March 11, 2019

Black Sheep of Wall Street: Henry Blodget

by Without Fail

Episode Notes

During the dot-com bubble, Henry Blodget was making millions of dollars as a top analyst on Wall Street. But when that bubble burst, his fortunes changed. He became the public face of a Wall Street corruption investigation that ended with the SEC banning him from the securities industry — for life. Henry tells Alex about the supreme shame of that moment, and about how he eventually started over by founding a new venture, Business Insider.

Without Fail is hosted by Alex Blumberg. It is produced by Molly Messick and Sarah Platt and edited by Alex Blumberg and Devon Taylor. 


Music and mixing by Bobby Lord.

Transcript

From Gimlet, I’m Alex Blumberg and this is Without Fail, the show where I talk with artists, athletes, entrepreneurs, visionaries of all kinds, about their successes and their failures, and what they’ve learned from both.  


<<THEME MUSIC>> 

 

ALEX BLUMBERG: Henry B-L-O-D-G, one G right?, E- and one T? Henry Blodget. What do you think is the first -- let's take a bet. What's the first thing that's going to come up? 


HENRY BLODGET: I have no idea. 


ALEX BLUMBERG: I think it's going to be -- I think it's going to be your new thing. I don't think it's ...


HENRY BLODGET: Oh, I hope so!


ALEX BLUMBERG: Okay, here we go. Ready? Henry Blodget. Wikipedia. Business Insider.


HENRY BLODGET: Hey! 


ALEX BLUMBERG: I think you've -- I think you've kicked -- kicked your past off the front page of Google. 


HENRY BLODGET: Alright. 


ALEX BLUMBERG: Can be done. 


As any Google search of his name will show, Henry Blodget is a cofounder of the digital media site Business Insider. Business Insider is a very successful financial and business website, it’s been around for over a decade, and a couple years ago, it was acquired for over 300 million dollars. And that’s partly why I’m talking to him on today’s episode. But that’s not the main reason. 


The main reason is that past. The past that he hopes has disappeared from the top of his Google ranking.


And what happened in his past... happened when he was at the top of his game in a very different industry. 


Henry was a celebrity during the dot-com era stock market bubble. He was a Wall Street superstar, made millions of dollars a year. As the dot-com market grew, so did his reputation. But when that dot-com bubble imploded.. so did Henry’s career. 


Henry became the face of a major Wall Street corruption investigation. His name was synonymous with speculation and greed and dot-com era overreach.  He was investigated by the SEC eventually banned for life from working in the securities industry.


I wanted to talk with Henry about all this because I wanted to know… what is it like to be the face of something so exciting and celebrated when it was going well? And then... what was it like when that very same thing blows up in your face? And what do you do, after all that happens to you?


Henry and I started our conversation at the beginning of it all, back before he was a Wall Street celebrity, before he was kicked out of the industry. Before he’d even broken into the industry in the first place. When he was a freshly minted humanities major, just out of college, looking to get into a career in journalism. 


HENRY BLODGET: I started at a small newspaper in Massachusetts.


ALEX BLUMBERG: Uh-huh.


HENRY BLODGET: Covering everything from high school sports to art and so forth, and then moved to a bunch of magazines in New York.


ALEX BLUMBERG: Why did you want to be a journalist? What was the -- what was exciting to you about that?


HENRY BLODGET: I liked writing. I liked the process of learning about things. I was very curious. I wanted to -- you know, I had pretensions of being a writer of some sort. So it all seemed to fit. 


ALEX: But he was also learning something that journalists learn pretty quickly: the pay's not so great. and so henry bounced around for a while, looking for a job where he could use his writing skills, but also make a decent living. He did a stint at cnn business — and then eventually found his way to wall street, covering the business from the inside: as a wall street analyst. 


Now analysts are people that are employed at Wall street banks and research firms, who research and write reports on big publicly traded companies. Henry really liked the work, liked interviewing the ceos and executives of the companies he was covering, combing through the earnings filings, writing all his research up into big reports. It was exciting work. And it was an exciting time to be doing the work, because there was this new thing on the horizon that Wall Street was just starting to take notice of. The internet:


HENRY: What really kicked it off was the Netscape IPO, which I think was in 1995. That was the moment where there was just this explosion of interest in the internet, and suddenly dozens and dozens of companies wanted to go public. Netscape was trading at this fantastic valuation. People who had seen the internet got it, and they saw how big it could become. But 99 percent of people hadn't seen it. They thought it was just another crazy wave. And so the next four years was all about, I think the whole world realizing how big the internet ultimately could be. 


