The Exchanges

Q What is fracking? Just to orient everybody listening to this.

A So it is the process, it's called, the full name for it is hydraulic fracturing, and it's not actually new, but it's the combination of two techniques that were around for a long time. One was drilling horizontal wells instead of vertical wells, and then the other was forcing a mixture of chemicals and water and sand into the earth. A fracking entrepreneur described it to me this way, it would be like sealing all the exits in a building and then yelling fire. And seeing what starts coming out of the cracks, right? Creating this enormous pressure such that things that don't otherwise want to come out start, start coming out of the cracks. And that's what fracking is. And it enabled us to extract oil and gas from places where we knew there was oil and gas, but you couldn't get it out drilling a well conventionally, a conventional vertical well. But this technique of fracking allows these wells to actually produce a fair amount of oil and gas. But The problem turns out to be that these wells decline at an incredibly steep rate. So a vertical well, once you found it and it produced oil and gas, it would continue to produce for years. A fracked well declines really sharply after the first year, which means in order to keep production levels up, you have to keep reinvesting. So you're on this capital treadmill, and that's why the industry has not been financially viable, because you …

AI assessment note: “it's the combination of two techniques that were around for a long time.”

Q You wrote one of the most fascinating books of this generation, which was The Smartest Guys in the Room. Can you talk to me a little bit about how you hit on Enron as a fraud while you were working for Fortune?

A I actually think that's one of the, the rare times in life that you, you get too much credit for something. It doesn't happen often, but the, the piece I wrote, I have joked should win awards for the meekest title in history because the, the title was, is Enron overpriced? And, and well, yeah, it was bankrupt six months later. I didn't know at the time I wrote the piece that, that Enron was a fraud. I knew the numbers didn't add up and it was shocking to me and it was such a lesson because so many people who were investors in the company Couldn't answer the basic question, how does this company make money? They just wanted the 20% earnings growth that would spit out the bottom line, and the stock price jump that would happen when the company met or exceeded analyst earnings estimates, as it always did, but they didn't actually understand the business, and that in and of itself was shocking to me, but the core of that piece was really, wow, look at this company's valuation, and yet nobody can explain how it makes money. I always think breaking a story is really being able to actually get in there and explain what's happening, and I didn't do that degree of excavation on Enron. But this piece, nonetheless, which started when a guy named Jim Chanos, who many people know, he's one of the longest-running short sellers out there, came to me and said, how does Enron make money? Tell m…

AI assessment note: “started when a guy named Jim Chanos... came to me and said”

Q And I, I thought that, that, that really speaks to the human impact of some of this. Now, the flip side of that is, like, they need money to do R&D, and, and so where do you draw the line on that? Like, how do you think about that, having done so much research into this?

A Well, weirdly enough, I, I am actually more sympathetic to Martin Shkreli even than I am to Valiant, even though, um, I, I'm not sure Martin, had he had the time, would really have done what he said he was going to do, but he said that with the price raise in Darabrim, what he was going to do was funnel that money, those profits back into R&D, and I don't know, I guess I'm fifty-fifty. Part, part of me thinks he really would have done it, And the thing is, Valiant wasn't doing that. So their whole promise was, their whole promise to investors was, we don't need to do R&D. So it wasn't an argument of, we're gonna take the profits we're making from this and invent new drugs that are gonna save people's lives or figure out a better drug to take, to treat this disease. It really was their, their argument to people, and investors repeated this to me, was, well, this drug, even at 300,000 dollars a year, is still cheaper than the cost of a liver transplant. And so as long as we're cheaper than the cost of a liver transplant, then it's fine that we do this. So I think some of that speaks to just this murky moral line in, in, in things in a way that laws can never legislate, right? I mean, drug companies just didn't used to do that. That just wasn't the way they, they operated. You had Merck famously create the drug that helped blindness, right? For almost as an altruistic endeavor, be…

AI assessment note: “I think some of that speaks to just this murky moral line in, in, in things”

Q What's your favorite part of being a journalist?

