#85 Bethany McLean: Crafting a Narrative
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There's this idea that the business world is hard and cold and rational, and it's not. It's incredibly emotional, and everybody is biased toward belief because most people stand to make money if a stock goes up. It's that great quote from the end of The Sun Also Rises, isn't it pretty to think so? It's always prettier to think so than it is to say, to not think so. It's particularly true in business because most people want to make money. ♪

Hello and welcome. I'm Shane Parrish and you're listening to The Knowledge Project, a podcast dedicated to mastering the best of what other people have already figured out. This podcast and our website, fs.blog, help you better understand yourself and the world around you by exploring the methods, ideas, and mental models from some of the most incredible people in the world.

If you enjoy this podcast, we've created a premium version that brings you even more. You'll get ad-free versions of the show, like you won't have to hear me say this, early access to episodes, you would have got this last week, transcripts, and so much more. For the price of a couple cups of coffee, you can help us out. If you want to learn more now, head on over to fs.blog.com or check out the show notes for a link. Today I'm talking with the remarkable Bethany McLean, who is one of the best investigative journalists in the world.

In this in-depth interview, we talk about the role of journalism in society, the investigative process and Ron, what happens in the wake of exposure, the ways we're irrational and emotional, and so much more. It's time to listen and learn. ♪

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Bethany, I'm so happy to get to talk to you today. Thank you for having me. You wrote one of the most fascinating books of this generation, which was The Smartest Guys in the Room. Can you talk to me a little bit about how

you hit on Enron as a fraud while you were working for Fortune? I actually think that's one of the rare times in life that you get too much credit for something. It doesn't happen often. But the piece I wrote, I have joked, should win awards for the meekest title in history because the title was, is Enron overpriced?

And, well, yeah, it was bankrupt six months later. I didn't know at the time I wrote the piece that Enron was a fraud. I knew the numbers didn't add up and it was shocking to me and it was such a lesson because so many people who were investors in the company couldn't answer the basic question, how does this company make money? They just wanted the 20% earnings growth that would spit out the bottom line.

and the stock price jump that would happen when the company met or exceeded analyst earnings estimates, as it always did, but they didn't actually understand the business. And that in and of itself was shocking to me. But the core

The core of that piece was really, wow, look at this company's valuation. And yet nobody can explain how it makes money. I always think breaking a story is really being able to actually get in there and explain what's happening. And I didn't do that degree of excavation on Enron. But this piece, nonetheless, which started when a guy named Jim Chanos, who many people know he's one of the longest running short sellers out there, came to me and said, how does Enron make money? Tell me if you can figure it out.

And I was several years out of a brief stint in investment banking at the time. So I was able to at least look at the financial statements and say, hmm, I don't know. Was there a moment where you realized you were onto something?

I think I was not cynical enough at the time, or skeptical maybe is a better word. But Enron also came at an interesting inflection point in the history of financial markets in the sense that there hadn't been a big fraud for a lot of years before that. So the idea that this company that was so celebrated, that it just built this gleaming new headquarters in Houston, Texas, the idea that this could be a

fraud was almost inconceivable at that point in time and I think that's one of the reasons that Enron occupies such a place in the cultural consciousness because it was this inflection point where we all said oh we've had this blind belief in this in corporate America is going to invest in a company and it's going to

sink your retirement savings into it and this is going to fund your life. And Enron was the moment where all of that suddenly became questionable. But so for me, it was a slow unfolding. If you had told me when I published that story that Enron would be bankrupt six months later, I would have said, are you kidding? That process or that progression wasn't something that occurred to me. Why did it happen so rapidly? Is that because you put a different narrative out in the world and then people were like, this narrative is more correct?

Or do you think it was a lack of information on other people or a willing blindness? Like what was going on? I think there was a lot of willful blindness and a lack of understanding of how Enron made its money. I don't think my story was a catalyst. I don't think it caused anything. I think it picked up on this underlying skepticism about Enron that was growing. There were a lot of smart people who were short the stock for a while, and even though they...

the information, their skepticism traveled in a very small circle. The broader circle of people didn't really understand how the company made money and there was this gap between the information available in the equity markets and in the credit markets because the equity markets were total believers in Enron and the credit markets where Enron was issuing all this off-balance sheet debt were very skeptical. And the skepticism in the credit markets and from short sellers was starting to leak into the general view of the company.

And Enron also came, its collapse also came at the time of the collapse of the dot-com, the first dot-com bubble. Second dot-com bubble now, no, but the first dot-com bubble.

And I think that played into it because Enron's really hyped business was this business called Enron Broadband, which it's an interesting aside. It really was Netflix before its time. But as the dot-com bubble began to collapse, people really began to look at what Jeff Skilling, Enron's CEO, was saying about Enron Broadband and say, wait, how can this be true when this carnage is going on over here?

So I think the environment also, it was part of the reason that Enron's fall was so swift. But I don't think my story had that much to do with it. I think my story illuminated some of the problems, but I don't think it caused anything, if that makes sense. Talk to me a little bit about that information gap. We're awash in information today. And so it was really interesting for me to hear that you

pointed out that there's a gap in the information because we're thinking I mean the Information is everywhere. It's available to everybody in a real-time basis information is no longer an advantage Talk to me about your experiences with that. Well, I think it is still an advantage I have this theory although it's a little bit less true today than it than it used to be because of Twitter and some respects and I'll come back to that but

But certainly years ago, skeptical information didn't leak into the mainstream of the business world. And I found that in covering business all these years, there's a weird three monkeys thing that prevails. Hear no evil, see no evil, speak no evil. In politics, you can get two sides of every story pretty easily, right? In the business world, you can't because skepticism about business is

tends to travel in a very small circle. Companies won't speak ill of their competitors, at least not publicly or very rarely will they. Employees can't speak publicly without being fired from companies. So there's this odd veil over the information that you most want to know. And so that's part of the reason that certainly years ago skepticism just traveled in a very narrow circle.

So Enron, for instance, there were a lot of people, very smart hedge fund managers, who were short the stock for years leading up to its collapse. But that skepticism never, ever made its way into the mainstream view. The mainstream view was this company is a superstar. And that played out also, as I mentioned, in the equity and the credit markets, because the equity markets had one view of Enron's stock. And the credit markets, which saw the immense amount of debt Enron was issuing on an off-balance sheet

basis and the documents that weren't publicly filed but would be circulated among bond investors that said, "Wow, this company has an insatiable need for capital." And so it was a very different narrative in the bond market.

So I think there are two forms of information gap. I think there's that, where sometimes the information you most need to know just isn't out there in that sea of information, or it's much harder to find than the information you don't really need to know. And then some component of it is just perspective, right? Everything is the prism through which you see it.

And so sometimes there's this moment where you see the information differently and all the pieces fit together in a puzzle that is very different than the one you had seen before. And sometimes it's just as simple as a shift in perspective and you say, oh, this is it. So I think those are the two forms of information.

The ways in which the fact that a lot of information is available doesn't help us see things more clearly. I want to come back to that in one second. There was something there that you said that I thought was worth diving into a little bit more, which is we often don't hear two sides of the story on businesses. Is that because people who stand to lose from the collapse of the business are...

seem to be profiteering? Why is that story not equally as valid or arguable, if you will, or put in the public as the story of this business is amazing and we're doing all these great things? It goes to the heart of what I think an illusion about the business world is because there's this idea that the business world is hard and cold and rational, and it's not. It's in

It's incredibly emotional and everybody is biased toward belief because most people stand to make money if a stock goes up. It's that great quote from the end of "The sun also rises, isn't it pretty to think so?" It's always prettier to think so than to not think so. And it's particularly true in business because most people want to make money and most people make money if things go up.

And for some reason there's this mom America and apple pie thing about stocks rising and belief such that you would think in a rational world it would be exactly as you said. Somebody who has a skeptical view, that view would be just as welcome as somebody who believes. But it's not. There's this idea that short sellers are bad people somehow because they might profit if something fails.

And that was true back in the day when I wrote about Enron. Even other journalists said to me, well, you took a tip from a short seller. How could you do that? I thought everybody's biased. Company management is biased. The analyst who has a buy rating on the stock is biased if for no other reason than confirmation bias, right? And portfolio managers who own the stock are biased. And so, yes, a short seller is biased too. But everybody

But there is still this, and you even see it on Twitter today in the Tesla battle, that somehow short sellers are less valid human beings or their point of view is inherently evil because they don't believe in the company. There's a direct line from that to sort of like people getting hurt or losing money.

Whereas the opposite is not equally true, right? Where you're selling something that might hurt somebody in the future, but it's not as visible, it's not as tangible. Maybe, although the counter argument would be that a really overvalued company whose stock eventually collapses under its own weight is going to hurt a lot of people when that happens.

So why not have the view out there so that that doesn't happen and then catch up innocent people in that plunge? Talk to me a little bit more about this bias towards belief that we have. How does that affect people inside the corporation? Is this why we don't have more whistleblowers? I think it does. I've often thought about this because...

