Friday, May 27, 2005
Enron: The Smartest Guys In the Room (2005)
Director: Alex Gibney
*Warning the following analysis contains a discussion of the entire film – including the ending.
Can a film about accounting fraud be entertaining? Oh my yes, especially when the accounting story involves deceit, lies, and greed reaching such proportions the documentary begins to feel fictional. Add in characters with the hubris of Icarus, the deal making morals of Faust, and the ability to tell bald face lies that would make Nixon blush, and you have a story that leaves you with your jaw open in disbelief for most of the 100 minutes. At its heart the Enron story is a tale of sleazy carnie-men selling snake oil at the fair, only instead of just bamboozling a few yokels they conned an entire nation with The Wall St. Journal and MSNBC serving as their makeshift stage. Sadly the story is not fiction and the local union guys putting up the electrical cables and the ordinary employees paid the biggest price, often their life-savings. Additionally, just in case you have forgotten what the frenzy of overnight riches felt like a few years back, the film does an amazing job capturing the now cliche “irrational exuberance” of ‘97-‘00.
It is much too complicated to get into the details of the Enron fraud (and after seeing the film I am motivated to read the book by the same name to clarify some of the complexity.) The basic jist is 4 or so top executives at what was once a standard oil company created an illusion of wealth - aided by outrageous accounting practices and feed by a society’s frenzy of stock appreciation – and defrauded an entire nation (admittedly a nation eager to believe the hype.) It is an amazing story of image over substance, of hype over reality. There are similarities between the all out of proportion praise business journalists heaved upon companies’ stock in the late ‘90s and the gushing usually reserved for stars or sport figures. And in a sense that is what Enron was, an over-hyped star of the late ‘90s, a time when the Dow Jones was the new Billboard Top 40 or weekend box office gross. (Though when a hyped album or movie actually sucks you lose 10 bucks or so – in this case regular folk lost life savings.)
Some of the more outrageous tidbits from the film:
· Almost every quarter of Enron’s stock boom of the late ‘90s the company reported earnings greater than the quarter before, when it actuality they were experiencing greater and greater loses – BILLIONS of dollars in loses – while saying they were making BILLIONS in profits - unbelievable.
· They were able to show profits in a number of unbelievable ways. The most outstanding was Andrew Fastow’s accounting method that allowed him to “book” profits Enron would experience in the future on today’s balance sheet. And how would he estimate these future profits? He would basically make them up out of thin air as he saw fit. And he saw fit to make sure this quarters earnings were higher than last quarters. (Further, it was clear these ventures from which Fastow was booking future profits would never turn profits!)
· Financial Institutions such as Merrill Lynch helped with the fraud. In one case Merrill bought an extremely unprofitable oil venture in Saudi Arabia from Enron so they could get that debt off their books and claim a profit. Enron had made a secret deal to buy the oil venture back with interest in a year, making this a secret loan from Merrill - which was booked as a profitable sale.
· The showstopper was the almost unimaginable fraud that caused a fake power shortage in California. Enron was able to manipulate an unregulated market to deny power to flow to the state (causing the fake power shortage) and then charge prices 1000X the regular rate to release the power – power of which their was more than sufficient supply - unbelievable.
· Perhaps equally unbelievable are the bald face lies Skilling and Lay told employees, media, annalist and Senators about the practices and financial health of Enron to the day it collapsed (and after for that matter). They sold millions of dollars of their own Enron stock to bank profits from a company they knew was headed for disaster while telling their middle class employees to keep buying the company’s stock, a deception that cost 1000s of ordinary working folk everything.
Should you see it? You must – you won’t believe your eyes.
*Warning the following analysis contains a discussion of the entire film – including the ending.
Can a film about accounting fraud be entertaining? Oh my yes, especially when the accounting story involves deceit, lies, and greed reaching such proportions the documentary begins to feel fictional. Add in characters with the hubris of Icarus, the deal making morals of Faust, and the ability to tell bald face lies that would make Nixon blush, and you have a story that leaves you with your jaw open in disbelief for most of the 100 minutes. At its heart the Enron story is a tale of sleazy carnie-men selling snake oil at the fair, only instead of just bamboozling a few yokels they conned an entire nation with The Wall St. Journal and MSNBC serving as their makeshift stage. Sadly the story is not fiction and the local union guys putting up the electrical cables and the ordinary employees paid the biggest price, often their life-savings. Additionally, just in case you have forgotten what the frenzy of overnight riches felt like a few years back, the film does an amazing job capturing the now cliche “irrational exuberance” of ‘97-‘00.
It is much too complicated to get into the details of the Enron fraud (and after seeing the film I am motivated to read the book by the same name to clarify some of the complexity.) The basic jist is 4 or so top executives at what was once a standard oil company created an illusion of wealth - aided by outrageous accounting practices and feed by a society’s frenzy of stock appreciation – and defrauded an entire nation (admittedly a nation eager to believe the hype.) It is an amazing story of image over substance, of hype over reality. There are similarities between the all out of proportion praise business journalists heaved upon companies’ stock in the late ‘90s and the gushing usually reserved for stars or sport figures. And in a sense that is what Enron was, an over-hyped star of the late ‘90s, a time when the Dow Jones was the new Billboard Top 40 or weekend box office gross. (Though when a hyped album or movie actually sucks you lose 10 bucks or so – in this case regular folk lost life savings.)
Some of the more outrageous tidbits from the film:
· Almost every quarter of Enron’s stock boom of the late ‘90s the company reported earnings greater than the quarter before, when it actuality they were experiencing greater and greater loses – BILLIONS of dollars in loses – while saying they were making BILLIONS in profits - unbelievable.
· They were able to show profits in a number of unbelievable ways. The most outstanding was Andrew Fastow’s accounting method that allowed him to “book” profits Enron would experience in the future on today’s balance sheet. And how would he estimate these future profits? He would basically make them up out of thin air as he saw fit. And he saw fit to make sure this quarters earnings were higher than last quarters. (Further, it was clear these ventures from which Fastow was booking future profits would never turn profits!)
· Financial Institutions such as Merrill Lynch helped with the fraud. In one case Merrill bought an extremely unprofitable oil venture in Saudi Arabia from Enron so they could get that debt off their books and claim a profit. Enron had made a secret deal to buy the oil venture back with interest in a year, making this a secret loan from Merrill - which was booked as a profitable sale.
· The showstopper was the almost unimaginable fraud that caused a fake power shortage in California. Enron was able to manipulate an unregulated market to deny power to flow to the state (causing the fake power shortage) and then charge prices 1000X the regular rate to release the power – power of which their was more than sufficient supply - unbelievable.
· Perhaps equally unbelievable are the bald face lies Skilling and Lay told employees, media, annalist and Senators about the practices and financial health of Enron to the day it collapsed (and after for that matter). They sold millions of dollars of their own Enron stock to bank profits from a company they knew was headed for disaster while telling their middle class employees to keep buying the company’s stock, a deception that cost 1000s of ordinary working folk everything.
Should you see it? You must – you won’t believe your eyes.
