Everything Wrong With “The Smartest Guys In The Room”

**PLEASE NOTE: I HAVE UPDATED AND EXPANDED THIS POST. THE NEW VERSION OF THIS POST, WITH NEW PICTURES, VIDEO, AND ADDITIONAL COMMENTARY CAN BE FOUND HERE.**

Since Jeff Skilling’s appeal has roused new attention on the subject of Enron, some people – universally uninformed people – point to Bethany McLean’s book and movie, “The Smartest Guys In The Room” as a deconstruction of the Enron crisis. In fact, both the book and the movie are little more than propaganda, the sort of pap that Michael Moore regularly produces to the applause of a certain sect of the population. Like any of Moore’s movies, this one uses distortions, speculation, outright lies, a manipulated timeline that makes things appear to happen much sooner or later than they actually did, the testimony of fools, detractors, and liars, and Bethany McLean herself who is, of course, in the business of selling her version of events to the public.

Ms. Mclean has one additional credibility problem: she is now married to Sean Berkowitz, the Enron Task Force prosecutor who cross-examined Jeff Skilling. Her romance with Berkowitz was the subject of controversy even during the trial, though she swears now they did not become involved until after the trial was over.

Furthermore, John Hueston, another Enron Task Force prosecutor, admits in an essay written about the Enron trial that he used the movie as a guideline for the trial. I am not in a position to know how much research Hueston and the other Task Force members actually undertook themselves, but when a prosecutor announces that he used a movie for a guideline, especially a movie that is so badly flawed, we must take an especially hard look at that prosecutor and the case he is prosecuting.

Since I am tired of point out the flaws of the movie piecemeal, I submit to you the encyclopidia of all that is wrong with “The Smartest Guys In The Room.”

Starting with the cover. If you look at the picture, the tag line is “See where all your money went.” YOUR money? This line is just obnoxious, and furthermore, its false: the movie doesn’t demonstrate where the lack of wealth went.
 
The opening shot reveals a small church adorned with a neon sign that says ‘Jesus Saves’. The blue-glass and steel Enron tower looms behind it. A suspicious, grinch-like voice superimposed over this image grumbles, “What’s he building in there?” Then: “What the hell is he building in there?” Pure mood: all very nefarious, undoubtedly as the brilliant Tom Waits intended when he sang the words, but that said, Waits is not a legitimate critic of Enron. His credentials are about on par with the director’s, Alex Gibney.

John Olson, a man who constructed an entire career of being an Enron skeptic, is the first person to appear on camera.  He says, “It had taken Enron sixteen years to go from about ten billion of assets to sixty-five billion of assets. It took them 24 days to go bankrupt.”

This statement is the foundation for a point that will be illuminated momentarily.

An aerial shot of the Houston skyline appears and the grinch voice asks, “What the hell is he building in there?”

Bill Lerach is identified only as ‘attorney’, which is true, he is an attorney. He is an attorney for a class of Enron plaintiffs. So why didn’t Gibney inform the audience more about this seemingly respected attorney? Wouldn’t someone who wanted a fully informed audience know that this attorney and his firm had finagled billions in settlements? But nothing about the man is assumed in this first shot. He says mildly that, “It collapsed so fast it had all the makings of a scandal.”

So John Olson and Bill Larach, two men with axes to grind, have insinuated that the speed of the collapse indicates “scandal”. Perhaps it was scandalous – just as Bear Stearns’ collapse was, I suppose, scandalous.  But it wasn’t criminal.

Skilling, his attorney Bruce Hiler, Sharron Watkins and her counsel are shown at the first Congressional hearing. Skilling was the only executive who testified. The other executives pled the Fifth. There is a man behind him in a yellow necktie – he becomes important later.

Bethany McLean makes her grand premiere. She was a cute, mediagenic writer at Fortune whose famous article, ‘Is Enron Overpriced?’ raised alarm bells. Bethany McLean played an enormous role in developing the idea that there was a scandal afoot.

The meat of the story begins with a dramatisation of Cliff Baxter’s suicide. A stationary Mercedes-Benz is depicted on a dark street, jazzy music drifting from the open windows. An unseen man inside smokes a cigarette and drinks from a bottle of water. If this is a documentary, why are they showing recreations of Cliff Baxter’s suicide? Documentaries should be about facts. Like Michael Moore’s hit pieces, this is a bizarre effort of mixing fiction with fact. It is also rather tasteless – of all the things to imagine in detail, and then film, this is possibly the most obscene.

The voiceover talks about Jeff Skilling and his wife attending the memorial service for Baxter. The correlating images are of the back of a beautiful brunette and a balding middle-age man. The implication is that we are seeing Jeff Skilling and his wife Rebecca Carter. We are not. That is not Jeff Skilling or Rebecca Carter.  What else is Alex Gibney, the director, falsely representing?

The focus turns back to the so-called scandal.  Rep. Cliff Stearns asks Skilling if before Cliff Baxter died if Skilling had many conversations with Mr. Baxter.  Skilling answers in the affirmative. Stearnsasks, “And were any of them relative to Enron?”

Skilling looks heartbroken for a moment before he answers yes.  He says, “Cliff came over to my house and he says, ‘they’re calling us child molesters. And he says, ‘that will never wash off.'” The grief in his eyes is so naked it is difficult to look at, yet you can not look away.

Stearns says, “Mr. Skilling, you don’t believe that.”

Skillingshoots back witheyes of utter contempt, “I don’t believe what?” Grief turns to indignant defiance.

Stearns says, “You don’t believe the press and everybody calling Cliff Baxter or yourself or anyone on the board of directors denigrating or tainting you, you don’t think it’s accurate. What you are saying to us here today….”

Skilling interrupts Stearns’ rambling monologue. “I do not believe – I did not – do anything that was not in the interest, in all the time I worked for Enron Corporation, that was not in the interest of the shareholders of the company.”  His expression is fierce.

Gibney represents that this is the Enron trading floor. This not the Enron trading floor. This was in the new Enron tower that, because of the bankruptcy, was un-used. (Later, in his trial, Skilling would testify that after he quit on August 14, 2001 he brought his brother back to the Enron building to the trading floor because he thought it was ‘so cool’.)

Skilling endures being told by the Congress that he was the captain of the Titanic, but before it sank, he gave himself and some friends a bonus, then lowered himself and friends to safety. This is egregiously misleading. Skilling did not take any bonus at all. Several key personnel were given retention bonuses to keep them onboard.  This was not a last minute looting of the treasury as Gibney(and Congress) portray.  If bonuses had not been given, every executive would have fled, leaving Enron to sink. At this time, remember, there was still talk that Enron would reorganize around the pipeline business.  Bonuses and enticements were a valid and appropriate response at the time.  Furthermore, there was nothing illegal about these bonuses at all. Had the Task Force reason to believe Skilling or anyone else looted the company, they could have indicted and charged that, insinuating it was hush money. Alas, that never happened.

President Bush appears on screen. Gibney attempts to make it a political issue. If Enron was so close to President Bush, why didn’t the Administration help Enron when Enron was sinking?

Linda Lay tries to set the record straight about the nickname ‘Kenny Boy.’ “That’s my nickname for my husband,” Mrs. Lay says, “which he [President Bush] overheard.”

Bill Lerach walks with a box of shredded materials. The sticky smile on that man’s face is so self-congratulatory and smarmy it makes Donald Trump look modest. Yet in early 2008, Lerach was sentenced to two years in federal prison for his involvement in a lawsuit kickback scheme. Like his very close personal friend, Bill Clinton, his license to practice law was suspended and disbarment is expected directly. This background becomes relevant very quickly.

Isn’t it convenient that so many media people happened to be there to watch him walk with his box? He says, “This is the shredded evidence we got that came out of Enron.” This is a lie. Enron was never accused of shredding a single document inappropriately. Arthur Andersen was indicted – and later vindicated after a wrongful conviction was overturned 9-0 by the Supreme Court– because of shredding but it was not Enron’s shredding. Whatever was in that box most likely did not come from 1400 Smith Street and was certainly not part of any wrongful shredding.

Even Kurt Eichenwald, author of Conspiracy of Fools and all-around Enron critic, admitted on page 659 of his book, “After several days, the FBI concluded that nothing of value had been destroyed and that – unlike with Andersen – there had been no concerted, illegal effort to shred documents at Enron.”

Like so much that happened in the aftermath of the collapse of Enron, this “shredded box” was just for show.

Back to the Congressional testimony. Question: “Did you convert stock worth sixty six million dollars?”

The camera cuts to Skilling saying, “I don’t know, I don’t have those records with me.”

The Senator says, “Would it surprise you to learn that you did that?”

Skilling replies, “No, it wouldn’t surprise me.” The original question was meant to do imply there was something unseemly about the sales. There was in fact nothing whatsoever improper about them, as the jury in his criminal trial found. But again, the false accusation appears unchallenged in the film.

Lerach appears again to say that there was shock at how much they had profited, a statement that is ridiculous on its face. There was no shock. That was the whole point of Enron: talented people earned lots of money by working there.

The camera then pans to a sweeping Texas oil field. The scene is voiced over with a rant about deregulation, as if it were the very worst thing that could happen because power might fall into the hands of ordinary people.

The Lay-Bush connection is mentioned again. What exactly is wrong with having friends in high places? Especially since, as proven, the friends in high places did nothing whatsoever to intervene in the crisis?

Rich Kinder was president of Enron for a period of time. When he left in 1996, the company put together a video valentine for his send-off. It shows both Bushes saying nice things about him. But it should be noted that Kinder was five years gone when Enron capsized.

Ken Lay is seen cavorting with multinational businessmen, saying that he wants them all to feel they have been treated with the utmost respect. And you know what? They did feel that way. Not one vendor or Enron customer ever complained on record about Enron.

Jeffrey Skilling is introduced.

“Ken Lay saw Jeff Skilling as what the future is supposed to be.” McLean says, “Jeff Skilling had the biggest ideas of all.”

“Enron would become a kind of stock market for natural gas,” says the voiceover. This is a misrepresentation. Enron was not a trading company – it had a trading arm, but its core business was intermediation. They, like all Enron critics, aim to givethe idea that Enron is a speculative, dangerous, risky company.

Amanda Martin, an attorney for Vinson and Elkins, who was charged with Enron’s legal affairs, comments on the ‘bigness’ of Jeff’s ideas.

Bethany McLean says that one of the conditions of Skilling’s employment with Enron is that he be allowed to use Mark to Market accounting. This is disingenuous. Mr. Skilling always thought MTM a necessity for the companies who did business in the markets he wanted to, and did, create. MTM is completely legitimate (it even has the SEC stamp of approval). McLean, however, is insinuating that Skilling had something devious in mind when he suggested MTM accounting. Though there continues to be a lot of discussion about mark to market accounting, Enron was never accused of abusing the system.

From the same video valentine given to Rich Kinder at his departure, Jeff and other Enron employees spoofed themselves. Skilling here says, “We’re going to move from Mark to Market accounting to something I call HFV. Hypothetical Future Value.” He laughs because it’s so ridiculous and goes on to say, “If we do that we can add a kazillion dollars to the bottom line.” Throughout, he’s on the verge of cracking up. Jeff is many things but a fine actor, he’s not.

Bethany McLean puts on her amateur psychology hat and speculates that, “He really believed that the idea was everything, and when you came up with an idea you should be able to book the profits from that idea right away.” That theory is ridiculous. Jeff wasn’t making money for the company with mere ideas. Actual services and products were being provided to customers who relied on them. In their book – also titled The Smartest Guys In The Room, McLean and Elkind belittle Skilling as being “thrilled” by “the intellectual purity of an idea, not the translation of that idea into reality” (page 28). They then describe him doing just that, i.e. translating such an idea, (ie, the Gas Bank) into reality (pages 33-43). Similarly, on pages 106-108, they suggest that foray into electricity trading badly conceived, then note that by “1998, [Enron] was the biggest power merchant in North America.”

Whatever you think of Jeff Skilling, you can not say that he was an idea man with no follow-through.

The narrator explains Mark to Market accounting as the “ability to book potential future profits on the very day the deal was signed.” This is true but misleading as presented. In the September 20, 2000 Wall Street Journal article by Jonathan Weil, Mr. Rick Causey, the Chief Accounting Officer of Enron is quoted: ’Enron ‘s unrealized gains don’t depend heavily on gains from long-term contracts that extend beyond the periods for which market quotes are available, reducing the potential for significant earnings revisions. The average length of Enron ‘s risk-management contracts is just two years. So while they might have to wait for two years to realize the full value of a specific contract, the portfolio of contracts was constantly maturing, bringing cash in the door. This is significant, but conveniently overlooked by Gibney. Furthermore, to address Ms. McLean’s theory, the contracts that Enron bought and sold were not “ideas”; Enron was not booking gains based on an idea of a contract but an actual contract.

McLean continues, “Because otherwise, some lesser man was taking the profits from the idea that some other man, a greater man [meaning Jeff Skilling] had come up within the past.” Trying to understand McLean’s theory is rather like looking at an Escher drawing – it only makes sense if you’re sleeping. Who is the lesser man? Who would be earning the profits that Skilling’s Enron Wholesale was earning? It is worth noting another inconsistency in Ms. McLean’s theory: mark to market accounting was not Jeff Skilling’s idea. It was developed in the 19th century, long before Jeff Skilling was even born.

The next shot is the grinch voice saying, ‘When Jeff Skilling applied to Harvard Business School, a professor asked him if he was smart. He replied, “I’m fucking smart.” And of course he was right. But what are they implying here, that the admittance board of Harvard Business School was in some way in on the conspiracy to promote Skilling through Enron?

“One of his favorite books was The Selfish Gene,” the grinch voice says, “about the ways human nature is steered by greed and competition.”

How does the grinch voice know this is one of Skilling’s favorite books? In all the literature I’ve read about Enron and Jeff Skilling, I’ve never seen this book mentioned. But I guess if it makes good tv, what the heck, put it in there! But let’s take McLean at her word, and assume for the sake of argument that Jeff Skilling was impressed by this serious book which attempts to explain biological imperatives and the instinct to survive (ie, selfishness). But greed is not mentioned in any of the reviews that I’ve read. (Other reviews can be found here, here, here, and here.)

Based merely on the reviews, I can argue that the book was not about greed, a word that is a place to retreat for the sloppy and those who would incite. Are McLean, Elkind, and Gibney not “greedy” in their ambition? They made/make/and will make more money than kings and queens in the eyes of more than half the world (and look how they’re doing it). Where does one draw the line between taking care of oneself and one’s family, and one’s employees before it is labeled “greed.” The threesome aren’t wearing rags, giving all their money to charity, or working to help kids in the slums. Who draws the line, Marx, Mother Teressa, Adam Smith?

Sperm are shown swimming merrily across the screen. Are we to assume that Skilling himself contributed to this music video?

“At Enron, Skilling wanted to set free the very instincts of ‘survival of the fittest,” the narrator says. Skilling did engineer a competitive, aggressive, energetic culture at Enron, but he wasn’t a mad social scientist trying to force his employees cannibalize themselves.

Bethany McLean says, “Jeff was famous at Enron for saying that money was the only thing that motivated people.” A bag with a money symbol is shown. This bag, apparently, was hidden in the bottom drawer of Skilling’s desk. But I question the premise. Was Jeff really known for that?

To support the critic’s view that Enron was a self-consuming machine of greed and avarice, Bethany explains the PRC, or the Performance Review Committee, as a humiliating endurance where peers graded each other on their performance. There is some truth to this – the PRC was a real thing- but regardless, there’s nothing inherently wrong with that. As Skilling said, it is an opportunity for employees to get direct communication on their performance from a wider group than just their direct boss. Anyone who hasn’t had a six-month review or an annual review is someone who has never held a 9-5 job. Bethany then goes on to lie that those with the lowest grades were fired, and thus this became known as ‘rank and yank.’ If firings occurred, it was not an institutional mandate.

Jeff Skilling agrees, “Our culture is a tough culture.” But so are any other highly sophisticated companies. Cantor Fitzgerald, Goldman Sachs, Citi, Microsoft are all known to be very aggressive cultures. Nothing wrong with that. They were not, after all, embroidering throw pillows and stitching doilies in those glitzy skyscrapers.

Amanda Martin, ESQ of Vinson and Elkins, says that if you wanted to tradeat all, you had to deal with Enron.

Bethany McLean: “The traders were like the super-powerful high school clique that not even the principal dares to reign in.” What high school did Bathany attend? If she’s right, if even Jeff Skilling and Ken Lay were afraid to “reign them in” (I’m not sure they needed to be reigned in, but whatever), then doesn’t that mean that Jeff and Dr. Lay probably were not in on some huge conspiracy? After all, if they can’t control their own traders, how do they control everyone else?

I’m curious – I wonder if Bethany McLean ever set foot on the Enron trading floor while the company was still in business. If this isn’t first-person information about the nature of Enron traders, don’t we, as the audience, have the right to discover the source of this information?

Traders are shown, supposedly being evil as they worked.

Bethany McLean says, “They took Jeff Skilling’s and Ken Lay’s belief in free markets and turned it into an ideology.” What does that even mean? Belief in free markets is something of an ideology, but a successful one, implemented by entrepreneurs and others to direct their business decisions. It’s not a life philosophy, a dogma that must be relentless followed in every aspect of one’s life. Whatever one believes about free-markets and capitalism, one could hardly argue that they were invented by a bunch of 26-year-old traders on the trading floor of the Enron building in 1998.

A clip from an Enron ad for EnronOnline was shown. Jeff Skilling’s voice says, “We are creating an open, transparent marketplace that replaces the dark, blind system that existed.” The images show traders revolting against that dark system.

Skilling continues, “It’s real simple. You turn on your computer, and it’s right there. That’s our vision and we’re trying to change the world.”

They succeeded.

Bethany says, “I think Jeff Skillinghad a desperate need to believe that Enron was a success. He identified with Enron. He proclaimed at one point, I am Enron.” While Bethany is telling this story, the very phallic, masculine image of Jeff standing before his building is shown.

But let us examine this accusation, which is quite serious. Are these the words of a businessman or a lunatic? I’d like to know who Mclean claims said that Skilling said “I am Enron” so I can interview him or her. Sound really unlikely. Maybe, at most, he was simply joking. Jeff Skilling was a leader, he inspired people and empowered them. They were Enron. I once described someone as giving others the ‘tools to imagine their own greatness’, which is what I think Jeff Skilling did, and I think he recognized that was his genius.

As the video attempts to get to the heart of Enron, they find people like, Mimi Swartz, introduced as the Executive Editor for Texas Monthly magazine. Swartz says, “The thing about people at Enron is that a lot of them are former nerds, including Jeff Skilling.”

Smartest Guys In The Room co-author Peter Elkind agrees, saying that Skilling had been “paunchy, had big glasses, and was losing his hair.” (Um… Hi, Pot? This is the Kettle….’)

To address the more serious issue, how would either Swartz or Elkind know that Jeff Skilling was a nerd, or is that merely their own speculation? Is commenting on a person’s appearance a legitimate criticism of their business decisions?

They follow up with a picture of Jeff that shows the big glasses and male pattern baldness. (I suppose he could have found a more stylish frame of glasses, the fucking criminal!)

“And then one day,” Elkind says, “Jeff Skilling woke up and decided to change himself.” The transformation is astonishing.