ALEX BLUMBERG: All of a sudden Netscape was like, the internet is here -- there's money in it, and Wall Street needs to adapt to that. 


HENRY BLODGET: That's right. There were literally dozens of companies, and soon hundreds and then thousands of companies taking advantage of the opportunity. 


<<INTERNET TAPE: Investors keep flooding in.

Web technology companies soared more than 450 percent.

Internet stocks drove a powerful surge on Wall Street Today..>>


For my career what happened was, Wall Street -- Wall Street research departments, suddenly every department had to have an internet analyst and there were suddenly 30 empty chairs. And I was lucky enough to fill one of them, saying "I know what a browser is! And I can write and I can analyze and let me try to write a report!" 


ALEX BLUMBERG: I know what a browser is!  


HENRY BLODGET: It wasn't that bad. 


ALEX BLUMBERG: There was a time kids, when you could get paid for knowing what a browser is! So Netscape explodes. You are in the right place at the right time with the right knowledge. Talk me through the -- the -- your rise. How does that actually happen? How does it feel inside?


HENRY BLODGET: I was growing my reputation as an institutional analyst, meeting lots of accounts that no one in the broader world would have heard of, but -- but manage a ton of money. And so my career was going along quite normally. 


ALEX BLUMBERG: You're not famous by any stretch of the imagination are you?


HENRY BLODGET: No. No one outside of the financial industry would have known me... 

But I talked to a lot of other analysts and I said, "Look, I really like what I'm doing. What do I need to do to break out?" And a friend of mine who's a very good mentor, he said, "Just do great work. But also at some point you're going to have to make a bold call. You got to really stick a flag in the ground and go for it." 


ALEX: So Henry started looking around for a bold call to make...for a company that he believed everyone else was wrong about, and that only he saw the true potential of.  And he found that company… in Amazon. Now remember, this is 1998, so Amazon is nothing like the tech behemoth that we know today.


In 1998...Amazon was an online store — but instead of selling everything in the world like it sells today...it sold just one thing: books.


ALEX BLUMBERG: And what was conventional wisdom on Amazon at that moment? 


HENRY BLODGET: Well, a lot of people thought it was going to go bankrupt.


ALEX BLUMBERG: Oh, really?


HENRY BLODGET: Just selling books. It's crazy. They're losing all this money. They're -- it's obviously a fad. They're going to go bankrupt. Other people said, "No, no. It's a good business. Lots on the internet. But it's just a book company." So when you look at the valuation, it couldn't possibly be worth what it is. I read smart people on both sides, I talked to the company. And I came back and I said, "Oh, I think this thing is going to be a big success. I don't know exactly what it's worth, but here is a range of outcomes." And I picked a nice conservative target: 20 percent above the current price or what have you, which is what analysts do. And then within a month, I think the stock was up 100 percent.


ALEX BLUMBERG: Uh-huh.


HENRY BLODGET: So it's time to raise my price target. Talked to a couple on the sales force. And one of the salespeople just said, "Look, what do you really think it can do? Like, stop telling us the conservative, it could do this. Because you know what? It's risky and volatile and so if it can only go up 20 percent ..."


ALEX BLUMBERG: Stop being such an analyst, Blodget.


HENRY BLODGET: Exactly! Like, "What do you really think?" And a couple of weeks later I was doing the model to adjust my Amazon target, and I said "You know what? Fine. I'm gonna tell the sales force what it really can do." And it was trading at $240 a share at that time and I said, "Look. It could go to $400 a share." 


ALEX: This, Henry realized, was his bold call. He had a belief it was far outside of the consensus view. if he was right, it would make his reputation. And all he had to do was say it to the world.

So Henry put out a research report saying that Amazon stock is not going to go up just a little. It’s going to go up a LOT. 


And this report, when it came out, it was big. It moved markets. Amazon’s stock jumped 20 percent on Henry’s report alone. 


