Enron: The Smartest Guys in the Room

How did Enron become the world's largest corporate bankruptcy? A culture of greed, and fraud, coupled with an accounting system ripe for abuse, was part of it. But one also needs to understand the way that markets work (ironically, since Enron claimed to know this better than anyone else). The rise in Enron's share price had all the hallmarks of a classic pyramid scheme, whereby, if you claim to be making enough money, you can get away without proving it, because investors all want in, not out. Meanwhile, Enron bankrolled its regulators with the money it did have to stop them asking about the money it didn't. Finally, when all this was exposed, the firm was worthless, even though there had been at least some successful businesses within it, because, fundamentally, like all businesses, Enron has sold confidence and now this commodity was in very short supply; but Chief Executive Jeff Skilling's claim that "it was a classic run on the bank" is disingenuous to say the least, given that the real money that Enron did (at one time) make was earned through deliberately operating with very low reserves. 'The Smartest Guys in the Room' tells some of the story of Enron's collapse: and it's a compelling tale, although I found the use of background music rather annoying (the story is divided up into titled sections, with each section being the name of a song, which feels rather heavy-handed and obvious). But is gives a good flavour of what went on at Enron, although it doesn't go into the full details of the crooked financial transactions, and (like all the books I have read on the same subject) doesn't manage to answer the killer questions: what were, year-on-year, Enron's real profits and losses? and who knew what, when? Probably, these are impossible questions to answer: the picture that emerges is of a company where the bosses didn't want to know, everybody's job was to keep their superior happy and rich, and if you could do this, they wouldn't ask how you had managed it (or how rich you had made yourself in the process); a happy conspiracy until, eventually and inevitably, the money ran out. And as I said before, the irony is that this company that tried and failed to buck the markets was itself the high priest of market capitalism. If Enron's failure at least induces a dose of scepticism about the self-proclaimed (and invariably loaded) champions of market economics, some good at least will have emerged from what is otherwise a sorry tale.

...because I can't see what's different from what happened here and what the banks did that caused the global collapse of 2008. Turning hard assets into derivatives and selling them on the market? Knowing that a product is worthless and encouraging its trade anyways? This sounds familiar, it's just Enron traded derivatives on fuels and the banks did it on real estate. Thus I guess there is nothing different here other than the banks committed crimes on such a large scale that all of the criminals wouldn't fit into prisons without us building more, plus all of those campaign contributions! Congress couldn't let THAT dry up! So here we sit with 0% interest rates on our savings until the banks recoup every cent that they lost, so I don't see how this is different from what was threatened in Crete - confiscation of a portion of all depositors' funds to make the banks there whole, except here in the U.S. it is happening slooooowly, so nobody complains of outright theft. But I digress.

Now to the film itself. It takes almost two hours to chart the history of Enron, from the beginning in the mid 80's to its sudden collapse in 2001. There are interviews with everyone involved with the company from accountants to regular employees, and like all Ponzi schemes, people might have had their doubts and suspicions, but nobody wanted to upset the money train especially if they are on that train. And like all Ponzi schemes Enron came to a sudden abrupt end when there was no way to hide the fact that all of the money and the profits were not real.

Also very interesting is the gladiator/macho corporate culture described, largely caused by COO Jeff Skilling waking up one day, realizing he was a nerd, and wanting to throw off that nerd persona. He lost weight, worked out, got Lasik done on his eyes, and began to organize adventure trips for himself and an inner circle of Enron executives, some of which involved actual bodily danger. He instituted an Enron employee ranking system in which employees were ranked from 1-5 and those in the lowest ranks were automatically terminated. It was the Billionaire Boys Club minus the murder and involving a much bigger club.

Of course, now the scandal looks almost quaint compared to what we've been living with since 2008.In 2005, when this film was made, such an implosion by a company that had been named "most innovative company" for six consecutive years by CEOs, 1996-2001, the last year being the year of Enron's collapse, was still quite the spectacle. The irony is that if Enron had collapsed in 2011 instead of 2001, I doubt anybody would have gone to jail. Heck, it might not have even been newsworthy except in Texas! Also, the company might have even received a federal bailout.

The highlight of the film for me - a video "Christmas card" to Ken Lay made by Enron execs in which they do a comedy sketch about "creative accounting" which turns out to be EXACTLY what the company was doing that hid their problems.

Even after reading Kurt Eichenwald's "Conspiracy of Fools: A True Story", I was not prepared for the near-Greek tragedy presented in this smartly produced documentary of the Enron scandal based on yet another book by journalists Bethany McLean and Peter Elkind. Directed by Andy Gibney, the 2005 film follows the complicated rise and fall of Enron in an easy-to-follow, chronological order since the mid-1980's, using actor Peter Coyote's lucid voice-over narration. Enron started as a moderate-sized Houston gas-pipeline company that grew exponentially, reaping benefits for shareholders and far more so for the Enron executive team for a long, uninterrupted stretch. Billions of dollars were collected due to speculative mark-to-market accounting techniques approved by the SEC, and Enron consequently became one of the world's largest natural-gas suppliers.