A It's getting to talk to people who are so much smarter and more interesting than I am. Um, I mean, really, what, what could be better than to get interested in something and to be able to call people up and say, how do you think about this, and what can I learn from you? I mean, that's just, that's an enormous, huge privilege. I mean, to put it in really sort of blunt terms that that would make sense, I got to go spend a day with Warren Buffett in Omaha, right? People pay God knows what to go have lunch with, with Warren Buffett. I got to spend a day hanging out with this, this brilliant mind, and asking him questions, and learning how he thinks about the world, and how, how he sees things, and that's just one example, right? If you're reporting on the coronavirus to call up top scientists, and learn, and learn from how they think about things, what could be more interesting than that? Or even on this Elon Musk piece I did, going to Buffalo and meeting employees who worked at the Solar City factory there, and hearing their, their stories. Just Human stories on a narrow micro level, but human stories, that's, that's the best.

AI assessment note: “It's getting to talk to people who are so much smarter and more interesting”

Q Why did it happen so rapidly? Is that because you put a different narrative out in the world, and then people were like, this narrative is more correct? Or do you think it was a lack of information on other people, or a willing blindness? Like, what was going on?

A I think there was a lot of willful blindness and a lack of understanding of how Enron made its money. I don't think my story was a catalyst. I don't think it caused anything. I think it picked up on this underlying skepticism about Enron that was, that was growing. There were a lot of smart people who were short the stock for, for a while, and even though the information, their skepticism traveled in a very small circle, the broader circle of people didn't really understand how, how the company made money, and there was this Gap between the information available in the equity markets and in the credit markets, because the equity markets were total believers in Enron, and the credit markets where Enron was issuing all this off-balance sheet debt were very skeptical, and the, the skepticism in the credit markets and from short sellers was starting to leak into the general view of the company, and Enron also came, its collapse also came at the time of the collapse of the dot-com, the first dot-com bubble. Second dot com bubble now. No, but the first dot com bubble. And, um, and I think that, that played into it because Enron's really hyped business was this business called Enron Broadband, which it's an interesting aside. It really was Netflix before its time. But as the dot com bubble began to collapse, people really began to look at what Jeff Skilling, Enron's CEO, was saying ab…

AI assessment note: “I think there was a lot of willful blindness and a lack of understanding”

Q Well, then this should be an interesting question, right? How did, how did you go from your self-perceived terrible writing to what now is widely considered one of the Best investigative reporters or journalists in the world.

A Like anybody, I still benefit from having an, an editor. Some stories are easier to tell than others. I can write some things without being edited, and other things, I still get hopelessly lost in the, in the details, and I need an editor to say, no, no, no, let's step back. What, what's, what's the story here? So I am far from perfect today, um, but I think I've learned actually a lot from working with Jonah Serra, who edited Smartest Guys, and who was my co-author on, on All the Devils Are Here. He helped me probably more than anybody, Um, learn to write. By finding the story and by finding clarity, Joe's real, real skill in reading any draft is to find the disconnects, the places where the story you're telling doesn't make sense, and often in those disconnects you find the story that you do want to tell because that's often where you're skipping over something because you don't understand it or because it doesn't make sense is often the gap where the story really exists because that's the place where

AI assessment note: “I've learned actually a lot from working with Jonah Serra... He helped me”

Q Or what is the burden of evidence then if you're reporting something that could damage somebody?

A Well then, before it makes it into the story, you better know that it's true, and you have to give the person a chance to come, and you have to let it have air so that if it's not true, or it can be refuted, you have to, you have to know that and understand it. So the burden of, of hearing it is one thing, of putting it in the story is an entirely different, much higher burden. You know, old school fortune, and we had time, um, and Vanity Fair too, and other, other magazines, the fact-checking process is really important, because that's the process in which, You have to go back to people and say, this is really unpleasant, but this is what's going to be in this piece, unless you show me that it's, that it's not true. We always at Fortune, and I still today have a belief, I'd always, if I'm writing something about you, you will know everything in the piece that is unflattering, um, before it goes to print, so that we'll, we'll have it out before it's in print. And I think that's the way things should be done. Steve Ballmer helped me with a story I did on Microsoft, um, A number of years ago, and it was a tough story about Microsoft, and Balmer said to me when we were talking, he said, am I gonna like the story? And I said, I don't know. I, I don't think you will, though, but I, but I promise you that everything that I say, you're, you're gonna hear before the story runs, and we'…

AI assessment note: “before it makes it into the story, you better know that it's true”

Q What stuck out with you that you remember from meeting Buffett?

