The Joe Walker Podcast - Frauds And Visionaries - Bethany McLean

Episode Date: October 12, 2020

Bethany McLean is an investigative journalist and contributing editor for Vanity Fair.Show notesSelected links •Follow Bethany: Website | Twitter •The Smartest Guys in the Room, by Bethany McLean and Peter Elkind •'Is Enron Overpriced?', Bethany's March 5, 2001, article for Fortune •'What Caused Enron?: A Capsule Social and Economic History of the 1990's', article by John Coffee •Bad Blood, by John Carreyrou •The Seven Signs of Ethical Collapse, by Marriane Jennings •Spy The Lie, by Philip Houston, Michael Floyd and Don Tennant •Saudi America, by Bethany McLean •The Undoing Project, by Michael LewisTopics discussed •How did Bethany become a journalist? 4:13 •How did Enron come to be Enron? 6:30 •How did Bethany see through Enron when most others were beguiled by it? 8:33 •What was the reaction to Bethany's original article expressing skepticism about Enron? 11:35 •Why was Enron an example of 'legal fraud'? 13:34 •How to spot the "dogs" dressed up as "ducks". 16:20 •What were the ultimate causes of Enron's collapse? 19:43 •How did so many smart people at Enron become so corrupted? 30:06 •Bethany's book recommendations. 32:42 •The fine line between frauds and visionaries. 34:56 •Self-deception. 41:56 •If Elizabeth Holmes succeeded, would the end have justified her means? 45:23 •Elon Musk. 46:54 •The truth about fracking. 55:14 •How does Bethany stay organised as a journalist? 57:17 •How does Bethany put questions to her sources? 58:36 •Balancing accuracy with narrative flair. 59:35 •Which factors help Bethany decide which facts to include in a story and which to omit from it? 1:05:40 •How to construct an effective narrative. 1:11:46 •What business model could scale up investigative journalism? 1:17:54 •How does democracy survive the eroding of journalism's traditional business model? 1:24:04See omnystudio.com/listener for privacy information.

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That's dollarshaveclub.com slash swagman. You're listening to the Jolly Swagman podcast. Here's your host, Joe Walker. Ladies and gentlemen, boys and girls, swagmen and swagettes, welcome back to the show. It is great to be back with you. Before I introduce the guest for this episode, two items of housekeeping. Number one, if you're new to the show, welcome aboard. It's great to have you here. Make sure you subscribe to or follow the podcast, depending on which app you use, in order to be updated whenever we release a new episode. We typically release episodes on Monday mornings at 6.30am Australian Eastern Standard Time. That's Sunday evening for the Brits and Sunday afternoon for the Yanks.

Second piece of housekeeping, our 2020 listener survey is now available on my website, josephnoelwalker.com. Based on what listeners have been, how long listeners have been taking to complete it so far, it seems to take about five and a half minutes to complete. I would really appreciate you taking the time to complete the survey because your feedback is incredibly valuable to me. Okay, so this episode was a delight to record. Our guest is legendary finance journalist and contributing editor for Vanity Fair, Bethany McLean. Bethany broke the Enron scandal all the way back in March 2001, which ultimately led to the bankruptcy of Enron Corporation. The scandal is the topic of her classic book, The Smartest Guys in the Room, and her other books include All the Devils Are

Here, Shaky Ground, and Saudi America. In this conversation, Bethany and I discuss how she spotted the fraud at Enron when most other smart people missed it. We also discuss the fine line between frauds and visionaries, and we discuss the craft of investigative journalism. I hope you enjoy this conversation as much as I did. Without much further ado, here is Bethany McLean. Bethany McLean, welcome to the show. Thanks for having me on. Great to see you again and so good to finally have you on the show.

We were connected by John Hampton and anyone who John introduces me to is bound to be an interesting person. I think that's a compliment, so thank you. So obviously, we're going to talk about financial journalism and fraud and lots of interesting questions around those topics. First, just so that I don't sort of read history backwards, I was interested to hear how you came into financial journalism. So I had at the time, I think it is less unconventional now. Well, because there's

so many people have so many different who are doing various kinds of financial journalism, whether on Twitter or in more official media. I don't even know what official media is anymore, but there are lots of different backgrounds now. But back when I started in journalism, I had an untraditional background for a journalist because I started working in banking and didn't go to journalism grad school or actually ever work on a paper. So I just switched from being an analyst at an investment bank to being a fact checker at Fortune magazine. And that was my start in journalism. You worked for a time for Goldman, right? Yes, the bank where I worked. Did that prepare you in terms of like, did they teach you how to read company accounts

and that kind of stuff? Yeah. So in the end, it was actually very good preparation for being a business journalist, partly because of that. I was a math and an English major in school and really didn't even know what a stock price was when I went to work at Goldman. So had I not spent the years there, I would have been completely clueless in terms of being able to read financial statements. But I worked in the M&A department at Goldman, and so we had to do a lot of due diligence on businesses. And I had the great good fortune of working with a vice president who was just very, very focused on figuring out when he was doing due diligence on a business how the money moved through the business and where it showed up in the financial statement. So how it came in as revenues, you know, where it got spit out as profits, how that showed up

on the cashflow statement, what the, what the balance sheet looked like. And so I learned by just sitting with him through hours and hours of these painstaking questions, trying to understand these businesses, how to, how to, how to think about that. So that was enormously helpful. But I'd say I learned also the other good thing I learned during my years at Goldman, there were more. It was an educational experience, if not a good experience. But I also learned how to be fairly fearless because you had to learn how to stand up for yourself and how to stand up to people. And so that turned out to be fairly helpful as well.

So how did Enron come to be Enron? So, well, how did Enron come to be Enron or how did I, how Enron came to be Enron is a long saga. But I think the story of a company that believed the rules were there to be manipulated and the rules were just a roadmap of the possible and that the presentation of its financial statements were more important than economic reality and that as long as the company could keep its stock price high, everything would work out just fine in the end. And I think

that's how, essentially how Enron came to be Enron. But I came into contact with Enron because I was doing this column at Fortune called Companies to Watch, which was actually a great column for stock promoters to get the stocks they were promoting featured in it, because it was basically a stock picking column. And when I first started doing it, I was pretty naive and ended up writing about a lot of companies that in retrospect were frauds or at least problematic because people would come by Fortune's offices and they'd be well put together executives or analysts who would buy ratings on stocks and they'd lay out these great stories. And I learned a lot at Goldman, but I was still naive and I didn't understand the whole see-me side of the market. And by the time I'd done that column for a bunch of years, I'd figured out that just because an

analyst had a buy rating on a stock, that didn't mean anything. And just because institutional investors at XYZ firm were saying the stock is the best thing ever, that didn't mean it actually was. And just because the management team was really confident and cocky and had a great presentation they could give to you, the journalist, that didn't really necessarily mean anything either. And so I'd gotten fairly, I guess, skeptical by the time I came in contact with Enron. And it was because a source of mine, a guy named Jim Chanos, who's still around today, one of the longest running short sellers out there, I think. A guy who worked for him said to me, you know, have you taken a close look at Enron? We can't figure out how it makes money. Let me know if you can. Interesting. I was going to ask you how you

saw the fraud when most others missed it. And that was the beginning? That was the beginning of it. And I really didn't see fraud. I just saw a company whose financial statements didn't make sense. There were all sorts of oddities. And the market, at the time when I wrote about Enron, the company piece I did being like an it girl in Hollywood, like the company that everybody loves. I think every analyst, with one exception, had a buy rating on the stock. And they had stock price targets that were double where the stock was trading then. It was McKinsey Consultants had all these preached to other clients how they could make themselves more like Enron. Harvard Business School had done all these case studies on how Enron was so great. The case studies have now disappeared and are no longer available on the Harvard system, but I hear they exist somewhere at Harvard if you can dig them out. Anyway,

but I just saw the disconnect. At that time, I didn't see the massive apparatus of accounting shenanigans that was supporting Enron. The first article you wrote on Enron was titled, Is Enron Overpriced? What was it like submitting that article? How did you feel? Well, I have joked subsequently that it should have won awards for the meekest title in journalism history because it's unruly overpriced. Well, yeah. So it was actually really scary. You know, I got into it because I thought, wow, this is really interesting.

