absent another, another bubble starting, starting in the markets.I think we're gonna see how that plays out over, over the next year. And it might be a wake up call for, for a lot of people. Um, you know, all that, all that said, it's an interesting thing because investors have been very complicit in this, right? In the sense that a lot of investors are absolutely delighted to have prep, to have their, their private, um, their private investments marked at a high level.They don't have to go to the committee overseeing the investments and say, look, I lost 20% of your money the way they might, um, if, if the numbers were public. And so that the ability of these of private investors to smooth as they call it, the, the, the returns is, is it's [00:18:00] been, it's been part of the appeal.It hasn't been a negative, it's been a positive. And so I would say that investors who wanted this moving are. Art might be getting what they deserve except for the pointing made earlier that it isn't, it isn't their money. It's, it's the money of, of teachers and firefighters and individual investors a around the country, and that's, that's problematic.Dwarkesh Patel: Yeah. Yeah. Being in the world of technology and being around people in it has. made me, somewhat shocked when I read about these numbers from the past. For example, when I'm reading your books and they're detailing things that happened in the nineties or the two thousands, and then you realize that the salary that Hank Paulson made a c e o of Goldman, or that skilling made as, you know, um, c e o of Enron, you know, I, it's like I have friends who are my age, like 22 year olds who are raising seed rounds, , that are as big as like these people's salaries.And so it just feels like the, these books were, you have $50 billion frauds or, you know, hundreds of billions of dollars of collapse and the individuals there, um, it just feels like they, it's missing a few zeros, uh, [00:19:00] because of the delusion of the private markets. But, um, but speaking of short sellers and speaking of private equity, um, I think it'd be interesting to talk about sbf.So, you know, your 2018 Vanity Fair article I thought was really interesting about, you know, sbf factory in Buffalo H How, how do you think back on Tesla and sbf now, given the fact that. The stock did continue to rise afterwards, and the factory, I believe, was completed and it's, I hired the 1500 or so people that had promised New York State, uh, is sbf just a fraud?Who can pull it off? And so he's a visionary. How, how do you think about sbf in the aftermath? Bethany McLean: So I don't think that's right about Buffalo and I have to look, but I don't think they ended up, I mean, the Solar City business that Tesla has pretty much collapsed. I don't think people haven't gotten their roofs.There was just a piece about how they're canceling some of their roof installations. So sbf has repeatedly made grand visions about that business that haven't played out. And I will check this for you post the podcast, but I don't think [00:20:00] if there is employment at that factory in, in Buffalo, it's not because they're churn out solar, solar, solar products that are, that are, that are doing.What was originally promised. So I guess I, I think about that story in a, in a couple of ways. It definitely, um, it was not meant to be a piece about Tesla. It was meant to be a piece that shown a little bit of light on how sbf operates and his willingness to flout the rules and his reliance on government subsidies, despite the fact that he, um, presents himself as this libertarian free, free, free market free marketeer, and his willingness to lie to, to, to, on some level enrich himself, which also runs counter to the Elon sbf narrative that he doesn't care about making money for, for himself.Because the main reason for Teslas to by Solar City was that Solar City had the main reason, was it Tes, that was, that Solar City had, that, that sbf and his, and his and his relatives had extended the these loans to Solar City that were gonna go. [00:21:00] There were gonna be lo all the money was gonna be lost at Solar City when bankrupt.And by having Tesla buy it, sbf was able to bail himself out, um, as, as as well. And I also think a good reason for the, for the, for, and it brings us to the present time, but a reason for the acquisition was that sbf knows that this image of himself as the invincible and vulnerable who can always raise money and whose companies always work out in the end, was really important.And if Solar City had gone bankrupt, it would've cast a big question mark over over sbf, over over the sbf narrative. And so I think he literally couldn't afford to let Solar City go bankrupt. Um, all of that said, I have, I have been, and was I, I was quite skeptical of Tesla and I thought about it in, in, in, in.And I always believed that the product was great. I just, mm-hmm. wasn't sure about the company's money making potential. And I think that, that, it's something I started thinking about, um, background, the Solar City time, maybe earlier, but this line, something I've talked about [00:22:00] before. But this line between a visionary and a fraudster.You know, you think that they're on two opposite ends of the spectrum, but in reality they're where the ends of the circle meet. Characteristics of one. One has that many of the characteristics of the other. And sometimes I think the only thing that really separates the two is that the fraudster is able to keep getting mo raising money in order to get through the really difficult time where he or she isn't telling the truth.And then they, that person goes down in history as a visionary. Um, but because no one ever looks back to the moment in time when they were lying, the fraudster gets caught in the middle. Um, so Enron's Lo lost access to to the capital markets lost AC access to funding as the market collapsed after the.com boom.And people began to wonder whether skilling was telling the truth about Enron's broadband business. And then there were all the disclosures about Andy fasa partnerships if Enron had been able to continue raising money, Business of Enron's called Enron Broadband might well have been Netflix. It was Netflix ahead of its time.So Enron just got caught in the middle and all [00:23:00] the fraud, all the fraud got exposed . Um, but that's not because Jeff Skilling wasn't a visionary who had really grand plans for, for, for, for the future. So I think sbf falls somewhere in that spectrum of, of, of fraudster and visionary. And what's gonna be really interesting why I said that this, we bring it to the present time about what happens to the mu narrative.If something fails is what happens. Yeah. Is as the world watch watches Twitter implode, um, what does that mean then for the Elon sbf narrative overall? Dwarkesh Patel: Yeah. Yeah. Um, going back to the Smartest Guys is the Room, the title obviously suggests something about. The, I guess in general, the ability and the likelihood of very smart people committing fraud or things of that sort.Um, but you know, Begar Jones has this book called Hi Mind, where he talks about how the smarter people are more likely to cooperate in prisoners dilemma type situations. They have longer time preference. And one of the things you've written about is the problem in corporate America is people having shorter, [00:24:00] um, uh, you know, doing two too big time discounting.So, uh, given that trend we see in general of greater Cooperativeness, um, and other kinds of traits of more intelligent people, do you think the reason we often find people like S B F and skilling running big frauds just by being very intelligent, is it just that on, on average smarter people, maybe less likely to commit fraud, but when they do commit fraud, they do it at such garat scales and they're able to do it at such gar scales that it just brings down entire empires?How, how, how do you think about the relationship between intelligence and fraud? . Bethany McLean: That's interesting. Um, I'm not sure I know a coherent answer to that. Um, smartest guys in the room as a title was a little bit tongue in cheek. It wasn't meant to say, these guys actually are the smartest guys in the room. It was, it, it was a little bit, it was a little bit ironic, but that doesn't take away from the really good question that you asked, which is what, what, what is that relationship?I, I mean, I think if you look at the history of corporate fraud, you are not going to find unintelligent people having [00:25:00] been the masterminds behind this. You're gonna find really, really, really smart, even brilliant people having, having, having been, been behind it, maybe some at part of that is this linkage between the visionary and the fraud star that so many of these, of these corporate frauds are people who have qualities of the visionary and to.The qualities of, of a visionary, you have to have a pretty, pretty, pretty, pretty high intelligence. Um, and I do think so many of these stories are, are about then self delusion. So I don't think smart people are any less likely to suffer from self delusion than dumb people. And they're probably more likely to, because you can rationalize, you know, the smart person's ability to rationalize just about anything they wanna rational rationalize is pretty profound.Whereas perhaps someone who doesn't have quite the same, the same brain power isn't gonna be able to create a narrative under which their actions are blameless and they're doing the right thing. So I think sometimes, so maybe there is some sort of relationship [00:26:00] there that somebody more qualified than I am would have to study between smart people's ability to, to, to rationalize just about anything as a way of, as part of the path to self delusion and part of the path by which these things happen.Yeah, that's completely, that's completely , that's Bethany theory. There's absolutely nothing to back that . I'm just Dwarkesh Patel: well clear. Let's do some more speculation. So, um, one of the things, uh, John Ray talked about in his testimony, um, was it two days ago where he said that, you know, FTX had done $5 billion of investments and deals in the last year, and most of those investments were worth a fraction of the value that FTX paid for them.And we see this also in, obviously in Enron, right? With, uh, broadband and with, um, ul, or is that how pronounce it, but basically their international department. Yeah. Um, what is this, uh, this obsession with deal making for its own sake? Is that to appease investors and make them think a lot's going on, is that because of [00:27:00] the hubris of the founder, of just wanting to set up a big empire as fast as possible, even if you're getting a bad sticker price?What, why do we see this pattern of just, you know, excessive deal making for its own sake? Bethany McLean: That's an interesting question too. I'm not sure that that's, um, limited to companies that go splat dramatically. There's a lot of, a lot of deal making in, in corporate America has that same frenzied quality. Um, I haven't seen an updated study on, on this in a, in a long time, but, you know, I began my career working as an analyst in an m and a department at at at Goldman Sachs.And. Definitely deals are done for the sake of doing deals. And I once joked that synergies are kind of like UFOs. A lot of people claim to have seen them, but there's no proof that they actually exist. , and again, I haven't seen an updated study on, on, on this, but there was one years back that showed that most m and a transactions don't result in increased value for shareholders.And most synergies, most promised synergies never materialize. [00:28:00] Just getting bigger for the sake of getting bigger and doing deals for the short term value of showing Wall Street a projection. That earnings are gonna be so much higher even after the cost of the debt that you've taken on. And that they're these great synergies that are gonna come about from, from combining businesses.So I don't know that either the frenzy deal doing or deal doing deals gone wrong is, um, solely limited to people who are committing fraud. , I think it's kinda across the spectrum. , . Dwarkesh Patel: Um, um, well one, one thing I find interesting about your books is how you detail that. And correct me if this is the wrong way to read them, but that, uh, incentives are not the only thing that matter.You know, there there's this perception that, you know, we've set up bad incentives for these actors and that's why they did bad things. But also, um, the power of one individual to shape a co co company's culture and the power of that culture to enable bad behavior, whether scaling at Enron or with Clarkson Right at Moody's.Yeah. Um, is that a good, good way of reading your books or how, how do you think [00:29:00] about the relative importance of culture and incentive? Bethany McLean: I think that's really fair. But incentives are part of culture, right? If, if you've set up a culture where, where how you're valued is what you get paid, I think it's a little, it's a little difficult to separate those two things out because, because the, the incentives do help make the culture, but for sure culture is incredibly, um, incredibly compelling.I've often thought and said that if I had, when I was leaving my short lived career in investment banking, if I had, if I had gotten in some of the head hunters I was talking to, if one of them had said, there's this great, really energetic, interesting energy company down in Houston, , why don't interview there?If I had gone there, would I have been a whistleblower or would I have been a believer? And I'd like to believe I would've been a whistleblower, but I think it's equally likely that I would've been a believer. Culture is so strong. It creates this. What's maybe a miasma that you can't see outside?I remember a guy I talked to who's a trader at Enron, really smart guy, and he [00:30:00] was like, after the, after the bankruptcy, he said, of course, if we're all getting paid based on creating reported earnings and there's all this cash going out the door in order to do these deals that are creating reported earnings, and that's the culture of the entire firm, of course it's not gonna work economically.He said, I never thought about it. . It just didn't, it didn't, it didn't occur to me. And I think the more compelling the CEO o the more likely you are to have that kind of mass delusion. I mean, there's a reason cult exist, right? . We, we are as human beings, remarkably susceptible to.Visionary leaders. It's just, it's the way the human brain is wired. We, we wanna believe, and especially if somebody has the ability to put a vision forward, like Jeff Gilling did at Enron, like Elizabeth Holmes did it Theranos like SPF F did, where you feel like you are in the service of something greater by helping this, vision, , actualize then, then you're, particularly susceptible.And I think that is the place where [00:31:00] incentives don't quite explain things. That is, there is this very human desire to matter, to do something important. Mm-hmm to be doing something that's gonna change the world. And when somebody can tap into that desire in people that feeling that what you're doing isn't just work in a paycheck and the incentives you have, but I mean, I guess it is part of the incentive, but that you're part of some greater good.That's incredibly powerful. Yeah. Dwarkesh Patel: It's what we all speaking of. We all wanna matter. . Yeah. Speaking of peoples psychology, uh, crime and punishment, underrated or overrated as a way to analyze the psychology of people like scaling and S B F or maybe SBF specifically because of the utilitarian nature of SB F'S crime?Um, Bethany McLean: I think it's, I think it's underrated, overrated. I'm not sure anybody. , I'm not sure anybody has ever proven that jail sentences for white collar criminals do anything to deter subsequent white collar crime. Mm-hmm. , and I think one part of this is the self delusion that I've, that I talked about. Nobody thinks, [00:32:00] oh, I'm doing the same thing as Jeff Skilling did at Enron, and if I, and if I do this, then I too might end up in jail.Therefore, I don't wanna do this. I just don't think that's the way the, the, the, the, the thought process works. I think Elizabeth Holmes at Theranos, probably for the most part, convinced herself that this was going