It was also controversial. Other analysts were skeptical. They said Henry’s call was irrational, irresponsible.


HENRY BLODGET: Amazon was so controversial, because so many people were convinced it was going to go out of business, that it was like striking a match to a -- a, you know, jar of gasoline. I mean, it was just an explosion that morning. Huge, high profile, and then fortunately the stock got there faster than I predicted. 


ALEX: Henry had predicted Amazon’s stock price would hit 400 within a year... but it turned out... it took less than a month. 


With that bold, correct call, Henry catapulted to the top of his field. 


HENRY BLODGET: It was pivotal to the broader recognition of me. A friend of mine called me up, who I hadn't heard of -- heard from since I was a kid. He was a good friend of mine. He said, "You know, you're sort of a celebrity now." So it was pivotable of that. It was not pivotable to my career on Wall Street, which was on a good trajectory as it was. 


ALEX BLUMBERG: Right. But it was -- it was pivotal to you becoming the face of Wall Street analysts, which perhaps was pivotal to what came later.


HENRY BLODGET: Yes.


ALEX BLUMBERG: Okay, so your career was already progressing very well, but this puts you into sort of like the public spotlight in a certain way.


HENRY BLODGET: Yes.


ALEX BLUMBERG: And then you got hired at Merrill Lynch. What's the life of a celebrity analyst? What are you doing?


HENRY BLODGET: Well, at that time, this was 1999. It was absolutely the peak of internet mania. And it was just white hot. So tremendous demands from everywhere to come talk to people, meet companies that might be going public, talk to investors who are investing in companies. It was a period where our research team built from me to 11 people a year and a half later, because there were so much going on.


ALEX BLUMBERG: And it's all...


HENRY BLODGET: This is happening at every firm.


ALEX BLUMBERG: Uh-huh. 


HENRY BLODGET: There were other -- many other analysts out there. And so it was just a very busy time. 


ALEX BLUMBERG: Right. Was it fun? 


HENRY BLODGET: It was exhausting, but it was tremendously interesting. I think that I knew, and I think our team knew, we were in a historic moment with this cool technology and what was going on. So parts of it were fun. Parts of it were draining. The visibility was also a little bit frightening, because there was so much financial media and so many people were focused on the market, that when you said anything it would reverberate into the market and that would have implications for companies, and they would come back and complain and -- and do a lot worse than that. So it was a tense time.


Here’s the thing you need to understand about Wall Street at this time.


Banks like Merrill Lynch, the company where Henry worked… they make money in a couple of different ways.


One of those ways is by underwriting business transactions. Underwriting when companies go public or when companies want to acquire another company. They will hire a bank like Merrill Lynch to help them do that and pay Merrill Lynch millions and millions in fees. 


And so banks..like Merrill Lynch...they thought they would have a better chance of having companies hire them for their IPOs or their acquisitions if their research analysts, like Henry, were saying that the company is worth a lot and recommending that people buy stock in it. 


And that put a lot of pressure on research analysts within banks like Merrill Lynch:


HENRY BLODGET: I felt pressure from everybody in those days. Everybody. Every constituency. But we also felt like it was our job to soar through the pressure.


ALEX BLUMBERG: Is there an example of that that stands out to you? Like, at that moment where you said something, like, had reverberations? 


HENRY BLODGET: I -- I mean there are many -- just cases where we would publish something or we would say something, and if -- if we were just talking it might be characterized in a particular way, and suddenly the company would call up furious, or investors would call up furious because they owned the stocks, they didn't want stocks go down, or -- or what have you. Um, pretty much any time you said something that was negative, you were going to get shelled. I mean, at the peak of the market // we would say something that the -- somebody on TV would say, "Well, the stock's down because --" our mailboxes would fill up with death threats from people who owned stocks 


ALEX BLUMBERG: Wait. What? Are you serious?


HENRY BLODGET: Yes. 


ALEX BLUMBERG: Individuals would call up and threaten you with death. That happened?


HENRY BLODGET: Yes.


ALEX BLUMBERG: That is wild!


HENRY BLODGET: Voicemail in those days. You would get voicemails. It was a, you know, tough time.


ALEX BLUMBERG: Yeah. When did you know that things were turning for the internet economy?