Something doesn't make sense here. And I found a couple of sources apart from Chanos who were saying, I remember talking to one long only investor, meaning he couldn't go short. He could only buy stocks and he had to pretty closely mirror the index. And so he said, well, I have to own Enron because it's such a big part of the index. I can't not own it, but I'm terrified of it because it's a black box, meaning you can. I can't not own it, but I'm terrified of it because it's a black box, meaning you can't see inside it to figure out how the earnings number is spitting out at the bottom. Going back to that guy I worked with at Goldman who would just exhaustively go through every line of the financial statements to figure out why the number was there. This

analyst said to me, you can't figure it out with Enron. There's just this black box and out spits an earnings number, but, but you have no idea how they, how, how, how they got there. But it was, I remember being, so I was really interested when I started working on the piece, but, but, but I didn't, that, that was a different deal than actually having to confront the Enron executives and then publish a skeptical piece about a company that everybody admired. So I definitely had moments after I was already in the throes a bit where I thought, why did I get myself into this? And can't I just get myself out of this somehow? What was the reaction to the pace? Not much at the time. It kind of came and went without that much of a ripple. A few people noticed it. I shouldn't say that. I think back at that time, it wasn't, I think it was before our emails were on our stories at Fortune. So it wasn't that easy to figure out how to get in touch with me,

much harder than it is today. And I think there was a big reaction to the story. It's just that very little of it made its way to me. But the stock was already starting to decline and it continued to decline, but there wasn't any big conflagration after the piece ran. And I sort of thought that would be the last of it until a few subsequent events. And what were the subsequent events? So Jeff Skilling lost his temper on a conference call that spring. And another analyst was asking him why Enron couldn't produce a balance sheet along with its income statement. In other words, if they could show investors what their earnings were, why couldn't they also produce a balance sheet that investors could look at in a cash flow statement? Why could they only produce the earnings number?

And Skilling lost his temper and thought that the line had been disconnected but said, you asshole. And you don't hear CEOs of major corporations calling analysts assholes on conference calls very, very often, particularly back then. So that was this moment of like, wow, something is wrong here. And then Skilling abruptly quit as the company's CEO in August of 2001. And that was really the beginning of the end. But if you had asked me when I wrote, to be perfectly honest, if you had asked me when I wrote that original piece, I think it was published in February of 2001. If you had asked me if Enron would be bankrupt by that fall, I would have said, no, what do you mean? I mean, a major American company can't just go poof like that. No, I mean,

something's wrong and the stock is going to be lower and there's going to be some kind of problem here. But bankrupt? No. I mean, that hadn't occurred to me. So in thinking about Enron, you coined this intriguing oxymoron legal fraud. What does legal fraud mean and why was Enron practicing it? That's a great question. That's funny. So what I meant by legal fraud is that everybody thinks of Enron as this giant fraud. But the truth is, it was a really hard case to prosecute. And you can kind of see that in the fact that the company went bankrupt in 2001. And Ken Lay, the former CEO, and Jeff Skilling weren't indicted until either 2003 or 2004. And the trial wasn't until 2006. And it's because it was such a complicated case.

And the reason why it was so difficult is because many of the transactions that Enron engaged in were legal. They'd been approved by the company's auditors, by the board of directors, in some cases by the lawyers. So some of the stuff that looked the worst, like the thing everybody remembers about Enron is that their chief financial officer was running these off-balance sheet partnerships that did all their business with Enron and essentially were a tool to help Enron manipulate the earnings it reported to Wall Street. That was all legal and had actually been signed off on by the company's board of directors. And so it was much harder to prosecute than people would have thought. So what I mean by illegal fraud is that even though all of the transactions may have met the letter of accounting rules, they were done with the intent to deceive, to manipulate financial economic reality, to present a picture on the financial statements that was different than what financial

reality was. So when you took all these transactions that may have each in isolation met accounting laws, and you combine them, you had this really unstable edifice. And this company whose financial misstatements overall completely misrepresented economic reality. So in any kind of common sense terms, it was a fraud, but yet the individual pieces of the edifice were actually technically legal. That period between bankruptcy and then when Skilling and Leia were finally indicted, how do you think those few years were for them? Were they filled with golf or with sleepless nights?

And I am very sorry. I have a large Doberman pincher who has decided she would like to interject herself into the conversation. Spring. She makes a good point. She is. She's very interested right now. Very erudite.

Spring, come. I'll let her out if this continues. I think it must have been quite terrible. I've heard from people that when the entire force of the US government comes down against you or is investigating you, determined to find something you've done wrong, it's quite terrifying. So back to legal fraud. In the original enron story you broke you quoted an employee explaining how the accounting and auditing process at enron worked and the employee said that you know famously say you have a dog but you need to create a duck on the financial statements fortunately there are specific accounting rules for what constitutes a duck yellow feet white

covering orange beak so you take the dog, you paint its feet yellow and its fur white, you paste an orange plastic beak on its nose, and then you say to your accountants, this is a duck. Don't you agree that this is a duck? And the accountants say, yes, according to the rules, this is a duck. Everybody knows that it's a dog, not a duck, but that doesn't matter because you've met the rules for calling it a duck. What kind of tricks or rules of thumb do you use when trying to find the dogs that the financial statement says are ducks? So that's a great question. That is actually my favorite visual of legal fraud because it's the dog and the duck. So in the case of Enron, one big giveaway is often the cash flow statement. So in Enron's case, the stock market loved the company because

they would always meet or exceed whatever the earnings expectations were by a penny or a couple of pennies. And so they could be reliably counted on to produce earnings. I remember sitting with a big investor in the stock who said, well, I don't know. I mean, they're just, I don't need to know how the business works. All I need to know is that every single quarter they're going to meet or beat whatever our expectations are and the stock is going to go up. And I was like, hmm, that's analysis. Nice job. You get paid to do that. Anyway, so that sort of summed up sometimes the attitude of investors, which is that they don't do their homework. But you could tell in Enron's case that something maybe wasn't right, because while the earnings marched up nicely, growing 15% or more a year,

as the market wanted to see, their cash flow from operations was very minimal and heading toward negative. And that for a business that was not supposed to be a financial business and that was supposed to be a mature, profitable business, to have negative cash flow from operations, this big disconnect between earnings and cash from operations was at least a question, at least a red flag. And then in Enron's case, debt can also be a clue. And so the debt on their balance sheet was growing rapidly. And again, that's an odd thing. If you have a company that's incredibly profitable and making all this money, why is its debt load growing and growing fairly rapidly? And then I guess the last big thing was that these transactions that Andy Fasco,