“He remade himself by sheer will and force of personality,” Elkind says. And it’s true. I love watching people change for the better, and this aspect of Jeff Skilling, this ability to change, is one of his strengths.

Mimi Swartz says that when he got Lasik on his eyes, everyone at Enron got Lasik. I think it proves leadership that a man can inspire a crowd like that, but I too might be wrong to allow the audience to believe the wave of newly glasses-less office was the result of Jeff Skilling. Lasik was a newly available technology at that time and thus Enron employees all had the ability to get the surgery at the same time. Then of course, the camera has to go to an extreme close-up off Jeff Skilling’s newly Lasiked eyes. The fact that the video wastes time on this trivia just shows how weak the ‘real’ evidence must be.

The camera pulls back and Bethany says, “I think Jeff Skilling is really a tragic figure in the classic sense of the word. He’s a guy that people describe as incandescently brilliant. But he is also a guy who is radically different than he, at times, portrays himself. He portrays himself as someone who is tightly controlled but in reality, he’s a gambler,” McLean says. “He gambled away huge sums of money by the time he was twenty years old by making wild bets on the market.”

Huge sums of money? Was Jeff Skilling independently wealthy? McLean says in her book that Skilling grew up in a modest household: “He wasn’t poor the way Ken Lay was poor, but his family lived on the thin line that separates the working class from the middle class. He grew up feeling that he couldn’t ask his parents for money because they didn’t have much.” ( Page 28 ) Two pages later, she identifies the “huge amounts” (i.e., $15,000 he earned from his work since age fourteen at a television station and a $3,500 workers compensation settlement he was awarded after he broke his back while working construction on a toll road in Illinois during one of his summers home from SMU). Assuming these figures are correct, how much could he havereally gambled away before his twentieth birthday, considering he presumably used some of this money to pay his own way through college?

And what in the name of cheese whiz does that have to do with him being tightly controlled? Most businessmen are risk takers. Most of them have experience with both failure and success.

Now the movie gets into just making crap up. They show professional dirt bike fiends flying over hills and speeding recklessly around corners, suggesting that Jeff and his crew undertook similar kinds of risks. Again, if this is a documentary, why are they splicing in images that havenothing whatsoever to do with Jeff Skilling?

Jeff Skilling would take friends and small groups of customers on these adventures, but it’s telling that the director couldn’t produce a single person who was there to describe the events; Gibney at best relied on second-hand information and rumor. The idea that Skilling was doing something above and beyond normal adventure-seeking is just a smear.

Amanda Martin says, “We can speculate what kind of strange insecurities they were trying to overcome, but it made them feel good as men.” Martin is not only an attorney; she also apparently shares a passion for amateur psychology with McLean.

We don’t know what those trips were really like because all we have are a few pictures of fortish-looking men looking exhausted after riding dirt bikes. No actual video of the riding is shown in the movie. No-first person account is given. But, even assuming that they were crazy, dangerous, risky, and all-out stupid, so what? Men need to do masculine things sometimes. And I think sometimes, just as people, we need to push ourselves, to go beyond our everyday experience to get to the other side, to know that we can do something amazing. Martin’s comments imply that this kind of behavior was endemic to Skilling who had something to overcome. In reality, Jeff was merely enjoying himself.

Ken Rice got some stitches in his bottom lip on one of these trips. The narrator makes it sound like he nearly died.

“It fed the whole macho culture of the place,” the narrator says. But again, so what? There is an enormous spectrum of personality and character traits between ‘macho’ and ‘criminal’, but this entire segment is meant to subtly tiethe two together. And of course they show someone who has probably never heard of Enron as an example of this crazy macho attitude.

The very next picture shows Jeff with his glasses on. Which means it would have been before he got Lasik. But forget about honest chronology.

Bethany McLean says that Jeff Skillingsaid he liked “guys with spikes”, with something extreme about them. Who and what is she talking about? Extreme? I thought they were all nerds? Ken Lay, was he a “guy with spikes”? Cliff Baxter was way out there; he liked sailing his big boat up and down the Houston ship channel. Woo-hoo!

Bethany McLean takes the screen again to say that Cliff Baxter was very talented but a manic-depressive. I’m not sure how she knows that, unless she simply took his suicide as evidence of it. Her smear rises to the level of libel in this instance.

Lou Pai. Head of EES, Enron Energy Services. The narrator claims that Pai was Skilling’s lieutenant who “dispatched his enemies with incredible skill.” WHAT? Is Jeff now a mafia don and Pai some kind of ninja? What does dispatched mean in this instance? And who was dispatched? Is the originator of that term the narrator himself? The narrator says, “And if that meant leaving bodies behind, Skilling was certainly fine with that.” Jeffrey Skilling’s attorneys should be suing the balls off these filmmakers for this kind of slander. Bodies! I’m agog at the mafia language here. Jeff Skilling was a CEO, not an assassin. I’ve read every page of the indictment and murder was not listed among the charges.

Max Eberts, identified as “former PR for EES (Enron Energy Services)” jumps into the fray and says that Lou Pai was a mysterious figure, “the invisible CEO.” He explains that he would sometimes pass Pai’s glass walled office and Paiwouldn’t be there. All very mysterious! Probably out doing his second job as Chief Ninja.

They then claim that only money and strippers fascinated Pai. Which might be true, but so what? Then it shows strippers, because who can resist putting naked women in a movie about oil and gas intermediation?

The narrator says, bizarrely, that “it was all about the numbers.” You mean strippers can count? But why are they showing strippers? What do they haveto do with Lou Pai or the collapse of Enron? Are these the actual strippers Pai supposedly hung out with? Why couldn’t the director find an actual stripper to talk on camera about Lou Pai?

Ebert says that Lou Pai would take the traders to the skinbars and one of the traders said something like, “Lou, how do you keep the scent of the strippers’ perfume off so your wife doesn’t know you’re at the bars?” And Lou replied that he’d stop at the gas station and spill a little petrol on himself to mask the scent. Then the trader said, “But then doesn’t your wife think you’re fucking the gas station attendant?” Then according to the man telling this story, two days later, the guy got sent to Calgary. Ninja powah! Of course the victim in this case was never located – which only goes to show you how deep the conspiracy went. Then to demonstrate the horror of being transferred to Calgary, a man was shown trudging through a blazing blizzard on the sideof the road with a gas can. Is this the victim of the banishment? No? Then why is he in this movie?

The narrative again shifts. Swartz, like McLean, uses the high school analogy, stating that Enron was like high school and everyone wanted to be popular. She then goes on to say that Skilling understood those rules better than anyone. So Jeff is not only a sophisticated conspirator, he’s also stuck in 11th grade. Gotcha.

To the tune of ‘Love me, Love me’ by the Cardigans, the next segment opens with a mélange of scenes from the NYSE and news anchors gushing over Enron’s market performance.

Amanda Martin, ESQ. comments that all the sudden even people with very little disposable income began to play in the stock market because nobody could fail. It just kept going up, up, up.

John Olson says that Ken Lay was right there acting as a cheerleader, then it cuts to Ken Lay saying, “Obviously our stock has been doing very well and I think there’s a good chance we can see our stock double again over the next year to eighteen months.”

Again, a slew of shots about the NYSE. It’s odd that the video makers put this segment in as it shows that Enron was not the only club in town making money. Unless… you don’t think…. oh my god! Maybe everyone on the NYSE was in on the Enron conspiracy! Alert the media! Call the FBI! I figured it out!

The narrator then claims that Enron mounted a campaign to capture the hearts and minds of stock analysts. I don’t know of a publicly traded company that wishes to anger or disappoint the analysts but I’ve never heard of any organized campaign to entice them into rating them a ‘strong buy’ (i.e., that’s called bribery and its illegal. I’m sure the Enron Task Force would have done something about that had there been a scintilla of evidence.)

Amanda Martin, ESQ. explains that the stock price was on a ticker in the elevator, that employees were “surrounded by the health of the company.” She goes on to say that the stock price was an obsession among employees. Why this is shocking to a woman with a law degree and what appears to be forty-something years of life experience under her belt, I haven’t a clue, but apparently it’s slightly nefarious to her that the employees would want a high stock price.

Again that incessant, ‘Love me, love me’ tune is played over statistics, effectively proving that yes, Enron did list stock on the NYSE.

Lerach joins again and expounds on this mysterious PR campaign while images are flashed to prove that Enron got some ink. He says that Enron was trying to convince the public that they were “heralding a new era.” Which they were.

Ken Lay and some guy I vaguely recognize (a member of the Houston Rockets basketball team) say, “Come work for us!”

Jeff Skilling is shown in running togs before a community race. He likes sports, therefore he must be guilty (just ask Ron Artest.)

Ken Lay says, “We encourage people to do new things, try new things, step out.” Then says “We are more comfortable with people who are comfortable in an environment of change.”

The entry at 1400 Smith Street is shown, with the glorious tipped-back E icon. I think they just put this in there because they needed some filler. It really explains nothing other than there was a giant E on the wall, which I covet devoutly.

Jeff Skilling follows up on what Ken Lay said: “When you work for Enron, you’re going to see the newest thinking, the newest markets opening up.”

Swartz says, “They were so good at their acting that they convinced Corporate America that they were smarter than anyone else.”

The narrator says, “Enron was taking enormous risks.” Then Jeffrey Skilling agrees, in this scene saying, “We like risk.” Of course, the video doesn’t allow for the context in which Jeff Skilling said that. Skilling had risk preferences, and would leverage Enron’s competitive advantage to find the risks he liked and that potential and existing investors – e.g. shareholders –would like him liking. He wasn’t just throwing himself at the mercy of the market and hoping things turned out okay. Risk management was an enormous part of Enron’s business, and Skilling’s essentially cautious nature is why he set up hedges in the first place: he didn’t want to play dice with shareholder value.

More scenes of the fake bike jumping crap are shown. The fact that the man is essentially backflipping into a canyon on a motor vehicle tells you that this is where the big accusations start coming in.

Bethany McLean speaks over a variety of charts showing the general decline of stocks in high tech sectors. She says Enron was a particularly big deal and then says, “Everybody on Wall Street was looking for the Next Big Thing and here you have Enron, which appeared to be a shining star of a company. It’s stock had gone up 90% in the year 2000 and over 50% the year before that.”

Agreed.

Amanda Martin, Esq. says, “We were the poster child of the new economy” while more magazine covers with Jeff’s image sweeps across the screen.

Ken Lay’s warm, sweet, authoritative voice says to his employees, “Well, you’ve done it again. Enron has just been named one of America’s most innovative companies…” And it shows the Fortune article that named Enron as the number one most innovative company in America. The same Fortune that Bethany McLean was writing for – the same Fortune that was apparently fooled by Enron this whole time.

The voiceover says that Enron’s overseas investments were performing horribly, then cuts to Jeff Skilling giving a presentation on Dabhol, a project in India. He says Enron has had a “great quarter and a great year in India. Phase One of Dabhol is in operation, generating power. Phase Two has been financed and is under construction.”

But Enron had failed to see something basic, the grinch voice intones, India couldn’t afford to pay for the power that Enron’s plant produced. “Now, Dabhol is a ruin,” grinch voice says.

This is not true.  It is up and running today.

During the trial, several defense witnesses denied outright that there were problems with Dabhol. One of them was Wade Cline, the CEO of Enron India and the CEO and Managing Director of the Dabhol Power Plant. During Ken Lay’s trial, Assistant US Attorney, Kathryn Ruemmler, asked Cline, “Dabhol, in late 2000 and 2001 was a deeply troubled project, was it not?”

Cline answered, “No, ma’am.”

The narrator says: “Though Enron lost a billion dollars on the project, Enron paid out multi-billion dollar bonuses to executives based on imaginary profits that never arrived.” Where did the “billion dollar” figure come from? Fastow is a possibility. From his trial transcript:

Q. And were there discussions about that in these meetings?

A. Yes. I think that’s why we had Dabhol in the troubled asset category or below expectations category in the – for the board meetings.

Q. Were there expectations about the write-down or a write-down that would be coming for Dabhol?

A. Yes. There were — there was a wide range of potential write-downs that people were discussing, but what I took away was likely a write-down ultimately in the $500 million, maybe up to billion-dollar range.

So, a $500 million write-down ‘likely.” I’d like to know if there ever was one, and when.

Bonuses at Enron were not always dependent on profits; they were structured differently in the various units, changed over time, and were based on several criteria. To address the primary point, the local government of Maharashtra refused to honor the contracts in place and pay for the electricity. Lawsuits were in fact initiated to force payment. But it really doesn’t matter. Jeff Skilling was not a fan of third-world investments, and certainly not a fan of Dabhol – and his skepticism of such projects were justified.

Amanda Martin says, “The pressure was enormous to come up with the next new idea. Failure was not an option.”

A news anchor then says, “Enron buys out Portland General.” The voiceover says, “The merger with P&E put Enron in the electricity business.”

The purchase of PGE was initiated in 1996 and completed in 1997. A spot market did not open up in California until 1998. The so-called California power crisis did not happen until 2000. The chronology in the movie is incorrect, and it assigns nefarious motives to Enron when in fact there were none.

Ken Lay says that the merger will allow Enron the opportunity to become the world’s largest marketer of electricity and natural gas at both the wholesale and retail level nationwide. He was, of course, correct.

A PGE lineman says he’d never heard of Enron until Enron bought them. He states that all PGE stock became Enron stock. “I looked around and all the guys around me buying Enron were doubling their money. The whole time I was there, I put in the maximum I could into my 401 and savings.”

Cut to Ken Lay: “Portland General has some good earnings and cash flow.”

Infamous video is played: Skilling and HR executive Cindy Olson speak to employees. Cindy reads a question from the employees that says, “Should we invest all our money in Enron stock?” Cindy’s answer was, “Absolutely!” She turns to Jeff and says, “Don’t you guys agree?” Jeff smiles and nods his head.

Again with the NYSE shots is a news anchor’s voice saying, “Enron is a big winner today!”

Bethany McLean’s voice comes over again, saying, “What fascinated me is that all the analysts had strong buy ratings on the company stock.”

Fascinated? Sure, everyone was fascinated by Enron’s strong performance. But why do I sense something sinister about her ‘fasctination’?

Sen. Lieberman asks, “Why were the analysts blinded by the company’s deceit?” This is interesting because no trials had been had yet. Nothing at all had happened except Enron’s bankruptcy. There was no proof any deceit, or that anyone was blinded, except for the efforts of Enron demonizers/myth-makers. It’s the same circular reasoning that is the foundation of this music video; first assume there was widespread fraud, then explain how it happened.

An analyst tries to answer by saying, “We relied on the information that was available at the time.” Which was true, they did rely on the information and the information was accurate.

Jeff says, “We’ve been absolutely up front with the analysts.”

Jim Chanos is introduced.

Now this guy, he’s a piece of work. He says here, “Jeff Skilling was the critical component of creating the Enron illusion.” Consider the source. Jim Chanos is a notorious short seller. In other words, he makes his money when a company’s stock declines, and he madea mudslide of money on Enron’s failure. He is the person who fed Bethany McLean the first nibblets of suspicion that Enron wasn’t as strong as it appeared. In February 2001 he had a meeting of a group called Bears in Hibernation, a group whose agenda is exclusively devoted to deciding which stocks to attack. Enron was the stock they chose. Jim Chanos is the last person whose opinion about Enron you should take at face value. Peripherally, like Lerach, his ethics are questionable, though for different reasons: Chanos was connected to the hooker that serviced Gov. Spitzer and eventually caused his political downfall.

The narrator says that when analysts called Skilling, they were willing to believe anything he told them. How this relates to Chanos’s theory of an “illusion” is mysterious since it assumes that analysts were unable to think for themselves. Analysts, it should be noted, were extremely sophisticated and from companies like SmithBarney, Goldman Sachs, and others. Why were they willing to take Skilling’s word and no other CEO’s? The answer: they didn’t. They too looked at the 10K and Q filings, and the many other public filings. They talked to the Enron people on the phone and in person. They attended analyst conferences, and participated in earnings release calls four times per year. Additionally, the analysts did their own industry and company-specific research. They were not imbeciles, blindly taking Skilling’s dictation. They reported accurately that Enron was booming.

Then, without any support or documentation whatsoever, the narrator says, “Any analyst who didn’t buy the company line became an enemy of Enron.” Oh really? Why didn’t they go to the SEC and complain? Why didn’t they go to their bosses at Merrill Lynch, Smith Barney, Citi, First Boston, Credit Suisse, and Deutche Bank and complain that they couldn’t get any real information from Enron? Not a peep, not a word.

“CFO Andy Fastow had his eye on John Olson,” says the narrator. “One of the only analysts skeptical of the Enron story.”

Then it cuts to John Olson saying, “Enron loved analysts’ strong recommendations.” Well what company, pray tell, doesn’t? But don’t let critical thinking get in the way, there’s a witch hunt on!

Olson, then an analyst with Merrill Lynch, claimed that Andrew Fastow called Merrill and told them that ‘you either get somebody on board with us or we’ll take our business elsewhere.”

Olson, like Chanos, is not a particularly credible witness. Would he admit he was a not the smartest analyst on the street and perhaps didn’t understand Enron? He didn’t know what happened inside Enron, and of course Gibney doesn’t put up anyone that might suggest that there was another side to this story.

Merrill fired Olson, and “soon after, Fastow rewarded the bank withtwo investment banking jobs worth fifty million dollars.”

Fastow might have had the authority to steer business to specific banks, but I think calling this a “reward” for firing an analyst is a little extreme, and extreme speculation. Is John Olson’s word really worth fifty million dollars?

The narrator then shifts gears again and says that Skilling decided to take Enron into cyberspace. Again, the chronology is wrong and this isn’t exactly true anyway. Skilling at first was not convinced it was a good idea putting the platform online. At trial, he said, “I was not a big fan of these electronic trading platforms. I — I didn’t think it was a good idea, and I think you can spend a lot of money on it with no return.”

An ambitious woman in the London office named Louise Kitchen actually assembled a small group who worked on the platform for over six months. John Sherriff, who was the head of the office in London, flew to Houston and presented it to Skilling. He asked, “What do you think?” After further consideration of the more developed idea, Skilling was sold. “Good,” Sherriff said, “because we’re rolling it out in six weeks.” (More on EnronOnline here)

Ken Rice, of the busted lip fame, was the head of the group that would now trade bandwidth on the internet like energy or pork bellies. “Enron has found a way to stay ahead of the curve,” Rice says.

In 1999, after years of preparation, Enron unveiled its Enron Broadband Services division. It was a major focus of the annual conference Enron hosted for securities analysts on January 20, 2000. The reception to this was so great that on January 20, 2000, the stock bounced from $54 to $67.

In July 2000 Enron announced a deal with Blockbuster to deliver video on demand. Analyst Carol Coale says, “It was like being at a religious cult meeting.”

Coale seems to be talking about the January 2001 conference, not the Blockbuster deal from six months earlier. But Gibney conflates the two events. Blockbuster wasn’t EBS. It was just a part, and a relatively small and transitory one at that, of a much bigger business. Enron explained it well, and was putting that business in to action. The analysts understood that. But Gibney/McLean/Elkind don’t, or no doubt more accurately, don’t want to, instead choosing to mis-describe it so it fits their bogus storyline. Nobody has challenged them about this.

The narrator claims that one analyst (unnamed) summed up his recommendation to his investors in one word: wow.

Enron stock soared 34% in two days.

