Bethany McLean started her career as one of hundreds of recent college graduates working entry-level jobs on Wall Street—at Goldman Sachs, in her case. But it’s safe to say she didn’t truly make her mark in the investment world until a few years later, in 2001. By then a writer at Fortune, she penned an article titled “Is Enron Overpriced?”
The story didn’t lay bare the massive fraud under way at Enron, but in merely asking some smart questions—and pointing out some glaring inconsistencies—it helped start the process of scrutiny that brought down the energy company. McLean, 39, coauthored The Smartest Guys in the Room, the bestseller about Enron, which was made into a documentary. Since then, she has moved from New York to Chicago, married the lead prosecutor in the Enron criminal trial, Sean Berkowitz, who is now in private practice here, and had a daughter, 15-month-old Laine.
McLean also joined Vanity Fair and collaborated on a second book, with Joe Nocera, a New York Times columnist, as coauthor. This one, All the Devils Are Here (Portfolio, $32.95), examines the global financial collapse brought on by out-of-control mortgage lending in the United States. The book is a great primer on how the crisis developed. Confused by Fannie Mae’s role in the mess? McLean and Nocera persuasively show how the quasi-governmental behemoth and Wall Street firms egged each other on. The authors’ portraits of the leading characters are sharp and their explanations digestible for non–Wall Street types, but they’re never oversimplified.
Before the new book hit stores, McLean sat down to talk about her work and her life in Chicago.
The financial crisis has spawned many books, quite a few published before yours. Some, like Michael Lewis’s The Big Short, build a tale around a single person or organization. But you and Joe Nocera chose a broad narrative, with history and action playing out at Fannie Mae, JP Morgan, AIG, Countrywide, the Treasury Department, Moody’s, Merrill Lynch, and others. What drove your approach?
I’d love to say it was well planned out. It wasn’t even a reaction to other books. Everyone wants to find the one villain. We wanted to tell the whole story—it’s so complex. We were still frantically editing till the very end.
As you point out in your acknowledgments, you used lots of unnamed sources, which is unfortunate but, it seems, unavoidable. Who surprised you by being willing to talk on the record?
Lord, was there anybody? The number of people willing to talk surprised me, even if they wouldn’t be quoted.
Of those you expected to talk, who clammed up?
I would have loved to have a real conversation with Angelo Mozilo [of Countrywide]. The person I’m most sorry I didn’t meet, because he’s dead, is Roland Arnall [chief of subprime juggernaut Ameriquest].
Saddest figure in the whole mess?
Maybe Mozilo. Even if you hate the guy and think he’s the most evil person in all this, he’s lost so much. He’s a more sympathetic character than he’s been made out to be. I think he’s in some ways a tragic figure. [Also sad] in some ways, I think, is Stan O’Neal [the former Merrill Lynch CEO].
Most maddening—worst devil?
I found myself being more and more angry at Fannie Mae. They were so good and squandered it. And stupidly chased subprime at the end. This wasn’t about home ownership [Fannie Mae’s supposed mission]. The subprime mess was about re-fi and cash-out. If the government had said nontraditional loans could only be used toward the purchase of a home, we wouldn’t have had a subprime crisis.
I found myself more mixed about Goldman Sachs. I worked there and admired the firm. They were smart enough to get out [and thus limit the firm’s losses]. They were smarter, but they’re not better. They contributed to it. It’s the sanctimonious attitude that makes me mad.
Photograph: Anna Knott
How did you decide to work with Joe Nocera?
It was Joe’s idea. We worked together a lot at Fortune. He edited my first book. I did not want to write another book, but I really, really wanted to work with Joe again.
Describe your working relationship.
Any coauthor arrangement only works if you know in your gut who does what better. Joe’s a better writer than me. I worked on Wall Street, and I sometimes understand this stuff more quickly. If I turn in a chapter and Joe says it sucks, I say, OK, it sucks. You need to have someone willing to defer to the other person. I guess I did the lion’s share of the first drafts of chapters, and Joe did the lion’s share of the editing and structure. And we’re still talking to each other.
In the book, you don’t offer prescriptions for avoiding this mess the next time around. I was kind of expecting you would, given the serious approach to what went wrong. Do you have some?
This was about a deep imbalance in the economy. The fixes are really fundamental. You need people to be able to live off more than the equity in their home. You need a middle class. The fact that it’s so deep really scares me—it’s not easily fixable. That’s why the recession we’re in now is so deep and we’re not coming out of it. I’ve always been a big believer in personal responsibility. [“We are all to blame,” McLean wrote in an October 2008 New York Times op-ed.] But when there’s no decency in corporate America, it’s asking an awful lot of people.
I don’t think there’s any real fix for the too-big-to-fail thing. The only solution is to have [banks] not be too big. It had to be the sickest twist of all that the big banks came out of this bigger.
In so many instances—AIG, Countrywide, Moody’s, Merrill Lynch, Lehman—autocratic leaders go unchecked into great risk. Yet business journalists, the public, and investors seem to celebrate these dictators when things are going well, rather than emphasize the value of collaboration and restraint.
It is a great quality of Americans. We want people to succeed and be larger than life. But too many times, it seems to end in tears. The stock market has become a place that rewards short-term success. There’s a real shortage of people who can actually run a business.