the former CFO or the CFO at the time, was doing with Enron were disclosed in the related party statements. I mean, the disclosure was just incredibly convoluted. You couldn't make heads or tails of what it was that they were doing, which was deliberate. They were disclosing as little as they could and still meet the letter of the law. But you could read that a senior executive at Enron was running these outside partnerships that, and then you'd read the disclosure and it would be all gobbledygook, derivative related gobbledygook. And it was like, what? And you just didn't, this was just nothing like, and nobody could explain it and nobody would explain it. So. Moving from the proximate causes back to the ultimate causes

of Enron's collapse, there's an article by John Coffey, I think it's titled What Caused Enron, and he lists three possible narratives in explaining what happened at the company because as he writes writes um i'll quote him here between january 1997 and june 2002 approximately 10 percent of all listed companies in the united states announced at least one financial statement restatement the stock prices of restating companies declined 10 on average on the announcement of these restatements with restating firms losing over 100 billion dollars in market capitalization over a short three-day trading period surrounding these

restatements. And the three possible explanatory stories that he outlines are the gatekeeper story in which auditors, analysts, debt rating agencies, and regulators failed. The second story is the misaligned incentives one, which shows that a shift to equity-based compensation encouraged management to inflate earnings and create short-term price spikes. And the third is the herding story in which incentives force investors to focus on quarterly performance and ride the bubble by extrapolating short-term gains. Which of those three stories is the most compelling, or is there another story that coffee is missing? All of the above. I thought that would be your answer.

Yeah, no, it clearly is. I mean, starting with the last one first, investors are very incentivized to, at least in that period, where if a company could meet or exceed analyst earnings expectations, the stock would reliably go up. They were completely incentivized to just look at the bottom line number. And if the number was pleasant, if the number that popped out of the black box was pleasant, then great. And they weren't incentivized to do any more homework. It's sort of a version of the behavior that we saw in the financial crisis where investors around the globe bought AAA-rated securities that were tied to U.S. subprime mortgage debt without understanding what they were buying, but just because the rating agencies had given them the stamp of AAA. They were incentivized to take it at face value and not do any deeper homework. Enron was definitely a story of stock-based incentives gone wrong. The Joint Committee on Taxation in the U.S. actually did an analysis, and I'm going

to get the numbers wrong but directionally right, and they pointed out that in 1999, the top 200 employees at Enron made, I think, $200 million in equity-based compensation from selling stock options. And then in 2000, which was the last full year of Enron before it went bankrupt, the top 200 employees got over a billion dollars in stock option-related proceeds. And the Joint Committee on Taxation had this great line that essentially maybe stock options aren't all they're cracked up to be in terms of aligning management's incentives with shareholders' incentives. And I think that just goes to show how incredibly difficult it is to get compensation right, to get incentives right. And then for sure, Enron was a failure of the gatekeepers. And that was partly why I wasn't as skeptical as I should

have been when I wrote my original piece, because it simply didn't occur to me that the gatekeepers could fail in that massive a way. It didn't occur to me that you could have the board of directors signing off on transactions and the lawyer saying they were okay and the accountant saying they were okay and big Wall Street banks participating in Andy Fastow's partnerships and participating in other schemes Enron used to deceive the investing public. And they could all be in on it for their own reasons because they were all getting fees. And again, finding lawyers who would say this is technically legal, even if they all knew it was wrong. And it's just, that was shocking to me. It's actually still shocking to me on some level,

even though we see it time and time again. Yeah, that's right. I mean, today, most short sellers point out that behind every massive fraud is an auditor willing to sign off. And often, I mean, look at the Wirecard scandal, right? Investors willing to look the other way and believe management until they have no choice but to not believe. Investors who don't do enough homework, auditors who sign off on transactions that can be twisted and manipulated to meet the letter of the law, even if they are deceptive on the face of it, lawyers who do the same thing. Yeah, the system is still as it ever was. Do you think that's because people trust others by default? I think it's because we have a system where people convince themselves that

it's not my problem, and if I'm meeting the letter of the law, then I'm okay, and I don't have any broader responsibility than to do this. And that, in a sense, is the explanation for the global financial crisis as well. A lot of people who are involved in the subprime mortgage machine saw how deeply flawed it was and saw that there were problems brewing. But one person summed it up to me. He said, you have this seat on Wall Street where you can make a couple million dollars a year at a minimum. And so you see something going wrong that you look at and you think this isn't right. But if you blow up your career over it, then you've lost your seat and you've lost your couple million dollars a year. And if you just keep quiet and keep collecting your paycheck,

when it does all blow up, you're going to be in the same boat as so many other people. And so chances that the finger gets pointed at you specifically are pretty small. And so what are your incentives? Which one of those two options are you going to pick? And keep in mind that most things that are wrong don't announce themselves as wrong in capital letters with a big sign waving overhead that says, wait five years, the government's going to be prosecuting you for this. It's more that you look at it and you think, yeah, this doesn't seem quite right. But I don't know. Everybody else thinks it's OK. I can get a lawyer to say it's okay.

I guess it's all right. Yeah. The act of questioning or being skeptical is by definition nonconformist. And that's like not something that comes naturally to most people. Right. It's by definition nonconformist, and it by definition requires a little bit of imagination. And I've been thinking more and more about this idea of imagination that comes back to everything you need to know you learned in kindergarten. Use your imagination. But seriously, you have to be able to imagine that these really crazy things could actually be happening. I mean, you have to be able to imagine that maybe Enron is a massive fraud, and it's going to be bankrupt in a year. And if you were complicit in

it, the finger might be pointed at you. And you have to be able to imagine that the entire American financial system is about to come crashing down. And that these big investment banks with these gleaming headquarters in Manhattan that look impregnable are actually quite fragile and could fall apart. And so that requires an active imagination that's actually beyond most people. It is still beyond me sometimes, except now I've seen it enough that I know. How does the experience of imagining something unlikely feel to you? It's still, I actually still think that's one of my flaws as a journalist and I have many, but I'm, I'm not as imaginative as I could be, even though I've, I've come to believe that,

that the business world does actually prove that, you know, that great line true, that, that, that, that, that, you know, the strangest things, that fact is stranger than fiction. The business world proves that over and over again, because you really, from Bernie Madoff to the global financial crisis, to Enron, to Wirecard, you just can't make this stuff up. You can't believe it could happen. But I still, I think I fight with the, I fight between these strains in myself, the knowledge I have that it can happen because now I've seen it happen. My own imaginative side, but then also this very analytical math major side of me that just thinks, but that can't happen. This very pragmatic kind of person who thinks, no, no, no, no, no, the world can't possibly be that weird. I have a friend, Eric, who likens being a contrarian to holding a hot glowing lump of gold. And he says that contrarianism isn't so much about genius,

it's about courage and the courage to withstand ridicule, the courage to withstand self-doubt. And you're holding this, you're juggling this piece of valuable gold. And the trick is to keep holding it until it cools down and you can get it to a safe place. Oh, I like that imagery. That's interesting. Yeah. For me, the fear has never been ridicule so much. It's a self-doubt. That's the piece of it that I have trouble with. The piece that says, well, why do you think you're so smart that you see it differently? And the way you see it is right. And the way all these other smart people

see it is wrong. Yeah. Maybe the way to deal with that is just to know that self-doubt is a good place to be in. Like if you're doubting yourself, then you're being intellectually humble, you're being honest with yourself and others. So provided there's, your, your, your, your, your, your friends analogy. And when do you say, Oh, you know what, actually I was right to question myself and this intellectual, intellectual humility was good. And, um, I it's time to drop the, drop the, the, the glowing lump of gold or walk away from the story. And that I think is the struggle, right? It's, it's, it's good to have the self-doubt. It's when do you say enough? Perhaps the most interesting question to me regarding Enron, and this might be the last Enron question I ask you. So thank you for letting me pepper you with Enron questions for the umpteenth time in your journalistic career. It still remains to me a fascinating

story because it is. It's Shakespearean. It's financial malfeasance. It's still the most interesting accounting story I think ever. So anyway, whatever. Okay, good. Well, I'm glad I haven't bored you too much. But what I want to know is there were hundreds of people inside Enron who knew about the fraud, but how did it get to that point? And how did a group of very bright people become so corrupted? Well, I think the answer to that is complicated and multifactorial. I think it goes back to this notion of legal fraud, that everybody inside Enron could convince themselves that what they were doing was meeting the letter of the law.