“You can tell from the response from the stock market that they like the strategy. It makes sense,” Skilling said.

The technology, says the grinchvoice, didn’t work and the deal with Blockbuster soon collapsed.

That’s not true, but tough to prove. The first EBS trial – in which the Task Force tried to prove the technology didn’t work — ended in disaster for the Task Force. (One source for some interesting information is this Houston Chronicle article about an engineer’s testimony about the software. Lawrence Ciscon, Enron Broadband Services’ former leading software engineer testified that the network operating software that prosecutors disparaged really did exist, was being phased in on schedule and has since been patented. He also reports that he felt threatened by the Task Force, but that’s peripheral to this discussion.)

Bethany McLean: “By the end of 2000 Enron was running out of ways to make the Broadband business look successful. They’d tried every trick in the bag to try to create the illusion of a business where there was none and the people who were working there were getting increasingly desperate.”

McLean was wrong. EBS was still doing well then; the bottom didn’t start falling out until end of February and March, and if Enron hadn’t gone bankrupt would no doubt be hugely successful today (though this is an example why Enron such an easy target, given that because we never got a chance to see what would have happened folks can say almost anything and can’t be absolutely proven wrong.)

The voiceover claims, “The executives started selling their stock.” He lists the figures:

“Ken Rice had sold 53 million, Ken Lay had sold 300 million, Cliff Baxter, 35 million, Jeff Skilling, 200 million.”

How accurate are these numbers? For example, Skilling was asked about a sale of $66 million during his congressional hearing. Are we to assume that the congressional questioners didn’t care about another $134 million? The discrepancy can’t be overlooked, but was but untrustworthy Gibney.

In any event, the innuendo is hugely suspect. Again, let’s take Skilling. He periodically sold some of his constantly growing Enron stock positions. But he didn’t dump stock and run. He held onto massive amounts of stock right up to the bankruptcy and after (as he proved at trial, at the time he left Enron, he was a net investor in Enron and had more stock when he left than while he worked there). Like so many others, he too lost millions when Enron collapsed. If he were truly as greedy as his critics would haveyou believe, he would have maximized every bloody dollar.

It’s also worthy to note that in 1997 when Skilling became president of Enron Corporation, he left close to $50 million dollars on the table that he was entitled to. When he started the Wholesale operation, he was given an equity stake. When he became President of Enron Corporation in 1997, it was decided that he would switch into Enron stock and options (in other words, the interest he had in Wholesale was cashed out in the form of Enron stock and options.) Mr. Skilling decided, of his own free will, not to take all the money that he was entitled to under the cashout formula. During the trial he said, “I didn’t think it was reasonable to hold the company to that formula, because ECT had been so successful that the numbers were — were pretty large. And, so, I just — I agreed to a much lower payout.”

He was entitled to $70 million. Instead of the full amount, he took $21.5 million, leaving close to 50 million dollars on the table that was rightfully his. Does this sound like the actions of a man consumed with greed? Can you honestly say that you’d leave that money on the table for your employer?

Chanos says, “The fraud is the reality.” No fraud has yet even been mentioned in this movie. Not one thing has been proved or even, come to think of it, alleged. All that has been insinuated is that Jeff Skilling was a nerd who turned himself into a handsome corporate superstar, that lots of money flowed through the building, and that Lou Pai liked his women trashy.

Again, that thought isn’t complete or explored before the director jumps to a new subject.

A person asks Jeff Skilling how the new weather trading is going. Skilling explains to the audience, “We have a market in weather.”

The narrator mocks him: “When Enron announced its latest plan to trade weather, people wondered whether it was good science or science fiction.”

Here’s the answer: good science. While they were never a big deal to Enron’s bottom line, weather derivatives were a complete success. They are traded today.

A reporter walking with Jeff through the office, asks, “Do the weather guys get punished here if the weather is wrong?” The reporter’s question is completely meaningless, as either he was joking and having fun or he didn’t understand the product. Gibney exploits this, and the expected ignorance of the audience and reviewers of his cartoon. Jeff playfully leans over to a guy in a cube and says, “You have whip marks there on your back, Mike.”

Amanda Martin, Esq says, “Jeff, as time went on, had a harder time admitting things were wrong. And I have to believe that when the lights went out at night, he knew what was coming.” What exactly was wrong? What indication did he have that things were wrong? What is the basis for Martin saying this?

Then the director splices in some ridiculous footage of a basejumping guy to illustrate this false point.

Bethany McLean admits that Chanos contacted her and told her to look into Enron’s financials. McLean claims she poured through Enron’s financial statements but it wasn’t clear that there was fraud here. ‘But it was clear that something didn’t add up.”

What didn’t add up? It’s not revealed in this music video.

Rep. Henry Waxman (D-CA) says, “Bethany McLean, a reporter from Fortune magazine first raised questions about Enron’s financial condition.”

That’s not exactly true. The first article to raise “questions” about Enron’s Mark to Market accounting was Jonathan Weilin a September 20, 2000 Wall Street Journal article. It is also worth noting that the questions Weil raised had Enron-friendly answers.

Bethany McLean’s Fortune article, titled, ‘Is Enron Overpriced?’ followed on March 5, 2001. But McLean doesn’t bother to clear up the record, and again, that false statement makes it into the movie.

Waxman continued: “She asked a simple question that nobody could seem to answer. How exactly does Enron make its money?”

Nobody could seem to answer it? Jeff Skilling answered it over and over again, so did Rick Causey, Rick Buy, and an entire corps of public relations people. So to whom is he referring? McLean? Himself?

Skillingresponds, “I very specifically remember the conversation that I had with the Fortune reporter. She called up and started asking some very, very specific questions about the accounting treatment on things. I am not an accountant.”

Bethany then interjects: “Jeff became very agitated and said that people who ask questions are just trying to throw rocks at the company and that I was not ethical because I hadn’t done enough homework.”

Waxman says it sounds like Skilling is bullying her.

Skilling responds, “I said to her I have six minutes before I have to be in a meeting and I can’t get into the details and I’m not an accountant. And she said ‘well that’s fine, we’re going to do the article anyway. And I [Skilling] said that if you do that, I personally think that’s unethical.” He then explains that Enron executives flew to New York to sit down, not withthe editors but with the reporter herself to discuss Enron’s accounting to help her understand the questions she was asking.

“And the next day we sat in this small, dark, windowless conference room for about three hours,” McLean says. It was her office. Ostensibly she could have found a better conference room. She goes on to say that when the meeting was over, the other two executives packed up their things and left the room but Andy Fastowturned around and said, “I don’t care what you write about the company, just don’t make me look bad.” It’s telling that McLean doesn’t reveal what they actually did talk about at her meeting with Andrew Fastow, Mark Palmer, and Mark Koenig. Did she understand what she was told? Bet not.

Grinch voice comes in and says, “And Fastow had good reasons for not wanting to look bad.”

Bethany McLean mentions the partnerships that Fastow set up. Then it cuts to her article that ran.

Skilling talked to his employees about the article. He says the gist is that Enron is sort of a black box. He holds up his hands and says, “Sorry, it’s true. It’s just difficult for us to show how money flows through, particularly, the wholesale business.” Skilling explains that the reason for the article is because Business Week had a favorable article the previous week. Enron was essentially a source of competition between the two publications.

A new segment begins with a picture of Andy Fastow. He looks typically Enron: sporty, handsome, accomplished, even while wearing a baseball cap and a t-shirt with the mascot of his son’s little leaguge team.

The narrator says, “Andrew Fastow. His job was to cover up the fact that Enron was becoming a financial fantasy land.” What?  Fastow created the partnerships that later came under such criticism, which, ironically, for the most part were good for Enron, its shareholders and its customers. His job was to secure financing for Enron, which he apparently did very well.

Peter Elkindsays that Enron is hemorrhaging money yet documenting positive income on its financial statements. “The way to do that is structured finance,” he says.

Wait just a minute there, Boss. Structured finance involves real negotiations between real parties that create real rights and obligations that justify the accounting treatment as both a matter of form and substance. Saying ‘structured finance’ has become something like saying ‘abracadabra’ — a spell is cast and all ability to understand and think critically is lost.

Sharron Watkins makes a re-appearance. She says that Fastow idolized Jeff Skilling.

Grinch voice says that to please the boss, Andy had to find a way to keep the stock price up while the company was 30 billion dollars in debt. We never hear in this music video what Andy did in this regard; how was Andrew Fastow responsible for keeping the stock price up? The grinch misses a key point here. He should not have said, “30 billion dollars in debt” – even assuming that was the right number — but that Enron “had $30 billion of debt.” The fact Enron had debt was no secret. Every large company has billions of dollars of debt. More importantly, Enron was solvent, and was solvent when it went bankrupt.

“It was black magic,” Lerach says. How clever.

While Fastow is shown giving a presentation, Sharron Watkins says, “Andy, we all knew, didn’t have a strong moral compass.” Yet she never saw fit to report her boss to Skilling or Ken Lay, or even utter her suspicions to others.

She then says, “It’s almost as if Jeff Skilling set up Andy.” And of course a nefarious overlay of Skilling’s image comes up over Andy’s presentation.

Sharron says, “There is a Body Heat element to this where Skilling is Kathleen Turner and Fastow is William Hurt.” That’s just a … wow… That analogy is …. fun. She goes on to say, “In the end, he got suckered into helping all the executives meet their earnings.” Again, why is Andy the victim here? But a larger point should be made that it is the entire purpose of a company: to meet goals.

Jeff Skilling appears before the panel again. He says, “In retrospect, I wish I never heard of LJM.”

Asked if it was his contention that he had heard of LJM and thought it was appropriate, Skilling replies, “Arthur Andersen and our lawyers had taken a very hard look at the structure and believed it was appropriate.”

The Enron board signed off on all the partnerships and the deals.

Andy Fastow is shown talking to some Merrill bankers about a deal.

Grinch voice intones that both Arthur Andersen and Vinson & Elkins were making money from Enron. Amanda Martin says, “They all had their hands out at the table.”

Counselor Martin seems to be ignorant of the fact that business-to-business is a legitimate way to earn money. This section is to imply that there was a multi-business conspiracy going on, a willingness for support companies to accept Enron’s ‘fraudulent’ activities because they were being paid. Though, for the sake of balance, I will document that Ms. Martin has been rumored to be dissatisfied withthe final interview and has mentioned that some of her comments were taken out of context, which would be consistent with the general mode of Gibney’s filmmaking.

Several images of a Senatorial investigation flash across the screen, ending with Carl Levin accusing Merrill Lynch of an improper Nigerian Barge Deal. The segment ends with innuendo and rumor. The postscript to that, of course, is that the people involved in the Nigerian Barge Deal have largely been exonerated.

Bethany McLean’s voice is superimposed over an image of Skilling. She says, “Over the year 2001, Skilling became increasingly despondent. He’d always been a moody guy, but people who knew him said he became increasingly volatile, showing up for work unshaven, looking blurry-eyed. I think it was the battle of holding these two totally disjointed thoughts in his mind at the same time.”

Then it goes back to Bethany to allow her to explain what Jeff Skilling was thinking: “One [thought] is Enron is a superstar company and the other of feeling like it was all crumbling away.”

Who are these “people who knew him”? Where are they? Give me some names so I can interview them. I’ve spoken to many “people who knew him” and they don’t use words like “moody”, “volatile”, “unshaven” or “blurry-eyed”.

Secondly, it appears true that he was becoming irritated withwork. He has said innumerable times that he was just plain tired. He had given more than 10 years to Enron as an employee, and many more before that while he was with McKinsey& Co. as a consultant to Enron, and he was growing tired of the demands placed on him. He wanted to spend more time with his family. Accepting Bethany’s statement does not prove any sort of conspiracy. It proves he was tired.

The voiceover says, “The first cracks in Skilling’spublic image appeared in a conference call with analysts in April, 2001.” More specifically, it was one of four quarterly conference calls related to Enron’s release of information about its earnings.

Short seller Jim Chanos appears to explain that, “Skillingtook questions. And about midway through the session, there was a question that was aggressively wondering out loud, why it was that Enron, as a financial services company in effect could not release a balance sheet with its earning statement like most financial institutions do….”And quite audibly you could hear Skilling say, Asshole.”

Which was true. Here’s some context: Analyst, Richard Grubman, a short seller who may or may not be one of Chanos’ goons from his Bears in Hibernation, had asked Jeff Skillingin the past to issue the balance sheet with the earnings release. Skillinghad explained that the balance sheet is not issued with the earnings since the two sets of data, earnings on the one hand and the balance sheet on the other, were prepared at different times out of necessity.

Transcript from the first of the two calls in which he asked the same question:

For example, in earnings release conference call, held January 22, 2001;

Richard Grubman: I was wondering if you could tell us what assets and liabilities from price risk management activities were at year end, both current and non-current, so those four balance amounts. Thank you.

Jeff Skilling: I don’t havethat information with me.

Paula Reiker: The question had to do withprice risk management and that comes out with the balance sheet, which will be disclosed in our 10K. In terms of impact on overall cash flow, we would expect, you know, for the full year 2000 that earnings would roughly equal cash flow.

Richard Grubman: I guess I don’t understand why we can’t get sort of seminal balance sheet data now.

Mark Koenig: Well – this is Mark Koenig. And Rick Causey is here, our accountant. We havenot finalized all of the balance sheet data and we’ll disclose that as we put that together with the associated notes that are important to accompany that [the 10-Q]. That’s the reason.

Grubman: OK. Thank you.

The second conference, in which the same question was asked yet again, Skilling lost his cool and called the guy an asshole.

Nevermindthat his rude word is not illegal or in this instance particularly improper, the camera guzzles up images of people discussing the ‘Asshole’ comment, specifically Waxman saying, “And as I understand it, you called the guy an asshole.”

Skilling is composed as ever but the guy to his right is cracking up. The man to Skilling’s right, though, is an interesting story in itself. He was counsel for certain plaintiffs who’d already sued Enron civilly at the time. In other words, he was a plant. He was put there to makes faces and belittle Skilling on national TV, and apparently in partial reruns like the ones used in this music video.

Bethany McLean says, “And this just caused unbelievable amounts of consternation all across Wall Street because people thought, ‘a Fortune 500 CEO losing it like this? Publicly calling an investor an asshole?”

Skilling replies, “If I could go back and redo things, I would not, now have used the term that I used.”

The plant-guy to his right laughs again:

Cut to Bethany McLean saying, “Mark Palmer, Enron’s chief PR guy even ran a note up to Skilling telling him to apologize and he just took the piece of paper and tucked it under the pile of papers on his desk. Afterward, Enron’s traders who had erupted into cheers when Skilling called this guy an asshole made him a sign. It was a play off Enron’s motto, Ask Why.”

Amanda Martin, ESQ. takes to the screen again and says, “My personal feeling is that Jeff looked at the numbers and he knew that we were in a massive hole.” Jeff Skilling was CEO. He looked at numbers every single day. It wasn’t as if he woke up one day and asked, ‘Where am I? What are these numbers? Why am I sitting behind this large office behind a custom-made desk with a panoramic view of Houston?’  He had been there every step of the way, and if we remember what Bethany McLean said about his insistence on using mart to market accounting before he would agree to work for Enron, we also know that he had built up the entire Wholesale operation at Enron. No doubt, Skilling’s only sense of surprise came much later, when the company collapsed.

Shot of Jeff while Amanda continues, “It was the only time I saw him truly, truly worried about keeping the stock price up and he just kept saying to me, ‘I don’t know what the hell I’m going to do.'” Really? When did this ‘only time’ happen? Might this be an example of the rumored taking out of context of what Ms. Martin said?

Peter Elkind appears onscreen again to say that the Broadband business was in meltdown as Jeff, as Chief Operating Officer, was in his office when Ken Lay came in with swatches of fabric for the new G5, 45 million dollar corporate jet Ken wanted to buy. To me, this speaks to Dr. Lay’s and Mr. Skilling’s honesty when they said that Enron was in strong financial shape.

Furthermore, Jeff Skilling was promoted to CEO on February 12, 2001. If Skilling were still COO, this incident would have been before the ‘asshole’ comment, so this entire ‘story’ is completely taken out of sequence, much less context. Secondly, where did this story come from? One can safely assume Elkindwasn’t in Jeff’s office when this incident happened. How does he know this happened? Why couldn’t they produce the person who actually was in Skilling’s office when this event ostensibly occurred? Or is just so much Enron rumor that continues to liveon as truth?

The narrative then does a crazy jump, which is consistent with Gibney’s apparent inability to tell time. One needs to take things out of sequence to distort and avoid the true story, I suppose, and this a quick and easy way to do it. Art, comrade, Art!

Max Eberts is introduced as ‘Former- PR at EES (Enron Energy Services)’. Yet no title is attributed to him, no dates of his employment at Enron. Technically, he could have been a one-semester intern, and we’d not know it from this video. But his word is taken for the gospel when he says that during the quarter there was always this impression that Enron wouldn’t make its numbers, but somehow, oddly, Enron always came through. Then one day, somebody (again, the unnamed ‘somebody’) asked Tom White, Lou Pai’s second-in-command, how they made their numbers and White’s reply was one word: ‘California’.

It opens with that OC song, ‘California… here we come… California….’ and as fitting this music video, there are some nice stock images of Cali.

The narrator says, “The first clues to Enron’s new strategy hit California with a jolt.”

NEW? What? What is this guy even talking about? If it was ‘new’, then the Max Eberts was mistaken when he said that Enron “always” made their numbers on California. But it’s a lie either way. California was a troubled market, similar to Cuiba and Dabhol.

Now we’re into one of the most controversial areas of Enron, and one of the most misunderstood. Before this goes too far, let’s just immediately skip to the court transcript and find out what Jeff had to say about California:

(From Jeff Skilling’s cross examination. Questions are from Mr. Sean Berkowitz.)

Q. All of those risks [regulations in foreign countries] that are separate and apart from risks that you’d have if you invested the money here, correct?

A. Unless you’re in California.

Q. We’ll talk about California

A. Okay.

Q. Do you think that’s funny? You were smiling. “Unless you’re in California”?

A. I think the –

Q. What happened out there, do you think that was funny?

A. I think the regulatory environment in California was not at all dissimilar to the regulatory environment in Brazil. In fact, they were very similar.

Q. You previously made fun of what happened in California, right, Mr. Skilling?

A. I think probably fair to say that I felt the State of California was unfairly targeting Enron.

Q. And you publicly made jokes about the situation out there, didn’t you?

A. A joke, yes.

Q. And you regret that now?

A. I think — you know the situation behind that. You know the situation that was going on.

Q. Do you regret making that joke about what happened in California now, Mr. Skilling?

A. Yes, now I do.

Q. All right. To get back to international assets.

In Skilling’s congressional testimony, he explained, “As far as the joke related to the Titanic, all I can say is that was at a time of very, very frayed tempers as a result of the situation that was going on in the state of California. One week prior to that meeting in Las Vegas, where I made that statement, the highest law official in the state of California, Attorney General Bill Lockyer said – and let me quote – ‘I would loveto personally escort Ken Lay to an eight-by-ten cell that he could share witha tattooed dude who says, quote, ‘Hi, my name is Spike, honey.’

That was May 22, 2001. That was the kind of stuff going on. Can you imagine what tempers were like? I know Mr. Lay. I’ve worked with Mr. Lay for a long time. Mr. Lay doesn’t deserve prison rape or the suggestion by the top law enforcement official in the state of California that he be raped in prison when he hadn’t been charged with anything and hadn’t been found guilty of any issue.”

