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Transcript: Bethany McLean (Enron & Fracking)
December 16, 2018 12:00pm by Barry Ritholtz
The transcript from this week's MIB: Bethany McLean, is below.
You can stream/download the full conversation, including the podcast extras on iTunes, Bloomberg, Overcast, and Stitcher. Our earlier podcasts can all be found at iTunes, Stitcher, Overcast, and Bloomberg.
This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest. Her name is Bethany McLean, she is the author most recently of "Saudi America All About The Rise of Fracking" it's really a fascinating book that brings up all sorts of interesting things that I had never considered before about fracking, most notably the direct line from the financial crisis and the very low rates we've had to the fracking boom of the ensuing decade. Bethany is a highly-regarded author who has written numerous books many of which have won awards and are highly thought of. She's one of my favorite writers, I find her stuff absolutely fascinating and I think you'll find this conversation fascinating as well.
So with no further ado, my conversation with Bethany McLean.
I'm Barry Ritholtz, you're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Bethany McLean, she is a contributing editor at "Vanity Fair", she also spent three years in the investment banking department at Goldman Sachs from which she joined "Fortune" as a reporter. She is known for her books probably the most famous one is "Smartest Guys In The Room, The Amazing Rise And Scandalous Fall Of Enron" eventually that became an Academy award nominated documentary. She also wrote the book "Shaky Grounds, The Strange Saga Of The US Mortgage Giants" and "All The Devils Are Here, The Hidden History Of The Financial Crisis" her latest book "Saudi America, The Truth About Fracking And How It's Changed The World" Bethany McLean, welcome back to Bloomberg.
BETHANY MCLEAN, CONTRIBUTING EDITOR, VANITY FAIR: Thank you so much for having me.
RITHOLTZ: So I really enjoyed the book "Saudi America" and let's jump right into that because there are some really fascinating things that I have to start with a quote that really stood out to me, quote "The most vital ingredient in fracking isn't chemicals but capital, if it wasn't for historically low interest rates, it's not clear there would even have been a fracking boom." Now, all this time, I've been told that's technology that's driving fracking, you're saying it's not, it's ultra low interest rates.
MCLEAN: It certainly is technology as well, horizontal drilling is a big innovation so I do want to give credit to that, but I think most people, when they focus on the problems with fracking, or the issues, they focus on the environmental issues, very few people focus on the shaky financial foundation of the fracking industry and this is an industry that needs huge amounts of capital, huge amounts of capital are required to drill a well and then because the decline rates of the wells are so steep, if you are going to maintain production or grow your production every year, you get on this treadmill of constantly needing more capital.
So most shale companies have a fair amount of debt, and so if it weren't for record-low interest rates, it's unclear that they would've been able to raise all the debt that they needed to get this thing going the way it did.
RITHOLTZ: Let's talk about those decline rates. You cite a study, in the book, you cite a study by the Kansas City Federal Reserve that showed the average well in the Bakken region, first year decline of output is 69 percent, within three years, it's 85 percent, so what do they have a very short window to squeeze whatever they can out of that well?
MCLEAN: Yes and you can make, one well can be profitable and a simple return on capital analysis, but if you are part of a publicly traded company and you need to show growth in production every single year, you're on this treadmill of constantly needing to raise more capital in order to show production growth. And the big question overhanging the shale industry is does that ever come to an end? Is there a point where this industry begins to produce free cash flow because right now it doesn't, it depends on the largesse of Wall Street being willing to fund it.
RITHOLTZ: So let's talk about that a second, you describe how fracking developed with thousands of wildcatters, they would go out, they would get these land leases, they were deploying the technology using horizontal drilling, lots of Canadian sands and all sorts of other surprising things I had no idea about, you are suggesting that these one-off drills themselves, these one-off wells themselves, they were profitable for those wildcatters?
MCLEAN: A one off well can be profitable, yes, not as profitable, I think, as people think it is, I got some numbers for the returns at the well heads on a bunch of the wells that Aubrey McClendon who is the most colorful character in this whole story, the former CEO of Chesapeake had and even at the wellhead, those returns were at 9 percent, that is before the cost of marketing and transporting the gas. It is not clear how profitable but some wells can be profitable, the problem is for publicly-traded companies or for any company that needs to show growth that they get on this and basically the steamroller of needing to raise more capital all the time.
RITHOLTZ: So you mentioned Aubrey McClendon, he looms large over both fracking, he is the founder of Chesapeake and really the father of capital raising, I had no idea who this person was before reading the book. Tell us a little bit about him and some of his outrageous leverage and some of the things he did, really a colorful and fascinating person in Saudi America.
MCLEAN: So I have been fascinated with Aubrey McClendon going back to 2010 and a guy I talked to a lot used to tell me with some degree of hyperbole that McClendon was the most important man in America…
RITHOLTZ: Really?
MCLEAN: And what he meant by that was that if McClendon was right and our country could produce immense amounts of cheap natural gas, that really changed the future of the country that made us an energy-rich place where manufacturing of all kinds would relocate. If McClendon was wrong and this wasn't economic and this friend of mine and his partner used to have this debate all the time, the partner would say the oil and gas were real and my friend John would say, yes, but the economics don't work. Aubrey was the guy — the technological development of shale credit goes to somebody else, a guy named George Mitchell, but the father of capital raising was Aubrey McClendon, this guy was one of the best salesman the world has ever seen, he could get anyone to give him money. There is a great story in the book from an analyst at a big investment firm who is very skeptical of McClendon and of Chesapeake and he said, "I'd never let him in the door to talk to our people because we would've ended up investing, and it wouldn't have ended well."
And McClendon had this larger-than-life personality in life, he really sort of remade Oklahoma City, Chesapeake was this extravagant company with daycare on premises and a massage studio, it was Silicon Valley transported to Oklahoma City. And McClendon died essentially bankrupt in a fiery car crash in the spring of 2016 right after he had been indicted by the Justice Department and accused of rigging deals to buy land.
And when he died, American shale was flat on its back, it looked like this was this was the and thanks to some of the strategy OPEC pursued. And so McClendon's death, it was as if it underscored the problems with the American shale industry.
RITHOLTZ: There's a stat in the book that really stunned me. From 2001 to 2012, Chesapeake sold $16.4 billion worth of stock and $15.5 billion worth of debt, it's a nice balanced portfolio there and paid Wall Street more than 1.1 billion in fees. So when you say capital was the key driver, fracking at least at Chesapeake, that seems like an awful lot of money.
MCLEAN: That is an awful lot of money and I would add that that's not the only amount that Chesapeake raised, they raised probably another $30 billion in ways that are a bit more subterranean than public sales and equity and debt, they did these Enron-esque prepay deals where they would sell the natural gas forward and get the cash now and not book that as a loan but it essentially is a loan, right?
RITHOLTZ: You are pulling forward forward revenues and counting it today.
MCLEAN: Yes, and they did over 20 billion of those kind of deals. And so even that huge stunning number actually understates the sheer amount of capital they raised and with all of that, Chesapeake never before asset sales to suckers essentially, Chesapeake, never produced free cash flow.
RITHOLTZ: Amazing.
MCLEAN: And so people would look at that and say well, that's just Chesapeake, Aubrey McClendon is this — he is the larger-than-life character, that's not emblematic of the rest of the industry, but it actually is. Aubrey McClendon is the rest of the industry on steroids, much more extreme, but the rest of the industry was cash flow negative as well.
RITHOLTZ: There is a data point from the book and I'm thumbing through my notes to try and find it, where you said something like the total investment dollars that the industry drew in was far, far in excess of the total value of the gas they pulled out or am I misquoting that?
MCLEAN: No, it's a number from David Einhorn. So people you obviously know and people on this podcast will probably know Einhorn well, but for those who don't, he is a very well-known edge fund manager who famously called Lehman before the financial crisis of 2008 relevant again given where we are right now.
RITHOLTZ: Right, we are recording this literally three days before the anniversary of Lehman's collapse.
MCLEAN: Exactly. So in early 2015, David Einhorn, there's a lot of skepticism about shale for exactly the reasons we are discussing and Einhorn was the first one to really go public and to put numbers to this whole thing.
And he calculated that the shale industry had outspent its cash flow by $80 billion.
RITHOLTZ: So that's amazing, it's not that they spent 80 and in the timeframe for that is '06 to 2014, it's not that they spent 80 billion, they spent 80 billion more than the value of the oil and gas they sold.
MCLEAN: Yes.
RITHOLTZ: That's just astonishing.
MCLEAN: And you have to remember that that was a period when oil prices were over $100 dollars a barrel and it encompasses a period where natural gas prices were over $10 as well, and so the argument is skeptics is that this is an industry that can't make money with super high commodity prices, forget superlow commodity prices.
RITHOLTZ: Right, let's talk a little bit about that this is a quote from an analyst in the book that I really liked "With oil, there's a price that kills supply and there's a price that kills demand." So two questions about that. First explain exactly what that means and then secondly where are we in that cycle?