to work, and that if you just push forward and push hard enough and keep telling people what they wanna hear and keep being able to raise money, it's gonna work.You know, if. . If, if you pause to think, well, what if it doesn't work and I've lied and I go to jail, then, then you'd stop right, right then and there. So I think that, I think that, that I'm, I'm not, I'm not sure it's much of a deterrent. I remember, and partly I'm, I'm biased because I remember a piece, my co-author Peter Alkin, and I wrote out right after Jess Gilling and Kenley were, were convicted and can lay, we're we're convicted.And we wrote a piece for Fortune in which we said that the entire world has changed. Now that corporate executives are, um, are, are put on high alert that behavior in the gray area will no longer be tolerated and that it will be aggressively prosecuted. And this was spring of [00:33:00] 2006 and the events that caused the global financial crisis were pretty well underway.It didn't. Do much to prevent the global financial crisis. Mm-hmm. , Enron's, Enron's jail time, didn't do anything to present, prevent, Elizabeth Holmes doesn't seem to have done anything to change what Sbf was doing. So I just, I, I just, I'm, I'm, I'm not sure, I'm sure a psychologist or somebody who specializes in studying white color crime could probably make a argument that refutes everything I said and that shows that has had a deterring effect.But I just, I just don't think that people who get themselves into this situation, con, con, consciously think, this is what I'm doing. Dwarkesh Patel: Yeah. Yeah. Um, speaking of other incentives, stock options, uh, you've spoken about how that creates short-term incentives for the executives who are making decisions. If you wanted to set up an instrument that aligned an executive or a leader's compensation with the long-term performance of a company, what would that look like?W would you have the options of less than 10 years instead of a [00:34:00] year? H how would you design it? How do you usually design a compensation scheme to award long-term thinking? Bethany McLean: If I could do that, I should ru rule the world . I think that very sweet. I think that is one of the really tough, um, problems confronting boards or anybody who is determining anybody who's determining stock options and that almost anybody who's determining compensation and that most compensation schemes seem to have really terrible unintended consequences.They look really good on paper. And then as they're implemented, it turns out that there was a way in which they accomplished exactly the opposite of, uh, thing the people who designing them wanted, wanted them to accomplish. I mean, if you think back to the advent of stock options, what could sound better?Right. Giving management a share of the company such that if, if, if shareholders did well, that they'd do well, nobody envisioned the ways in which stock options could be repriced. The ways in which meeting earnings targets could lead to gaming the ways in which the incentive of stock-based [00:35:00] compensation could lead to people trying to get anything they could in order to get the stock price higher and cash out when they're, as soon as their stock options vested.So, and even there was, there was, the whole valiant saga was fascinating on this front because the people who designed Mike Pearson's compensation package as ceo e o Valiant, they were convinced that this was absolutely the way to do it. And he got bigger and bigger, um, stock option incentives for hitting certain, for having the stock achieve certain levels.But of course, that creates this incredible bias to just get the stock to go up no matter, no matter what else you do. Um, it does seem to me that vesting over the long term is. is, is a much better way to go about things. But then do you create incentives for people to play games in order to get the stock lower at, at various points where there's about to be a stock optional board so they have a better chance of having directions be, be worth, be worth something over the long term.And do you, particularly on Wall Street there is this, or in firms where this sort of stuff matters the most? There [00:36:00] is this, there was this clearing out of dead wood that happened where people got paid and they got outta the way and made way for younger people. And I don't know, it was a harsh culture, but maybe it made sense on some level.And now at least I've been told with much longer vesting periods, you have people who don't wanna let go. And so you have more of a problem with people who should have retired, stick sticking around instead of in, in, instead of clearing out. And then it also becomes a question, How much money is, is enough.So if somebody is getting millions of dollars in short-term compensation and then they have a whole bunch more money tied up in long-term compensation, do the long-term numbers matter? At what point do they, do they, do they really matter? I mean, if you gave me $5 million today, I'm not so sure I'd really care if I were getting another $5 million in 10 years.Right. ? Yeah. So, so I think all of that is, is it, it's, I'm not, I'm not sure there's a perfect compensation system. All things considered though, I think longer term is, is probably better, [00:37:00] but. Dwarkesh Patel: Yeah, I didn't think about that downside of the long investing period. That's so interesting there. I guess there is no free lunch.Uh, so with Enron, um, it, it was clear that there was a lot of talent at the firm and that you had these companies and these trading firms launch at the aftermath by people who left Enron, kinder Morgan and John Arnold's, um, uh, Sintas, uh, that were wildly profitable and did well. Do you think we'll see the same thing with FTX, that while Sbf himself and maybe the, his close cadre were frauds, there actually was a lot of great trading and engineering talent there that are gonna start these very successful firms in the aftermath.Bethany McLean: That's, that's interesting. And just, just for the sake of clarification, kinder Morgan was actually started years before Enron's collapsed, when Rich Kinder, who was vying with Jeffs skilling in a sense, to become Chief Operating Officer. Um, Ken Lay, picked Jeffs skilling and Kinder left. Mm-hmm. and took a few assets and went to create Kinder, kinder Morgan.But your overall point, I'm just clarifying your overall point holds, there were a lot of people who [00:38:00] left Enron and went on to do, to have pretty, pretty remarkable careers. I think the answer with ftx, I bet there will be some for sure. But whether they will be in the crypto space, I guess depends on your views on the long-term viability of, of, of the crypto space.And I have never , it's funny is crypto exploded over the last couple of years. I was, I've been working on this book about the pandemic and it's been busy and difficult enough that I have not lifted my head to, to think about much else. And I always thought, I don't get it. I don't understand , I mean, I understand the whole argument about the blockchain being valuable for lots of transactions and I, I get that, but I never understood crypto itself and I thought, well, I just need to, as soon as this book is done, I just need to put a month into understanding this because it's obviously an important, important enough part of our world that I need to figure it out.So now I think, oh, Okay, maybe I didn't understand it for a reason and maybe, um, maybe there isn't anything to understand and I've just saved myself a whole life of crime because it's all gone. And you have [00:39:00] people like Larry Fink at BlackRock saying, whole industry is gonna implode. It's done. And certainly with the news today, this morning of finances auditor basically saying We're out.Um, I, I don't, I don't know how much of it was, how much of it was, is, was a Ponzi scheme. You might know better than I do. And so I don't know what's left after this whole thing implodes. It's a little bit like, there is an analogy here that when Enron imploded, yes, a lot of people went on to start other successful businesses, but the whole energy trading business is practiced by kind of under capitalized, um, um, energy firms went away and that never came back.Yeah. And so I, I, I don't, I don't know, I'm, it'll be, I, I don't know. What do you. The Dwarkesh Patel: time to be worried will be when Bethany McLean writes an article titled Is Bitcoin Overvalued for the Audience. My Moments on That ? Yeah, for the audience that, that was, I believe the first skeptical article about Enron's, um, stock price.Yeah. Uh, and it was titled [00:40:00] Is Enron Overvalued. In aftermath understated, , title. But , Bethany McLean: , I joked that that story should have won, won, won awards for the NICU title and business journalism history. , given that the company was bankrupt six months later was overpricedDwarkesh Patel: Um, uh, well, let me ask a bigger question about finance in general. So finance is 9% of gdp, I believe. How much of that is the productive use and thinking and allocation of the, uh, the capital towards their most productive ends? And how much of that is just zero sum or negative sum games? Um, if, if you had to break that down, like, is 9% too high, do you think, or is it just.I think it's Bethany McLean: too high. I have no idea how to think about breaking it down to what the proper level should be. But I think there are other ways to think about how you can see that in past decades it hasn't been at the right level when you've had all sorts of smart kids. Um, Leaving, leaving business school and leaving college and heading into [00:41:00] finance and hedge funds and private equity is their career of choice.I think that's a sign that that finance is too big when it's sucking up too much of, of, of the talent of the country. Um, and when the rewards for doing it are so disproportionate relative to the rewards of of, of doing other things. Um, the counter to that is that there've also been a lot of rewards for starting businesses.And that's probably, I think, how you want it to be in a, in a product. In a productive economy. So I think the number is, is too high. I don't know how to think about what it should be other than what a, actually, a former Goldman Sachs partner said this to me when I was working on all the devils are here, and she said that finance is supposed to be like the, the substrata of our world.It's supposed to be the thing that enables other things to happen. It's not supposed to be the world itself. So the, the role of a financial system is to enable businesses to get started, to provide capital. That's what it's supposed to be. It's the lubricant that enables business, but it's not supposed to be the thing itself.Right. And it's become the thing itself. [00:42:00] You've, you've, you've, you've, you've got a problem. Um, um, and I think the other, Dwarkesh Patel: there's your article about crypto , that paragraph right there. . Bethany McLean: There you go. That's, that's a good, um, and I think, I think the other way, you, you, you can see, and perhaps this is way too simplistic, but the other way I've thought about it is that how can it be if you can run a hedge fund and make billions of dollars from, and have five people, 10 people, whatever it is, versus starting a company that employs people mm-hmm.and changes a neighborhood and provides jobs and, you know, provides a product that, that, that, that, that improves people's lives. It, it is a shame that too much of the talent and such a huge share of the financial rewards are going to the former rather than the latter. And that just can't mean good things for the future.Dwarkesh Patel: Yeah. Yeah. And I, you know, when people criticize technology, for example, for the idea that, you know, these people who would've been, I don't know, otherwise teachers or something, they're, you know, making half a million dollars at Google. [00:43:00] Um, and I think like when I was in India, people were using Google Maps to get through the streets in Mumbai, which is, which is unimaginable to me before going there that, you know, you would be able to do that with, um, a service built out of Silicon Valley.And so, Yeah, I think that actually is a good allocation of capital and talent. I, I'm not, I'm not sure about finance. Um, yeah, Bethany McLean: I think I, I, I agree with you. I think there are other problems with Google and with the, the social media giants, but, but they are real businesses that employ people, that make products that have had, uh, huge.Um, impact on on, on people's, on people's lives. So in, in that sense, it's very different than a private equity firm, for instance, and especially private equity, even more so than hedge funds draws my ire. Mm-hmm. , because I think one of the reasons they, that it, they've been able to make part of the financialization of our economy has been due to super, super low interest rates and low interest rates that have enabled so many people to make so much money in finance are not, they're just a gift.It wasn't because these people were uniquely smart, they just [00:44:00] found themselves in a great moment in time. And the fact that they now think they're really smart because money makes me crazy. Dwarkesh Patel: Um, are Fanny and Freddy America special purpose entities? Are they our Alameda? It's just the way we hide our debt and uh, that's interesting.Yeah. Bethany McLean: Well, I guess we, you know what? I don't know anymore because, so I last wrote about them when was it in 2016 and I don't know now. No, you're right. Their, their debt is still off, off, off balance sheet. So Yeah, in a lot of ways they, they were. . I would argue though that the old Fanny and Freddy were structured more honestly than, than the new Fanny and Freddy, that it really is conservatorship that have made them, um, that have made them America's off balance sheet entities, because at least when they were their own independent entities.Yes, there was this odd thing known as the implicit guarantee, which is when you think about, back to your point about efficient markets, how can you possibly believe there's an as such a thing as an efficient market when their [00:45:00] Fanny and Freddy had an implicit guarantee, meaning it wasn't real. There was no place where it was written down that the US government would bail Fanny and Freddie out in a crisis, and everybody denied that it existed and yet it did exist.Yeah. Dwarkesh Patel: No, but we, I feel like that confirms the official market hypothesis, right? The, the market correctly, they thought that mortgages backed by Fannie and Freddy would have governments. Uh, okay, okay. You might be father Bethany McLean: and they did . You might be right. I, I, I think what I was getting at you, you might be right.I think what I was getting at is that it is such a screwed up concept. I mean, how can you possibly, when I first, when people were first explaining this to me, when I first read about Fanny and Freddie, I was like, no, no, wait. This is American capitalism . This is, no, wait. What? I don't, I don't understand . Um, um, so yeah, but I, I, I, I think that Fanny and Freddie, at least with shareholders that were forced to bear some level of, of the risks were actually a more honest way of going about this whole screwed up American way of financing mortgages than, than the current setup is.Dwarkesh Patel: What [00:46:00] is the future of these firms? Or are they just gonna say in conservatorship forever? Or is there any developments there? Well, what's gonna happen to them? Bethany McLean: The lawsuit, the latest lawsuit that could have answered that in some ways ended in a mistrial. Um, I don't think, I don't, I don't think unfortunately anybody in government sees any currency in, and I mean, currency in the broad sense, not in the literal sense of money in, in taking this on.And unfortunately, what someone once said to me about it, I think remains true and it's really depressing, but is that various lawmakers get interested in Fannie and Freddy. They engage with it only to figure out it's really, really goddamn complicated. Mm-hmm. and that, and that any kind of solution is gonna involve angering people on one side of the aisle or another and potentially angering their constituent constituents.And they slowly back away, um, from doing anything that could, that, that could affect change. So I