Not Williams-related, but I also recommend the Michael Lewis article on Iceland in the same issue.

A couple of good lines in this interview by McLean, including:
“There’s something almost reassuring about Bernie Madoff.”
“Here’s the thing about the free market: it’s only a free market when the market is going in your favor.”

I agree that there is something reassuring about the Madoff story, because it shows that the times we are living in aren’t all that unprecedented. It would almost be more surprising to not uncover a massive fraud during the throes of a financial crisis.

To be honest, the whole subprime mortgage discussion feels like old hat. Subprime is no longer where the main story is. We’ve moved beyond a financial crisis by now.

Henry Nicholas isn’t just another tech-boom billionaire charged with backdating stock options. All the drive, arrogance, and aggression he poured into building microchip-maker Broadcom—one of the major success stories of the Internet Age—morphed into an increasing obsession with sex and drugs, according to federal prosecutors. The author investigates the allegations about Nicholas’s out-of-control world: the parade of prostitutes, the spiking of clients’ drinks with Ecstasy, and the secret lair he built underneath the Orange County mansion he shared with his wife and kids.

Read the whole thing. Or at least the ending.

You could argue that it was all necessary, that if Nicholas wasn’t such an extremist he also wouldn’t have built such a successful company. Or maybe not. Says one former executive, “Could he have done what he did without the insanity? I think he could have. He had a wife and kids and a wonderful company, and he let a piece of him take over.”

A few years ago, Nicholas, in a moment of self-reflection, said, “All I’ve done is make money. I’ve achieved none of my goals.” Now there’s a chance he never will.

Maybe the cartoon characters Calvin and Hobbes sum it up best: “Do you believe in the Devil?” Calvin asks. “You know, a supreme evil being dedicated to the temptation, corruption, and destruction of man?”

Replies Hobbes, “I’m not sure that man needs the help.”

Beautiful and a Calvin and Hobbes fan. All hail the Williams Math/Stat Department and its amazing majors!

Not one of Stephen’s better interviews. Bethany seems at times to be speaking to a kindergartener.

Great scarf and insightful comments.

McLean notes the responsibility of a journalist to “Say what you think.” Indeed. Same applies to bloggers.

Is it time yet to start pulling together books about last week’s catastrophe on Wall Street? Publishers are uneasy about making plans too soon, but the city’s finest financial journalists—and their literary agents—are eager to get moving.

…

“There’s a lot to be said for a timely book, but we don’t know what the book is yet,” said Simon & Schuster publisher David Rosenthal, noting that there are nevertheless writers out there whom he would agree to publish immediately just because he knows they’d do a good job with whatever ends up happening.

At any rate, proposals have started making the rounds.

One comes from Times business columnist Joe Nocera and former Fortune reporter Bethany McLean, who decided to write a book together the day Lehman Brothers declared bankruptcy and Merrill Lynch sold itself to Bank of America. Mr. Nocera was visiting Ms. McLean (co-writer of the Enron book The Smartest Guys in the Room) in Chicago at the time—he was there to attend a science conference, what kind he wouldn’t say—and over some white wine, the two of them decided that a definitive chronicle of the stunning financial crisis was in order, and that they were the team best equipped to produce it.

“We want to write the big book, and I’m not afraid of saying that,” Mr. Nocera said. “It will be a book for the ages and—I know this is going to sound egomaniacal, but—between our contacts and our reporting skills and our writing skills, I think we’ll be pretty tough to beat.”

The agency representing the Nocera-McLean book to publishers, Darhansoff, Verrill and Feldman is said to be asking more than $1 million (No one there picked up the phone when Pub Crawl sought comment).

McLean’s Smartest Guys in the Room is a great read but $1 million seems like a big advance. How many copies would need to be sold for this to make sense to a publisher?

“The Smartest Guys in the Room,” by Peter Elkind and Bethany McLean. (O.K., O.K., they are former colleagues of mine, and I was deeply involved in editing this book — but I have to say, I think it turned out pretty well!)

Indeed. Below the fold is my list of the best finance books, given to my 3 Williams interns last week. Comments welcome.

