Jun 6, 2005
A new documentary is out called "Enron: Smartest Boys on the Block." It is based on a book written by two business reporters, Bethany McLean and Peter Elkind. McLean was among the first reporters to dare question Enron's accounting figures during its hey-day.
In the 1990s, Enron rose to become the seventh largest company in the country. Year after year, it was considered to be one of the most admired companies in the world. As the film shows, it was all smoke and mirrors. For example, Enron created thousands of off-shore companies to hide tens of billions of dollars in debt. Enron could not have done this alone. Enron had the top lawyers in Texas and the top accounting firm, Arthur Andersen, helping to okay the deals. Enron's bankers (Citicorp, J.P. Morgan, Merrill Lynch), then helped finance them. Together, they made huge amounts of money.
These companies also worked with Enron in the cover-up. When a Merrill Lynch stock analyst questioned whether Enron was a good stock to buy, Enron complained and Merrill Lynch fired him. And when Enron was under an SEC investigation as its stock began to fall, Andersen shredded tons and tons of Enron documents.
The film shows how Enron's top executives had the backing of Bush Sr. and then Bush Jr. Ken Lay, who started out as the chief executive of a small Texas energy company, was a key advocate of the deregulation of the energy industry. After he put Enron together, he worked behind the scenes to name key people to government energy posts. Ken and his top lieutenant, Jeff Skilling, of course profited greatly from the results of the deregulation. By early 2001, Enron was selling its stock at $100 a share. It puffed up its balance sheets by buying and selling the same amount of energy many times, without ever putting it to use.
When Enron crashed at the end of 2001, the film shows how over 20,000 Enron employees lost their jobs. Two billion dollars worth of pension money was wiped out. The accounting firm Arthur Andersen also closed its doors, and another 29,000 jobs were wiped out.
One of Enron's biggest heists was during the 2001 California energy crisis and the rolling blackouts. Deregulation had been pushed through by Democrats and Republicans alike. In the end, energy traders were selling electricity, which had gone for $34 per unit, for the price of $1,000 at the peak of their maneuvering. The people of California had to pay an extra 34 billion dollars in their energy bills. The Enron guys are heard laughing as they bank their multi-million dollar bonuses for shutting off electricity to the world's sixth largest economy.
The movie does have problems. It pretends that the Democrats in California, especially the governor, Gray Davis, opposed Enron during the electricity crisis. The exact opposite is true. Davis was on the phone with Enron's Lay almost every day, and Davis did Lay's bidding.
Another problem with the movie is that it pretends that Enron is the exception. This is also complete nonsense. Capitalism is based on lying, cheating and stealing. Enron was just a fabulous profit machine – run by a gang who marketed themselves as "the smartest guys on the block." And they were the envy of every other gang of capitalist crooks!