HENRY BLODGET: My view of the situation in the late-'90s, and I've actually reread some of our reports to confirm this, was that it was likely to be a bubble. Like many other financial bubbles. But that there was enough profound stuff going on there that the best companies would ultimately get through it and survive. So I expected at some point there would be a big turn, lots of companies would go out of business. I did not expect that it would be an absolute cataclysm, and stocks like Yahoo -- which I owned personally and thought would be one of the big winners -- would go down 97 percent. I owned Amazon. I totally believed in it. The stock went from $113 a share to $6. When everything began to roll over, which I think was the fall of -- really for the Internet sector, early 2000, I wasn't surprised. But then it rolled over by dropping 30 percent, then it was down 50 percent, then they were down 80 percent. And by that time you think, "They're down 80 percent, I mean what am I going to do? Like, pull -- like, sell now?" And then suddenly they were down another 80 percent from there. So that's what a real shakeout looks like. So it was much worse than I expected.


ALEX BLUMBERG: Was there a moment where you realized that it was much worse than you expected, or was it just, like, sort of dawning -- sort of rolling, dawning realizations, like, every day or every week? 


HENRY BLODGET: It was rolling. It was really -- it was 18 months, and it was relentless. And I had been a student of the 1929 crash. It was actually sort of a mythological story in my family because a relative of mine famously made a colossal fortune in the 1920s and then was on the Trans-Siberian Railway when the market crashed in 1929 and he lost everything. So this was sort of a seminal story in my family. So I had studied all of those periods. So it wasn't that I said, "Wow, this is just unfathomable. It's never happened before." It's just, "Wow. Okay, now I understand how these things happen." Because even though you can't see it when you're at the peak, it's just -- it just gets worse every week, and then finally we're at the bottom. The big impression that everybody gets after -- when you're looking back at a crash in hindsight, is that everybody just went crazy and they were so stupid, because obviously it was going to come. That's it. That's what I always thought.


ALEX BLUMBERG: Yeah. 


HENRY BLODGET: It was like, "Ah! Everyone in 1928, they were just a bunch of morons. Obviously!" And what you actually realize when you go through it is “Why did fund managers buy AOL in 1998?” Well, because it had already gone up 5,000 percent. And by the way, it went up another 150 percent. So if they hadn't bought it they would have been fired. You can go through that with pretty much every decision maker in it. And then pretty much every decision that everybody makes is logical under the circumstances. 


ALEX: That intimate knowledge of the emotional dynamics of a boom and bust, however, was cold comfort to Henry at the time. The dot com bust had wreaked havoc on the economy, on millions of people’s stock portfolios and retirement plans, had thrown the country into a recession, and Henry was the very visible face of all that carnage. The person that many many people around the world, fairly or not, blamed for it.


HENRY BLODGET: I'd gone from a -- having such a reputation that one person asked if he could bring his children in to meet me because it was such an honor. And that was sort of the reputation that I had around the world. I went from that to being the global pinata. It's like, "Here is the most visible moron who said all of these positive things about these companies, and -- and conned you into investing. Whatever he said, the pied piper. He sucked you in, and now your retirement is obliterated." And so it was -- I felt horrible. Absolutely horrible. Meanwhile, my team is getting shrunk because everybody is getting laid off. And of course, it is going on all throughout the industry as well. 


ALEX BLUMBERG: And what were you telling yourself to get through that? 


HENRY BLODGET: Well, I felt like my overall thesis was right. I had said a big crash is coming. It's worse than I thought it was going to be. The -- some of the  good companies were still doing okay. Fortunately, we still have Amazon. AOL and Yahoo we sort of have...


ALEX BLUMBERG: Inexplicably.


HENRY BLODGET: So I felt like the -- the overall thing was okay but it was, again, just trying to help and get through it. And I didn't want to hide either. I had been visible on the way up. I didn't want to suddenly disappear. 


Henry Blodget did not disappear. In fact, if anything… he suddenly became even more visible. But not in a good way.


That’s after these words from our sponsors.


BREAK


Welcome back to Without Fail and my conversation with Henry Blodget.  


Things were about to get worse for Henry.  Remember that pressure he felt internally at Merrill Lynch? To say that a company was more valuable than maybe he actually thought it was?


