Peter Elkind and Bethany McLean on what drove Jeff Skilling and brought down Enron

Just as he had when Enron was riding high, Skilling labeled ExxonMobil a "dinosaur" - as thought it didn't matter that the oil giant was thriving while Enron was nearly extinct.  "We were doing something special.  Magical."  The money wasn't what really mattered to him, insisted Skilling, who banked $70 million from Enron stock.  "It wasn't a job - it was a mission," he liked to say.  "We were changing the world.  We were doing God's work."

In the public eye, Enron's mission was nothing more than the cover story for a massive fraud.  But what brought Enron down was something more complex - and more tragic - than simple thievery.  The tale of Enron is a story of human weakness, of hubris and greed and rampant self-delusion; of ambition run amok; of a grand experiment in the deregulated world; of a business model that didn't work; and of smart people who believed their next gamble would cover their last disaster - and who couldn't admit they were wrong.

~ Peter Elkind and Bethany McLean, The Smartest Guys in the Room, p. xxi

Vanity Fair on Warren Buffett's praise of George W. Bush for the 2008 Wall Street bailout

The lifelong Democrat, who recently announced that he was donating the majority of his wealth to the Gates Foundation, came under fire for a New York Times op-ed piece he wrote in November thanking the Bush administration for the Wall Street bailout.  "I felt that they deserved thanks," he tells [Bethany] McLean.  "People should see that the government can do things right."  He adds, "I may not have convinced anyone, but it should mean something when I say George Bush was right!"  Bush’s September 2008 declaration "If money isn’t loosened up, this sucker could go down!" Buffett calls "the 10 most immortal words in the history of economics."

~ Vanity Fair, Bethany McLean interview, January 5, 2011

Buffett with Treasury Secretary Hank Paulson

Warren Buffett on the U.S.: "we definitely had a system that unleashes potential"

We had four million people here in 1790.  We’re not more intelligent than people in China, which then had 290 million people, or Europe, which had 50 million.  We didn’t work harder, we didn’t have a better climate, and we didn’t have better resources.  But we definitely had a system that unleashes potential.  This system works.  Since then, we’ve been through at least 15 recessions, a civil war, a Great Depression.  All of these things happen.  But this country has optimized human potential, and it’s not over yet.  It’s like what’s written on the tomb of Sir Christopher Wren: "If you seek his monument, look around you."

~ Warren Buffett, as quoted in Bethany McLean interview, Vanity Fair, January 5, 2011

Bethany McLean on intellectual curiosity

The biggest requirement to be a journalist is that you're really curious.  You have to be interested in things.  You have to want to figure things out, and care and be curious.  And you can cultivate your curiosity.  But curious is something we all are.  You just have to open your mind to it and just let yourself be curious.

~ Bethany McLean, "Investigative Journalism with Bethany McLean," YouTube, 4:55 mark, April 21, 2020

Bethany McLean on the shale boom and bust (2018)

These days, the rhetoric of “energy independence,” meaning an America that no longer depends on anyone else for its oil, not even Saudi Arabia or OPEC, is in perfect harmony with “Make America Great Again.” But rhetoric doesn’t produce profits, and most things that are economically unsustainable, from money-losing dot-coms to subprime mortgages, eventually come to a bitter end.

~ Bethany McLean, "The Next Financial Crisis Lurks Underground: Fueled by debt and years of easy credit, America’s energy boom is on shaky footing," The New York Times, September 1, 2018

Bethany McLean on Tesla's Gigafactory 2 boondoggle in Buffalo, NY

In public, Musk doesn’t talk much about Tesla’s factory in Buffalo—a place he once, in better times, dubbed Gigafactory 2. Gigafactory 1, of course, is Tesla’s much-hyped futuristic electric car plant outside Reno. Gigafactory 2, which is shrouded in silence and secrets, was a controversial side venture: a high-stakes move to dominate America’s growing market for solar energy. Tesla bought the factory’s main tenant, SolarCity, for almost $5 billion in 2016. The plan, in true Muskian hyperbole, was to turn the plant in Buffalo into what was billed as the largest manufacturing facility of its kind in the Western Hemisphere. SolarCity would build 10,000 solar panels per day and install them on homes and businesses across the country. In the process, it would create 5,000 jobs in an area that very much needed them. “This is one of the poorest cities in the country,” Scott says. “You get a big company here, and it’s a big deal.”