1. Where The Money Grows and Anatomy of the Bubble – Garet Garrett
2. Reminiscences of a Stock Operator – Edwin Lefévre
3. Only Yesterday, An Informal History of the 1920’s – Frederick Lewis Allen
4. The Go-Go Years, The Drama and Crashing Finale of Wall Street’s Bullish 60s – John Brooks
5. Extraordinary Popular Delusions and the Madness of Crowds – Charles Mackay & Confusión de Confusiones – Joseph de la Vega
6. Where Are the Customers’ Yachts? or a Good Hard Look at Wall Street – Fred Schwed, Jr.
7. The Money Game – Adam Smith
8. Once in Golconda, A True Dama of Wall Street 1920-1938 – John Brooks
9. Liar’s Poker, Rising Through The Wreckage on Wall Street – Michael Lewis
10. The Great Crash, 1929 – John Kenneth Galbraith
11. The Predators’ Ball – Connie Bruck
12. At Bonus Time, No-one Can Hear You Scream – David Charters
13. Barbarians at the Gate, The fall of RJR Nabisco – Bryan Burrough & John Helyar

Bethany’s book probably belongs in their somewhere, perhaps in place of The Great Crash.

Go here.

It is said that Bethany McLean has a system with gentlemen of a certain age. She has Midwestern looks, but a voice like red velvet –.and she stops at nothing for a peak behind the kimono. Downright cozy with Wall Street, a real life Media Mata Hari, she has beguiled many a CEO into giving her information that ended up in her stories – and also in the hands of her short-selling friends.

In October, 2005, she attended, uninvited, a Saturday lecture Patrick Byrne gave at the Columbia Business School, and asked him to a nearby restaurant. Later that day and several times the next, she left messages on the voicemail of a friend of Patrick’s in the mistaken belief that it was Patrick’s phone. That friend says, “She left Patrick her home and cell numbers and asked him to come over to her place for a drink, ‘even around midnight would be fine.’”

Patrick accepted an offer to meet her in a darkened bar under her apartment, where she mentioned, “I was briefly married, getting divorced.”

Patrick, who had been warned of Bethany’s system, declined her invitation to come by again, or call her at home. It was hard to believe that she would be so bold considering that she had previously published a story about Overstock, noting that “skeptics abound.”

Those “skeptics” again.

The skeptics, of course, were Rocker and the scoundrels at Gradient Analytics, then called Camelback Research Alliance. They suggested that Overstock’s growth paled in comparison to Amazon’s – neglecting again to note that Amazon had burned through $3.5 billion at the same stage of development. There is no evidence that Bethany did anything in this story other than regurgitate the misleading analysis of Rocker and Gradient – while portraying them as two separate entities in order to show that skeptics “abound.”

As if to more forcefully demonstrate her allegiance to these “miscreants,” Bethany had published another hatchet job for them – right after Patrick’s “Miscreants’ Ball” presentation. Patrick told the world that Gradient and Rocker were at the center of a massive financial crime, and a few days later, he opened Fortune magazine and saw the story – an attack on video game maker Take-two Interactive, quoting (as if they were offering analysis independent of each other) David Rocker and Gradient Analytics.

Then, in November 2005, shortly after Patrick did not call her at home (not even before midnight) Bethany published “Phantom Menace.” Rather than describe in detail the allegations that Patrick had leveled in his “Miscreants Ball” conference call, Bethany quoted Mark Cuban, the guy who financed her Enron documentary. She wrote: “As Mark Cuban, the billionaire investor, later wrote on his blog, ‘Never before in the history of Wall Street has a single conference call mentioned the following topics: miscreants, an unnamed Sith Lord he hopes the feds will bury under prison, gay bathhouses, whether he is gay, does cocaine, both or neither, and an obligatory ‘not that there is anything wrong with that,’ phone taps, phone lines misdirected to Mexico, arrested reporters, payoffs, conspiracies, crooks, egomaniacs, fools, paranoia, which newspapers are shills and for who, payoffs, money laundering, his Irish temper, false identities, threats, intimidation, and private investigators. All in 61 minutes.”