I left an investment banking job and went to Fortune in, I guess, '95. And I thought, well, if I'd gone to an executive recruiter and they had said, there's this great energy trading company down in Houston, Texas, what about a job there? And if I had ended up at Enron, would I have been a whistleblower or would I have been a believer? And I like to think the former, but I suspect the truth is probably the latter. Because I think culture is so, so important. And so if you're inside a company--

and your pay depends on that company, that's that great Upton Sinclair quote, right? You can never tell a man anything if his wallet depends on him not hearing it. That's something like that. If you're inside a company and everybody else believes and your economic well-being is dependent on the company doing well and the stock doing well, the idea that you're going to be able to again shift your perspective and step outside that and be able to see something that isn't in your interest to see,

I think that's beyond most of us. There's a reason that whistleblowers tend to be outsiders, right? That's a really interesting observation. You also covered Valiant. Yes. Talk to me about the differences between Valiant and Enron. Can I start with the similarities? Oh, yeah, please do. So I think the way in which they're most similar is not super obvious because most people think of Enron as a giant fraud, right?

But it really wasn't. Most of what Enron did was actually perfectly legal. So I coined this term once, which I love, which is illegal fraud. And that's what Enron was because most of the transactions they engaged in, even the ones that appeared to be the most problematic, actually met the letter of the law. It was very much a follow the rules sort of argument but totally violate the spirit of the rules argument.

managed to follow the accounting rules but totally misrepresent the economic reality of the business. And Valiant in that way was very similar in that most of what Valiant did was actually legal. And that's why you didn't see any prosecutions after, or very few prosecutions after the fact, just of a few lower level people in the subsidiary business.

So they're both equally problematic companies in different ways, but they have that in common, which is the way in which an ethical failing can actually be more damaging than a legal failing, if that makes sense. Oh, and here's another way in which they were similar. I'm doing better on the similarities than I am on the differences. But I think about this a lot, that if a company makes a lot of enemies as it's on its way up, you have to be a lot more skeptical about that company than about an average company, because when the tide turns, it's going to turn viciously.

And what I mean by that is that everybody hated Enron because of their arrogance and their callousness in the way the company and its employees behaved to other people. Their competitors hated them. Regulators hated them. And so when the tide turned, it turned viciously. And the same thing was true of Valiant. Everybody else in the pharmaceutical industry hated them, particularly after the battle with Allergan. David Piot was beloved, and Mike Pearson was not. And so when the tide turned against Valiant, it turned viciously.

And so I think that's an interesting broader lesson. The ways in which they were different, I don't think the substance of the Valiant story was accounting misrepresentation the way it was with Enron. You could actually see pretty clearly what Valiant was doing with its numbers. There were a lot more of Enron shenanigans that were really hidden from plain sight.

wrongdoing to me really centered around the price increases the way they were increasing prices on drugs. So if it was so transparent what was happening with Valiant, why did so many smart people get fleeced? I still struggle to figure that out because that is actually a remarkable difference from Enron in that with Enron when you got to what was commonly considered the smart money, people either weren't invested in Enron or they were short.

And it was largely long only funds and index funds and what we think of in terrible terms, but the dumb money that was invested in Enron. And Valiant, that was not true. Some of the smartest investors we have from Sequoia to Value Act to Bill Ackman were big believers in this company. And I still can't quite figure it out. I think a lot of it comes down to the power of personality. And I think Mike Pearson is...

who, like Jeff Skilling, was a McKinsey alum, had just this incredible intellectual charisma. And for both men, it was somewhat unlikely. Skilling was kind of a dork who transformed himself into this maven. Mike Pearson was this slovenly guy with everybody knew it, a drinking problem. And yet, for some reason, he had that same intellectual charisma that

I think they both had this in common that they took an old business that was problematic in the case of Enron Energy and in the case of Mike Pearson Pharmaceuticals and said, "We're not just a company. We're reinventing this industry. We've got a better mousetrap." And I think for people who think they're smart, there's something very alluring about a smart person saying, "We've figured out the system. We've cracked the code." We know something nobody else knows. We know something nobody else knows. We've cracked the code, right?

And then I think there's just a certain amount of confirmation bias in all of us, right? Enron stock did really, really well for years. Valiant stock did too. So it wasn't just that the market was reinforcing the belief, it was also that smart people could look at the crowd of shareholders and say, "Look at all the other smart people who are here."

And I think that the lesson from that is just because a lot of smart people believe in something actually doesn't mean it's right. It doesn't mean it's wrong. Right. And that's obviously a data point, but it doesn't mean it's right. You spoke with a lot of the smart money that was in Valiant or you're familiar with them. What happened?

after Valiant collapsed with those people? Was there a retrospective and admission of, "Oh, I made a mistake," or was it like, "This is just the odds in investing"? I think it depends on who it was. I think it's been pretty devastating to a lot of people, and I think the smarter, more thoughtful people have spent a lot of time trying to think about why they got it wrong.

I think there's still a little bit of defensiveness in that the viciousness of the way in which Valiant fell is reflective, I think, of the point I made earlier that this company made so many enemies that once the tide turned, it just turned. But I think people have really tried to think about what went wrong. And for me, one part of that is when a company is doing something that might be perceived as highly unethical, there's this odd...

almost lag because everyone knew that Valiant was taking existing drugs and raising the prices on them to unconscionable levels. Everybody knew it.

But for some reason there was this weird inability to see what a big problem that would become when it became widely known. I remember sitting with an investor in Valiant and he was talking about Martin Shkreli and how awful what Shkreli had done with Daraprim was. And I looked at him and said, "Well, why is Valiant any different?" And he thought about it and he said, "Well, that's a good question."

And so there was an odd inability to take what was widely known and understand what would happen when it really was widely known.

I think it was research for this where you had a friend with Wilson's who had, um, they have to take the copper out, right? And they were on this dollar a day drug and Valiant had raised the price to 300,000 a year from a dollar a day. Yeah. And I thought that, that, that really speaks to the human impact of some of this. Now the flip side of that is like they need money to do R and D and, and so where do you draw the line on that? Like, how do you think about that? Having done so much research into this?

Well, weirdly enough, I am actually more sympathetic to Martin Shkreli even than I am to Valiant, even though I'm not sure Martin, had he had the time, would really have done what he said he was going to do. But he said that with the price raise in Darabrim, what he was going to do was funnel that money, those profits back into R&D. And I don't know.

I guess I'm 50-50. Part of me thinks he really would have done it. And the thing is, Valiant wasn't doing that. So their whole promise to investors was, we don't need to do R&D. So it wasn't an argument of, we're going to take the profits we're making from this and invent new drugs that are going to save people's lives or figure out a better drug to treat this disease. It really was their argument to people. And investors repeated this to me. It was, well,

Well, this drug, even at $300,000 a year, is still cheaper than the cost of a liver transplant. And so as long as we're cheaper than the cost of a liver transplant, then it's fine that we do this.

So I think some of that speaks to just this murky moral line in things in a way that laws can never legislate, right? I mean, drug companies just didn't used to do that. That just wasn't the way they operated. You had Merck famously create the drug that helped blindness, right, for almost as an altruistic endeavor because there was just this sense of a company as being an actor in this broader world.

I think as the focus has been on shareholder value and profits above all, it's just narrowed the prism through which executives see the world. And it's become very tempting to say, well, if it makes money, then it's good. Talk to me a little bit more about the company being part of an ecosystem. What are the moral obligations? What are the responsibilities that you see companies having? Or is it solely to the shareholder? I struggle with this because you

I understand how in a very complex world, how appealing it is to have this bottom line ideology because it's clarifying, right? If you get to say, my only responsibility is to make money. If it makes money, then it's good. Then you found your God, right? Then life is very simple and clear and complexity. You can cut through the complexity with a single-minded goal. If

If you don't cut through that complexity and you say, well, if it makes money, maybe it's not good because it's hurting the community. It's a lot more complicated. And how do you measure that then, right?

And that can become, in and of itself, that belief that a company has a broader purpose can become a cover, an excuse for a lot of bad behavior too, right? Because fake altruism is almost worse than single-minded profiteering, right? So I don't know. I think it's really interesting when the Business Roundtable came out with that statement in the fall that a company's purpose is broader than a bottom line.

there were no metrics around it and there was no even thinking about how do we gauge this, right? I think the other part of it that's interesting is that when you look at the history of corporate America up until the dawn of the LBO era in the 80s, that was the purpose of a company. It was supposed to be broader. You know, General Motors was mom America and apple pie and we'll take care of everybody forever. And that doesn't really work either.