think we have a really unhealthy situation. I don't think it's great for these two [00:47:00] entities to be in conservatorship, but at this point, I'm not sure it's gonna change. Dwarkesh Patel: Yep. Speaking of debt and mortgages, um, so total household debt in the United States has been, uh, climbing recently after it's, it's like slightly d decline after 2008, but I think in quarter three alone it increased 350 billion and now it's at 16.5 trillion.Uh, the total US household debt, should we worried about this? Are, are, are we gonna see another sort of collapse because of this? Or what, what should we think about this? Bethany McLean: I don't know. I don't know how to think about that because it's too tied up in other things that no one knows. Are we going to have a recession?How severe is the recession going to be? What is the max unemployment rate that we're gonna hit if we do, if we do have a recession? And all of those things dictate how to, how to think about that number. I. Think consumer debt is embedded in the bowels of the financial system in the same way mortgages were.And in the end, the, the, the [00:48:00] problem with the financial crisis of 2008, it wasn't the losses on the mortgages themselves. It was the way in which they were embedded in the plumbing of the financial system. Mm-hmm. and ways that nobody understood. And then the resulting loss of confidence from the fact that nobody had understood that slash lies had been told about, about that.And that's what caused, that's what caused everything to, to collapse. Consumer debt is a little more visible and seeable and I, I don't think that it has that same, um, that same opaque quality to it that, that mortgage backed securities did. I could be, I could be wrong. I haven't, I haven't, I haven't dug into it enough, enough to understand enough to understand that.But you can see the delinquencies starting to climb. Um, I mean, I guess you could on, on, on mortgages as well, but there was this, there was this profound belief with mortgages that since home prices would never decline, there would never be losses on these instruments because you could always sell the underlying property for more than you had [00:49:00] paid for it, and therefore everything would be fine.And that's what led to a lot of the bad practices in the industry is that lenders didn't think they had to care if they were screwing the home buyer because they always thought they could take the home back and, and, and, and, and make more money on it. And consumer debt is, is unsecured. And so it's, it's, it's different.I think people think about it differently, but I'd have. I'd have to, I'd have to do some more homework to understand where consumer debt sits in the overall architecture of the financial industry. Dwarkesh Patel: I, I, I'm really glad you brought up this theme about what does the overall big picture look like? I feel like this is the theme of all your books that people will be, So obsessed with their subsection of their job or, or that ar area that they won't notice that, um, broader trends like the ones you're talking about.And in Enron it's like, why, why, why do we have all these special purpose entities? What is the total debt load of Enron? Um, or with the, you know, mortgage back securities a similar kind of thing, right? What, what, uh, maybe they weren't correlated in the past, [00:50:00] but what's that? Do we really think that there's really no correlation, um, uh, between, uh, delinquencies across the country?Um, so that, that kind of big picture, think. Whose job is that today? Is it journalists? Is it short sellers? Is it people writing on ck? Who's doing that? Is it anybody's job? Is, is it just like, uh, an important role with nobody assigned to it? Bethany McLean: I think it's the latter. I think it's an important role with nobody, with nobody assigned to it, and there there is a limit.I mean, , I hate to say this, it is not, uh, um, it is not an accident that many of my books have been written. That's probably not fair. It's not true of my book un fracking, but that some of my books have been written after the calamity happened. So they weren't so much foretelling the calamity as they were unpacking the calamity after it happened, which is a different role.And as I said at the start of our conversation, I think an important one to explain to people why this big, bad thing took, took place. But it's not prediction, I don't know, as people that were very good at, at prediction, um, they tried [00:51:00] to set up, what was it called? In the wake of the global financial crisis, they established this thing called fsoc, and now I'm forgetting what the acronym stands for.Financial Security Oversight Committee. And it's supposed to be this, this body that does think about these big picture. That thinks about the ways, the ways an exam, for example, in which mortgage backed securities were, um, were, were, were, were, were, were, were repopulating through the entire financial system and ways that would be cause a loss to be much more than a loss.That it wouldn't just be the loss of money and that security, it would echo and magnify. And so that there are people who are supposed to be thinking about it. But I think, I think it's, it's, it's really hard to see that and. In increasingly complex world, it's even, it's even harder than it was before, because the reverberations from things are really hard to map out in, in, in advance, and especially when some part of those reverberations are a loss of confidence, then all bets [00:52:00] are off because when confidence cracks, lots of things fall apart.But how do you possibly analyze in any quantitative way the the risk that that confidence will collapse? Mm-hmm. . So I think it's, I think, I think, I think it's difficult. That said, and of course I am talking my own book here, I don't think that the lack of the, the increased financial problems of journalism really help matters in that respect, because in an ideal world, you want a lot of people out there writing and thinking about various pieces of this, and then maybe somebody can come along and see the.Pieces and say, oh my God, there's this big picture thing here that we all need to be thinking about. But there's, there's a kind of serendipity in the ability to do that one, that one that the chances, I guess the best way to say that is the chances of that serendipity are dramatically increased by having a lot of people out there doing homework, um, on the various pieces of the puzzle.And so I think in a world, particularly where local news has been decimated mm-hmm. , um, the [00:53:00] chances of that sort of serendipity are, are definitely lower. And people may think, oh, it doesn't matter. We still got national news. We've got the Washington Post, we've got the Wall Street Journal, we've got the New York Times.Um, I would love to have somebody do a piece of analysis and go back through the New York Times stories and see how many were sparked by lp, a piece in the local paper that maybe you wouldn't even notice from reading the New York Times piece, because it'd be in like the sixth paragraph that, oh yeah, credit should go to this person at this local paper who started writing about this.But if you no longer have the person at the local paper who started writing about this, You know, it's, it's, it's, it's less likely that the big national piece gets written. And I think that's a part of the implosion of local news, that people, a part of the cost of the implosion of local news that people don't really understand the idea that the national press functions at, at the same level, um, without local news is just not true.Dwarkesh Patel: Yeah. And, but even if you have the local news, and I, that's a really important point, but even if you have that local news, there still has to be somebody whose job it is to synthesize it all together. And [00:54:00] I'm curious, what is the training that requires? So you, I mean, your training is, you know, math and English major and then working at working in investment banking.Um, is that the, uh, I mean, obviously the anecdotal experience then equals one, seems that that's great training for synthesizing all these pieces together. But what is the right sort of education for somebody who is thinking about the big picture? Bethany McLean: I, I don't, I don't know.And there may be, there may be, there are probably multiple answers to that question, right? There's probably no one, one right answer for me. In, in the end. My, my math major has proven to be pivotal. Even though , my mother dug up these, um, my, my parents were moving and so my mother was going through all her stuff and she dug up these, some my math work from, from college.Literally, if it weren't for the fact that I recognized my own handwriting, I would not recognize these pages on pages of math formula and proofs. And they're like, get gibberish to me now. So , but I, but I still think that math has, so I do not wanna exaggerate my mathematical ability at this stage of [00:55:00] the game.It's basically no. But I do think that doing math proofs any kind of formal, any kind of training and logic is really, really important because the more you've been formally trained in logic, the more you realize when there are piece is missing and when something isn't quite, isn't quite adding on, it just forces you to think in, in a way that is, that in a way that connects the dots.Um, because you know, if you're moving from A to B and B doesn't follow a, you, you understand that B doesn't follow a And I think that that, that, that kind of training is, is really, really important. It's what's given. , whatever kind of backbone I have as a journalist is not because I like to create controversy and like to make people mad.I actually don't. It's just because something doesn't make sense to me. And so maybe it doesn't make sense to me because I'm not getting it, or it doesn't make sense to me because B doesn't actually follow, follow away, and you're just being told that it does. And so I think that, I think that training is, is really, really important.Um, I also have, have often thought [00:56:00] that another part of training is realizing that basic rule that you learned in kindergarten, which is, um, you know, believe your imagination or you know, your imagine follow your imagination. Because the truth is anything can happen. And I think if you look at business history over the last couple of decades, it will be the improbable becoming probable.Truth over and over and over again. I mean, the idea that Enron could implode one of the biggest, supposedly most successful companies in corporate America could be bankrupt within six months. The, from its year, from its stock price high. The idea that the biggest, most successful, um, financial institutions on wall, on Wall Street could all be crumbling into bankruptcy without the aid of the US government.The idea that a young woman with no college degree and no real experience in engineering could create, uh, uh, um, could create a machine that was going to revolutionize blood testing and land on the cover of every business magazine, and that this [00:57:00] whole thing could turn out to be pretty much a fraud. The entire idea of ftx, I mean, over and over again, these things have happened.Forget Bernie Madoff if you had told people a year ago that FTX was gonna implode six months ago, three months ago, people would've been like, no, no, no, no, no, no, no. And so I think just that, that, that, that knowledge that the improbable happens over and over again is also a really fundamental, fundamentally important.Dwarkesh Patel: If we're con continuing on the theme of ftx, I, I interviewed him about four or five months ago.Wow. And this is one of these interviews that I'm really, I'm, I don't know if embarrass is the right word, but I knew things then that I could have like asked, poked harder about. But it's also the kind of thing where you look back in retrospect and you're. If it had turned out well, it's, it's not obvious what the red flags are.Um, while you're in the moment, there's things you can look back at the story of Facebook and how, you know, Marcus Zuckerberg acted in the early days of Facebook and you could say, if the th

This was one of my favorite episodes ever.Bethany McLean was the first reporter to question Enron's earnings, and she has written some of the best finance books out there. We discuss:* The astounding similarities between Enron & FTX,* How visionaries are just frauds who succeed (and which category describes Elon Musk),* What caused 2008, and whether we are headed for a new crisis,* Why there's too many venture capitalists and not enough short sellers,* And why history keeps repeating itself.McLean is a contributing editor at Vanity Fair (see her articles here) and the author of The Smartest Guys in the Room, All the Devils Are Here, Saudi America, and Shaky Ground.Watch on YouTube. Listen on Spotify, Apple Podcasts, or your favorite podcast platform.Follow McLean on Twitter. Follow me on Twitter for updates on future episodes. If you enjoyed this episode, please share. Helps out a ton.Timestamps(0:04:37) - Is Fraud Over? (0:11:22) - Shortage of Shortsellers(0:19:03) - Elon Musk - Fraud or Visionary?(0:23:00) - Intelligence, Fake Deals, & Culture(0:33:40) - Rewarding Leaders for Long Term Thinking(0:37:00) - FTX Mafia?(0:40:17) - Is Finance Too Big?(0:44:09) - 2008 Collapse, Fannie & Freddie(0:49:25) - The Big Picture(1:00:12) - Frackers Vindicated?(1:03:40) - Rating Agencies(1:07:05) - Lawyers Getting Rich Off Fraud(1:15:09) - Are Some People Fundamentally Deceptive?(1:19:25) - Advice for Big Picture ThinkersTranscriptThis transcript was autogenerated and thus may contain errors.Dwarkesh Patel: the rapid implosion of a company worth tens of billions of dollars. Insider dealing and romantic entanglements between sister companies, a politically generous c e o, who is well connected in Washington, the use of a company's own stock as its collateral, the attempt, the short-lived attempt to get bought out by a previous competitor, and the fraudulent abuse of mark to market account.