In this episode of Motley Fool Money Independence Special, Chris Hill chats with Nell Minow, vice chair of ValueEdge Advisor and corporate governance expert. Together, they go through the latest business headlines. Nell provides her views on corporate governance, accounting scandals, office politics, Black Lives Matter, the entertainment industry, and much more.
Later in the show, Morgan Housel chats with contributing editor and best-selling author Bethany McLean. They discuss several topics, including one of the most fascinating business leaders of the day.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on July 3, 2020.
Chris Hill: Earlier this week, I got the chance to catch up with Nell Minow. She's the vice chair of ValueEdge Advisors and an expert in corporate governance. She's also a film critic known as The Movie Mom. We dig into the movie industry in a little bit, but first, I wanted to get Nell's thoughts on recent business headlines.
At the start of this week, Boeing was scheduled to begin a three-day certification test for the 737 MAX. I read a piece in the L.A. Times from early January -- you were quoted as saying, "Boeing's board of directors was the quintessential 1990s board. It was CEOs and luminaries, but nobody with the kind of expertise you really need." We're going to find out if the plane has improved from a safety standpoint, but from a corporate governance standpoint, do you think Boeing has improved?
Nell Minow: No, I don't. I think they have taken a few steps, but they're a long, long way from where they need to be. I mean, remember that the other plane passed this test already. And what I said is still true -- they don't have the kind of manufacturing expertise on the board that they need. This is, you know, the MBA-ization of a company. They used to be known for their excellence in manufacturing. And after all, they are a manufacturer; that is their actual business. And yet, they decided to go with a financial outlook rather than a manufacturing outlook. And they outsourced a lot of stuff, including the software that got them in trouble. And all of a sudden, their balance sheet became their product instead of the airplanes being their product.
The problem is that they're kind of protected from market forces in a way, just because there are not enough people in the sector. Basically, it's them and Airbus. So, I don't think they have felt the pain that they need to, to make the kind of changes that I would expect.
Hill: I want to get your thoughts on a couple of pretty high-profile accounting scandals that have happened over the past couple of months. One in China with Luckin Coffee; one in Germany with Wirecard. In both cases, hundreds of millions of dollars and upwards of $2 billion just kind of suddenly went missing. And when I step back and look at these types of stories, one of the questions I have is, what is reasonable for individual investors to expect in terms of oversight from boards of directors, because I would love to think that this type of accounting fraud can be stopped completely, but I also am reminded of the fact that we're all human beings and some human beings are really greedy and they're going to do this to the point where they're committing financial crimes.
Minow: Look, there's always going to be crooks. All we can do is try to minimize the risk and, yeah, Luckin, I'm just going to say, China is a problem. That's all I can say about Luckin. With regard to Wirecard, first, I want to tell [laughs] everybody to listen to the recent Invisibilia podcast about the harassment of a Wirecard short-seller; it's just harrowing. But the short-sellers, of course, have done very, very well with Wirecard now, and it's the customers and the downstream customers who are in trouble.
I thought it was very interesting that, there's a guy named Peter Dehnen, who is the chair of the Association of Supervisory Boards in Germany. And as you know, they've got two boards at each company. He has called for drastic change to their corporate governance rules, and there have also been calls for change to their accounting rules. But I like the fact that they're focusing on corporate governance and on a tighter tie between investors and stakeholders and the board as one of the ways that they can go about preventing this kind of problem in the future.
Hill: I talked recently with Olga Khazan from The Atlantic. And one of the things we talked about was office politics. And where I'm going with this is, I want to get your thoughts on where the office building is going in a post-COVID world. One of the things Olga talked about was, look, if you're good at office politics, [laughs] you need to start developing other skills. And I'm curious if you think, what effect, if any, the board of directors meeting in a post-COVID world looks like. Meaning, does remote meetings, does that have any effect on a company's board, because I could see it, meaning, hey, you're more likely to just get more of the CEO's buddies on the board. I could also see it in a more positive light that if there's less in-person schmoozing then maybe we're going to see boards with more people with that relevant experience that actually helps a business.
