ENRON: THE SMARTEST GUYS IN

THE ROOM (2005)

This documentary, made by Alex Gibney in association with the HDNet cable
channel, tells the story of the rise and fall of Enron, the most spectacularly crooked
corporation of modern times. It's based on the book The Smartest Guys In The
Room: the Amazing Rise and Scandalous Fall of Enron by Bethany McLean
and Peter Elkind. The story is told party by a narrator (Peter Coyote), but even
more by talking-head interviews with reporters and insiders who know the story.
McLean and Elkind act more or less as additional narrators. Other key expositors
are Bill Lerach (attorney for Enron shareholders), Mike Muckleroy (Enron
executive who was with the company from its early years), Amanda Martin-Brock
(Enron executive who worked closely with Jeff Skilling), whistleblower Sherron
Watkins (an Enron vice-president), and former Republican Party strategist Kevin
Phillips. Many others contribute additional portions -- journalists, power traders,
accountants, lawyers, stock analysts, and so on -- both investigators and insiders.

In style, the film is a generic documentary, with nothing to make it stand out very
much except the material presented. No distinctively personal style or sense of
humor in the manner of Michael Moore, no soothingly graceful aesthetics a la Ken
Burns... and equally, no reality-television false dramatics, a minimum of MTVish
visual noise, and best of all, no heavy-handed bludgeoning propaganda like some
of the countless Michael Moore wannabes who've popped up over the last two
years. The introductory section has an interestingly arty edge, but after the
opening credits, it relies almost entirely on the content to create its impact.

It would have been easy to waste time on railing at how rotten these guys are, or
hammering home the point of how crooked their tricks are, but they wisely avoid
that temptation. There's a rule that fiction authors are taught (if they're lucky):
"Show, don't tell." If you want to communicate that a character is, for example, a
coward, one shouldn't just say so, one should show the character engaging in
concrete cowardly acts. The film uses this technique to establish the characters of
Ken Lay and Jeff Skilling, the Enron bosses: it shows them constantly lying. It
was rare to ever hear a truly honest sentence from either of them. I tried to count
the lies told by Skilling and Lay on camera, like Joe Bob Briggs counting breasts
and quarts of blood in cheap horror movies, and got up to about fifty before giving
up due to the impossibility of separating one lie from another, or deciding what to
do with all the disingenuous not-quite-lies they were telling alongside the overt
lies.

(We also hear nothing but lies from George W. Bush, but he only speaks about
three times in the film.)

Like any documentary that relies heavily on archival video footage (such as
Moore's films), fitting the picture to a theatrical or HDTV aspect ratio ends up
constantly cutting off the tops of people's heads, or cutting off text at the bottom
that gives people's names and titles. C'est la vie. The look of the film is a bit
television-ish... one time when you can tell that cable TV minds were behind the
film is when they discuss an Enron executive who spent all his time at strip joints:
they include half a minute of stripper boobies on screen for no particular reason.

For someone like me, who is already familiar with a lot of Enron dirt, the number
one criterion I tend to look for is thoroughness. Especially since no film can
possibly cover the detail that a book can -- one always worries that big pieces will
have to be left out, like nonessential parts of The Lord Of The Rings. So how well
do they cover the whole story? Quite well. They go back to Enron's founding, and
it quickly becomes clear that though at first they were a real energy company,
which mainly delivered tangible goods instead of just playing financial games, the
ideological basis for what it would later become was part of Ken Lay's philosophy
from the beginning.

The key to it all was the belief in deregulation. The neoconservative circles that
buzzed around President Reagan included many strong believers in this idea,
including George H.W. Bush, who as an oligarch was hardly the most convincing
exemplar of the kind of libertarian-capitalist ideals that deregulationism was
supposedly driven by. George the Elder was one Washington insider who gave his
imprimatur to Ken Lay as the unofficial ambassador from the Land of
Deregulationism.

The argument, as put forth by Ken Lay and many others, including Reagan, was
that excessive interference from governmental bureaucrats, with a mandate to
micromanage industry, was stifling entrepreneurial innovation, making every
product more expensive, and slowing down the whole economy. When the
deregulation of the natural gas industry -- a goal for which no one worked more
tirelessly than Ken Lay -- took effect, deregulationists were immensely gratified to
see a drop in gas prices. Most of them, and those who heard their propaganda,
remain convinced to this day that natural gas prices are permanently lower thanks
to deregulation, but the truth is that prices climbed quickly again once the economy
got up to speed, and today the overall price trend over the last forty years shows no
clear signs of being lower, slower to climb, or more or less volatile in the days after
deregulation than it was before. The famous drop, in hindsight, looks pretty much
like it's just a rebound from a spike caused by the seventies oil crisis. (Ironically,
the next time that natural gas prices shot up was during Enron's own west coast
power shortage, created through what was called deregulation.)

The film does not discuss deregulationism in any depth; it assumes you know the
essentials and can connect the dots. And perhaps they are feeling the need to be
circumspect about rhetoric that the general public would dismiss as leftist rantery,
wishing to reach as broad an audience as possible. Since I feel no such constraint
myself, I'll take a little time here to spell out more bluntly what "deregulation"
means in a case like Enron's.

You see, the freedom to be productive businessmen selling useful products at

competitively low prices was never what Lay's crowd of deregulation evangelists
really wanted. Certainly Lay himself was never very interested in the small profit
margins such an approach entails. To understand the deregulationists' real agenda,
you have to ask: what do all these regulations actually make businesses do, or not
do?

What they make them do is fill out a fair amount of paperwork. This is annoying,
but it's hardly a crippling burden. (Of course, there are exceptional cases, such as
aerospace contracts for the Pentagon or NASA, where extremely slow and careful
work seems to be the only approach that's dependable.) What regulations make
business not do, when they work, is much more important. They don't let
businesses

spew pollution into the environment,

cavalierly risk workers' lives or health on the job,

sell consumer products that randomly injure their users,

defraud customers,

lie to their stockholders,

cheat on their taxes,

or make easy money by jacking the stock market around.

These are rules that do indeed impose substantial costs on businesses. We impose
this on them because if we don't, they impose those costs on us. Many
businessmen who don't think of themselves as wishing to endanger anyone want to
escape these costs, and in some cases have a deep and even rather childish
resentment of having to abide by these rules. Their complaints deserve to be heard,
but experience shows that when businesses are free to pursue these harmful
options, lack of bad intentions doesn't protect us.

And then there are some businessmen who, if freed from regulation, will take
advantage of every opening or loophole to engage in all the worst unethical
behaviors, if they can make a buck doing so. That's the kind that Ken Lay was.
Quoth Kevin Phillips: "Ken Lay had a view of deregulation from the standpoint of
all the money that he thought could be made." And don't assume that the
principled opposition of Lay and the Bushes to government interference would
stop George H.W. from arranging large subsidies for Enron, as the film points out.
(Phillips calls the relationship of Lay with Bush Sr. "professional courtesy between
a sidewinder and a timber rattlesnake.")