And they weren't looking up to see that all the pieces were coming together and creating this edifice that was unstable. They were just concentrated on their own individual pieces. I remember a very smart source of mine who is a trader there. We were talking after the bankruptcy and he said, you know, I was compensated based on the reported earnings I could deliver. It didn't matter how much cash I spent in order to produce those reported earnings. The reported earnings was all that matters. And he said, I look back and think, oh my God, you have an entire company

of people motivated to do what I was doing. And of course you're gonna have a problem. You're gonna have a company that has produced all these reported earnings, but has terrible cashflow because that's what everybody's being incentivized to do. But he said, it just never occurred to me to think beyond my own individual motivations and my own individual incentives to see that the whole thing was flawed. And so I think that's part of it is very hard for any of us to lift our head up from our own individual piece of the world

and see how our piece might fit with other pieces. Particularly if, you know, what's that great quote? It's Upton Sinclair, right? If, you know, try to get a man to believe something, if his salary depends on him looking the other way, I mangled it, but it's something like that. And so I think that's part of it too. And then just because someone is inside a company, they too have a, they become part of the corporate culture, right? And it's very hard to continue to work at a company. Most of us, it's very hard to work at a company if you don't believe and most of us are inclined to be believers. It's just human nature. What are some great books you've read on either fraud or spotting fraud, financial fraud, lying? Well, let's see. I'm reading Maria Konnikova's book on poker right now, which I think is really interesting and a worthwhile book. I think John Kerry Rue's book, Bad Blood, is obviously fantastic. And a good, especially with Elizabeth Holmes' trial coming up, it comes back to this interesting question, which is the incentives of the people who do this and how much self-delusion goes on. And John Hempton and I have talked about this a lot,

that fraud is a complicated mix. It's very rare that you find an executive who just purely has a dark heart and set out to commit fraud. Most of the time, it's this strange blend of self-delusion and rationalization and ego and a little bit of maybe in greed, um, maybe a little bit of outright corruption, but kind of less of the outright corruption than you, than, than you,

than you ever would have thought. And so I find Elizabeth Holmes really fascinating thought about through that, through that lens, because did she believe? And if she did believe is, is that an excuse? Um, um, so that's, that's, that's, that's, that's interesting.'s interesting I'm trying to read and I'm trying to remember the name of it there's I'll I'll look it up after we're done talking but there's a great book on statistics that I'm that I've just started to read as well that is basically how statistics can be used to how we can use statistics to deceive ourselves and how statistics can be used to deceive people but so I love I love things that. I just love things that train your mind to look at something that you're going to see one way

and then you have to see it a different way instead. There are a couple of others that I like. One is The Seven Signs of Ethical Collapse by Marian Jennings, which I think Chanos recommends regularly. Okay, I haven't read that. Yeah, and another recommended to me, which I really enjoyed, it was super practical by my short seller friend, Gabe, was Spy the Lie by a couple of maybe written by two or three former CIA agents.

Okay. You said something really interesting about Theranos and Elizabeth Holmes, which was no one ever like out with these malicious plans to defraud investors in the world. The first step is almost self-deception, right? Yes. I've heard you discuss this interesting notion of how many of these CEOs, many people who end up committing fraud are at the time simultaneously visionaries

and frauds. And the lucky ones we view in retrospect as visionaries, the unlucky ones we view in retrospect as frauds. I like that because it's almost like a Schrodinger's cat situation where at the point of committing the fraud, they're both a fraud and a visionary. And depending on which way it goes is sort of how history will remember them. Yes. Do you think that's a mental model that describes most of these situations? I do, actually. And not all. I think there are visionaries who create companies who tow the letter of the law at each and every step. But I think more often there's the, the, the, the personality traits, maybe there are some important differences and I'm still trying to figure out if, if, if there are,

have a few ideas, but most people would think the way I've thought about it is that most people would think the fraudster is at one end of the, of the scale and the visionary is at the other end of the scale, you know, and it's zero to a hundred, right? And I think of them instead in a circle where they almost meet in a circle and maybe there are shadings that are different, but I'm just going to quickly check this. Yes, we're good. But the character traits are the same because think about it too, create a business. And I think part of my thinking is that most people who become fraudsters don't start out that way. They start out with a grand idea for a business that they want to see work. And they're so desperately invested in seeing it work that they can't afford, sometimes even to themselves, to admit that it isn't working. And so that's how it becomes a fraud. And that's what I mean. I don't mean the person who, you know, sets out to take money from

somebody and goes and, you know, raises money for a hedge fund and never invested in the market and instead goes and spends it on fancy cars. That's not the person I'm talking about. I'm talking about people like Jeff Skilling, people like Elizabeth Holmes, people even in some ways like Bernie Madoff, who didn't start off to intending to run the large Ponzi scheme in history. And if you think about, or maybe even Elon Musk, depending if you're a Musk skeptic or not, if you believe in your idea and you believe so wholeheartedly that you say no to everybody who raises questions and you say no to your own self doubts because you just persevere through, you can see how that person can either emerge, the visionary who's celebrated for creating the new business where everybody thought it was

impossible, or the fraudster who wouldn't listen to the obvious signs that something wasn't working and wouldn't let his or her underlings tell him or her that it wasn't working. And so, you can see how one can become the other fairly easily. Yeah. Do you think we're almost more forgiving of the honest crooks than the people who self-deceive? Like if you think about historic figures like Charles Ponzi or John Laws, there's almost this like adventurous kind of rapscallion element to their characters. Whereas we react really viscerally to the people who are the fraud slash visionaries. I wonder why that is, if that's even true. That's interesting. I'm not sure that's true.

When I was writing my Enron book, I actually really struggled with it because, and I said to a family friend at the time that I was really struggling because I said Jeff Skilling believed, and I don't know how to write, I don't know how to see him through this, through a dark lens, when I think he believed, he really convinced himself that what he was doing was in shareholders' best interests and Ron's best interests, and he didn't want to see this thing go bankrupt. And the person said to me, Bethany, the worst crimes in human history have been committed by people who believed. And so I always think about it through that lens, that belief is not an excuse. And belief might actually be much darker than the outright cynicism

of just taking people. That kind of dark shading of belief does look quite a bit worse. It makes taking somebody's money and buying a sports car instead of investing it in the market look like child's play compared to the darkness of the kind of belief system that we're talking about, especially when you think about it through the lens of human history. Does that make sense? Yeah, it does. You mentioned that you have a couple of nascent ideas about the personality traits that distinguish frauds from visionaries. What are those? I think it goes back to that shading we have.