Minow: Huh! That's a very interesting question, and I'm going to put it in a slightly larger context if I can, because it's the thing that I've been spending the most time thinking about lately. A lot of companies are talking about getting back to normal, and what I'm hearing from the investor community is that they have no interest in going back to normal; they want back to better. They want to see companies that are more resilient, that are managing risk better; they particularly want to see companies that are doing better with incentive compensation. And they're very, very skeptical about companies that started talking about repricing or resetting options when there was a market dip earlier this year.
And with regard to board members and office politics, listen, interpersonal skills will never go away. They are always going to be very, very important. And whether that has to do with the way that you operate on Slack or on email or on whatever comes after Zoom, they are always going to matter. And I think in a way, they may matter more when you don't have the golf game and the corporate jet to soften the interactions.
Hill: I'm glad you mentioned the corporate jet, because that's another thing that's really in flux at this point, isn't it? That you have presumably, every chief financial officer is looking at how their company is spending money and, presumably, looking at ways that they can start cutting spending. You know, I have friends who work in big financial firms in Manhattan, and some of them are talking about just completely doing away with the expensive real estate in Manhattan and going to more people working remote, smaller offices maybe out in the suburbs, that sort of thing. A, is it wrong to think that more companies are moving in that direction? And B, am I wrong to be optimistic that we're going to see tighter purse strings at companies?
Minow: I hope you are. Because we've spent a lot of time on the prestige of a Park Avenue or a Wall Street address that really is not delivering very much for investors. I think one of the things that we will find as we go, instead of back to normal, we go back to better, is we're going to find that a lot of employees have enjoyed the flexibility of working from home and will enjoy it more when their kids are in school, of course. But I think that you'll find that people will operate much more efficiently as a result of the workarounds that they've developed during this time. And they've discovered that a lot of things they're spending money on, nobody really needs.
Hill: There's been a lot of talk recently in the media, for all of the right reasons, for all of the obvious reasons, about diversity. When you think about companies getting back to better and some of the people that you're talking to in the investor community, does that include greater diversity on boards?
Minow: Absolutely. I thought it was wonderful. I wish I could remember the name of the person who is doing this, but there was somebody on Twitter, who just, every time a company tweeted out, we believe in Black Lives Matter, we believe ... here's what we're doing and we're giving money to this -- would tweet back, "May I see a picture of your board of directors?" Yeah, I think we're going to see a lot more calls for diversity, and in particular, I want to recommend to all of the listeners, a guy I follow very closely on Twitter, Judd Legum. He's kind of the I.F. Stone of the 21st century, in that, he just goes deep, deep into the documents. And he did a terrific article recently -- here's a list of companies that have come out with sort of fatuous statements on behalf of Black Lives Matter, and here is who their lobbying expenses are going to. And a number of them were giving money to candidates and representatives who had been given F ratings by the NAACP. So, I hope that that kind of illumination of where the money is going will result in some real changes.
Hill: I want to switch to the movie industry in just a moment, but I have to mention, if for no other reason than nostalgia, Chesapeake Energy filed for bankruptcy this week. And part of the media coverage was a walk down memory lane of former CEO Aubrey McClendon, and some of the things that he spent money on while he was CEO.
Minow: Oh, look at the 14th of Corporate America. You know, he really -- I did a little schadenfreude dance when I got that news, because he was just such a thorn in the side of investors for such a long time.
And I really get a big, fat "I told you so" on him. Because when he got his company to buy his map collection at a valuation by his personal advisor, who guided him in accumulating the map collection. And this was an antique map collection. So, why an oil industry, a gas industry company would need antique maps is beyond me. You know, that was not just a humorous anecdote; that was an indicator, that was a red flag of catastrophically bad board oversight. And then we later found out that he was on both sides of various deals with the company, and the board allowed that too.
Hill: Now, a lot of CEOs have a wine cellar in a cave that's hidden behind a broom closet. I mean, that's just how it is, isn't it?