Let’s get back to debunking this music video posing as a serious documentary.

Three minutes straight is dedicated to the rolling blackouts in California, images of streetlights not working, powergrids, images of substations.

Former Gov. Gray Davis gets in on the action by saying, “When I ran for governor in 1998 not one human being asked me about electricity.” 1998… was about the time Enron bought P&G and there was not a whisper of controversy? How can that be?

Joseph Dunn, state senator, says that “California was selected by Enron to experiment with this new concept of de-regulated electricity.” California had been deregulated since 1996.

Enron was involved in public debates in mid-1990s, and Jeff among others gave testimony before CA legislature and other such places, about the CA deregulation. Enron became opposed to the “deregulation” to be adopted as it became clear what was going to be adopted, and correctly predicted it would be a disaster, the primary concern being that prices to consumers weren’t to be deregulated. It was during one of the testimonials that this picture was snagged. Skilling is testifying that reducing energy costs is only one benefit from choice and competition. Note the big glasses. This means the conference happened at some point in the past, before things got bad in California, not on the precipice of disaster, as the video tries to imply.

The narrator then goes on to say that inside Enron, California was “little more than a joke”, whatever that means, and that “the joke would be on California.”

Bethany McLean’s voice comes over again and tells us that Tim Belden was the head of California’s energy desk. “Tim Belden was a believer in free markets,” McLean says (as she said about the traders in Houston, as well), and “he poured over documents about the energy industry looking for loopholes that Enron could exploit to make money.”

How she knows this is again a mystery. It is possible but unlikely that Belden spoke to her in the writing of her book, but she never indicates the source of this statement.

The narrator explains that after the bankruptcy, a memo surfaced which showed the names of some of Belden’sstrategies. It should be noted that during his trial, Jeff called the names ‘unfortunate’. The names flash across the screen, appearing to drip blood, which is creativeand might be appropriate if you’re making a specific point about the strategies themselves, but this video is approaching the audience as an objectivearbiter of the truth. The names include, “Wheel Out”, “Death Star”, and “Fatboy.”

Then the tapes. The tapes that everyone uses to pin a host of misdeeds on Enron, the tapes of activity that Jeff Skilling had no control over and was not part of, are all blamed on him. And the really strange thing is that they show no wrongdoing whatsoever. Not even Gibneyor McLean could pinpoint a crime in the tapes. The image of a greedy corporate titan had already been created, so you’ll find nothing in this music video about what was wrong with anything said in the tape excerpts included.

Interestingly, McLean had written in a June 17 2004 column of hers in Fortune – well before the music video was released– that “Lots has been made of the newly released transcripts of Enron traders glorying in the millions they were making from California. Typical trader talk, mostly.” The mostly referred to something other than what is in the tapes shown here, and was wrong too by the way.

Again, what is so noteworthy about the names? CIA headquarters is called the Death Star by almost everyone in Washington. The term isn’t criminal, or even controversial, but Gibneymakes a misstep here and assumes that the term would be offensive to his audience.

“The tapes revealed contempt for any values except one: making money,” the narrator says.

The trader identified as Tim Beldenis speaking with an unidentified trader saying that he’s trying to “make money”.

The narrator then claims that traders began to export power out of the state. “When prices soared, they brought it back in.”

The implication is that moving power is a bad thing. The fact is, the Enron served the entire West Coast. Remember Portland General, for instance? Enron served the entire west coast, up into Canada. It’s true that power flowed in and out, but its true for anywhere. Power is not something that is a constant steady stream. Enron’s business model in California was the same as Enron’s gas bank which enabled a product (gas or electricity) to be produced and consumed in an efficient way.

The situation in California was worsened by the fact that even in its ‘deregulated’ state, it was still a tightly controlled business environment. Producers were told by the state of California that they had to sell their electricity at a certain rate. Enron was not a producer. They were a marketer. (This puts them one step away from any scandal, but I’ll get to that in a minute.) If producers realized that they could get a better price for their product in, say, Oregon, or Washington, then they would push and/or displace the energy from California and put it elsewhere. Now, putting that together with the gas bank idea, you can see that if it’s winter, since California has mild winters but winter in Seattle and Portland and even in Reno can be brutal, you can understand why the producers would push their electricity to those places. In summer, California needs the energy more (i.e., Portland has very mild winters.) The fact that Enron transferred energy around is NOT indicative of illegality, impropriety, or even bad business judgment. It was exactly what they were being paid to do.

Sen. Barbara Boxer asks Jeff Skillingif he had anything to do with the rolling blackouts. Skilling defends himself. Boxer harangues him for a few minutes, and then Skilling sort of realizes that he’s never going to explain it to her and he dismissively smirks.

The narrator says – falsely – that Enron created ‘artificial shortages’. It was only artificial in the sense that some producers wanted to sell their product to another market and Enron facilitated that. The primary reason for ‘shortages’ — which really wasn’t a ‘shortage’ but was instead just increased demand while supplies decreased — was an absence of rainfall/snow in the west the previous winters and massive increase in demand in among other places the booming Silicon Valley. Remember the dot-com craze?

The scene then shifts to the infamous scenes of California wildfires. California always has wildfires. Where these caused by Enron? How so?

Nancy Rapoport, Dean of the University of Houston Law Center, appears to discuss the MilgramExperiment to “discover what characteristics were common in evil people”. The objective of the experiment was to determine the nature of obedience. But even established history is up for debate where Gibney is concerned. “Was there an evil strain,” Rapoport muses, “or could normal people be made to do really evil things?”

Who is she accusing of being evil? Jeff Skilling? The traders? Is evil really the appropriate descriptor of these people?

The video then shows some footage of the infamous experiment in which a subject is told to shock some other subjects with increasing voltage. A stern biology scholar dressed in a white technician’s lab coat instructs a volunteer to shock an unseen victim. The ‘victim’ was a volunteer who was part of the experiment and was not really being shocked. The men who participated in the experiment almost universally continued to shock the victim to death merely because the white-coat told them to.

The footage is spliced in with unidentified traders speaking. “This is the coolest thing I’ve ever done,” one says superimposed over images of a sign in a shop door that says NO POWER. There is no indication the traders are discussing the outages. And what does that have to do with the spliced-in Milgram footage? What is the connection Gibney is trying to make? There is no connection at all, but the jarring footage insinuates that Enron was in some way like the Milgram experiment, but the analogy is incredibly weak. Who is forcing whom to push buttons? Who is forcing whom to do bad things? It’s a ludicrous point, without even a wisp of reasoned thought.

Gibney shifts back to politics and says that Ken Lay met with Dick Cheney, encouraging the Vice President not to put federal price caps on the cost of electricity. Then Gray Davis is shown again with the outrageous statement, “At the time, Gray Davis was a likely candidate to runfor President. Ken Lay knew that might give his friend George Bush a political reason to oppose California’s appeals for federal price controls.”

This is absolutely hilarious. The Ken Lay-Dick Cheney meeting occurred in April 17th, 2001. Assuming this is the same time period that Davis was pondering a run for president (and I admit, it is a reckless gamble to assume anything as far as Gibney’s chronology), then at the time, George Bush’s presidency would be three months old. At this point, no names for Presidential candidates had been offered for the 2004 election because the elected president Bush had only begun his term on January 21, 2001. Is this statement about a possible run on the Democrat ticket in 04 some kind of flattery? Is it a thank-you to the governor for agreeing to appear in this propaganda video? Whatever else it might be, we can say with certainty that it’s false.

The narrator then asks, “Did Ken Lay and George Bush have a political agenda to blame the energy crisis on Gray Davis?”

Gray Davis responds like a fourteen year old girl and actually says, ‘Hell-o!’

The next scene says, “The state’s unpopular governor….” But wait! I thought this was the next Democrat candidate for president? But anyway: “Beset by an ailing economy and a thirty-eight billion dollar budget deficit, Gray faces possible recall. And rumored as a replacement, movie star Arnold Schwarzenegger.”

The special recall election took place on October 7, 2003 and the results were certified on November 14, 2003. By this time, Enron was two years gone. We appear to have a Gibney chronological problem again.

A man who isn’t identified in the movie says, “Could I have predicted an energy crisis because of deregulation? Yes. Could I have predicted Arnold Schwarzenegger would be governor because of it? No. It’s like a bad science fiction movie.”

No, Gibney’s music video is like bad science fiction.

To address the unidentified man directly, it’s true that the badly deregulated California energy crisis no doubt cost Gray support. But it’s absurd to suggest that Lay and Bush had a plan during the energy crisis that involved a recall election and Arnold winning the governorship.

A minister appears on screen to say that he heard rumors that things were ‘very difficult’ at Enron. Rumors! After spreading rumors, the holy man goes on to say that he talked to Someone (who gets around because that’s pretty much the only person quoted in this entire thing) who began to feel that their entire life was being ‘consumed by this company’. Again, that’s how aggressive companies are: they take a lot out of you, but they also replenish in the form of large salaries, bonuses, and benefits as well as intangibles like satisfaction, being part of something important and a sense of accomplishment.

The narrator comes back to say, “As doubts began to surface about the company and the erratic behavior of its CEO, Enron’s stock began to fall.” Then it shows Jeff Skilling looking pensive.

Amanda Martin, ESQ says, “I remember one of the most poignant meetings I ever had with Jeff. I had left Enron and had come over to discuss whether I would return to Enron. I said, ‘Jeff you’ve got a real problem. The traders, they will cut your throat if they think it will get them to the trough sooner.”

Again, I am perplexed at the power these 25 year old traders would have over the CEO of the company. In any case, the camera finally shows Amanda Martin speaking. “Jeff was silent,’ she said, ‘And he looked out the window and he looked back at me and said, ‘you know Amanda, you’re most likely right.'” By the end, Martin continues, the traders ran Enron.

All through the summer, Max Eberts, former PR staff for EES, says the stock continued to decline. Eberts goes on to say that there was a buzz that changes in management were coming. “But we all thought it was Ken Lay who was leaving Enron and that he had been asked by the Bush administration to join his administration. But that wasn’t the case. It was Jeff Skilling. He was stepping down as CEO. That took everyone by surprise. No-one could believe that.”

But the truth isn’t quite as shocking. First of all, Ken Lay was planning on leaving before Jeff told him in July 2001 that he himself had decided to leave. Moreover, Jeff Skilling had been mulling his resignation for years. Jeff Skilling testified at trial:

A: I think by — by the summer of 2000 that at least — and it had been
prior to that; but in the summer of 2000, it was coming to a head. I spent time — actually, some of the first time I really spent with my brother. He and I took a vacation with my son, went to Africa. It was the longest vacation I’d ever taken. I was gone for three weeks, and I didn’t want to come back. I was ready to move on. I was ready to do something else at that point. I got –

Q. When you came back from Africa in the summer of 2000 with thoughts about leaving, did you talk with Mr. Lay about that?

A. I — yes, I did. I talked briefly to Ken. I think — I remember looking — when I came back, I met with Ken. I think Ken was the first person I met with when I came back into the office, and he looked concerned because I think he could look in my eyes and tell me that there was — I was not happy to be back. And — and I said, “I really hate this job.” And I think Ken said, “Oh, no. Again?” Or something to that effect.

He had penned a resignation letter in April 2001 but had never submitted it. Then, on July 13, 2001, he had another discussion with Lay, this time telling him he would definitely be leaving.

Short-seller Chanos takes to the screen and says, “The architect of the disaster… the rat is leaving the sinking ship.”

Yet if Skilling was a rat leaving a sinking ship, he certainly didn’t act like it. He didn’t take or destroy any documents. He did not sell all his stock, or leave the country.

Analyst Carol Coale says, “Two days later I met with Jeff Skilling and Ken Lay. I was going to downgrade the stock on Skilling’s resignation. And I was concerned; are there any other shoes to drop about the energy crisis that was occurring in California. Skilling convinced me it was for personal reasons. I left the meeting concerned because of the emotion he seemed to feel over the relationship with his family. He appeared to be distraught. I remember telling an investor, if he’s not telling the truth, it’s a good thing he quit his day job because he needs to go to Hollywood.”

As stated previously, Jeff Skilling is a masterful businessman, a good hearted person, a jokester, a brother and a father – all kinds of things – but he isn’t an actor.

Jeff returns to the screen. “I left Enron on August 14, 2001 for personal reasons.”

Ken Lay gets a standing ovation as he explains that he’s taken over as CEO. “We are facing challenges, but indeed I think the worst is behind us. The business is doing great.” He explains that the problems in India and California are outstanding and depressing the stock price but once those get resolved, the stock will bounce.

“The day after Skilling resigned, Sharron Watkins sent a memo,” the voice says. The scene flashes to Watkins looking earnest and corn-fed, rigid withAmerican righteousness as she prepares to testify. Ms. Watkins’ counsel takes the screen. “What Sharron was telling me was much more than accounting regularities, as such. It was a massivefraud of enormous proportions.” Which begs at least one question, if true why did Watkins participate for so long? Suffice it to say, Watkins was clear at the time she wrote her infamous memos that her concerns were not about fraud; they were based completely on rumors and were only about the ‘appearances’ of difficult to understand but legitimate structured finance transactions. It was only well after she wrote these memos and met with Ken Lay in August 2001 that she started modifying her story to fit and indeed shape some of the developing but erroneous myths about fraud and criminality at Enron. In any event, Watkins was ironically right that structured finance would be a tough sell to an unsophisticated public, or lynch mob, as structured finance has become every Enron bashers favorite cheap shot.

Watkins explains that while working directly for Mr. Fastow, she was put in charge of an asset list, about a dozen assets hedged with the Raptors. “And the mathjust didn’t add up,’ Watkins says. ‘It didn’t make sense to me. Accounting doesn’t get that creative.”

That’s a great line, but it’s not true. The business world is complex and rapidly changing, and accountants have to understand and keep up with all that using rules that often have become obsolete. Who owns those drilling platforms in the North Atlantic? How do you think oil gets from Saudi Arabia to the USA? Or how do movies get made, for that matter? It’s not a simple transaction, an exchange of goods for a check. Large, complex entities often require complex financial transactions in order to implement complex but beneficial plans and, thank goodness, hedge against risk. If companies were run like households, all anyone would have to know is addition and subtraction.

“Behind Fastow’s partnerships were enormous guarantees of Enron stock,” the narrator says. “Fastow had gambled Enron’s future on the hope that its stock would never fall.” That’s a bit dramatic, as I think all CFO’s would hope that their stock would never fall. But I’m not sure what this means, really. How is it gambling Enron’s future? Enron had thousands, if not hundreds of thousands, of investments in various enterprises. And since other enormous and respectable companies, like Citibank were likewise invested, were they also ‘gambling their future?’ Or was it like Skilling in an exasperated moment blurted out in court, “Are they part of this conspiracy too?”

Then it cuts to Skilling. ‘Ms. Watkins didn’t talk to me, Senator.’

Senator Wydensays, “Ms. Watkins says that Clifford Baxter told her that he met with you repeatedly to express his concerns.”

Skilling replies: “Cliff and Andy didn’t like each other. They had a very strained personal relationship and Cliff’s issue had nothing to do with the appropriateness or inappropriateness of the transactions.”

Cut to Ms. Watkins. She says she was talking to Cliff Baxter, and she told him that he was one of the good guys, that he was fighting this and it would be all right. Cliff, according to Ms. Watkins, replied, “Oh, I don’t think its going to be alright for any of us involved.” Might he have understood what the building witch hunt was all about?

Mimi Schwartz says, “When I started working on the book, I was interested in writing about a whistleblower. People don’t really appreciate what she did.” Notice that this the first time that it is identified as the co-author of a book written withSharron Watkins. Previously, she was identified as the Executive Editor of Texas Monthly magazine. It is now 1:30:31 into the music video. Shouldn’t we have known her game from her first appearance? Or would she have lost credibility by being identified as Sharron Watkins co-author?

Watkins outrageously claims: “Mr. Fastow would not have put his hand in the candy jar without an explicit or implicit approval to do so by Mr. Skilling.” How does Ms. Watkins know what Mr. Fastow would do? And why not Ken Lay? Why go after Skilling in such a direct way?

Skilling replies: “I can’t for the life of me see what basis she would have for suggesting that I would know … I mean, how would she know that? And I don’t think it would be inconsistent that I wouldn’t know some things if somebody kept me from knowing some things.” It is possible that there was simply nothing or very much to know. But again, Gibney inserts a statement that could be construed a million different ways, but no doubt knowing how that audience would take it — that there was in fact a lot to know. There wasn’t.

Scenes of the terror attacks of September 11, 2001 play on the screen.

“Probably in more normal circumstances, I would have a lot more to say about September the eleventh,” Ken Lay says. “Just like America is under attack by terrorism, I think we’re under attack. And now, of course, we’ve got the SEC inquiry… an informal inquiry…”

The narrator says that analysts began to worry that billions in mark to marketing profits were really losses. Two quick points about this: most investors in Enron were enormous corporations and they did understand Enron’s use of MTM accounting. The analysts understood Enron’s use of MTM, the markets understood it. And, in any event, I’ve looked at what was being said at this time and I’ve seen nothing about analysts or anyone else being worried about MTM profits really being losses. What, pray tell, are Mclean & Co. referring to here? Artistic license, again, gone amuck?

October 23, 2001: Enron stock has dropped significantly. Ken Lay says, “As you can of course see, the underlying fundamentals of our businesses are very strong. Indeed the strongest they’ve ever been. But regrettably, that’s not what Wall Street is focusing on. And I doubt that’s what you’re focusing on.” Dr. Lay looks out to the Enron employees and continues: “This inquiry will take a lot of time on the part of our accountants, lawyers, and others. But it will finally put these issues to rest.”

The scene jumps to a shredding facility. It intones that on the very day, indeed the very hour that Dr. Lay was speaking, Arthur Andersen was busy shredding Enron files. “On October 23,” the narrator says, “Arthur Andersen shredded one ton of paper.”

Of course, the wrongful conviction of Arthur Andersen in June 2001 for obstruction of justice was subsequently reversed 9-0 by the U.S. Supreme Court in May 2005. And even jurors at the time of their wrongful conviction told the press they had concluded there had been no wrongful destruction of documents; their thinking, completely erroneous by the way, hinging on a single memo that had been changed at the suggestion by Nancy Temple, a lawyer with Arthur Andersen. She has never been indicted, and rightfully so because she didn’t do anything wrong. Unfortunately, being innocent hasn’t always been enough in this regard. Regardless, only the jury did something wrong, and the Enron Task Force who brought the case in the first place.

On Oct. 24, 2001, Andrew Fastow was fired after he admitted he had skimmed $30 million dollars from his LJM partnerships in addition to his regular Enron salary.

Rep. Jim Greenwood asks, “How could you believe that your actions were in any way consistent with your fiduciary duties to Enron and its shareholders or with commonsense notions of corporate ethics and propriety?”

Andrew Fastowopens his mouth to say exactly one thing: “Mr. Chairman, on the advice of my counsel, I respectfully decline to answer the questions, based on the protection afforded me under the United States Constitution.”

Ms. Watkins says, “Andy, in many ways, I think Andy was set up as the fall guy.”