What resonates most from this searing film is how circumstantially pathological the chief villains are in this true corporate morality story. While the infamous Ken Lay comes across as the corrupt figurehead we have already come to know through news reports, it's really Enron CFO Andy Fastow (dubbed appropriately "The Sorcerer's Apprentice") and especially President and COO Jeff Skilling, who are mercilessly exposed here. Skilling is portrayed as a brilliant leader and a corporate Darwinist, whose favorite book is Richard Dawkins' "The Selfish Gene", which he apparently translated into a bloodless performance review policy that worked like a genetic algorithm for people. Employees were rated on a 1-5 scale based on the amount of money one made for the company. Skilling mandated that between 10-15% of employees had to be rated as 5's (worst). And to get a rating of 5 meant that one was immediately fired. This review process was dubbed "rank and yank". Such was a typical example of his survivalist thinking.

The corruption spread throughout the company, as Enron was responsible for, among other things, gaming the Northern California "rolling blackouts" in 2001, whereby the company profited as huge parts of the state were plunged into darkness. Citizens were threatened by a deregulation plan that essentially enabled a number of immoral Enron traders (led by Tim Belden) to place calls that drove up energy-market prices and took advantage of power-plant shutdowns. Of course, the Bush family dynasty does not come across unscathed in the Enron story and justifiably so according to their inextricable ties to Lay. Gibney effectively uses video footage from testimony at congressional hearings, as well as interviews with disillusioned former employees such as Mike Muckleroy and whistle-blower Sherron Watkins (who uses some effective pop culture references like "Body Heat" and Jonestown to get her points across).

There are some amusing vignettes and images that tie some of the disparate elements together with excessive glibness. The documentary is best when it sticks to the facts, for this is one inarguable case where fact is truly stranger than fiction. Extras are plentiful on the 2006 DVD. Gibney provides an informative albeit verbose commentary track, and four deleted scenes, about twenty minutes in total, are included that become redundant with the film's portrayal of corporate malfeasance. There is also a fourteen-minute making-of featurette, as well as a "Where Are They Now?" snippet on the principals and three separate conversations with McLean and Elkind on how they got the story, how they validated their findings, and their enthusiastic reaction to the film. Other bonus materials include Gibney reading from scripts of skits performed at Enron and a Firesign Theater sketch about Enron's demise, as well as Fortune Magazine articles written by McLean and Elkind and a gallery of editorial cartoons.

Based on and named after the bestseller book Smartest Guys in the Room, this documentary provides an insightful look into the scandalous fall of Enron Corp. There are no actors in this documentary and yet it is dramatic. Such were the factors leading to the 'amazing rise and scandalous fall' of Enron that even a documentary featuring events preceding that historic day in December 2001, when Enron filed for the largest bankruptcy in the corporate US history, seems like a tale of epic imagination.

This documentary is neither as detailed nor as insightful as the book, but it does a great job of providing an insightful and reasonably detailed account of the Enron saga. Overall, it is not of any incremental value for the people who have read the book. However, if you can't go through 464 pages, this does a great job of enlightening you on the drama that Enron was.

"Enron: The Smartest Guys in the Room" is suave and well-crafted, but betrays some wishful thinking and apologist tendencies.

Some ex-Enron workers venture poetic but unmerited speculations about their corrupter associates, conjuring hypothetical images of their former friends now reflecting back on their transgressions and experiencing ethical remorse. We are subjected to clichés about their having to face their own "shadows" and whatnot, all of it speculative, and in spite of any evidence that they ever experienced a moral twinge or regretted anything other than getting caught.

There's also an insidious "slippery slope" message, some philosophical waxing upon the blurriness of ethical lines, and depictions of compulsive personalities, all of which introduce unwarranted moral ambiguity. Bethany McLean, one of the investigative journalists, surprisingly lays overmuch of the blame on Andrew Fastow, declaring that the fraud started with him (!) even though Fastow is elsewhere shown to have been recruited into a company already corrupt from the top down. There is some subtle attempt at containment here. This film skewers the culprits one moment, but then shrinks from the implications.

The WORST example is a naive question given undue emphasis by being left "provocatively" open-ended. The narrator, Peter Coyote, asks, "What motivated the corrupt traders? Was it their million dollar bonuses? Or was it docile complicity?" (I'm paraphrasing here) A no-brainer answer you might think, but then - I kid you not - the documentary suggests the second possibility and launches into the fascinating but entirely irrelevant Milgram experiment, in which reluctant subjects are persuaded by an authority figure to voluntarily electrocute others. But Enron traders were a uniformly sanguine lot, evidenced by testimonials and taped conversations displaying naked greed and delight (generous clips of which are included in the documentary). Yet we are supposed to imagine they were the victims of obedience training?

It's a bit much...

Maybe two or three of the commentators don't pussyfoot around, and through them "The Smartest Guys" successfully conveys the perils of the free market and deregulation; but these lessons get watered down by wistful undertones and feigned ambiguity. Post-Enron, the communist charge that capitalists are "cannibals" now seems undeniably apt. Yet we forever flatter ourselves, rehearsing the cant of the free market ideology, according to which the profit motive encourages 1) innovation and 2) hard work. Granted. But what the pundits and economists invariably overlook is that the profit motive also encourages 3) robbery. Adam Smith's *other* "invisible hand," if you will ...hidden behind the back and gripping a knife! Enron calls for an inquiry into the nature of capitalism, not an explanation based upon specific personalities. Human nature is what it is, and there will always be people ready and willing to cut throats when given motivation and opportunity. To misquote the NRA: People don't kill people.. incentives do.

Final criticism: a bit of shabby hypocrisy. One of the Enron execs is portrayed as having sleazy encounters with strippers; the viewer is then dutifully treated to lots of footage of nude strippers... ha!