The film demonstrates Lay's attitude in this area beyond a doubt by reviewing
Enron's first scandal, which happened in 1987, when the company was only two
years old. Two executives, Louis Borget and Tom Mastroeni, started running
market scams, skimming cash into offshore accounts, keeping double books (Mike
Muckleroy, investigating for the home office, only got to see the real books after
threatening to kill Mastroeni!), and gambling wildly with Enron's money. When
Ken Lay was informed, he told the guys to keep it up, because their branch (Enron
Oil of Valhalla, NY) was at that time the only one making any profits! This branch
was, for a time, a miniature of what the entire company would later become... and
as in the later case, its luck ran out. Enron made its first visit to the Congressional
scandal-investigation hot seat, and the two Valhallans got minimal sentences.

Lay apparently had his appetite whetted by the large, though temporary, profits
Valhalla had made -- so the film tells it, anyway. He was probably already
impatient with the slowness and difficulty of making honest money selling a
tangible product, and wanted something quicker and easier than the corporate
equivalent of having to work for a living. Then he found Jeff Skilling, who had a
vision of how it could be done.

It was Skilling's idea to turn Enron from an energy producer into an energy trader:
a parasitic middleman in other people's energy sales. They would create an open
exchange floor, like the Chicago commodities exchange, where people could buy
and sell energy speculatively. And then use their own traders to out-speculate
everyone else... it would be the ultimate in insider trading: they could speculate in
a market where they were both player and referee. Such a vision would have been
utterly impossible without the magic of deregulation, which allowed the most
vacuous and fraudulent of financial flimflams to pass themselves off as solid
industrial producers. Lay made Skilling his CEO. And from there the film can
segue smoothly into the late phase of the Enron story, in which the official books
start diverging ever more widely from reality. It spends a fair amount of time on
the process of how they got themselves steadily deeper into trouble, while the
public saw nothing noticeably wrong and Wall Street still kept proclaiming them
gods among men.

It must have been right in the early stages of Skilling's plan that Enron started
getting sucked into the trap that drew in so many early dot-com ventures... and was
deliberately pursued by so many later ones. They couldn't help but notice that the
quickest and easiest way to make money, in the short term, was for the company's
stock to go up. (The trouble is, that money isn't really yours unless you cash out --
and who would do that if it's going up? -- and it can disappear as quick as it
arrives.) So they would do whatever it took to make the stock keep rising. That
wasn't hard in the nineties, when the whole market was in a speculative bubble.
But the rule became that, in order for the stock to go up, they had to report a larger
profit each quarter than the one before. Every quarter, no exceptions. So Skilling
hired Andy Fastow as CFO and charged him with making the bottom line look
suitably profitable, no matter how deep he had to pile the bullshit in the company's
accounting records to create that appearance. And the height of the pile had to
increase exponentially... the more unrealistic the last report, the more imaginative
the next one would have to be.

After the crash, the Enron bosses naturally tried to pin all the blame on Fastow, but
Sherron Watkins makes it clear in her interview that "Skilling was Kathleen Turner
and Andy was William Hurt." Fastow was young and readily steered by his
superiors.

When the stock market finally flattened out, Fastow began pulling desperate moves
to keep things going. That's when he started coming up with the cornucopia of
financial inventions that his name will always be remembered for: the hundreds of
shell companies that he used to conceal losses and debt, the fake mutual funds
which he presented to Wall Street banks as offering guaranteed profits. He told
them up front that the fund companies were based on deals made between himself
and himself, and this was how he could be sure of a good return. The documentary
scored video footage of his sales pitch! It's a classic moment. Of course, what the
fund really amounted to was a Ponzi scheme, a pyramid, where early investors are
given back good returns only to attract more and larger investments. Even as it
describes Enron's use of intimidation tactics to keep stock analysts and their
employers in line, the film pulls no punches with the Wall Streeters who went
along with the hooey: "The analysts weren't analyzing at all. They were willing to
believe anything Enron told them."

Lay and Skilling finally knew they could not keep this going. And that's how we
come to the California energy crisis. Which was, again, made possible through the
wonder of deregulation. Specifically, the utility deregulation law signed by
Governor Pete Wilson (Republican, of course) in 1996.

This is one area where the film lays out a key point excellently: they spell it out
plainly that the reason California got reamed out of billions by an artificial
electricity shortage was because Enron had run out of other ways to make money.
Their original plan in the deregulated California market had apparently been just to
continue their middlemanship, draining off a few millions here and there each
week by trading on price fluctuations. But they reached a point where Fastow's
house of cards was going to collapse unless they got a flood of fresh cash. So they
decided to forget all about nurturing a long term sustainable relationship with their
parasitic host, and just drain as much blood as possible at maximum speed. So
California's power plants began to shut down, and electricity prices shot up through
the ceiling like Daffy Duck after a belt of whiskey.

Ironically, this was one time when Enron finally managed to make some money as
a producer rather than as a trader. They had bought up a number of power plants in
California (including the big windmill farms in the Tehachapi area, a useful bit of
environmental PR), and now those that they allowed to run made mighty incomes.
Up to this point, Enron's attempts to make money on the hardware side of the
energy business had largely been flops: they were typically big, bold ideas that
other companies weren't trying, which looked good on paper but failed in practice.
This may have been because they were so prone to believing their own
entrepreneurial bullshit that they were incapable of seeing the risks and drawbacks
of their ideas, or it may have been because they were, by this time, amateur
dilettante poseurs at the art of building energy industry hardware. Either way, they
operated their hardware ventures like a bunch of cokeheads, blathering on about
how rich they were going to get while carelessly wasting all their ready cash. But
during the California crisis, even they could make big profits just by running
power plants built by somebody else. Or not running them.

(The film does mention Enron's unfinished power plant in Dabhol, India. But they
discuss it only as a losing business venture. I wish they had taken a minute or two
to describe the abuses that were committed in India -- the bribery and the beatings
-- as part of the process to get the plant built. Not to mention the jacked-up prices
the customers ended up paying for an incomplete plant that quit running after only
a few years.)

They also figured out dozens of ways to scam money out of loopholes in the new
California regulatory scheme, which they had had some part in designing (though
not a large one: the utility PG&E was the main responsible party there, by most
reports). They did things like transmit power out to Nevada on one set of wires,
then back in on another, creating "congestion" which due to a legal technicality
actually resulted in them getting paid by the state when they "relieved" it, and also
cutting the amount of power in half by wastage on the round trip.

By this time the rest of the stock market was collapsing. The dot-com bubble had
burst... ironically, the dot-coms were a sector very hard hit by the electricity
shortage, so Enron may have hastened the end of the nineties boom by weeks or
months. By the time of the second major wave of blackouts in the summer of
2000, the people at Enron must have suspected that even they couldn't keep
making their stock go up. But they did have help on the way: George W. Bush was
about to be elected President.