Max Eberts, the former PR guy for EES says, “I’ve thought about this and thought about this. It just couldn’t have been a few executives who were involved. When you think about the banks – Chase, Morgan, Citibank – the billions in loans… Arthur Andersen… What about Vinson and Elkins? The lawyers that represented us. There had to have been complicity across the board.”

This is ridiculous. It is exactly the opposite. Why would Chase, Morgan, Citibank, Arthur Andersen, Vinson and Elkins – some of the most respected, revered companies in our society – commit fraud to cover for Enron? Why would they jeopardize their own well being for Enron? They wouldn’t. It wasn’t a matter of complicity across the board, it was a matter of the transactions being completely within standard business practices except for a few relatively minor transactions done off the radar by Fastow and Kopper that they nobody but them knew about. And who is this guy? He reveals he doesn’t have any thing more than speculation to add to the speculation to what this entire thing is based.

Ken Lay says, “Andy obviously didn’t share with me what he was doing.”

Of course, this doesn’t do justice to what Dr. Lay’s point was in this regard, which was that “what Fastow was doing” was limited to very few transactions — such as a tiny one called RADR– transactions that even the seriously truth-impaired Fastow admits he never told anyone about other his only partner in crime, Michael Kopper.

The Simpsons cartoon is inserted into the music video, only driving home the fact that this isn’t a documentary, it’s propaganda . Not even propaganda, but just a collage of sometimes pretty, sometimes silly, irreverent images. Which would be fine – sometimes art can be like that – except that this thing attacked real people, amazingly impressed a lot of folks out there, and no doubt contributed to several wrongful convictions.

“It is my belief that Enron’s failure was due to a classic run on the bank,” Skilling says.

And then Alex Gibneyproves again my point above about art. He splices in this image of a ‘run on the bank’ to belittle what Skillingsaid, something with which even the apparently justice impaired Department of Justice’s Enron Task Force probably wouldn’t disagree.

December 2, 2001 Enron declared bankruptcy.

Images are shown of bewildered employees, newly let go from their jobs.

“Then all the sudden it was like a ghost town,” an analyst says. Images of empty offices and trading desks are shown, but who can say, based on just these images that they are actually Enron after the bankruptcy or if they are re-created, or if perhaps they’re of a different place altogether?

The video skips to Skilling testifying again. Sen. Barbara Boxer shows him the video of him and Cindy Olsen, when Olsen reads a question “Should we continue to invest all our money in Enron stock”, then she asks why Skilling mislead the shareholders. Skilling answers, “You can take the video to mean what you want it to mean. I was a supporter of Enron Corporation.”

Barbara Boxer points fingers, literally. “You know what happened to those people. They lost everything.” That is not true either. Most of the employees at Enron were young, aggressive people without families, which is what allowed them to stay late and be in the office by six. They were at the front end of the trajectory of their career. They were able to get new jobs.

Skilling replies, “I feel terrible about what happened to the employees.”

On January 25, 2002, seven weeks after the Enron collapse, Cliff Baxter committed suicide.

Andrew Fastow pled guilty to wire fraud. The video, created in 2005, says he will spend ten years behind bars. That number was reduced to six in 2006, after he told the Lay and Skillingjury – so that it would believe he had nothing to gain by lying – that he would definitely get ten. Guess there was something to gain.

Jeffrey K. Skillingwas indicted for inside trading and conspiracy. He did his little perp walk.

Then Dr. Lay.

A reporter asks, “Do you have anything to say, Mr. Lay?” And Dr. Lay, who somehow looks relaxed and dignified even in handcuffs, replies, “Maybe a little later today.”

Bethany McLean summarizes by saying that “Like a lot of things that end badly, Enron didn’t start that way…. they became victims of their own hubris, their own greed.”

What greed? In this whole thing, I still haven’t heard one single allegation about Jeff Skilling and Ken Lay!

The film ends with some factoids about the amount of money lost and the number of people affected by the collapse. The emotional appeal is unmistakable. But like so much about this film, it gives absolutely no insight into what Jeff Skilling and Ken Lay may have done to contribute to the collapse. Like every book before and after it, Smartest Guys struggles to pin the blame on these two men, but like every book before and after it, and every press conference and magazine article, every “insider interview”, it fails. It fails because Dr. Lay and Jeff Skilling did nothing wrong.

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80 thoughts on “Everything Wrong With “The Smartest Guys In The Room”

  1. Cara, your analysis is impressive. Thank you for continuing to shed light on the Enron cases.

  2. Thank you Evan. It’s a labor of love. : )

  3. Personally, I think Skilling and Lay knew what was going on, or at least, were dishonest (possibly with themselves) and knew not to ask too many questions.

    But It’s really irrelevant whether Skilling and Lay knew or didn’t know the specifics of what was going on.

    They were in charge, and *should* have known. You must prosecute people in charge, or the culture will never be more curious how their subordinates are raking in billions of dollars, or at least, making it look that way.

    Nowadays, though, it’s become fashionable for leaders to use “ignorance” as an excuse. But it’s ignorance through choice, or incompetence. At worst, they should be in jail, at best, stripped of their ill-gained assets.

    The Enron tag line “ask why” really seemed more like a note to self. Someone’s got to figure out where all this money is coming from, and if everything is on the up-and-up :)

  4. You’re basically saying we should use them as scapegoats – prosecute them so nobody else does this. That’s nuts – they did nothing wrong.

    But thanks for the comment, I enjoy hearing other people’s opinions on the subject.

  5. It isn’t nuts to hold the executive(s) accountable for any mishaps perpetrated by direct reports, it is actually standard operating procedure. The whole idea is to make an example of them so that the rank and file realize that unacceptable behavior/actions result in punishment or termination.

    For example, recently, US Air Force Secretary Wynne and Air Force Chief of Staff Gen. Michael Moseley were forced to submit “their resignations to Defense Secretary Robert Gates – who blamed both men for failing to fully address a series of nuclear-related mishaps” (according to the Associated Press). The mishaps certainly weren’t ordered by these two men to the actual personnel who made the nuclear mistakes, but Def Sec Gates attributed the mishaps to the culture that these two top Air Force men permeated to the rank and file.

    So the culture at Enron that allowed such accounting irregularities and scandal to take place was condoned by the executives. They didn’t bother to terminate Fastow or any of the other lieutenants. It may be that you are taking Lay’s and Skilling’s protestations of innocence/ignorance as the truth, but a jury of their peers thought otherwise. We can’t pick and choose which jury conviction is correct or incorrect. In other words, I’m going to keep believing that the jury got it right that Ted Bundy was a serial killer, and not disregard the jury simply because I think some juries “get it wrong”.

    In regards to your assertion that Arthur Anderson did nothing wrong as proven by their case’s reversal, you are correct, but under the newer Sarbanes-Oxley Act provisions, the reasonings used by the Supreme Court to reverse the decision have been addressed. So I would assert that AA only had their case reversed on a technical rather than an ethical reversal. In other words, what they did was wrong at face value.

    Scapegoating happens, and it is not unusual or ‘nuts.’ Why do courts convict drug dealers? So other people will think twice about dealing. Why do we watch MSNBC’s Lockup? So that the rest of us modify our behavior to avoid prison.

  6. That’s a very cynical way of looking at the justice system. One should be punished for one’s actions, not to teach others a lesson.

    And what exactly do you think Jeff Skilling and Dr. Lay did wrong?

    I could add a whole post about the jury, which I will do later this week.

  7. Interesting take on things, I think most of the comments mean that Lay and Skilling were responsible for the mess as they were heading the company.. it may be true – they could have been forced to resign..but 24 years in prison for what? leadership failure, Not having checks and balances in place. Sounds too much.

    I think Enron was a classic example of a smart company growing very fast and burned itself out – may be due to creative / aggressive accounting which made lenders wary leading to a run.

  8. Who are you woman? I can understand you finding possible inaccuracies in the Documentary but Jesus Christ woman…….finding nothing wrong with the criminality that Enron (yes Skilling and Lay) exuded from day to day is absolutely ignorant. You defend men and companies that mislead the public, their own employees, other countries and ultimately themselves?

    And i bet you think the auto industry and Wall street deserves 700+ Billion dollars of “bailout” money because ohhhh the Economy has taken a turn for the worse.

    Do you work in the real world…..or do you write and think all day about why white collar criminals aren’t really criminals and shouldn’t go to jail?

  9. Oh good lord. Do I really have to explain again that there was no fraud or corruption atEnron?

    And that’s quite a leap to decide I’m for the bailout – not true at all.

  10. I guess Mike hasn’t done any research (other than listening to the false statements) before shooting off his mouth.

  11. Your disingenuous excuse making is complete Bull Shit.

  12. Excuse making? I just spent a thousand words explaining exactly what’s what. If you have something to argue, then argue. Don’t just put some stupid flashbang comment on my blog and expect that anyone, myself included, will take you seriously.

  13. I wonder at those who throw around words like “disingenuous”. I often wonder if they actually know what it means. Whether you agree or not with the points made in the post – what about it says “disingenuous”?

    I prefer to assume that people are telling their truth, as they see it, rather than assign some kind of nefarious lying mechanism going on. It sure makes for a better conversation any way.

  14. Good point. Her comment was cromulent, with a twist of ironic disposition.

    Ahem.

  15. Nice!!

  16. You accuse Enron critics of distorting the facts, but YOU are distorting the facts : Dabhol was a ruin at the time of Enron’s collapse and at the time the book and movie were created.
    Dabhol was not revived until 2006 – between the mid-1990’s when it was started and 2006, no one was interested in the power plant and it certainly was not completed.
    Do you expect the authors of the book and the makers of the film to be able to see into the future???

  17. Dahbol was not in ruin. The man who ran the place said so under oath. Others have said so under oath. We can debate the meaning of “ruin”; even if it wasn’t working – and I’m not 100% willing to concede that – it’s not a ruin if it can be brought up and running again.

    There were a lot of issues with Dahbol, no doubt. Jeff Skilling hated international assets – and the failure of the local government to live up to its legal obligations is one of the reasons he was so wary of those kinds of investments.

    I’m not distorting facts: I am presenting them – countering the lies that have been spread about Enron since its collapse.

  18. Hello Cara,

    This was very interesting! I must admit, I didn’t look far enough into things when I assumed guilt myself.

    My take from day 1 was they were all aware of the macro loopholes, and how to profit short term, regardless of long term risk and exposure.

    As far as their devious plots… I never bought that concept. As a banker, who managed a mutual fund ops desk, I fully understand that I was one of the most “informed” employees the bank had. A co-worker I deemed as “brilliant”, knew more about banking than anyone I had ever met. …and with that said, I would say that he and I combined knew less the 50% of what there was to know about mutual fund custody.

    Now, forget the fact that Mutual Fund Custody was only 1 OF OUR BANKS 35 BUSINESS PRODUCT DIVISIONS!!!

    So in the grand scheme of the bank, we knew nothing!

    …and because of that, I’v always believed that Lay and Skilling weren’t as guilty as perceived because they couldn’t possibly know all that was going on! In fact they’d be lucky if they knew or understood 5% of the company.

    As a side note. I stubled onto this site because I’m doing a piece for the RGE Monitor. (this is economist Nouriel Robini’s (aka Dr Doom) website on Patrick Byrne. In my “research”, I’ve been looking into many of the different players in his accusations.

    Bethany is one of those people! You’ve painted quite a picture.

    If you had more info I’d love to hear (if you were willing to share)

    Thanks, Rich Hartmann aka Miss America

  19. Well, Rich, there is a huge body of information out there.

    For the record, there are numerous occasions in the trial transcript where Jeff says he didn’t know what was going on. Such as the so-called Global Galactic document, which Fastow even says, “did not discuss with JS”, and the fact that Andy was stealing from Chewco, Radr and Southampton. Skilling said, “I wouldn’t know if Andy was preventing me from knowing.”

    I think that he didn’t know that Andy was such a sneak.

    I will say that Bethany McLean is one of the most deceptive people I’ve ever encountered. If there is anything specifically that I can answer for you about her or Enron, please feel free to shoot me an email at blog dot cara (no space) ellison at g (no space) mail dot com. I’d be happy to go on at length on the subject!

  20. Dear Cara,

    I’m sure many things you wrote are true and the documentary IS sensationalist and emotion-appealing, but how do you want me to believe that Skilling and the other executives did not commit anything illegal?

    It’s the word of a former Enron employee who seems to have a personal relationship with Skilling against the American justice who gave him a sentence of 24 years in prison and charged many other executives.

    Any rational person would never be convinced that there was no fraud at Enron.

  21. Fastow is a rat bastard. He should be given captial punishment. He got off way too easy.

    Skilling and Lay are push-overs who got bullied.

  22. Fastow is indeed a retard!!!!!!

  23. Ummm… it’s very illegal to shift assets and liabilities off a balance sheet before reporting dates (exactly what Enron was doing with Fastow’s SIVs).

    Incidentally no different than the illegal repos that Lehman was doing before they went bankrupt. How can you Cara, put thousands of words down on this blog, but not reconcile that?

  24. Are you saying that I’m not admitting that Fastow was guilty? Is that your issue?

  25. As chief executive of a publicly-traded company, you have a duty of care vis-a-vis your shareholders, and Skilling neglected that duty. In every legal jurisdiction in the industrialized world, that’s wrong.

    But that is the charitable view. The documentary evidence that Mr. Skilling knew what was going on, and condoned it, is overwhelming.

    The whole question of “whether Skilling knew” is ridiculous on its face, because he hired the senior management, he set the tone and defined the company culture. He told managers to “meet the targets,” by whatever means, or else. He introduced the employee rating system. When he had a duty to make informed statements about the company’s financials, he waffled or, at his worst, he lied.

    Skilling ran the shop and signed his name to financial statements that people used to make investment decisions about their retirement fund. He has consigned thousands of hard-working people to a life of poverty.

    Perhaps he is a sociopath; perhaps that is being too harsh. At the least, he is immature. An adult takes responsibility for his actions. Skilling has gone from being a chest-pounding, arrogant SOB to a whiney, “woe is me, I was duped” victim. Sorry, I don’t buy it.

    America seems increasingly a place where people want to be insulated from the negative consequences of their actions. Social Darwinism is great until you’re the victim.

    Well, you can’t have it both ways. At least, not if you get caught. Lou Pai is sitting rather pretty, even after the settlements.

    PS: The character assassinations of journalists don’t help make your arguments more credible. If anything, they do the opposite.

  26. Blah blah blah.

  27. Today of all days, I do not want to answer this. It is so absent of facts. But I will.


    As chief executive of a publicly-traded company, you have a duty of care vis-a-vis your shareholders, and Skilling neglected that duty. In every legal jurisdiction in the industrialized world, that’s wrong.

    How did he neglect his duty?

    But that is the charitable view. The documentary evidence that Mr. Skilling knew what was going on, and condoned it, is overwhelming.

    Really? Point it out.

    The whole question of “whether Skilling knew” is ridiculous on its face, because he hired the senior management, he set the tone and defined the company culture.

    As he said, if someone was keeping something from him, he wouldn’t know.

    He told managers to “meet the targets,” by whatever means, or else.

    That is a slanderous lie, you lying liar. Show me where he says that – any transcripts, emails, on tape, anything? No? Then retract it.

    He introduced the employee rating system.

    Hahahaha!! First, so what? Secondly, NO HE DID NOT. That was in place long before he showed up.

    When he had a duty to make informed statements about the company’s financials, he waffled or, at his worst, he lied.

    Show me proof. You clearly don’t know what you’re talking about – that’s why I’m asking these questions. I’m enjoying it because I know you have absolutely no idea what this case is about.

    Skilling ran the shop and signed his name to financial statements that people used to make investment decisions about their retirement fund.
    So did 9 other people.

    He has consigned thousands of hard-working people to a life of poverty.

    Look, Judge Lake, you’re full of crap. Biggest lie of all. Show me one credible person who is in “poverty”. NOBODY was in poverty after the collapse of Enron.

    Perhaps he is a sociopath; perhaps that is being too harsh.

    Perhaps you’re a douchebag; perhaps that is being too harsh.

    At the least, he is immature.

    At the least, you are uninformed.

    An adult takes responsibility for his actions. Skilling has gone from being a chest-pounding, arrogant SOB to a whiney, “woe is me, I was duped” victim. Sorry, I don’t buy it.

    Thank God because that’s not what he’s saying at all.

    America seems increasingly a place where people want to be insulated from the negative consequences of their actions. Social Darwinism is great until you’re the victim.

    Oh god. Yawn.

    Well, you can’t have it both ways. At least, not if you get caught. Lou Pai is sitting rather pretty, even after the settlements.

    Lou Pai wasn’t indicted on anything.

    PS: The character assassinations of journalists don’t help make your arguments more credible. If anything, they do the opposite.

    Yet you’re allowed to do it? Learn something about Enron and about Bethany McLean, then comment.

  28. BRAVO Cara!!!! BRAVO!!!!

  29. Thanks Mike.

  30. Your tone has certainly changed since you responded to Kate in Jan. of ’09. I don’t know who’s right or wrong, or care, this is just an interesting subject I’ve been perusing. But your response to Stephen last week makes me wonder about your credibility.

  31. Hi Doug,

    My credibility is in every single post, document, interview, video, press release and analysis in this blog. I am, for all practical purposes, invisible – I’m just bringing the evidence to light. So if you find the documents incredible, that’s your own business.

    You can’t threaten me by claiming my credibility is in peril because I called someone a douchebag. VP Joe Biden called someone an asshole the other day – hey same as Jeff Skilling – so I suppose I could have used “asshole” instead of “douchebag” to perhaps the same effect.

    Stephan chose to be a douche on the day we were all celebrating Jeff Skilling’s Supreme Court win.

    And frankly, I went out of my way to answer the his comments.

  32. Your ridiculously wordy apology for Enron isn’t a critique of the movie…it’s a refusal to accept reality.

    Don’t believe the movie? Then read the trial transcripts. They make Enron look a lot worse.

    They were criminals who created an energy crisis that hurt millions of people for no other reason than to further line their pockets.

    Sorry you can’t accept that–but it is the truth.

  33. Oh I’ve read the transcripts. I’ve reported on them extensively. I’ve got some of them in the Enron Index.

    Your “millions of people” blather is just that: nonsense. It’s absolute nonsense. Show me ONE person who was hurt.

    Just one.

    And then – to test your knowledge, which I doubt you have – tell me exactly how anyone at Enron Corporation caused that harm.

    I’m waiting.

  34. PS. If my critique is “wordy” that is because I am refuting every single one of Bethany’s ridiculous claims.

    And I get even wordier with the expanded version.

  35. Your critique of the film and book drive a lot of good points and it has allowed me to see different sides of the Enron era. Thank you. I do believe that there were some instances of blatant ignorance on the part of the “shot callers” at Enron (to escape criminal persecution) but micromanagement is not the job of a CEO, President, CFO or COO. It was the greed of all the players involved including Wall Street, CEC, Arthur Anderson, Enron and countless former employees that contributed to the ultimate demise of Enron. To tell you the truth, I don’t know if I could have resisted the temptation myself. We should all learn from our past. Easy come……easy go.

  36. Gotta ask:

    Why are you so angry?

    Of course Enron executives did things that were wrong. Falsifying accounting records to make losses look like gains? Reporting profits on transactions that haven’t even happened yet? I don’t understand how you can say Lay and Skilling aren’t at fault.

    I bet you’re one of those people who believed Lay’s “Grandpa didn’t know that!” No one wants to pick on a grandpa.