Well there were some emails that were leaked, e-mails written by Henry, where he would privately call some stocks junk or crap or a powder keg that Merrill Lynch publicly was saying were fine. 


And those emails caught the eye of New York’s Attorney General, Eliot Spitzer: 


ALEX BLUMBERG: What was -- when was the first time you realized you were being investigated?


HENRY BLODGET: When I got a subpoena from Mr. Spitzer, 


ALEX BLUMBERG: The Attorney General of New York State


[CROSSTALK]


HENRY BLODGET: Soon to become known as the sheriff of Wall Street? He sent a subpoena because there had been a news story about a downgrade of a stock that we had made, and it was a downgrade around a banking transition, and the article made it sound like, "Hey, isn't this too big a coincidence to be true?" And so Eliot Spitzer, being an enterprising prosecutor said, "Hey, let's look into that."


ALEX BLUMBERG: Uh-huh. So there was an article about, like, a downgrade that you had made of a banking stock and then there'd been some sort of trans -- transaction at the company.


HENRY BLODGET: Yes.


ALEX BLUMBERG: Got it. So he started looking into that. And what -- what was that like to get a subpoena?


HENRY BLODGET: It was -- I knew incredibly little about the legal system. And I went on in that, and spent five days testifying in a little room with a couple of very expert Eliot Spitzer prosecutors who asked me all sorts of questions. And that was a very intense experience. And ultimately the investigation continued for, I think, another six months until after I had left the firm. And it was then that Eliot Spitzer and his team basically alleged that there was an enormous conflict of interest between the banking side of Wall Street firms and the research side, and they used our team as an example of how the teams did work with each other quite closely and -- and so forth.


ALEX BLUMBERG: Right.


HENRY BLODGET: I mean, basically his allegation against me personally and the firm was, "Look. Here you said some things in email. I don't see the same things in the report. Obviously you weren't telling the truth in the report." To which we could only say at that point that we never wrote a word in a research report that wasn't true. Email's very casual. You're debating things. You know, it's not -- it's not a professional communication. But that did not hold any water with Eliot. 


ALEX BLUMBERG: Which it comes out. Like, the headline became something like you'd rated something neutral to buy and then, like, talked about it in an email as, like, a POS.


HENRY BLODGET: Yes. I -- I ...


ALEX BLUMBERG: Piece of shit.


HENRY BLODGET: I famous referred to a stock as a piece of junk.


ALEX BLUMBERG: Uh-huh. 


HENRY BLODGET: And again, I had a lot of stocks in my own portfolio at that time that were down 98 percent. So I thought of my entire portfolio as pieces of junk at that point, so it didn't seem like such a stretch. You can't put the phrase "piece of junk" in a research report. So, anyway -- but yes, it made a very colorful exhibit. 


ALEX BLUMBERG: Did you -- when you were first subpoenaed, did you think this was going to go anywhere? 


HENRY BLODGET: No. I had no idea, because analysts had worked closely with -- with corporate finance for 20 years. And in fact, there had been many articles in the Wall Street Journal talking about how in the 1990s, analysts had to quote "wear two hats" where they were speaking to institutional investors, and they were speaking to company managements about going public, and -- and so forth. It was very well-known. And so it didn't even occur to me that anybody had done anything wrong or what have you.


ALEX BLUMBERG: Right.


HENRY BLODGET:  I didn't feel when I went in, I said, "Well, we'll explain the way it is, which is the way everybody knows it is." 


ALEX BLUMBERG: Right. His basic thesis was  the thing that you just told me which is sort of like, "There's a lot of weird conflicts of interest here." And -- and you didn't go -- and -- and he was saying like, "Yeah, there is and they shouldn't exist. And I want them to stop." 


HENRY BLODGET: Right. He focused ...


ALEX BLUMBERG: Do you ...


HENRY BLODGET: He focused on one of them, which was the research-banking relationship. 


ALEX BLUMBERG: The research-banking, right. 


HENRY BLODGET: But there were many others that he or anybody else could have focused on. But again, there are conflicts of interest in every business.


ALEX BLUMBERG: Uh-huh. 


HENRY BLODGET: And so -- but I do think he, as a result of the investigation, it made the role of an analyst more clearly defined, especially with regard to the banking side of Wall Street. 