In addition to making it seem as if Patrick’s words had been blurted out by a sufferer of Tourette’s syndrome, Bethany went to lengths to ensure readers that Rocker had taken a “routine position” in Overstock. She noted that Gradient had published negative information about Overstock and argued (again without mentioning Gradient’s connection to Rocker, or alluding to any alternative point of view) that this information had merit. Moreover, she described the Easter Bunny as a wacky conspiracy theorist, suggested that phantom stock was not a real problem, and said that Patrick’s behavior was so “over the top” that he should be fired from Overstock.

Before she wrote this story, Bethany had three affidavits from former Gradient employees alleging that Gradient was in the business of producing false information for Rocker. One of those affidavits stated plainly that Gradient had colluded with at least one famous journalist–Herb Greenberg, a friend of Bethany–to illegally front-run media stories.

When Patrick asked if she had bothered to read these affidavits, Bethany said she didn’t see any reason why she should do so. “It would just open up a whole can of worms,” she told him, “and I’d have to get into whether they were telling the truth, or were just disgruntled ex-employees. I don’t want to get into that.”

Patrick then sent an email to Bethany, asking again whether she was going to write her story without reading those affidavits. Bethany now claimed to have read them, but said she wasn’t going to mention them – again, because she didn’t know if the former employees were disgruntled. She made no attempt to interview the employees or do any other reporting that would establish their credibility or lack thereof, so Patrick again inquired as to her unique understanding of what it meant to be a journalist.

Bethany’s emailed reply revealed the depths of her cynicism – the extent to which she views herself not as a detached and unbiased journalist, but rather as a battle-scarred warrior for the pillaging hedge funds that made her career.

She said she’d stick with her sources.

She said she’d do this because, “History is written by the victors.”

* * * * * * * *

There was one accurate paragraph in Bethany’s “Phantom Menace” story. It described some comments that Patrick made to Bethany and Gradient.

“In the fall of 2004, I wrote a FORTUNE story title “Is Overstock the Next Amazon?” After the piece came out, Byrne sent me an e-mail saying “Fair. And balanced.” Two days later he wrote another e-mail: ‘I actually thought it was crap…So why exactly did you become a reporter? Giving Goldman traders blowjobs didn’t work out?’ Around the same time, after Gradient released another report questioning board members’ independence, Byrne wrote to [Gradient's Donn Vickery]: “Donn, you make a living toadying to bully hedge funds…you deserve to be whipped, f-d, and driven from the land.”

Patrick responds, “I agree that the comments were a little salty. But Bethany knew that the email to Gradient had nothing to do with their ‘questioning a board members’ independence.’ I sent it because Gradient was derisive and personally disrespectful, over the telephone and then in print, to Gordon Macklin, a board member and a 78 year-old lifelong friend. This was crystal clear in my email, but Bethany’s strategically placed ellipsis obscured it.”

Classy! Previous EphBlog discussion here. That Patrick Byrne, the man behind Deep Capture, is the CEO of a $500 million company like Overstock is mind-boggling. But shorting Overstock is not the faint of heart.

Think the life of a famous financial journalist like Bethany is all glamor? Consider the madness she has to deal with on a regular basis.

As will be explored in a subsequent piece, it would be fair to describe my relationship with Bethany McLean of Fortune as “strained”. However, it is not unusual for her to write or call me seeking comment, generally regarding allegations fed her by crony hedge funds which she dutifully regurgitates on command, and sometimes regarding other things, too. I make it a point to respond promptly. On rare occasion when I have contacted her, she has responded promptly as well.

Thus I was a bit surprised at the turn taken by the following correspondence:

Think that is just the rantings of some Internetty crackpot? Think again! That is Patrick Byrne, CEO of Overstock. Only read the whole thing if you have a lot of time on your hands . . .

Hollywood is trying to figure out how to turn Enron into a TV movie.

How do they take all the stuff about ”the contingent nature of existing restricted forward contracts” and ‘’share-settled costless collar arrangements,” jettison it like the math in ”A Beautiful Mind,” and juice it up?

Enron is such a mind-numbing black hole, even for financial analysts, that if you tried to explain all the perfidious permutations, you’d never come out the other end.