    Sorry for being a jerk. Just my opinion. I can’t figure out why you’re so angry.

    And “Blah blah blah?” Well put. (that was sarcasm)

  37. AD:

    I certainly wouldn’t have resisted temptation. They’re paying me a TON of money to rip off strangers? Why the hell wouldn’t I do that?

  38. Gotta ask:

    Why are you so angry?

    Because the government is abusing its power. Do you not see that?


    Of course Enron executives did things that were wrong. Falsifying accounting records to make losses look like gains? Reporting profits on transactions that haven’t even happened yet? I don’t understand how you can say Lay and Skilling aren’t at fault.

    Because that NEVER HAPPENED.

    I bet you’re one of those people who believed Lay’s “Grandpa didn’t know that!” No one wants to pick on a grandpa.

    THat wasn’t his defense. Not even close.

    Sorry for being a jerk. Just my opinion. I can’t figure out why you’re so angry.

    See above.

    And “Blah blah blah?” Well put. (that was sarcasm)

    So clever.

    JR
    September 29, 2010 at 2:14 pm · Edit
    AD:

    I certainly wouldn’t have resisted temptation. They’re paying me a TON of money to rip off strangers? Why the hell wouldn’t I do that?

    Apparently you’re immoral. The people I know would never do that. I wouldn’t do that.

    But you, apparently, are the epitome of the greedy executive. And yet you judge the people accused of this disgusting behavior?

    Hey Pot?

    Fuck off.

    — The kettle.

  39. wow… the only thing I can say is wow…

    I can only hope that you don’t seriously believe your nonsense.
    I just hope that you are a charlatan/huckster looking to defend your position and for a little “limelight”. Otherwise I am continually astonished at how blinded most people become when trying to defend their beliefs.If you are someone who actually believes in your position I am honestly saddened.
    Most of your statements are so full of the exact same “baseless” facts that you pretend to vehemently despise I can’t even begin to cut and paste those comments and respond to them.
    (although I’ll try if you desire to have a real discussion – even to the detriment of spending my valuable time on such drivel)

    Like so many others with an opinion without merit you resort to trying to redirect blame, resort to distorted truths, and conspiracy theories.

    With an ounce of knowledge of the market and of business one can immediately spot the illegal accounting practices, fraudulent misrepresentation which is illegal since you defraud your investors into investing into a company by misrepresenting the stability/viability of a company, and the development of a culture of ruthless money grabbing at any cost which was made evident by the interviews of several ex-traders(in itself perhaps not illegal but certainly an indicator to the type of company and speaks to a culture allowing “masked” wrongdoing)

    By the way, if you truly believe in the success of companies and desire to see free markets succeed you best be concerned with companies such as Enron as they tend to harm respectability and leave long the term future in its wake.

    …but of course it’s all a conspiracy

  40. I don’t need limelight. I will tell you the same thing I have told everyone else: if you can tell me something I got wrong, say so and we can have a reasonable conversation. Otherwise go fuck yourself.

  41. “They did nothing wrong?” Your attack on our intelligence is nauseating. A company doesn’t get that big without the leaders knowing the financial fraud they are creating. They BOTH, and a lot of other people who were profiting, did a WHOLE LOT WRONG. I’m appalled that you spent so much time analyzing an arguable documentary, and are totally rationalizing the whole thing. I speak as a business owner and financial officer. These guys all got off lucky.

  42. I speak as someone who knows many Enron executives, as someone who saw the company up close, and someone who has spent a great deal of time analyzing the company. There was no fraud or conspiracy at Enron Corporation.

    If you have a specific point of contention, please feel free to point it out. Otherwise, you’re just bloviating.

  43. There was no fraud or conspiracy at Enron Corporation.

    Yeah right… An the California Energy crisis never existed.

    Enron was a key player in this major event an dug a multi-billion hole in tax-payers pockets… (but hey! nobody was hurt, right?)

  44. Just check the involvement of Enron in the CEC (California Energy Crisis) on wikipedia.

    http://en.wikipedia.org/wiki/California_electricity_crisis

    You will see that Enron had many “dark” projects to bring down the state of California to its knees. (DeathStar, Fat Boy, Ricochet, etc.). I guess the CEO didn’t know about that either, huh?

  45. Hi Chris, I’m quite aware of the California energy crisis; I’ve written about it numerous times on this blog. And those “dark projects” are nothing more than trading strategies. Every trading house in the world has them. They’re not “dark”. And just how involved would you expect a CEO to be in the details of the work?

    If you read the title of the blog, you’ll see that I write exclusively about Enron here. That means I probably know about these things and don’t need to look up things on Wikipedia.

  46. You seem to ignore that Skilling, or any CEO of an incorporated company have the paramount responsibility to their shareholders. Is it really such a stretch to say Skilling misled shareholders to believe the company was in a stable financial state? Roughly $40 billion of the estimated $74 billion shareholders lost have been attributed to fraud. And ethically, where is the fair value accounting when Enron was unable to produce basic balance documents upon request.
    It embarasses me to know people like you exist. Are you so impressed with the company’s fascinating façade that you cannot see these men are frauds? Do you feel Skilling, Fastow, and Lay are victims of wrongful prosecution?
    By sympathizing with frauds and justifying their actions, you shatter your credibility. You really deserve those blinders you wear.

  47. Thanks for your comment. However, I disagree with every one of your vague points.

    You seem to ignore that Skilling, or any CEO of an incorporated company have the paramount responsibility to their shareholders.

    And you seem to have no reading comprehension. Of course CEOs have a responsibility to their shareholders. If I was making the opposite argument than I am making I would be saying: Yes, Jeff Skilling committed fraud, but so what.

    I am not saying that. I am saying there was no fraud. Period.


    Is it really such a stretch to say Skilling misled shareholders to believe the company was in a stable financial state?

    Yes, it is. Show me where he “misled shareholders.”


    Roughly $40 billion of the estimated $74 billion shareholders lost have been attributed to fraud.

    You’re accepting the premise that there was fraud. I do not.


    And ethically, where is the fair value accounting when Enron was unable to produce basic balance documents upon request.

    Oh good lord. Please do some research before you start blathering – it really makes you look quite dumb. No, Enron was not unable to produce the documents. Jeff Skilling had told Richard Grubman numerous times that because the information was still being collated, he did not have a balance sheet – but would in a few weeks. Grubman KNEW this because Skilling had told him many times before. Grubman continued to badger Jeff, and the result is your ignorance about the subject.


    It embarasses me to know people like you exist.

    It saddens me to know that people like you exist. So what? Your feelings – or mine – are not relevant to the discussion.

    Are you so impressed with the company’s fascinating façade that you cannot see these men are frauds? Do you feel Skilling, Fastow, and Lay are victims of wrongful prosecution?’

    Skilling and Lay certainly are.


    By sympathizing with frauds and justifying their actions, you shatter your credibility. You really deserve those blinders you wear.

    I noticed you said absolutely nothing about the actual post you commented on – ie, the movie. I guess you’re a drive by commenter – just couldn’t live without spreading your ignorance around, making vague accusations, and ad hominen attacks.

    That’s the quality of my opposition? I’ve already won.

  48. Thanks for your insights. Everything I know about Enron I got from SG in the R and I’ve always suspected that the story was more complex than that “pride, arrogance, and greed of the executives” line.

  49. Thanks for your comment, Keith. Smartest Guys is not fact-based AT ALL so if you’re interested in learning more about Enron, I’ve got a lot of documents in the Enron Index, some transcripts, exhibits, etc.

    The Enron execs I know are the least greedy people I know. I’m much more greedy, arrogant and prideful than they are.

  50. If I’m polite to you will you be polite to me? I don’t like the way the discourse has been going so far on this blog post, so let’s be civil.
    To start, I’d like to say that I disagree with you, but I also respect the right of others to have different opinions. That is what sparks intellectual debate, and that is what ultimately leads to advancement. I admire the amount of time you put into formulating so lengthy an argument, but there are several hypocrisies and other errors.
    For example, in one of your refutations of another argument you state that you were close to the company and to several executives. This implicates your credibility in that you have an active interest in the matter. And yet you strongly draw attention to implications of the interviewees in the movie. I especially feel that the accusations about McLean’s relationship are out of line, because it is perfectly reasonable to meet someone you make a connection with even in unlikely places, such as a trial.
    In terms of whether or not Lay and Skilling, as well as the other executives, should have been punished, that can be answered simply by civil law. As the leaders of the company they have liability for the events that took place, regardless of whether or not they knew about it. It is limited liability, but liability all the same. It’s not a question of right or wrong, but rather the laws that have been written in order to establish a stable and consistent judicial system. You can argue that it should be changed, but for now it is what it is, right or wrong.
    As for people who got hurt, to me the people who stand out most are those who lost their life savings, their jobs, and their retirement funds. Enron let down the people they had the most obligation to: their investors and their employees. It is in large part the investors’ fault, but who can blame them for investing in Enron when they were told repeatedly that it could never fail? If anyone must be blamed, then most accurately it should be everyone involved, but ultimately it was not. It was Lay and Skilling. If we consider the possibility that they never lied in the course of the trial and that they truly had no idea of what was going on, then we most also consider the fact that it was therefore irresponsible of them to recommend the stock to others. If you don’t truly know what you’re talking about, then you should stay silent and let those who do speak up. Because they did speak out without fully understanding the consequences, they are in large part responsible for the crises.
    Furthermore, although they personally may not have done anything ‘illegal,’ they enabled those around them to do so by not following their own business model, “Ask why?” They should have asked their traders and employees why they were earning so much money and where it was coming from before they enjoyed the benefit of it. They should not have put Fastow in a position to do what he did. They should not have allowed their accountants to use mark to marketing accounting without monitoring it closely. They should not have let their power plants close down randomly without question or inspection.
    Skilling claims to not understand accounting, and that is entirely possible, but when it is so critical to your company as it was with mark to marketing, shouldn’t one make an effort to learn it? I realize that the job of a CEO is stressful and busy (My father is one), but there are some things that must take precedence, and thoroughness is one of them, as well as integrity.
    The movie was indeed quite sensational (and if I may say so, it had an excellent soundtrack), but today that is the norm. It was intended to inspire a passionate response from viewers, as it clearly did from you, and to encourage people to more frequently ‘ask why.’ It is most definitely biased towards more liberal beliefs, but most documentaries produced today are.
    Personally, I believe that in an ideal world everyone would tell the truth and do what is best for others, but in reality this is not the case. In my opinion, Skilling and Lay were not 100% honest, and no one ever really is. Have you never lied? Not even to protect yourself in a difficult situation? I have. I felt guilty after wards, but I have. I cannot say definitively that they did something wrong or that they did not believe that what they did was right, but I can say that there was something wrong somewhere in Enron that caused it to collapse from the inside out, and that according to law the executives are held the most accountable for that.
    I’m sorry that you were personally affected by this case (from what I’ve gathered, if not then please correct me), and I’m sorry if you feel offended by what is said about Enron. But I cannot change my base opinion. From the research that I’ve done, there was fraud committed, and whether knowledgeable of it or not the executives were the most responsible as they gained the most from the situation (speaking only in terms of paychecks, assets, and prestige). If you benefit from the good, you must also suffer from the bad. In my mind, that’s just the way the world works.
    In conclusion, those are my beliefs however shaky they may be. What happened would not and could have happened unless there was something wrong going on, and whether or not you choose to acknowledge that is up to you.

  51. If I’m polite to you will you be polite to me? I don’t like the way the discourse has been going so far on this blog post, so let’s be civil.


    Um. Okay. But this is my blog, I can decide to be uncivil. Just reminding you of the rules.


    To start, I’d like to say that I disagree with you, but I also respect the right of others to have different opinions.

    That’s very big of you.


    That is what sparks intellectual debate, and that is what ultimately leads to advancement. I admire the amount of time you put into formulating so lengthy an argument, but there are several hypocrisies and other errors.
 For example, in one of your refutations of another argument you state that you were close to the company and to several executives.

    Please use direct quotes.


    This implicates your credibility in that you have an active interest in the matter.

    Don’t you? You’re writing about it so obviously you have some “interest in the matter.”


    And yet you strongly draw attention to implications of the interviewees in the movie.

    Implications of the interviewees? Can you give me an example?


    I especially feel that the accusations about McLean’s relationship are out of line, because it is perfectly reasonable to meet someone you make a connection with even in unlikely places, such as a trial.

    Of course this is true. But McLean was fucking Berkowitz DURING the trial. And you can go here and read a document by John Hueston in which he says that the ETF used her book as a guide to trial. Whatever you might think of McLean, don’t you think the DOJ ought to do their own research when they’re trying to convict someone?


    
In terms of whether or not Lay and Skilling, as well as the other executives, should have been punished, that can be answered simply by civil law.

    I absolutely agree and most Enron execs would agree too. If they had been dealt with by the SEC, most execs would have happily paid a fine and moved on with their lives. Even if they did nothing wrong, most would have paid money to make it go away.


    As the leaders of the company they have liability for the events that took place, regardless of whether or not they knew about it.

    That is not true. Where did you get your law degree? That’s just not true at all, and if you read that sentence, you’ll agree that it makes no sense.


    It is limited liability, but liability all the same.

    WHAT? What are you talking about? Limited liability? Enron was not an LLC . It was an C Corporation.


    It’s not a question of right or wrong, but rather the laws that have been written in order to establish a stable and consistent judicial system.

    You’re going to need to be much more concrete and clear. What is “It” in this sentence? A stable and consistent judicial system? WHAT?

    You can argue that it should be changed, but for now it is what it is, right or wrong.


    I reluctantly agree but I fear that you’re sort of being very inkblotty here and you might not even know what you’re talking about.


    As for people who got hurt, to me the people who stand out most are those who lost their life savings, their jobs, and their retirement funds.

    Yes, those people got hurt. But not because of anything Enron did. They got hurt because they refused to diversify their investments.


    Enron let down the people they had the most obligation to: their investors and their employees.

    That is not a crime.


    It is in large part the investors’ fault, but who can blame them for investing in Enron when they were told repeatedly that it could never fail?

    Who said Enron could “never fail”? That simply did not happen. And most adults know that there is risk in everything.


    If anyone must be blamed, then most accurately it should be everyone involved, but ultimately it was not. It was Lay and Skilling.

    I don’t know why blame is important at all. It was a natural occurance, like an earthquake or a tsunami. It was just a run on the bank. And there were more than just Skilling and Lay blamed for it. 32 others were prosecuted too.


    If we consider the possibility that they never lied in the course of the trial and that they truly had no idea of what was going on, then we most also consider the fact that it was therefore irresponsible of them to recommend the stock to others.

    Again, you’re being very vague. WHO recommended stock? And you’re failing to see that if Skilling and Lay were encouraging others to buy the stock, that they believed in the stock. Skilling and Lay lost hundreds of millions of dollars when Enron collapsed. How do you explain the fact that both Skilling and Lay had more stock on the day it collapsed than they’d ever had before? Please answer this question.


    If you don’t truly know what you’re talking about, then you should stay silent and let those who do speak up.

    I feel the same way.


    Because they did speak out without fully understanding the consequences, they are in large part responsible for the crises.


    They understood the consequences. But it has apparently not occurred to you that they didn’t think there was anything wrong with the company.


    Furthermore, although they personally may not have done anything ‘illegal,’ they enabled those around them to do so by not following their own business model, “Ask why?”

    You are responsible for your own actions. So were every one of the employees. “Enabling” them to something illegal is not enough to make you culpable in a legal sense.

    And “Ask Why” is not a business model, it is an advertisinng slogan.


    They should have asked their traders and employees why they were earning so much money and where it was coming from before they enjoyed the benefit of it.

    I’m trying really hard to be civil, but sentences like this one make you seem a little dull. Who do you think signed the payroll checks?

    And where is this even coming from? I mean, what accusation does this go back to? That Enron made a lot of money?


    They should not have put Fastow in a position to do what he did.

    It is very easy to be full of “shoulds” when you’re ten years on. You should not have eaten that piece of cake, you should have gone to law school, you should have turned on the lights so you didn’t bump your knee when you got up to get a glass of water. That’s easy to do – should should should. And I see no real value in it.

    But the simple fact is that Skilling and Lay did not know what Andy Fastow was doing.


    They should not have allowed their accountants to use mark to marketing accounting without monitoring it closely.

    They did. Please, by all means, tell me one count in any of the executives’ indictments that relate to mark to market accounting. I am all ears.


    They should not have let their power plants close down randomly without question or inspection.


    Enron didn’t own any power plants. You’re really really way out of your league here. I’m saying that as civilly as I can.


    Skilling claims to not understand accounting, and that is entirely possible, but when it is so critical to your company as it was with mark to marketing, shouldn’t one make an effort to learn it?

    Really? He’s a CEO and you think he should get a degree in accountancy? Should every CEO have a degree in accountancy?


    I realize that the job of a CEO is stressful and busy (My father is one), but there are some things that must take precedence, and thoroughness is one of them, as well as integrity.


    Again, you’re being vague. What must take precedence and thoroughness?


    The movie was indeed quite sensational (and if I may say so, it had an excellent soundtrack), but today that is the norm.

    That may be so, but it doesn’t make it right to slander good people.

    It was intended to inspire a passionate response from viewers, as it clearly did from you, and to encourage people to more frequently ‘ask why.’

    Maybe, but it should also include some facts since it was labeled a “documentary”.


    It is most definitely biased towards more liberal beliefs, but most documentaries produced today are.
 Personally, I believe that in an ideal world everyone would tell the truth and do what is best for others, but in reality this is not the case. In my opinion, Skilling and Lay were not 100% honest, and no one ever really is.

    Tell me where Skilling or Lay lied. Quit making accusations without backing them up.


    Have you never lied? Not even to protect yourself in a difficult situation? I have. I felt guilty after wards, but I have.

    I’m sure you are a good person and you did feel guilty, but what does that have to do with Enron? WHO LIED? And what did they lie about?

    I cannot say definitively that they did something wrong

    But you’re ready to believe they’re guilty anyway?


    or that they did not believe that what they did was right, but I can say that there was something wrong somewhere in Enron that caused it to collapse from the inside out,

    Have you ever looked into a run on the bank? Are you open to the possibility that it did not collapse “from the inside out”?


    and that according to law the executives are held the most accountable for that.

    No, that’s not what the law says.


    
I’m sorry that you were personally affected by this case (from what I’ve gathered, if not then please correct me) and I’m sorry if you feel offended by what is said about Enron. But I cannot change my base opinion.

    That’s very sad. I’m sorry you can’t persuaded even by evidence to the contrary of what you believe.


    From the research that I’ve done,

    Which would be what? Watching The Smartest Guys In The Room?


    there was fraud committed, and whether knowledgeable of it or not the executives were the most responsible

    Look, you don’t have to agree with me on anything else, but you have to get it out of your head that someone – executives in this case – can be held responsible for something that they knew nothing about. That’s not true. And it makes no sense on the face of it. Can I hold you accountable for a murder that happened in your neighborhood? Why not?


    as they gained the most from the situation (speaking only in terms of paychecks, assets, and prestige).

    No, sorry, the law doesn’t work that way.


    If you benefit from the good, you must also suffer from the bad.

    Would you care to expound on this?

    In my mind, that’s just the way the world works.

    Well, in reality it doesn’t work that way. As long as we’re clear on that point, I guess it’s okay to believe whatever you want to believe.