And this is the first major point where I find grounds to criticize the film for
skipping truly important material. They discuss early on the closeness of the
relationship between the Georges Bush and Enron, but they don't go into details.
They never mention, for instance, how Enron executive Thomas White -- who later
turned out to be personally involved in the California thievery -- was appointed
Secretary of the Army, and was retained in that post even after a storm of
criticism. (And then quietly sacked when they needed a real Army Secretary in
wartime.) They never mentioned the Energy Task Force headed by Dick Cheney,
and the still ongoing lawsuit that is attempting to pry out the records of just how
closely this task force followed orders from Ken Lay when it drafted the energy
policy that Bush sent to Congress. They only sketchily suggest how Bush and
especially Cheney vociferously opposed the exact regulatory policies which, once
finally enacted, rapidly ended the crisis... in the same terms that Ken Lay did.
These are key pieces of the Enron story, and without them, the suggestions that the
Bush White House aided and abetted the theft remain thinly and unconvincingly
sketched.

They do make clear one thing that I, in all my writings about Enron, had never
realized until a reader of my Enron & Friendsarticles pointed it out to me: that the
one individual most responsible for ending the electricity crisis (and with it, Enron)
was Senator Jim Jeffords. The Federal Energy Regulatory Commission, chaired by
Ken Lay's own nominee Pat Wood, had steadfastly refused to set price caps. It was
when Jeffords switched parties and handed control of the Senate over to the
Democrats that Wood was forced to act in spite of his personal resistance to doing
so. Price caps were imposed, and independent power plants could no longer raise
their profits past that point by lowering their output, so they increased their hours
of operation, and the shortages faded rapidly... starting just one day after Jeffords'
switch in the spring of 2001.

The cessation of the electricity shortage finished off Enron. It struggled on for
another six months or so on sheer bluffing before it finally sent all its employees
home. The closing section of the film, in which Skilling flees the company and
Lay takes his place, spewing constant lies to try to keep things rolling, is the most
appalling part, though also the most familiar to most viewers. This is when the
responsible parties' behavior is at its worst, when the mendacity and heartlessness
of the policies pursued by the executives as they struggled to keep the illusion alive
-- or failing that, to keep as much as possible for themselves even if it meant
fleecing their own employees -- becomes completely clear. The stench of Lay's
bullshit reaches an unsurpassed peak when, after September 11, he compares the
people closing in pursuit of his failing company to the terrorists who attacked New
York.

The big question one always wants to ask is, how can such things happen? The
film has an answer: Bill Lerach, attorney for the shareholders suing Enron, calls it
"synergistic corruption". In simple terms, the more corruption you've got, the more
you can create. Anybody who's near it can make money by joining in, and the
bigger the network gets, the more goodies there are to go around. Everyone in
private business who could have done something about Enron was instead seduced
into participating in the lies and scams themselves, because that way they'd get a
piece. So the accountants at Arthur Andersen validated Enron's accounts when
they knew they were fabrications, the Wall Street analysts recommended Enron's
stock to retail trading customers when they knew it couldn't stay up, and bankers
invested in Fastow's fake funds when they knew it was an insider trading flimflam
and had to have suspected it was a Ponzi scheme. Arthur Andersen is gone now,
but Merrill Lynch and the other guilty parties are still very much in business...
under mildly altered rules which are probably unenforceable in practice.

But what is the answer behind the answer? How could all this "synergistic
corruption" get going on such a scale? There, the film is not explicit, though the
dots are there to connect, if you know some of the background. They start talking
about the Milgram experiment and how people's consciences tend to malfunction
when surrounded by an environment in which harmful behavior is accepted as a
cultural norm. For me, this is a waste of time -- the aspect that needs to be
addressed in the public debate is policy, not psychology. (And I say this as a big
time pop-psych weenie.) What made this time in history different from those in
which excesses of such magnitude didn't tend to occur?

My answer is that deregulation has two aspects. Only the visible front face has to
do with cutting laws and bureaucratic rules to allow greater freedom for
businesses. The hidden back face of it is the curtailment of enforcement. When
regulations are left legally in force but the government doesn't pursue those who
violate them. That is what happened to the regulation of Wall Street and the
financial markets, as well as to countless other sectors of the economy, in the
Reagan administration when Enron got its start. And that is the state of affairs that
Bill Clinton winked at and left in place because he didn't want to give up the
benefits of a constantly rising stock market. When oversight from organizations
like the SEC is lax, that's when Wall Street falls into the hands of pirates and
fraudsters. At other times, when the pendulum swings back toward stronger
oversight, history shows that it's possible to keep the place quite a bit cleaner.

In short, this kind of piracy became possible because politicians in power wanted it
to be possible. And they wanted it because people like Ken Lay gave money to
those who chose to speak out for it. They were paid to want it. They still are, even
if advocacy of more deregulationism has to be spoken of very quietly for a while.

Besides that big question, the one question that I really wished the film could
answer was, How much of that money is still out there somewhere? How much of
the five or six hundred million dollars that Lay and the others pulled out of the
dying company is still squirreled away? And how much more got set aside than
the part we know about? Unfortunately, the film can't answer it, because nobody
knows yet. They certainly whet your suspicions -- it's pretty improbable that Ken
Lay's $300,000,000 got lost because he put the money back into the company just
after taking it out, and that's about the only way his story about how the money
disappeared could be true -- but as yet, nobody can show what actually happened.

The film does spend some minutes on the strangest and most amusing coda to the
whole Enron story: the recall election that installed Arnold Schwarzenegger, of all
people, as Governor of California. I, for one, am still shaking my head in disbelief
at this event, and I'm far from alone. This has got to be one of the silliest
misjudgments of cause and effect ever made by the electorate of my marvelous and
beloved home state... Ahnuld's team pretty much stood for the kind of deregulation
that created the mess, and Gray Davis had done more than anyone else in the state
to stop it. In fact, if Jim Jeffords gets the credit for doing the most of any single
person to end the crisis, Davis gets the second-most credit: his move of writing
long-term contracts with large generating companies at fixed prices, costly though
it was, was the other half of the one-two punch that knocked out the shortages.
Also, I personally couldn't help noticing that in the debates before the recall
election, it was Davis, of all the candidates, who spoke most clearly, perceptively,
and truthfully on the issues. He may have been dull, he may have been a one-
fisted hero, but he was still a better choice for the governorship than any of his
would-be replacements, including some that were, in terms of ideological position,
more to my own personal liking. The only real strike against him was that he had
failed to stop the theft... and the GOP tried hard to distort this into a charge that the
whole mess was his fault. This was so transparently ludicrous and dishonest that it
still amazes me that anyone swallowed it. But a good many apparently did.