There aren't really very many absolutes. But one is that at some point, maybe the person who is going to be the visionary, maybe at some point they do listen to other people's doubts. Maybe they don't and they don't and they don't and they're willing to persevere in the face of other people's doubts. But at some point there is a doubt they will listen to. Something will break through. There is a stopping point. In other words, it's not I'm right and the rest of the world is wrong and damn the torpedoes. It's I'm right and the rest of the world is wrong and damn the torpedoes, except for that torpedo I'm going to pay attention to. Right. So it's just that, it's that little bit of, of, of, of willingness to, to listen to somebody who's bringing you bad news

and to change course and in, in the face, in the face of it. Um, and, and so I think that's, I think it's less, uh, it's less, uh, it's an order of magnitude issue, right, rather, if I'm wrong about this, then I'm wrong and I'll pick myself up and move on. And I think the people who end up like Elizabeth Holmes have some sort of deep hole in them that they cannot bear to hear it. They just literally can't bear to hear it. And so they'll tune out all the people who are trying to tell them information they need to know. And so again, I think it's probably some kind of deep-seated psychological thing. Have you heard of the evolutionary biologist Robert Trivers' theory of self-deception? No.

So he says that, so obviously it plays a very important role in human behavior, but why that is and why it evolved is so that we can better convince others of a belief. Yes. When that belief is typically when, or by definition, when that belief is an untrue thing. Because if we appear to genuinely believe it ourselves, then that makes us more convincing. Yes. Does knowing that change how you view self-deception? Would you be now less forgiving of someone like skilling? Well, I am already because once I started to see how dark belief can be

and once you think about it in a historical context and you realize how dark belief is, it no longer feels like that much of an excuse, right? And yes, well, I hadn't heard of this theory. It makes perfect sense, right? You are far better, far more likely to convince somebody else of something if you believe it too. And the truth is all of these people's incentives are so firmly aligned with their believing it. And yet if it turns out that it doesn't work, yes, psychologically, they may get crushed and devastated, but it's usually other people who are bearing the financial pain, not them as much. And so that willingness to take advantage of people who can afford to lose less than you can, or for whom losing is going to be a bigger

cost than it is for you. There's something quite ugly about that. Coming back to your fraud slash visionary idea, do you think it's fair to define a visionary as someone who over promises and over delivers, whereas a fraud is someone who over promises and over delivers, whereas a fraud is someone who over promises and under delivers? That's interesting. Yes, I think that's fair. But I also think that that's a retrospective labeling and that there's a lot of luck that goes into the being able to overdeliver and that sometimes there's just a twist of fate that happens. I mean, I don't know. Arguably, Elizabeth Holmes' technology never, ever would have worked.

But say she had just miraculously gotten it to work as Edison got his light bulb to work, right? Right before he had to demonstrate it, right? And now he's regarded in history as a visionary. Whereas if he had not been able to get it to work, perhaps he would have gone down in history as a fraudster. And with Enron, there's some element of that. You know, Enron Broadband, which is a business they'd started to essentially trade broadband, and then they had this partnership with Blockbuster to do video on demand.

And the whole thing was very nascent. And it was one of the parts of Enron that was the most scammy because they managed to book tens of millions of dollars in earnings from a business that had no revenues, basically through these complicated financial shenanigans. But Enron broadband was essentially Netflix ahead of its time, right? So had Enron been given another five years of life, perhaps it could have been Netflix. And perhaps there would have been such a powerful business rising out of the wreckage that Jeff Skilling would have been able to get away with the financial shenanigans he was using

to hide Enron's real financial condition because maybe it wouldn't have mattered. If Elizabeth Holmes miraculously succeeded in her mission, would the end have justified her means? That's a great question, right? And I guess you could ask that about any kind of visionary. I don't want to believe so. I want to believe that the world works better and is a more fair place if people aren't being lied to along the way. And the idea of a lot of them, you might find that there were times where people were lied to in order to bridge a rough quarter or get another investment. What's the line between saying we're really, really

optimistic this is going to work, we just need a little more money? Yeah, I think one of the seven signs of ethical collapse in Marian Jennings' book is good parts of the business justify the bad parts of the business, sort of like the curate's egg. Yeah. I think psychologists have a related term called moral licensing. Like I've done some good things here, so that gives me a bit of credit to do some bad things over here. I've often thought that Elon's problem is that he is a utilitarian operating in a deontologist's world. What I mean by that is that Elon very much seems to be someone

who believes that the ends would justify the means. At least that's my perception of him from a distance. Mine too. But most people don't think like that. You know, we are focused on rules and obligations and norms of behavior and responsibilities to each other, responsibilities to certain like abstract ethical standards like fairness or honesty, which I'm just broadly calling deontology is in like the moral system that means that the morality of a particular action is judged by how well or not it conforms to a rule as opposed to like what its consequences are elon seems to get in all this trouble because i know in his mind he's doing the right thing even if he's not deceiving himself he his mind he's doing the right thing. Even if he's not deceiving himself, he still thinks he's doing the right thing because ultimately he's on a mission, on a trajectory to improving the lot of the human species and the rules he needs to break in order to get there are justified by that end game. So I think that's a charitable interpretation of him, as perhaps it is of all of these characters.

And the only place that I've looked closely enough to base that comment on is Solar City. And in the case of Solar City, some of what happened there was explicitly to bail out musk and his and his cousins um so it wasn't this grand goal it wasn't this grand we actually are building this integrated entity where solar cities solar panels are going to come together with tesla's electric vehicles and this all does belong together there were was money, and I'm going to fade it. I wrote about this at one point, but Musk had extended personal loans to SolarCity, as had his cousins. And when Tesla bought out SolarCity and saved it from going bankrupt, one of the things that happened was that those loans got paid back. And so there

is this self-serving element to it too, that takes away from that idea that it is just this big picture worldview. If it weren't for the self-serving elements to it, I'd be more inclined to believe that. But when there are these narrowly self-serving aspects to some of what these people do, then you think, huh, I'm not sure. But perhaps with SolarCity, there was a bigger picture, just in a more indirect way. Perhaps there was. Like if it went under, then Musk kind of loses his, like that Midas touch narrative that surrounds him, which then might impact Tesla and SpaceX.

So then that could operate on two levels, right? On one level, he could not want it to go under because it simply would be a failing and he psychologically cannot deal with the idea that he might have failed. And so he simply couldn't let it happen in order to protect his own psyche. But it could also be on another level, on a more pragmatic level, that all of his entities need an enormous amounts of cash and still need to be able to raise that money. And should the Elon Musk halo fade at all and investors start to say, oh, wait, one of these things can go under and not work, then maybe that will affect his ability to raise money for the

rest of the empire too. And so he couldn't let that happen on a pragmatic level either, but I'm not sure any of that's an excuse. Sure. Yeah. Did you, did you watch the Neuralink demo? No. The pigs? No. That was great. Hard to know whether it's just pure vaporware or not, but given the emergent qualities of consciousness in the human brain, I'm leaning towards the vaporware thesis. And the hard problem of consciousness, I'm leaning towards the vaporware thesis. It's kind of like Holmes taking on doing the assays with a tiny droplet of finger prick blood. It's like taking on an infamously intractable problem well given um the solar city solar roof demonstration in the fall of was it 2016 or 2017 i think it's fall 2016 and the promise and the the whole spectacle showing the functioning solar roof and the fact

that here we are in 2020 and there is still not really a solar roof that seems to be being mass produced, I would vote for paperware on Neuralink too. Yeah. Has Elon been a net benefit to humanity at this point in his career? I think he has actually. Well, I mean, what would we do without the amusement factor provided by Elon Musk? I mean, for sure that... That's a very cynical take bethany i'm sorry i just i i i did go straight to the cynical but no seriously he he he he gives the idea of possibility right and i think anybody who opens up the horizons of possibility is probably a benefit to humanity i mean the idea that you can have these three separate kind of companies going at once, that from one man's brain can come so many ideas and so many concepts that could revolutionize our world. The fact that he actually has done things. I mean, Tesla made a of imagination backed up by some degree of

accomplishment is actually a net benefit to humanity. Yes. And I do believe also that there is enough information out there about Tesla, thanks in part to Twitter, that if investors lose money, if investors do end up losing money on Tesla, I'm not going to feel bad for them. I mean, this is not Enron where the skeptical stories about Enron were out there, but they traveled in a very narrow circle and you had to have access to that very narrow circle of smart money in order to figure out that this company that was being sold as the greatest thing, some sliced bread,

I'm sorry for the really bad cliche there, but that it wasn't what it was cracked up to be, you would have had to have access to that inner circle of knowledge. Tesla is wildly different in part thanks to Twitter. If you want to challenge yourself and know everything that the skeptics are saying about Tesla, it's right there.