So I guess to summarize when people think about the purpose of a company being more than a bottom line Most people think this is something new. It's not new it's old and it didn't work perfectly the last time around either So you can't just say that you actually have to think about how you're gonna implement it And I think we're just at the very early stages of that It's interesting because we often think about that mostly with public companies but private companies are also companies and they have a lot more freedom and

in terms of how they operate with social or other moral considerations. Right. There was a book, and I'm struggling to remember the name of it. I did a review for the Washington Post on it.

by a professor, I think he's at some one California school, and he studied the history of companies that do try to have a broader social goal, and it's not good. Partly because those companies have ended up over time as leadership has changed, as the person whose spirit really energized the whole idea that they stood for more than profits has passed away.

the companies did become solely bottom line focused, or they just lost sight of making a good product that the consumers wanted. But the history of those companies is not particularly, it's not like you look at them and say, Oh, look, this is the way to do it. Right? Yeah. It's fascinating because I think about this often where we're trying to do a lot of social good things. But then I also think about, well, if there's a recession and we start cutting back on those social good things in order to survive, like what is the perception of that?

Like, how do people perceive that? Is it like now we're not doing good and we're focusing on money again versus like, what is that narrative that becomes in the public? You've spent a lifetime studying sort of like how otherwise good people end up doing terrible things. Talk to me a little bit about what you've learned. So I think about that a lot because when I started working on books,

the book about Enron with my co-author, Peter Alkind, I had this very simplistic belief that if bad things happen, then bad people did those bad things deliberately. And I remember being completely shocked when I'd call people up who worked at Enron and finally get somebody to talk to me by the widespread lack of knowledge about what was really happening at the company.

And some of that goes back to this, the belief we all have, particularly if we're inside an institution with a really powerful culture, that it's really hard to add up the pieces and see them differently. But I've really come to believe that very few white collar crimes or stories of business gone wrong are done by people who deliberately set out to deceive other people. Usually it's this odd mixture of rationalization, arrogance,

Some greed, yes, but usually greed in service of ego rather than greed. I want to go out and buy a new Lamborghini or whatever. I don't know my cars very well. A new island somewhere. Greed in the service of making me feel like a bigger person rather than greed for material things. But I find that a lot more interesting. So you rarely find that moment where

It'd be really great if you could find that crystallizing moment, right, where everybody decided to do the bad thing. But those moments don't usually exist. It's usually much more of the slippery slope argument. Can you expand a little bit more on greed in the service of ego and maybe how the company's culture plays into that? Yeah, I think it's less, honestly, the company's culture than I think it is.

the comparisons with other people in one's stratosphere. I thought not to pick on him, but did you read the Financial Times did a really good interview with Lloyd Blankfein, the former CEO of Goldman Sachs. It was a couple of months ago, maybe a month ago. And Blankfein said in that interview that he didn't consider himself particularly well-off.

Because his reference group was...

Well, he has a private jet and a private island, and I only have a billion dollars, and he's got $2 billion, and I'm not particularly well off. And so, I mean, honestly, if you have more than – I don't know what the number is, right? But if you have more than a million dollars, you're doing really well, right? You've got enough to feed your family. You've got enough to put a roof over your head. You've got enough to meet your basic needs.

And so none of it then, money over a certain point, if it's your goal, is for sure not in service of material goods or making your life nicer. It's just about comparing your balance to those of other people so you can feel bigger than they are. And so that's what I mean by greed in the service of ego. If you have even $10 million, you can go buy yourself what you want, right? Right. I was having a conversation with somebody the other day, and I just sort of like,

Just to put things in perspective, I was like, there's 7.9 billion people in the world right now that would change their problems for yours in an instant. Right. And when we find ourselves comparing, it's often a matter of perspective. We're only seeing forward instead of seeing all around us. Yes. And I think that's one of the very pernicious effects of a...

1% society in a mobile global world because those very, very wealthy people are much more likely to be connected to each other than they are to be connected to the great mass of humanity. And so then their reference point becomes the others right in that narrow circle rather than the community at large. So is that something innate in us? Like, is that a hierarchy, a biological, like, hierarchy instinct that gets fed as

as we get more and more successful? Or is it something that develops? Like, is it revealed or is it created? I don't know. That's really interesting. I guess...

I think most, I think human beings have always had a need to belong to the group, but consider themselves better than the group at the same time. So I think it's innate, but it probably gets fed if you get used to thinking of yourself as better than the group, then I think you don't have to confront that in yourself. And so then it probably, I think it's probably there at base, but then it gets, it gets fed in people and stoked. So what are the other sort of like markers or characteristics of people that are

Sort of good but going bad. Interesting question

I think one of it is an ability to rationalize. And I'm not sure I could do better on this front because the rationalization is very powerful and appears true. And what I mean by that is that there's an enormous amount of pressure on people in business to produce profits, to please shareholders, to please their board of directors. And so the rationalization becomes, well, if I can do this and bridge this failure for a little bit of time, I keep everybody happy.

And of course, the other way to look at that would be, and yeah, that keeps your ego happy too, because you don't have to confess that you failed. But it's a very powerful rationalization, and it's true, right?

Because in this day and age, if you confess failure, say, look, profits are going to be down for a year because this new business I told you was going to be great isn't actually doing so well, you might well lose your job. You're going to get pushed out. And your stock is going to go down, and that is going to hurt investors. The most dangerous things in the world are always those that have a strong element of truth to them because it's so tempting to believe in it. So I think that's part of it. And then I think it's very hard to be the leader of a company

I would think if you yourself aren't a believer and aren't biased toward belief, because you need as the CEO or the leader to be able to inspire other people, right, with your grand vision. And so how, if you're inspiring with people with your grand vision, do you not believe in that grand vision too, right? And then I think that it becomes very hard then to acknowledge that the grand vision isn't playing out.

That really sort of like begs the question what separates the difference between a visionary and a fraud? So I think I've made this argument that I think they're actually the same person and sometimes I think... Oh, expand on that. So they're not the... You would think that the visionary sat at one end of the spectrum and the fraudster at the other end of the spectrum, right? But I think it's one of those many things where they actually meet in the circle. I sometimes think the only thing that separates them is that the visionary gets lucky and it all works out and the fraudster gets caught in the middle, right?

Because a lot of visionaries from Thomas Edison through have lied at various points in time and have said things that weren't true in order to keep their employees and their investors believing in them so they can keep getting the money to fund their dreams. That's certainly true of Elon Musk. Wherever you believe he sits in that spectrum, when you look at his history, he's for sure lied at many points in time in order to keep funding his dream.

And so I sometimes think the fraudster is just the person who stops being able to convince people and the band-aid gets ripped off or the curtain gets pulled back and everybody sees the inner workings and says, oh my God, no. Like, I mean...

I don't know. Could Elizabeth Holmes have pulled it off if she'd gotten another billion dollars and people had continued to believe in her? Maybe. But thanks to John Kerry's great reporting, the curtain got pulled back and everybody saw it for what it was before she'd been able to make it work. Maybe she never could have. I don't know. But I think for some fraudsters, maybe it would have worked.

if they had just gotten more time and been able to keep getting money. I think about that with Enron Broadband, which as I mentioned earlier, really was Netflix ahead of its time. It was a visionary idea.

But maybe that begs another question. Maybe the difference is execution. It's not just the idea. So maybe that's what separates the visionary from the fraudster. The idea is the same, the grand, big, beautiful idea that everybody believes in. But maybe the visionary either knows how to execute or knows how to hire the people who can execute and the fraudster doesn't. That's a really interesting point. Take off your journalism hat for a second there and put on your sort of like citizen hat. Is it a good thing or a bad thing on hold that we have people

People that have these grand ambitious plans that get funded because occasionally they hit. I think it's a good thing. Certainly selfishly, because if we stopped having the big frauds and blowups, I wouldn't have anything to write about. So by all means, that's terrible. But I really do think it's a good thing. And I think that's the inevitable outcome.

Frauds and blow-ups are the price we pay. And I think it's good to have these big, grand, ambitious plans. Life would be really boring if you didn't have that. And I think reflexive cynicism about this sort of thing is just as bad as blind belief because it's these things that really do change the world.

That said, I don't mean to blindly celebrate our current system because I do think either accidentally or deliberately our system has evolved to one in which the people who should be taking the really big risks and then reaping the really big rewards, it's turned into a system where those people can reap the really big rewards, but they've managed to push the risk onto other people. And that I think is not fair or healthy. Expand on that a little bit.

So Wells Fargo, right, is a great example of that. Wells Fargo managed to institutionalize this culture where employees and their bank branches had to meet these really aggressive product sales goals. And so the employees, many of whom weren't barely making minimum wage working in banks,

had to falsify accounts in order to keep their jobs and get paid. They were the ones taking the risks. They're the ones who lost their jobs when the company figured out they were violating the rules in order to meet goals the company had put in place that were unachievable. The top executives were reaping the millions of dollars in, tens of millions of dollars in Wells Fargo stock price appreciation.

And after the fact, it's the lower-level employees who did whatever it was that was criminal, and the top employees are protected by all the laws that are put in place to insulate executives at the top of the company from being criminally prosecuted if they didn't knowingly do something. Look at Countrywide, right? Another example, Angelo Mazzello, the CEO, ended up paying a relatively small fine to settle civil charges against him. Countrywide was

no matter which way you think about it, responsible for the propagation of really risky mortgages all across the country. And people paid the price for that. The top executives at Countrywide didn't. There's something wrong with that. I think that's a corruption of capitalism. The people at the top of the system, if you believe in it, should get the rewards, but they should take the risks too. How do you think that we should do that? I don't.