[00:01:00] We are not talking about ftx, we are talking about Enron, which my guest today, Bethany McClean, uh, first broke the story of and has written an amazing and detailed book about, uh, called The Smartest Guys in the Room. And she has also written, uh, a book about the housing crisis. All the devils are here, a book about Fannie and Freddy Shaky Ground, and a book about fracking Saudi America, all of which we'll get into.She's, in my opinion, the best finance nonfiction writer out there, and I'm really, really excited to have this conversation now. So, Bethany, thank you so much for coming on the podcast. Bethany McLean: Thank you so much for the, for the probably Undeserved Conference, for having me on the show. Dwarkesh Patel: My first question, what are the odds that Sbf read the smartest guys in the room and just followed it as a playbook, given the similarities there?Bethany McLean: You, you know, I, I love that idea. I have to, I have to admit, I guess I love that idea. I don't know. That would make me responsible for what, for what happened, . So maybe I don't love that idea. L let me take that back . [00:02:00] Anyway, but I, I, I actually think that, that, that even if he had read the book, it would never have occurred to him that, that there was a similarity because self-delusion is such a, Strong component of all of these stories of business gone wrong.It's very rare that you have one of the characters at the heart of this who actually understands what they're doing and understands that they're moving over into the dark side and thinks about the potential repercussions of this and chooses this path. Anyway, that's usually not the way these stories go.So it's entirely possible that Sbf studied Enron, knew all about it, and never envisioned that there were any similarities between that and what he was doing. Dwarkesh Patel: Oh, that's a fascinating, um, which I guess raises the question of what are we doing when we're documenting and trying to learn from books like yours?If somebody who is a, about to commit the same exact kind of thing can read that book and not realize that he's doing the same exact thing, is there something that just [00:03:00] prevents us from learning the lessons of history that we, we can never just, uh, get the analogy right, and we're just guided by our own delusions.Bethany McLean: Wasn't there a great quote that history rhymes, but it doesn't repeat. I'm Yeah. Relying on who it is who said that, but I think that's, that's absolutely true. Oh, I think it's important for all of us, those of us who are not gonna find ourselves at the center of, uh, giant fraud or, so, I hope, I think my time for that has passed.Maybe not you, but, um, I think it's important for all of us to understand what went wrong. And I, I do think these, I do think just there, there's a great value and greater understanding of the world without necessarily a practical payoff for it. So I think when something goes wrong on a massive societal level, it's really important to try to, to try to explain it.Human beings have needed narrative since the dawn of time, and we need narrative all, all, all the more now we need, we need to make sense of the world. So I like to believe. Process of making, trying to make sense of the world. , um, [00:04:00] has a value in, in and of itself. Maybe there is small, some small deterrence aspect to it in that I often think that if people understand more the process by which things go go wrong, that it isn't deliberate, that it's not bad people setting out to do bad things.It's human beings, um, at first convincing themselves even that they're doing the right thing and then ending up in a situation that they, they never meant to be in. And maybe on the margin that does, maybe on the margin that does, that does help because maybe it has deterred some people who, who would've started down that path, but for the fact that they now see that that's the, that's the usual path.Dwarkesh Patel: Yeah. Yeah. That actually raises the next question I wanted to ask you. Bern Hobart, uh, he's a finance writer as well. He wrote a blog post, um, about, uh, I mean this was before FTX obviously, and he was talking about Enron and he said in the end, it actually looks like we fixed the precise problem. Enron represented.Nobody I know solely looks at gap [00:05:00] financials. Everybody ultimately models based on free cash flow, we're much more averse to companies that set up a deliberate conflict of interest between management and shareholders. And I guess there's a way in which you can read that and say, oh, it doesn't FTX prove I'm wrong.But, you know, there's another way you can look at it is that FTX deliberately set up outside the us. So there's a story to be told that actually we learned the lessons of Enron and, you know, uh, so remains obviously worked. Uh, that's why, you know, they were in The Bahamas and we haven't seen the scale fraud of that scale in, you know, the continental United States.Um, do, do you think that the FTX saga and I guess the absence of other frauds of that scale in America shows that. The regulations and this changed business and investment practices in the aftermath of Enron have actually. Bethany McLean: Well, I think they've probably worked in narrowly, written in, in the way in which the writer you quoted articulated, I think it would be very hard for the cfo, F O of a publicly traded company to set up other private [00:06:00] equity firms that he ran, that did all their business with his company.Because everybody would say That's Enron and it would be completely. On the nose. And so, and Sarbanes Oxley in the sense of, in the sense of helping to reign in corporate fraud of the sort that was practiced by Enron, which was this abuse of very specific accounting rules. Um, I think I, I, I think that worked.But you know, you say there hasn't been fraud on a scale like Enron up until perhaps f ftx, but you're forgetting the global financial crisis. Yeah. And then the end, the line between what happened at Enron. and, and what happened in the global financial crisis. It's not a matter of black and white. It's not a matter of, one thing was clear cut fraud and one thing great.We love these practices. Isn't this fantastic? This is the way we want business to operate. They're both somewhere in the murky middle. You know, a lot of what happened at Enron wasn't actually outright fraud. I've coined this phrase, legal fraud to describe, um, to describe what it is that, that, that, that happened at Enron.And a lot of what [00:07:00] happened in the global financial crisis was legal, hence the lack of prosecutions. But it's also not behavior that that leads to a healthy market or mm-hmm. , for that matter, a a a a healthy society. And so there's a reason that you had Sarbanes Oxley and what was it, eight short, short years later you had Dodd-Frank and so Riri broadly.I'm not sure Sarbanes actually did that much good. And what I mean by that is when President George Bush signed it into law in the Rose Garden, he gave this speech about how investors were now protected and everything was great and your, your ordinary investors could take comfort that the laws were meant to protect them from wrongdoing.And you compare that to the speech that President Barack Obama gave eight years later when he signed Don Frank into law in the Rose Garden. And it's remarkably similar that now ordinary investors can count on the rules and regulations keeping themself from people who are prey on their financial wellbeing.[00:08:00] And I don't think it was, it's, it's true in either case because our markets, particularly modern markets move and evolve so quickly that the thing that's coming out of left field to get you is never gonna be the thing you are protecting against. Mm. . Dwarkesh Patel: , but given the fact that Enron, as you say, was committing legal fraud, is it possible that the government, um, when they prosecuted skilling and Fastow and lay, they in fact, We're not, uh, they, they prosecuted them to a greater extent than the law as written at the time would have warranted.In other words, were, uh, was there something legally invalid in the, in this, in the quantity of sentence that they got? Is it possible? Bethany McLean: So that's a really, it, it's, it's a, I I get what you're asking. I think it's a really tricky question because I think in absolute terms, um, Enron needed to be prosecuted and needed to be prosecuted aggressively.And while I say it was legal fraud, that is for the most part, there was actually real fraud around, around, uh, but it's on the margin. It doesn't [00:09:00] entire, it doesn't explain the entirety of Enron's collapse. Much of what they did was using and abusing the accounting rules in order to create an appearance of economic reality.Nothing to do with actual, with actual reality. But then there was actual fraud in the sense that Andy Fasta was stealing money from these partnerships to benefit himself. And they were, if you believe, the core tenant of the prosecution, which was their, this agreement called Global Galactic that was signed by, that was between Andy fau and Jeff Skilling, where Jeff agreed that Andy's partnerships would never lose money.Then that invalidated all of the, all of the accounting, and that's the chief reason that that. That skilling was, was, was convicted, um, was that the jury believed the existence of this, of this, of this agreement that in, um, one set of insider stock sales, which, which we can talk about, which was also a really key moment relative to the, so in absolute terms, I don't know, it's, it's hard for me to, to say there was [00:10:00] such, Enron was such a, to a degree that is still surprising to me, such a, a watershed moment in our, in our country, far beyond business itself.it, it, it caused so much insecurity that about our retirements, our retirement assets safe. Can you trust the company where you work? That I think the government did, did have to prosecute aggressively, but relative to the financial crisis where a lot of people made off with a lot of money and never had to give any of it back, does it seem fair that, that, that Jeff Skilling went to jail for over a decade and no one involved in a major way in the financial crisis paid any price whatsoever?People didn't even really have to give up that much of the money they made then. Then it seems a little bit unfair. Yes, so I think it's, it's an absolute versus a relative Dwarkesh Patel: question. Yeah. Yeah. By the way, who do you think made more money? Um, the investment banks, uh, like, uh, Goldman Sachs and Morgan Stanley, um, from doing, [00:11:00] providing their services to Enron as the stock was going up, or Jim Chanos from shorting the stock?In absolute terms, who made more money? Bethany McLean: Oh, I think the investment banks for sure. I mean, they made, they made so much money in investment banking fees from, from, from Enron. But, you know, it's a good question. . , it's a good question actually, because I think Jim made a lot of money too, so, Dwarkesh Patel: Yeah. Yeah. I mean, I, I, you've spoken about, I guess the usefulness and the shortage of short sellers des a sort of, uh, corrective on irrational exuberance.And I'm curious why you think that shortage exists in the first place. Like, if you believe in the efficient market hypothesis, you should think that, you know, if some company has terrible financials and implausible numbers, then people would be lining up to short it. And then you would never have a phenomenon like Enron.And so it's, it's, you know, it's so odd that you can. , you know, reporters who are basically ahead of the market in terms of predicting what's gonna happen. Uh, well, uh, how do you square that with like the efficient [00:12:00] market hypothesis? Well, do you Bethany McLean: believe in the efficient market hypothesis, ? Dwarkesh Patel: I, I, I'd like to, but I'm like trying to , trying to wrap my head around Enron.Bethany McLean: I, I'm, I'm, I'm, I'm not sure how you. Can, unless you, unless you adopt Warren Buffett's point of view, and I'm gonna mangle the quote because, uh, but, but it's that the market in the short term is a voting machine in the long term. It's a weighing machine, right? Mm-hmm. , or is it the other way around? . Anyway, but the idea is that the market may be very efficient for a long, very inefficient, for a long period of time.But, but it does actually, rationality does actually work in, in, in the end. And I think I might believe that, but isn't it John Maynard Cas who said the market can remain irrational for a lot longer than you can remain solvent. And so I think that's true too. I think believing that the market is efficient and rational in the short term is just obviously wrongUm, but back to your question about short sellers, which is, which is interesting, you know, I think part of it is that there is still this, um, there certainly was a couple of [00:13:00] decades ago, and I think it still exists, this idea that. Owning stocks is Mom, American, and apple pie in shorting stocks somehow is bad and evil and rooting, rooting against America.And I remember going back to the Enron days, someone, people criticizing me, even other people in the press saying, but you took a tip from a short seller. They're biased. And I. , I would say. But, but, but wait, the analysts who have buy ratings on stocks and the portfolio managers who own those stocks, they're biased too.They want the stocks to go up. Everybody's biased. So the trick as a journalist is getting information from all sides and figuring out who you think is right and what makes sense. But it's not avoiding anybody with any bias. But it was really interesting that people saw the bias on the part of short sellers and did not see it on the part of, of, of Longs.And I think there is that preconception that exists broadly, that somehow you are doing something wrong and you're somehow rooting for a company's failure. And that this is, I don't know, anti-American if you, if, if you [00:14:00] short a stock. And so I think that's part of why there's, there's, there's a shortage of shortage of, of, of short sellers.Um, I think also, I mean, we've had. Incredible, unprecedented bull market for the last four decades as a result of falling interest rates, and especially in the decade before the pandemic hit, it was very, very difficult to make money shorting anything because everything went to the moon. Didn't matter if its numbers were good, if it was eventually unmasked to be somewhat fraudulent, , it stocks just went to the moon anyway.The riskier the better. And so it is only diehard short sellers that have managed to stick it out . Yeah, and I think, I think lastly, Jim Chano said this to me once, and I, I think it's true that he could find, dozens of people who were skilled enough to come, smart enough to come work for him.There's no shortage of that. People who are technically skilled and really smart, but being able to be contrarian for a long period of time, especially when the market is going against you, is a different sort [00:15:00] of person. It that it requires a completely different mindset to have everybody in the world saying, you're wrong to be losing money because the stock is continuing to go up and to be able to hold fast to your conviction.And I think that's another, uh, part of the explanation for why there are fewer short sellers. Dwarkesh Patel: Yeah, and that raised an interesting question about. Uh, venture capital, for example, where, or private markets in general? Um, at least in the public markets, there's shorting maybe in shortage, but it, it is a possible mechanism, whereas, uh, I'm a programmer.So, you know, if, if like a one guy thinks the company's worth a hundred million dollars and everybody else thinks it's not, you know, the company will still be, uh, the price will still be said by the, you know, the person who's a believer. Um, does that increase the risk of some sort of bubble in venture capital and in technology?Um, and I guess in private markets generally, if they're, they're not public, is that something you worry about that they're, they will be incredible bubbles built up if there's a lot of money that's floating around in these Bethany McLean: circles. . Well, I think we're seeing that now, [00:16:00] right? And I don't think it's a coincidence that FTX and Theranos were not publicly traded companies, right?Mm-hmm. . Um, there's a certain sort of, uh, black box quality to these companies because people aren't charting them and aren't, aren't, and aren't, you know, whispering to journalists about that. That there's something wrong here and there aren't publicly available financials for people to dig through and look, look, and look at the numbers.So now I don't think that's a coincidence. And I do think this gigantic move into private assets has been, um, probably not great for the, for the, for the, for the. for the, for the safety of the system. And you'd say, well, it's just institutional investors who can afford to lose money who are losing money.But it's really not because institutional investors are just pension fund money. Mm-hmm. and in some cases now mutual fund money. So that distinction that the people who are investing in this stuff can afford to lose it is not really true. Um, so I don't, I don't like that rationalization. I think we're gonna see how that plays out.There was [00:17:00] just a really good piece in the Economist about private equity marks on their portfolio companies and how they are still looked to be much higher than what you would think they should be given the carnage in the market. And so all of what, what actually things are really worth in private markets, both for venture capital firms and for private equity firms, Is absent another, another bubble starting, starting in the markets.I think we're gonna see how that plays out over, over the next year. And it might be a wake up call for, for a lot of people. Um, you know, all that, all that said, it's an interesting thing because investors have been very complicit in this, right? In the sense that a lot of investors are absolutely delighted to have prep, to have their, their private, um, their private investments marked at a high level.They don't have to go to the committee overseeing the investments and say, look, I lost 20% of your money the way they might, um, if, if the numbers were public. And so that the ability of these of private investors to smooth as they call it, the, the, the returns is, is it's [00:18:00] been, it's been part of the appeal.It hasn't been a negative, it's been a positive. And so I would say that investors who wanted this moving are. Art might be getting what they