A movie executive asked Lowell Bergman, the former ”60 Minutes” producer who is now an investigative reporter for The Times and ”Frontline,” for the most cinematic way to frame the story. (Mr. Bergman had the ultimate Hollywood experience of being played by Al Pacino in another corporate greed-and-corruption saga, ”The Insider.”)

”It’s about the women up against the men,” he replied.

Before you know it, Enron will be Erined, as in Brockovich. Texas good ol’ girl, fast-talking, salt-of-the-earth whistle-blower Sherron Watkins will be Renee Zellweger in a Shoshanna Lonstein bustier. The adorable and intrepid Fortune reporter Bethany McLean, the first journalist to sound an alarm about Enron’s accounting practices, will be look-alike Alicia Silverstone.

…

Some [Enron executives?] privately trashed Ms. Lynch as ”an idiot” and coveted Ms. McLean, calling her ”a looker who doesn’t know anything.” But when they realized the women were on to them, the company that intimidated competitors, suppliers and utilities tried to oust Ms. Lynch from her job and discredit Ms. McLean and kill her article.

Which Enron insider said that? Or is Dowd talking about her vision for the movie?

If journalism were in the Olympics, the Enron story might well be pairs figure skating. Bethany McLean, the young Fortune writer who first wrote about Enron’s shady finances a year ago, has, of course, already been awarded the gold. And with that have come the requisite endorsements: In the past two months, she was hired as a consultant by NBC News and shared in a $1.4 million deal to co-author a book on the scandal.

But another team is also vying for top honors — amid complaints about shoddy judging. Reporters and editors at the Wall Street Journal believe their work has been unjustly ignored, with some wondering whether Pulitzer rivals like the Washington Post and the New York Times have gone out of their way to praise McLean.

…

That’s the competition. Now for the judging. In January, Howard Kurtz, the Washington Post’s media writer, highlighted McLean as the first journalist to ask questions about Enron. Ten days later, the Times’ Felicity Barringer wrote her profile of “the financial reporter everyone loves to lionize.”

While McLean was being anointed as a journalistic sex symbol in a story hitherto dominated by a balding Kenneth Lay, folks at the Journal felt they were being robbed: “People are trying to queer the Pulitzer pitch for the Journal,” says one editor there. That’s sour grapes, counters Kurtz: “In this case, a 31-year-old reporter beat them and the rest of the world by a considerable margin.”

Read the whole thing.

Over the past few months Fortune had the chance to learn of Blankfein’s worries and visions for Goldman firsthand, giving us an unusually personal view of the man who has the daunting job of sustaining Goldman’s winning streak in an increasingly treacherous market. What we saw was partly what you’d expect – a stunningly smart, demanding, and competitive executive at the top of his game – but also a surprisingly thoughtful, self-reflective leader with a wicked sense of humor. “Anything I haven’t asked about?” I say at one point in our conversations. “Virgo, blue,” he shoots back. (It took me a moment to figure that out, which probably explains why I left Goldman Sachs in 1995, after working as an analyst for three years.) Of course, the joke goes only so far. As a former Goldman executive puts it, Blankfein is “funny and self-deprecating and can reach across the table and rip your throat out when it’s warranted.”

Fun stuff. Alas, no mention of the critical role played by Mike Swenson ‘89 in allowing Goldman to make so much money in 2007. Note the high quality of McLean’s prose and the way she ties the start and finish of the article together so nicely. Associated interview with McLean here.

Ronit wants more Bethany. We give him more Bethany.

I hereby nominate Bethany McLean to displace Erin Burnett ‘98 as EphBlog’s favorite financial reporter.

Board members and senior executives of Marsh & McLennan, the giant insurance broker that has been accused of cheating customers, put millions of dollars into a partnership that profited by buying companies from Marsh and investing in companies that work with Marsh.

Shades of The Smartest Guys in the Room, Bethany McLean’s ‘92 marvelous book about Enron. I would wager the scandal here, if there is one, will involve the executive directors and not the independent ones like Morty. He is way too smart to get involved with anything that even looks like self-dealing.

