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Bethany McLean — Enron, FTX, 2008, Musk, frauds, & visionaries
16 segments available
This was one of my favorite episodes ever. Bethany McLean broke the Enron story & has written some of the best finance books out there. We discuss: * The astounding similarities between Enron & FTX, * How visionaries are just frauds who succeed, * What caused 2008, and whether we are headed for a new crisis, * Why there’s too many venture capitalists and not enough short sellers, * And why history keeps repeating itself. 𝐄𝐏𝐈𝐒𝐎𝐃𝐄 𝐋𝐈𝐍𝐊𝐒 * Transcript: https://www.dwarkeshpatel.com/p/bethany-mclean * Spotify: https://spoti.fi/3FLCuRk * Apple Podcasts: https://apple.co/3v7djDN McLean is a contributing editor at Vanity Fair (see her articles here) and the author of The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron, All the Devils Are Here: The Hidden History of the Financial Crisis, Saudi America: The Truth About Fracking and How It's Changing the World, Shaky Ground: The Strange Saga of the U.S. Mortgage Giants. 𝐓𝐈𝐌𝐄𝐒𝐓𝐀𝐌𝐏𝐒 00:00:00 - Intro 00:04:37 - Is Fraud Over? 00:11:22 - Shortage of Shortsellers 00:19:03 - Elon Musk - Fraud or Visionary? 00:23:00 - Intelligence, Fake Deals, & Culture 00:33:40 - Rewarding Leaders for Long Term Thinking 00:37:00 - FTX Mafia? 00:40:17 - Is Finance Too Big? 00:44:09 - 2008 Collapse, Fannie & Freddie 00:49:25 - The Big Picture 01:00:12 - Frackers Vindicated? 01:03:40 - Rating Agencies 01:07:05 - Lawyers Getting Rich Off Fraud 01:15:09 - Are Some People Fundamentally Deceptive? 01:19:25 - Advice for Big Picture Thinkers
Segments Timeline
The Thin Line Between Visionaries and Frauds
Bethany McLean discusses the blurred lines between visionaries and fraudsters in the business world, citing examples like Jeff Skilling from Enron and Elizabeth Holmes from Theranos. She emphasizes the role of self-delusion in these narratives and questions whether individuals like Sam Bankman-Fried (SBF) recognize the similarities between their actions and past frauds. This segment sets the stage for understanding the recurring themes of fraud in finance.
"this line between a Visionary and a fraudster you know you think that there are two opposite ends of the spectrum but in reality there where the ends will Circle the effect somebody has the ability to..."
Learning from History: Are We Really Improving?
In this segment, McLean reflects on the lessons learned from past financial frauds like Enron and the 2008 financial crisis. She discusses the importance of documenting these events and the challenges of truly learning from history. McLean raises the question of whether individuals about to commit fraud can recognize the patterns from previous cases, highlighting the persistent issue of self-delusion in the finance sector.
"that's the that's the usual yeah yeah that actually raises the next question I wanted to ask you bird Hobart uh he's a finance writer as well he wrote a blog post um about I mean this is before FTX ob..."
The Shortage of Short Sellers
Bethany McLean explores the current shortage of short sellers in the market and its implications for financial stability. She discusses how the efficient market hypothesis contrasts with the reality of market behavior, particularly during periods of irrational exuberance. McLean argues that societal perceptions of short selling as 'un-American' contribute to this shortage, ultimately affecting market corrections and the ability to identify fraudulent practices.
"yeah yeah I mean you've spoken about I guess the usefulness and the shortage of short sellers there's a sort of uh corrective on irrational exuberance and I'm curious why you think that shortage exist..."
Elon Musk: Visionary or Fraud?
In this thought-provoking segment, McLean examines the controversial figure of Elon Musk, questioning whether he embodies the traits of a visionary or a fraud. She discusses the complexities of his business practices and the public's perception of him, drawing parallels to past figures in finance. This segment invites listeners to consider the implications of labeling successful entrepreneurs in today's market.
"short Sellers and speaking of private Equity um I think it'd be interesting to talk about musk so you know your 2018 Vanity Fair article I thought was really interesting about you know musk Factory in..."
Intelligence, Fake Deals, & Corporate Culture
McLean delves into the interplay between intelligence, corporate culture, and the prevalence of fake deals in the business world. She discusses how a culture that rewards short-term gains can lead to unethical practices and the eventual downfall of companies. This segment highlights the importance of fostering a culture of integrity and long-term thinking in corporate environments.
"but that's not because Jeff Skilling wasn't a Visionary who had really Grand plans for for the future so I think musk Falls somewhere in that Factor on love of of broadster and Visionary and what's go..."
Rewarding Long-Term Thinking
In this segment, McLean emphasizes the need for businesses to reward leaders who prioritize long-term thinking over short-term profits. She discusses how this shift in focus can lead to healthier corporate practices and more sustainable growth. McLean argues that changing the incentives for leadership is crucial to preventing future financial crises.
