“Any Citizen Should Be Horrified By This”

—Bethany McLean

(By Jack Bigelow) Bethany McLean is one of the foremost business journalists of our time. She uncovered the story of Enron, then covered it by writing (with Peter Elkind), The Smartest Guys in the Room. She explores (with Joe Nocera) the greed and sleaze of the financial crisis in All The Devils Are Here, and in her most recent book, On Shaky Ground, she takes us behind the scenes in the sordid story of Fannie Mae and Freddie Mac. Ms. McLean is currently a Contributing Editor to Vanity Fair; earlier she was a Contributing Editor and columnist at Fortune Magazine and a contributor to Slate. Her books are thoroughly researched, giving us engaging detail that verifies the integrity of her account of what happened and when. The Behavioral Forensics Group was privileged to interview her, and will share that interview in this and a subsequent posting.
You’ve said that you find implicit corruption more interesting than explicit. What do you mean by “implicit” and “explicit” and why do you find the implicit corruption more interesting?
Explicit corruption, I think of somebody slipping somebody a bag of cash because the briber wants them to do something. With implicit corruption, I think of people whose self-interest is all bound up in the same thing, and who think the same way without anybody having to bribe anybody else. So one example I might use would be regulation of big banks leading up to the financial crisis. The Federal Reserve and all the regulators thought like the banks—thought that the banks would never do things that were not in the banks’ economic self-interest. They were smart, they were capable, they had good management systems in place. Maybe “corruption” is too strong a word to use in that case, but I think of that as a sort of implicit corruption because it’s not as if the banks were paying off the regulators. Everybody looks at the revolving door and think that’s the problem. But it’s not; the revolving door can actually be quite helpful. It’s just that they all thought the same way.
Would you almost say that it’s subconscious?
Yes, I would also say that it’s subconscious. It’s just everybody’s belief system is the same. Some people might point at the bailout in 2008 as corruption—the group of people who all thought like the banks, the banks had to be saved. I’m not sure I would have it any other way—I’m not sure that was the wrong outcome—but there were people who all thought the same way.
I noticed that in your books, you avoid expressing moral judgments.
I try to lay out the facts and let the people who read them make their own decisions.
At the end of “Smartest Guys,” there was no moral conclusion, but there were certain areas in there where it was clear that you were totally stunned and astonished by what you had unearthed.
Yes. And that’s what I try to do, to lay things out. I like facts, and so I try to lay things out, but any narrative has implicit judgments, right? But I try to lay out facts and let people think for themselves.
The U.S. government is taking the profits of Freddie Mac and Fannie Mae.
And it’s not taking the losses.
Shares were sold. Isn’t that a type of fraud?
I think it is a fraud. It’s interesting because most people can’t get past the fact that hedge funds and wealthy investors stand to make money on this. So, they automatically side with the government without thinking through the issue. The government structured the bailout in a specific way with specific laws and then when they realized that a certain group of people were going to make money, they said, “Oh, no, no. We’re going to change the rules.” And maybe because they needed the profits from Freddie Mac and Fannie Mae too. But now, their documents have just come out, within the last month or so that show very clearly that the government lied, that they knew full well that these two companies were about to turn immensely profitable. They refer to them as the “Golden Years of GSE (Government Sponsored Enterprises) profitability” that were coming.
It also bothers me quite a bit that the government lied about its reasons for changing the terms of the Fannie and Freddie bailout by saying that they were going into a death spiral, where they weren’t going to be able to pay their dividends, that they had no idea that the two companies were going to be profitable—that is a lie. I think any citizen should be horrified by this. The Government’s feet need to be held to the fire on this and I think it’s an overwhelming hatred and ignorance of Fannie and Freddie that makes people not just up in arms about this. To me, it’s just an enormous scandal. But people don’t care.
Wouldn’t you say the government is actually violating its own SEC rules?
I guess maybe they are in the sense that Fannie and Freddie’s SEC filings never warned that the Government would treat these two companies differently than other companies. That the government might suddenly change the rules on them. I suppose, in a way….
I guess what I’m getting at is they are represented as companies that can make a profit…
That’s true too….they can’t—it’s all being taken away. But if that’s true, there should be a line that says [so].
(We will bring you the remainder of this interview in a subsequent posting.)



The Behavioral Forensics Group is a team of professionals with vast experience in detecting fraud, understanding why it occurs, and in recommending steps to mitigate fraud incidence within the corporate workplace, particularly within higher-level (and therefore more costly to the enterprise) executives.  The fields of investigation, organizational psychiatry, accounting and behavioral forensics, and law enforcement are represented within the Behavioral Forensics Group.  Acting in synergy to help organizations prevent, find, and/or reduce fraud, BFG is a premier, pioneering practice in this field.

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