ALEX BLUMBERG: And do you think that's a good thing or a bad thing? 


HENRY BLODGET: I think that one of the -- I mean first of all, anything that helps investors, including small investors, is great. I do think that the whole thing that happened after the 1990s, including the fact that so many companies went public and then got destroyed, is -- has deprived the public markets of companies that go public at a much earlier stage than companies that go public today. And for example, Amazon -- when Amazon went public there was a $400-million market cap, which sounds like a lot. But for a market cap is tiny. When Facebook went public it was already worth $30-billion. So let's say you're a small investor and you're very excited about a young company called Facebook that you use and nobody else -- nobody else knows about. You don't have the opportunity to invest in companies like that anymore. And so I think that's too bad. On the other hand, if the job is to protect investors from losing money in companies like that, and a lot will fail, then okay, then -- then it's better that companies don't go public.


ALEX BLUMBERG: Mm-hmm. It's a very even-handed response.


HENRY BLODGET: Look, I think free flow of capital is good. I don't think anybody should be buying IPOs who doesn't completely understand the risk. So I would think it would be good if it were cheaper and easier to go public than it is now. But if that is not how we collectively want our public markets to be, that's okay. Look, I really didn't feel like we had anything to hide. And so -- and there was no -- in the ultimate report that Spitzer put out, there was no, "Blodget said this. This wasn't true," or what have you. And there's none of that. Spitzer actually dropped me from the case, which was nice of him. It was, you know, ultimately what Spitzer concluded was, "Look, there is a conflict of interest here. And this is bad and we should get rid of it." And there it was.


ALEX: But it wasn’t over for Henry. 


Spitzer may have dropped him from the case..but a different investigation had started. One by the Securities Exchange Commission. 


HENRY BLODGET: I did settle the SEC. And with an SEC settlement, unfortunately one piece of the settlement is you agree never to talk about it.


ALEX BLUMBERG: Right, right, right. Yeah, yeah, yeah. 


ALEX BLUMBERG: And can you tell me, like, when you got a call from the SEC that you were -- that they were first going to be investigating you or taking action against you of any kind, do you remember that moment and how you felt? Can you talk about that? 


HENRY BLODGET: I wasn't shocked. I hoped that it wouldn't proceed, but it did. And, you know, we ended up settling the SEC case, too. And neither admit nor deny.


ALEX BLUMBERG: Yes. But it became clear that oh, like, you're going to be one of the villains in this thing. 


HENRY BLODGET: Yes. 


<<CNBC tape: 


Hit the road Henry! A stiff penalty handed down from regulators to one time star Wall street Analyst Henry Blodget...he has been banned for life…


Blodget paying around 4 million dollars in fines for his role in putting out research that really only advanced the banking interests of his firm and of course his own pocket book.


As early as July 2000 Blodget called one stock Infospace a powder keg. But Infospace remained on Merrill’s favorite 15 stocks that the firm was recommending through December 5 of 2000>>


ALEX BLUMBERG: Did you -- did that feel fair that you were the villain? 


HENRY BLODGET: I don't. I felt that we had done a good and honorable job, even though I felt like a complete moron for missing the top. 


ALEX BLUMBERG: What was the darkest moment for you in this whole time? 


HENRY BLODGET: I -- I had a lot of dark moments then. I would walk outside. I would get the copy of my hometown newspaper -- The New York Times -- and I would see myself on the cover. I would be walking through Times Square, and I would go to the Nasdaq market site and I would be able to read the subtitles on the screens, because the people on the street have to be able to read. And I would see two people talking and people were like, "You know, this is not like -- this is not like a Blodget situation," when they were talking about some bad thing that happened. It wasn't as bad as what happened with me. That sucked. 


ALEX BLUMBERG: You literally overheard people saying, "This isn't a Blodget situation?"


HENRY BLODGET: Yeah, you know, defending it. It's like, "It's not like that" and so forth. Some charming people would shout at me sometimes. But mostly I just -- I felt mortified. I felt so embarrassed that I had, you know, anybody who had worked with me or whatever had sort of been drawn into this. And I felt like I had been given the -- the equivalent of a dishonorable discharge. You know, I get kicked out of the industry. It just -- it just felt embarrassed and humiliated about it. And I was worried about my professional and personal future, especially with respect to my children. I did not want to be "the dad," do not speak his name. He had something good going for a while, but we don't talk about it anymore.