I believe that one important reason for this is how the media handled the crisis
while it was going on. This is another key point that the film does not cover, but
the omission is a subtle one and it's not surprising that they would find this easy to
miss, especially if the filmmakers were from out of state. Which is the fact that the
major media in California and elsewhere never reported that we were being ripped
off, even after it had been going on for a year! The news stories persisted in a state
of bland obliviousness for an unbelievably long time, with only the left-leaning
alternative press telling anyone what was really going on -- the knowledge was
there, as the alt press demonstrated, but it was never publicized as you would
expect. Only in the last few months of the crisis, as prices soared to their highest
prices ever during a time of year when demand was at a rock bottom minimum, did
the major news institutions gradually start to catch on, or admit, that this wasn't
being caused by the economic equivalent of forces of nature, it was being caused
by thieves. When public figures did speak out about what was happening, such as
Loretta Lynch at the California Public Utilities Commission (who is in the film
quite briefly), the quotes were buried and the stories were downplayed.

This gross irresponsibility on the part of the major news organizations, which left
most people with only the vaguest ideas about what was going wrong during the
time it was happening, made it pretty easy to keep people confused and
uninformed after the crisis was over. In the film, the Californians you see during
the crisis are activists, who know exactly what's going on... you never realize, if
you weren't here at the time, just how unrepresentative they were of the populace
as a whole. And that, children, is why Ahnuld won the Governatorship.

(He is now experiencing the backlash that often hits outsider nonpoliticians who
get into office by promising the moon... people are catching on, rather too late, to
what a turkey he is policy-wise. He looks unlikely to be re-elected... but that's
what we thought about George W. Never underestimate the ability of the
Republican Party to come up with unpredictable and audacious ways to whip up a
public frenzy that benefits them at the polls.)

The total cost of Enron's binge is probably beyond guessing. The amount stolen
from the people of California -- and we'll still be paying for it for years to come --
was at least thirty billion dollars and could be twice that. The wreckage left by
Enron in its other ventures is scattered widely around other parts of the world, from
Nigeria to Bolivia. And one Enron & Friends reader, using some technique of
macroeconomic analysis which I don't understand, says that his figures show that
the electricity shortage probably contributed more to the recession now gripping
the US economy than either the 9/11 attack or the dot-com crash did. If that's true,
then Ken Lay didn't just wipe out tens of thousands of jobs among his own
employees, but hundreds of thousands. And still, nobody is being held accountable
for creating this situation. Sure, Ken Lay is in handcuffs -- a cheering image near
the end of the film -- but has anything been done to keep Wall Street more honest?
Not much. The much-touted cleanup of the brokerage houses amounts to little
more than that classic deregulationist's favorite: industry self-regulation. Other
business practices have been checked only by the relatively weak Sarbanes-Oxley
act, which entrepreneurial moaners are now bitching involves an onerous amount
of paperwork and over-regulation. And has anyone been held accountable for the
decisions of policy that created such an inviting atmosphere for piracy and fraud?
No, no, absolutely not. Nobody.

At the start of this review, I referred to Enron as "the most spectacularly crooked
corporation of modern times"... but by "spectacularly" I only mean that it was the
most visibly crooked. I would not want to assume that there aren't other large
companies out there which are just as rotten -- they may just be better at
maintaining a convincing appearance.

As things stand now, all this could happen again in a few years. We haven't really
even managed to repair the terrible mistakes that were made in the California
utilities law. Ahnuld sure doesn't want to go back to anything like the pre-1996
system, no matter how well it might have worked.

The justice system and the machinery of financial oversight are not now in any
position to stop another Enron. The one force that can change that, and restore the
more effective rules of conduct that worked better in the past, is the voting public.
Who won't do us much good if they aren't informed. Enron: The Smartest Guys
In The Room is a film that lays out almost all of the important points of the story
in 110 minutes, and helps clarify many of the reasons why it was able to happen,
while avoiding the sort of tendentiosity that many middle-of-the-road Americans
find offensive or tiresome in liberal-slanted attacks on corporate abuses. Unless
your ambition is to become a financial pirate yourself, any good American who
believes in hard work and free enterprise ought to hope that his neighbors see this
film, or otherwise inform themselves about the extent of fraud and corruption that
has occurred and can occur again. For them to be informed is in your financial
self-interest.

Enron: The Smartest Guys in the Room

From Wikipedia, the free encyclopedia

Enron: The Smartest Guys in the Room

Theatrical release poster

Directed by Alex Gibney

Produced by Alex Gibney

Written by
Peter Elkind

Alex Gibney
 Bethany McLean

Starring
Andrew Fastow

Jeffrey Skilling

Kenneth Lay

Gray Davis

Narrated by Peter Coyote

Music by Matthew Hauser

Cinematography Maryse Albert

Edited by Alison Ellwood

Production
companies 2929 Entertainment

HDNet Films

Distributed by Magnolia Pictures

Release date
April 22, 2005

Running time 109 minutes[1]

Country United States

Language English

Budget $700,000[2]

Box office $4.9 million[3]

Enron: The Smartest Guys in the Room is a 2005 American documentary film based on the best-
selling 2003 book of the same name by Fortunereporters Bethany McLean and Peter Elkind, a study
of one of the largest business scandals in American history. McLean and Elkind are credited as
writers of the film alongside the director, Alex Gibney.
 The film examines the 2001 collapse of the Enron Corporation, which resulted in criminal trials for
several of the company's top executives during the ensuing Enron scandal; it also shows the
involvement of the Enron traders in the California electricity crisis. The film features interviews with
McLean and Elkind, as well as former Enron executives and employees, stock analysts, reporters
and the former Governor of California Gray Davis.
The film won the Independent Spirit Award for Best Documentary Feature and was nominated for
Best Documentary Feature at the 78th Academy Awards in 2006.[4]

Contents
[hide]