MCLEAN: Well, what he meant by that is that there's a price that's so low that nobody can make money although…
RITHOLTZ: Meaning people don't explore, they don't drill, they'd rather just sit around and wait.
MCLEAN: Right, and that actually pushes us toward lower cost sources of supply because if you think about the world, there places that can get oil of the ground for a really small amount of money, namely Saudi Arabia, their immense oil field is probably the cheapest place to extract in the world. I think they've said their cost is about $10 a barrel.
RITHOLTZ: Although in the book you described that their own financial situation has changed the world so they really need $70 or $80…
MCLEAN: They do.
RITHOLTZ: … oil in order to pretty much be breakeven versus their own infrastructure.
MCLEAN: Yes, that is because the public standing and other things to keep the, populace, a restless populace quiet. But that is not the actual, that's the public spending they have layered on top of it, not the actual cost of the barrel of oil.
So at a certain price, nobody can make money and so exploration stops, and then at a certain price, oil is so high that people start to look for substitutes…
(Crosstalk)
RITHOLTZ: Consumers start to throttle back and …
MCLEAN: Yes, and so that's what this guy meant by there's a price that kills supply and a price that kills demand.
RITHOLTZ: And so the next question is where are we in that cycle? Are we about half way, what are we? About 70 bucks a barrel at this recording?
MCLEAN: Yes, so that is much lower than people thought oil prices would ever be back in 2011 and 2012 when oil prices were over $100 a barrel. Right? And I think it's still not quite high enough for Saudi Arabia to be fiscally stable and whether it's a price at US shale can make money or not remains to be seen, people claim and proponents claim that technological improvements and beginning of fracking in an area of Texas and New Mexico called the Permian which has been an oil field for a century, but has turned out to be really prolific with this new technology of fracking, that these things are going to reshape the financial firmament of the industry and so we're going to start seeing profits from the publicly traded fracking companies.
Skeptics say those decline rates are still bad, all we are doing by getting more oil at the ground more quickly with new technology is emptying the well more quickly, we're not increasing the amount you can get out of it over the life of the well and it still isn't going to work economically.
RITHOLTZ: So the theory is that within the Permian basin, even under $75 a barrel and under $5, the linear square foot for the…
MCLEAN: Natural gas.
RITHOLTZ: Natural gas that or is that cubic square…
RITHOLTZ: I don't remember the measurement. But it's been $3, $4, $5 dollars recently, Permian basin can become profitable at those …
MCLEAN: Certain parts of the Permian basin for sure can be profitable at those prices.
Whether the whole basin can be profitable because I profile in the book a company called EOG that is kind of regarded as the Apple of shale if there is a total counterpoint to Aubrey McClendon's Chesapeake, it's EOG. Highly efficient, very cost conscious, and basically kind of the technocrats of the shale industry, and they say, the CEO of EOG says, all land isn't created equal. The idea that you can drill a well in one place in the Permian basin and that means you can drill wells everywhere in the Permian basin and produce the same results, it's crazy.
Geology is really complicated and so he believes that some of what we can extract from the Permian basin at low prices is an overstatement.
RITHOLTZ: Last question about Aubrey, because you described in the book how it's not just that he's spending 2 and 5 and 10X on land leases versus everybody else, but his own personal life, he's all in on everything, there is no safe money, there's no — well let me buy my –he's just fully leveraged constantly in every segment of his life.
MCLEAN: Right, he struck me as a fascinating character because he wasn't just willing to risk other people's money, he was willing to risk his own money. He risked every bit of money he ever got, there is this great quote from him when an analyst on a conference call said at one point "When is enough enough?" and he said "I can't get enough" and I think that sums up the man but yes, he brought the Seattle Sonics, moved them to Oklahoma City, renamed them the Thunder, he had mansions around the country including and around the world including his extravagant place on Lake Michigan, he had an antique map collection, and he was best known, and you will appreciate this for an incredible collection of wine.
And someone who knew him told me that his collection of wine at one point was actually the best in the world.
RITHOLTZ: Wow.
MCLEAN: He had a special love for the really big bottles, what are those things called? The jeroboams and the…
RITHOLTZ: Bigger than the magnums.
MCLEAN: Yes, yes, yes.
RITHOLTZ: They are triple size.
MCLEAN: Yes, yes, so the really rare jeroboams and he was a character.
RITHOLTZ: Fascinating.
Let's talk a little bit about your writing process and let me go back to that column about Enron, the first piece, that was pretty much the first major mainstream piece that called out Enron for "hey maybe things are not quite as rosy there as the company is claiming" tell us a little bit about that piece and what motivated you to turn it into a book?
MCLEAN: Well, so that piece actually came about because when I started working at Fortune, I will give you a little bit of extra, I did a column called "Companies to Watch" where I was supposed to pick stocks every week that were going to, you know, appreciate, 20 percent, 40 percent, 60 percent…
RITHOLTZ: That's a thankless task.
MCLEAN: Well, it was remarkably easy because there are no shortage of people coming by Fortune from portfolio managers who own the stock to company management who would lay out these great little stories for me and I would write them up, because I believed…
RITHOLTZ: Why would you doubt them?
MCLEAN: Why would I doubt them and I watched in horror as the stock promptly went in the opposite direction. So I started at a pretty early age trying to get to know short sellers because I was just tired of being wrong, it wasn't and I just — I was tired of being wrong and tired of having people coming up after piece ran and basically saying "You idiot, how could you be writing a puff piece about this insane fraud?"
And so any way,, so through that, I got to know Jim Chanos, and Jim, I think in the fall of 2000 said "why don't you take a closer look at Enron" and it happened to be as one of those interesting things in life because I have a weird background, I was a math major and I went to work at Goldman as an analyst out of college and so I didn't have a writing background at all, and it was serendipity of my weird background actually being incredibly helpful…
RITHOLTZ: Sure.
MCLEAN: Because certainly at that stage I still knew how to put together elaborate spreadsheets on the company's financials, I was pretty fresh of doing that at Goldman.
RITHOLTZ: And their financials were as transparent and easy to understand as any on the street, right?
MCLEAN: Right, so I'd say over my years in journalism, what's changed is I have become far more obsessed with characters, far more interested in the human story but I'm still a numbers girl at heart, and so when numbers are contrarian and don't make sense and aren't what everybody else thinks or show a different picture than what the world thinks is going on like with shale, well, most people think well, it must be immensely profitable, making gobs of money…
RITHOLTZ: Right.
MCLEAN: And no, actually it's not and so I'm really interested always in those disconnects that numbers can show you.
RITHOLTZ: How quickly did you realize something was afoot at Enron when you started delving into the numbers.
MCLEAN: So I would say I was skeptical but not skeptical enough, my original piece actually think should have won awards for that meekest headline in history because the title was "Is Enron Overpriced?"
(LAUGHTER)
MCLEAN: Yes, that turned out to be true.
RITHOLTZ: Anything over zero is overpriced…
MCLEAN: Right.
MCLEAN: I just, I never would've guessed, and I was naïve then, I never would've guessed that a company could be so riddled with overstatements and outright fraud as Enron was and so the piece was skeptical, it pointed out problems in Enron's business speaking of cash flow, it pointed out Enron's lack of cash flow…
MCLEAN: And its burgeoning debt load and the fact that nobody understood how this company actually made its money.
But if you would ask me at that time that I — would be bankrupt in six months or nine months, I would have said "What? No."
RITHOLTZ: So you were looking at this is an expensive company not a fraudulent company.
MCLEAN: Right, right.
RITHOLTZ: And how soon was it clear that it was the latter and not the former?
MCLEAN: I think the Enron tale unspooled in an interesting fashion in August of 2001, Jeff Skilling abruptly quit as the company CEO citing personal reasons as everybody does but the idea that the mastermind behind this company who once said "I am Enron" was suddenly just stepping down was a real sign to people that there were problems.
And then the Wall Street Journal did some great work pointing out these off-balance-sheet partnerships that the then CFL Andy Fastow was running and the whole thing began to crater pretty quickly.
RITHOLTZ: So let's talk a little bit about your writing process, at what point obviously is Enron blows up…
MCLEAN: That's a book.
RITHOLTZ: It became clear, wow, there's a book here. But some of the other books you've written you've co-authored with various people, the Enron book "All The Devils Are Here" what makes you decide to work with someone else on a book when you've been so successful writing on your own?
MCLEAN: Well, so first two books I did were both big books. The Enron book as – I was, how old was I when I started that? I don't know, 31 and I've been a journalist for a few years but the longest piece I've ever written was you know, 3000 words in "Fortune" magazine, I've never even written a really long story let alone written a book and actually collaborating with Peter Elkind and having my old pal Joe Nocera edit it was the best decision I made, it's a far better book because of their input and help, I learned a lot about an investigative reporting from Peter and I learned a lot about writing from Joe.
Joe and I actually co-authored "All The Devils Are Here" and it was 10 years ago, about this day, we were sitting in my house in Chicago just watching the world go up and the financial world got up in flames and we both said "We have to do a book." And so it really just came about organically, it wasn't any kind of an strategy on my part, but again, it's a much better book because of Joe's collaboration.
