My Summary of Enron: The Smartest Guys In The Room - It May Seem Like Old News, But It's Still Important, and It's a Film Worth Watching

"It was a house of cards."


"What we didn't know was that the house of cards had been built over a pool of gasoline."


"People see it as a story about numbers, but in reality it's a story about people; it's a story of human tragedy."


Enron was the nation's seventh largest corporation, valued at almost seventy billion dollars.


Was Enron the work of a few bad men or the dark shadow of the American Dream?


"Government is not the solution to our problems; government is the problem." - Ronald Reagan


In 1987 bets were made by two rogue traders for Enron as to whether oil prices would rise or fall. "Oil trading is like gambling, sometimes you win, sometimes you lose. But Enron oil always seemed to win."


"Mark to market accounting...Enron's profits could be whatever Enron said they were."


"Enron's traders were like the super-powerful high-school clique that even the principal doesn't dare to reign in." A system was instituted wherein the workers rated each other and the lowest rated were fired. One trader said that he was more than happy to step on the throats of others if that's what was needed.


"A lot of them were former nerds." This could be applied to no-one more than Jeff Skilling who had surgery on his eyes so he no longer had to wear glasses, somehow reversed his baldness, and led dangerous travel adventures for the inner circle of macho men wannabes at Enron. Jeff would say he liked guys with spikes. "He liked guys with something extreme about them."


"To me the real mythology is high school mythology, that - you know - you wanted to be the most popular guy on Wall Street and you were gonna do whatever you had to do to stay there. And Jeff understood those rules better than, I think, anyone else."


"I think Jeff Skilling had a desperate need to believe that Enron was a success. I think he identified with Enron. He proclaimed at one point, 'I am Enron.'"


In the nineties if a company met or exceeded the projections of the analysts (whom they courted) the stock went higher. "The game was called Pump and Dump - top execs would push the stock price up and then cash in their multi - million dollar options."


They were connected to the Bushes, gave an Enron service prize to Greenspan, made it seem like their company was doing great. But in reality their natural reserves around the world, and their company, were losing money. They built particularly big in India, where most people were afraid to build up at that time. They lost a billion dollars on that project and yet paid out millions of dollars in bonuses based on fake profits.This made them stuck by their own gimmick because they refused to honestly admit failure.


They merged with Portland General Electric. This enabled Enron to further take advantage of deregulation - this time in California. Workers for PGE thought their money was as safe as - if not better off than - before, what some call a trust me story. They put their money back into the company.


Meanwhile Jeff Skilling had the analysts in love with him. Rather than analyze him, when questions came up they gave Jeff a call. And they believed whatever he said. Most analysts were rewarded for their praise of Enron, the few that didn't were punished (read fired). Skilling moved into cyberspace (video on demand with Blockbuster) when he saw all the dotcoms that were booming. The stock soared higher, way higher even though it didn't work.


Skilling and the other top guns started selling off their own stocks. But they kept perpetuating the myth. They invested in weather, and no-one really questioned what they meant. Skilling, it seems had to have known the end was coming. "I liken it to the Titanic when you got a captain who's saying, 'Maintain full speed,' and they bump into a couple of icebergs and then they still keep full speed going. The captain of this ship, Enron, ignored all the warning signs, and there were plenty of them. And the captain of this ship was Kenneth Lay."


In March 2001 Bethany McLean was told to take a look and she did. A reporter for Forbes, a magazine which had been falling all over Enron, McLean noticed that something just didn't add up. She called Skilling simply wanting to know how Enron made their money and he bullied her saying she hadn't done her homework and wanted to throw rocks at the company (her memory) and that he had six minutes before he had to be at an important meeting (his memory). Her article was about Enron being overpriced, but in hindsight the author feels she was naive and that she knew things were worse that that. As another talking head puts it, McLean was the first to suggest that this very powerful emperor had no clothes.


Young Andy Fastow was the one who led Enron into fraud to cover up what was really happening - that they were thirty billion dollars in debt but keeping the stock price up. He created false companies to make it look like there was movement of money and to cover up the debt - and to take some extra money for himself. The major banks all went for the chance to make insane amounts of profit and put in millions upon millions. Later it became clear that the banks knew that if things seem to good to be true, they are - and yet they stayed with Enron.


Then there was a shady deal with Merrill Lynch buying barges for no apparent reason.