1Synopsis

2Cast

3Reception

4See also

5References

6External links

Synopsis[edit]
The film begins with a profile of Kenneth Lay, who founded Enron in 1985. Two years after its
founding, the company becomes embroiled in scandal after two traders begin betting on the oil
markets, resulting in suspiciously consistent profits. One of the traders, Louis Borget, is also
discovered to be diverting company money to offshore accounts. After auditors uncover their
schemes, Lay encourages them to "keep making us millions". However, the traders are fired after it
is revealed that they gambled away Enron's reserves; the company is narrowly saved from
bankruptcy by the timely intervention of executive Mike Muckleroy, who managed to bluff the market
long enough to recover Borget's trading losses and prevent a margin call. After these facts are
brought to light, Lay denies having any knowledge of wrongdoing.
Lay hires Jeffrey Skilling, a visionary who joins Enron on the condition that they use mark-to-market
accounting, allowing the company to record potential profits on certain projects immediately after
contracts were signed, regardless of the actual profits that the deal would generate. This gives
Enron the ability to subjectively give the appearance of being a profitable company even if it wasn't.
With the vision of transforming Enron from an energy supplier to an energy trader, Skilling imposes
his interpretation of Darwinian worldview on Enron by establishing a review committee that grades
employees and annually fires the bottom fifteen percent, a process nicknamed within the company
as "rank and yank". This creates a highly competitive and brutal working environment. Skilling hires
lieutenants who enforce his directives inside Enron, known as the "guys with spikes." They include J.
Clifford Baxter, an intelligent but manic-depressive executive; andLou Pai, the CEO of Enron Energy
Services, who is notorious for using shareholder money to feed his obsessive habit of visiting strip
clubs. Pai abruptly resigns from EES with $250 million, soon after selling his stock. Despite the
amount of money Pai has made, the divisions he formerly ran lost $1 billion, a fact covered up by
Enron. Pai uses his money to buy a large ranch in Colorado, becoming the second-largest
landowner in the state.
With its success in the bull market brought on by the dot-com bubble, Enron seeks to beguile stock
market analysts by meeting their projections. Executives push up their stock prices and then cash in
their multimillion-dollar options, a process known as "pump and dump". Enron also mounts
a PR campaign to portray itself a profitable, prosperous and innovative company, even though its
worldwide operations are performing poorly. Elsewhere, Enron begins ambitious initiatives such as
attempts to use broadband technology to deliver movies on demand, and "trade weather" like a
commodity; both initiatives fail. However, using mark-to-market accounting, Enron records non-
existent profits for these ventures. CFO Andrew Fastowcreates a network of shell
companies designed solely to do business with Enron, for the ostensible dual purposes of sending
Enron money and hiding its increasing debt. Fastow also takes advantage of the greed of Wall
Street investment banks, pressuring them into investing in these shell entities. However, Fastow has
a vested financial stake in these ventures, using them to defraud Enron of tens of millions of dollars
in business deals that Fastow effectively conducts with himself. All of this done with the permission
of Enron's accounting firm Arthur Andersen and the corporate board. Most of these deals were
leveraged with Enron stock, meaning that a significant decline in Enron's stock price could cause
Fastow's network of shell companies to fall apart. During this time, Enron's executives encourage
the company's employees to invest their savings and retirement funds into Enron stock while they
are selling off their shares for millions.
Enron's successes continue as it became one of the few Internet-related companies to survive
the burst of the dot-com bubble in 2000 relatively unscathed, and is named as the "most admired"
corporation by Fortune magazine for the sixth year running. However, Jim Chanos, an Enron
investor, and Bethany McLean, a Fortune reporter, question irregularities about the company's
financial statements and stock value. Skilling responds by calling McLean "unethical", and
accusing Fortuneof publishing her reporting to counteract a positive BusinessWeek piece on Enron.
Three Enron executives meet with McLean and her Fortune editor to explain the company's
finances. However, public perception of Enron is changed dramatically due to its role in
the California energy crisis: Enron traders exploited the shaky foundation of the state's newly
deregulated energy market by shutting down power plants and exporting power out of the state to
create artificial shortages that would drive up the cost of electricity to Enron's benefit; Enron would
make $2 billion off of the crisis. The film plays tape recorded conversations between Enron traders
who seemed to derive enjoyment from their exploitation of the crisis and then cites the Milgram
experiment as a means of explaining their behavior. It also explores the strong political connections
Ken Lay and Enron had, particularly to the administrations of 41st President George H. W. Bush and
his son, Texas governor and later 43rd President George W. Bush, and suggests that Enron's
actions during the California energy crisis could have been intended as a means of
sabotaging California governor Gray Davis, who was being speculated as a strong potential
challenger to Bush in the 2004 Presidential election. Indeed, the crisis would indirectly lead to Davis
being recalled in 2003, which ended his political career. Skilling, who by then had succeeded Lay as
Enron's CEO, blames California's energy laws for the crisis and denies that Enron is acting
inappropriately, infamously stating on a 2001 episode of Frontline, "We are the good guys; we are on
the side of angels." While the Bush administration refuses to intervene, which the film suggests
could have been a result of Enron's influence, the opposition-controlled Senate ends the crisis by
imposing price controls. Bush's connections to Ken Lay come under scrutiny by the press, which
intensifies after Enron's collapse.
Meanwhile, throughout 2001 much more scrutiny is brought upon Enron's balance sheet and this
agitates CEO Skilling, who was on the verge of a nervous breakdown as the company and its fraud
start to unravel. He engages in odd and irrational behavior - such as calling an investor an "asshole"
during a conference call when asked why Enron isn't as transparent about its finances as its
competitors - which culminates in his abrupt resignation as CEO in August 2001 in which Ken Lay
retakes the position. Skilling's odd behavior serves as a red flag to investors who begin to question
how financially healthy the company really is and start selling their shares; Enron's stock price
begins to rapidly decline. Immediately after Skilling's departure, whistleblower Sherron Watkins, who
 had just recently discovered the fraud in Enron's books, alerts Lay and tells him that the company is
headed to certain collapse unless he acts immediately. Like in 1987, Lay largely ignores Watkins'
warnings and assures employees and the public that Skilling left for personal reasons and that the
company was financially solid. At the same time, the board fires CFO Fastow after discovering that
he had embezzled more than $30 million from the company through his shell companies. With
Fastow gone, Enron's accountants issue a series of restatements that erase a majority of the
company's profits from 1997 through 2000, adds nearly $1 billion of debt to the company's balance
sheet, and removes over $1 billion of shareholder equity as a means of writing down the losses from
Fastow's shell companies. Despite Lay's continued assurances that Enron is in good shape and will
pull through, the company's stock price tanks as its investors and customers lose all confidence and
Enron is forced to file for Chapter 11 bankruptcy protection in November 2001.
As a result of Enron's bankruptcy, many of its employees lose their pensions and life savings, while
investors lose over $11 billion in shareholder value. Congressional hearings are held into the
scandal, where Ken Lay and Andrew Fastow plead the fifth. Fastow eventually pleads guilty in a deal
that he will testify against his former coworkers in exchange for a reduced sentence, while Lay and
Skilling plea innocent and spend tens of millions of dollars on defense attorneys.

Enron: The Smartest Guys in the Room

4/5stars

(Cert 15)

What happens when someone asks why: Enron: The Smartest Guys in the
Room

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Peter Bradshaw

Friday 28 April 2006 01.06 BST

There should be a gold statue of Bethany McLean outside every journalism

school in the world. She is the magnificently persistent reporter who in 2001,
in the face of sneering from the American business boys' club, wrote an article
in Fortune magazine suggesting that Enron, the gigantic US energy
corporation, was "overvalued". It was the first jab in an investigation revealing
the biggest and most grotesque scam of modern times.

Thanks to McLean, the public discovered that Enron was a fraud, inflated by
mendacious accounting, the manipulation of public utilities and Maxwell-style
raiding of pension funds. Her story is brilliantly told in this cracking
documentary directed by Alex Gibney, based on the subsequent book that
McLean co-wrote about the Enron scandal. Sadly, though, there is no mention
of one British participant in this sorry story: Tory peer John Wakeham, who in
the 1990s pulled down a juicy 80,000 per year serving as non-executive
director for Enron and brushed aside warnings that his employer was dodgy.
When the truth came out, Lord Wakeham surrendered this sinecure and one
other: chairman of the Press Complaints Commission.