And raining on the parade isn’t much appreciated. At Countrywide, Stan Kurland, who was Mozilo’s heir apparent until they had a falling-out, tried to slow down the lending craze but failed. In your book, he tells a friend: “The people who are propelled upward in many cases in corporate America are the guys who said yes to an idea that worked. The guys who said no to a big failure—there’s no list for that. That’s why we end up with bubbles.”
That was one of my favorite comments in the book.
You’ve mentioned that after an upheaval we always expect big change but that nothing ever seems to change. Will much really change here?
The worst column I ever wrote was after the Enron trial: “Nothing will ever be the same in American business.” We thought at the time that because this could lead to a criminal conviction, people would say, “This isn’t worth it.” We could not have been more wrong. One year later, the subprime crisis started.
Enron was the canary in the coal mine. [The CEO] Jeffrey Skilling must be hopping up and down in prison. How was what he did all that different than what lots of Wall Street executives did?
I liked your comments on the financial crisis and its causes in a recent Fortune magazine Q and A with a bunch of financial journalists. You were a little more rabid, a little less technical, than some of your peers. And you gave this advice: Listen to skeptics.
There were plenty of them. Josh Rosner [a bank analyst] said, “A home without equity is just a rental with debt.” There were people who started to short this stuff in 2005.
You’ve clearly spent some time talking to short-sellers during your career. Shorts are a necessary balance to touts, and they almost always, in my experience, know more. Yet we don’t celebrate the shorts.
There’s such a built-in bias. Stocks are supposed to go up. You saw, even in the meltdown, everybody was blaming short-sellers. It’s nonsensical. It actually does more damage when a positive story causes people to buy a stock.
While covering the Enron trial, McLean met her future husband, Sean Berkowitz (above), the lead prosecutor in the case.
You met Sean Berkowitz, the man who would become your husband, while covering the Enron trial, where he was the lead prosecutor. You briefly became the subject of news coverage, mostly by bloggers, when your romance was revealed shortly after the trial ended. How did it feel on the other side of the news?
It has made me treat people differently. You have an obligation to treat people fairly. Once you’ve been written about, you see how hurtful it can be. So much of what goes on on the Internet is just cowardly bullying. I have not liked it at all.
In the acknowledgments for All the Devils Are Here, you thank your mother-in-law, three separate child-care providers, and your daughter for helping you get through this book. How was it writing with a newborn—your first—in the house?
My husband is a lawyer, so he travels a lot. Thank God for my mother-in-law, Naomi. If I was here alone all that time, there wouldn’t have been a book.
You and Sean built a beautiful new house here. Is Chicago your home now?
I’m getting there. Because I work from home, I don’t know Chicago as well as I should. We keep a tiny place in New York—I mean less than 300 square feet.
How does Chicago function for you writing about finance?
I don’t think [location] matters today. Most of journalism is on the phone. You do have to be willing to get on the road. Spend a week in New York. It’s harder to have these “Let’s just meet for a drink and chat” things with hedge fund people.
That’s logistics. How about one’s psyche?
When you’re in New York, the media world is so competitive. Here, you’re less in the competitive scene. I felt OK when Andrew Ross Sorkin [of The New York Times] wrote a great book [Too Big to Fail].
Do you consider yourself a Midwesterner?
From ages 17 to 37, I was on the East Coast. But when I started spending time in Chicago, I’d meet people and I’d think, Oh, these people are like me.
You’re from Hibbing, Minnesota, along with Bob Dylan. What did your folks do for work there?
My dad was a doctor, and my mom stayed home. They now live in Central America in the winter and in a remote area of Wyoming in the summer. Hibbing is in the middle of nowhere. Growing up in a town where there wasn’t much money—Hibbing was a dying mining town—gave me a fundamental respect for people that I might have lacked if I’d grown up elsewhere.
You majored in math and English at Williams College. Did the math help out later on?
My junior year of college I had an epiphany: I wasn’t good at math. I had expected to go on and get a Ph.D. But not having a fear of numbers is a great thing. Most of it is not rocket science.
Your Goldman job—how did you land there?
They came [to Williams] to recruit. After my junior year, I got to do math research. I was miserable. I was kind of frantic my senior year. I wanted to support myself after college. I just saw [finance] as an interesting thing to do for a couple of years. I couldn’t get my cover letter to print, so I just went to the career fair and stuck my resumé in every place that didn’t require a cover letter. None of the investment banks did.
I was so unsophisticated when I graduated from college. I showed up at Goldman carrying a straw bag. I didn’t know I was supposed to have a briefcase.
Why shift to journalism?
My personality wasn’t a good fit with investment banking. I applied to business school and was accepted at [Northwestern’s] Kellogg. I never studied journalism. I was interested in it, but my parents discouraged me. But [I told myself that] if I’m ever going to do journalism, it had to be now. [She never made it to Kellogg.]
So you went to Fortune magazine as a fact-checker.
I knew somebody who knew somebody who was a fact-checker at Fortune. It was probably a 75 percent pay cut. It was enormous. But I never minded. Fortune needed people to do personal finance stuff. It was [in the] back of the book. It was a case of doing the grungy work others didn’t want to do. I really don’t understand how I ended up doing hard-hitting journalism. I grew up in the Midwest. I like people. I’m not the person picking a fight at a party.
But I feel passionate about things. When something’s not fair, it drives me crazy. I’m actually a huge believer in business and its ability to create good—Bill Gates and Microsoft and all those jobs. When it’s done badly, it drives me crazy.
Photograph: Steve Veckert/Rapport Press/Newscom