The article also notes that

Experts on corporate governance have complained that Marsh’s board, which has 6 insiders and 10 independent directors, is extremely weak and has not taken leadership as the insurance broker’s legal problems worsen. Only two independent directors are employed by public companies: Lord Lang, a former British politician who is chairman of Thistle Mining, and Stephen Hardis, chairman of Axcelis Technologies.

Allow me to parse this. When people say that Marsh’s board is “weak,” they mean that the independent directors (the ones unconnected to the company) are not serious business people with useful experience and reputations to protect. When people say the board is weak, they are really saying that Morty, among others, is weak.

I am not sure that I believe this, and Morty is just 1 of 9 or 10 independent directors. But many people do believe that the board handled the Putnam mess poorly, and in a way that was excessively kind to company management.

Senior executives with low morals like weak boards because it allows them to get away with nefarious deeds more easily.

Meanwhile, the Wall Street Journal reports ($ req.) that

Meanwhile, some of the 10 outside directors on Marsh’s 16-member board, who received little notice before Mr. Spitzer filed his civil lawsuit against the company, have been in contact with Mr. Spitzer’s office, according to a person familiar with the situation. In announcing the suit, Mr. Spitzer said he wouldn’t negotiate with Marsh’s top management, headed by Chairman and Chief Executive Jeffrey W. Greenberg.

Hmmm. There is (another) Fortune article here for Bethany McLean.

If you only have time to read one book about the excesses and scandals of the business world during the bubble years, you should read McLean’s.

Although I can’t find any comments by McLean on Lay’s indictment (most of her articles for Fortune are not accessible), she does note that:

Enron’s board of directors was infatuated with executives they hired.

“The board fell in love with the management at Eron,” she told the forum. “Enron’s board forgot who they worked for – the shareholders.”

She said the abuses occurred even though Enron’s corporate structure had a separate chairman and CEO in place. “There was a belief that these (management) people were just so incredibly smart,” she said.

You can read McLean’s original article on Enron here.

One of the reasons that I spend so much time on compensation issues at the College is that is seems obvious that the same forces that drove pay to such extremes in the business world are starting to have an effect at Williams.

As I always, we at EphBlog stand second to none is praising the job that Morty is doing. Yet is that really enough of a reason to pay him twice what we paid Frank Oakley just 10 years ago? I don’t think so.

Buffet is the most successful investor of the last 50 years, so praise from him is high praise indeed.

Besides being an ace fortune reporter, McLean was one of the first to question the apparent success of Enron. She notes:

Enron didn’t stop claiming they were not a trading company. In Enron’s view, its core business, where the company says it made most of its money, is delivering a physical commodity. However, look at Goldman Sachs, one of the best trading outfits in the world — its stock rarely sells for more than 20 times earnings, vs. the 70 or so multiple that Enron shares commanded. Publicly admitting so would have been catastrophic to the stock. Enron’s valuation completely was based on its ability to generate predictable earnings, something not even Goldman Sachs could predict. However, when I went to the 10Ks, I found diminishing cash flows, smooth net income increases and exploding debt levels. Even worse, the return on capital invested was only 7%, lower than their cost of capital.

Of course, since Williams refuses to take accounting seriously, there are probably few if any current students who have a clue what McLean is talking about.

The whole story is quite interesting. McLean’s career path may have some lessons for current students.

McLean has been feted by cable talk show and late-night television hosts for her work in highlighting those. Her experience with Enron highlights the weaknesses of financial journalism, which tends to be sucked into ‘the gravitational pull of the stock market.” However, she was not a conventional journalist. She graduated from Williams College with a double major in math and English. For three years after graduating from college, she worked for Goldman Sachs’s research division, reviewing the books of companies being offered for sale and writing memorandums describing their virtues and faults. After three years, she joined Fortune’s corps of fact-checkers. Regularly, she corresponds with managers of hedge fund and short-seller companies, which sometimes leads her to investigate more certain companies.

I have no idea what “short-seller companies” are, but I have all sorts of opinions on companies whose bookkeeping is less than wholesome. Alas, the SEC wouldn’t want to see that in EphBlog.