The other two books I have done have been these mini books for Columbia and this book, "Saudi America" it's a mini book, so it's only 30,000 words, it's a short quick read.
RITHOLTZ: 130 pages or so.
MCLEAN: Yes, they are meant to be quick takes or a slice of the topics so they are not as all encompassing or as demanding — they don't take a commitment of your entire life the way these bigger books on these bigger topics have.
RITHOLTZ: Too big to read.
MCLEAN: Too big to read, exactly.
MCLEAN: Exactly. These are not too big to read, and so they are more manageable, I guess, I would say.
RITHOLTZ: Fascinating. We're recording this not too far off from the anniversary of the collapse of Lehman Brothers, let's talk about that a little bit, and during the break we were discussing the issue that infuriates me and so many other people why nobody went to jail? What are your thoughts on this/
MCLEAN: I do think overall, it's harder to send people to jail than is commonly thought because there's a difference between what is unethical and what is illegal.
RITHOLTZ: For sure.
MCLEAN: And sometimes what is unethical is actually worse than what is illegal and that's one of the conundrums of our criminal justice situation, even Enron wasn't a slam dunk it was a case that took years to prosecute.
RITHOLTZ: That was pretty much a slam dunk, I mean it's…
MCLEAN: It actually wasn't, Enron went bankrupt in 2001…
MCLEAN: Jeff Skilling wasn't indicted until 2003, the trial wasn't until 2006…
MCLEAN: And I sat through that…
RITHOLTZ: Wow, that's amazing.
MCLEAN: In the end, what Skilling was indicted for was less sweeping than you might expect.
RITHOLTZ: It wasn't just straight up accounting fraud?
MCLEAN: No, it was not just straight up accounting fraud because the accountants and lawyers can sign off on things that are clearly misrepresented in an economic reality but once you've gotten accountants and lawyers to sign off on them, the Justice Department can't come in after the fact and say "Well, that is illegal."
RITHOLTZ: So it's plausible deniability by outsourcing this…
MCLEAN: Yes, and there are some truth to that in the financial crisis to — what we're just talking about which is what mystifies me is why there were no prosecutions around what seemed to be very clear financial fraud which was Wall Street's knowledge that the subprime mortgages, it was buying did not meet the standards they were promising investors…
MCLEAN: And yet they continue to buy these subprime mortgages and package them up into securities and misrepresent the quality of those mortgages to investors.
RITHOLTZ: Sounds like fraud to me.
MCLEAN: It sounds like fraud to me too and what is infuriating and upsetting about this is that the big firms are paid billions of dollars to settle these cases.
RITHOLTZ: Hundreds of billions of dollars and I think it's 200 and — the reference in today's columns $243 billion in fines, it's amazing.
MCLEAN: But literally, if you read the settlements, you can't tell if the Justice Department is extorting the firms trying to get money out of them.
MCLEAN: Or if something really bad happened here because it's all cloaked, it's a settlement, it's all part of…
RITHOLTZ: The cost of doing business.
MCLEAN: It's all part of what I call the shadow legal system which is the way be corporations settle allegations outside of the public eyes, there are no court documents, there's no trial, look, my husband as a litigator, I get why this happens but I think it's really bad for democracy and really bad for people's faith in our system to have so many of these big cases settled in these ways that shed absolutely no light on what actually happened.
RITHOLTZ: And now some of these cases were settled with admissions of guilt but a lot of them were no admission, no deny, just write a check.
MCLEAN: Just write a check, no clear sign of how this happened within a company of who is responsible or who actually knew this was taking place of who benefited from it just so cloaked that you can't tell from the outside what actually happened, just write a check and make it go away.
RITHOLTZ: So you're…
MCLEAN: With shareholder's money, by the way.
RITHOLTZ: Since you are a number's girl you spent all the time waiting into the balance sheets of Enron, there are two really interesting things that come out of that. One is the eventual collapse of Arthur Anderson, their auditor, they were audited for a bunch of frauds not just Enron but WorldCom and I think Enron was just the last straw. In Jesse Eisenger's book whose title I can't say on the radio, "The Chicken bleep Club" basically explains that was the beginning of the end for the Department of Justice, plus 9/11 moved a ton of forensic accountants to follow the money, but that's really a part of it, the other part of it I'm convinced was could — was that the prosecutors had been convinced that if you bring charges, we just bailed out all these banks, you are going to send us right back into the abyss. They scared the hell out of everybody.
MCLEAN: I think that is true, too, and I think there is a third component as well which is that when Enron was prosecuted so aggressively, it was those guys down in Texas, they weren't archived.
MCLEAN: The bankers and the financial crisis were our crowd, they were the people that the people in Washington know intimately, so there was a preconception that our crowd couldn't have engaged in fraud, they didn't — they are not actually guilty, they just got caught up in the hype at the moment. Whereas when it was those guys down in Texas who aren't our friends, it was an entirely different issue.
RITHOLTZ: Let me push back against you on that.
MCLEAN: Okay . My theory.
RITHOLTZ: So that is '08, we had the analyst scandal a few years before that, we had the IPO spinning scandal a few years before that, we had just go down the list of all sorts of fraud, I mentioned Lehman Brothers, given your background, repo 105 moving 50+ billion dollars off the balance sheet every quarter hiding that from investors, how is that not anything more than felony fraud?
MCLEAN: Right, well that is point is that if one of the reasons the Justice Department was as not willing to be as aggressive as they were with Enron is because these guys were people they knew and so they weren't…
RITHOLTZ: DOJ knows Lehman Brothers, I can understand if you are going to say the US Attorney for the second district, maybe, but even then.
MCLEAN: More of Hank Paulson, Tim Geithner…
MCLEAN: They all know each other…
MCLEAN: It's different than — it's different than those people down in Texas, those energy people down in Texas. Again, I think your two reasons are bigger, I think that what happened with Arthur Anderson is absolutely part of the explanation and I think the fear of crushing the very firms you has just rescued is bigger too, I would put those among the top two reasons, but I think there also is this sort of interesting component of it is easier to aggressively prosecute an outsider than it is an insider.
RITHOLTZ: Do you remember the op-ed written by — and it was unusual because it was a sitting judge in the southern district, Judge Rakoff.
MCLEAN: Judge Rakoff, yes.
RITHOLTZ: Who basically said the DOJ chickened out, there absolutely were crimes committed and all of the explanations claiming otherwise ring hollow, when was the last time we had a sitting judge who covers Wall Street that's his jurisdiction write an op-ed saying why don't you guys prosecute him?
MCLEAN: I think it's a question that will always remain from this episode despite the then head of the southern district trying to distract us all with insider-trading charges.
RITHOLTZ: So let's talk about another bank that you've written about. What's going on with Wells Fargo? They were once the model bank for good corporate behavior, how did they go so far off the rails?
MCLEAN: Oh my god…
RITHOLTZ: And by the way, during this conversation, we've already opened three checking accounts in your name from Wells Fargo///
RITHOLTZ: And an insurance bill. So…
MCLEAN: I wouldn't be surprised, it actually is really disheartening to me because it makes you always have to wonder when a company seems to be so perfect, is there some deep dark secret lurking under there? And Wells Fargo is the bank that came to the financial crisis better than other and any other bank, they build themselves as just this goodhearted community bank.
MCLEAN: The culture is old Norwest Bank which had merged with Wells Fargo back and I think and the late 90s and Norwest is a Minneapolis headquartered firm, you know, it's got this Midwestern sort of goodness to it…
MCLEAN: And they always in Washington presented themselves at the community bank …
RITHOLTZ: It was the biggest holding of Warren Buffett for the longest time.
MCLEAN: Right, we are not like all those other firms out there and then it turns out they had this really ugly sales culture that puts immense amounts of pressure on the people in the system who are least able to deal with it, you know, those at the bottom of the wrung, the tellers, to meet these utterly horrible sales goals.
And we all thought that the problem was confined to the retail bank because Wells Fargo has these three different segments, it's got its community banking segment, it has its corporate banking segment and has its investment management, segments but now it turns out that the sales pressure was felt elsewhere too. There were crazy goals in the corporate bank and crazy goals which is what the subject of a couple of recent articles I have done in the investment management division, where people were given quotas in the same way.
So this really intense sales culture had actually spread throughout the entire bank.
RITHOLTZ: Where did that sales culture originate? Where did that come from?
MCLEAN: So I think it came from Dick Kovacevich, who was the CEO of Wells Fargo through the financial crisis, and he was the first to start talking about banks as stores where you are supposed to sell things to customers and he's the one who coined the now infamous phrase "8 is Great"
RITHOLTZ: I recall.
MCLEAN: Which is getting every customer Wells Fargo had to — to have at least eight products with the firm, that's where it came from whether it was a lot of things from securitization to Wells Fargo sales culture can start in a place that's perfectly okay and then get taken to an extreme and tip over into a place that is so not okay and whether if Kovacevich had stayed at Wells Fargo, whether the sales culture would've tipped over that line or not is a debate that nobody will ever be able to answer.
