Bethany McLean — Enron, FTX, 2008, Musk, frauds, & visionaries

**Bethany McLean** (0:00)
This line between a visionary and a fraudster, you think that there are two opposite ends of the spectrum, but in reality, they're where the ends of the circle meet, but somebody has the ability to put a vision forward, like Jeff Skilling did at Enron, like Elizabeth Holmes did at Peranos, like SBAF did. Then you're particularly susceptible. Self-delusion is such a strong component of all of these stories of business gone wrong.
The line between what happened at Enron and what happened in the global financial crisis, it's not a matter of black and white. Well, do you believe in the efficient market hypothesis?

**Dwarkesh Patel** (0:34)
The rapid implosion of a company worth tens of billions of dollars, insider dealing and romantic entanglements between sister companies, a politically generous CEO who is well connected in Washington, the use of a company's own stock as its collateral, the attempt, the short-lived attempt to get bought out by a previous competitor, and the fraudulent abuse of mark-to-market accounting. We are not talking about FTX, we are talking about Enron, which my guest today, Bethany McLean, first broke the story of and has written an amazing and detailed book about, called The Smartest Guys in the Room.
She has also written a book about the housing crisis, All the Devils are Here, a book about Fannie and Freddie, Shaky Ground, and a book about fracking Saudi America, all of which we'll get into. She is, in my opinion, the best finance non-fiction writer out there, and I'm really, really excited to have this conversation now. So, Bethany, thank you so much for coming on the podcast.

**Bethany McLean** (1:33)
Thank you so much for the probably undeserving. Thanks for having me on the show.

**Dwarkesh Patel** (1:40)
Well, my first question, what are the odds that SBF read The Smartest Guys in the Room and just followed it as a playbook given the similarities there?

**Bethany McLean** (1:48)
I love that idea. I have to admit, I guess I love that idea. I don't know, that would make me responsible for what happened. So maybe I don't work that idea. Let me take that back.
Anyway, but I actually think that even if he had read the book, it would never have occurred to him that there was a similarity because self-delusion is such a strong component of all of these stories of business gone wrong.
It's very rare that you have one of the characters at the heart of this who actually understands what they're doing and understands that they're moving over into the dark side and thinks about the potential repercussions of this and chooses this path anyway. That's usually not the way these stories go. So it's entirely possible that SBF studied Enron, knew all about it, and never envisioned that there were any similarities between that and what he was doing.

**Dwarkesh Patel** (2:42)
Oh, that's so fascinating, which I guess raises the question of what are we doing when we're documenting and trying to learn from books like yours?
If somebody who is about to commit the same exact kind of thing can read that book and not realize that he's doing the same exact thing. Is there something that just prevents us from learning the lessons of history that we can never just get the analogy right and we're just guided by our own delusions?

**Bethany McLean** (3:07)
Wasn't there a great quote that history rhymes but it doesn't repeat? I'm relying on who it is who said that, but I think that's absolutely true.
I think it's important for all of us, those of us who are not going to find ourselves at the center of giant fraud or so I hope. I think my time for that has passed, maybe not you, but I think it's important for all of us to understand what went wrong. And I do think these, I do think just there's a great value and greater understanding of the world without necessarily a practical payoff for it.
So I think when something goes wrong on a massive societal level, it's really important to try to explain it. Human beings have needed narrative since the dawn of time and we need narrative all the more now. We need to make sense of the world. So I like to believe that that process of making, trying to make sense of the world has a value in and of itself.
Maybe there is some small deterrence aspect to it in that I often think that if people understand more the process by which things go wrong, that it isn't deliberate, that it's not bad people setting out to do bad things, it's human beings at first convincing themselves even that they're doing the right thing and then ending up in a situation that they never meant to be in. And maybe on the margin that does help because maybe it has deterred some people who would have started down that path, but for the fact that they now see that that's the usual.