By Apurav Maggu:
If there is anything that defines my love for 90’s, it would be President Bill Clinton, F.R.I.E.N.D.S (T.V show) and this documentary (in descending order). The voracious, ravening, ever surging ahead, markets of 90’s could not have been better romanticized by any documentary.
Most of us haven’t heard of the name of the company, only some (maybe our fathers have) remember its name and its intention to open up a plant in Dhabol in Mumbai during the 2000’s, however, the company was responsible for one of the most massive frauds in the Corporate history of the Â U.S.
It’s the economy stupid
‘Government is not the solution to the problem, government is the problem’. The US is reeling from strategic defeats in Iran and Middle East with an ailing economy turned pro-business, fiscally conservative turned towards the pop star of politics, Ronald Reagan who vowed to dismantle burdensome regulations on the business and let market forces decide the course of American economy.
After Reagan, Daddy Bush helped push the deregulation motto ahead with slogans like ‘read my lips, no more taxes’ and acted as major proponent of deregulating the gas industry. State and business institutions shook hands to create massive empires of crony capitalism. Enron was promised billions of dollars in subsidy and in return Enron became the largest contributor of campaign finance to Bush Sr.’s campaign which was absolutely unprecedented in the US presidential history.
The Prophets. Not The Mohammed, but…
1. Kenny Boy
Son of a Baptist minister with poor origins, Kenneth Lay, a PhD in economics from Harvard and head of the company, dreamt of free markets and the world of business while sitting on a farm tractor. Ahead of the curve, he dreamt energy markets and vast networks of pipelines to be unshackled from the bureaucratic and regulatory control of the Govt.
Masters of deregulation conglomerated in the early 90’s to create markets which would seem outright science fiction. For e.g. a market in weather, where markets could bet on weather, markets in bandwidth, corporate insurance, markets in electricity, innovation and risk tried to outpace each other.
The company achieved a cult status for its innovation. While the company grew, a Harvard nerd would transform the nature of the company.
2. The selfish Gene of Darwin’s ProtÃ©gÃ©
‘Are you smart?’ and the reply was ‘I am Fucking smart.’, when Jeff Skilling (C.E.O of Enron) was asked this question by his professor in an interview for Harvard University. His story is that of an old 70’s movie formula of a geek to a classic hob throb, only its premises was the Wall Street. Enron transformed itself into the most Darwinian corporations in the history of corporate America under his aegis. He said ‘if you move on time, you could accomplish a lot of things’ and ‘every idea can be monetized and commoditized.’ He had a Darwinian notion of the world that world only moves on greed, self prosperity and ‘acquiring’ is the only motto in life.
A peer review process, where a group would review the performance of the others and yank them out of job, if they are not making profits,(http://www.youtube.com/watch?v=W_NxYUpLE6A), the genius idea was to get away from involving the company into stupid and cumbersome infrastructure construction of pipelines and providing gas, and instead trade it as a financial commodity, like a stock.
Mark to market deals helped Enron to build a gigantic paper empire. What nobody realized was, the empire was a house of cards built on a pool of gasoline. Creative accounting practices with the help of phony people and company’s corporate money, invested in Enron stock, on the only condition that it would always rise up.
In layman terms, mark to market is a type of a deal where the company projects its future profits of the project before it even starts, so that investors could pitch in money and the sole onus of investing doesn’t fall on the company only.
One of the murky deals involved an investment by a Lebanese speculator, Mr. M. YASS. A joke on the regulators and regulating agencies, as the real name of that non-existent person was ‘My ass.’ Loads of curious deals like these, for e.g. shelf companies like Raptor, Chewco, Jedi, YODA, Death star, Star Galactica (Reference to Star Wars) invested in the company and its CFO Andy Fastow used Enron Corporate money through these shelf companies and involved other banks and investment firms to tap their money into Enron stock so it always goes up and up. He betted his money, Enron money on the future guarantee that Enron stock would always go up and up, no matter what.
Enron’s business dealings did pose a lot of questions, like even after a bad quarter how was it able to make profits and show higher returns on its balance sheets. What was its business style (which was unclear to a lot of wall street analysts) and why did it never show its balance sheets and even if it did, how come it was able to show surging growth year after year.
Most of the agencies and govt. and private regulators had accepted Enron’s balance sheets on the company’s face value. Those who asked were shooed away or made enemy no. 1. A big time investor enquired about the company’s balance sheet only to be jolted by its CEO’s reply ‘we will keep that in mind, Asshole.’ Greed met pride which met ‘alpha male image’ and it informally changed the company’s tagline.
Ask why, Asshole
From a 70 billion dollar company in 10 years, it was reduced to 20 million dollars in the matter of 21 days. Sharon Watkins, the whistleblower who came out bravely to blow the cover on this casino became the victim of media propaganda and character assassination. The systemic risk, regulatory lax could not be prosecuted because there were no laws to handle a scandal of epic proportions like this.
10 years on, 120,000 employees lost their jobs with no pension money and no social security while the C.E.O’s cashed out and bailed themselves out of the crisis. Enron is a lot similar to Titanic, only in this sinking ship, the captain of this ship lowered the lifeboats for himself, gave himself and his crew a huge bonus and told everyone ‘by the way, everything is going to be fine.’
It is a fine, classic piece of how greed, insecurity, cult and money can intertwine and enmesh to form a Casino/company which can go nuts. It would be fair to say that you can have a plush home, the best office space in the company and the best company to work for and ultimately, it is your integrity which will determine you. The greatest innovation of globalization is the globalization of greed and to think that it is gone, think of Lehmann or Northern Rock in 2008, five years on and the man who crashed the Wall Street in 2008 just did an Enron 2.0. It’s a must watch to understand corporatism.