RITHOLTZ: I mean but obviously, it tipped over that line pretty soon after he left, so with these — his policies, why did everybody stay with this if this was such an obviously terrible idea?
MCLEAN: I think his successor, John Stumpf, who by all accounts is a lovely man was not the sort of executive who is going to radically reverse course and why would you when it appeared to work so well? Wall Street celebrated Wells Fargo, it had the highest PE multiple of any bank for a long time because precisely because it did have these amazing cross sell members and so when the strategy appeared to be working and was winning you all these plot — all these praise, why would you stop it? Why would you listen to the whistleblowers inside the bank you are saying this is a real problem.
RITHOLTZ: You know the metaphor that always sticks out in my mind is you could set the track record on the straightaway but if you can't make the turn and you hit the wall, that record shouldn't count, and that's kind of like Wells Fargo is doing.
MCLEAN: I like that. The thing that really bothers me about Wells Fargo is that it seems to a perversion of capitalism and in this sense, I have nothing against the people at the top taking a lot of money as long as they also bear all the risk when things go wrong…
MCLEAN: Wells Fargo managed to put in place a system where the people at the very bottom didn't make much money and they bore all the risk because they were the ones who had these horrible sales goals to meet, they were the ones who got fired if they didn't meet them and they were the ones who got fired if they met them in a way that — in a way that was unethical.
And so all the pressure — none of the reward but all the risk went to people at the bottom of the pyramid and that I think this is a perversion.
RITHOLTZ: To say the least, can you stick around a bit? I have a ton more questions for you.
MCLEAN: Sure.
RITHOLTZ: We have been speaking with Bethany McLean, she is the author most recently of "Saudi America" if you enjoyed this conversation come back and check out the podcast extras where we keep the tape rolling and continue discussing all things fracking, fraud, and financial crises.
We love your comments feedback and suggestions, write to us at MIBPodcast@Bloomberg.net, follow me on Twitter @Ritholtz, you can check out my daily column on Bloomberg.com.
I'm Barry Ritholtz, you're listening to Masters in Business on Bloomberg Radio.
Welcome to the podcast. Bethany, thank you so much for doing this. I have to tell you I sat on the beach a couple weeks ago and read "Saudi-America" it's such a weird pair of words to say to say because you feel like you're saying it wrong because you are and it really it was a fast and really informative and an interesting read, not just Aubrey but the whole concept of money driving low cost of capital driving fracking, changing the world of energy, changing the Middle East, changing the relationship of Russia to Europe and it's really a credibly intricate web and you can't help especially this week, you can't help but draw line from Alan Greenspan and the post-9/11 pre-financial crisis interest rates straight to the boom in fracking.
MCLEAN: So the best compliment I could ever get is that one of my could be considered a beach read so I'm absolutely beyond…
RITHOLTZ: It's literally not just a beach read but it was compelling in not like I don't get to the beach all that early, from 9 to 10 o'clock in the morning to 2 or 3 in the afternoon, straight through, it really was a great narrative there are great characters and there's some really interesting insights. What motivated you to start looking at fracking?
MCLEAN: Well, so I was always obsessed with Aubrey McClendon…
MCLEAN: Because who couldn't be?
RITHOLTZ: Is this related to Enron because he is a similar part of the country?
MCLEAN: I guess, I have an affinity for these business — these characters in the world of business who come along every so often who are larger-than-life and who really prove the old adage that truth is stranger than fiction and who could be stars in their own Shakespearean drama whether it's Jeff Skilling, whether it's Mike Pearson, whether it's Aubrey McClendon, I find these characters just fascinating, what drives them, what makes them tick? Why their excesses. So I was obsessed with Aubrey for years.
And then there was this and dichotomy between these grand promises of how fracking was reshaping geopolitics with the fact that it doesn't make money that there's a deep skepticism about the industry and the heavy shortseller interest in it because the companies don't produce free cash flow, and so I thought that is a dichotomy worth exploring, that a business can be changing the world yet not be — not make any money.
And so I thought that was worth digging into.
RITHOLTZ: Who first steered you in this direction? Who said "Hey you should be looking at… "
MCLEAN: So do you know John Hempton?
RITHOLTZ: I know the name, sure.
MCLEAN: So John is a longtime pal of mine who lives in Australia…
RITHOLTZ: Really, right.
MCLEAN: Runs Bronte Capital. And he's the one who used to say that Aubrey McClendon was the most important guy in America with again some degree of hyperbole but John was the one who first got me interested in Aubrey and got me focused on Chesapeake's dire financial condition.
RITHOLTZ: So he's an interesting character himself speaking of interesting characters.
MCLEAN: Oh yes.
RITHOLTZ: His writing is always quite fascinating, I get his regular missives and they are always — it's so refreshing reading something that's just a little off kilter and certainly well thought out and interesting.
So what made you think this was a mini book and not a full-blown 300 page tome?
MCLEAN: Oh boy, so as I got into it, I realized it probably could've and should've been a longer book because trying to find a path through the fracking story that can be told in 30,000 words or so was a huge challenge. Mine is just purely a live one to be perfectly honest, every time I've written a big book, it has ended up costing me I'd say a good six months to a year of my life where I am just gone.
Isn't that the nature of writing books though?
MCLEAN: That is the nature of writing books but at this stage of my life, I have kids at an age where I don't want to miss six months of their life…
MCLEAN: And so it's hard.
RITHOLTZ: Totally understandable.
In the book you describe Audrey or Aubrey's death, he drives this big SUV, he always drives too fast, he is testing while he drives any happens to slam into an overpass leading some people — dead instantly, leading some people to think hey, he was just indicted, this could be a suicide with no suicide note and therefore full insurance and everything else that comes with it, the police never found anything related to that. What were your thoughts on this?
MCLEAN: It's one of those great mysteries that you will never quite know along with why it is that just Jeff Skilling actually resigned from Enron in 2000, Aubrey's death is another of those mysteries, many people believe that it must've been suicide, he had just been indicted and his empire was in shambles.
RITHOLTZ: Although that wasn't the first time his empire had crumbled.
MCLEAN: No, it was not the first time his empire had crumbled that…
RITHOLTZ: But this was a big one.
MCLEAN: But with the indictment, this was a big one…
RITHOLTZ: Next level.
MCLEAN: Because even if people view an indictment as being unfair, nobody is going to do business with a guy who just got indicted, right ?
RITHOLTZ: Stuck to his money (ph).
MCLEAN: But there are people who say that this was Aubrey, he drove too fast, he's always texting while he drove, it's possible he was just exhausted and distracted and so I I think the police department was unable to make a ruling either way. There is a quote in my book from the police captain saying "You know, we will never know 100 percent what happened."
RITHOLTZ: Right. Quite interesting. Who else from the book stood out as a really interesting character to you?
MCLEAN: So I think EOG is a company is to me…
MCLEAN: A really interesting character, it's former CEO Mark Papa who has a very nuanced view on the fracking revelation, he isn't 100 percent pro fracking as you might think.
RITHOLTZ: Really.
MCLEAN: But EOG, well, he is pro fracking but he's not sure that it's going to change the energy world forever as other people, he has a nuanced view.
And so I like setting up EOG as a counterpoint to Chesapeake to tell the other side of the story because in the end this isn't a book that says this whole thing is a fraud it's going to — it's destined for a bad ending. I couldn't actually get there and so I wanted to tell both sides of the story to leave it a little bit open to the readers' judgment. The one thing for sure about the history of oil and the history of fracking is that everybody who ever makes predictions has been wrong and so and I'm not smart enough to say how it's going to end.
RITHOLTZ: So there is a theme that runs through all of your books, you're never going to write the Steve Jobs, you know hagiography about how you know successful and innovative — the theme throughout all your books is there's always too much excess, there is always elements of fraud throughout, there are always problems both legal personal what have you, it's more than just larger-than-life personalities, it's larger-than-life personalities who really step in it to say the least. So from Enron to Fannie and Freddie to the writings you do about Wells Fargo, are you attracted to fraud and nefarious characters or is it just a better story?
MCLEAN: That makes me sound dark indeed.
RITHOLTZ: By the way, I wish I could, when we get a picture later, she is sitting here dressed, I can't tell if that is black or blue.
MCLEAN: That is black.
RITHOLTZ: Okay, all dressed in black, dark hair, you are essentially…
MCLEAN: I'm looking Goth, oh dear.
MCLEAN: I honestly – I don't know the answer to that actually. I think — I grew up in Minnesota and I think of myself in many ways as Minnesota nice. I have a hard time being rude to people.
RITHOLTZ: Is that like Canada nice?
MCLEAN: That's like Canada nice. Yes.
I don't have that and I don't actually like confrontation, I don't particularly like fighting with people so I'm not quite sure, I haven't been able to analyze myself enough to know why it is that I have sort of come up with the specialty of writing about business gone wrong.
RITHOLTZ: If only you had an outlet to express your outrage. Oh I know, write a bunch of books about it.