In 2001 an analyst was taped saying to Skilling on the phone, "You're the only financial institution that can't produce a balance sheet or cash flow statement with their earnings." Skilling gets flummoxed, mumbles something like, "thank you very much," and then calls the guy a curse word in noun form. Opinion turned against Enron. People made a take off of their motto, "Ask why," - adding the expletive.


Soon after this Enron successfully got electricity in California deregulated. They found loopholes in the rules and exploited them. They blackmailed California with high prices. They made millions. In time the west coast traders made nearly 2 billion dollars for Enron, betting that energy prices would go up and winning. Prices went through the roof, traders are on tape talking about definitely retiring by the time they were thirty. They zeroed in and made the state of California miserable and didn't look beyond that. When the fire lines caught on fire during a heat wave Enron traders were captured on tape calling it "a beautiful thing" and saying "burn baby burn."


Stanley Milgrim's research sheds light on why the traders ignored their suspicions, turned away their consciences and kept going for their earnings and million dollar bonuses. In that study people were told to give shocks to other people in other rooms (hired actors) when they answered questions incorrectly. Though they are a tiny bit uncomfortable they do it, again and again - even as the people screamed more and more from the pain of the shock. They made the decision to suspend their morality and kept on doing so, once they had let it go. Fifty percent of Milgrim's subjects were willing to shock people to death as long as the command came from a seemingly legitimate source.


Enron created power problems in California that cost the state billions.


People slowly started to turn against Enron. But Enron pushed to fight against deregulation. And then George Bush became president. Lay talked to Cheney and got what he wanted. After a long time things improved a bit, prices were capped. But political connections of Enron continued to wield power. Gray Davis, the governor of CA. was an opponent of Bush and so Bush sided with Enron. Deregulation led to the downfall of California, which led to the downfall of Davis, which led to the election of Arnold Schwarzenegger


Then the CEO started to seem erratic and the doubts about the company wouldn't go away. The stock started to fall. Skilling saw that things were getting bad and that the inmates/traders had taken over the asylum (as former Enron executive Amanda Martin put it). On August 14, 2001 Skilling abruptly quit and because he didn't pave the way (as CEOs generally do before stepping down) to avoid it from happening a great explosion in the media ensued. Skilling responded by putting on a great act and convincing people that he had serious family issues that needed his attention. It seems that he hoped that there's be enough time between his leaving and the company's total collapse that he'd escape the blame. Lay took over as CEO. But people were angry, the stock was way down. It was hard to believe Lay's projected optimism.


Fastow's fraud floated on the hope that Enron's stock would never fall. When the stock fell the lie was exposed. Sherron Watkins warned Lay, first anonymously, then face to face that their only hope was to come clean about the cooked books. No-one else came clean so eventually Watkins blew the whistle. The murky morality of Fastow's deals were written up. Enron was investigated by the FEC. The stock plummeted. Lay tried to assuage the fears of investors while his accounting firm got busy shredding over one ton of papers. Lay publicly stuck up for Fastow in public (and cashed in millions of dollars worth of his own shares of Enron) and then the next day Fastow was fired. He became the fall guy, but in time it became clear that many, many people were involved in the scam.


Lay never took responsibility or blame. he said he was betrayed by Fastow. Within four months of Skilling's resignation Enron declared bankruptcy. All employees were released and given thirty minutes to leave the building forever. They felt like they were sinking on the Titanic without lifeboats, as one former worker recalls. They had been encouraged to invest in the company and they lost everything. Only the insiders sold off their stock early - a billion dollars worth.


A priest who counselled many people affected by Enron speaks poignantly at the end of the film about how you can lose your soul in the corporate world. He says that some went deep and learned this lesson from their financial losses. One of the top people in Enron, Cliff Baxter, committed suicide. In a note to his family he wrote with shame of how he once took great pride in doing the right thing. He wrote that the pride was gone and he felt he could be of no use to his family. He expressed love and asked for his family's forgiveness.


Watkins says it happened because so many people colluded together. She says it could happen again. The shareholders are suing.


Fastow plead guilty and got a sentence of ten years in exchange for testifying about other Enron execs. Skilling was charged, pleaded innocent and poured 26 million dollars into his defense. The firm, Arthur Anderson, was found guilty. Anderson fell and 29,000 people lost their jobs. Lay was indicted.


Bethany McLean says that there was potential for good but hubris turned things the other way. One former trader points out that, ironically, he thinks the moral of the story is, "Ask why."


Twenty thousand employees lost their jobs.


This plays over the final credits.