No. If you could fix the compensation problem, then you could go a long way toward fixing this issue. But the

history of attempts to reform compensation is the rule of unintended consequences writ large. I mean, just think about it. What could have sounded better than stock options for aligning executives' interests with those of employees and shareholders and stakeholders, right? That would seem to be perfect. But there was this great number, and I'm going to get it wrong, but it was from the Joint Committee on Taxation, which investigated Enron after the collapse. And they calculated that the top 200 employees of Enron got

a billion dollars from exercising stock options in the year before Enron went bankrupt, right? And there was a line in the report, I don't remember it now, but it was something along the lines of, well, that proves that stock-based compensation doesn't necessarily align interest. If you really could make top executives' financial outcome oriented toward having the company be around in 100 years and be successful over the long term, not over the short term, then I think a lot of these problems would go away.

but as long as you have a system of incentives where people can get paid, even if a company ends up bankrupt. It's like heads you in, tails I don't lose. Yeah, I think it's going to be problematic. It's interesting to me. This is going to be controversial, but I'm not a fan of stock options. I actually think that if people want to invest in a company, they should put their own money in, and I do think executives at some of these institutions, especially the more systemic ones like healthcare and healthcare

banking should be required to have a percentage of their net worth invested in the company. I think so too. And I think that that would encourage better decision-making because now it would have a meaningful impact to you financially if you're doing things that shouldn't be done or...

Right. I mean, that's the investment bank debate writ large, right? That when investment banks were private partnerships where people had their own fortunes and their own financial well-being on the line, you saw very different behavior than you did in the years leading up to the financial crisis where they were playing with other people's money because they'd all gone public. Talk to me about the state of journalism today. I think it's really frightening. I think there

There are sustainable business models that are emerging out of it. There's the sort of winner-take-all model that the New York Times is pursuing. There's the billionaire backer model that the Washington Post has with Jeff Bezos. There's the not-for-profit approach that ProPublica is trying. They all have their weaknesses and their strengths, but there are models that appear to be working and producing really good journalism.

But most of the new business models that have come along and been hyped for a period of time have proven not to work any better than the old business models, whether it was Vice or BuzzFeed or Vox or whatever else has come along that people have said, this is it. They figured out the magic. This is the way journalism works. And then it's been, well, oh, that's not really so clear. And overall, the state is abysmal. I think local newsrooms have lost, what, almost 50% of their employees over the last decade. Magazine journalism is in really tough straits.

And part of that is just that the economic model was, it was always sort of a bait and switch. And that's a little bit of a extreme way of putting it, but people weren't paying for content, right? It was the advertisers who were, who were funding it. And once there was another seemingly more efficient vehicle for advertising, the funding went away. So it's not that the demand for content has, has changed. It's just that the business model is, is broken. I'm

I'm not sure anybody has figured that out. And I think it's such a weird irony in a way because the problem is Google and Facebook, right? They're siphoning up most of the advertising dollars that used to go to journalism. And yet Google and Facebook, it will deeply impair their business models if journalism ceases to function, right? If there's nothing to Google, what happens to Google?

If there's nothing for people to share on social networks, what happens to Facebook? And so I think those companies at least are belatedly recognizing that and are starting to fund local news efforts. But it's just, it's such an irony to me. They were kind of parasites on the journalistic ecosystem and they were parasites that infected the host and killed it. And now what happens to the whole ecosystem?

I don't know. I want to go back to something you said earlier where we're attracted to sort of these new and novel business approaches. Because this speaks to me about something we talked about earlier where we're attracted to somebody coming in and going like, I know how to do this industry better than everybody who's done it before me. I think there's so much cult of personality. It's one of the ways in which the business world is so not rational and is so emotional that

People are believers in other people. And sometimes because those other people really have figured it out. And sometimes because those people just have a really compelling way of presenting their vision. And I think when a person like that comes along, it's really appealing to believe in them and to believe that they've, that they're somehow a secret sauce and that they've figured it out. And that exerts a powerful hold on everybody's imagination, right? That

It's a little bit off topic, but not really. But look at Adam Neumann and WeWork, right? There was a great line in a Wall Street Journal story about how he was everything investors wanted. He was charismatic. He was tall. He was able to spin a really convincing story. And it was like, wow.

Wait, what about profits and sense and building a good business model? No, it was all charisma. And I think we're particularly guilty of that today because the lure of the founder is so strong. And so there's this idea that the right charismatic person can build anything.

And so people latch on to that. We all want to find that person we can believe in or that magic bullet that's going to fix the broken industry. And that's much more appealing than actually doing the slog of saying, how is this thing going to make money? Talk to me a little bit more about the ways that we're not rational and emotional when it comes to business. You said that was one of the ways. Yeah, I think that blind belief in a person is one of the ways.

I think confirmation bias is another huge thing. Valiant is just a great example of that. We tend to look around and say, oh, look, other smart people are investing in this. And oh, look, the market is rewarding this. It must be right. I mean, look no further than financial Twitter and the Tesla debate.

One of the main things Tesla bulls say is, "Look at the stock." So because the stock has done so well, that proves that Elon Musk is a genius and that our belief is right. I mean, obviously, it proves nothing of the sort, right? It's a really strange argument. It's an emotional argument rather than a rational argument.

Another feature that underlies all of these stories of business gone wrong which is the great belief of the majority of people and something that after the fact is just clearly gonna seem to be too good to be true, right? That was Enron and it was the financial crisis when you look back the simplicity of it is kind of shocking that everyone really believed we could make loans to people who couldn't pay them back and that that somehow was all gonna work out just fine, right? Do we err on the other side like too bad?

Well, we swing between extremes. What's the difference between good journalism and bad journalism? Oh, that's an interesting question. I don't think it's necessarily getting it right because I think really provocative stories may prove to be wrong.

I think it's transparency and intellectual honesty. So being clear about what the facts are and where things are coming from so that people can read it and it will provoke a discussion, but they might still be able to say you're wrong.

But I'm not sure the great majority of people can do that. So I think I may be positing something that is hopelessly Pollyanna-ish. But I like to believe that if I've done a good story, it may be wrong and somebody else may be able to say, here's where I think your thinking went wrong. But they should be able to read it and see where my thinking went wrong. Does that make sense?

So you're basically taking something and you're saying, here's the well-reasoned point of view I have, but I'm going to show you how I established it. And then if you pick it apart from there, at least we'll know where I went wrong. Right. Or at least we can have a rational disagreement about how I saw this versus how you see it. But I'm putting my argument out there. So how does that work in a world where if you're a journalist today, you have to publish something?

So many articles a year so quickly. I think it's really hard. I don't have that issue. No, you don't. I'm still primarily a long-form magazine writer, and I have time. I think it's really hard. I am never more shocked than when I go back through my stories in the fact-checking phase and realize how much I've gotten wrong and how much needs to be fixed. And you're so meticulous about how you go about this. Crafting a narrative is...

Always a distancing from from the facts to find the more universal story, right? So as you craft a narrative you inevitably let some of the facts slide and you don't do it deliberately as your human brain searches for the narrative that makes sense you allied some of the facts in the interest in arriving at a more universal narrative or a more coherent narrative or

And I do that constantly. And then as I go back through something, I realize the places in which I did it in which the nuance needs to come back in, or the places in which the story doesn't fit that more universal narrative need to be pulled out and sharpened. But it's always humbling to me as I fact check my own stories about where I get things wrong. Is there a story that you've gotten particularly wrong that you're like, damn it, like, I missed that I was blind to something? I

Maybe somebody who's listening to this is going to be that one, Bethany. Maybe this is just my own bias that I've sort of tuned that out of my consciousness. I can't think of one that I've been... Twitter will tell us. Twitter will no doubt tell us. I mean, you could argue that I did a very tough piece on Elon Musk earlier this fall, but I don't think...

Even if Elon Musk proves to be the greatest visionary the world has ever seen and Tesla is what its biggest believers say it is and SpaceX takes people to Mars and establishes a colony there as Earth goes to hell, I still don't think the piece was wrong because what I tried to do in the piece I wrote was show Musk's flaws and show how he isn't always a truth teller and he can be a bully who is a liar and someone who is going to line his own pocket.

And I think those are all valuable facts to know as we think about Tesla bigger picture.

But you could also make the contrary argument that maybe those flaws don't matter. And so in the broader sense, maybe the piece will prove to be wrong because Musk will be everything his believers say he is. Maybe they're both true, right? Can you have somebody that does? I'm struggling to think of an example of somebody who's exceptional at anything that doesn't also have

incredible flaws in other areas and I'm not saying this with Elon but just in general. Yeah. Like we look at these these very exceptional people and often we're looking at one aspect of their life where they might be exceptional and the rest of their life could be falling apart. Right. So they're not maybe not well-rounded individuals in that sense. That's so interesting. Jeff Skilling used to say that he liked people with the spikes and

And what he meant by that was that he didn't like well-rounded, genial, average people. He liked people with a really exceptional characteristic that defined them and that may come at the expense of other characteristics. And I think we took that when we wrote Smartest Guys as a bad thing. But your question makes me think about that and think maybe he was right. Maybe there is something to be said about that.