MCLEAN: I guess it just interest me more than stories of things going perfectly…
MCLEAN: It feels more real somehow and the analytical part of me loves trying to figure out how it went wrong, how things are working usually seems to be squishier in all these generic phrases about leadership, et cetera, et cetera where is how things went wrong, it is usually very grounded in the in the really gritty specifics and I like gritty specifics.
RITHOLTZ: I have a pet theory, which will eventually become a column and the theory is that everybody's conception of the world is wrong because it's just examples of survivorship bias. Everything we see means that there are a thousand other things that failed and so we assume "oh, this works this pencil, look, it's got an eraser and it's covered in paint and it's got a point, isn't that great?" you don't see the millions of other devices that were attempted and failed. And so how else can you explain why people keep opening restaurants. Wait, restaurants are a terrible investment, half of them go out in six months, the 90 percent of the rest go out in two years, it's a terrible idea and yet people keep opening restaurants. We all have this one view. You would like to look at the CD fraudulent underside of things gone awry.
MCLEAN: I guess that's true, I guess I like I think you can learn a lot from stories of business gone wrong too because this to me, the characters are never as simple as purely bad or purely good, maybe some of them are, Bernie Madoff I think is as close as it gets to a purely bad. But most of these stories aren't so much sort of clear-cut criminality as they are a mixture of idealism, arrogance, hubris, a little bit of fraud tossed into the mix, a lot of wishful thinking, and so they are very human stories and that's what draws me to them, I always want to understand, I guess it's a little bit, maybe it's a little bit of a version of the famous line from Anna Karenina, you know, "Every happy family is happy in the same way, but every unhappy family is unhappy in a different way." and so every story of business gone right is kind of the same, every story of a business gone wrong is really different and really fascinating.
RITHOLTZ: Don't we learn more from the mistakes in businesses gone wrong, then the success stories, what did you learn from Google, make the best search engine, and figure out how to monetize it ,there's not a big lesson there but the disasters, there's always lots of lessons.
MCLEAN: There are so many lessons, and here is a gritty one from Wells Fargo, which I find fascinating. Back in 2013, "The L.A. Times" did a story about all the sales pressure and the terrible impact it was having and Wells Fargo ignored it because then CEO John Stumpf said oh, well this is only 1 percent of our workforce so we're actually great, far from criticizing ourselves for this we should be praising ourselves for this because only 1 percent of our employees has ever had a problem.
And it's a classic example of using math to justify your wishful thinking because in a retail sales force that had to another 30 to 40 percent a year and where that 1 percent people percent measured the people who got caught not the people who were pressuring them to engage in this behavior, not the people who quit because they couldn't do it and not the people who just did it because they — and got away with it, it was a meaningless figure, right?
RITHOLTZ: That is not math, that is rationalization.
MCLEAN: So I love that — I love those kind of lessons, right? And that is so much more interesting to me than how to be a great leader, exhibit compassion.
RITHOLTZ: 'm intrigued that there was a story in where was that, "L.A. Times"?
RITHOLTZ: And the company didn't take it seriously?
RITHOLTZ: There was — you know, the other bank that more or less came through the crisis pretty well was J.P. Morgan under Jamie Dimon and they had an automated underwriting system called Zippy and it was a way to process more mortgages more quickly so you can move more through the pipeline. The problem with Zippy was it occasionally would reject a mortgage and so there was an internal document that the mortgage department created called "Zippy tips and tricks" and it was all the ways you could tweak the inputs to make sure that Zippy would approve it.
And a local — I forgot which one it was, it was a local not as big as the "L.A. Times" but not the "East Podunk Express" it was somewhere in between wrote a story about Zippy tricks and tips and you know the company had the exact same answer that Wells Fargo did. Listen this isn't representative of how we do it, Zippy was set up and it's very effective here in 2006 and mortgages are just fine.
RITHOLTZ: It's amazing how people's capacity to rationalize what is in their own self-interest.
MCLEAN: Back to your point, it's actually amazing how we don't see what we don't want to see.
RITHOLTZ: Especially when our salary, to paraphrase Upton Sinclair is based on not seeing it.
MCLEAN: Or when your political ideology is not seeing it, per that little conversation on Twitter the other day.
RITHOLTZ: Well, I just found it amusing that somebody was mansplaining gender neutral pronouns to you, there is some kind of irony there, some people are irony- impaired especially online, it doesn't come across.
MCLEAN: Well, I got into a war of words with somebody on Twitter once and it was over Larry Summers and his comments about women in math and I actually defended Summers.
RITHOLTZ: Really? I have a great Summers story too.
MCLEAN: Anyway this exchange ended with the guy lecturing me about why it was wrong to defend Larry Summers, and I thought.
RITHOLTZ: Listen here little lady…
MCLEAN: This is just the height of irony.
RITHOLTZ: Right, listen here, little lady, let me explain to you about how women are disadvantaged.
MCLEAN: Let me explain to you why you should be so offended, you don't obviously don't understand what you're talking about so to let me explain to you why should be so offended that Larry Summers said women didn't understand what they were talking about. It was very funny.
RITHOLTZ: Do you remember the column in the Boston Globe that just shredded the Harvard endowment, it did basically – it won all sorts of awards, not the writer, the editor on it went on to do the article that revealed all of the priest abuse in Boston, so it was that — so everybody involved in this article absolutely sterling reputation, I merely linked into it in a column, I get a furious phone call from Summers about it and I asked him about it and his answer struck me as so disingenuous, I tracked that reporter down, called her, and basically she gave me "No, that's not true. No, I called him a dozen times. He said he was too busy saving the world to pay attention to this." I was just — so every time somebody defends Larry Summers, in the back of my head I just think, yes. Not right.
And he's a very public intellectual and I just decided I'm not going to write about him and I probably shouldn't even talk about him anymore but you brought it up so I had to.
What else are you looking at these days that interest you? What's the next mini book going to be?
MCLEAN: Well something that got my attention in this book, so part of what is keeping the chain of financing for fracking going is pension fund money because in this area of super low interest rates, it isn't just that fracking companies can raise debt and have low interest expense given where interest rates are, it's also that in this world of very low returns elsewhere particularly in fixed income securities, a lot of pension funds have been putting money in private equity firms.
MCLEAN: Private equity in turn has the highest allocation to the energy sector than they've had in like 20 years…
MCLEAN: They are sending (ph) billions of dollars into fracking and to shale companies and that's part of what's keeping that — okay, this is an overstatement, but the daisychain of money going and so thinking about this issue and the low returns of pension funds and given that I live in Chicago which has massive problems as does the state of Illinois has made me really interested in coming up with a way to explore this.
RITHOLTZ: So what's fascinating to me is the pension side of things, they have moved very heavily into hedge funds and private equity because for some reason, at least on the hedge fund, it's unexplained, there's a higher expected return for private equity than there is for stocks and bonds, I don't know why there's a higher expected return for hedge funds given their terrible performance over the past 10 years. Somebody else, was it Simon Lack said the financial crisis wiped out all the gains of the entire hedge fund industry for the prior 20 years.
MCLEAN: My goodness, that is a stunning, that is a stunning..
RITHOLTZ: The hedge fund mirage, that's what they call it.
MCLEAN: Anyway, I don't know what I'll end up — that is a really interesting figure, I don't know what I will end up doing this because the Fannie and Freddie were an unsexy subjective, I think pensions may be one step worse…
RITHOLTZ: So I'm going to tell you the problem with Fannie and Freddie are all the crazy anti-GSE people, it adds — it injects a level of insanity to it that makes it tedious. But if you look at — let me mansplain to your next book should be…
MCLEAN: I appreciate all ideas whether they come from me or otherwise.
RITHOLTZ: If you look Charlie Ellis' book on the retirement crisis and his and Jack Bogle, there have been, you know, these are legendary folks writing people aren't saving enough the other side of that issue, I'm not going to give you another Idea, I'm going to encourage you to do that idea, the idea that pension funds are highly leveraged, highly exposed alternatives are looking for a much greater return than we should perhaps reasonably expect given current valuations, that is setting itself up for a disaster down the road, that to me, maybe I'm wonky but that's fascinating stuff.
MCLEAN: I think it's fascinating, too, I think it's fascinating, too, just there are these words that for whatever reason just lack intrinsic appeal, pension is one of those words, mortgage is actually another word, Fannie and Freddie, it's like the death camp…
RITHOLTZ: And yet subprime, subprime was kind of fascinating.
MCLEAN: It got to be fascinating after it caused the financial crisis but I think part of the reason that it didn't — that nobody saw it coming was because mortgages — subprime mortgages, I mean I don't know it's like "Eat your spinach" it's just s such an unappealing concept to think about.
RITHOLTZ: Agree to disagree. By the way, do you find it — I just was talking to a couple of other people about this recently, do you find it a slog (ph) or do you enjoy doing the circuit if it's a reasonable period of time?
