Thursday, February 16, 2006

The Dumbest Guys In The Room

I recently watched Enron: The Smartest Guys In The Room, which is up for an Oscar for Best Documentary this year. It's a compelling documentary and an excellent primer for the complicated Enron scandal—I even learned why my lights in San Francisco were going off in 2000, and how Enron energy traders were making money off of it, hand over fist, without a single lick of remorse.

Here's a nutshell fun fact: Enron's stock started at modest $35/share, swelled to a whopping $90/share, and then imploded to 40¢/share after their bankruptcy. Ouch.

Aside from the head-shaking astonishment about how deep this scandal really was, there is a deeper lesson here about greed: this scandal could never have happened without the complicity of Enron's investors, lawyers, and accountants. Everyone, all these people whose job it was to hold Enron in check, had their own hand in the cookie jar and they all could have chosen differently... but they looked the other way because they were making huge piles of cash. I'm trying not to judge here—hindsight is always 20/20—because it looks like Enron's decline was a slippery slope many years in the making. The seed of one's own demise begins with a tiny, nearly imperceptible compromise, I'll do it this once, and make up for it later. And then the next time—in Enron's case, when they made money even though they incurred a debt—you keep digging a deeper hole: I'll do it a little more. No one found me out this time, so I'll make it right later. And so moral corruption isn't a fire hose that one day gets turned on at full blast, it's more like lazy droplets of water on stone... one day, the rock shatters into pebbles and you have no idea what the hell you did to cause it.

What is so tragic about the Enron story is Jeff Skilling's ability to delude himself about Enron's assured collapse. His financial wiz kid Fastow skillfully hid Enron's debt behind a labyrinth of companies, and when Fastow was called before a Congressional investigation, he wisely pleaded the 5th amendment. Skilling, however, was not so smart. To think he could have defended his way out of 15 years of deceptive methods... well, it's laughable. The only conclusion I was left with was that Skilling had an immeasurable capacity for self-delusion, even at the Congressional investigation. You might be able to pull off one fraudulent transaction and get away with it, but years and years of claiming profits while covering up debts is bound to come back to get you.

There is a similar story about the founder of Crazy Eddie, that chain of tech stores in Manhattan and the tri-state area. This guy spends years defrauding the IRS and stashing money in an Israeli bank account and one day cashes out his stocks and flees to Israel. Hello... everyone knew he had ties to Israel and would likely flee there! It should have been no surprise when a warrant is issued for his arrest there. So now all these millions of dollars he so brilliantly stole from his company are the bricks in his self-made prison; this guy couldn't leave his house to party at nightclubs and buy fancy cars with his secret stash because he knew someone would eventually recognize him. Ultimately, he turned himself in.

Sending Skilling and Lay and Fastow to jail is not really the ultimate punishment for their crimes, because their worst crimes (in my opinion) are nuking the pensions of their hard-working California electricity workers (not to mention Enron's honest employees). The best punishment would be to have Skilling, Lay, Fastow et al. cash out their retirements and maybe even use their business savvy to earn back all the money due these people (under extreme supervision, of course). The tragedy of California's electrical workers is that they had no choice about whether they wanted to work for Enron, but they're still paying for it. What good is it to them if Skilling and Lay just go to jail? It doesn't redress the wake of Enron's collapse. Sure, give Skilling and Lay 50 years, then let them have only 10 years if they put back all the cookies they stole.

At the beginning of the documentary, you might hate Skilling and Lay and Fastow. Yet what emerges throughout the course of the documentary is how pathetic these guys are. By the end, I felt really sorry for them—not that I excuse any of the horrible things they did, because I think I've made it clear they need to make a serious amends for their crimes—but you wonder how these tragic souls were and how they, once considered the smartest guys in the room, could ever have been quite that stupid.

1 comment:

Anonymous said...

I wish I could Plead the 5th if I were to commit a frauduletn acta at work, then I'd be assured to get away with it, but I suppose there are 2 differnt legal systems for the average american, and for the incredibly wealthy.

in a TRUE democracy, this would not be the case.

people will pay for their shady dealings in this, but i'm afraid the rest of us have and wil continue to pay for it long after.