Minow: [laughs] Absolutely, yeah. Somebody should write an opera about him, just a TV show like Tiger King.
Hill: Steven Spielberg and George Lucas were on a panel together at USC, and they made comments about the future of going to the movie, saying it was going to be more like a Broadway event. It would be $150 a ticket. We've heard a lot of companies in a lot of industries talk about the speed of innovation over the past few months. For a long time, I thought that Lucas and Spielberg were just wrong about this. Now, with the rise of streaming, I'm wondering if they're right that we are going in that direction sooner rather than later. What do you think?
Minow: I got to give props to the entertainment industry for pivoting so effectively this year. You know, they kind of stuck their toe in the water with the Trolls World Tour. It made more money streaming than the predecessor did in theaters. And so now everybody, except for Christopher Nolan, is on board with that. And speaking of $150 or $500 a ticket, Hamilton is coming to streaming a year early because of the pandemic. It's going to be available on Disney+ this week.
So, I think it's quite the contrary. I think that the delivery system for movies is changing in a very fundamental and permanent way. Of course, we will still go to the theater. There are still movies we'll want to see in the theater. And there is nothing like the theater experience, but I think we'll see a lot more coming to us directly.
I do want to say one thing, which is that I was one of the people that wrote to Adam Aron at AMC when he said that they were not going to require people to wear masks in the theater. And God bless him for listening to his investors and his customers. They walked back that policy within 24 hours.
Hill: Thank you for doing that, because I live close to an AMC theater. I would like to think that at some point I'm going to get to go back to the movies. [laughs] And when I saw that initial statement, I thought, you're crazy, so I was glad he --
Minow: Understand you cannot eat the popcorn with a mask, and that's where they make their money, but they're just going to have to figure out something else.
Hill: So, back to Hamilton. The New York Times reported this week, Broadway is going to remain closed at least through the rest of 2020. Do you think we're going to see Broadway moving to the big screen even more than what we're seeing with Hamilton?
Minow: I definitely do. And one thing that I particularly enjoyed at home is the way that Broadway and also the British theater has put some of their productions up on YouTube. Some of them as fundraisers for the theater community, some of them just to keep [laughs] us happy. And Irving Berlin was right -- there's no people like show people. Those theater performers are so comfortable performing in that kind of environment. And don't you love Cameo? Have you tried Cameo yet?
Hill: I have not tried Cameo yet.
Minow: Oh, it is the best. You can get top Broadway talent to deliver a message for you. And my niece is a big, big musical theater fan, and I got her somebody from the cast of Wicked to deliver a birthday message, and she was just beside herself.
Hill: All right, I'm going to look into this for some family members of mine. In terms of the movies that have already been made that were slated to come out this year, the big-budget action movies of the summer and even into the fall, more and more of them are getting pushed back for obvious reasons. Is there one in particular that you are really looking forward to seeing more than others?
Minow: Well, yeah, the movie that I'm most looking forward to seeing this year has been pushed to August. I'm crossing my fingers that they'll let us see it at home, and that's the new version of David Copperfield with Dev Patel, by the same guy who did Veep and In the Loop. I love his work. Tilda Swinton as Ms. Betsey Trotwood, that looks amazing to me. Of course, I'm looking forward to the Christopher Nolan movie. John David Washington -- go long on John David Washington as your investment in being a movie star. He is going to be huge.
The Outpost was supposed to be on the big screen. That is going to be coming to us at home. So I think we're going to be seeing a lot at home, and some is going to be postponed till next year.
Hill: Two quick things before I let you go. To go back to Lucas and Spielberg. You know, part of their comment in 2013 was, from now on it's only going to be the big action movies on the big screen and the mid-tier, sort of, smaller, more quieter movies, they're going to get squeezed out. With more streaming, though, do you think there actually could be a renaissance for those types of movies> And I'm dating myself a little bit, but I think about a movie like Tootsie from the early '80s, which is a wonderful film that probably wouldn't be made today at that budget with those level of actors, even though it was a great movie.