But maybe as you think about people in a business context, the trick is which flaws matter, right? So in the case of Elon Musk, does it matter that he doesn't always tell the truth? Does it matter that he's a bully? I'm not sure it would be really interesting to try to think through what flaws matter for what particular goal, right? I mean, I'm thinking locally here is I have friends who are incredibly successful, but if you told them to like drive their kids to school, they'd be like, where's the school?

Like I have no idea, right? So they're not necessarily this well-rounded family person, but they are incredibly successful at what they do in part because they have this relentless focus on that to the cost, if you will, of everything else. Yes. But I think relentless focus on one thing to the exclusion of other things is a different argument than a character flaw, right? That said, we all have character flaws and sometimes I've thought just

a little bit analogous to the visionary and fraudster argument that life sometimes turns on whether you end up in a situation in which your particular flaws are on full display, right? Because we all have them and some of us just get lucky and our flaws aren't pulled out and highlighted and other people

Right, you're in the limelight. Other people just stumble into situations where their flaws become the pivot on which all else turns. But we're all flawed, right? But in the context of a business, as you look at it as a CEO's character, a leader's character, what flaws matter to the success of the enterprise and which ones don't? I want to come back to that question. I'm going to actually pose that on you. Sure.

Was thinking as you were saying that that maybe that's not a character fault Maybe it is right like if you're not there for your partner or you're not

good father isn't that or a mother or isn't that an aspect of character? I don't know Steve Jobs would prove the lie to that right? Could you be the exception like are we to draw a rule from this or is this a He could be and part of part of what's gone wrong in modern Silicon Valley is that everybody believes he's the rule right? So all sorts of character flaws have become forgivable because hey look at

look at Steve Jobs and look what he did. And flaws have almost become a good thing because that those sort of character flaws have become a marker of brilliance, right? You can't possibly be really good unless you're, you really suck in all these other ways. That's fascinating. I hadn't even thought of it in that way, right? Like you can't be exceptional unless you, um, talk to me about some of the flaws that we think don't matter if you're running a business.

So I think people tend to see this intellectual charisma or the ability to intimidate others around you into belief as

as a good thing because we all follow that kind of blindly. But I think that's probably not a good thing, at least if you believe that a collaborative environment and being able to second guess and question and hear doubts is what makes for a better outcome at the end of the day, then that personality type would be utterly antithetical to inspiring the kind of collaborative open environment that we all say we want yet.

So there is a hypocrisy in that or a conflict in that and that we all say we want this collaborative environment. And yet we tend to follow people who don't foster that because their own cult of personality is so strong. Do you get more skeptical as you dive into something when you see somebody with a strong cult of personality? I do. I do. Just because I've seen it in so many cases where it hasn't ended well.

Are there cases where it does end well? Well, Steve Jobs, right? That's total cult of personality. Maybe again, maybe it comes back to your argument about... I'm trying to think of another one though. I'm trying to think of another one too. I'm sure there are others. Wasn't the founder of Genentech, right? I'm just blanking on his name. I think he had a cult of personality. I think Phil Knight at Nike, who arguably built an incredibly successful business. I think he had something of a cult of personality. Yeah.

I think Jamie Dimon does. And I think he is a fantastic CEO. But I don't think I think I guess it's different. I don't think from what I've seen of Jamie Dimon, he does actually foster an environment in which people ask questions and push back and are quite are quite are quite open. So maybe that's what it what it hinges on. Are there other flaws in people that get you?

get your business, like your writing side excited where you're like, oh, this is getting more and more interesting other than this cult of personality? Well, certainly when people are obsessed with their company's stock price, right? But that's an obvious one. But that relentless focus on stock price and celebration of it to the exclusion of all else is always interesting.

When people invoke comparisons to others like Warren Buffett, but where they want to take something of somebody else's halo and appropriate it in order to improve their own image. I think that's one that's interesting too. We were talking about that a little bit before we started recording where people intentionally try to perceive.

Or intentionally try to make you think of the same narrative, even if they don't draw it out explicitly. Yes. When they use the same language, talk in the same way. Yes. I think that that's another one where people are, and this is a Mike Pearson one, where people are cute with language, where they know how to say, it's the old line from Alice in Wonderland about the meaning of a word. And Humpty Dumpty says it means just what I say it means and nothing more than that.

And when people are very precise with language such that what they're telling you is true, but they're totally not telling you the broader truth, that's a really interesting characteristic too. Oh, that's really fascinating.

when they're super literal in what they say. Yes. So Mike Pearson, right, had that argument. I'm going to get it slightly wrong, but he said that most of Valiant's profit growth was not coming from increasing prices on drugs. It was coming from volume. And that turned out to be true if you looked at only their top 20 drugs and you excluded any recent acquisitions. So it wasn't true in the broader perspective, but it was

literally true according to his definition of it. Like a micro truth. Yes. That's a perfect way of putting it. Yeah. Trafficking in micro truth. Right. That's really interesting. Oh, you have to write an article with that title now. Yeah. Well, I think it's yours, not mine. No, it's all yours. How do you decide? Collaboration. There you go. How do you decide what goes into a story versus what gets left out? Like where's that line between, and I have a followup question to that, but I'll let you answer that one first.

So I struggle with that. I struggled when I got to Fortune a lot. I was not viewed as a good writer, and there are probably a lot of reasons why I wasn't a good writer. But one part of it was that issue exactly. I didn't know what to leave out because every fact seemed equally compelling to me. And I still remember the senior writer at Fortune saying to me one day, Bethany, facts are like lights on a Christmas tree. You actually can have too many of them.

But it's still a struggle for me because I find everything so interesting that I want to put it all in a story. And that part of that is also, I have this theory, which is completely unscientific and utterly untested, but that people who are good students in high school and college often don't make for good writers because you also want to show your teachers and show your readers that, yes, you're

you've nailed every last fact and every last nuance of this. And you don't know how to step back and say, yeah, I've nailed it all, but I'm not going to show you that I have. I'm just going to tell you a story, right? And it's really hard for people who have been good students historically to let go of that. Certainly that was a huge struggle for me. But now I really try to focus on finding the narrative and offering clarity. And I do think that that's a hallmark of

good writing is getting down to the clarity and the essence of a story and then figuring out how you're going to convey that.

And then some of the trappings of the additional, so you can get rid of some of the additional sparkly little lights, right? Because the sparkly little lights sometimes mean if you have all of them, then you can't see anything, right? It's just a blur of light. How did you learn how to write? Like, I don't believe that you're a terrible writer, but like... Oh, I was. Maybe I'm better now, but I for sure was. Then this should be an interesting question, right? How did you go from your self-perceived terrible writing to...

what now is widely considered one of the best investigative reporters or journalists in the world.

Like anybody, I still benefit from having an editor. Some stories are easier to tell than others. I can write some things without being edited and other things I still get hopelessly lost in the details. And I need an editor to say, no, no, no, let's step back. What's the story here? So I am far from perfect today. But I think I've learned actually a lot from working with Jonah Serra, who edited Smartest Guys and who was my co-author on All the Devils Are Here.

He helped me probably more than anybody learn to write. By finding the story and by finding clarity, Joe's real skill in reading any draft is to find the disconnects, the places where the story you're telling doesn't make sense. And often in those disconnects, you find the story that you do want to tell because that's often where you're skipping over something because you don't understand it or because it doesn't make sense.

often the gap where the story really exists because that's the place where everybody else is skipping over yes that's a place where everybody else is skipping over to it over it too and so his remarkable brilliance is being able to read something and immediately hone in on those places where it's where it's not making sense or where you're where you're skipping over the difficult stuff because that is the observation that's gonna make the story come together if you figure out why you're skipping over that that piece of it does does that make sense

I've tried in a weird way too to exercise my math major brain a little bit more. And what I mean by that is that in some ways, a story, at least a nonfiction story, is kind of just a beautiful math proof in different language, but it should still have the same, a math proof has a beautiful kind of gravity to it in that A leads to B to C to D. And a story should have that same gravity because it should all hang together and make sense.

And if it doesn't and A doesn't lead to B, then something's going wrong in the writing and in your understanding. What do you wish more people knew about writing? That it's just work.

You probably have this too, but when somebody says to me, "I want to be a writer. I just love writing." I think, "Oh no, you don't." I mean, it's work. It's a craft. The more you do it, the better you get at it. But it's really hard. I don't write anything and sit there and say, "Oh, I love this. This is so much fun." It's work, and it's very satisfying work in the same way a really great workout is wonderful but hard, right?

If writing is for you this joyous act of words just flooding forth, I don't know, maybe you're the remarkable one in the million for whom then the end product is good. Or maybe you actually shouldn't be a writer. Do you have a routine around writing?