deserve except for the pointing made earlier that it isn't, it isn't their money. It's, it's the money of, of teachers and firefighters and individual investors a around the country, and that's, that's problematic.Dwarkesh Patel: Yeah. Yeah. Being in the world of technology and being around people in it has. made me, somewhat shocked when I read about these numbers from the past. For example, when I'm reading your books and they're detailing things that happened in the nineties or the two thousands, and then you realize that the salary that Hank Paulson made a c e o of Goldman, or that skilling made as, you know, um, c e o of Enron, you know, I, it's like I have friends who are my age, like 22 year olds who are raising seed rounds, , that are as big as like these people's salaries.And so it just feels like the, these books were, you have $50 billion frauds or, you know, hundreds of billions of dollars of collapse and the individuals there, um, it just feels like they, it's missing a few zeros, uh, [00:19:00] because of the delusion of the private markets. But, um, but speaking of short sellers and speaking of private equity, um, I think it'd be interesting to talk about sbf.So, you know, your 2018 Vanity Fair article I thought was really interesting about, you know, sbf factory in Buffalo H How, how do you think back on Tesla and sbf now, given the fact that. The stock did continue to rise afterwards, and the factory, I believe, was completed and it's, I hired the 1500 or so people that had promised New York State, uh, is sbf just a fraud?Who can pull it off? And so he's a visionary. How, how do you think about sbf in the aftermath? Bethany McLean: So I don't think that's right about Buffalo and I have to look, but I don't think they ended up, I mean, the Solar City business that Tesla has pretty much collapsed. I don't think people haven't gotten their roofs.There was just a piece about how they're canceling some of their roof installations. So sbf has repeatedly made grand visions about that business that haven't played out. And I will check this for you post the podcast, but I don't think [00:20:00] if there is employment at that factory in, in Buffalo, it's not because they're churn out solar, solar, solar products that are, that are, that are doing.What was originally promised. So I guess I, I think about that story in a, in a couple of ways. It definitely, um, it was not meant to be a piece about Tesla. It was meant to be a piece that shown a little bit of light on how sbf operates and his willingness to flout the rules and his reliance on government subsidies, despite the fact that he, um, presents himself as this libertarian free, free, free market free marketeer, and his willingness to lie to, to, to, on some level enrich himself, which also runs counter to the Elon sbf narrative that he doesn't care about making money for, for himself.Because the main reason for Teslas to by Solar City was that Solar City had the main reason, was it Tes, that was, that Solar City had, that, that sbf and his, and his and his relatives had extended the these loans to Solar City that were gonna go. [00:21:00] There were gonna be lo all the money was gonna be lost at Solar City when bankrupt.And by having Tesla buy it, sbf was able to bail himself out, um, as, as as well. And I also think a good reason for the, for the, for, and it brings us to the present time, but a reason for the acquisition was that sbf knows that this image of himself as the invincible and vulnerable who can always raise money and whose companies always work out in the end, was really important.And if Solar City had gone bankrupt, it would've cast a big question mark over over sbf, over over the sbf narrative. And so I think he literally couldn't afford to let Solar City go bankrupt. Um, all of that said, I have, I have been, and was I, I was quite skeptical of Tesla and I thought about it in, in, in, in.And I always believed that the product was great. I just, mm-hmm. wasn't sure about the company's money making potential. And I think that, that, it's something I started thinking about, um, background, the Solar City time, maybe earlier, but this line, something I've talked about [00:22:00] before. But this line between a visionary and a fraudster.You know, you think that they're on two opposite ends of the spectrum, but in reality they're where the ends of the circle meet. Characteristics of one. One has that many of the characteristics of the other. And sometimes I think the only thing that really separates the two is that the fraudster is able to keep getting mo raising money in order to get through the really difficult time where he or she isn't telling the truth.And then they, that person goes down in history as a visionary. Um, but because no one ever looks back to the moment in time when they were lying, the fraudster gets caught in the middle. Um, so Enron's Lo lost access to to the capital markets lost AC access to funding as the market collapsed after the.com boom.And people began to wonder whether skilling was telling the truth about Enron's broadband business. And then there were all the disclosures about Andy fasa partnerships if Enron had been able to continue raising money, Business of Enron's called Enron Broadband might well have been Netflix. It was Netflix ahead of its time.So Enron just got caught in the middle and all [00:23:00] the fraud, all the fraud got exposed . Um, but that's not because Jeff Skilling wasn't a visionary who had really grand plans for, for, for, for the future. So I think sbf falls somewhere in that spectrum of, of, of fraudster and visionary. And what's gonna be really interesting why I said that this, we bring it to the present time about what happens to the mu narrative.If something fails is what happens. Yeah. Is as the world watch watches Twitter implode, um, what does that mean then for the Elon sbf narrative overall? Dwarkesh Patel: Yeah. Yeah. Um, going back to the Smartest Guys is the Room, the title obviously suggests something about. The, I guess in general, the ability and the likelihood of very smart people committing fraud or things of that sort.Um, but you know, Begar Jones has this book called Hi Mind, where he talks about how the smarter people are more likely to cooperate in prisoners dilemma type situations. They have longer time preference. And one of the things you've written about is the problem in corporate America is people having shorter, [00:24:00] um, uh, you know, doing two too big time discounting.So, uh, given that trend we see in general of greater Cooperativeness, um, and other kinds of traits of more intelligent people, do you think the reason we often find people like S B F and skilling running big frauds just by being very intelligent, is it just that on, on average smarter people, maybe less likely to commit fraud, but when they do commit fraud, they do it at such garat scales and they're able to do it at such gar scales that it just brings down entire empires?How, how, how do you think about the relationship between intelligence and fraud? . Bethany McLean: That's interesting. Um, I'm not sure I know a coherent answer to that. Um, smartest guys in the room as a title was a little bit tongue in cheek. It wasn't meant to say, these guys actually are the smartest guys in the room. It was, it, it was a little bit, it was a little bit ironic, but that doesn't take away from the really good question that you asked, which is what, what, what is that relationship?I, I mean, I think if you look at the history of corporate fraud, you are not going to find unintelligent people having [00:25:00] been the masterminds behind this. You're gonna find really, really, really smart, even brilliant people having, having, having been, been behind it, maybe some at part of that is this linkage between the visionary and the fraud star that so many of these, of these corporate frauds are people who have qualities of the visionary and to.The qualities of, of a visionary, you have to have a pretty, pretty, pretty, pretty high intelligence. Um, and I do think so many of these stories are, are about then self delusion. So I don't think smart people are any less likely to suffer from self delusion than dumb people. And they're probably more likely to, because you can rationalize, you know, the smart person's ability to rationalize just about anything they wanna rational rationalize is pretty profound.Whereas perhaps someone who doesn't have quite the same, the same brain power isn't gonna be able to create a narrative under which their actions are blameless and they're doing the right thing. So I think sometimes, so maybe there is some sort of relationship [00:26:00] there that somebody more qualified than I am would have to study between smart people's ability to, to, to rationalize just about anything as a way of, as part of the path to self delusion and part of the path by which these things happen.Yeah, that's completely, that's completely , that's Bethany theory. There's absolutely nothing to back that . I'm just Dwarkesh Patel: well clear. Let's do some more speculation. So, um, one of the things, uh, John Ray talked about in his testimony, um, was it two days ago where he said that, you know, FTX had done $5 billion of investments and deals in the last year, and most of those investments were worth a fraction of the value that FTX paid for them.And we see this also in, obviously in Enron, right? With, uh, broadband and with, um, ul, or is that how pronounce it, but basically their international department. Yeah. Um, what is this, uh, this obsession with deal making for its own sake? Is that to appease investors and make them think a lot's going on, is that because of [00:27:00] the hubris of the founder, of just wanting to set up a big empire as fast as possible, even if you're getting a bad sticker price?What, why do we see this pattern of just, you know, excessive deal making for its own sake? Bethany McLean: That's an interesting question too. I'm not sure that that's, um, limited to companies that go splat dramatically. There's a lot of, a lot of deal making in, in corporate America has that same frenzied quality. Um, I haven't seen an updated study on, on this in a, in a long time, but, you know, I began my career working as an analyst in an m and a department at at at Goldman Sachs.And. Definitely deals are done for the sake of doing deals. And I once joked that synergies are kind of like UFOs. A lot of people claim to have seen them, but there's no proof that they actually exist. , and again, I haven't seen an updated study on, on, on this, but there was one years back that showed that most m and a transactions don't result in increased value for shareholders.And most synergies, most promised synergies never materialize. [00:28:00] Just getting bigger for the sake of getting bigger and doing deals for the short term value of showing Wall Street a projection. That earnings are gonna be so much higher even after the cost of the debt that you've taken on. And that they're these great synergies that are gonna come about from, from combining businesses.So I don't know that either the frenzy deal doing or deal doing deals gone wrong is, um, solely limited to people who are committing fraud. , I think it's kinda across the spectrum. , . Dwarkesh Patel: Um, um, well one, one thing I find interesting about your books is how you detail that. And correct me if this is the wrong way to read them, but that, uh, incentives are not the only thing that matter.You know, there there's this perception that, you know, we've set up bad incentives for these actors and that's why they did bad things. But also, um, the power of one individual to shape a co co company's culture and the power of that culture to enable bad behavior, whether scaling at Enron or with Clarkson Right at Moody's.Yeah. Um, is that a good, good way of reading your books or how, how do you think [00:29:00] about the relative importance of culture and incentive? Bethany McLean: I think that's really fair. But incentives are part of culture, right? If, if you've set up a culture where, where how you're valued is what you get paid, I think it's a little, it's a little difficult to separate those two things out because, because the, the incentives do help make the culture, but for sure culture is incredibly, um, incredibly compelling.I've often thought and said that if I had, when I was leaving my short lived career in investment banking, if I had, if I had gotten in some of the head hunters I was talking to, if one of them had said, there's this great, really energetic, interesting energy company down in Houston, , why don't interview there?If I had gone there, would I have been a whistleblower or would I have been a believer? And I'd like to believe I would've been a whistleblower, but I think it's equally likely that I would've been a believer. Culture is so strong. It creates this. What's maybe a miasma that you can't see outside?I remember a guy I talked to who's a trader at Enron, really smart guy, and he [00:30:00] was like, after the, after the bankruptcy, he said, of course, if we're all getting paid based on creating reported earnings and there's all this cash going out the door in order to do these deals that are creating reported earnings, and that's the culture of the entire firm, of course it's not gonna work economically.He said, I never thought about it. . It just didn't, it didn't, it didn't occur to me. And I think the more compelling the CEO o the more likely you are to have that kind of mass delusion. I mean, there's a reason cult exist, right? . We, we are as human beings, remarkably susceptible to.Visionary leaders. It's just, it's the way the human brain is wired. We, we wanna believe, and especially if somebody has the ability to put a vision forward, like Jeff Gilling did at Enron, like Elizabeth Holmes did it Theranos like SPF F did, where you feel like you are in the service of something greater by helping this, vision, , actualize then, then you're, particularly susceptible.And I think that is the place where [00:31:00] incentives don't quite explain things. That is, there is this very human desire to matter, to do something important. Mm-hmm to be doing something that's gonna change the world. And when somebody can tap into that desire in people that feeling that what you're doing isn't just work in a paycheck and the incentives you have, but I mean, I guess it is part of the incentive, but that you're part of some greater good.That's incredibly powerful. Yeah. Dwarkesh Patel: It's what we all speaking of. We all wanna matter. . Yeah. Speaking of peoples psychology, uh, crime and punishment, underrated or overrated as a way to analyze the psychology of people like scaling and S B F or maybe SBF specifically because of the utilitarian nature of SB F'S crime?Um, Bethany McLean: I think it's, I think it's underrated, overrated. I'm not sure anybody. , I'm not sure anybody has ever proven that jail sentences for white collar criminals do anything to deter subsequent white collar crime. Mm-hmm. , and I think one part of this is the self delusion that I've, that I talked about. Nobody thinks, [00:32:00] oh, I'm doing the same thing as Jeff Skilling did at Enron, and if I, and if I do this, then I too might end up in jail.Therefore, I don't wanna do this. I just don't think that's the way the, the, the, the, the thought process works. I think Elizabeth Holmes at Theranos, probably for the most part, convinced herself that this was going to work, and that if you just push forward and push hard enough and keep telling people what they wanna hear and keep being able to raise money, it's gonna work.You know, if. . If, if you pause to think, well, what if it doesn't work and I've lied and I go to jail, then, then you'd stop right, right then and there. So I think that, I think that, that I'm, I'm not, I'm not sure it's much of a deterrent. I remember, and partly I'm, I'm biased because I remember a piece, my co-author Peter Alkin, and I wrote out right after Jess Gilling and Kenley were, were convicted and can lay, we're we're convicted.And we wrote a piece for Fortune in which we said that the entire world has changed. Now that corporate executives are, um, are, are put on high alert that behavior in the gray area will no longer be tolerated and that it will be aggressively prosecuted. And this was spring of [00:33:00] 2006 and the events that caused the global