This film about Enron Corp.

, an American energy, commodities and services company based in

Houston, Texas, documented one of the biggest business scandals in history. It featured the
different executives who were involved in the graft and corruption that took place in the
business. The documentary also featured Enrons founder and chairman Kenneth Lays
humble beginnings and his rise to fame and fortune. I realized how far he has gone from
delivering newspapers and mowing lawns to being the founder of Enron and a successful
businessman, but not for long. Enrons chief executive at that time, Louis Borget, was getting
money from the company and transferring it to a private account. Of course, Lay was a part of
this, even encouraging Borget to make them more money. But when Borget was found out, Lay
eventually denied it. Greed and other sinsAccording to the documentary, Kenneth Lay hired
Jeff Skilling to be the new chief executive of the corporation who utilized the mark-to-market
accounting. When he did this, I knew right away that this opened the door to fraud and
corruption because it allowed the company to write the amount of money potentially earned in
projects when the deal is signed even if there is no assurance that it will be successful. True
enough, most of the executives and even traders took this new accounting style opportunity to
earn more money, or more like steal more money. This went on and on for years, making those
involved even more filthy rich. They did not think of the stakeholders of the company, its
customers and investors. Instead, they just thought of themselves. It was as if their main goal
was to keep the stock prices up, so as to get more money, to the point where they were putting
any amount of money in their books to make this possible. It shocked me the way they
manipulated people just to get what they wanted. Their greed, pride, the lies they told, it was all
surprising how human beings were capable of doing such things. What was most affecting was
that they were making a big impact on peoples lives, and not in a good way. There was a part
in the documentary wherein they featured what happened in the California energy crisis.
California experienced multiple rolling blackouts not because of a lack of supply, but because of
the market system that was manipulated by the executives and traders in Enron itself. Their
goal was to keep California in crisis so as to increase their stocks. And this was exactly what
happened. They got to sell power at premium prices, not letting the people know that there was,
in fact, enough energy to supply California. They did not care about the lives affected because
of the rolling blackouts; it did not bother them that those living there were having a hard time
because of not having electricity during the winter. Enron traders intentionally encouraged the
removal of power from the market by telling the suppliers to shut down plants. Pork barrel
scam After watching the documentary, what bothered me the most was the fact that the same
situation may be happening to our country, too. It may not be the exact same issue, but the graft
and corruption taking place is the same. The most recent scandal taking place in our country is
the Priority Development Assistance Fund scam, also called the pork barrel scam. In our
country, members of Congress are entitled to a lump-sum discretionary fund, i.e., the pork barrel
fund, that they will allocate for the different projects they prioritize for the benefit of our country.
But just like what happened to Enron, this just opened the door to graft and corruption. Political
officials allegedly started to get portions of the fund for personal use, and it did not matter to
them whether or not their projects will finish successfully. Janet Lim-Napoles, the scams
alleged mastermind, was claimed to have used funds from the pork barrel and has defrauded
the government of P10 billion for the past 10 years. It was also claimed that she implemented
ghost projects of at least 20 fake NGOs. The reason we have knowledge of this is because one
of the people working for her, Benhur Luy, has decided to whistle blow and tell the truth. The
biggest question now is how can this be solved and later on avoided? How can so much
greed and pride be present in our surroundings? To the extent where even our politicians, who

ideally have to act as role models and good examples, are the ones who are supposedly
included in such scams! It surprises me even more that those officials who have been caught for
corruption already, like Estrada and Enrile, are still in position.Ensuring ethics and
governance What actions must be taken place now? Shouldnt the people realize that these
officials being elected are also the ones stealing our money through taxes? I may not be a
worker, but I too pay tax whenever I eat in restaurants or buy things, and it upsets me to know
that instead of spending the taxes in helpful projects like better roads, infrastructures, poverty,
pollution and the like, they go to the pockets of these people who do not even give a care in the
world! As a student, I will make it a point to dedicate myself to corporate social responsibility by
thinking of others first before myself. We should develop our passion for serving people and not
our passion for money and material things. I know it seems like a long shot now because the
scam is so fresh and new, but someday, I just hope our system will improve. This should not be
tolerated. Graft and corruption in our country has been happening for too long. I hope this time it
will be different. I hope this time, justice will be served and those who are involved will face the
consequences they should face. And when it is my generations time to serve, all I can do is to
hope that the system will be altered. I believe we know more now because we can learn from
the mistakes these people have committed. Unlike the Enron and PDAF scam, corporate
governance and ethics will be present in all our endeavors. The author is a student of the De
La Salle Universitys Ramon V. del Rosario College of Business. She is currently on her
2nd year taking up BS in Business Management. She maintains a First Honors Deans
List standing. This is her reaction paper on the Enron Documentary submitted for the
course Corporate Social Responsibility and Governance.