A The big thing that stuck out to me, and this is going to be a little bit, a little bit odd, was that it was a long day. I was pregnant with my second child. I think I had the flu. I was utterly exhausted by the time we got to dinner, um, and I was, I was, I was kind of running out of questions to ask him to be perfectly honest. I was tired, and I remember thinking, oh, I can ask him about giving his money away to Bill and Melinda Gates, and this is going to be awesome because all billionaires like to talk about all the good they're doing in the world and how altruistic and philanthropic they really are, and he'll just talk, And I can just drink my milkshake and, you know, sit here. And so I asked him, and he looked at me, and he said, well, I don't really pay much attention to that. That's not my, my focus of interest. I mean, I, I want to help the world, and I want to make the world a better place, and that's why I'm giving away my, my money. But I'm not really good at that, at figuring out where the money should go or about what, what projects are the most, most worthwhile. It's not my passion. It's not where I, where I spend my time. So, you know. End. And I was like, oh no. But I, it, it stands out to me because there is that, maybe it's back to that argument, that, that part, the part of our conversation about people's spikes, there is that figuring out what it is you are …

AI assessment note: “The big thing that stuck out to me, and this is going to be”

Q So if the micro question is like, what light bulbs should be in this story, or what facts should be in this story, the macro question is, um, what should and shouldn't be reported?

A I think everything should be reported, because I think the more you know, the more you can craft a story that is accurate. It's a reason, and perhaps this is definitely controversial in the practice of journalism, but it's a reason why I've never had a problem with people telling me something off the record. One is because I, I understand, particularly in the business world, people have to be off the record because they're gonna lose their jobs if they're on the record, right? There's, there's a very good rationale for it. It's not Just that those people don't want to own their comment, or that they're trying to feed you a story. Sometimes those people are the ones who are telling you the truth, actually, more often than not. But I would always rather know, even if I can't use something, because that helps me get closer to the truth, and what it is I do say, and to avoid outright misrepresentations, or things that are wrong. Not because I know they're wrong, and I'm telling, I would never do that, but because I don't know they're wrong, right? I would, I would always rather know. So I don't think, I think everything should be reported, and then the question becomes, what, what belongs in the story?

AI assessment note: “I think everything should be reported, because I think the more you know”

Q You spoke with a lot of the smart money that was in Valiant, or you're familiar with them. What happened after Valiant collapsed with those people? Was there a retrospective, an admission of, oh, I made a mistake, or was it like, this is just the odds in investing?

A I think it depends on, on who it was. I think it's been pretty devastating to a lot of people, and I think the smarter, more thoughtful people have spent a lot of time trying to think about why they got it wrong. I think there's still a little bit of defensiveness in that the viciousness of the way in which Valiant fell is reflective. I think of the point I made earlier that this company made so many enemies that once the tide turned, it just Turned. Um, but I think people have really tried to think about what went wrong, and for me, one, one part of that is when a company is doing something that might be perceived as highly unethical, it, there's this odd, um, almost lag, because everyone knew that Valiant was taking existing drugs and raising the prices on them to unconscionable levels. Everybody knew it, but for some reason there was this weird inability to see that that What a big problem that would become when it became widely known. I remember sitting with an investor in, in Valiant, and he was talking about Martin Shkreli and how awful what Shkreli had done with Daraprim was, and I looked at him and said, well, why is Valiant any different? And he thought about it, and he said, well, that's a good question. And so there was an odd inability to take what was widely known and understand what would happen when it really was widely known.

AI assessment note: “the smarter, more thoughtful people have spent a lot of time trying to think about”

Q things in order to survive, like, what is the perception of that? Like, how do people perceive that? Is it, like, now we're not doing good, and we're focusing on money again? Versus, like, what is that narrative that becomes in the public? You've spent a lifetime studying, sort of, like, how otherwise good people end up doing terrible things. Talk to me a little bit about what you've learned.