I don't really. My life is too random to have much of a routine. I tend to write better in the morning when my brain is clearer and to be able to do calls and processing work better in the afternoon. But I'm very outline-oriented. I like to have everything that I think might belong in a story in one place before I write so that I've thought about all my material. There are people I know who write beautifully who just sit down at their computer and start typing. I hate those people. I hate those people. I'm not one of them.

So if the micro question is like what light bulb should be in this story or what facts should be in this story, the macro question is what should and shouldn't be reported? I think everything should be reported because I think the more you know,

the more you can craft a story that is accurate. It's a reason, and perhaps this is definitely controversial in the practice of journalism, but it's a reason why I've never had a problem with people telling me something off the record. One is because I understand, particularly in the business world, people have to be off the record because they're going to lose their jobs if they're on the record, right? There's a very good rationale for it. It's not...

just that those people don't want to own their comment or that they're trying to feed you a story. Sometimes those people are the ones who are telling you the truth, actually more often than not. But I would always rather know, even if I can't use something, because that helps me get closer to the truth and what it is I do say and to avoid outright misrepresentations or things that are wrong, not because I know they're wrong and I'm telling, I would never do that, but because I don't know they're wrong, right? I would always rather know. So I don't think, I think everything should be reported. And then the question becomes what,

what belongs in the story. Even if it's not corroborated? Yeah. Or what is the burden of evidence then if you're reporting something that could damage somebody? Well then before it makes it into the story, you better know that it's true and you have to give the person a chance to comment. You have to let it have air so that if it's not true or it can be refuted, you have to know that and understand it. So the burden of hearing it is one thing, of putting it in the story is an entirely different, much higher burden.

you know old school fortune and we had time um and vanity fair too and other other magazines the fact-checking process is really important because that's the process in which you have to go back to people and say this is really unpleasant but this is what's going to be in this piece unless you show me that it's that it's not true we always at fortune and i still today have a belief i'd

always if I'm writing something about you, you will know everything in the piece that is unflattering before it goes to print. So we'll have it out before it's in print.

And I think that's the way things should be done. Steve Ballmer helped me with a story I did on Microsoft a number of years ago. And it was a tough story about Microsoft. And Ballmer said to me when we were talking, he said, am I going to like the story? And I said, I don't know. I don't think you will, though. But I promise you that everything that I say, you're going to hear before the story runs and we're going to talk about it.

There aren't going to be any surprises in the story. And he emailed me after the story came out, and he said, well, you were right. I don't like the piece, but you did what you said you would. Back to your earlier question, maybe it's slightly off the topic, but that's good journalism versus not good journalism. I worry in our world today too many people want to –

Have the freedom of the press the freedom to say whatever they want without the corresponding responsibility Which is to make sure that things are aired and people are given a chance to respond before something is put out there publicly That's really interesting because we used to have gatekeepers Yes, right like the new york times and the fact checking and vanity fair and all of these people and increasingly like there's Advantages to be able to get a message or truth out there and we're seeing it right now with this chrono. Yes virus stuff going around the world and

getting more hands-on information from people on the ground, but there's also this loss of obligation about what you're reporting and the burden for how you're... Absolutely. Absolutely. Everything is two sides of a coin, right? So with this increased flood and access also comes decreased responsibility around accuracy. I worry less about

side of it because I can see the benefits as well as the downside than I do about almost the bullying component which is this idea that you can say something about somebody else that is horrible and hurtful and damaging and that you don't have a responsibility to air it with them beforehand. That

That to me is not okay. And that's when I do, and I have had it happen a couple of times when I have not given somebody a fair chance to respond, not because I didn't mean to, but just because something fell through the cracks in the process of closing a story. And those are the instances that haunt me.

Talk to me about some of the tactics and techniques that you use to get people on the phone, get them talking to you. I know one of them is you don't record conversations. I've started to record a little bit more, but I think because so much of my journalistic training was around stories where people didn't want to talk and didn't want to talk on the record, that then you finally convince somebody who's very wary to meet with you or to have a conversation and you say, and can I tape this, by the way? I mean, no, right? Right?

Um,

But I've gotten, I do tape more now if the conversation isn't one where somebody is already terrified, right? Because it's just better that way. I also in the past, and this is a little bit of an aside, my brain works better when I'm forced to take notes. I stay with the conversation more. There's something about the process of the hand-brain process or connection that makes me stay with the conversation more if I'm rapidly trying to take notes at the same time.

I tend to believe that most people are either going to talk to you or they're not going to talk to you. If you bring with your questions real open-mindedness and real curiosity, you're going to get people's story if they're inclined to talk to you. And so I try to be that and to always be respectful and always willing to hear nuance, right? Even if you're somebody who's been accused of crime, it goes back to that. It's generally not a bad person setting out to do a bad thing. I want to hear the story of how that happened. And I am

I am somewhat sympathetic to it just because of my belief that we all have our flaws. And then I think there's another subset of people who really don't want to talk. And some portion of those are people who have been told by their lawyers, you cannot talk. I'll kill you if you talk to the press, right? You're not going to get through to those people most of the time. And that subset of people who don't want to talk, they're also people who will talk once you have enough information to go back. And they may not talk at first.

But once you go... But then they're like, oh, you figured it out, so now I'll give you more information. Right. But I wasn't going to put you on the trail. Right. But once you go back to them and say, I know X, Y, and Z, how do you feel about this? Then they're going to say, okay. So they're just different types of people in different scenarios. What have you learned about asking questions to extract information from people? I think it's just curiosity. I think if you really want to know...

I'm never more excited than when, well, that's a big statement. Okay. I'm very excited when I'm working on a story and there's somebody I want to talk to who can help me uncover a piece of it, help me locate a puzzle piece, and they're willing to talk to me.

That's so awesome, right? You get to figure out the puzzle. If you're really curious in that way and you really want to know and understand what somebody else has to say and you're not bringing an agenda to it, you just want to know, I think the questions come naturally. Is there secrets to getting people on the phone that...

you've learned or getting them to comment? So I remember when I worked on the Enron book years ago, Peter Elkind, who is my co-author, is one of the best investigative reporters out there. And he, particularly at that time, was far more experienced than I was. And I remember thinking, oh my God, I'm going to get to work with Peter. I'm going to learn all the shortcuts for getting people to talk. This is so awesome.

And what I learned then is that there are no shortcuts. You just have to call everybody and talk to everybody and be open-minded and ask as many questions as you can. And you actually cannot handicap either who's going to talk to you or who's not. And you can't even handicap the people from whom you're going to get the best information. You actually never know because you can find a low-level employee of a company who is an incredibly acute observer. And you can speak to and...

get much of what you need to know from that person. And you can speak to somebody in the executive suite and find out that they were so monomaniacal or so blind or their ego is so caught up in things that they actually don't see anything or they simply can't tell stories.

and they don't know anything, you're not gonna get much from them. It's just, it's work, right? Journalism is the antithesis of a productivity hack. - It sounds like a lot of brute force. - I think it is because-- - It's just relentless pursuit of a story until you get a little nugget. - Yes, and you have to go down a lot of rabbit holes that are gonna be complete wastes of time, and you have to have a lot of conversations with people that in the end are not gonna be germane to the story you tell, but you have to do that because you can't find it otherwise.

I want to go off on a little tangent here about sources. What does it mean to be a source? What does it mean to be off the record? Are there sort of like rules around this that are unspoken? I think they're spoken, but I think they're slippery enough that people always, you should always clarify at the start of any conversation what you mean and the other person means just so you're on the same page.

I always tell people that if they're speaking to me on background, I will come back to them with what I want to use. And if they are somebody whose job is threatened, whose livelihood is threatened by being outed, that they helped me, I won't use anything from them, even in a background way, without making sure that it doesn't inadvertently identify them. But you just have to set all those rules, whatever they are, before you start the conversation so that everybody knows. There was a recent article recently

I think it was actually about Elon. It was a journalist who sort of wrote about him and there was an issue of sourcing where I think Elon had said this is off the record and then said something that was then subsequently used in the article. And I felt a little weird around that even reading it because and then the reporter's argument in this case, and I forget the name of the person was, I didn't agree that it would be off the record, therefore I can use it. How do you feel about that?

Do you know which article I'm talking about? Yes, I do know which article you're talking about. It's hard. I think I would not do that, but I don't mean...

By saying I would not do that, I don't mean to sort of claim moral superiority because my set of incentives are also different than somebody who does have to publish daily news and does have a quota of news breaking that's part of their economic sustainability. So mine is not because I've traditionally been a long-form magazine journalist journalist.

If I were to get that nugget, would it matter to my career if I were to publish it or not publish it? Not really, right? So it's easy for me to say I wouldn't do that. So I don't think I would, but I'm not claiming moral superiority when I say that I wouldn't. Well, that article just has me thinking about, like, what does it mean to be a source? What does it mean to be off the record? What does it mean to tell somebody something? And then furthermore, like, what are the steps that you would take if you wanted to protect yourself as a source? Yeah.

when talking to somebody.

