Maria Exall reviews Enron – the smartest guys in the room
Enron was the seventh biggest corporation in the US, valued at 70 billion dollars; it was a big player in the global energy industry. When it collapsed in 2001 there were 30,000 redundancies. They discovered massive deficits in the employee pension funds. Several leading Enron executives had cashed in hundreds of million dollars in shares in the run up to the bankrupcy announcement.
But this was no ordinary story of corporate mismanagement. No commonplace event where workers are forced to carry the lions share of economic pain. This scandal went to the heart of Wall Street — its accountants, the banks, the legal firms — all those that help create the financial system in the richest nation on earth. As a direct consequence of the Enron scandal, Arthur Anderson, the major accountancy firm collapsed (with another 29,000 job losses), in large part because of their complicity in signing off many fraudulent accounts at Enron and for shredding an estimated ton of records in the few days after it collapsed.
This documentary film is on release as the two most senior Enron executives are on trial in the US.
The first is Kenneth Lay, Enron chairman and a close friend of both George Bushes. The film makes clear that the space that Enron had to manufacture its profits has a lot to do with the US government, specifically, the deregulation of the US energy industry. Lay had influence on the appointment of the head of the Federal Energy organisation. The activities of Enron in California, where power cuts were created by Enron to boost profits in energy trading, had a direct effect on the removal of Democratic governor Gray Davis and his replacement with Republican and ardent deregulator Arnie Swartznegger.
Kenneth Lay’s activities should have rung alarm bells if there were any properly functioning safeguards within the financial system in the US. Clearly there are not, and it is unlikely that there ever could be because of the power exercised by corporate wealth. A Vice President of Enron who was one of the first to alert financial journalists as to what was going on is quoted quite cheerily on camera saying “it could happen again”
Jeff Skilling, the ex-Chief Executive Officer of Enron, is also on trial. Much of the evidence against Lay and Skilling is due to the testimony of the ex Chief Financial Officer of Enron, himself a Skilling protege.
The film dwells on the morality (or rather amorality) of the macho executive culture in Enron, and how this had a remorseless internal logic that became more and more divorced from the actual activities of the company on the ground. The honchos lived in a fantasy world about the profitability of the company, the function of which seemed to be about proving self worth rather than economic reality. Skilling is shown to be a supporter of a crude social darwinism, his favourite book being The Selfish Gene. Recorded conversations between Enron energy traders detail an almost sadistic enjoyment in causing havoc and a confusion between making money and getting one over on someone else.
Financial analysts in the energy industry had queried Enron’s financial records but persistent critics found themselves out of a job. Enron’s economic viability was based on being a natural gas wholesaler and trader. They widened their concerns to purchasing other energy utilities such as ex-public electricity companies. They made their money mainly through trading energy, and used an accountancy systen called mark to market that allowed them to trade by using estimates of possible profits that are never subsequently ratified. The fiction multiplied and the fraudulent practises used to cover what was essentially profits without any concrete foundation increased.
In the late 1990s they entered the broadband market selling bandwidth for film on demand. It never caught on and major holes were appearing in the accounts that were harder and harder to cover. Towards the end they proposed trading on future weather! Companies were invented to hide debt and give the illusion all was going well. Despite the business proposals getting more and more fanciful, and the financial structures becoming more and more compromised, the mainstream of the US banking world was prepared to lend them more money.
If you want to see capitalism in all its amorality and disconnection from reality, go and see this film. Anyone who works for a multinational or large institution connected with the finacial world will find the management-speak and corporate justifications that drove Enron to ruin all too familiar.