ALEX BLUMBERG: And then he became a poster child for global capitalistic greed.


HENRY BLODGET: Yeah exactly. 


ALEX BLUMBERG: Did you feel in all that -- in all the feelings that you were going through did you feel like you'd done something wrong?


HENRY BLODGET: No, again I'm going back to Spitzer not the SEC. // our position was: we behaved honorably through this. And we did not write a word in a research report that we didn't believe.


ALEX:  For what it’s worth, I believe Henry when he says this. If you do read through those e-mails, a lot of times he’s pushing back on people who are putting pressure on him to rate a stock in a certain way.. But there’s a second reason as well. For 5 years, I ran a podcast called Planet Money, that covered finance and economics for NPR. I covered a second, worse boom and bust than the one Henry was part of, d the housing meltdown, and the ensuing great recession. 


And because of the years of reporting we did, I know more about the inner workings of wall street and finance, than I EVER thought I would. I can go deep on the collateralized debt obligations and credit default swaps and muni markets and inverted yield curves. 


But I also learned a lot about the emotional dynamics people go through in the wake of a great financial calamity. There is so much pain, so much misery and lost fortunes and lost jobs. And the human toll that all takes. The rise in depression, and violence and addiction. 


There are so many victims. That it seems like there must be a villain. There must be some person, someone we can point to who caused all this pain. And in the course of our reporting at Planet Money we did find villains ruthless bad people, who lied and cheated and cynically profited at the expense of the less powerful and less informed. 


But those people...they didn’t cause the crisis. The crisis was caused by a system, and by people who operated within that system. It was caused by people in a camp I believe Henry is in. People who, if they had a sin, it was the sin that a lot of us have, the sin of wanting to get rich. 


They achieved that goal in a system with inherent conflicts of interest, and that system later broke with devastating consequences. For most of the people in this camp, they also suffered consequences, although, since they were rich, their suffering wasn’t as bad as the suffering of others. They hunkered down, waited it out, and as the economy recovered so did they. And by and large, they picked back up in the finance careers they’d had before. But for Henry, that wasn’t possible. The SEC had banned him from that path. And so, he needed to do something else. 


After the break, Henry turns to an industry that many people trust even less than Wall Street.... journalism. 


BREAK


Welcome back to Without Fail and my conversation with Henry Blodget. 


When we left off, Henry was kicked out of the industry in which he built his career. He had to start over… so he turned to something that he did way before he started on Wall Street: journalism.


HENRY BLODGET: And I remember when Martha Stewart got in trouble, I remember thinking, "Wow, this is a fascinating situation. I know some things about this situation that she's in. I wonder if anybody would publish me if I were to write about this." And I called a friend of mine the New Yorker and said, "Larissa," you know, "Would anybody do this?" And she said, "I know just the person." And it was Jacob Weisberg at Slate. And I went to see Jacob, and he said, "We would love to hire you to cover the Martha ..." "We'll pay you $200 an article. Go to it."


ALEX: Henry was back. And he dove in. After the Slate articles, he picked up other writing work here and there, he did some consulting on the side.


HENRY BLODGET: And then, a friend of mine from the dotcom boom called me and he said, "I'm thinking about starting a tech publication for New York. What do you think about that?" And I had I think a year earlier, started my own blog called Internet Outsider, and had been writing a lot about the tech industry. Went and talked to him. Said, "This is a terrific idea, and I'm your guy. We're going to do it together."


ALEX BLUMBERG: Uh-huh.


HENRY BLODGET: And so he had a lot of startup experience. I had the journalism experience. I had watched all of these companies come into being in the 1990s that I always wanted to do a startup.


ALEX BLUMBERG: Uh-huh.


HENRY BLODGET: So it just seemed like perfect confluence of all the different things that I was excited about, and could still do and -- and so forth. And so we launched it together. The next week.


ALEX BLUMBERG: Oh, really?


HENRY BLODGET: The three of us, yeah. 


ALEX BLUMBERG: Just three people? 


HENRY BLODGET: Yep. 