McLean's triumph lay in her forensic rigour. She assessed Enron not on the
basis of its ongoing success, not on the basis of the conspicuous wealth and
prestige of its executive officers, not on the basis of its glossy brochures and
glitzy premises - but purely and simply on the numbers. She read the
accounts, and doggedly ignored the spin.

The Enron catastrophe emerges from this film as a fascinating story of

crookedness that grew out of business practices, which, though audacious,
were just about on the right side of the law. Enron's chairman and chief
executive officer were Kenneth Lay and Jeffrey Skilling, two supremely
arrogant and belligerent men who believed they were the "smartest guys in the
room": that through sheer cleverness and creativity - an unfortunate concept
in connection with accounting - they had brought into being the most
innovative corporation in the US. Enron brokered the buying and selling of
energy futures whose values they were allowed to include as part of their own
assets, like the owner of an armoured car who believes he owns the gold
bullion while it is being carried inside, and, incredibly, were permitted to
consider the hypothetical future value of anything they owned as a current
reality. They marketed derivative financial products based on everything from
internet bandwidth to, unbelievably, the weather. A credulous business media
bought into the myth of Enron's new ways of magicking profits out of thin air
and so did the merchant banking community. This modern-day South Sea
Bubble grew and grew and grew.

Advertisement

When California deregulated its energy markets, Enron was allowed to shut
down production here and there to pump up the price of electricity. California
suffered power cuts like a developing world country or 1970s Britain, and this
was blamed on its hapless governor, Gray Davis, who was to be booted out of
office in favour of Arnold Schwarzenegger. So Enron is even guilty of creating
the Governator. My only quarrel with the movie is its apparent sympathy with
David - who should have been taking tougher action, or making a louder
complaint, against the Enron swindlers.

Gibney's movie shows how the top brass at Enron realised what was
happening, but like a mad and dysfunctional cult, everyone carried on.
Nobody wanted to be wimpy or disloyal enough to question what was
happening. "Ask why" was the company's supremely conceited, brainiac
motto. In reality, asking why would get you fired. Eventually, the smartest
guys in the room, sycophantically praised by the political and business elites -
including Bush Sr and Jr - wound up being taken to the police station in
handcuffs. Another Enron executive killed himself. One other, a gentleman
with a passion for lapdancers, emerged unscathed from the debacle.

The awful truth is that our society has a need to believe, unquestioningly, in
rich people. Dickens and Trollope, who created the phoney billionaires Mr
Merdle and Mr Melmotte, would have appreciated Lay and Skilling; they
understood the fatal, dizzying attraction of plutocrats who appear to be
heading for the stars. Perhaps the big mistake that Lay and Skilling made was
not buying a few newspapers or TV stations. Then they could have counted on
even more deference from the press - enough, perhaps, to have tided them
over.

Which brings us back to Bethany McLean herself. Her triumph was not simply
in her investigative toughness and nose for a story. It was in showing a quality
desperately needed in all sorts of journalism: simply, a refusal to take people
at their own estimation of themselves. The movie has disquieting resonances
about our own Enronised prosperity. Middle-class Brits are borrowing more,
spending more and unconcerned about the future because ever-increasing
property prices will buy us out of trouble. Meanwhile in the US, the company's
pauperised pensioners are still looking for ways to make ends meet. Maybe
John Wakeham would care to make a donation.

Since youre here

we have a small favour to ask. More people are reading the Guardian than
ever but advertising revenues across the media are falling fast. And unlike
many news organisations, we havent put up a paywall we want to keep our
journalism as open as we can. So you can see why we need to ask for your help.
The Guardians independent, investigative journalism takes a lot of time,
money and hard work to produce. But we do it because we believe our
perspective matters because it might well be your perspective, too.

I appreciate there not being a paywall: it is more democratic

for the media to be available for all and not a commodity to be
purchased by a few. Im happy to make a contribution so
others with less means still have access to
information.Thomasine F-R.

If everyone who reads our reporting, who likes it, helps to support it, our
future would be much more secure.

Become a supporter
The Smartest Guys in the Room

by Bethany McLean & Peter Elkind

Publisher: Portfolio

Copyright: 2003, 2004

Printng: 2006

ISBN: 1-59184-053-8

Format: Trade paperback

Pages: 424

Written by two senior writers for Fortune magazine, The Smartest Guys in the
Room is a comprehensive history and analysis of the rise of Enron and its dramatic
and catastrophic collapse. It starts (after background on Ken Lay) when Lay becomes
CEO of Houston Natural Gas in 1984 and concludes with the collapse of Enron late in
2001, with an epilogue covering the further trials and criminal charges up to October
of 2006. Along the way it paints a fascinating and compelling picture not only of what
Enron did as a company (something that I found mysterious prior to reading this
book), but also the personalities that ran it and the details of where and how it went
wrong. California power trading is, of course, a chapter in the story, but the story is far
larger than that.
This was surprisingly compelling reading. One wouldn't expect that of a 420 page
book frequently concerned with the details of complex accounting games, corporate
fraud, and complex commodity trading, but McLean and Elkind do an excellent job
with pacing, balance between detail and readability, and juggling of the huge cast. I
cringed a bit when the introductory dramatis personae covered five pages, but I
almost never needed to refer to it; people, events, and aspects of Enron business were
introduced and refreshed as needed without tangling up the story. The end, once the
business started falling apart, was as hard to put down as a good novel.

You also don't have to be a financial expert to understand this story, although it is
helpful to know something about the language of finance and the markets. McLean
and Elkind seem to be pitching the book at about the average Fortunereader. You
should know the difference between stocks and bonds, the basic meaning of a
derivative, and enough economics to follow the brief provided definitions of concepts
like commodities, a futures contract, liquidity, and a hedge. McLean and Elkind don't
take a lot of time explaining economics for the beginner, but they do explain non-
basic concepts when they come up. The book should be within the grasp of any
reasonably well-informed investor.

The core of the Enron story is the people, an array of brilliant, egotistical, and
arrogant executives who create a corporate culture that selects for raw intelligence and
vicious competition and discards most of the social virtues typical of a corporation.
Both the intelligence and the arrogance come through clearly. Whatever else those
involved in the Enron story were, they were smart. The company was filled with
straight-A business school students, people capable of solving advanced equations in
their head, and brilliant economists who came up with both revolutionary trading
techniques and ways of exploiting legal loopholes before anyone else. One of the
triumphs of this book is that it captures not only the weaknesses but also the strengths
of Enron and shows how much talent was let loose in an environment with no
effective controls.

A surprising part of the Enron story is the disappearance of Ken Lay once the
company is up and running. McLean and Elkind paint a picture of a CEO who hates
conflict, refuses to say no to anyone, is blindly loyal to his inner circle, and only stops
anything through passive-aggressive avoidance. It's unclear for much of Enron's story
how much Lay knew about the day-to-day operations; what is clear is that he exerts
little or no control or braking. The COO (Jeff Skilling for most of the story) is the one
who runs the company. Lay gladhands politicians, manages the board, hobnobs with
the corporate elite, and enjoys every moment of a lavish high-class lifestyle.