financial crisis were pretty well underway.It didn't. Do much to prevent the global financial crisis. Mm-hmm. , Enron's, Enron's jail time, didn't do anything to present, prevent, Elizabeth Holmes doesn't seem to have done anything to change what Sbf was doing. So I just, I, I just, I'm, I'm, I'm not sure, I'm sure a psychologist or somebody who specializes in studying white color crime could probably make a argument that refutes everything I said and that shows that has had a deterring effect.But I just, I just don't think that people who get themselves into this situation, con, con, consciously think, this is what I'm doing. Dwarkesh Patel: Yeah. Yeah. Um, speaking of other incentives, stock options, uh, you've spoken about how that creates short-term incentives for the executives who are making decisions. If you wanted to set up an instrument that aligned an executive or a leader's compensation with the long-term performance of a company, what would that look like?W would you have the options of less than 10 years instead of a [00:34:00] year? H how would you design it? How do you usually design a compensation scheme to award long-term thinking? Bethany McLean: If I could do that, I should ru rule the world . I think that very sweet. I think that is one of the really tough, um, problems confronting boards or anybody who is determining anybody who's determining stock options and that almost anybody who's determining compensation and that most compensation schemes seem to have really terrible unintended consequences.They look really good on paper. And then as they're implemented, it turns out that there was a way in which they accomplished exactly the opposite of, uh, thing the people who designing them wanted, wanted them to accomplish. I mean, if you think back to the advent of stock options, what could sound better?Right. Giving management a share of the company such that if, if, if shareholders did well, that they'd do well, nobody envisioned the ways in which stock options could be repriced. The ways in which meeting earnings targets could lead to gaming the ways in which the incentive of stock-based [00:35:00] compensation could lead to people trying to get anything they could in order to get the stock price higher and cash out when they're, as soon as their stock options vested.So, and even there was, there was, the whole valiant saga was fascinating on this front because the people who designed Mike Pearson's compensation package as ceo e o Valiant, they were convinced that this was absolutely the way to do it. And he got bigger and bigger, um, stock option incentives for hitting certain, for having the stock achieve certain levels.But of course, that creates this incredible bias to just get the stock to go up no matter, no matter what else you do. Um, it does seem to me that vesting over the long term is. is, is a much better way to go about things. But then do you create incentives for people to play games in order to get the stock lower at, at various points where there's about to be a stock optional board so they have a better chance of having directions be, be worth, be worth something over the long term.And do you, particularly on Wall Street there is this, or in firms where this sort of stuff matters the most? There [00:36:00] is this, there was this clearing out of dead wood that happened where people got paid and they got outta the way and made way for younger people. And I don't know, it was a harsh culture, but maybe it made sense on some level.And now at least I've been told with much longer vesting periods, you have people who don't wanna let go. And so you have more of a problem with people who should have retired, stick sticking around instead of in, in, instead of clearing out. And then it also becomes a question, How much money is, is enough.So if somebody is getting millions of dollars in short-term compensation and then they have a whole bunch more money tied up in long-term compensation, do the long-term numbers matter? At what point do they, do they, do they really matter? I mean, if you gave me $5 million today, I'm not so sure I'd really care if I were getting another $5 million in 10 years.Right. ? Yeah. So, so I think all of that is, is it, it's, I'm not, I'm not sure there's a perfect compensation system. All things considered though, I think longer term is, is probably better, [00:37:00] but. Dwarkesh Patel: Yeah, I didn't think about that downside of the long investing period. That's so interesting there. I guess there is no free lunch.Uh, so with Enron, um, it, it was clear that there was a lot of talent at the firm and that you had these companies and these trading firms launch at the aftermath by people who left Enron, kinder Morgan and John Arnold's, um, uh, Sintas, uh, that were wildly profitable and did well. Do you think we'll see the same thing with FTX, that while Sbf himself and maybe the, his close cadre were frauds, there actually was a lot of great trading and engineering talent there that are gonna start these very successful firms in the aftermath.Bethany McLean: That's, that's interesting. And just, just for the sake of clarification, kinder Morgan was actually started years before Enron's collapsed, when Rich Kinder, who was vying with Jeffs skilling in a sense, to become Chief Operating Officer. Um, Ken Lay, picked Jeffs skilling and Kinder left. Mm-hmm. and took a few assets and went to create Kinder, kinder Morgan.But your overall point, I'm just clarifying your overall point holds, there were a lot of people who [00:38:00] left Enron and went on to do, to have pretty, pretty remarkable careers. I think the answer with ftx, I bet there will be some for sure. But whether they will be in the crypto space, I guess depends on your views on the long-term viability of, of, of the crypto space.And I have never , it's funny is crypto exploded over the last couple of years. I was, I've been working on this book about the pandemic and it's been busy and difficult enough that I have not lifted my head to, to think about much else. And I always thought, I don't get it. I don't understand , I mean, I understand the whole argument about the blockchain being valuable for lots of transactions and I, I get that, but I never understood crypto itself and I thought, well, I just need to, as soon as this book is done, I just need to put a month into understanding this because it's obviously an important, important enough part of our world that I need to figure it out.So now I think, oh, Okay, maybe I didn't understand it for a reason and maybe, um, maybe there isn't anything to understand and I've just saved myself a whole life of crime because it's all gone. And you have [00:39:00] people like Larry Fink at BlackRock saying, whole industry is gonna implode. It's done. And certainly with the news today, this morning of finances auditor basically saying We're out.Um, I, I don't, I don't know how much of it was, how much of it was, is, was a Ponzi scheme. You might know better than I do. And so I don't know what's left after this whole thing implodes. It's a little bit like, there is an analogy here that when Enron imploded, yes, a lot of people went on to start other successful businesses, but the whole energy trading business is practiced by kind of under capitalized, um, um, energy firms went away and that never came back.Yeah. And so I, I, I don't, I don't know, I'm, it'll be, I, I don't know. What do you. The Dwarkesh Patel: time to be worried will be when Bethany McLean writes an article titled Is Bitcoin Overvalued for the Audience. My Moments on That ? Yeah, for the audience that, that was, I believe the first skeptical article about Enron's, um, stock price.Yeah. Uh, and it was titled [00:40:00] Is Enron Overvalued. In aftermath understated, , title. But , Bethany McLean: , I joked that that story should have won, won, won awards for the NICU title and business journalism history. , given that the company was bankrupt six months later was overpricedDwarkesh Patel: Um, uh, well, let me ask a bigger question about finance in general. So finance is 9% of gdp, I believe. How much of that is the productive use and thinking and allocation of the, uh, the capital towards their most productive ends? And how much of that is just zero sum or negative sum games? Um, if, if you had to break that down, like, is 9% too high, do you think, or is it just.I think it's Bethany McLean: too high. I have no idea how to think about breaking it down to what the proper level should be. But I think there are other ways to think about how you can see that in past decades it hasn't been at the right level when you've had all sorts of smart kids. Um, Leaving, leaving business school and leaving college and heading into [00:41:00] finance and hedge funds and private equity is their career of choice.I think that's a sign that that finance is too big when it's sucking up too much of, of, of the talent of the country. Um, and when the rewards for doing it are so disproportionate relative to the rewards of of, of doing other things. Um, the counter to that is that there've also been a lot of rewards for starting businesses.And that's probably, I think, how you want it to be in a, in a product. In a productive economy. So I think the number is, is too high. I don't know how to think about what it should be other than what a, actually, a former Goldman Sachs partner said this to me when I was working on all the devils are here, and she said that finance is supposed to be like the, the substrata of our world.It's supposed to be the thing that enables other things to happen. It's not supposed to be the world itself. So the, the role of a financial system is to enable businesses to get started, to provide capital. That's what it's supposed to be. It's the lubricant that enables business, but it's not supposed to be the thing itself.Right. And it's become the thing itself. [00:42:00] You've, you've, you've, you've, you've got a problem. Um, um, and I think the other, Dwarkesh Patel: there's your article about crypto , that paragraph right there. . Bethany McLean: There you go. That's, that's a good, um, and I think, I think the other way, you, you, you can see, and perhaps this is way too simplistic, but the other way I've thought about it is that how can it be if you can run a hedge fund and make billions of dollars from, and have five people, 10 people, whatever it is, versus starting a company that employs people mm-hmm.and changes a neighborhood and provides jobs and, you know, provides a product that, that, that, that, that improves people's lives. It, it is a shame that too much of the talent and such a huge share of the financial rewards are going to the former rather than the latter. And that just can't mean good things for the future.Dwarkesh Patel: Yeah. Yeah. And I, you know, when people criticize technology, for example, for the idea that, you know, these people who would've been, I don't know, otherwise teachers or something, they're, you know, making half a million dollars at Google. [00:43:00] Um, and I think like when I was in India, people were using Google Maps to get through the streets in Mumbai, which is, which is unimaginable to me before going there that, you know, you would be able to do that with, um, a service built out of Silicon Valley.And so, Yeah, I think that actually is a good allocation of capital and talent. I, I'm not, I'm not sure about finance. Um, yeah, Bethany McLean: I think I, I, I agree with you. I think there are other problems with Google and with the, the social media giants, but, but they are real businesses that employ people, that make products that have had, uh, huge.Um, impact on on, on people's, on people's lives. So in, in that sense, it's very different than a private equity firm, for instance, and especially private equity, even more so than hedge funds draws my ire. Mm-hmm. , because I think one of the reasons they, that it, they've been able to make part of the financialization of our economy has been due to super, super low interest rates and low interest rates that have enabled so many people to make so much money in finance are not, they're just a gift.It wasn't because these people were uniquely smart, they just [00:44:00] found themselves in a great moment in time. And the fact that they now think they're really smart because money makes me crazy. Dwarkesh Patel: Um, are Fanny and Freddy America special purpose entities? Are they our Alameda? It's just the way we hide our debt and uh, that's interesting.Yeah. Bethany McLean: Well, I guess we, you know what? I don't know anymore because, so I last wrote about them when was it in 2016 and I don't know now. No, you're right. Their, their debt is still off, off, off balance sheet. So Yeah, in a lot of ways they, they were. . I would argue though that the old Fanny and Freddy were structured more honestly than, than the new Fanny and Freddy, that it really is conservatorship that have made them, um, that have made them America's off balance sheet entities, because at least when they were their own independent entities.Yes, there was this odd thing known as the implicit guarantee, which is when you think about, back to your point about efficient markets, how can you possibly believe there's an as such a thing as an efficient market when their [00:45:00] Fanny and Freddy had an implicit guarantee, meaning it wasn't real. There was no place where it was written down that the US government would bail Fanny and Freddie out in a crisis, and everybody denied that it existed and yet it did exist.Yeah. Dwarkesh Patel: No, but we, I feel like that confirms the official market hypothesis, right? The, the market correctly, they thought that mortgages backed by Fannie and Freddy would have governments. Uh, okay, okay. You might be father Bethany McLean: and they did . You might be right. I, I, I think what I was getting at you, you might be right.I think what I was getting at is that it is such a screwed up concept. I mean, how can you possibly, when I first, when people were first explaining this to me, when I first read about Fanny and Freddie, I was like, no, no, wait. This is American capitalism . This is, no, wait. What? I don't, I don't understand . Um, um, so yeah, but I, I, I, I think that Fanny and Freddie, at least with shareholders that were forced to bear some level of, of the risks were actually a more honest way of going about this whole screwed up American way of financing mortgages than, than the current setup is.Dwarkesh Patel: What [00:46:00] is the future of these firms? Or are they just gonna say in conservatorship forever? Or is there any developments there? Well, what's gonna happen to them? Bethany McLean: The lawsuit, the latest lawsuit that could have answered that in some ways ended in a mistrial. Um, I don't think, I don't, I don't think unfortunately anybody in government sees any currency in, and I mean, currency in the broad sense, not in the literal sense of money in, in taking this on.And unfortunately, what someone once said to me about it, I think remains true and it's really depressing, but is that various lawmakers get interested in Fannie and Freddy. They engage with it only to figure out it's really, really goddamn complicated. Mm-hmm. and that, and that any kind of solution is gonna involve angering people on one side of the aisle or another and potentially angering their constituent constituents.And they slowly back away, um, from doing anything that could, that, that could affect change. So I think we have a really unhealthy situation. I don't think it's great for these two [00:47:00] entities to be in conservatorship, but at this point, I'm not sure it's gonna change. Dwarkesh Patel: Yep. Speaking of debt and mortgages, um, so total household debt in the United States has been, uh, climbing recently after it's, it's like slightly d decline after 2008, but I think in quarter three alone it increased 350 billion and now it's at 16.5 trillion.Uh, the total US household debt, should we worried about this? Are, are, are we gonna see another sort of collapse because of this? Or what, what should we think about this? Bethany McLean: I don't know. I don't know how to think about that because it's too tied up in other things that no one knows. Are we going to have a recession?How severe is the recession going to be? What is the max unemployment rate that we're gonna hit if we do, if we do have a recession? And all of those