"options uh you've spoken about how that creates short-term incentives for the executives who are making decisions if you wanted to set up an instrument that aligned an executive or a Leader's compensa..."
The FTX Mafia: A New Era of Fraud?
McLean addresses the emergence of FTX and its implications for the future of finance. She draws comparisons between FTX and past financial scandals, questioning whether we are witnessing a new wave of fraud in the digital age. This segment explores the cultural and regulatory challenges posed by cryptocurrency and the need for vigilance in the evolving financial landscape.
"think about that downside of the long investing fair is that so interesting there I guess there is no free lunch uh so with Enron um it was clear that there was a lot of talent at the firm and that yo..."
Is Finance Too Big to Regulate?
In this segment, McLean discusses the challenges of regulating the finance industry, particularly in light of the size and complexity of modern financial institutions. She questions whether current regulations are sufficient to prevent future crises and explores the implications of a finance sector that continues to grow unchecked. This segment highlights the ongoing debate about the balance between innovation and regulation.
"Finance in general so Finance is nine percent of GDP I believe how much of that is the productive use and thinking and allocation of the capital towards their most productive ends and how much of that..."
Lessons from the 2008 Collapse
McLean reflects on the causes of the 2008 financial collapse, drawing parallels to past events like Enron. She discusses the role of government-sponsored entities like Fannie Mae and Freddie Mac in the crisis and the lessons that can be learned from these failures. This segment serves as a critical examination of the systemic issues that led to one of the worst financial crises in history.
"special purpose entities are they our Alameda it's just a way we hide our debt and uh interesting yeah well I guess we you know what I don't know anymore because so I last wrote about them when was it..."
The Big Picture: Understanding Financial Crises
In this segment, McLean provides a broader perspective on financial crises, discussing the recurring themes and patterns that emerge over time. She emphasizes the importance of understanding the big picture in finance and the need for a historical context to navigate future challenges. This segment encourages listeners to think critically about the financial landscape and the lessons of history.
"architecture of the financial industry I I'm really glad you brought up this theme about what is the overall big picture look like I feel like this is the theme of all your books that people will be s..."
Frackers Vindicated?
McLean discusses the controversial topic of fracking and its implications for the energy market. She examines the arguments for and against fracking, questioning whether the industry has been vindicated in light of recent developments. This segment explores the intersection of energy policy, environmental concerns, and economic realities.
"yeah um let's talk about fracking so in this year uh I think Quarter Two was it the first time that fracking and shield finally became profitable um were the fracking investors rights that there would..."
The Role of Rating Agencies
In this segment, McLean analyzes the role of rating agencies in the financial system and their impact on market stability. She discusses the challenges of ensuring accurate ratings and the potential conflicts of interest that can arise. This segment highlights the importance of transparency and accountability in the rating process.
"um I want to talk about the rating agencies because they have featured heavily in both the story about the housing crisis and Enron and as a Libertarian leading person that's really been um that that'..."
Lawyers Getting Rich Off Fraud
McLean addresses the issue of legal professionals profiting from financial fraud cases. She discusses the implications of a system where lawyers benefit from the fallout of corporate scandals and the ethical considerations involved. This segment raises important questions about accountability and the role of legal institutions in the finance sector.
"um now that we're going to have this long proceeding on FTX in terms of compensating the people who are harmed looking back at Enron I mean that was a long for us and I think you said in the book that..."
Are Some People Fundamentally Deceptive?
In this thought-provoking segment, McLean explores the nature of deception in business and whether certain individuals are predisposed to deceitful behavior. She discusses the psychological aspects of fraud and the societal implications of trusting individuals in positions of power. This segment invites listeners to reflect on the complexities of human behavior in the context of finance.
"another question is that the people you've studied um in your books and near journalism have you concluded afterwards that you know there's some people who are fundamentally deceptive and there are so..."
Advice for Big Picture Thinkers
McLean concludes the discussion by offering advice for those who aspire to think critically about the financial landscape. She emphasizes the importance of understanding historical context and being aware of the recurring patterns in finance. This segment serves as a call to action for listeners to engage with the complexities of the financial world.
"or I guess second to final question what advice would you give to people who want to do something similar to what you've done over your career whether that's investigative journalism or some other rol..."
Exploring Capitalism Post-Pandemic
McLean reveals her upcoming book's focus on the economic consequences of the pandemic and how capitalism is functioning in modern society. She discusses the role of government in shaping market conditions and the flaws in capitalism that were exposed by the pandemic, setting the stage for a critical examination of economic systems.
"really critical maybe there's something for somebody else that would work that isn't writing maybe it'd be turning the world into a math proof you know but there is I for me that's what it is yeah yea..."