So I do tend to err on the, and this is a somewhat controversial viewpoint because there are very respectable news organizations like the New York Times who don't want people ever to be off the record. I tend to err on the side of protecting sources, partly because in covering business, there really are consequences to people for having their name associated with something. And I would never want somebody who tried to help me tell an accurate story then saying

suffer damage as a result of that. I do tend to try to protect people, but again, I'm a magazine journalist, so it's different. I can plagiarize freely. And what I mean by that is I can have an off-the-record source or a background source who tells me things, and I can put it in my own words. And I have that freedom because I'm a magazine journalist. And so it's very different than a newspaper journalist who doesn't have that freedom and has to have a source who

on the record. Wait, talk to me about that difference again. I've never heard that before. I think newspapers, and I have not worked at one, but it's harder to claim knowledge or a fact if you don't have a source saying it. You have to establish everything and where it came from. Yes, and saying it on the record. Whereas magazine journalism has always been a little bit more point of view driven than pure fact driven. So I tell people all the time, fine, be on background and say something really smart and I'll plagiarize.

I get to steal it, right? And pretend I actually came up with that. That's awesome. It's just, it's different. In my mind, these conversations often take place in like lawyers' boardrooms or back alleys. Is that the truth? Like, how does this happen? Oh, no, it's so much more boring than that. It'd be so nice if it were, I don't know, a dark alley or a bar somewhere. No, I'm sitting at home. Dark shadows. I'm sitting at home in my pajamas, unshowered, talking on the phone.

on the phone to somebody. No, there's nothing glamorous about the pursuit of journalism, at least not as I do it. What's your favorite part of being a journalist?

It's getting to talk to people who are so much smarter and more interesting than I am. I mean, really, what could be better than to get interested in something and to be able to call people up and say, how do you think about this? And what can I learn from you? I mean, that's just that's an enormous, huge privilege. I mean, to put it in really sort of blunders.

Blunt terms that would make sense. I got to go spend a day with Warren Buffett in Omaha, right? People pay God knows what to go have lunch with with Warren Buffett I got to spend a day hanging out with this this brilliant mind and asking him questions and learning how he thinks about the world and how he sees things and that's just one example, right? If you're reporting on the coronavirus to call up top scientists and learn and learn from how they think about things What could be more interesting than that or you know?

Even on this Elon Musk piece I did going to Buffalo and meeting employees who worked at the SolarCity factory there and hearing their their stories just human stories on a narrow micro level but human stories that's the best. What stuck out with you that you remember from meeting Buffett? The big thing that stuck out to me this is gonna be a little bit a little bit odd was that

It was a long day. I was pregnant with my second child. I think I had the flu. I was utterly exhausted by the time we got to dinner. And I was kind of running out of questions to ask him, to be perfectly honest. I was tired.

And I remember thinking, oh, I can ask him about giving his money away to Bill and Melinda Gates. And this is going to be awesome because all billionaires like to talk about all the good they're doing in the world and how altruistic and philanthropic they really are. And he'll just talk and I can just drink my milkshake and sit here. And so I asked him and he looked at me and he said, well, I don't really pay much attention to that. That's not my focus of interest. I mean, I want to help the world and I want to make the world a better place. And that's why I'm giving away my money.

But I'm not really good at that, at figuring out where the money should go or about what projects are the most worthwhile. It's not my passion. It's not where I spend my time. So, you know, end. And I was like, oh, no.

It stands out to me because there is that, maybe it's back to that argument, that part of our conversation about people spikes. There is that figuring out what it is you are passionate about and relentlessly interested in. And then you're going to pursue that thing with a passion and a creativity and an interest level that is genuine.

different than things that you don't have that for. And so maybe it made me think that maybe some of life is figuring out how you do the right thing in the areas that you're not passionate about. You know, if you're Warren Buffett and you have billions to give away, you don't say, I'm not interested, so I'm sitting on my billions. You say,

this isn't my passion, so I'm going to give my money to somebody who is passionate. But you don't pretend to be interested in the things you're not. You are very precise about where your interests and talents lie. That's really interesting, especially given the diversity of the stories that you've covered from Enron to fracking to the housing. Right.

situation. Where does your interest lie? Is it in uncovering a story? Yeah, I think I'm far more, for better or worse, far more of a generalist. I just like to try to figure things out. So when I hear something that's interesting that doesn't make sense or that seems provocative, I just want to figure it out. My interest is not specific to one area. It's just specific to the general idea that there's this conundrum or problem or interesting thing that I don't understand.

Coming out of that, the Buffett meeting, did you change anything about what you do? I mean, like one of the things that I was thinking of there is like other things in your life where you're just like, I spent a lot of time doing this, but I'm not passionate. Therefore, I'm going to like outsource it or give it to somebody else or just not pay attention to it. I think I do that pretty naturally anyway. I mean, I don't know how to turn on a stove and nobody with any sense would never let me get behind the wheel of a car and get in my car with me. Yeah.

So I suppose I do that pretty naturally on some of the mundane aspects of life. And that's not something you're trying to get better at. No, I harbor this belief that one day I'm going to go to cooking school and I'm going to merge a master chef, you know, in my 70s or 80s or something like that. But not now. No, I'm sticking with being takeout girl.

What would you say are other people's biggest misconceptions of you? Of me? Oh, I don't know. I've had people say to me, oh, you're much nicer than I would have thought. So maybe there's that. Because they read you and then just build you up into this thing that you're not. I think maybe I have a tone in some of my stories that sounds, that maybe lacks humor sometimes.

How is your skepticism around businesses in general translated into what you do for investing? I don't invest. I have zero interest in it. I mean, it's almost pathological in some ways, although...

Maybe it's a good thing in that I've never had the temptation when I hear something really interesting going on in the world, whether it's Enron is a fraud or these subprime mortgages are going to blow up our economy or fracking doesn't make any money in this industry is going to implode. The last thing that crosses my mind is, oh, how should I invest my own money?

It just doesn't. I think, oh, that's a great story. I want to go tell that story. But it just, for me, does not translate into any kind of action I would take in a personal portfolio. It's kind of admirable in a way because then you have nothing to lose by reporting something that you believe to be the truth. Right. It's not admirable. It just is. You know, it's not like I am interested in putting the idea I've heard to work and I don't do it because that's not the right thing to do. It just doesn't even, it's not even interesting to me. What's the next story you're working on?

So I am figuring that out. Is there anything that's particularly got your interest? I'm back to looking at fracking because this idea that, which is what captivated me about it, that the industry wasn't financially viable despite the fact, I mean, there's this juxtaposition with fracking or this disconnect in that these two ideas exist simultaneously and they're both true, yet they were in such conflict with each other. And the two ideas were that fracking

fracking and the incredible levels of production of US oil and gas is changing the global economy and reshaping geopolitics. And the other idea is that this industry doesn't make money and isn't financially viable. And the idea that those two things could coexist was really interesting to me. Talk about cognitive dissonance. And that's now proving to be true as the industry is imploding or the financial weakness is becoming the defining feature of this industry and you now see it imploding.

And so how that plays out and what that means and this whole notion of energy independence that or energy dominance, as President Trump called it. I think that's really interesting. What is fracking just to orient everybody listening to this?

So it is the process, it's called, the full name for it is hydraulic fracturing, and it's not actually new, but it's the combination of two techniques that were around for a long time. One was drilling horizontal wells instead of vertical wells, and then the other was

forcing a mixture of chemicals and water and sand into the earth. A fracking entrepreneur described it to me this way. It would be like sealing all the exits in a building and then yelling fire and seeing what starts coming out of the cracks, right? Creating this enormous pressure such that things that don't otherwise want to come out start coming out of the cracks. And that's what fracking is. And it enables...

us to extract oil and gas from places where we knew there was oil and gas, but you couldn't get it out drilling a well conventionally, a conventional vertical well. But this technique of fracking allows these wells to actually produce a fair amount of oil and gas. But the problem turns out to be that these wells decline at an incredibly steep rate. So a vertical well

once you found it and it produced oil and gas, it would continue to produce for years. A fracked well declines really sharply after the first year, which means in order to keep production levels up, you have to keep reinvesting. So you're on this capital treadmill. And that's why the industry has not been financially viable, because you have to keep reinvesting billions of dollars in order to keep production growing. So all of this giant increase in U.S. production has come with hundreds of billions of dollars sunk into the ground.

And so the question has always been if these companies could only reinvest their own cash flow, if they had to be financially viable, what would U.S. production levels actually look like? And we're about to find that out. And you say we're about to find that out in part because Saudi Arabia just started a price war on oil. Just to orient people, this is March. We're recording this March. March of 2020, dear God.

Well, we're about to find out, because even before this price war started, the capital markets had started to say, wait, wait, wait, this isn't making money. We need to earn a return. We need to earn a return here. We want to see you guys only reinvest cash flow. And so, the focus of the markets had actually already shifted.

to making companies produce positive cash flow. But the wild card that had kept production growing was actually private equity money because private equity has poured tens of billions of dollars, hundreds of billions of dollars into this industry. And for a long time, private equity could get a return on the greater fool theory. They would fund these fracking entrepreneurs who would go out and drill wells, and then they would sell that to a publicly traded company, and the private equity guys would make a ton of money. But it was greater fool theory.