things dictate how to, how to think about that number. I. Think consumer debt is embedded in the bowels of the financial system in the same way mortgages were.And in the end, the, the, the [00:48:00] problem with the financial crisis of 2008, it wasn't the losses on the mortgages themselves. It was the way in which they were embedded in the plumbing of the financial system. Mm-hmm. and ways that nobody understood. And then the resulting loss of confidence from the fact that nobody had understood that slash lies had been told about, about that.And that's what caused, that's what caused everything to, to collapse. Consumer debt is a little more visible and seeable and I, I don't think that it has that same, um, that same opaque quality to it that, that mortgage backed securities did. I could be, I could be wrong. I haven't, I haven't, I haven't dug into it enough, enough to understand enough to understand that.But you can see the delinquencies starting to climb. Um, I mean, I guess you could on, on, on mortgages as well, but there was this, there was this profound belief with mortgages that since home prices would never decline, there would never be losses on these instruments because you could always sell the underlying property for more than you had [00:49:00] paid for it, and therefore everything would be fine.And that's what led to a lot of the bad practices in the industry is that lenders didn't think they had to care if they were screwing the home buyer because they always thought they could take the home back and, and, and, and, and make more money on it. And consumer debt is, is unsecured. And so it's, it's, it's different.I think people think about it differently, but I'd have. I'd have to, I'd have to do some more homework to understand where consumer debt sits in the overall architecture of the financial industry. Dwarkesh Patel: I, I, I'm really glad you brought up this theme about what does the overall big picture look like? I feel like this is the theme of all your books that people will be, So obsessed with their subsection of their job or, or that ar area that they won't notice that, um, broader trends like the ones you're talking about.And in Enron it's like, why, why, why do we have all these special purpose entities? What is the total debt load of Enron? Um, or with the, you know, mortgage back securities a similar kind of thing, right? What, what, uh, maybe they weren't correlated in the past, [00:50:00] but what's that? Do we really think that there's really no correlation, um, uh, between, uh, delinquencies across the country?Um, so that, that kind of big picture, think. Whose job is that today? Is it journalists? Is it short sellers? Is it people writing on ck? Who's doing that? Is it anybody's job? Is, is it just like, uh, an important role with nobody assigned to it? Bethany McLean: I think it's the latter. I think it's an important role with nobody, with nobody assigned to it, and there there is a limit.I mean, , I hate to say this, it is not, uh, um, it is not an accident that many of my books have been written. That's probably not fair. It's not true of my book un fracking, but that some of my books have been written after the calamity happened. So they weren't so much foretelling the calamity as they were unpacking the calamity after it happened, which is a different role.And as I said at the start of our conversation, I think an important one to explain to people why this big, bad thing took, took place. But it's not prediction, I don't know, as people that were very good at, at prediction, um, they tried [00:51:00] to set up, what was it called? In the wake of the global financial crisis, they established this thing called fsoc, and now I'm forgetting what the acronym stands for.Financial Security Oversight Committee. And it's supposed to be this, this body that does think about these big picture. That thinks about the ways, the ways an exam, for example, in which mortgage backed securities were, um, were, were, were, were, were, were, were repopulating through the entire financial system and ways that would be cause a loss to be much more than a loss.That it wouldn't just be the loss of money and that security, it would echo and magnify. And so that there are people who are supposed to be thinking about it. But I think, I think it's, it's, it's really hard to see that and. In increasingly complex world, it's even, it's even harder than it was before, because the reverberations from things are really hard to map out in, in, in advance, and especially when some part of those reverberations are a loss of confidence, then all bets [00:52:00] are off because when confidence cracks, lots of things fall apart.But how do you possibly analyze in any quantitative way the the risk that that confidence will collapse? Mm-hmm. . So I think it's, I think, I think, I think it's difficult. That said, and of course I am talking my own book here, I don't think that the lack of the, the increased financial problems of journalism really help matters in that respect, because in an ideal world, you want a lot of people out there writing and thinking about various pieces of this, and then maybe somebody can come along and see the.Pieces and say, oh my God, there's this big picture thing here that we all need to be thinking about. But there's, there's a kind of serendipity in the ability to do that one, that one that the chances, I guess the best way to say that is the chances of that serendipity are dramatically increased by having a lot of people out there doing homework, um, on the various pieces of the puzzle.And so I think in a world, particularly where local news has been decimated mm-hmm. , um, the [00:53:00] chances of that sort of serendipity are, are definitely lower. And people may think, oh, it doesn't matter. We still got national news. We've got the Washington Post, we've got the Wall Street Journal, we've got the New York Times.Um, I would love to have somebody do a piece of analysis and go back through the New York Times stories and see how many were sparked by lp, a piece in the local paper that maybe you wouldn't even notice from reading the New York Times piece, because it'd be in like the sixth paragraph that, oh yeah, credit should go to this person at this local paper who started writing about this.But if you no longer have the person at the local paper who started writing about this, You know, it's, it's, it's, it's less likely that the big national piece gets written. And I think that's a part of the implosion of local news, that people, a part of the cost of the implosion of local news that people don't really understand the idea that the national press functions at, at the same level, um, without local news is just not true.Dwarkesh Patel: Yeah. And, but even if you have the local news, and I, that's a really important point, but even if you have that local news, there still has to be somebody whose job it is to synthesize it all together. And [00:54:00] I'm curious, what is the training that requires? So you, I mean, your training is, you know, math and English major and then working at working in investment banking.Um, is that the, uh, I mean, obviously the anecdotal experience then equals one, seems that that's great training for synthesizing all these pieces together. But what is the right sort of education for somebody who is thinking about the big picture? Bethany McLean: I, I don't, I don't know.And there may be, there may be, there are probably multiple answers to that question, right? There's probably no one, one right answer for me. In, in the end. My, my math major has proven to be pivotal. Even though , my mother dug up these, um, my, my parents were moving and so my mother was going through all her stuff and she dug up these, some my math work from, from college.Literally, if it weren't for the fact that I recognized my own handwriting, I would not recognize these pages on pages of math formula and proofs. And they're like, get gibberish to me now. So , but I, but I still think that math has, so I do not wanna exaggerate my mathematical ability at this stage of [00:55:00] the game.It's basically no. But I do think that doing math proofs any kind of formal, any kind of training and logic is really, really important because the more you've been formally trained in logic, the more you realize when there are piece is missing and when something isn't quite, isn't quite adding on, it just forces you to think in, in a way that is, that in a way that connects the dots.Um, because you know, if you're moving from A to B and B doesn't follow a, you, you understand that B doesn't follow a And I think that that, that, that kind of training is, is really, really important. It's what's given. , whatever kind of backbone I have as a journalist is not because I like to create controversy and like to make people mad.I actually don't. It's just because something doesn't make sense to me. And so maybe it doesn't make sense to me because I'm not getting it, or it doesn't make sense to me because B doesn't actually follow, follow away, and you're just being told that it does. And so I think that, I think that training is, is really, really important.Um, I also have, have often thought [00:56:00] that another part of training is realizing that basic rule that you learned in kindergarten, which is, um, you know, believe your imagination or you know, your imagine follow your imagination. Because the truth is anything can happen. And I think if you look at business history over the last couple of decades, it will be the improbable becoming probable.Truth over and over and over again. I mean, the idea that Enron could implode one of the biggest, supposedly most successful companies in corporate America could be bankrupt within six months. The, from its year, from its stock price high. The idea that the biggest, most successful, um, financial institutions on wall, on Wall Street could all be crumbling into bankruptcy without the aid of the US government.The idea that a young woman with no college degree and no real experience in engineering could create, uh, uh, um, could create a machine that was going to revolutionize blood testing and land on the cover of every business magazine, and that this [00:57:00] whole thing could turn out to be pretty much a fraud. The entire idea of ftx, I mean, over and over again, these things have happened.Forget Bernie Madoff if you had told people a year ago that FTX was gonna implode six months ago, three months ago, people would've been like, no, no, no, no, no, no, no. And so I think just that, that, that, that knowledge that the improbable happens over and over again is also a really fundamental, fundamentally important.Dwarkesh Patel: If we're con continuing on the theme of ftx, I, I interviewed him about four or five months ago.Wow. And this is one of these interviews that I'm really, I'm, I don't know if embarrass is the right word, but I knew things then that I could have like asked, poked harder about. But it's also the kind of thing where you look back in retrospect and you're. If it had turned out well, it's, it's not obvious what the red flags are.Um, while you're in the moment, there's things you can look back at the story of Facebook and how, you know, Marcus Zuckerberg acted in the early days of Facebook and you could say, if the thing fell apart, that this is why, or, you know, this is a red flag. So [00:58:00] I have a hard time thinking about how I should have done that interview.B

You can listen to the conversation on: Spotify, Apple, at anchor, and via RSS.Hi everyone,I am a big fan Marc Rubinstein and his Net Interest substack and was very excited to finally record a conversation with him. Marc previously covered financials and fintech as a research analyst and hedge fund investor and now shares his takes on the sector with his readers on a weekly basis. It's a very well written and insightful lens on a fascinating corner of the market.I spent the first couple of years of my career as an analyst at Macquarie Group dealing with financials - with leasing and lending companies which we acquired for my employer's balance sheet. My view has been shaped by this early period of bargain hunting and I later struggled with fintech companies and their valuations. As Marc explains, financials are a unique sector with its own rules and heuristics where growth can be treacherous and the balance sheet is of supreme importance.It can be especially tricky to tell apart secular change from the credit cycle. As Jim Chanos said last week on Odd Lots, “every down cycle since ‘98 has seen those companies blow up, because it turns out they didn't have a better mousetrap. They just had the credit cycle at their back.”Marc and I talked about banks, fintech, the importance of incentives and culture, payments, the need to watch regulators, private equity and how alternative asset managers have been picking up business from investment banks, and the danger of relying on the view of CEOs too far removed from the risk.I'm going to share a few of my favorite writings by Marc followed by show notes. I hope you enjoy the conversation.Disclaimer: I write and podcast for entertainment purposes only. This commentary reflects a personal opinion, is not investment advice, and should not be relied on to make investment decisions. The views reflected in this commentary are subject to change at any time without notice. Do your own work and seek your own financial, tax, and legal advice before making any investment decisions.Why learn about financials?For a start, there's something exclusive about them. There are some industries on which everyone has a view. Supermarkets for example, or consumer tech. Financials isn't one of those industries…Second, financials are everywhere. Even companies that on the face of it aren't, can be financial companies in disguise.The third aspect of financials that makes them especially compelling is they're a great metaphor for the world around us. The financial system operates as a complex adaptive system. It consists of a network of banks and other financial institutions each of which operate according to their own incentives.Dotcom 2.0 (online brokers, asset managers, Silicon Valley Bank):I actually remember where I was the day the dot-com bubble burst. It was March 2000 and I was sitting in a newly-opened branch of Starbucks near my home in London, reading a copy of the Financial Times. …Commodities trading. In commodity trading, there are three ways to make money:Geographic arbitrage. Unlike financial markets, where pricing relationships are normally stable across regions, proximity to a product in the physical trading world can have a big impact on pricing. Commodity trading firms can leverage logistical capabilities to source product in one location and deliver in another, taking advantage of pricing differences between the two.Product arbitrage. Pricing differences exist between different blends, grades or types of the same commodity. There are over 160 tradable crude oil products with many different refined products and numerous end-users with highly specific requirements. By changing the form of the commodity, traders can lock in a profit. Time arbitrage. Over the long term, supply and demand tend to find a balance but, on shorter term horizons, they can remain out of sync. Trading firms can take advantage by storing commodities when supply is unusually high and drawing down inventories when demand is unusually high.What Sort of a Business is Investment Banking?For investment banks, risk management is their business. If they take risk, match risk and source risk, they can't outsource the management of that to a chief risk officer; it's the job of the frontline staff. How that all hangs together – how the incentives of staff are reconciled with the health of the firm comes down to the culture of the firm. And culture takes a long time to build, longer than most participants in fast-moving markets have the energy to invest.Buffett's BanksFinancial companies have a tradition of courting disaster, and Buffett's names are no exceptionThis is not by Marc but a related idea worth keeping in the back of our head: Aswath Damodaran recently discussed how in countries with sustained high inflation “every company becomes a financial service company, because they discover it's easier to run a bank on the side and lend money out short term than it is to build factories or toll roads.”Show notes* Marc's experience during the dotcom crash, when being a stock analyst “was kind of the coolest job you could have”* “These cycles are a feature of history, financial services companies sit at the heart of that. One way of thinking about a financial company is like a platform that is an intermediary. It intermediates supply and demand. But because incentives are such that the financial services company makes more money through volume, be that credit volume, be that trading volume, they're incentivized to create additional supply.”