Justin’s #16 – The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron, Bethany McLean and Peter Elkind, 440 pages

After reading “The Big Short” and “Liar’s Poker,” both by Michael Lewis, I was recommended this book that deals with a similiar issue: greed. I vaguely remember the Enron scandal as I was just a small child at the time it happened. I remember this famous Simpson’s clip about the “ride of broken dreams” more than I knew about what actually happened.

Ken Lay was the genius behind the starting of Enron, which became a company from a merger in 1985 or so. Other key players in the scandal were Jeff Skilling and Andy Fastow. Together, these three created Enron. What lay (pun not intended) behind the rise of Enron was a futures scam: Enron was in the natural gas business early, and the price of natural gas, as with oil, goes up and down intermittently. What Skilling proposed was a contract that spanned years at one set price instead of the fluctuation of the market. This way, the company could bank the profits early on, even if they lost or gained money in the end. Enron did this with electricity, paper, and wind turbines.

After their success, what became most important to Enron was meeting the expectation the stock watchers set for the Enron stock. If they were down in profits and their stock was jeopardized in going down, they would cut deals and fraudulently cover up losses so they would meet expectations. This is why their stock rose for so long. At its height, Enron’s stock was at about 122.00 per share. But it was like a house without a foundation.

Enron soon became very wasteful and engaged in more than a few projects that went bust. Among these was Enron’s idea to sell broadband internet in terms in usage: just like natural gas which you lease pipelines for shipping, Enron thought they could regulate the use of broadband internet. This failed miserably. Other international efforts also came to bust. A multi-million dollar power plant, for example, in India never came to fruition and the company lost more millions, which they covered up in their accounting schemes.

With Enron essentially lying to shareholders, both Ken Lay and Jeff Skilling encouraged the public to buy Enron stock, even when they saw the end was near. Ken, Jeff, and Andy and other execs at the same time began selling off their shares, making around 20-40 million apiece for their shares. The company couldn’t make real profit and stay on top of it’s debt, and eventually the foundation that the house never rested on came out from under them. Shares began to drop as people began to realize that the company was a sham. What is really sad is people had invested their 401k and their savings into Enron stock. By 2002, it was all worth nothing as Enron declared bankruptcy.

In the end, Ken Lay died before he could be prosecuted to the full extent of the law. Jeff Skilling and Andy Fastow both saw jail time for their parts in the twisted scheme. But that won’t bring back retirement money or savings. The story of Enron is actually one that is very sad and demonstrates the abuses of a capitalist society. While no society is perfect, we must recognize that greed and the love of money in the end are not fruitful endeavours.

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