Minow: You've got it exactly right. There has never ever been a time that has been more open to those smaller-budget and middle-budget movies than the streaming services now. It's been terrible for the entities competing with each other, but it's been great for consumers. We've got Hulu, we've got Apple TV+, we've got Netflix, Amazon Prime, all with buckets of money, all just fighting each other for these films. And there are tremendous numbers of very successful documentaries and small-budget films that are getting much bigger audiences than they ever did in theaters. So, I couldn't be happier.
Hill: Independence Day weekend -- what is an Independence Day themed movie you would recommend?
Minow: Well, obviously, Hamilton is [laughs] a good one. And I always recommend 1776, with the singing and dancing Founding Fathers. It never fails to lift my spirits.
Hill: Bethany McLean is a contributing editor for Vanity Fair and the author of several best-selling books, including the definitive work on Enron, entitled The Smartest Guys in the Room. Recently she sat down with our man, Morgan Housel, to discuss several topics, including one of the most fascinating business leaders of the day.
Morgan Housel: I want to start with the topic that is near and dear to a lot of Motley Fool investors' hearts, that is Tesla (NASDAQ:TSLA) and Elon Musk, which I know is a company and a person you've spent a lot of time thinking about. And I just want to make a statement about Musk and see how you react to it, which is that Musk, of course, is a very unique, eccentric individual who doesn't think that a lot of the rules apply to him, either explicitly or implicitly, who kind of does things his own way. And that is what people love about him, and that is why he's been successful. Someone who starts a rocket company in their 30s doesn't think a lot of the rules of success apply to them. And someone who builds a car company in their 30s to take on General Motors and Ford doesn't think a lot of the rules apply to him. That's what people like.
But, of course, there was the other side of thinking that the rules don't apply to you, which is, pushing the boundaries is maybe the most charitable way to put it, of rules and regulations about corporate decorum and posting things on Twitter, etc. He's kind of the Steve Jobs, Howard Hughes of our day. And I just don't think that it's almost possible sometimes, this is a sort of a provocative statement that you can have someone who pushes the boundaries in ways that you like and then you can expect them to not push the boundaries in the ways that you don't like. I'm curious if that makes sense to you in thinking about and summarizing Elon Musk?
McLean: I think that makes a ton of sense. He made me start thinking about this idea which is that the visionary and the fraudster are much closer in personality than we would think. I mean, you think of them as being on opposite ends of the spectrum and I actually think they're, like so many things, where the circle meets. And the line between the visionary and the fraudster is much more narrow than we might like to think. And I sometimes think that the only thing that might separate the two is that the visionary gets away with it, [laughs] you know, and he actually doesn't get caught in the middle. They for some reason get the rope from investors or get the rope from capital markets to be able to persevere through the times when they were lying and it wasn't working, and they weren't telling people that it wasn't working [laughs] to get to the other side when it works, and all sins are forgiven.
And so, sometimes I think it's just a timing question. And you can look back to Enron. Enron Broadband, which was one of their most fraudulent businesses, was actually Netflix ahead of its time. And that's what it was. So, some of the line is between the idea and the execution, and so that's one of the deciding factors between the two, I think.
But I agree about Musk. I would say, though, that some of his behavior, particularly on SolarCity, which is the thing I looked at most closely, crosses over the line from just being outrageous and thumbing his nose at accepted ways of doing things, to something awfully close to outright fraud. So, I wouldn't leave it at just the, kind of, harmless characterization of him being eccentric, I think he has gotten awfully close, if not over, the line of actually lying to investors at times.
Housel: Now, what is the story about the acquisition of SolarCity? Obviously, that was a standalone solar company that he ran, that was acquired by Tesla two years ago. Is that right?
McLean: Yeah. It was acquired back in, I think, December 2016, but you'll have to forgive me if my timing is off. This, the last few months seem to have compressed [laughs] all time. But I'm not going to remember when I think ... so with that caveat.