    
In conclusion, those are my beliefs however shaky they may be.

    But you said a few lines ago that you can’t change your “base beliefs.”


    What happened would not and could have happened unless there was something wrong going on, and whether or not you choose to acknowledge that is up to you.

    That’s an opinion, not a fact. Do you even know the difference or is whatever is in “your world” all that matters to you?

  52. I would like to say that I enjoyed both this reading and “The Smartest Guys in the Room” (TSGR). I am a fervent free-market supporter, but even I admit a free-market fails when it is manipulated. And, while I had my own share of problems with TSGR, I believe your accusations are, at times, as baseless and vague as the documentary’s.

    First, I would like to make a statement on bias. I was once reading an article on an old French writer, Guy de Maupassant. Maupassant is widely renowned in the academic community for his lack of bias, but the article talked about how even Maupassant had, “I bias in that he was forced to choose a word”. The point, all material is biased to a degree. And, like most documentaries, TSGR was very biased. However, your article was also very biased, simply in the opposite persuasion. The main problem I have with TSGR is that it was not always chronological, but remember, no one said you have to make a documentary chronological, TSGR presented the facts in the order it did because McLean choose to present the facts by subject, not by chronology. Anyway, on to my main points…

    First, you seem to argue that there was nothing wrong with Enron’s Mark-to-Market accounting. True, MtM is in the U.S. Generally Accepted Accounting Principles (GAAP), the handbook for corporate accounting in the U.S. However, there is a reason that most companies do not use MtM, it can be, at times, subjective and open to corruption. The Financial Accounting Standards Board published a pronouncement in 2007 (granted, well after Enron) on the proper way to use MtM. This set five standards:

    -Clarity on the definition of fair value

    -A fair value hierarchy used to classify the source of information used in fair value measurements (i.e. market based or non-market based)

    -Expanded disclosure requirements for assets and liabilities measured at fair value

    -A modification of the long-standing accounting presumption that a measurement date-specific transaction price of an asset or liability equals its same measurement date-specific fair value.

    -Clarification that changes in credit risk (both that of the counterparty and the company’s own credit rating) must be included in the valuation.

    Now, look at the Enron use of MtM in this context (I believe this is fair because, although Enron collapsed long before this pronouncement, these principles were already well known among accountants before they were made official). Enron failed in all five of these categories. The fair value that Enron claimed for their un-hedged contracts was highly dependent on the estimates of Enron’s accountants. Enron often made many assumptions that their contracts would be viable and prosperous for as long as 20 years, even when these contracts failed. Take, for example, Enron’s contract with Eli Lily. For this contract, Enron booked 1.3b in revenue, even though the contracts was highly variable on the varying price of electricity.

    Second, you seem to find nothing wrong with Enron’s special purpose entities (JEDI, LJM, etc.). You are right, there is nothing wrong with companies doing business with other companies; GE could call JP Morgan Chase today and ask them to buy assets or debts from GE. But, what Enron did was outright fraud. Fastow created companies purely for the purpose of taking bad assets off Enron’s published balance sheets. This is fundamentally different from inter-company business. Fastow’s companies simply made Enron look more stable to traders than it was. This helped lead to a massively over-valued stock and, eventually a collapse. These companies violated many accounting principles, and they were illegal. Please read this excellent academic article on Enron, if you have not already.

    http://www-personal.umich.edu/~kathrynd/JEP.FallofEnron.pdf

    I do not have time to address all my issues now, but I want to make a quick statement on one of TSGR’s subjects that you attack, Jim Chanos. First, like many of the subjects you talked about, you commited a massive ad hominem by simply attacking Chanos’ personal life. The fact is, Chanos is very intelligent, and, furthermore, damn good at seeing problems with companies. You may not like short-selling, but it is a driving force in the stock market. Chanos short-sold on Enron because he saw the “black-box” like nature of the company made it vulnerable to being overpriced by Wall Street. He did not “attack” Enron, he simply saw its problems as a massive opportunity.

  53. Hi, I will reply to this in the next 48 hours or so.

  54. Hello Jake, thank you for your comment and I apologize for the delay in answering you.

    I would like to say that I enjoyed both this reading and “The Smartest Guys in the Room” (TSGR). I am a fervent free-market supporter, but even I admit a free-market fails when it is manipulated.

    Then we have something in common. The current level of federal interference with the public markets chills me to the bone.


    And, while I had my own share of problems with TSGR, I believe your accusations are, at times, as baseless and vague as the documentary’s.

    First, I would like to make a statement on bias. I was once reading an article on an old French writer, Guy de Maupassant. Maupassant is widely renowned in the academic community for his lack of bias, but the article talked about how even Maupassant had, “I bias in that he was forced to choose a word”. The point, all material is biased to a degree. And, like most documentaries, TSGR was very biased. However, your article was also very biased, simply in the opposite persuasion.

    Of course. Have you not read any other of my articles? I love a man who was prosecuted for “crimes” at Enron. My friends were prosecuted, some thrown in prison, mistreated, their professional reputations tarnished, their personal finances thrown around for anyone to see. The DOJ did this under the pretext of investigating and punishing criminal behavior when there was absolutely nothing suspicious about Enron. I am passionately biased against that.


    The main problem I have with TSGR is that it was not always chronological, but remember, no one said you have to make a documentary chronological,

    Yes, I know that.

    TSGR presented the facts in the order it did because McLean choose to present the facts by subject, not by chronology. Anyway, on to my main points…

    No, that isn’t true. First of all, they aren’t “facts.” For instance, please show me a document that states that before he killed himself, Cliff Baxter listened to jazz, smoked a cigarette and drank a bottle of water. Those are dramatic interpretations. That is only one example.

    Secondly, the producers and director chose to make it choppy and out of sequence so that their lies would appear to make sense. When spread out over a realistic timeline, their entire enterprise is revealed to be a fraud.

    First, you seem to argue that there was nothing wrong with Enron’s Mark-to-Market accounting. True, MtM is in the U.S. Generally Accepted Accounting Principles (GAAP), the handbook for corporate accounting in the U.S. However, there is a reason that most companies do not use MtM, it can be, at times, subjective and open to corruption.

    You are incorrect on two points. The first is that Enron Corporation was told they had to use Mark to Market accounting, ordered to from no less than the SEC. The second is that mark to market is used broadly in financial houses and markets; indeed it is the only type of accounting that makes sense. Perhaps Gap and GM don’t use it – I don’t know, maybe they do – but that is because they are not dealing with commodities. Upstream they are (ie, Gap needs cotton and GM needs steel) but for their day to day operations, there is no reason in the world they should be using mark to market accounting. (Updated to expand on this point: If the Gap changed its business model to sell clothes twenty years in advance [I am using your claim that Enron sold forward contracts for 20 years, which if that is even true was not common at all]. Say, you have a kid and you want to make sure you can buy clothes in twenty years for the kid at the prices that you want to pay today. So the Gap would then make an educated guess on what clothes would cost, then absorb the risk of selling you those clothes. Now you can see why the Gap or Kitchenaid or Microsoft would not need to sell forward contracts. But commodities require them and thus, require mark to market accounting.)

    Contrarywise, Wall Street runs on mark to market accounting. Enron saw what its peers were doing and decided that mark to market accounting made the most sense, and the SEC agreed.


    The Financial Accounting Standards Board published a pronouncement in 2007 (granted, well after Enron) on the proper way to use MtM. This set five standards:

    -Clarity on the definition of fair value

    -A fair value hierarchy used to classify the source of information used in fair value measurements (i.e. market based or non-market based)

    -Expanded disclosure requirements for assets and liabilities measured at fair value

    -A modification of the long-standing accounting presumption that a measurement date-specific transaction price of an asset or liability equals its same measurement date-specific fair value.

    -Clarification that changes in credit risk (both that of the counterparty and the company’s own credit rating) must be included in the valuation.

    Now, look at the Enron use of MtM in this context (I believe this is fair because, although Enron collapsed long before this pronouncement, these principles were already well known among accountants before they were made official). Enron failed in all five of these categories. The fair value that Enron claimed for their un-hedged contracts was highly dependent on the estimates of Enron’s accountants.

    That’s not true either. Enron had an entire risk department – I am sure you’ve heard of Vince Kaminski? And did you ever wonder why the CFO role of the company was broken into two roles – CFO and “Chief Accounting Officer” which was occupied by Rick Causey? It’s because Enron was being extravagantly careful to have watch dogs over their accounting. Enron’s accountants could not have gotten away with just an estimate of anything. Those guesses had to go through three layers of executive muscle, plus Arthur Andersen.


    Enron often made many assumptions that their contracts would be viable and prosperous for as long as 20 years, even when these contracts failed.

    Most of the contracts were for two months. And of course Enron made assumptions – even risky ones. But there is nothing inherently wrong with that.


    Take, for example, Enron’s contract with Eli Lily. For this contract, Enron booked 1.3b in revenue, even though the contracts was highly variable on the varying price of electricity.

    I am not sure which contract this is so I can’t speak to specifics, but aren’t all estimates of electricity /gas/ oil/cotton/lumber/pork bellies/etc “highly variable.” Take a stab at how many oil and gas companies have contingency plans that we’d go to war with Libya. How many do you think were wrong? Well, that’s a variable and it was “highly speculative” but it came true.

    And these kinds of minute parsings are exactly why Enron had a well-staffed Risk department.


    Second, you seem to find nothing wrong with Enron’s special purpose entities (JEDI, LJM, etc.).

    I find absolutely nothing wrong with any of the SPEs.


    You are right, there is nothing wrong with companies doing business with other companies; GE could call JP Morgan Chase today and ask them to buy assets or debts from GE. But, what Enron did was outright fraud.

    You don’t give any examples or explain how this was so. And to save you the trouble, no it wasn’t fraud. Companies do deals with their own stock all the time, and with their related parties (ie companies that are owned by the companies they work for.) Google “Shell LLC” and you’ll get about 13000 hits. That’s because Shell has about 13000 off the books partnerships that do the exact same thing Enron was doing. GE does it. Everybody does it. Enron was not breaking new ground here.


    Fastow created companies purely for the purpose of taking bad assets off Enron’s published balance sheets.

    I know you think that’s fraud, but it isn’t. And that’s not what Enron did anyway. There were a lot of investors in those funds. Big banks. The family that owns the Chanel label (I think I’m right about that – maybe it’s Gucci?) Various family trusts, etc, all invested in this. These were not hayseed bumpkins who had never read a 10-K form before. They had very shrewd advisors who pored over the documentation, grilled Andy Fastow and probably Jeff Skilling, and decided to invest.


    This is fundamentally different from inter-company business. Fastow’s companies simply made Enron look more stable to traders than it was.

    To traders?


    This helped lead to a massively over-valued stock and, eventually a collapse.

    Oh I see what you’re saying. But I don’t buy that. The stock was fine. The reason the stock looked “overvalued” in that summer was a combination of things: the bursting tech bubble, Chanos’ attack on the stock (including McLean’s articles written specifically because Chanos asked her to) and in the fall, it was revealed that Andy Fastow had stolen money from Enron. That caused investors to get skittish and yank their money out of the company.


    These companies violated many accounting principles, and they were illegal. Please read this excellent academic article on Enron, if you have not already.

    http://www-personal.umich.edu/~kathrynd/JEP.FallofEnron.pdf

    I do not have time to address all my issues now, but I want to make a quick statement on one of TSGR’s subjects that you attack, Jim Chanos. First, like many of the subjects you talked about, you commited a massive ad hominem by simply attacking Chanos’ personal life.

    That’s funny. It’s true I attack his personal life. But I am hardly the one to throw the first stone. Look up any article about Ken Rice. You will see lurid details of his personal life that are nobody’s business but his. Read the article that describes Jeff Skilling’s first wife as dowdy and his current wife as an “upgrade”, which to my mind is repulsive journalism – and by the way, judgmental. Women have enough issues with their self-confidence without some douchey reporter calling you ugly and the new wife beautiful (and make no mistake, Jeff’s wife is beautiful – but I would hazard a guess that as a decent human being, she was probably uncomfortable with that portrayal too.) Or how about the fact that McLean outright slanders Cliff Baxter by saying he was manic-depressive. Or how about portraying Lou Pai as a stripper-obsessed horn dog? Or how about describing Ken Lay as a clueless simpleton? None of the Enron executives got tangled up with prostitutes and crazy fights like Chanos did.


    The fact is, Chanos is very intelligent,

    Maybe. So is Jeff Skilling.


    and, furthermore, damn good at seeing problems with companies.

    I’m not so sure about this. There is a fine line between seeing a problem with a company and deciding there should be a problem with a company.


    You may not like short-selling, but it is a driving force in the stock market.

    I don’t mind short selling. Heck, short all you want. What I don’t like is him or his goons doing everything they can to MAKE the company’s stock fall artificially. That’s certainly not very sporting of the old hooker-fucker.

    Chanos short-sold on Enron because he saw the “black-box” like nature of the company made it vulnerable to being overpriced by Wall Street. He did not “attack” Enron, he simply saw its problems as a massive opportunity.

    Well you and I have different views of that. I think he selected Enron very deliberately to bring down, and created a myth that Enron was weak, which with enough exposure, including McLean’s article, he helped create the collapse, and in the process made a mudslide of money.

  55. Before I start, I’d like to express my sorrow at your friends’ situations. We may disagree on many issues regarding Enron, but I do know about the DOJ. And while I have respect for the magnitude of the job the DOJ does, in my experience, many prosecutors are over-zealous and hungry for a reputation. Undoubtedly, this has led to false accusations and even false convictions, at many places, including Enron; however, I do believe there was a fraud at the center of this scandal, and, if nothing else, a lesson to be learned for others…

    Let me address a few of the points you make about MtM. First, I have looked on a variety of sources, but I can find no evidence that the SEC in any way ordered Enron to use MtM. The SEC did sign off on Enron using MtM for their gas futures business in 1992. Enron later expanded this business to other divisions of its business. There is nothing wrong with that. But, the same deregulation that Ken Lay argued for added a previously unheard of level of volatility into the natural gas, electric, and other markets. This made MtM more difficult to use safely and effectively. True, Enron, like every large corporation I’ve seen, had a risk department designed to prevent accounting failures (by the way, I know many companies with CAOs, and while there is a “safety in numbers” concept, two people I no way guarantees financial safety for a company). Anyway, remember Enron’s vitality curve (the technical name for “rank and yank”)? This system, combined with the overall pressure on employees due to Enron’s lucrutive and stock-focused compensation led to a situation in which many of the “safety measures” fell short. This led to over-valuations of revenues. Take, for example, the infamous Blockbuster deal. As soon as Enron signed the contract, they reported 110 mill. in profits. But the deal was in its infancy and no one could possibly accurately predict all the variables that would lead to a financially successful deal. Indeed, the deal was probably ahead of its time. Enron never actually made a profit on that deal.

    There was also a domino effect in the procedures Enron used. Remember the nature of Wall St. stock valuations. A stock is based not only on revenue, but also on that revenue compared to analysts’ projections. So, as Enron’s stock rose, the pressure each quarter to increase revenues grew. This ultimately led to the over-blown MtM figures that led to over-valuations.

    Before I move on, I have one fact I’d like to point out about Fastow. Do you know what Fastow’s job was before he came on at Enron. He worked in at Continental Illinois, a bank which was once a powerful national player in the financial sector. His job was to manage the bank’s asset-backed securities which, if memory serves, were marked to market. These securities, along with many other factors, led to CI collapsing in what was the largest US bank failure until WaMu.

    Now, to my knowledge (correct me if I am wrong) the convictions mostly stemmed from the SPEs and not MtM. Now these I believe to be an outright fraud. Reporting laws require that outside investors contribute at least 3% of assets by owned by independent investors. However, this law was violated in the SPEs set up by Fastow. Instead, the SPEs became “debt warehouses” where Enron could keep its liabilities off its stated balance sheets. Furthermore, Enron was engaged in a deceitful manner of hedging their risks. Enron’s balance sheets claim they were hedging risk via transactions with with SPEs. However, these SPEs were actually “hedging” Enron by using guarantees and stock of Enron’s. In this way, Enron had no protection from losses.

    Now, to address your issue with Chanos. First, I would like you to provide me with an example of how Chanos artificially destabilized Enron. McLean’s article was at suggestion from Chanos (as TSGR admits), but why would this article be a threat to Enron if Enron was financially stable? There were many financially unstable companies in 2001, so for what reason would Chanos pick on a company if it was on stable ground? Hear it from the horses mouth, these are the reasons Chanos short-sold on Enron: http://www.actwin.com/kalostrader/EnronTestimony.htm
    Furthermore, McLean’s article hardly brought Enron down, if you remember, at the time of publication, Enron was still doing very well. And, finally, if Enron was truly making what they said, then why would Enron make massive financial restatements leading up to the bankruptcy?

    Lastly, I propose this hypothetical question, if, in some way, I prevented incontrovertible evidence that Enron truly was a fraud, how would you respond?

  56. Lastly, I propose this hypothetical question, if, in some way, I provided incontrovertible evidence that Enron truly was a fraud, how would you respond?

  57. I’ll answer the body of your question tomorrow or over the weekend, but I’ll answer the last question now.

    I would want to know exactly who committed the fraud and how. If it was proven, I would have to accept it. But the problem is, the DOJ tried it, and it failed. Massively . So it would have be some very strong proof.

  58. That’s fine. My only point in the last question is that I wanted to be sure you wouldn’t just say, “I would never believe… blah blah” I’ve argued with people like this (usually they are 9/11 “truthers” or Holocaust deniers), and it is fruitless and frustrating. On the other hand, I believe an intelligent debate (such as ours) is stimulating and insightful even if not everyone agrees at the end… just my two cents.

  59. Sorry for the delay in replying.

    And while I have respect for the magnitude of the job the DOJ does, in my experience, many prosecutors are over-zealous and hungry for a reputation. Undoubtedly, this has led to false accusations and even false convictions, at many places, including Enron; however, I do believe there was a fraud at the center of this scandal, and, if nothing else, a lesson to be learned for others…

    That’s an interesting statement. Who do you think was wrongfully convicted at Enron?


    Let me address a few of the points you make about MtM. First, I have looked on a variety of sources, but I can find no evidence that the SEC in any way ordered Enron to use MtM. The SEC did sign off on Enron using MtM for their gas futures business in 1992. Enron later expanded this business to other divisions of its business.

    What do you mean Enron “expanded this business to other divisions of its business”?


    There is nothing wrong with that. But, the same deregulation that Ken Lay argued for added a previously unheard of level of volatility into the natural gas, electric, and other markets.

    I think that the hybrid system we have now is – to use Shakespeare’s word – fuct.


    This made MtM more difficult to use safely and effectively. True, Enron, like every large corporation I’ve seen, had a risk department designed to prevent accounting failures (by the way, I know many companies with CAOs, and while there is a “safety in numbers” concept, two people I no way guarantees financial safety for a company).

    Nothing guarantees financial (or any other kind) of safety for a company. There are always bad apples. In the US military, Enron, GE, your company, mine, etc.


    Anyway, remember Enron’s vitality curve (the technical name for “rank and yank”)? This system, combined with the overall pressure on employees due to Enron’s lucrutive and stock-focused compensation led to a situation in which many of the “safety measures” fell short.