All you have to do is do the homework. And I actually don't know who's going to turn out to be right, but I won't feel if it does turn out that Tesla collapses and that everything the skeptics have said has been true, I won't feel bad for the people on the other side of it because they had an opportunity to educate themselves and just chose not to do it. Are there any big stories you're working on at the moment that you can give us an insight into? So I'm going to write a book on the pandemic with my co-author from All the Devils Are Here, and we are still figuring it out. So I don't have a great amount of insight to share, unfortunately.

And that's occupying a great deal of trying to think about that, along with some other projects, is occupying a great deal of my time right now. And I'm still thinking a lot about energy markets and what they're going to look like in the wake of the pandemic. I think the pandemic has mostly accelerated trends that were already in place, like the collapse of fracking is not a direct effect of the pandemic. It was already collapsing and it was accelerated by the pandemic. But what that means for global oil supply and what happens if economies around the globe rebound and we get a great deal of demand for oil and in the face of a shrinking supply environment?

I just think we could see a lot of volatility around energy prices in coming years that people aren't prepared for. How did you come to be interested in energy? So it was actually John Hempton, of all people. He said, of course, he said to me, I think it was back in 2010. It was so long ago. He said to me that Aubrey McClendon, who was running Chesapeake, was the most important man in America. And he was being somewhat apocryphal, obviously. But what he meant was that if Aubrey was right, and America was going to produce all this cheap oil and natural gas, that was going to change the

future of the world. It was going to change the sort of businesses that were going to produce all this cheap oil and natural gas, that was going to change the future of the world. It was going to change the sort of businesses that were going to be located in America. It was going to create an entirely different picture of natural gas and oil resources than what we had thought beforehand. And so that Aubrey represented something that was really pivotal. And John was always very interesting about pointing out the weird disconnect in fracking, which is what obsessed me about it, which is that it was real. As John would say, the oil and gas coming out of the ground was real, and yet the economics didn't work. And so is it a fraud? Well, I don't know. The oil and gas is real,

but the numbers don't work. Why do the numbers not work? Because fracking is incredibly capital intensive. So it requires, and the wells decline a great deal, both natural gas and oil wells that are fracked decline much more than wells that are drilled conventionally. A conventionally drilled well is going to keep producing, but a fracked well is going to show anywhere from a 60 to 80% decline after year one. And so in order to keep a growing supply of oil or gas, you have to keep reinvesting in new wells so that you can keep producing more because the ones you have are giving out. And so the amount of cash coming out of the ground just never gets to be more than the amount of cash going into the crowd. That's fracked.

Yes, that is fracked. Probably not the most original pun I could have gone for, but anyway. It worked for me. Moving on. As a journalist, how do you stay organized? Is there an app you use to collect and gather all of your notes and sources? No, I am, if I could, I don't know. I think my brain fights organization until I have to get organized and actually write.

I just generally have piles and Gmail has been a huge savior to me in terms of being able to create folders with anything that I'm that I'm interested in. And I use that basically just to create folders of ideas that I'm that I'm interested in. And I just have my notebooks and I just keep keep notes on anything on everything. And when I actually decide that I'm going to write about something, then I create its own pile. That sounds really terrible. but that's essentially how it works. But I don't, I think making your brain go into rigid tracks early on is, is not great either. So there comes a time for rigidity when you have to, when you have to have every, you have to have it all in a, in a pile. And then I get, I do get sort of anal when I'm, when I'm, when I'm actually writing something. I have to create a giant file that has all of the information that I've gathered so that I know that I have everything in one place and that I'm not missing anything.

But that's not until I've decided I have to start writing. Is there anything notable about how you put questions to your sources? No. No, I think I'm just curious and I want to learn from people and I really want to hear what they have to say. And when I get to talk to somebody about basically anything, I'm really excited about it. And I think just actually being really and I think there is no substitute for being really curious and being really invested in what you're getting to learn from somebody else. Because whether you're meeting in person or by Zoom or just over the phone, that all comes through somehow. People know if you're there or if you're not there. And if you're there, we all want to be heard, right?

We all want to have something to contribute. And so if you're there and you're listening and you're genuinely engaged in what the other person is saying, I think it'll all be fine. What are the trade-offs between accuracy and narrative flair? I think that's a big one. And it's actually something I've thought about a lot because I really struggled to write when I started in journalism. And some part of that for me was probably my background as a math major, but also my background then as a fact checker at Fortune. And I finally realized that if you literally stick to the facts as you try to write, you can never find the narrative.

And at some point, you have to let go of the facts and try to see what the story is and see what the narrative is, and then come back after you've written it and make sure it's accurate and fix the places where it's gone wrong. But if you try to literally hew to the facts in everything you write, you're never going to find a story. You're never going to find a narrative. And I've thought that actually a lot of writers, a lot of really great writers weren't great students. And part of the reason why is that great students often feel like they have to show their professor that they've understood every piece of it. And God forbid they've left something out or they've missed some kind of important point or they've gotten it wrong somehow.

And so great writers are often able to transcend that in some ways. And it comes back to it's that great Camus quote, right, that fiction is the lie through which we tell the truth. And so I think sometimes even with journalistic storytelling, or maybe a better way to think about it is fairy tales, right? Fairy tales are fairy tales, and yet they get at this fundamental truth. maybe in journalistic storytelling, you want it to be a story that resonates, that's larger than the mere facts on the page. And yet you also have to circle back and make sure that those facts are accurate. Does that make sense? Yeah. Are there any examples of a story where the trade-off between accuracy and narrative flair was minimal? I don't think there should be a trade-off at the end of it all.

I think there is. I really do believe that the best stories are actually painstakingly accurate, but I believe that's just a process that you have to come back and adjust your narrative after you've sort of found your story and make it accurate. But it comes back to this idea of imagination. I think sometimes you do have to be willing to let go of strict adherence to facts and strict kind of fairness in order to say, but wait, something wrong, something bad happened here. And I often think of the difference between a story I wrote about Goldman Sachs in the

fall of 2009 and Matt Taibbi's story calling Goldman the vampire squid. And Matt was able to look at Goldman's behavior in the run-up to the financial crisis and just say, no, no, no, no, no, no. I don't care that they're a market maker. I don't care that they're, they were dealing with sophisticated clients and that, you know, you can write this whole rationalization of Goldman's behavior. Just know it, it, it was wrong. And I actually think his story in a way was more accurate than my story was, which was much more carefully, well, here's Goldman's side of it. And so you can go too far in trying to tell both sides of the story. Right. So his story was emotionally accurate.