But two things about the acquisition that stood out to me was that SolarCity was already in terrible shape when Tesla took it over. And arguably, and it is still being renegaded, but Musk did not disclose to Tesla's shareholders just how bad shape SolarCity was in, he knew more than Tesla's investors. He did a big rollout of something called the Solar Roof, which looked like it was this great workable product that SolarCity was going to change the world with, and it turned out it was just a prototype that all these years later still doesn't actually work.
And all of that is one part of it, but the other part of it, which is important, is that Musk also bailed himself and his cousins out with the acquisition of SolarCity. So, they made personal loans to SolarCity and when Tesla took it over, that bailed out Musk's personal fortune as well. And so, there is a self-interest aspect to that that doesn't jibe with Musk as he presents himself, which is a guy who doesn't really care about money and is just in it for the rest of humanity, because the SolarCity bailout was a bailout of the company, but it was also a bailout of him personally.
Housel: Now, I've also heard, this is rampant speculation, they need to make that caveat, but if there was a case in which Tesla ever got into really bad financial straits, I've heard people say, and again, just speculation, don't worry because SpaceX would just buy Tesla and kind of wrap everything up into Musk, Inc. And just seeing what happened with SolarCity, do you think that's even a possibility someday, that these are all just, kind of, being wrapped into one Musk corporation?
McLean: [laughs] I mean, it's possible, it all depends on what capital markets are willing to finance. I don't know what SpaceX's financials look like to have a clue if SpaceX would even have the capability of bailing out Tesla.
Now, I'll just add here, the piece I wrote for Vanity Fair about SolarCity was very, very negative. I think the headline probably [laughs] says it all. And I won't repeat it here, since it has a profanity in it. But I wouldn't bet against Musk, because of precisely what we began this conversation with, this idea that the visionary and the fraudster are awfully closely related. And if the markets are willing to keep financing Musk, if he can keep raising capital, he might be able to pull it off. He's been able to pull off a lot of things, that people said [laughs] he wouldn't be able to, so far.
I'm not opining on whether he should be able to, whether that's fair, whether he's a good man. But the fact that I am as negative as I am on the SolarCity deal, does not mean that I would be short Tesla or even I already short ... I don't do, but --
Housel: I mean, there's actually a lot of examples historically of very successful businessmen, that if you dig into it, you know, who were right up against the line of visionary versus fraudster. John D. Rockefeller; Cornelius Vanderbilt is probably the biggest example. There's a story of Vanderbilt I love, where he's about to make a big transaction and one of his officers says, Cornelius, you know, you're going to break every law by doing this transaction. And he goes, you think the laws apply to me? He goes, do you think you can build a company this large and follow all the laws? So, it's interesting, when we are thinking about corporate heroes, people that we admire, to think about like the line between risk and luck and like where it ends? It's often a very fine line and it's often only known in hindsight.
The other example that I think is probably fairly close to Musk right now, is Masayoshi Son, who runs the SoftBank Vision Fund, this $100 billion VC fund that got so much attention in the last couple of years, its biggest bet was, of course, WeWork. And now, you know, the story is not over yet, but it's looking like it's not going to be a happy ending to the story.
And I just think if there's a comparison in, both, Masayoshi Son and Musk, are people who don't think the rules apply to them, swing for the fences, do things their own way. With Musk, so far, it's worked out quite well, Tesla stock is at or near an all-time, whereas Son, it seems to be fairly quickly unraveling. And that's just, I just wonder, if with Tesla, it's just an incredible amount of risk that is being taken, that is so far worked out, that that might give a false sense of security to investors going forward? Is that a fair characterization?
McLean: I think, for sure it does, right? We're all creatures of the past and we believe that one of our big failings is that we believe that whatever happened yesterday is going to be similar, is going to dictate somehow what happens tomorrow and that the rules are going to be the same. And because Musk has always been able to get access to capital when he has needed it, people believe he's always going to be able to get access to capital when he needs it. And that could change on a dime.