What he turns loose, perhaps via inaction as much as intention, is a stunningly vicious
culture of one-upsmanship, internal competition, put-downs, in-fighting, and greed.
Enron executives and traders had free rein to compete even against other divisions of
Enron, and gloried in it. Many of the top executives believed strongly in pure
libertarian free-market economics, in a social Darwinist notion of dog-eat-dog, and in
profits as the sole metric on which anyone should be judged. Enron was exclusively
about making deals and making money, and the compensation packages reflected it.
McLean and Elkind repeatedly pound the point home with detailed numbers until the
millions handed out (even when an employee quits!) blur together.

The other half of the picture was Enron's finances. McLean and Elkind start in the
early days of the company and provide an excellent education in the financial tricks
Enron used, starting with a detailed explanation of mark-to-market accounting. Mark-
to-market accounting is an accounting system in which one can book all the profits
from a deal as soon as the deal is closed, even before the company earns any real
money from it, and was therefore perfect for Enron. Enron, far more than growth, was
all about the appearance of growth, aimed at making the stock value climb ever higher
(in part because such a huge amount of the compensation structure was built around
the stock price). Mark-to-market accounting lets one give the impression that the
company is growing much faster than traditional accounting. The drawback, of
course, is that in true mark-to-market accounting, one is required to book losses
whenever the estimates of the profit over the course of a deal decrease. It was in
Enron's numerous ways of bypassing that part of the system that most of the trouble
lay.

Enron looked like it was defying the laws of economics in its staggering growth, but
McLean and Elkind's lucid explanations show just how it wasn't. There are only three
ways to get money to grow a company: through reinvesting profits, through selling
additional equity (stock) and thereby diluting the value of all existing stock in the
hope that the investment will eventually offset that investor loss and more, or by
borrowing money. The first was too slow and the second, since Enron was all about its
stock price, was generally unacceptable. Enron was doing the third, borrowing huge
amounts of money and then hiding the loans by taking advantage of accounting tricks
to keep it out of the company's official recorded debt. They were paying off old loans
with new loans, just like a person transferring credit card debt from one card to
another. The belief within the company was that they were building towards some
new business idea that would make so much money that any debt would be irrelevant,
and when a new idea failed to materialize, the pile of debt collapsed and the company
imploded almost overnight.

Enron did some things well, and The Smartest Guys in the Room is good about
acknowledging and describing them. Enron did a lot to bring natural gas to the
forefront, as a cleaner-burning and often more environmentally friendly fuel than oil
or coal, and completely changed the way that natural gas was traded on the market in
ways that helped the whole market. Natural gas trading, which is what first kicked the
company into overdrive, was a legitimately huge idea. The hubris came in believing it
would be only one of many, and that the company could repeat the feat on demand.

The other thing this book makes painfully clear is the failure of every oversight
system to bring Enron under control and to detect the ways in which they were
cheating and gaming the system. It also makes painfully clear the dishonest and self-
serving attempts of those oversight bodies to avoid the deserved blame for not doing
their jobs. Yes, Enron created a corporate environment where greedy egoists and, later,
outright crooks thrived. However, the inevitable existence of such people is exactly
why we have oversight. Watching everyone else point the finger back at Enron
executives and claim no personal responsibility because they were deceived is
sickening. McLean and Elkind pick out the signs and and warnings, point to early
articles, show the places where specific oversight bodies should have known to dig
deeper and didn't, and towards the end, show how institutional investors with far less
information than the oversight bodies clearly had a better understanding of what was
going on.

I came into this book with some sympathy for Arthur Anderson, the accounting and
audit firm used by Enron that was destroyed in the wake of the Enron debacle. I came
away with none whatsoever. It's murky whether anyone at Arthur Anderson knew for
certain that something illegal was going on. It's abundantly clear that in order to keep
Enron's business (in other words, out of greed, the motive of many of Enron's
enablers), Arthur Anderson carefully looked the other way, chose not to learn of
problems, signed off on deceptive and misleading statements, and blatantly ignored
their own internal controls and review boards. Enron's legal firm, Vinson & Elkins,
comes away looking similarly tainted (if less interesting since they're less widely
known).

The SEC is simply absent, except at the very end when the problems were too obvious
to ignore. This I'm inclined to attribute to lack of funding and thus inability to pursue
as many complaints and reports as they should. The credit agencies have less excuse.
They could have stopped the ballooning Enron debt far earlier by downgrading
Enron's bond rating, as the off-the-balance-sheet debt certainly deserved. Credit rating
agencies are understandably reluctant to downgrade below investment grade, since
this is the nuclear weapon of bond trading and often triggers automatic contract terms
that can destroy a company, but Enron was three grades above junk status even while
the company was collapsing. But they never investigated Enron's strange filings and
bizarre disclosures enough to put the picture together.
About the stock market analysts, the less said, the better. The Smartest Guys in the
Room makes abundantly clear just how rigged and dishonest the entire system of
stock market analysis is.

But the greatest contempt has to be reserved for the Enron board. The other agencies
listed are the second, third, or fourth lines of defense against a dishonest or corrupt
corporation. The corporate board of directors is the first line of defense, and the job of
a board member is to investigate, analyze, and make decisions to oversee and stop
exactly the sorts of things that Enron was doing. And yet, the Enron board, as is sadly
typical for corporations, was in the back pocket of Lay and abrogated their oversight
responsibilities almost entirely. Apart from a few desultory attempts to check on a few
facts, abandoned at the least impediment, the board sat back and did nothing. Worse
than nothing: it approved, again and again, the actions that led directly to Enron's
collapse. The argument that they were decieved to me simply means the charge should
be criminal negligence instead of conspiracy in a fraud; it changes my opinions of
their actions hardly at all.

As mentioned above, the California power crisis is covered but plays a smaller role
than many may think. Here again, McLean and Elkind show a balanced and thorough
understanding of where Enron was uniquely at fault and where Enron was just another
player in a dirty game. With electrical power trading, Enron wasn't doing anything
others in the market weren't also doing. They lay out how the California power
disaster, while still murky in its exact causes, probably should be laid at the feet of the
bizarre and broken way the power market was unevenly deregulated as much as at the
feet of any particular trading corporation, all of whom were actively exploiting
loopholes that one could drive trucks through. Enron was, however, far more arrogant
and vicious than most of its competitors, and hence opened itself up as an easy public
relations target.

As you can see, that's a lot of material, and I'm only touching on the highlights. This is
a fascinating book. In the process of diving into one of the most spectacular corporate
collapses in US history, it provides fascinating information about how the corporate
world functions, about markets and trading, and about the energy industry. It also
delivers a memorable cast of characters.