It was emotionally accurate. It got at a larger truth of how disgusted people were with this kind of behavior and how maybe something fundamentally had gone wrong with our financial system that this is the sort of behavior that we had normalized whereas I had normalized it a little too much right maybe another another or a better way of saying it was emotionally accurate is to say it was metaphorically true yes that's yes yes thank you that's what I was what that's what I was getting at with the concept of fairy tales. A fairy tale can be completely made up and yet it's more true. It expresses a part of the human psyche more than literal truth ever could. Right. And I think,

and I think, I think that's a struggle with anybody who is a nonfiction writer is when do you, when do you make that reach? When do you go for the bigger truth rather than the narrow truth? And I have a lot of trouble with that. I think it's the trained fact checker in me combined with a math major. I have a lot of trouble getting rid of the literal truth. Reality is like a, sorry, this is just another metaphor I'm going to use. Reality is like a tree where you have the trunk that splits into the various branches, which then fork off again into twigs and leaves. And there's all this complexity, but in presenting a story, we just take the trunk, maybe a couple of the branches. So it's accurate in the

sense that you could trace those arguments back to the ultimate detail, but you can't and you shouldn't and you're not going to present all of the detail because it just doesn't fit. No one has the time to read that. So you're just going to take the trunk. Yeah, that's for sure one way to think about it, or you could think about it that you're never, ever going to manage to capture all of that complexity. And maybe the person who steps back and just says, green, is actually doing a way better job of capturing the tree than you are by painstakingly trying to trace these branches that are never going to capture the whole anyway. And if you actually have the clarity to be able to look at a tree and just say green, to be able to look at Goldman Sachs' behavior in the run-up to the financial crisis and just say

wrong, maybe that's better than trying to wend your way through all the complexity and trace the branches and the leaves. So what are some of the factors that help you decide which part of the tree to present? Like, you know, the old cr interesting than people for a lot of for my early years. And through the course, you make your mind by anything you do, right? You train your brain the way you would train your body if you exercised. And so through 25 years of being a journalist, I am now way more interested in the human nature side of stories. So I definitely think about stories through that lens much more than I did when I was younger.

But I don't have a conscious process for thinking about how I'm going to present a story. I start to see it in a certain way as I do my homework and after I've done my homework. And sometimes an editor will be able to help me reimagine it and see it differently. But for the most part, once I start to see that this is how the story should be told, I can't actually think of another way to do it. So it's not a conscious process for me. It's arriving at a way that this is what feels like captures how I see it and what I want to say. And once I have that in my head, it would be very difficult for me to think about another way of doing it until an editor comes in and says,

aha, this isn't working. Do you like working with editors? Good ones, yes. I've had the great pleasure of working with really good editors, and the best ones can do exactly that. They can look at what you've tried to do, the thing you've tried to capture, and say, here's where it's missing the mark. And if you just think about it this way, they can take that tunnel vision you

almost get, or I almost get when I'm constructing a story where I just can't see it. I mean, it's not tunnel vision, it's just concrete where I can't see it any other way. And they can suddenly just switch your prism on. It can just change. And you can say, oh, I see it. I see it in a new light. I see a different way to do this. And I've always loved that because once you know all the information and you're clear on the facts, to have the prism through which you see it changed is actually great fun. What are some of your all-time favorite pieces of financial journalism? And you can't say your own. No, well, I probably wouldn't say my own. Oh my God. This might be, be nice to me on this one. We may have to come back and do this again because my brain is a little bit challenged right now. And it's not that I don't like and admire lots of

things that I've read, but I'm going to be a little slow in thinking of them right now. So I may have to give you examples later. I don't know why I am... Or even like business journalism more broadly. John Hempton told me that you're a big admirer of Michael Lewis. I am a huge fan of Michael Lewis because I think Michael has the ability to capture the essential truth of a story. He is factually accurate as well. He's a great writer. So I think anything he's written is phenomenal. Let's see, what have I read that I found really stunning lately? I mean, they're just the classic books, the classic business journalism books from Den of Thieves is just

an incredible read, all the way through to Bad Blood, which I think is going to be a classic as well. But there's so much else. There's so much else. Let me get, let me, let me think about it and give you, give you a list because I, I have, I should be able to do better with this question that I'm doing right now. And it might, might, for some reason, I'm just not. That's okay. We'll put, we'll put Bethany's list up in the show notes. A good excuse for people to visit the website. I love anything my co-author Joe Nocera has written. I think he's also one of the, has a great ability to just be incredibly clear. You never come away from something Joe's written and think, what does he think? Or what is he trying to say here? It's always there. He has

an incredible gift of clarity. And Joe is an amazing editor in that he can take a subject he knows nothing about and read a draft on it and find the flaw, find the thing that you didn't want him to find as a writer that you're trying to duck because you know you don't understand something. Joe will immediately go straight to that and find that flaw. And it's a really interesting way of thinking that he almost thinks through the narrative process. He can find the disconnect in the narrative where it isn't working and say, wait, what about this? This doesn't make sense. Is there anything as a writer that you were bad at when you began your journalism career that you now feel you're pretty good at? Well, I was a terrible writer when I started at Fortune. And some part of that was that I had never learned to write journalistically. So my only real writing had been academically. And writing academically and writing journalistically are very, very

different. Because when you're writing academically, the professor has to read your paper. You don't have to make them want to read your paper. And when you're writing journalistically, nobody has to read what you're writing. You have to make them want to read it. And that's really different. And you're not trying to prove to your audience that you've mastered the entire topic and that you've thought of every single wrinkle that they could ever have thought of. So you can get an A. You're trying to tell a story. So it's entirely different. So I didn't, from my early years at Fortune, I definitely had the reputation of someone who was debatably smart, but couldn't write.

And it took me a long time to learn how to write. And I still don't consider myself a great writer. I think I'm a good writer. I've learned how to be, I've learned how to tell stories and how to think through constructing a story, but I still don't think I'm a great writer. What are some of the things you've learned in particular about how to construct a story? Well, I've learned that you have to slow down and tell a story. I used to just have

such a jumble of ideas and conclusions that I couldn't wait to get all of those ideas and nuances across to people. You have to tell a story to people so they can go through the same process of discovery that you did as you were learning the material. And so starting to write requires going back to being a beginner again and remembering your own process of discovery instead of starting where you've gotten

and burrowing further into the complexity. And my first instinct when I started out was to start where I'd gotten because I was already bored with everything I'd learned. And burrowing further into the complexity instead of remembering that now you're bringing people along this journey that you've already gone on. Someone said to me, and I've said this before, but someone said to me early on that facts are like lights on a Christmas tree. You actually can have too many. And for me, letting go of any of my lovely, beautiful facts that I've learned in the process of because you've, you've, you've essentially used each fact to camouflage the others instead of having the single fact shine brightly. It's just all the, all the light blurs in together.

Yes. And no one knows where to look. And so you want the single fact to shine brightly instead of having so many things, so many distracting objects that nobody knows what to look at or what you're, what you're trying to say. And so that part was, was, was really hard for me too. Um, and then I think the, the, to me, the act of writing well, nonfiction and particularly in business is just clarity, um, being absolutely crystal clear about what you're trying to say and what you're trying to, what you're trying to convey. And look, that's, that never gets easy. I think that's, it's always a huge challenge, really, really hard. And it's really tempting to try to, to, to, to skip the work and try to come up with, but, and try, but, but that, that one sentence sometimes that you come up with to

explain something can be the product of, you know, 15 interviews and a week's worth of drafts before you finally realize that all it takes is one sentence to say it. But it can be an enormous amount of work to get to that point. And I think figuring out where you need to expand in order to convey something and where you need to just condense and clarify in order to say something is also part of the art of writing. And I try to at least, even if I'm not always good at it, I'm at least thoughtful about it. You struck a real chord with me with your first piece of, or your first lesson about slowing down and kind of leading the audience by the hand.