And now all the capital is drying up and the investors in private equity are starting to say, wait a minute, we don't know if we want to take this risk. And the existing publicly traded companies can no longer go out and buy these money-losing private equity-funded startups.

And so the whole capital structure is collapsing now. And obviously the price war and the economic collapse is lowering the price of oil dramatically, which makes it even harder for fracking companies to make money. Because if you could make money at $100 a barrel, that doesn't mean you can't at $20, right? Or $30 or wherever oil prices are going. Are the costs for fracking, like on a per barrel basis, the operating costs to extract oil?

much higher than sort of a vertical wealth. Yeah, yeah. And certainly over time because of that steep decline in production after year one. So with a conventional vertical well, you have years to earn back that return. With a fracked well, it all has to come. It all comes instantaneously.

Because the capital commitments are just so large and ever-present. Yes, and ever-growing, right? Because if you're going to keep growing production, you have to keep committing more capital to it. You've invested the money, and then you get the return, right? You have to keep investing in order to keep production growing. And the operating costs vary dramatically per well. So there are fracked wells in what are known as sweet spots, regions where the oil and gas is pretty gettable, that are—

are entirely different than a fracked well in a place where it's not a sweet spot, where the earth's geology isn't as obliging. So in a crisis, the highest cost-producing wells get shut off first, I would imagine, and then it goes all the way down to the marginal cost per barrel. Yes. What have you learned about the consequences of fracking outside of just the debt and the financials?

So when I wrote my little book, I didn't focus on the environmental issues, in part because it was a mini book, not a maxi book. There just wasn't room. But I've begun to think more about the – and I was more of – I almost hesitate to say this, but I was more of a – I was less concerned about the environmental impact, partly because I live in Chicago and I like to eat my house in the winter, and partly because – and I do think this is true, that those of us who live on the coasts are so –

I live in Chicago mostly now, but in urban environments we're so disconnected from the stuff that makes our life possible that we take it for granted and tend to be critics of it without understanding how much it contributes to our life. So you plug in your iPhone and charge it. That might be because of natural gas. And you think your iPhone is this beautiful, clean, lovely, pristine device and it works because of fossil fuels. That aspect of things made me kind of not as skeptical, but a little bit more of a pragmatist about the environmental issues.

Since I published my book and I've thought about it more, I've become more of an environmentalist in that the societal costs of what we're doing are high. My friend Eliza Griswold won the Pulitzer for her great book, Amity and Prosperity, on the cost of fracking in Pennsylvania. And it shows how some people are benefiting and some people are just being crushed by the environmental issues that come with it.

In longer term, there's a big issue here if oil and gas is going away as we shift to renewables or if fracking companies are going to go bankrupt, who bears the cost of the cleanup? Well, all of us, right? It's another case of capitalism gone wrong in that a lot of people at the top of these companies have made their billions and walked away from it and then the rest of society is left to clean up the mess.

because the companies are bankrupt and don't have the money to pay for it anymore. And wait, why? That's the definition of an extractive industry. Not only has stuff been extracted from the ground, but the people at the top of the companies have extracted all the wealth and left society to clean up the mess. And that, I think, is hugely problematic. And the minute we sort of have viable renewables that people can see or feel and sustain...

the price of oil goes into free fall just like coal did, right? And it may bounce up and down, but it goes into secular decline. And then that means bankruptcies of fossil fuel companies. And I don't think we're being thoughtful about then what those companies' obligations are for cleanup afterwards.

My understanding of history is that the wealth of nations also correlates in a lot of ways to energy production or fossil fuels. Right. Well, it certainly has dictated geopolitical engagement for a century, right? And so as we shift to renewables, how does the world change? That I think is

That's a fascinating question. Do you have any initial hunches? I have no idea other than that it's going to upend everything. If a nation's wealth and standing in the world is no longer dictated by geology, but rather by the innovation of its people, which is renewables, how does that change geopolitics? I mean, dramatically. So much of our last century has been driven by access to oil.

Switching gears here a little bit as we sort of wrap this up, I'm curious as to being a parent. So you have two girls. What are the values that you try to instill in them? Oh, boy. I wish I were. Maybe I am somewhat deliberate about it. I always tell them when they leave for school, I say, be kind and try hard.

And, um, my younger daughter looks at me and says, mommy, be kind to your computer because she knows that I lose my temper. And sometimes I throw electronics when I lose my temper. So she says, be kind to your computer and try hard at your writing. So, so it gets, I love the way the lessons that you try to tell your children get, get turned back, back on you. Right. But,

I really do like the be kind and try hard thing because if you can actually go through life trying to be kind but trying hard, then that's pretty awesome.

I try to make them passionate about books and they both are. What does that mean? I try to make them passionate about books. How do you do that? So I let them read whatever they want on the belief that you don't have to read particular books, but you do have to read. So my older daughter is obsessed with any kind of fantasy novel and I let her read what she wants. She wanted to read Game of Thrones and I said, great, read Game of Thrones. That's awesome. And she made it through the first book and said, hmm.

I don't think I'm going any further with this. And I said, great, right, right. How come? But I, but I, but I don't, I don't try to make them read good books. I, I grew up reading science fiction relentlessly. Just reading at this age is way more important than sort of like you have to read this book. I don't think I read good books until college.

Mean I read I was a huge Lord of the Rings fan and Isaac Asimov fan and those those were the books that Ursula Le Guin Those were the but those were the books that shaped my childhood. I wasn't trying to read Classics and when my mother tried to make me I rebelled and hated them And so I don't try to make my girls read read anything. I just I just let them read What other things stand out when I ask that question about how you parent? I think trying to be

trying to let them lead the way rather than me trying to shape them. And maybe it's just the children that I've had are not amenable to being shaped, and so I've had to be that way. But I have not been able to choose activities for my girls or boys

choose to make them conform in any way from the time I was never able to dress my kids. They, from the time they were able to express an opinion, which is pretty immediately, would shriek when they were put into something they didn't want to wear. So I try to follow them and let them lead the way in terms of who they want to be rather than have a pre-existing idea that I'm trying to mold them into. You mentioned before we started recording that they were in Judah? Yeah.

What have you seen from judo? So that was them as well. My older daughter wanted to wrestle, and wrestling is still a pretty male-driven sport, and we went to a couple of wrestling practices. And I think she would have stuck with it despite the fact that she was the only girl, but we found judo.

And so we sort of migrated to, to judo, but I, um, I never had any intention or desire to be a judo parent. Right. I didn't, I, I followed her interests and then my younger daughter would go to judo practices with her and she wanted to do it too. So for the time being, we're a judo family. That's awesome. How long have you been doing it? Only a couple of years, like three years. Have you seen their confidence increase through that? Yeah.

Yeah. It's really nice. It's really nice to have that level of, um, to have your kids, especially girls, um, in such a physical sport. My kids are in jujitsu and one of the things I like about it is that they're just failing all the time. Yes. We just went to a tournament and both my girls got pinned and it's a little hard to see as a parent when another child comes at yours and her, you know, she got, they go down hard in judo, but

good, right? Because that's that old lesson that you learn more. I said to them afterwards, you learn more from your failures than you do from your successes. Success is a lot more fun, right? But you don't think about it then. If you won, you're usually like, I won! I'm great! Right? If you fail, then you have to say, why did I fail? What went wrong here? What do I learn from this? So I still can't quite, I'm still working on accepting this in my own life, despite the fact that I intellectually know it's true. Emotionally, it's hard. But that

That really is true, right? Failure is a victory because failure gives you the chance to learn something new in a way that victory doesn't. And that's the same when I submit a piece of writing and the editor hates it and I learn more than I do if I turn something in and they say you're fabulous. I'd still prefer the latter, right? So

Emotionally speaking. So I'm still working on accepting this emotionally, but it's indisputably true, right? Do you share those feelings with your daughters? All the time. Oh, all the time. I think it is very freeing for children to see their parents struggle with things and fail because I think the worst thing you can do for kids is set up this unachainably perfect image in life for them because then they always feel that they're falling short.

When things aren't perfect in their own life and they struggle with things and they fail and then they look at their parents and their parent never seems to fail and never seems to have an issue and their life is perfect and checks all the boxes, then the kid says, what am I doing wrong?

And if instead parents see you struggling with things and things not working well, then they know that's life. And my dad used to say he was an eye surgeon in northern Minnesota, and he used to talk about his fears about going into the operating room and fear that he would screw up, fear that the surgery hadn't gone well, what he didn't like about his job. And so I didn't grow up with this unrealistic idea that I would find a job where everything would be perfect and happy, right? I grew up knowing that's life.

You find something you love that gives you a lot of satisfaction, but there are things that you really hate and that are going to be really painful and hard and that you're not going to like every day. And I think that kind of realism is not depressing. I think it's freeing. I think that's the perfect place to end this. Thank you. Thank you so much for talking to me. This was an amazing conversation. Thank you. Thank you.

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