ALEX BLUMBERG: Wow. 


HENRY BLODGET: I was the employee number one. We hired two people, we built a website, we launched! It was the three of us in the loading dock of another startup. We wrote frantically. We had raised -- I think the seed money was about $400,000, we had all contributed that first year. So we knew we had about a year for four or five people. And if we didn't figure something out in that year we were done, so write fast.  


ALEX: This, of course, was the beginning of what eventually would become Business Insider, which now employs 500 people and had a reported 100 million dollars in revenue last year. Very different from what it was in the beginning. 


ALEX BLUMBERG: And what kinds of things were you writing? What -- do you remember, like, one of the first things you wrote back in the day? 


HENRY BLODGET: Yeah, I mean we -- we were all writing. We -- we were writing about seven to 10 stories a day each, I would say. And we were writing about the internet industry. And it's what I knew how to do. We used to do financial models, and we used to talk about research that had come out: was this price target crazy, was it not? Executives would leave, they would get into scandals, we'd talk about that, we'd do original reporting. 


ALEX BLUMBERG: What -- what was the moment that you knew it was like Oh, this is a viable business?"


HENRY BLODGET: It was extremely uncertain for many of the first few years. But the big story that was -- that launched us early was, I got an inside read on a big layoff that AOL was doing. And once we published that, we became the morning read for everybody at AOL. So suddenly thousands of people were checking the site every day to see that there was an update on the impending layoffs.


ALEX BLUMBERG: Uh-huh.


HENRY BLODGET: And then they happened and we chronicled that. We started getting mail from all over the world, because a global company so they have to fire everybody in France before New York wakes up. So all of our sources emailed us all of the firing documents, and so it was like having a mini-CNBC focused just on the AOL layoffs. This is what you could do in digital media in those days. I would say we knew it was viable very early.


ALEX BLUMBERG: When you came back into journalism, right? So like, you -- you -- you started, then you went, and then you sort of went into a much-higher paid version of journalism which is being a Wall Street analyst, and then you came back into the -- the regular version of journalism. And there was some people who are not happy about that. 


HENRY BLODGET: That is correct. 


ALEX BLUMBERG: There was, in the New Yorker article about you, there was this -- there was a quote from this guy Stephen Shepard -- Steve Shepard who was a BusinessWeek editor, who said, I'm quoting "You know, he wasn't -- he wasn't the only villain or even the primary cause of the boom and bust, but he typified the worst excesses on Wall Street. Blodget was dishonest and deeply cynical. Journalists should be the opposite. It hurts me to see him ply our trade." How -- how do you react to that sentiment? 


HENRY BLODGET: Well, it sucks to hear it. I mean, I don't -- anybody who is in the opinion or writing business is going to get a lot of feedback. I have heard through my life some people say, "Oh, I love it when people criticize me. I hate that, it's so ridiculous. I love to just smack 'em down and block 'em on Twitter. Like, bring it on."


ALEX BLUMBERG: Right.


HENRY BLODGET: I have never felt that. It always hurts. And so ...


ALEX BLUMBERG: Every mean comment, every mean tweet. 


HENRY BLODGET: And so I am very sorry to hear that. Look, I mean what I said to everybody when I started writing, and I started writing on the blog and then I start -- I mean obviously it's Slate when I re-emerged, there were lots of pies thrown and garbage and rotted fruit. And I remember going back to Jacob Weisberg and saying, "Look you know, I'm sorry. Like, I didn't mean to bring this on you." And -- and one of the other senior editors at Slate was like, "Oh, no! We're all about the pies!" So I said, "Okay, thank you."


ALEX BLUMBERG: This was the whole -- that was the whole strategy.


HENRY BLODGET: Exactly. So, that was good. It was like, "Okay, a welcoming community." But I have worked incredibly hard to regain the trust that I had that was destroyed by the allegations against me. And so I understand why people who saw that and read that feel that way. But I am grateful to everybody who has given me a chance to earn back the trust. 


Ten years in, Henry is still serving as the CEO of Business Insider. He seems very happy to be the one writing on people in business, and not being the one people are writing about. 


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Without Fail is hosted by me and produced by Molly Messick and Sarah Platt. It is edited by me and Devon Taylor.


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