* Institutions adapting to the last down cycle:* (Druckenmiller talked about this at the Ira Sohn conference.)* [11] “That's a really good heuristic. Regulators and all market participants have a tendency to fight the last battle. They'll create a framework which will make the last battle less likely, but such is the nature of markets problems will emerge elsewhere. Looking at financials you can see that. 2000, 2001, 2002, we saw a corporate credit downturn triggered by fallen angels in credit markets and a number of banks, JP Morgan being one, suffered materially from corporate credit losses. The banks that suffered the most in that cycle, rough rule of thumb, suffered the least in the financial crisis. JP Morgan outperformed in that crisis.”* Parallels to the 1994 bond market massacre:* [14] “One precedent for what's going on in markets right now, really sharp hikes in interest rates, was February 1994 when Allen Greenspan hiked rates. It was a complete surprise to the markets and brokers, dealers, and banks weren't able to position for it. It's a reason why the Fed, highly topical, is very anxious not to deliver surprises".”* The growth conundrum:* [17] “I'm not a fan of growth. Any finance analyst is rightly wary of growth. Growth can be very, very cheaply manufactured, you're giving away money. What's more important than the volume of that is the pricing. And you don't have visibility on the pricing of that until further down the line.”* Hidden financials:* [25] “I talk about various reasons why financials are interesting. One of them is that many companies are financials in disguise. There's the famous Enron conference call back in 2001, Jeff Skilling calls the analyst an a*****e for asking, he says, ‘you're the only financial institution that doesn't publish its balance sheets.' And the focal point of that in the market is oh, wow. Jeff Skilling called the analyst names. To me it's, hang on a sec, no one actually realized that Enron was a financial company.”* GE Capital, growth, and private equity:* [31] “The yardstick for success at GE parent company was EPS growth. And GE Capital was a huge contributor towards that. Growth at a financial services company is not the way to track it. The model hasn't gone away, it's gone into private hands. Apollo is trying to recreate GE capital in its own terms.”* “They've filled a vacuum that was left when investment banks … they're not as powerful anymore. Private equity is a small part of what they do, the alternative managers, they now fill that vacuum … and they do a lot of the activities that investment banks historically used to do.”* Measuring success and competition: * “Like all sectors, you're looking ultimately for a return on invested capital that exceeds a certain hurdle rate, that reflects a willingness to return capital to shareholders.”* [36] “Competition is really damaging in financial services marketplace. Unlike antitrust policy makers, financial regulators don't promote competition. Some of the most successful banking systems globally, from a regulator's perspective, that have not suffered a financial crisis, have been some of the most concentrated banking systems. Canada is a very good example. In Ireland today, there are only two banks as a response to the financial crisis.”* “When looking at risk at banks and in financial services, you are looking for banks that aren't trying to over compete.”* Looking at financials as an investor:* [40] “One of the reasons why I think the finance sector is so attractive is that you have all the characteristics in there. There's growth, there is value, here's momentum. All kind of factors that apply elsewhere apply within financial services.”* “It's not a complex sector and we haven't talked about that yet, but something worth mentioning is that complexity is a feature to run away from.”* “There's no intellectual property, there is a commodity component really to it. Therefore banks often layer on complexity. Run away from that.”* “Look first and foremost at the balance sheet. Understand the balance sheet. Because of that it's helps to be quite close to credit markets.”* [45] “We had a global mandate and I think that's hugely powerful to be able to see patterns across borders. Banks and financials are quite local because they are regulated on a local basis. The products themselves culturally tend to be quite local. A mortgage in the US is nothing like a mortgage in Germany. The products are quite different, but market cycles and human behavior and competitive dynamics being the same, seeing patterns across countries is hugely powerful.”* “The lesson from China with Alipay is that when non-bank, financials get to a certain size, regulators will come in. Another tool of the financial analyst is to stay close, to watch what regulators are doing hugely. That's hugely important.”* Payments* [53] “Historically payments were almost a byproduct of banking. Banking was deposit taking fundamentally and because the liquidity sat at the bank, banks offered payments mechanisms. Increasingly, we're seeing that turned on its head and payments is becoming kind of the X of the relationship because of the data it throws off and the frequency.”* Fintech and customer engagement;* Robin hood is that actually* [54] “One of the reasons why I'm a bit cautious on business models like Robinhood is that to do finance well, engagement is a negative. You don't want your customer, objectively an investor, shouldn't be looking two hours a day on their portfolio. And yet they're incentivized to, to create that. There's a massive misalignment here between good investment practice and what these companies are aligned to do.”* “The problem with insurtech, a lot of insurance companies went public in 2020-2021, and they've performed very badly because it's a product customers only buy once a year. The inverse happens. There's no way really to create engagement. Payments is the sweet spot payments. There is a frequency of use that's not in conflict with good practice from the consumer's perspective. Companies offering payments are able to pick up data and that's hugely powerful when it then comes to credit underwriting.”* Which CEOs does he follow closely?* [59] “Jamie Dimon is very good. He's been around for a long time. Blackstone, whether it's Schwartzman or John Gray. Very insightful. And Marc Rowan at Apollo has a great understanding of financial services.”* The concept of the L6:* “I'm halfway through Michael Lewis's book on the pandemic, Premonition. I wasn't going to because in my view any book written about the pandemic was too soon. But I saw him being interviewed and it was pretty compelling.He makes this really interesting point about what he calls L6, stands for level six in an organization. He says, if you want to understand anything, then go six levels down in an organization. At that level you'll find the person who understands what it is you're looking at. And he said it was true in finance in particular … So I think a lot of CEOs don't necessarily know what's going on.” This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit alchemy.substack.com/subscribe

L’incentivo economico: i bonus stratosferici. L’incentivo sociale: rimanere i manager dell’azienda più innovativa del mondo. Il mezzo per aggirare il sistema: una contabilità aggressiva e molto spesso fraudolenta. Enron manipolò i suoi bilanci in due modi. Il primo sistema lo utilizzò per far sembrare profittevoli gli investimenti in perdita, il secondo, invece, per tenere le montagne di debito usate per finanziarli fuori dal bilancio. È importante ricordare che l’attività fraudolenta di Enron non venne scoperta fino al 2001. Solo alla fine di quell’anno l’azienda ammise irregolarità contabili. Come ha fatto a sopravvivere senza profitti stabili, con milioni di dollari di debito investiti in progetti fallimentari e a ingannare centinaia di analisti e investitori per così tanti anni? Siete pronti per una lezione di contabilità a livello agonistico? Noi di Bank Station vi accompagneremo nell’ufficio dei due uomini che hanno reso tutto questo possibile. Coloro che hanno permesso ad Enron di vivere gli ultimi anni della sua esistenza in una vera e propria financial fantasyland. Il Chief Operating Officer, Jeff Skilling, e il Chief Financial Officer, Andrew Fastow. Crediti: Testo di Giammarco Miani, Francesco Namari e Gaia Geraci Voci: Giammarco Miani, Francesco Namari e Gaia Geraci Sound design a cura di Andrea Roccabella Fonti: - Complaint: SEC v. Andrew S. Fastow, October 2002. - Steven L. Schwarcz (2002). Enron and the Use and Abuse of Special Purpose Entities in Corporate Structures, 70 University of Cincinnati Law Review 1309-1318 - McLean, B. & Elkind, P. (2003). The Smartest Guys in the Room, Portfolio. - Powers, Troubh and Winokur (2002). Report from the Special Investigative Committee of the Board of Directors of Enron Corp. - Healy, Paul, M., and Krishna G. Palepu (2003). "The Fall of Enron ." Journal of Economic Perspectives, 17 (2): 3-26. - Dubner (2005). Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. New York: William Morrow, 2005. Print.

Our first podcast episode! We discuss what we'll be covering in American Capital: the people we'll talk about, the timeline, and where it all takes place. (Hint: America—and the "British Atlantic.") — EPISODE MENTIONS Who: John Cotton, Robert Keayne, Abigail Adams, Samuel Slater, Sam Patch, Solomon Northup, Jay Gould, Booker T. Washington, W.E.B. Du Bois, Minnie Cox, Henry Ford, Alfred Sloan, Sam Zemurray, Brownie Wise, Mark Rich, Malcolm McLean, Jeff Skilling, Sheryl Sandberg Where: British Atlantic, British West Indies, Lowell Mills, Pawtucket Mills, Monticello What: 12 Years a Slave, National Negro Business League, Ford Motor Company, General Motors, United Fruit Company, Tupperware, Glencore, The Intermodal Shipping Container, Enron, Facebook --- Support this podcast: https://anchor.fm/american-capital/support

Kathy Ruemmler served for three years as White House Counsel to President Barack Obama. She advised the President on numerous complex issues and helped usher the Affordable Care Act into law. A graduate of the University of Washington and Georgetown Law School, Ruemmler was a federal prosecutor in the U.S. Attorney’s Office for the District of Columbia and one of the Enron Task Force lead prosecutors. In one of the most complicated and brazen cases in US history, Ruemmler convicted former Enron executives Ken Lay and Jeff Skilling of corporate fraud. In this episode, Kathy Ruemmler talks about her distinguished work in public service and return to private practice. As always, if you have thoughtful feedback, please email us at theoathpodcast@gmail.com. 

MARCH 25, 2019 BY TOM FOX In today’s edition of Daily Compliance News: ·      Jeff Skilling wants you to invest your money with him. What could go wrong? (Wall Street Journal) ·      Most bitcoin trading is faked. (Wall Street Journal)·      What do sanctions mean anyway? (Wall Street Journal)·       Two charitable donations rejected, Sackler family trying to settle OxyContin lawsuits. (Wall Street Journal) Learn more about your ad choices. Visit megaphone.fm/adchoices

MARCH 25, 2019 BY TOM FOX In today’s edition of Daily Compliance News: ·      Jeff Skilling wants you to invest your money with him. What could go wrong? (Wall Street Journal) ·      Most bitcoin trading is faked. (Wall Street Journal)·      What do sanctions mean anyway? (Wall Street Journal)·       Two charitable donations rejected, Sackler family trying to settle OxyContin lawsuits. (Wall Street Journal) Learn more about your ad choices. Visit megaphone.fm/adchoices

The Wrestling Estate‘s David Gibb and Juice Make Sugar's Nick Bond are here weekly to provide a pleasantly in-depth discussion on a specific subject that professional wrestling helps explain in ways you may not have realized. This week, it's Enron: it's a story that fits right into the strange turn of the century world that caused WCW, Eric Bischoff and Vince Russo to self immolate at nearly the same time Jeff Skilling, Ken Lay and Andy Fastow's byzantine plans keep their company going started to unravel before our eyes. And all for exactly the same reason: egos unmatched by anything other than their ruthless aggression and need for validation from people they thought were cooler than them.  Don't forget to check out Dave's Follow-up Files on our Patreon -- this episode's edition will be the only one available without contributing -- to which if, for whatever reason, you like the people behind the show you can help us pay for hosting by contributing (you'll also receive a shout out on the show as a sexy wizard, so that's something to look forward to.)  If you liked our theme song, "Dog of War" by the Hell Yeah Babies, you should buy their album All The Things You Believe on Bandcamp. If you like the show after the theme song: Rate, Review and Subscribe to us on Podbean, iTunes, Stitcher, Spotify and the Google Play Store.

Welcome to Part II of our Enron deep dive! We talk about some of the deals that set the company up for total and complete failure. From the outright fraud and trickery, to paying employees to fail in the most epic ways possible. Then we talk about their partners in crime who should have been the guard rails to protect everyone but also produced epic failures. We dive into the poor tortured internal compliance team who were used as props by Jeff Skilling for years...but really he screwed them from the word GO. Finally we move into the Enron frat bro culture of entitled spoiled brats who wail at the dishonor of being given ONLY a $400,000 bonus. Part III will be out next week, so enjoy!    Love your faces and Smooches! Lara & Tanya

Join Lara & Tanya for their first deep dive series exploring the collapse of the 7th largest corporation in America Enron. It ended up being the largest corporate bankruptcy in the history of the United States. But how did it get there? In this first episode Lara & Tanya discuss the source materials, a few key things to keep in mind while we cover this topic, and finally the founder of the company who would turn out to be the enabler of the disaster, Ken Lay. Then we cover the architect of the disaster and his life that lead him to Enron, Jeff Skilling. Make sure to subscribe to get parts 2 & 3. Also, please share this episode on your social media pages. We worked so hard on this and we really want to share it. 

In mid 2001 Enron, the company leading innovation and growing in just about every way was helmed by a few men. One of them, Jeff Skilling. The COO and President then eventual CEO and 24 year long sentenced criminal.

Harvard Business School has trained world leaders, like President George W. Bush, and billion entrepreneurs, including Steve Schwarzman and Mike Bloomberg. It also churned out convicted felons like Enron's Jeff Skilling and former McKinsey boss Raj Gupta. Duff McDonald, author of “The Golden Passport,” discusses the seamier side of Harvard's teachings with Rob Cox. See acast.com/privacy for privacy and opt-out information.

In the wake of countless scandals at the highest corporate levels, it’s easy to think that the key to getting ahead in business is to be a taker, but actually it turns out that the success of Enron execs like Jeff Skilling and Ken Lay are the exception rather than the rule. As Adam Grant, the youngest full professor at Wharton has found, Givers are the most successful…and the least successful people. In his fascinating New York Times Bestseller, Give and Take, Adam takes readers through the latest research on the promise and pitfalls of being both a Giver and a Taker. In this interview, Adam shares not only some of his superb book but also some of the other interesting insights in who make the best leaders. (Hint: it’s people who are not men.) Give and Take is available on Amazon, Audible and everywhere else. You can follow Adam Grant on twitter @adamgrant.