The thing that I thought about a lot is that the one problem, one under recognized problem with people who believe the rules don't apply to them, is that they do make enemies as well. And when the proverbial -- here I say, I'm not going to swear -- when the proverbial [...] hits the fan -- I can't help myself -- those enemies come out in full force. And it means that a company that might otherwise have survived if it didn't have so many enemies then it's destined to fail.
And I think of a couple of examples of that, one is Enron itself, another is Valiant, which it didn't quite fail but when it came out the way they've been operating, even though people kind of knew that all along, the sheer weight of the enemies of that company had helped to take it down.
Back to your point about Son and Musk, on a slightly different note, I hear you about the parallel, it's a really interesting one. And maybe this just betrays my bias, but Musk at least is trying to build something and trying to build real things. And that's where the parallel breaks down for me, and where I actually have some degree of sympathy and respect for Musk. He's trying to do something, he's building cars, he's sending rockets into space. I mean, these are real things.
When I compare that to investing in WeWork, I mean, yes, in some ways there are personality similarities between the two men, but in terms of the substance of what they're trying to do, not so much.
Housel: So, that's a really great point, is that even Tesla's biggest detractors, people who are short the stock, every one of them who I've met says, look, the cars are amazing, the cars are absolutely beautiful, they're an engineering feat, and SpaceX is an incredible company. Like, they just took two men to space, that are still in space right now. There's no question that Musk is a talented engineer, operator. I mean, there might be some people that would question that, but he's building real things that have worked and have real value. It's just kind of pushing the limits at the corporate governance level, you might say.
I'm curious, though, let's say Musk woke up tomorrow, and I don't think anyone expects this to happen, but in a different world, he woke up, and he said, I'm going to follow all the rules of corporate decorum, I'm going to operate like a good Harvard Business School graduate and operate according to all the textbook plans. I think that would probably be a net negative for Tesla; at least in the eyes of a lot of shareholders. And it seems like what has made the company so successful to-date, to the extent that it has been, is the ability for Musk to push the rules at every single avenue that he can.
McLean: Yeah, I think you're right, I think it's definitional in many ways. And, look, as a journalist who likes the world of business precisely because it is so wild and crazy and you can never predict what's going to happen. If every single business leader marched to step to the rules laid out by Harvard Business School, I mean, it would be so boring. So, [laughs] I don't want the Musks of this world to go away. Succeed, fail spectacularly, I mean, that's what makes the world of business so Shakespear-ian, right? Who would possibly trade with flat grey characters?
Housel: What do you think most investors get wrong when thinking about Tesla?
McLean: It's an interesting question. I think what most people who are bullish about Tesla get wrong is that Musk can be very petty and very capable of doing things just for his own self-interest. So, people tend to think that he's this grand visionary who couldn't possibly care about his financial well-being. And the SolarCity story would belie that. So, I think that slightly nasty, very self-interested characteristic of him is one that I think people maybe don't give enough credit to.
I think the bulls also get wrong this notion that when you make enemies and the knives are out for you, if things get bad, they get really bad. [laughs] And then on the bearish side, what do people get wrong? I think it's just that when you think back on the history of finance, [...] are inevitable, because there are people who have lied to investors, who have deceived people, who have made promises that weren't true and who still make it to the other side. And go down in history as business icons.
Housel: That's a great way to put it. Is there anything that could happen that would change your mind about the company?
McLean: Well, I think -- but it's so hard now to gauge that, I would have said three months ago, that if Tesla produced really consistent earnings and cash flow and showed that it could make money on a consistent basis that that would be the thing that would change my mind. I guess, it's still valid but I'm not sure amid the pandemic, what the fair timeline is for thinking about that.
Housel: Bethany, I want to shift gears now to fracking and the world of oil in the United States, which you've written so well about. And it's a story that is fascinating, but gets lost. I had not heard much about it until you wrote your book. And it's so interesting that so much of fracking has been this energy revolution in the United States over the past decade, that has been great in so many ways and it has been celebrated in so many ways, but as you've written about and shown, the economics of fracking are, to put it lightly, horrible. And it was horrible when oil was above $60 a barrel. And last month we saw oil at minus-$40 a barrel; it's just a completely different world in the last couple of months. I'm curious what your take is on the world of oil and fracking, particularly as it pertains to the last three months that as we're in a worldwide lockdown, the demand for oil has plunged to the levels that no one expected.