    Ah yes, the PRC. It’s used to slam Enron for everything from murdering baby seals to global warming. But I don’t buy it. People are compensated in all kinds of different ways. People didn’t get a chance to speak for themselves at the PRC. Their leaders did. Their leaders – bosses – could say that Jake did well this year, and we need him to get a good bonus. But some other due (Andy Fastow) could smirk and say, “Jake just mixes daiquiris. More money for my group.” And then it was up to “Jake’s boss” and “Andy Fastow” to fight it out. So if you did well, your boss went to bat for you. You didn’t get a chance to press for a better bonus. I always found that two-degrees removed approach pretty wise.

    This led to over-valuations of revenues. Take, for example, the infamous Blockbuster deal. As soon as Enron signed the contract, they reported 110 mill. in profits. But the deal was in its infancy and no one could possibly accurately predict all the variables that would lead to a financially successful deal.

    But that valuation wasn’t actual money. Skilling was on record saying EBS wouldn’t earn anything for eight years. Nobody expected EBS to make money. And this reminds me I need to post more Braveheart materials, but here is a primer on the deal. But the alleged “problem” with it wasn’t that EBS claimed money it didn’t actually earn, it was that prosecutors claimed there was a “secret side deal” that Enron wouldn’t lose money on the deal (ie, exactly like the allegations at Corporate).


    Indeed, the deal was probably ahead of its time. Enron never actually made a profit on that deal.

    True. But they didn’t expect to. Skilling said they’d eat through $3 billion before finally turning a profit in 2008. He said this on no fewer than four different occasions, on film.


    There was also a domino effect in the procedures Enron used. Remember the nature of Wall St. stock valuations. A stock is based not only on revenue, but also on that revenue compared to analysts’ projections.

    I think you’re misunderstanding the role of analysts, or at least how a stock is valued. I’m an analyst and I know that if I say a stock is overvalued, I have to prove that to about 6 layers of bosses before I publish it. Stock is a very funny thing – it’s almost like a little living thing, a thing you watch grow and shrink every day based on… what? Sometimes its nothing. Suddenly like sharks sniffing blood in the water, investors start buying or dumping stock like crazy, and those companies usually issue press releases saying they have no material information about why their stock was trading at 5x its normal volume or whatever. But it’s a sensitive thing – and lots of factors influence it. Journalists influence it (Bethany McLean), rumors (like Chanos’s), plain old common sense (if the CFO just resigned under a cloud of suspicion, maybe you’d dump your stock too), the general market conditions (the Bubble vs. the bursting of the Bubble), etc. There are a million factors that go into it. When an analyst pinpoints a figure, that’s basically just her putting in fields in her Excel spreadsheet. And its not a big deal if a company doesn’t make it – many companies don’t. That sometimes means the analyst doesn’t really know the company as well as he/she should, or maybe the company is softening. Who knows. But if Enron wanted to make the quarter, it could do it without trickery. If it was really desperate, why not cut costs? Why not sell some domestic assets that people would have paid huge money for (such as EBS)? It didn’t have to resort to fraud because it wanted its analysts to not be disappointed.

    For a very dramatic example of how sensitive stocks can be check out this post, Putin’s Comments Drive Company’s Stock Down $6 Billion.


    So, as Enron’s stock rose, the pressure each quarter to increase revenues grew. This ultimately led to the over-blown MtM figures that led to over-valuations.

    I don’t agree that the pressure increased quarter by quarter. That growth was organic. All they had to do is what they were doing.


    Before I move on, I have one fact I’d like to point out about Fastow. Do you know what Fastow’s job was before he came on at Enron. He worked in at Continental Illinois, a bank which was once a powerful national player in the financial sector. His job was to manage the bank’s asset-backed securities which, if memory serves, were marked to market. These securities, along with many other factors, led to CI collapsing in what was the largest US bank failure until WaMu.

    Yes, I know. But do you think Andy had something to do with that?


    Now, to my knowledge (correct me if I am wrong) the convictions mostly stemmed from the SPEs and not MtM. Now these I believe to be an outright fraud. Reporting laws require that outside investors contribute at least 3% of assets by owned by independent investors.

    So do mortgages, by the way.


    However, this law was violated in the SPEs set up by Fastow. Instead, the SPEs became “debt warehouses” where Enron could keep its liabilities off its stated balance sheets. Furthermore, Enron was engaged in a deceitful manner of hedging their risks. Enron’s balance sheets claim they were hedging risk via transactions with with SPEs. However, these SPEs were actually “hedging” Enron by using guarantees and stock of Enron’s. In this way, Enron had no protection from losses.

    A couple of thoughts:

    1. It isn’t illegal to use your own stock to do deals.
    2. I take issue with the accusation that Enron was using the funds as “debt warehouses.” Basically Enron was trying to lock in the value of certain assets, starting with RhythmsNet.
    3. There is nothing illegal about keeping losses off your balance sheet.
    4. I believe that Enron was protected. Toward the end, Enron was weakening and the hedges failed in a spectacular way.
    5. Any crime was demonstrably localized to a tiny group of people in LJM – a company that was not part of Enron; Enron was the victim of LJM’s shenanigans.


    Now, to address your issue with Chanos. First, I would like you to provide me with an example of how Chanos artificially destabilized Enron. McLean’s article was at suggestion from Chanos (as TSGR admits), but why would this article be a threat to Enron if Enron was financially stable?

    An example: Bears in Hibernation. Basically Chanos’s group gets together, decides which company to destroy, and tries to do it. That year, it was Enron’s turn. And it hasn’t stopped – he’s tried it with other companies as well.

    And as I explained, people listen to journalists, for better or for worse. Bethany’s trying so hard to make a career out of company-busting with mixed results (look into Fairfax Financial Holdings and Rocker Partners).

    I like the question though – I like to test everything against that question. Like: why do you suppose Enron collapsed, even after Fastow stole that money? Surely nobody believes he stole enough that it sucked the life out of the company. So why did it fail? Why wasn’t Enron strong enough to withstand it all? My answer is that it was an accumulation of things – the tech bubble bursting, Chanos’ attack, Bethany’s article (followed by other articles), 9/11, the fact that the CFO was accused of theft and then ousted, internal financial problems (meaning when the company started to run out of money, it had a snowballing effect on the market place – and ended with a spectacular run on the bank.)


    There were many financially unstable companies in 2001, so for what reason would Chanos pick on a company if it was on stable ground? Hear it from the horses mouth, these are the reasons Chanos short-sold on Enron: http://www.actwin.com/kalostrader/EnronTestimony.htm

    I called the CEO of a big company (one of “my companies”) to discuss a recent joint venture. I asked him, “Why them?” And his answer was, “Well, it had to be somebody.”

    I think it had to be somebody.


    Furthermore, McLean’s article hardly brought Enron down, if you remember, at the time of publication, Enron was still doing very well.

    Oh no, I don’t credit her with that at all. I think it was part of a combination of factors that hurt the company.


    And, finally, if Enron was truly making what they said, then why would Enron make massive financial restatements leading up to the bankruptcy?

    It wasn’t massive. It was a couple hundred million. It’s actually pretty common; companies write-down and restate all the time – it doesn’t mean they’re weak, it just means they made a mistake. It’s not the best thing in the world to happen, but it’s not an unmitigated disaster either.


  60. I’ve argued with people like this (usually they are 9/11 “truthers” or Holocaust deniers), and it is fruitless and frustrating. On the other hand, I believe an intelligent debate (such as ours) is stimulating and insightful even if not everyone agrees at the end… just my two cents.

    Oh heavens, you have much more patience than I do if you argue with the Troofers!

  61. Sorry for taking so long to respond… This post is a little rushed due to other commitments, so I apologize in advance for any dumb mistakes.

    To begin, as to my arguments with our mutually beloved truthers, if you would like to feel what it is like to argue with them, follow this protocol: Find the hardest wall you can (solid steel beams would be preferable), and ram your head into it, as hard as you can, for about five minutes. That would give you about the equivalent level of frustration.

    Anyway, I’ve noticed something important about our discussion. It seems as if we agree that Enron was brought down by a variety of factors such as market conditions, lack of confidence, and general human nature (ie panic selling). The only difference seems to lie in that I believe these factors were all made possible by corporate fraud.

    First, let me clarify a few points I’ve made about MtM. When I said Enron, “expanded MtM to other sectors of its business”, I simply meant that Enron was using MtM for all parts of its business, not just a few isolated areas. I didn’t mean to imply there was something innately sinister about this. However, here is what I see as the problems. As Skilling admitted, Enron was a sort of “black box”, a company which did things so differently from other companies of the day that it was difficult to understand the details of the money flow. Here is where I believe MtM became problematic. Let’s pretend I run a very vanilla company, say, a paper towel company. In that case, MtM is not a problem, everyone pretty much understands the cost and value of paper towels, and I could very easily get a fair value for my goods. But Enron was no paper towel company. For example, let’s look at EES. When EES signed large commercial deals, the profit would be recorded based on Enron’s models of future upside. But it really wasn’t plausible to peg those deals to some concrete number, as with paper towels. The energy market is just to volatile to peg the deals to a particular value.

    Next, I see what you’re saying about the PRC. People defiantly over-blame the PRC; after all, many companies, including, to a degree, GE, use the system, and I realize Skilling believed a competative environment would increase production (I’ve heard he got this philosophy from reading the book The Selfish Gene, an evolutionary text on the drives of behavior). However, I think Skilling was applying a macro concept to a micro situation… competition between companies can drive down prices and help consumers, but competition between employees can lead to deceit from within. The problem I see comes with the addition of MtM. I think MtM and the PRC created a situation where everyone (bosses included) was given both means and motive to cut corners to improve figures. This led to additional lack of reliability in MtM figures.

    Let me provide an interesting metaphor for how I think the “black box” nature of the company led to over-valuation. Pretend you have a swollen ankle and are given two choices for treatment. One is a new and untested herbal treatment while the other is NSAIDs. While both may work, I would never have more confidence in the herbal because no one explained to me how it worked. The problem was that Enron was that new herbal treatment, and analysts simply accepted Enron’s claims and did not attempt to thoroughly examine them; I believe this lack of understanding, in part, led to the over-valuation.

    I would like to say bravo on working Putin into a discussion on Enron. I think we can agree the US market, as a whole, is more stable than Russia’s (for more proof of this, think about another famous bankruptcy, LTCM). Anyway, no one in the US could possibly hold as much sway over the market as our beloved Comrade Putin does in Russia. I understand what you’ve said about the variety of factors that brought down Enron, but I would implore you to explain who all of these things could have happened in perfect timing by pure chance / bad luck. I also thought it was ironic you brought up Putin, as I was just reading an article on an oil and gas company called Yukos. Not too long after Enron fell, Putin basically bullied and manipulated this company into bankruptcy. Ironically, it’s become sort of a Russian “reverse Enron”; the former CEO of Yukos, Mikhail Khodorkovsky, was regarded as robber baron in post-Soviet Russia, but, now in prison, Khodorkovsky is regarded as a hero of free enterprise and a sort of martyr. Anyway, back to our discussion.

    Now on to the SPEs. First, I don’t recall asserting using your stock to do your own deal is illegal, it’s just risky, something that could be considered in the wider scheme of the SPE scandal. Second, I really don’t understand what you mean by “locking in the price of some assets”. How was Enron doing that when it was doing business with funds that were essentially a part of Enron. Also, I don’t understand how you can say keeping losses off your balance sheet i not illegal. Think about it, if I don’t know if Company X has $1,000,000 or $1,000,000,000 in losses, how could I fairly judge the price. And if the SPEs were legit, then why the need for financial retatments (by the way, I hardly consider hundreds of millions insignificant). The bottom line is this, I would like to know how the SPEs were not created solely for the purpose of hiding debts in order to meet projections. I have a feeling this particular debate will not end with this post ;)

    On to Chanos very quickly, what do you think Chanos did (besides rumor) to “attack” Enron. I don’t think Chanos just got very lucky by starting a rumor right as the stock tanked. I think Chanos just saw the risk (something he does everyday), he did not create it.

    Anyway, that’s going to have to be all for tonight, I look forward to any responses!

  62. Cara, there is one glaring flaw with your position which undermines everything you’ve said and weakens there credibility of every single assertion that you put forward.

    Just because you were an employee and claim to have had a close relationship with the company doesn’t mean that your understanding, insight of that company is full or complete.

    Your defence of Skilling and Lay seems to rest on the idea that it’s perfectly believable that they had no knowledge of things that were kept from them by their employees. It follows that it’s also possible that the truth about illegal practices on anyone’s part was kept from you too and that your knowledge us nit as deep as you’d like to think.

    Why do you assume that your knowledge of the company was any fuller than that of the leaders or any other employee. You simply aren’t in a true position to make the assertions that you do as it’s perfectly possible that plenty of pertinent facts were hidden from you.

    It’s pure logic.

    I think you’ve got a screw loose, love.

  63. Edited to say:

    Paul, thank you for your comment. My opinions about Enron and the Enron prosecutions have little to do with my interactions with Enron. My opinions are based on countless hours of research, interviews, and analysis. Wherever possible, I go to the source material, the actual correspondence, emails, and other documents relevant to the topic at hand. And I interview all the people who will talk with me who have credible knowledge of Enron. I know of few reporters who have done this kind of analysis, and I have found that the extreme anti-Enron people are usually the ones who have put the least effort into trying to understand the facts behind the Enron prosecutions.

    What amazes me, still after all these years, is how so many people seem to have some little desire to actually explore the facts about Enron. It is as if people are so in love with the urban myth that Enron has become that they fear any enlightenment that might destroy what has become a beloved fantasy for them.

  64. Cara,

    In one of your responses above you state “there is nothing illegal about keeping losses off your balance sheet”.

    What on earth do you mean by that? Can you please elaborate. Are you suggesting it’s ok to not recognise a loss on the income statement?

  65. Hi Don, thank you for your comment.

    Perhaps I should have been more deliberate and focused in my reply. I meant in context with Enron, Enron’s SPEs were not abused. Enron was not dumping losses in those SPEs.

  66. Cara,

    I see. Those are two very different statements.

    Can you please clarify you’re background and qualifications? If these are published somewhere on this site I apologise, I must have missed them.

    I don’t think this is a particularly intrusive request. On this blog you routinely speak with a self entitled authority, and I would enjoy to know of your academic and professional associations.

  67. I will repeat what I’ve said before when faced with the same question: I’m a financial analyst. That’s all I’ll say about my background. I actually prefer to keep the focus on the facts of Enron – not me.

    What are your credentials? You obviously think I need some kind of credential to write a blog and research Enron, so ostensibly you need some to read and participate in whatever I write.

  68. Why did the CA pensions buy into the Enron ntrap? I thought (at the time) everyone in the financial industry knew something was kafakta with Enron…

  69. There was no “Enron trap.” There was nothing “kafkta” with Enron, whatever that means. It was a good company.

    Besides, CALPERS, if that’s what you’re talking about, got out in 1999 (I could be mistaken about the year; they didn’t collapse when Enron did because Enron had bought them out.

  70. Maybe good, but very, very scary.
    Intuition on my part, I suppose, cuz I cringed whenever Enron came to town to make a “deal”. My shirts insisted that I not do deals with Enron unless they were simple forwards and such, unless I understood the deal. Most of the time, it was clear that mark to market was a recipe for disaster leading the way for exotic, misunderstood deals. . Someimes guys like KR would go over my head, next thing ya know, I gotta do a deal cuz “I didn’t get it!”. Some of my buds were buying Enron on the way down, ended up with crap. Just sayin’, isn’t a trend line supposed to be your friend?

  71. You’re not the first person who has used that line (“you don’t get it!”) so I am not dismissing your comment at all. However, I do wonder if Ken Rice (I assume that is the KR you were talking about?) did know something about the overall business that guys on the ground just couldn’t see. I am taking a stab in the dark here.

    Guys who bought on the way down… I know how tempting that must have been. How utterly awful it was to be holding worthless paper at the end.

  72. KR ws a great guy, whom I really liked. He is a born salesman! I bought huge amounts of NG physical until off system sales became derigure (spelling?) and I started selling, etc. Yes, I could always count on Enron in case I was in a spot, but it was reciprocal. I am saying that I began to lose confidence when the exotic deals began showing up where I was not sure if the salesman was selling something of value or just selling added value or perceived value on the part of the salesman. I lost touch when he went into broadband or water, or whatever. From my standpoint, it seemed paper was much more important as Enron lost sight of its roots: pipes and molecules, and paper became the way to make the most profit in the most expeditious manner. Thus, the tail wagged the dog and the house of cards fell within itself and Enron failed to exist. Very sad, indeed.

  73. Are you people seriously crazy? You say “look at the facts”. Jeffrey Skilling was convicted of 25 counts, and that is taking into consideration that he spent over $50 million on Attorney’s fees to get it down to that. Not saying I am anti-Skilling ( in fact, I find the entire story extremely fascinating) but Skilling is about as guilty as Bernie Madoff. You can’t create company’s out of thin air, and transfer toxic assets to them, to keep the Enron stock up. How could he not know this? Either that, or he was too inept to be CEO of his company. He was unqualified either way.

  74. Hi Eric,

    Thank you for your comment. Being “unqualified” to be a CEO is an interesting thought. If that is true, then wouldn’t that mean he was merely making bad business decisions — not intentionally committing crimes?

  75. Cara,

    I appreciate your insight on all matters Enron. From one that was with Tejas Power Corp, then Dynegy until it got sucked into the whirlpool on Smith street after the implosion I agree with all your thoughts. Enron always had the best, brightest and most aggressive people in the energy trading industry and the 90’s were the most exciting time to be in Houston. Can you give us your thoughts on what will be Skillings next move and the final resolution for him. I apologize if redundant.

  76. what about not been able to exhibit balance sheets and cash flow statements for Enron, why were they reluctant in doing so? I guess it points out their dishonesty. And what about Arthur Anderson destroying all the records and emails they had related to Enron?

  77. @Fahad: Enron filed all financial statements regularly and completely. Enron was never accused of failing to file financial statements — they were accused of mis-reporting certain transactions.

    Regarding Arthur Andersen, that is one of the most notorious of the Feds’ failures. The convictions that the Feds attained in that case were thrown out by the Supreme Court. Therefore, the Feds destoryed a company and thousands of jobs for no reason.

  78. I disagree in totality to the article entitiled everything wrong with “The Smartest Guys in the Room”. I believe that both Jeff Skilling and Ken Lay had the feeling that they crossed lines that would greatly affect both the Enron Corporation, and their lives personally. Before the collapse, I believe they began to sense that the scope of the damage might even be further reaching than they had originally anticipated. They didn’t anticipate just how many people other than themselves would be affected. I don’t think they were malicious in their actions. I think the reprocussions of their actions shocked even them.

  79. I enjoyed your breakdown on the propaganda for the movie. I wonder if you do this in your day to day life (because it is more targeted and much sleeker than this documentary). Taking the time to document and involve the truth in every argument is crucial to having an ethical society. I hope your passion for facts and the truth spread beyond this film.

  80. I watched this horrendous train wreck of a ‘documentary’ with little knowledge of the specifics of Enrons history. Even from this position of ignorance I sat there in disbelief that this tripe was lauded as ‘groundbreaking’. A horribly biased character assassination. Things like the Asian guys love of hookers and the fact he left his wife to marry his ‘stripper girlfriend’. What the fuck does that have to do with the running of a business or its demise? So shallow.

    I was bloody relieved when I jumped on the net find I wasn’t the only one critical of this movie.

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