MCLEAN: So I would say it's a mixture, I'm always happy when anybody wants to talk to me about something I've written because it means it resonated somewhere so I'm grateful for any attention it gets. I would say I have less of a worry of a slog than I always have — when I publish something, my predominant emotion isn't excitement and look at me, it's fear that I have gotten something wrong that I made a mistake somewhere it's an and it's and it sort of agony within me because I always see the ways in which it could've been better after it's too late to do anything about it.
RITHOLTZ: It's never done though, isn't that for anything you write, you could always — there's always another draft waiting to happen.
MCLEAN: You can. Books are pretty set in stone at a certain point. And so that is — so I have trouble being as enthusiastic and excited as I should be because my initial reaction isn't look at me, it's (inaudible).
RITHOLTZ: So you are expecting to be told you are wrong, you know …
MCLEAN: I already have been, I mean I did this op-ed for the "New York Times" and they put a pretty incendiary headline…
RITHOLTZ: That was — that headline had nothing whatsoever to do with the article.
MCLEAN: It did not and I got…
RITHOLTZ: The next financial crisis lurks underground.
MCLEAN: I got a lot of flaming on Twitter for that…
RITHOLTZ: So for the record, can I inform listeners that writers don't get to write their own headlines? It's the editors who write that?
MCLEAN: The "Times" actually has a policy of not allowing people to look — to see…
RITHOLTZ: Bloomberg, everywhere …
MCLEAN: Yes, and it is fine, actually, the headline they put on it got attention and in today's world where everything is drowned out by news of Trump, you know what? I'm not going to complain.
RITHOLTZ: All right, that's fair enough.
So let's jump into our speed round, these are the 10 questions I ask everybody, and we will plow through them.
Tell us the most important thing people don't know about your background.
MCLEAN: Let's see, I guess it's probably that I grew up in a mining town called Hibbing which is in Northern Minnesota and if you know it, it's probably because you are a Bob Dylan fan, because that's where Bob Zimmerman also grew up and Hibbing has the two distinctions of being often the coldest spot in the United States and of having the world's largest open pit iron-ore mine.
RITHOLTZ: Very interesting. Tell us about some of your early mentors who helped you along with your career.
MCLEAN: Let's see, so I had two great teachers in high school who are brothers, Dan and Matt Bergen, Dan was an English teacher and Matt was a math teacher and Dan taught me to write and Matt made me believe that I was far better at math than I actually am, enough so that I managed to get through a college major in it.
And then I guess at "Fortune" I think the real mentor I had was really Joe Nocera who really helped me learn how to tell a story and when I got to "Fortune" the knock on me was she's debatably smart but totally unable to write and I like to blame my…
RITHOLTZ: Perfect hire for a magazine. Maybe she's smart but she can't write. You're hired.
MCLEAN: Well, I was a fact checker from my initial years, I was really good at checking facts so it was fine. But if have learned to write at all, it's probably because of Joe.
RITHOLTZ: Well, I have to tell you, you clearly have learned to write and I really enjoyed "Saudi America". Who influenced your approach to investigative journalism?
MCLEAN: I would say probably I learned the most from Peter Elkind who was my co-author in smartest guys in the room, when I began to work with Peter, I thought I was going to learn the shortcuts for doing this and I quickly learned there are no shortcuts, you talk to everybody, you call everybody, you call them back, they don't call you back, you read every document you got through the footnotes of every document but you leave no stone unturned and you go down a lot of rabbit holes because you never know that at the bottom of the rabbit hole, you are going to find something that becomes the thread of your book or just sort of a vast black hole.
And we find a lot of the vast black holes but I think Peter made me realize that it's just work and persistence.
RITHOLTZ: Tell us about some of your favorite books be they fiction, nonfiction, fraud related or something else?
MCLEAN: So my list is always changing but I'd say right now the books I've been thinking about a lot are "Team of Rivals" by Doris Kearns Goodwin and the reason I think about that book a lot is that it took a well-known period and looked at it through a different lens, through the lens of these rivals who nonetheless became an incredibly effective cabinet and I love that…
RITHOLTZ: It was afraid we are having…
MCLEAN: And I love that as a sort of lesson for writing about how you can take something that's well known and see it through a different slant and make people learn and understand it in a whole different way, it doesn't have to be this fresh thing that nobody's ever heard of before, you know, Abraham Lincoln's presidency but I loved that, I think that is very instructive.
And then my favorite fiction book of late was a book called "Homegoing."
RITHOLTZ: "Homegoing".
MCLEAN: "Homegoing" which is about two sisters born in Africa, one stays there, one is taken away as a slave in the United States and about — it's about the different trajectories of these two families and I'd say the reason I liked it so much is that it's a book that kind of excavates your own still deeply held prejudices and we all have some of them and it's a book that really changes minds and souls I think on a very deep level.
RITHOLTZ: That is two. You have a third one? What is the last thing you read?
MCLEAN: I have been re-reading because my kids are reading it and I will always love "Lord of the Rings" just for the sheer scope…
RITHOLTZ: Preaching to the choir.
MCLEAN: The sheer scope of Tolkien's imagination and even it out right now in this whole conversation has been about how good and bad aren't always so simple, man, is there something so satisfying about a world where good is good and bad is bad.
RITHOLTZ: That's right. Starting with "The Hobbit" and then straight through.
MCLEAN: Straight on through. Yes.
RITHOLTZ: Absolutely. As a kid, I used to reread those over the summer and then the certain age you kind of say, all right, I have to stop doing this but they were fantastic.
MCLEAN: I just started again. It's never too late.
RITHOLTZ: How old are your kids?
MCLEAN: I got a nine year old and a six year old.
RITHOLTZ: So let me jump ahead and ask a different question, what you do for fun out of the office?
MCLEAN: Fun? What's that?
RITHOLTZ: What do you do to stay mentally or physically fit?
MCLEAN: So I read a lot and I'm a big yoga person and I've done the kind of yoga called Ashtanga, which is a self practice for 20 years now. So I usually …
RITHOLTZ: You are pretty ripped..
MCLEAN: So I usually because I work at home, I usually just do my Ashtanga practice at home.
RITHOLTZ: And you've been doing that for 20 years.
MCLEAN: I've been doing that for 20 years.
So what has changed since you became a writer, what do you think is the biggest difference these days?
MCLEAN: So much I mean that the whole firmament has changed. It used to be that if you are going to be a writer, well then, you worked in a magazine and you were a journalist and now some of the best most interesting writing comes from people who aren't journalists, who are publishing on blogs and elsewhere so in some ways it's incredibly freeing and that you don't have to be a full-time journalist to get heard and to be a journalist and that it's of course the other changes in the business that just undermines the whole financial foundation of journalism and so it's really different.
You could've told me when I started working at Time Inc. back in 1995 and Time Inc was in the Time & Life building in Rockefeller Center that Time would be long gone from there and the magazines were being sold piecemeal, I would never have believed that.
RITHOLTZ: What are these blogs you refer to?
MCLEAN: I mean, people with really smart great things to say and are really good writers don't have to be writing for "Fortune Magazine" now.
RITHOLTZ: That's reasonable and I wasn't fishing for anything there, I just was thinking…
MCLEAN: That is a good thing about…
RITHOLTZ: Tell us what you're really excited about in the world of journalism or books or writing.
MCLEAN: Well, I guess when everything is getting ripped apart comes opportunity, right?
And so the world of journalism is getting ripped apart right now and it's not getting any better that out of that, I think, comes new opportunities for storytelling whether it's these little books that Columbia is feeling like "Saudi-America" whether it's podcasts like you're doing but new opportunities to create content in ways that are relevant to people and so it's still storytelling at the end of the day and communicating and so I guess I'm trying to believe that where there is disruption, there is also opportunity.
RITHOLTZ: That's pretty fair. Tell us about a time you failed and what you learned from the experience.
MCLEAN: So let's see, I could do two of those.
RITHOLTZ: Do both.
MCLEAN: I really struggled through my math major in college, math was easy, easy, easy for me until I hit the really upper-level theoretical stuff where all of a sudden it was like a black wall came down in front of my eyes, I was…
RITHOLTZ: So totally relate to that.
MCLEAN: I would sit at doing, we would have these math exams that were 48 hour take-home exams and they would be proofs and I would look at them and I wouldn't even be able to start.
RITHOLTZ: Like what language?
MCLEAN: And I would hear people around me scratching away, they just have the insight and I would say persevering through my major was a really good lesson and even though, I mean I fought for a C in one class.
RITHOLTZ: So that's what you are calling a failure.
MCLEAN: I've never gotten a C in my life.
RITHOLTZ: Okay.
MCLEAN: Learning that you are not very good at something and so that was — I learned more from sticking through that than I did from all the things I was good at and then I'd say I probably failed in the first job, I was a terrible analyst at Goldman.
RITHOLTZ: You were there for three years though, weren't you?
MCLEAN: I was there for three years, I ended up sticking it out, but I think I learned — I learned a lot from mad about importance to detail, about committing to where you are and instead of if you are going to be there at all instead of having a bad…
RITHOLTZ: Don't half ass it.
MCLEAN: Don't half ass it, right.
