Enron

I watched the documentary Enron: The Smartest Guys in the Room last night, thanks to my recent enrollment in Netflix, which has allowed me to see a bunch of movies that I would not have otherwise taken the time or energy to rent. Well actually, this is the first such case of that, but it turned out quite good, so maybe Netflix is working out after all. Of course, I still haven’t watched The Constant Gardener, which has been sitting on my DVD player for over 2 weeks now, but I don’t know that I can blame the video company for that one. It’s been a tumultuous last couple weeks for me.

Anyway, the Enron documentary was very well made and incredibly interesting, and I highly recommend it for anyone who is even remotely concerned about the excesses of corporate culture, especially during the existence of the Bush administration and its unbridled support for greed, corruption, and oil, the three things that ended up bankrupting what was once the 6^th largest American company.

“Shocking” is the best word I would use to describe all that is revealed in the film. From the company’s implicit responsibility in causing the California rolling blackouts back in 2001 that nearly bankrupted our largest state’s economy, to the way the employees and shareholders’ lives were destroyed by the greed and corruption of the company’s officers, to the way every company that dealt with them, from accountant Arthur Anderson (which went out of business itself as a result of the scandal) to pretty much every major investment bank (Citibank, Chase, etc.) and stock broker, looked the other way and enabled them to create tremendous wealth for everyone involved, all on a complete and utter illusion of success that never actually existed. It really is stunning to watch, and I think points to a larger social problem that was rampant in the ‘90s and certainly embraced by the Bush administration – that greed is good and making money for the company is all that matters in our capitalist society. There’s something so fundamentally wrong with that approach, and yet only in a film like this does anyone examine why that is so.

The basic story is that Ken Lay, very good friend of Bush Sr., created Enron in the late ‘80s out of a hybrid of natural gas providers that had been supplying energy for decades through its network of pipelines. He eventually hired Jeff Skilling as his CEO, and it was Skilling who decided to move Enron into the business of trading natural gas as a commodity – like a stock, or gold, or soybean futures – and created this system where somehow the energy they produced was no longer the core of their business; it was the market traders who sold the future value of that energy. It’s more than a little confusing and to be honest, the film doesn’t completely clear up exactly what these traders were trading, but basically the Enron “trading floor” looked like a miniature stock market and much like the stock market, the growth in profits of the company in the ‘90s was all due to “paper” money increases, based on speculation, future sales, and as it turns out, cooked books.

As the stock market experienced its late ‘90s Internet boom (bubble), Enron’s executives became more and more tied to the stock price as the measure of their worth. This was due to some complicated inside deals to cover up losses in many of the company’s core businesses (like a failed billion-dollar natural gas plant in India, or a failed attempt to get into the Internet broadband business) that forced the executives to create earnings tied to the company’s stock price. But of course, the ever-increasing stock price was only due to these successful earnings reports, which were complete fabrications. And as quarter after quarter passed with a requirement to continue to show earnings growth in order to keep the stock rising, more and more illegal bookkeeping and excessively risky deals had to be undertaken to keep up. So when the Internet bubble collapsed in 2000, it was only a matter of time before Enron succumbed. Once the stock price began dropping, there was no way it could survive.

California provided a brief respite though, and here’s where the movie became quite disturbing. The push for governmental deregulation of the energy industry, which is what had driven Enron’s entire growth in the futures trading market, had finally reached California, but their system was so screwed up that through a series of loopholes, these traders were able to cut off supply in order to create shortages that would drive up the price of energy so that they could make more money. As the shortages that were market-created by traders such as those working for Enron grew, the state eventually had to institute rolling blackouts which caused a near national emergency, and the resultant spikes in energy prices put hundreds of California companies out of business and helped to throw the country into recession. Thanks Enron. The most disturbing part is that California’s governor begged Bush to bail them out of the crisis by setting price controls (only the feds could do this), but Bush declined due to “principle”. I’m sure his very close relationship with “Kenny Boy” Ken Lay and Enron and the oil industry had nothing to do with his decision. And of course, it helped Republicans get Arnold elected as governor a year later. A win-win all around for conservative policies. And in the meantime, millions of ordinary workers got screwed. That seems about right.

Anyway, much of the movie is rightly focused on Skilling, the brains behind the operation, and a conflicted man whose greed and celebrity clearly got the best of him. He resigned as CEO in August 2001, after the stock had plummeted from $100+ to $34, giving only as an explanation that he had “personal family reasons”. Then he and Lay and other executives cashed in what was left of their stocks for over $150 million as the scandal broke and the SEC began to investigate the accounting and other improprieties at the organization. It only survived until December of that year, with the stock trading at 40 cents a share, and 20,000 employees out of a job. Not only that, but the employees were frozen out of their 401K plans at the time Skilling left, making it impossible for them to dump the shares until they were all but worthless. An electrical power-line worker for Portland Electric & Gas, which had been bought up by Enron in the ‘90s and had all its company 401K plans turned into Enron stock as a part of the merger, said he went from $350,000 in his retirement plan all the way down to $1,200 when he finally was able to sell it. He didn’t even really work for the company.

So far, something like 18 executives have been indicted, 11 convicted and several serving sentences, the longest belonging to CFO Andrew Fastow, who is helping investigators in exchange for a 10-year sentence. Ken Lay, Bush Sr.’s close friend (as shown in video proof in the film), and Skilling are expected to finally be tried in the coming months. Former employees and stockholders have sued the officers for something like a billion dollars as well, but I don’t know the status of the suit. It was a very interesting and informative film though, and makes you think about the power of money in society today. It doesn’t make anyone look good.