McLean: I got interested in it precisely because I thought, often people who live on the coast, we are divorced from the world of energy that makes our lives possible, and so we think about it in terms of, is it good for the environment, is it not good for the environment? And we don't think about it in terms of how it enables our life. And when you think about how fracking changed the discussion of energy in the United States, it's just dramatic.
Back in 2007, Congress was holding ... hearings about shortages of natural gas and we were all sure that the United States was running out of oil. And it's just fracking changed all of that, and that's a huge technological revolution. But as you said, it doesn't make money. And really the last few months have been ... in some ways in terms of the events that took place, the seeds were already sown, investors were already becoming disillusioned with fracking because of the lack of ability to make money. So, the publicly traded E&P stocks have performed terribly over the last couple of years for precisely that reason. So, what happened with the pandemic really slashing demand for oil and therefore sending the price plunging. And then the Saudi Arabia, Russia feud where they both refused to cut production and crash the price even further. Those were just nails in the coffin for U.S. shale.
And now I see that loosely, because the thing that has enabled the shale revolution is cheap capital. And now it looks like we're going to have cheap capital forever. So, we're right back in this world where perhaps economics doesn't matter. If everybody can get access to almost free debt, then the rules of economic reality are somewhat suspended, right? [laughs]
So, assuming that continues, I wouldn't predict the death of U.S. fracking. I think it should be clear to everybody that this much-hyped notion of American energy independence is a fraud, and I think production levels are going to be way down from where they were when the U.S. was briefly the world's largest producer of crude oil again, but that doesn't mean fracking goes away.
Housel: Now, there's a long history of boom-bust in the oil sector. That's the whole history of the oil sector. Do you think the levels of fracking that we are at in previous years, when it was so high, is ever going to come back, that we've just got a little bit carried away, but after the next cycle it will come back or it's something that it's just the technology does not work economically and we're going to be at sort of a permanently lower level?
McLean: So, there are two things bound into that that I will need to answer to. One is, could there be a technological improvement that enables fracking to make money, to produce free cash flow in a way that it hasn't before? And, yes, there absolutely could be. Never count out the ability of this country to come up with technological innovations. Thus far, the ones that have been touted have not worked. And so, you would look at that recent history and be a little bit skeptical as to whether this great technological innovation really is on the horizon.
But the other component to it is, the last however many years has been, just if you ever thought that Wall Street was economically rational and people only invested in things that were going to make money. And the things that weren't going to make money, didn't get any funding. [laughs] I mean, look at WeWork, look at Theranos, look at fracking, look at -- I mean, everything, right, look at the subprime mortgage collapse. And so, whether people, investors will be willing to throw money at fracking again, whether or not it's economically viable? I don't know; I mean, quite possibly.
Housel: So, Bethany, my final question. I'm curious, as someone who has covered corporate bad behavior as, kind of, the common denominator of what you've covered over your career, how much of corporate bad behavior is just integral in who we are as humans versus something that we learn from and can improve from overtime?
McLean: Oh, I think it's integral in who we are, and I don't think our desire to believe in things that are, clearly, in retrospect going to seem to be too good to be true is ever going to go away. And to some degree, I don't think that's a bad thing, because, where we begin this conversation on the note of visionaries versus fraudsters, if you don't have people who are willing to believe in the visionaries, people who are willing to get behind that person who's got the grand plan to make the world a better place, as totally inconceivable as it is, then that would be a pretty hopeless world to live in, right?
So, you actually, you want that, but the fact that people are willing to believe, I think it can turn into a very bad thing, but it actually is also a good thing. I don't think you'd want, like, if we were all cynical.
And personally, selfishly, I kind of like the idea of always having more to write about, so [laughs] I guess I'm biased.
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