If you are there, then just do it and behave and instead …
RITHOLTZ: Why? Were you misbehaving at Goldman in terms of — I mean in terms of the work…
MCLEAN: I think I acted like I didn't want to be there…
RITHOLTZ: And it took them three years to pick that up?
I could hear the smartest guy in the room.
MCLEAN: I pulled it together after my first year but that was a lesson to me because failing in your first job is a hard thing when you get very negative feedback from people, yes, it questions your confidence.
RITHOLTZ: I would imagine. So if a millennial came up to you or a recent college grad said they are thinking about becoming a fill in the blank writer, book author, journalist, what sort of advice would you give them?
MCLEAN: I would tell them to start writing and to write a lot because the only way to get to be a better writer is by writing a lot and you can get to be a better writer, you have to have some innate skill at it, I guess, but you can learn and you will learn, it's a craft and that is why people call writing craft because a craft is something you can get better at.
RITHOLTZ: You can get better at it.
MCLEAN: And so I think that's the most important one but would say also that especially given how uncertain financially this life is right now that you have to really, really be deeply curious and not be able to rest unless you have explored your curiosity because that's the thing that makes it worth doing, right? To me, wonky as it may be, but getting to spend a year thinking about Aubrey McClendon and fracking I was deeply curious about this and I would not have been able to rest I hadn't eventually done something about that, and that's what makes it all worthwhile to me.
RITHOLTZ: Sometimes you have an itch that you just have to scratch.
MCLEAN: And I think if you don't have that, if you are more practically minded in some ways that may be — this isn't especially right now, the right place.
RITHOLTZ: So you are a little obsessive about the topics you cover, do you impart that on the college grads and say you have to be all in or what …
RITHOLTZ: Because that's similar to the failure answer as well.
MCLEAN: I say you have to be all in because otherwise you won't make that additional phone call, you want, you'll do what you have to do or what you think you have to do but you won't pursue that loose dangling end and they end up becoming the most important piece of information that that you got and so you have to be just really, really deeply passionate — passionately curious.
RITHOLTZ: Quite fascinating.
And our final question, what you know today about writing and investigative journalism and book authoring that you wish you knew back in '95 when you first started 20 plus years ago.
MCLEAN: I think what I wish I'd known about writing is that being a good student isn't always helpful and what I mean by that is that when you're a good student, you think you have to show everybody everything you've learned because God forbid the teacher thinks you didn't — you missed this little nuance, right?
MCLEAN: So you are going to throw everything at the reader in order to show them that you've mastered this and I think it's actually sometimes hard for good students to be good writers because you need to build that, you need to learn to tell a story and you need to step back from all of your facts.
Somebody said to me once that facts are like lights on a Christmas tree, you actually can't have too many and I thought that was a great line. And you need to tell a story that communicates with people not trying to impress people with how much you know.
RITHOLTZ: Quite interesting. We have been speaking with Bethany McLean, she is the author of "Saudi America" as well as "Smartest Guys In The Room" and numerous other books. If you enjoyed this conversation, well, be sure and look up an inch or down an inch on Apple iTunes and you could see any of the other 200+ interviews we've recorded. You can find that on Apple iTunes, Stitcher, Overcast, Bloomberg.com, wherever finer podcasts are sold.
We love your comments, feedback, and suggestions, write to us at MIBPodcast@ Bloomberg.net. I would be remiss if I did not thank the crack staff who helps put together these conversations each week, Atika Valbrun is our project manager, Madena Parwana is our audio engineer/ producer, Taylor Riggs is our booker/producer, Michael Batnick is our head of research, I'm Barry Ritholtz, you've been listening to Masters in Business on Bloomberg Radio.
December 18, 2018 MIB: How The Financial Crisis Gave the World Fracking…
December 15, 2018 MIB: Bethany McLean
March 22, 2016 MiB: Bethany McLean, Enron, and Wall Street's Promotion Machine
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redpajama_set_name: RedPajamaCommonCrawl


McKenzie's urethane pedestal rocks are created from a semi-flexible urethane and reinforced with wood making them strong yet very light. The urethane rocks have the same shape and texture as the Original rocks but without the weight! The artificial rocks surface is painted / stained with chip proof material. This is the rock created for use with small mammal pedestal forms. The display rock can be used alone or with a round wood panel.
5 1/2" x 5 3/4" x 5"
7 1/2" x 7 1/2" x 6"


Olive oil sensory experience. A ritual for the 5 senses.
Villa Campestri is a point of reference for excellence in the culture of Olive Oil. Some of the most outstanding and award-winning Restaurants in the world have adopted Villa Campestri's OliveToLive system which maintains the properties of fine Olive Oil and ensures its correct pouring and preservation. In a context such as this, in which the culture of Olive Oil has become a reason for living, an Oil Tasting Seminar becomes an unforgettable experience.
The Ritual Descent and the Special Cruets.
A stone staircase leads down to the age-old cellars of the Renaissance Villa as well as to our Oleoteca. This is an ideal place for concentration. It is far from anything that could disturb you.
Take your place in front of an Oil Tasting Set that consists of special glass cruets and delicately decorated ceramic spoons. What will you do with them?
Warmth, scent, savor, and discovery.
An expert will serve small amounts of national and international excellent quality Olive Oils in glass cruets that you will hold in order to heat and release the fragrance of the Oil as you would do with fine wines. Then you will move on to tasting the oil with special ceramic spoons. The expert will teach you to roll the Oil around in your mouth until it completely covers your palate and tongue. You will learn to understand how to distinguish characteristics that have descriptive terms. When referring to Villa Campestri Olive Oil, for example, you would say that its flavor is "bitter", "spicy", and "green and fruity" with hints of artichoke and almond. What are the flavors of the other oils? Come and find out!
Making the experience part of your everyday living.
After you have learned to recognize different types of Oil, your daily life will change dramatically. You will know how to distinguish a good quality Oil from a poor one. You will know the difference between fruity, bitter, and spicy flavors as well as which Olive Oil goes better with fish and which exalts the flavor of meat. The seminar will teach you how to store Olive Oil so that its flavor remains intact over time.
The Oil Tasting Seminar lasts about 60 minutes and costs €50.00 per person.


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Maud Alice Earl
England / 1864 - 1943 / wikipedia
Maud Alice Earl (1864-1943) was an eminent British-American canine painter. Her works are much enjoyed by dog enthusiasts and also accurately record many breeds. Maud Earl died in New York in 1943 and is buried at Sleepy Hollow Cemetery in Sleepy Hollow, New York.
Maud Earl was the only daughter of the London sporting and animal painter George Earl (fl.1886-1883) and his first wife, Alice Beaumont Rawlins. Her uncle, Thomas Earl, was also a talented painter of horses and other animals. Maud was taught by her father and at the Royal Female School of Art, where she quickly developed her natural talent for capturing the true character of her canine subjects. Her half-brother Percy was also a painter of horses and purebred dogs.
She exhibited regularly in England and Europe and was a prolific and much sought after artist who painted many of the important dogs of the day, including those belonging to the Royal Family (she painted dogs belonging to Queen Victoria and Edward VII), and important dog fanciers.
By 1916 she had received international recognition with several solo exhibitions, and her work was widely reproduced both in books and print form. Twelve of her compositions were engraved in 1908 for The Sportsman's Year. Her work may be loosely divided into four styles, the naturalistic, richly painted portraits of dogs from 1880 to 1900; a highly finished, but looser, more sketchy style from 1900 to 1915; what she referred to as her oriental style from about 1916 to the 1920s, after she emigrated to the United States, and her late rather stylized portraits of dogs during the 1930s in America. It was during her early years in America that she painted her little-known but elegant paintings of birds, which she considered some of her best work.
Maud Earl exhibited at the Royal Academy 1884-1901 and at the Royal Society of British Artists, Suffolk Street.
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A programmable thermostat is designed to automatically adjust the temperature in your home. This can be based on different settings for various times of the day, and days of the week. Programmable thermostats set you up for comfort and energy savings year-round. If you notice that your home has a higher energy bill, it could be caused by the thermostat. With a newer one, it will be more energy efficient for your home. Anytime you notice an odd noise or sound, make sure to contact us. That way we can inspect the HVAC system for you.
Compatible with both newer and older heating and cooling equipment, a programmable thermostat is always a benefit. This allows you to enjoy the cool air when you are home. The settings adjust the temperature for when you are awake, asleep, or away, returning temperatures to the desired levels when needed. No matter the age or type of your HVAC system, a programmable thermostat helps it. If you want to make sure the thermostat will work for system, contact us.
Programmable thermostats come in many different styles. This ranges from simple to complex, allowing you the most control over energy use and comfort levels. Some even offer remote operation by phone. Another benefit is that programmable thermostats can be manually overridden at any time. There are also several different types of thermostats. One type of programmable thermostat is best for those with the typical five-day work week and two-day weekend schedule. You can also buy a thermostat that you can set all the days the same, or each day individually.
There is also an option to have a smart thermostat. With this type, the benefit is that it is Wi-Fi enabled with the ability to be programmed remotely from your computer or smartphone. Smart thermostats work well for those with different schedules. It also helps those who may forget to pre-set the thermostat before leaving home. Many come with interactive smartphone apps to help you program the thermostat.