From the outside, the sheer scale of the Buffalo plant sparkles with promise. At 1.2 million square feet, it stands at the point where the Buffalo River bends through the city. The building is gleaming white, as if to signify its freshness amid a landscape of abandoned grain elevators and sprawling, desolate steel mills. The area around the factory is hardscrabble working class; until SolarCity was built, people only drove through it when the fierce wind off Lake Erie shut down the highway that residents take from the southern suburbs to downtown. Now three flags fly in front of the factory: those of the United States, New York State, and Tesla.

But three years after Tesla bought SolarCity, there are serious doubts as to whether the plant will ever fulfill its promises. The website CleanTechnica, which is mostly supportive of Musk, calls SolarCity “a disaster waiting to happen.” A potentially costly lawsuit alleges that Tesla acquired SolarCity at the expense of its own shareholders. And former employees want to know what happened to the massive subsidy Tesla received. “New York State taxpayers deserved more from a $750 million investment,” a laid-off employee named Dale Witherell wrote to Senator Kirsten Gillibrand. “Tesla has done a tremendous job providing smoke and mirrors and empty promises to the area.”

~ Bethany McLean, "How Elon Musk Fooled Investors, Bilked Taxpayers, and Gambled Tesla in Order to Save SolarCity," Vanity Fair, August 25, 2019

Bethany McLean on stories of business gone wrong

Stories of business gone wrong are very rarely about bad people setting out to do bad things.  They're almost always this mixture of self-delusion, sheer stupidity, banality, greed - but often greed in the service of ego rather than for the sheer sake of money, maybe a little outright corruption.  But they're these almost Shakespearean stories of very very human weaknesses.  They add up to corruption in the end in many cases, but they don't set out with a deliberate decision to do bad things.

As a journalist you only wish you could find that moment where the leaders of the global financial system sat in a dark, preferably smokey room off Wall Street in 2006 and plotted the demise of the financial system, right?  That would be a great cinematic moment for a journalist, but those moments just don't really exist in these stories.  And so one thing I've learned is that just because really smart people believe in something, it doesn't mean they're right.  And just because they're a true believer, doesn't mean you should be, too.

~ Bethany McLean, "Two Decades of Covering Business: A Journalist’s View, "Mendoza College of Business (University of Notre Dame), April 9, 2019

Bethany McLean on the risk of a second GSE crisis

Fannie and Freddie, with their over five trillion dollars of securities outstanding, are operating on next to no capital.  If there's a sudden shock to the system, if interest rates go up, if they suffer a loss, taxpayers will have to foot the bill again.  And yet that risk is still there.  And it's a total example of government dysfunction that we've had seven years to figure out this problem and we've done nothing.

~ Bethany McLean, PBS interview, October 22, 2015

Bethany McLean on bank capital levels

Capital isn’t this pile of money sitting somewhere, it’s an accounting construct.  And if you don’t have the accounting right then the capital is just an illusion anyway so I am a little weary of this notion that has taken hold…that if we have enough capital we’re safe come hell or high-water, I don’t buy it.

~ Bethany McLean, "Bank capital is an illusion: Bethany McLean," Daily Ticker, April 29, 2014

(McLean thinks we’re much better off than we were in 2008 and that though there might be another crisis, it won’t be in the banking sector.)

Bethany McLean on mathematical modeling

Goldman also shook my faith in numbers, and I mean that in a good way. Numbers, especially in a beautifully put together presentation, masquerade as TRUTH. A discounted cash flow analysis seems oh-so-scientific. But many numbers are nothing more than the wobbly assumptions that go into them. There is nothing that will make you understand this better than having a vice president tell you to change the discount rate in that discounted cash flow analysis because he wants to see a different result. “Garbage in, garbage out,” I heard at Goldman. So true.