A So I, I think about that a lot because when I started working on the book about Enron with my coauthor, Peter Alkind, I had this very simplistic belief that if bad things happen, then bad people did those bad things deliberately. I remember being completely shocked when I'd call people up at who worked at Enron and finally get somebody to talk to me and by the widespread lack of knowledge about what was really happening at the company. And some of that goes back to this, the belief we all have, particularly if we're inside an institution with a really powerful culture, that it's really hard to add up the pieces and see them differently, but I've really come to believe that very few white-collar crimes or stories of business gone wrong are done by people who deliberately set out to deceive other people. Usually it's this odd mixture of Rationalization. Arrogance. Um, some greed, yes, but usually greed in service of ego rather than greed. I want to go out and buy a new Lamborghini or whatever. I don't know my cars very well. A new, a new island somewhere. Greed in the service of, of making me feel like a bigger person rather than greed for, for, for material things. But I find that a lot more interesting. So you, you rarely find that moment where it'd be really great if you could find that crystallizing moment, right, where everybody decided to do the bad thing. But those, Those …

AI assessment note: “very few white-collar crimes... are done by people who deliberately set out to deceive”

Q That's a really interesting point. Take off your journalism hat for a second, though, and put on your, your sort of like citizen hat. Is it a good thing or bad thing on hold that we have people that have these grand, ambitious plans that get funded? Because occasionally they hit.

A I think it's a good thing. Certainly selfishly, because if we stopped having the big frauds and blow ups, I wouldn't have anything to write about. So by all means, that's terrible. But I really do think it's a good thing. And I think that's the inevitable frauds and blow ups are the price we pay. And I think it's good to have these big, grand, ambitious plans. Life would be really boring if you didn't have that. And I think reflexive cynicism about this sort of thing is just as bad as blind belief. Because it is, it's these things that really do change the world. That said, I don't mean to blindly celebrate our current system because I do think either accidentally or deliberately our system has evolved to one in which the people who should be taking the really big risks and then reaping the really big rewards, it's turned into a system where those people can reap the really big rewards, but they've managed to push the risk onto other people. And that I think is not fair or healthy.

AI assessment note: “I think it's a good thing. And I think that's the inevitable frauds”

Q What other things stand out when I ask that question about how you parent?

A I think trying to be, trying to let them lead the way rather than me trying to shape them, and maybe it's just the children that I've had are not amenable to being shaped, and so I've, I've had to be that way, but I have not been able to choose activities for my girls or choose to make them conform in any, any way from the time I was never able to dress my kids. They, they, from the time they were Able to express an opinion, which is pretty immediately would shriek when they were put into something they didn't, they didn't want to wear. So I try to follow them and let them lead the way in terms of who they want to be rather than have a pre-existing idea that I'm trying to, that I'm trying to mold them into.

AI assessment note: “trying to let them lead the way rather than me trying to shape them”

Q Do you know which article I'm talking about?

A Yes, I do know which article you're talking about. It's, it's hard. I think I would, I would not do that, but I don't mean, uh, By saying I would not do that, I don't mean to sort of claim moral superiority, because my, my set of incentives are also different than somebody who does have to publish daily news and does have a quota of news breaking that, that's, that's part of their economic sustainability. So, so mine is not, because I've traditionally been a long-form magazine journalist. If I were to get that, that nugget, would it matter to my career if I were to publish it or not publish it? Not, not really, right? So it's easy for me to say I wouldn't, I wouldn't do that. So I don't think, I don't think I would, but I'm not claiming moral superiority when I say that I wouldn't.

AI assessment note: “Yes, I do know which article you're talking about.”

Q How do you think that we should do that?

A I don't know. If you could fix the compensation problem, then you could go a long way toward fixing this issue, but the history of attempts to reform compensation is the rule of unintended consequences writ large. I mean, just think about it. What could have sounded better than stock options for aligning executives' interests with, with those of employees and shareholders and stakeholders, right? That would seem to be perfect, but there was this great number, and I'm gonna get it wrong, but it was from the Joint Committee on Taxation, which investigated Enron after the collapse, and they calculated that the top 200 employees of Enron got a billion dollars from exercising stock options in the year before Enron went bankrupt, right? And there was a line in the report, I don't remember it now, but it was something along the lines of, well, that proves that stock-based compensation doesn't necessarily align interest. If you really could make top executives Financial outcome oriented toward having the company be around in a hundred years and be successful over the long term, not over the short term, then I think a lot of these problems would go away. But as long as you have a system of incentives where people can get paid, even if a company ends up bankrupt.

AI assessment note: “If you could fix the compensation problem, then you could go a long way”