The one flaw also leads me to add the disclaimer that the above analysis is based on
McLean and Elkind's work and not on independent confirmation. Throughout, they
use a journalistic style of attribution, quoting specific individuals and citing them
when it fits into the prose, but not using the end notes or detailed citations of an
academic work. This is a problem. It is, to a degree, unavoidable, as they explain in
the authors' notes. Due to the ongoing court cases, the marginal legality or outright
illegality of many of Enron's dealings, and the handshake agreements between
corporations, many of their sources refused to be identified or would only speak as
background sources. But there are court filings, bankruptcy documentation, discovery,
and Enron's own disclosures at the end when it was desperately attempting to come
clean, and I'm certain that information also went into this book and probably shores up
many of the details. Without academic citations, however, one has no way of knowing
which parts of this story could be independently confirmed. This book desperately
needed comprehensive end notes; in their absence, one must extend a lot of trust in
McLean and Elkind.

That being said, the book passes the smell test and feels like a concrete and thorough
piece of journalism. It's also a compelling story, well-told, and one of the better non-
fiction books I've read. If you have a basic understanding of economics and any
interest in US corporate governance, I highly recommend it.

Movie Review: Enron: The Smartest Guys in the

Room

by MA RK WONG on JUNE 8, 2009 0 COMM ENTS

in M IS CE L L A N Y

Rating: R
Year: 2005
Runtime: 110 mins
Summary:

An elegant and informative depiction of Enrons

rise and fall. The film describes in detail how,
with a combination of a weak moral compass and
accounting fraud, Enron became ground zero for
the greatest corporate crime of the century.

Likes:
The movie used the phrase Useful Idiots to
describe the investment bankers that were duped
into investing in Enron. Having worked with many
a banker in my lifetime, I feel this is an accurate
depiction of the profession.

The movie linked George W. Bush to Kenneth Lay,

the mastermind behind the Enron scandal. They
show a video where W professes how great a
person Lay is. He then directly and blatantly
supported Lay in his effort to rip off California
during the energy crisis. We know now that these
are two people America simply would have been
better without. And this was only 2001. I still
cant believe that we elected Bush twice.

The voice recordings of the traders are very

profound. You can hear them laughing and joking
with each other as California suffered through
rolling blackouts. And yes, traders do really act
like that and they do make that much money.

Dislikes:

When I rented the movie, I kind of wondered why

it received an R rating, which is somewhat odd
for a documentary. I soon found the reason a few
minutes into the movie when they talked about
how one of the Enron executives frequented strip
 clubs. The scenes themselves werent
particularly distasteful and they did add intrigue
to the story, but it seemed a little inappropriate
for a documentary. Man do I feel sorry for the
accounting professor who plays this in front of his
class without screening it first.

The movie only addresses the accounting fraud at

a surface level. While I do agree with the movies
contention, that Enron was more of an issue of
morality rather than accounting. However, the
accounting side of the fraud was complex enough
to take down a Big 5 (now Big 4). I wish they
went into more detail about how they cooked the
books, to a degree in which they were able to
take down Arthur Andersen.

Bottom Line:

A great rental if youre a closet accountant like

me.

Capitalist Tools
This brilliant documentary dramatizes the evil that menand corporationsdo.

Comment

By Ken Tucker

ShareThis
 I do not understand the world of big businesshow huge sums of money
are made; how sometimes men of no apparent intellectual distinction
gain power over the lives of thousands of people within a profit-making
organization. Would I be a critic if I did? Of course not. Id be a CEO.
Therefore, you can ascribe some of my enthrallment with Enron: The
Smartest Guys in the Room to one of the wizardly exposs greatest
pleasures: the way its dynamic dramatic arc frames an area of the world
to which most of us will never be privy.

In this case, its the tale of how a moderate-size Houston gas-pipeline

company grew and grew while gulling the stock market and its investors
for a good long time, reaping billions of dollars, and becoming the largest
natural-gas supplier in North America and the United Kingdom. In so
doing, Enron raised to public prominence executives such as Ken Lay
(Enrons founder and CEO), Jeff Skilling (the companys COO), and Andy
Fastow (its CFO). Working from the 2003 book by Bethany McLean and
Peter Elkind, director Alex Gibney (writer-producer of the
Illustration by Jason Gnewikow invaluable Trials of Henry Kissinger) has made the most blessedly
traditional sort of documentary. It follows the twisty, complicated rise
and fall of Enron in steady, chronological order, from the mid-eighties to the present, using voice-over
narration (from actor Peter Coyote, the former San Francisco sixties-era Diggera tartly ironic choice) to
keep clear the cast of real-life characters and the complex lines of deceit. And it presents an undisguised,
forthright thesis: that, as Gibney puts it in a studio production note, Enron is not an exception to the
rule; its an exaggeration of the way things too often work.

And what a dire exaggeration of free-market capitalism Enron proves to be. The film reminds usso
clouded are our minds now with everything from the morass in Iraq to the homestretch of American Idol
that the company was responsible for, among other things, gaming the Northern California rolling
blackouts in 2001, during which, under the guidance of a devious scheme hatched by the brilliant Enron
trader Tim Belden, the company profited as huge parts of the state were plunged into darkness. Citizens
were threatened by a deregulation plan that essentially enabled a soulless batch of Enron traders to place
phone calls that drove up energy-market prices and took advantage of power-plant shutdowns: Gibney
plays us the audiotapes of ghoulishly cynical Enronites to prove it.

Thats only the most dramatic of the stories Enron: The Smartest Guys in the Room has to tell. Although
Lay and Skilling declined to be interviewed, Gibney manages to make his cold, hard subject cinematic via
an artful layering of news clips, interviews with second-tier execs, and footage of chillingly hubristic
corporate gatherings shot for company promotion. The film lays out all sorts of devilish practices, such as
the accounting system Skilling promulgated, in which Enron would announce a new project, from a
pipeline expansion to increasing broadband capacity, and project the millions of dollars in potential
profits onto earnings reports, as though the above-the-line dough was in the bag. Much of the time, of
course, it wasnt. This game was played with ferocious aggressiveness, gambling that revenue would pour
in before actual, lower profits needed to be disclosed.

More pathetic are the clips secured by the filmmakers of warm company pep rallies at which high-ranking
Enron officials including Ken Layclose enough to President Bush to have been granted a Dubya-
generated nickname, Kenny Boyperform skits encouraging cheering employees to invest all their
money in the companys 401(k) plan, whose funds would, of course, evaporate after the stock collapsed
and the plunderers were indicted. (CFO Fastow, for exampledubbed the Sorcerers Apprenticewas
slapped with 78 charges including conspiracy, fraud, and money laundering.) Were these, in fact, the
smartest guys in the room? No: They were the most arrogant, ballsy, unfeeling, power-hungry guys in the
company. Fortunately, their power-lust ignited and consumed them until they were burned by their own
greed, and left charcoal-suited empty shells in handcuffswith smudgy-front-page-news smirks that
implied overseas bank accounts. Unfortunately, by that time they had already wrecked the lives of many
innocent, loyal people: the poorest guys and gals in the room.