Three decades ago, political reporter David Halberstam wrote The Best and the Brightest, an examination of how a culture of arrogance led John Kennedy and whiz kid advisers like Robert McNamara into the quagmire of Vietnam, a leadership failure from which Democrats have never entirely recovered. In the aftermath of the collapse of Houston's Enron Corporation, business reporters Bethany McLean and Peter Elkind penned a disturbing account of how well-connected Texan Republicans pulled off the greatest white-collar crime in history. McLean and Elkind's book has now spawned writer/director Alex Gibney's documentary, Enron: The Smartest Guys in the Room. If you haven't been adequately mad about something recently, this film will cure you of that in 110 minutes.
For most Americans, the Enron scandal was lost in the dot.com collapse of 2000 and the nightmare of the terrorist attacks in 2001. Lots of companies failed in that period; Enron seemed just another one. But Enron's eventual bankruptcy in early 2002 was a special case. At its height, it was valued at $70 billion, the seventh largest company in America. Its CEO, Kenneth Lay, was a confidant of both presidents Bush, and Enron was the largest corporate donor to the presidential campaign of George W. Bush. Founded in 1985 as a natural gas company, Enron grew like a toadstool to wield staggering influence over America's entire energy industry. But even at its zenith, Enron was not a profitable company in any conventional sense. It was, instead, an elaborate pyramid scheme orchestrated by Lay, his associate Jeffrey Skilling and a vast array of collaborators.
From its earliest days, Skilling employed the peculiar 'mark to market' accounting strategy that allowed the company to estimate future profits but record them immediately. The well-established Arthur Andersen accounting firm handled Enron's books and lent its air of authority to Enron's corporate viability. Throughout the 1990s boom, Enron stock appeared to be among the best buys on Wall Street. In fact, this film argues, the company existed almost solely to inflate its stock price. One of its top managers, Lou Pi, headed a division that lost more than $1 billion but nonetheless managed to cash out his own Enron stock holdings ahead of the collapse and walk away with $250 million. In short, as long as the stock increased in value, Lay, Skilling and CFO Andrew Fastow were able to hide the fact that Enron was actually losing money. To keep the stock price up, Enron used pressure tactics on any analyst who questioned Enron stock value. One skeptic, John Olson, was fired from his analyst position at Merrill Lynch, and Merrill Lynch was promptly rewarded with $100 million of Enron business.
Eventually, Enron undertook other measures to show profits that didn't exist. Fastow created a series of paper companies offshore into which Enron dumped its staggering losses. These companies with flip names like 'M.Yass' existed solely to defraud Enron stockholders. In the early days of the market downturn, Skilling concocted schemes to create a market in internet bandwidth and even one for 'trading weather.' These ideas just resulted in greater loses. Then, at its most notorious, Enron orchestrated the utterly artificial 2001 California energy crisis that caused rolling blackouts throughout the state and cost California consumers $30 billion. There was never a shortage of energy capacity, but to drive up their selling price, Enron managed to shut down sometimes as much as three-quarters of the California power grid. Everyone in America's largest state was inconvenienced and frightened. Some died. Gov. Gray Davis asked the federal government to intervene, but President Bush refused.
Of course, a house of cards inevitably crashes. Arthur Andersen saw the handwriting on the wall, shredded one ton of Enron documents in a single frenzied day and eventually fell into bankruptcy, costing 29,000 employees their jobs. Skilling saw the end coming in August 2001 and cashed out with $200 million 'to spend more time with his family.' Lay remained and assured employees the company was sound. But while freezing their ability to sell Enron stock in their 401K portfolios, he and Fastow were dumping their own stock as fast as possible. In all, Lay sold personal Enron holdings totaling $300 million. Fastow cashed out $45 million. Enron employees were hardly so lucky. Twenty thousand lost their jobs and were left with worthless 401K funds and no pensions. All told, Enron employees lost $3.2 billion in retirement funds. For example, a Northwest utility lineman who had labored all his life for a company Enron acquired once had a 401K worth over $340,000. After the collapse, his total cash worth was reduced to $1,200. A man who steals $30 from a convenience-store cash drawer faces hard time and no public sympathy. Lay and Skilling go on trial in January 2006, having stolen billions from millions. This film makes you hope they get what they so obviously deserve, which no doubt won't be life without parole.
- AP Worldwide
- Behind bars? Enron CEO Kenneth Lay and his associate Jeff Skilling (pictured) go on trial in January.