~ Bethany McLean, "My Goldman Sachs Post-Traumatic Stress Disorder (And Why I'm Grateful)," February 19, 2014

Bethany McLean on making excuses

[A]t the end of the day, no one actually cares why you got it wrong. All that matters is that it’s wrong. And if you don’t think in terms of excuses, you’re less likely to make a mistake in the first place.

~ Bethany McLean, "My Goldman Sachs Post-Traumatic Stress Disorder (And Why I'm Grateful)," February 19, 2014

Bethany McLean on the anti-Fed movement

The thought process behind the anger at the Fed isn't uniform. If Dante had nine circles of hell, then the Fed has three circles of doubters. The first circle is critical of the Fed's current policies. The second circle thinks that the Fed has been a menace for a long time. The third circle wants to seriously curtail or even get rid of the Fed.

[...]

Murray Rothbard, the controversial libertarian economist who many consider the intellectual father of the anti-Fed movement, wrote in 1994 ("The Case Against the Fed") that if the Fed were to be abolished, then "the banks would, at last, be on their own, each bank responsible for its own actions. There would be no lender of last resort, no taxpayer bailout [italics mine]."

~ Bethany McLean, "Fed-Bashing Three Ways," Slate.com, November 9, 2010

Bethany McLean on the futility of financial regulation

A couple of years ago, if people were to point at who was going to bring down this system they would have chosen hedge funds. Lightly regulated vehicles, who knows how they're operating, they're going to be the cause of the next financial collapse. Lo and behold, hedge funds, for whatever problems they have, have actually not been in the center of this. They're one of the few groups not in Washington asking for a bailout. Citigroup, one of the world's most heavily regulated institutions, is. So that to me is the perfect example of why regulation is not a cure-all. (10:45 of interview)

Real transparency would be a great step forward, but I am always a skeptic about the ability of new regulation to really address problems. You look in the wake of Enron: Congress passed Sarbanes-Oxley which was supposed to fix all of the problems in the marketplace. And lo and behold, what happened this time around had absolutely nothing to do with Sarbanes-Oxley. It was irrelevant to the current crisis. (7:45 of interview)

~ Bethany McLean, Interview on PBS NOW, January 31, 2009

Bethany McLean on the artificial Wall Street boom

Over the last bunch of years Wall Street justified the extravagent amounts that people were paid by saying, "look at the profits we're producing." And now if you look at the writeoffs that firms have taken, most of those profits turned out to be completely illusury, because the profits had been decimated by the writeoffs. In other words, the profits weren't real in the first place. So people have already collected millions of dollars that, in a strictly speaking economic sense, they weren't really entitled to.

~ Bethany McLean, Interview on PBS NOW, January 31, 2009

Bethany McLean on Henry Paulson's intention not to go into politics

[Henry] Paulson says that he "wouldn't put a time limit" on his tenure at Goldman [Sachs], and that he has no intention of following in the Washington-bound footsteps of former Goldman CEOs like Bob Rubin, Steve Friedman, and [Jon] Corzine.

~ Bethany McLean, "Inside The Money Machine," Fortune, September 6, 2004

(Just to clarify, this was Paulson's lie, not McLean's.)

Bethany McLean and Peter Elkind on the Enron verdict

The verdict in Houston is a critical landmark - and a good thing - for American business. The rules are now clear and the risks of another Enron that much lower. The message is not to start down the slippery slope - that fudging the numbers, operating deeply in the gray zone, deliberately obscuring what's going on in your business, isn't just wrong. It's a crime.

Enron's bankruptcy seems not to have delivered this message, as the subsequent accounting scandals at AIG and Fannie Mae, which originated with the same please-the-Street impulses (but without such dire results), showed. But maybe, just maybe, a couple of decades in the slammer for Ken Lay and Jeff Skilling will send the message home.

~ Bethany McLean and Peter Elkind, "The Guiltiest Guys in the Room," Fortune, July 5, 2006