I have a sneaking suspicion or a theory rather that most pieces of bad non-fiction writing are the result of the curse of knowledge where the writer forgets that they've come so far in their understanding of a story or a topic that certain things make sense to them only because they have the context and the elementary building blocks and they don't empathize with the audience. They don't put themselves in the reader's shoes to be able to kind of like guide the reader through that process of, of understanding certain prior pieces of information that they need in order to like grasp the more important ideas. And they just go straight to the most important ideas. Maybe it's almost, maybe the process of writing and reporting is almost the process of being an intense narcissist and then not being a narcissist anymore. And what I mean by that

is that the process of reporting is all about, I'm so intensely interested in this. I need to figure this out. I need to learn this. And it's very, it's in a way sort of narcissistic because it's all about your own curiosity, right? And in figuring things out, but then in order to be able to write, you need to say, I'm no longer central to this. Now I have to remove my own, not my own curiosity from this, but I have to step back and see how it feels to be somebody else who's approaching this cold, right? It can no longer be just about my curiosity and my interest. It has to be about something bigger than that. Have you read Michael Lewis's latest book, The Undoing Project? I have not finished

it yet. No. I got waylaid by the pandemic. Oh, fair enough. I won't spoil the ending for you then, but it is literally one of the best endings to a nonfiction book, if not the best I've ever read. It's like I was tearing up at the end and I don't normally cry when I read nonfiction. It's like it's written to be a movie. Like, oh, God. Yeah. Sorry, that was just a random thought bubble. That will inspire me to go back and read it. I just finished a set of books for a book review that I do every year, which is kind of my favorite project. I get to do a book review that is picking three books and writing an essay about all three books. And so I just finished that project. And now that those three books are out of the way, I can go back and read the Undoing Project.

Nice. When you have to read books for the book review, does it become a chore to finish them? It does a little bit. You definitely read differently when you're thinking about a review than you do when you're just reading for pleasure. But I think I tend to remember more, so I actually like it. Because I think one of the many problems with getting older is that you can read something and not remember what you've read a few days later, particularly if you're consuming a lot of other content and reading a lot of other things too. It can all get mixed and muddled and lost. And so there is something very clarifying about doing a review, even if it makes it a little bit more of a process.

It makes it stick a little more, I guess. So it strikes me that you have a fun, very satisfying and important job being an investigative journalist. What's the business model and how do we scale up investigative journalism? Yeah. So, it's problematic today, right? I was just talking to an old friend who I had worked at Fortune with in the 1990s and we were saying, wow, those were the golden years and we just didn't get it at the time. You know, a fairly well-paying staff job at a magazine where you were incentivized to do great work and you could take months to work on a piece that might not come to fruition. And as long as a few did, every few years you were in great shape. And wow,

I mean, we were so lucky. And I think there are still a few places like that, maybe the Times, maybe, but it doesn't exist broadly anymore. And I think it's really problematic because it's not just that the business model for journalism is somewhat broken. It's also the individual incentives, right? Because if the business model is broken, then it's very hard. As a freelance journalist, you're much more inclined to go for the safe story that you know is going to be a story than you are to go for the big investigative project that may turn out to be nothing after two months of work. Because if it turns out to be nothing after two months of work, then you have nothing, right? So very different than having a staff job. So I think I don't know how it shakes out.

It worries me. So, yes, I'd say my job is everything I would ask it, I could imagine it to be. And I'm very, very lucky. And I'm still lucky but the the the the financial aspect of it is um is not as secure as it could be so we say the the business model is broken I'm just conscious of like our our own curse of knowledge here and and clarifying for people what that means I guess in the past the great genius of newspapers was that they connected classifieds, i.e. the rivers of gold on the one hand with investigative reporting on the other. So you could subsidize really high quality journalism, whereas now all of those ads have moved with the dawn of the internet have moved on to other platforms like Google and Facebook.

Have I summarized the problem or would you add anything to that? No, I think that's the problem in a nutshell. And that's true of magazines as well, which were, yes, magazines got some money from subscribers, but most of the money came from advertising. And so as Google and Facebook have siphoned up an increasing share of those advertising dollars, the business, the money supporting journalism has just disappeared. The oddest thing about that, and Facebook has started to understand this with its outreach to support local journalism, is that Facebook and to some extent Google as well are parasites, right, on the existing journalistic infrastructure. If there weren't any, if there

were no more journalism, Facebook and Google would both have a problem, a big problem, because that's what people Google, right? And that's what people share on Facebook is journalism. And yet they're destroying the very ecosystem that they need to survive. So there's a great irony at the heart of what's happening. But nonetheless, it's happening. Yeah. It's like this terrible equilibrium where they're sucking enough blood out of the host where it's now running on the smell of an oily rag, but not enough that it keels over. Yeah. And I think the incentives that have been created by a world where

where the incentives are to get people to click on headlines is also quite, are also not good, because headlines are written to induce people to click, and they are not always, sometimes you read the story, and it has nothing to do with the headline, or it doesn't substantiate the headline in any way. And yet, a lot of people will remember the headline, because that's just the way we are as human beings. And so I think that's problematic too. It's not just in the fact that it's misleading, but it's in what's likely to lodge in your brain is often the headline rather than the substance of the story,

which may not actually support the headline at all. Right. So it's like a compound problem where, I mean, investigative journalism costs a lot of money because you're not producing stories on a frequent basis. You're even traveling around. You're not sitting at your desk. You need your salary.

So there's a lot of investment for the ultimate output. That's made more difficult by the drying up of the rivers of gold. So the unit economics of just sitting at your desk and bashing out an opinion article make a lot more sense. But then on top of that, you have the fact that you now need to produce clickbait to get any kind of traffic at all. It kind of just like, like compounds the problem. So that is, that is disturbing. Do you have any alternative funding models? Any ideas?

Well, so lots of people are trying to come up with ideas. And there, I guess that I'd say there's sort of, there are a few models going. There's the ProPublica model of a not-for-profit that fundraisers every year. There's the New York Times model of just rule the world and have it be a regular for-profit convert to subscribers and just have it be leaner than it used to be, but dominate and that's going to work. So there are different models that people are trying. I just, I'm not sure that a New York Times dominated world is the right one, if that's one of the only organs left. So I don't know how it's going to shake up.

And I'm not sure that, you know, even a not-for-profit model of having to fundraise every year, well, that's a little bit insecure, right? How does democracy survive this change in business model? I think that's a really interesting question. And we're living through the throes of that in the United States right now, right? As trust in media has fractured, in part, I think that's not, that's tied to this issue of clickbait headlines. And so you have a fractured media and a fractured country. And how we function through this,

I think the next decade is going to tell that story. I'm not sure what the answer is. Bethany McLean, thank you so much for joining me. Thank you so much for having me. This was so much fun. Thanks so much for listening, Swagmen and Swagettes. I hope you enjoyed that conversation as much as I did. For show notes and links to everything discussed, you will find those on my website, josephnoelwalker.com. That's my full name, J-O-S-E-P-H-N-O-E-L-W-A-L-K-E-R.com. As I mentioned at the beginning of the episode,

our 2020 listener survey is also available on the website I would really appreciate you taking the time to complete it. The audio engineer for the Jolly Swagman podcast is Lawrence Moorfield, our very very thirsty video editor is Alf Eddy I'm Joe Walker, until next week Ciao