Enron: The Smartest Guys in the Room

(documentary)
MOVIE REVIEW

Enron: The Smartest Guys in the Room (documentary)

by Eric D. Snider
Grade: B
Released: April 22, 2005
Directed by:
Alex Gibney
Cast:

John Beard
Jim Chanos
Carol Coale
Peter Coyote
Gray Davis
Reggie Dees II
Joseph Dunn
Max Eberts
Peter Elkind
Andrew Fastow
David Freeman
Philip Hilder
Al Kaseweter
Ken Lay
Bill Lerach
Loretta Lynch
Amanda Martin-Brock
Bethany McLean
Mike Muckleroy
Reverend James Nutter
John Olson
Lou L. Pai
Kevin Phillips

David V. Porter
Nancy Rapoport

Movies like Enron: The Smartest Guys in the Room are useful because they explain
complicated issues in simple terms a boon to us normal folks who are often frustrated
by news coverage of ongoing stories that fails to take into account that were not all
financiers or political scientists.
I remember being discouraged by the Enron scandal specifically, not because I was
angry at the criminality involved, but because I had no idea what, exactly, anyone had
done wrong. All I knew was that I was supposed to be outraged by it. I had never heard
of Enron until the scandal broke, and even then I didnt know what sort of business it
was. (Department store? Candy factory?)
Enron: The Smartest Guys in the Room boils it down and tells the story in clear terms,
but make no mistake: Its still a complex issue. Even the films audience-friendly method
of analysis requires that you pay attention. Its been simplified, but not dumbed-down.
It may be that what Enron was up to was so byzantine, it CANT be dumbed-down.
It is, as Bethany McLean tells us, a story about people. Its really a human tragedy.
McLean and Peter Elkind wrote the book on which the film is based, and they appear
on-camera to explain what happened, aided by Peter Coyotes slightly smug-sounding
narration. Documentarian Alex Gibney wrote and directed it.
Ken Lays father was a Baptist minister (Son of a Preacher Man plays on the
soundtrack, one of several amusing uses of apropos pop music) and Ken himself was a
strong-headed businessman who pushed for the deregulation of public utilities. That is
to say, he wanted electricity and natural gas to be bought and sold like any other
commodities, with providers vying for customers and charging what the market will
bear.
He got his wish, of course, and Enron thrived. With Lay as its chairman and the
devilishly shrewd Jeffrey Skilling as president, Enrons stock price soared in the 1990s.
What the company counted on was the very thing that stymied observers like myself
after the fact: No one really understood how Enron operated or how it made money.
Even smart people took the even-smarter Jeffrey Skillings word for it that the company
was profitable, too intimidated to ask the tough questions until it was too late. Someone
in the film observes that not only was Enron a house of cards, but the house of cards
was built over a pool of gasoline, too.

What Enron was doing, essentially, was cooking the books. The companys accounting
firm, Arthur Andersen, let them use an arcane method of accounting known as mark
to market, whereby a company declares its POTENTIAL profit as its ACTUAL profit,
even if the deal in question winds up failing completely. In other words, I buy a
thousand Beanie Babies from you for $10, knowing I can sell them on eBay for a total of
$1,000,000. Under mark to market accounting, I declare a million dollars as my profit
even though, on the way home from your house, my car falls in the river and the
Beanie Babies are lost forever. If youre alarmed that Arthur Andersen signed off on this
practice, youre not alone: You may recall that things did not end well for Arthur
Andersen, legally speaking.
But thats not all. Enrons staff of go-getter stock salesmen, the sort of alpha males
depicted in the film Boiler Room, convinced hundreds of ordinary people to invest in
the company, thus inflating Enrons stock price to a value that was far greater than what
the company was actually worth if one examined its actual assets. Once it became
apparent that Enrons emperor was buck naked, its stock prices plummeted to what
they were really worth as low as a few nickels per share and everyone who had
invested in it lost everything.
The question that will face Lay and Skilling when they are put on trial in 2006 is: How
much did they know, and when did they know it? Both have already insisted, with
earnest-looking faces and sad eyes, that they had NO IDEA their hirelings were
engaged in such shady practices as faking an energy crisis in California in order to drive
up electricity prices. The movie, which makes no pretense of being fair or balanced,
relentlessly seeks to prove that such claims of ignorance are false.
Theres no question that anyone who sees the film will consider Lay and Skilling guilty
as charged; the fact that they and others escaped with multi-million-dollar severance
packages when the company filed for bankruptcy while all their employees got
nothing certainly proves they are guilty of being bastards, if nothing else. But theyre
probably guilty of a lot more than that, too. Im just glad I understand it all now.

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 & Friends articles 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 onefisted 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.