When you invest in a programmable thermostat, you can help to save money in the long run. Set your ideal temperature can be set on the thermostat. This results in cool air that is produced is not wasted when you are not in your house. Also, the thermostat can also be set to your ideal temperature just before you wake up. If you are not sure what type of thermostat to purchase, make sure to contact us and we can advise you on the one best for your home and lifestyle.


Conceding to a key demand from protesters, council vows to reform the feared National Intelligence and Security Service.
Sudan's President Omar al-Bashir has been removed by the military after months of anti-government protests against his three-decade rule.
The long-time ruler was replaced by a military council headed by General Awad Ibn Auf, who imposed a three-month state of emergency and declared the transitional body would rule the country for two years.
The coup and installation of the council were rejected by the protesters, who said the moves did not meet their long-standing demands for a civilian-led government.
Amid continued demonstrations, Ibn Auf resigned on Friday evening and named Lieutenant General Abdel Fattah al-Burhan as his successor.
Since December, Sudan has witnessed persistent protests sparked by rising food prices that quickly escalated into wider calls for al-Bashir's departure.
The latest crisis escalated on April 6 when thousands of demonstrators began a sit-in outside the army headquarters in the capital, Khartoum. Dozens of people have been killed in protest-related violence since the start of the demonstrations.
A spokesman for the military council is making a key concession to protesters by vowing to restructure the feared National Intelligence and Security Service (NISS).
He tells reporters in Khartoum that Lieutenant General Abu Bakr Mustafa has been appointed to lead the intelligence agency, and adds that Ibn Auf, the former head of the military council, is being retired as defence minister.


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Early Adopter of Innovative Health Care Analytics Technology Works to Prevent Patient Health Crises
By James Doulgeris
Osler Health accepted data as a health care tool early on but ran into roadblocks with an analytics platform. Find out what Osler is now doing to discover actionable insights to meet the needs of triple aim.
Treating tens of thousands of people one at a time takes a great leap in technology. One measure of success is sophistication. When technology becomes really sophisticated, it becomes easy to use.
Since the founding of Osler Health in 2013, our leaders have focused on managing healthcare by endeavoring to use sophisticated technology to make sense of various health care data assets. Founder and Chairman, Dr. Tom Bellavia, recognized physicians couldn't accomplish population health management or meet the Triple Aim without converting data into usable information. "We had to move from a one-on-one patient model to take care of populations at the same time without losing the personal touch. You could never do that with paper charts and without the advent of new technology," said Bellavia. We also realized many physicians were confused and overwhelmed by sheer volume of their data and complex reports.
It's hard to take a mountain of data and create actionable, impactful tasks, and then get them into the right hands. Osler has made great progress toward data sophistication.
Consolidating reports
Ron Manke, Chief Operating Officer and Vice President of Provider Support, explained Osler has 20 quality measures across five contracts covering 86,000 attributed lives. For a while, Osler issued care gap reports based on common measures across payers. They delivered a separate report for each payer. For example, a physician might receive one report listing patients covered by payer A in need of a mammogram and a separate report for patients covered by payer B in need of a mammogram. "So we got rid of all that and said here's one list broken out by insurer - one list of patients who need mammography. Here's one list of diabetics. Here's one list of patients who need eye exams," said Manke. "That alone has just really improved the physicians' world so that they can just run down one list," said Manke.
Making reports actionable
Even with consolidated reports, we realized physicians don't always have time to dig through results. But we found they do have time to fit a familiar task into their workflow. So we changed the reports. We now include the task they need to perform. That could include scheduling an evaluation of a patient identified as high risk through the use of predictive analytics. What we're really doing is taking this information in these reports and making the doctor more effective. Rather than just seeing a string of random patients who come in, what they're doing is they're treating people who need treatment the most at the right time. If we catch one out of ten that saves us a hundred thousand dollars of acute episode or hospitalization, it is paying for itself in dollars and quality of life.
Need for integrated data, robust analytics
Despite these advances, we encountered limitations in the analysis of our data. "Our previous platform didn't allow us to drill into the specialty care, see site of service or dive deeper into pharmacy cost. The better we got, the more inadequate the platform," said Manke. To gain a more comprehensive view of each patient, provider, and facility, as well as the entire population and health network, we realized a need to combine clinical and claims data with additional data sources like social determinants of health and behavioral health. We also found we needed advanced analytics to be able to identify opportunities and patterns, confidently predict clinical and financial risk, then prioritize and coordinate the actions physicians could take to improve future outcomes.
To meet these needs, we chose Optum analytics solutions and we are in the process of launching the new platform. Manke says the platform – which is infused with OptumIQ, the unique combination of Optum data and analytics and health care industry expertise – will make a difference. "Now, we will not only be able to see gaps and care, but we will be able to see our high utilizers. We will be able to spot trends and see where money is being spent," said Manke. We expect Optum analytics solutions to track and deliver information on the outcomes achieved and costs accrued by specialists to help guide referral strategies. We are also looking forward to utilizing the same predictive models and methods that 20 of the top 25 health plans rely on to forecast cost and risk.
"There won't be discrepancies," said Manke. "We're going to have exactly what the insurer has and we will be able to deliver that directly to our physician owners so that we perform the best we can in this value-based program."
We needed something that would scale for the next five to ten years, and Optum was the only platform that we felt could elevate our needs today and keep us in the game tomorrow. This is all about investing in the right patient care proactively by empowering primary care physicians to be clinical managers from their present role as service providers, a giant leap ahead of todays' fragmented, reactive system. We don't measure success in dollars saved, we measure it in health crises avoided. Sharing savings with insurers funds the process, and everyone wins.
James Doulgeris is a founder and the Chief Executive Officer of New Jersey-based Osler Health, a physician association (IPA) and accountable care organization (ACO) with 125 primary care physicians in 27 practices at 63 different locations.
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Skim through the paper on the notion of the linguistic architecture. The idea is to apply this notion in the assignment to metaprogramming systems.
Skim through the paper on language workbenches. This is one category of SLE-related software systems that are to be analyzed in the assignment. "Metaprogramming system" is less ambitious term. See Sebastian Erdweg's PhD thesis, if you'd like to take a deeper look.
Each student picks one metaprogramming system.
Use the Google doc for sync-ing on your choice.
You must claim your technology by email to ed.znelbok-inu|gnaltfos#ed.znelbok-inu|gnaltfos; use "sle1415 in the subject line.
If you pick a more complex technology and manage to demonstrate the technology by running an example, then a team of 2 students is justified.
Any system from the linked paper on language workbenches that you prefer?
Any technology you want to find?
Develop a megamodel for an interesting use-case of the technology.
Deliver your megamodel as a list of entity and relationship declarations.
Concept is somehow special. Let's view like the universe of tags that we can use to tag all the other entities.
Your megamodel should probably exercise all entity and relationship types.
Your megamodel should have between 5-15 entities and 7-25 relationships in total.
You should search for 2+ nontrivial key concepts (entity type Concept) relevant to your technology. For instance, "Grammar" wouldn't be nontrivial for ANTLR and "Template" wouldn't be nontrivial for StringTemplate. You need to explain / define all these concepts separately.
Any technology gives rise to several use cases. Thus, select a use case that is manageable and understandable.
Prepare a slide deck that presents your entity and relationship declarations.
If possible, prepare a demonstration of the technology.
This is going to be your third presentation in this course. If you are doing too much stuff, including too much text, or your approach is not clear, I might just stop your talk and ask you to try again in the next session :-) (Also, running a spellchecker on your text is appreciated.


A government report from 2002 states that a staggering 49% of children who have been in care will end up in the prison system. They make up 23% of the total prison population.
Figures out in June suggest that the number of children being taken into care is at its highest ever.
The link between growing up in care and later being incarcerated is only one part of a larger and more complex problem. Since the 1990's the UK prison population has almost doubled and a look at the statistics tells a distressing story. 29% of the prison population have suffered childhood abuse, 46% came from homes in which they either experienced or witnessed violence, 15% were homeless immediately prior to incarceration and 62% have drug problems. 90% of those in prison show signs of a mental health problem and 70% have two or more disorders. Almost the entire prison population has experienced mental health problems or homelessness, suffered abuse or violence as a child, been addicted to drugs, or grown up in care. Prisons have become holding pens for society's most vulnerable members.
Last week the chief inspector of prisons Nick Hardwick said that UK prisons are in their worst state for a decade, describing some jails as 'places of violence, squalor and idleness'. Earlier this year Anthony Douglas, chief executive of Cafcas, an organisation which safeguards the welfare of children entering the care system, claimed that the government's proposed welfare cuts are likely to create a leap in the number of children going into care, as families already struggling are stretched even thinner. Under this government the picture is increasingly bleak for society's most vulnerable children. Many will be taken into care as a direct result of the austerity cuts, and later find themselves in a dangerous, overcrowded prison system that is unfit for purpose.