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The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron Kindle Edition
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On the other hand, if over-length in a business book is the sort of thing that dissuades you, don't let it: this is one of the most riveting books on the history of finance you'll read, and it gets more and more addictive the further you go on.
As a number of reviewers have noted, it is simply staggering that Enron can have ever got where it got to at all, let alone stayed there for the best part of a decade, with all the ostenisble checks and balances that sophisticated capital markets provide. Staggering. In checks and balances I don't mean regulators, who will always be the last ones to find out where market-based moral turpitude is concerned, but investors, stock analysts, brokers, lenders, rating agencies and fund managers: people who don't just earn huge remuneration, but stake their reputations on being sceptical in the face of unconvincing bluster.
But as McLean and Elkind make clear in chapter after chapter, barely disguised and unconvinving bluster was, in large part, all Enron was. For all the "black box" accounting, it is simply inconceivable that Enron's true internal wiring could be kept anything like properly secret, since far too many people had to know about it. Internal and external to Enron there must have been junior lawyers, accountants, auditors, traders and marketers who all had to know what was going on, and people *do* talk: they gossip, they change jobs, they make inappropriate remarks. What's more, the existence (if not the detail) of many of the more toxic situations - the LJM Partnerships, the prepay contracts - were on the public record, so the burning question to my mind, which McLean and Elkind do not address, isn't so much how people could have been so greedy and deceitful (that's not hard to understand at all), but what sociological and psychological factors caused everyone else, collectively, to entirely suspend the critical faculties which they used to evaluate risks in the market. This is no idle query: accurately calibrating and understanding risk is the very key to making money on Wall Street: it's hardly an incidental oversight.
Making a pejorative moral assessment of the acts of the Skillings and Lays with the benefit of hindsight is futile, self-serving, and actually unjust: our moral view of corporate behaviour *today* is conditioned and informed by the example of Enron; before Enron, our moral view was ipso facto different - if it hadn't been, Enron couldn't have happened.
If we assume that, in the context of the markets, "moral consensus" is aimed at making sure people don't needlessly mislead, deceive or unfairly disadvantage each other, the far more interesting question is *how could the prevailing moral framework have failed so badly*? Why was it so inadequate at dealing with outcomes of actions we can now see (with the benefit of hindsight and our newly adjusted moral binoculars) are transparently odious?
And that prompts a deeper question yet: what could it be about *our* prevailing economic mores which could allow a disaster on a similar scale to happen again?
Had Elkind and MacLean ventured into that territory this would have been an outstanding book (it is still worth 5 stars in my view): as it was - and with an admirable absence of judgmental prurience - the writers stick to pure reportage, to the point where the epilogue ends rather abruptly without so much as a conclusion.
But that's small beer: this is a fascinating, rewarding read.
Full of details, it makes sense of the accounting malpractices, the shady business practices, the deeply dysfunctional corporate culture and the ins-and-outs of gaming the deregulated energy markets in the United States and beyond. Some of what went on is truly astonishing, the Chief Financial Officer is making tens of millions of dollars out of the off balance sheet gymnastics that enabled Enron to "hide" its debt and it's share price to rise quarter after quarter; the destructive wars between divisions of the company; the projects signed, sealed and forgotten about. Of equal interest are the author's accounts of the people who played a part in the story of Enron. "Kenny Boy" Lay, the avuncular visionary, philanthropist who "luckily" sold most of his Enron shares before the final collapse; Jeff Skilling, the former McKinsey consultant, aficionado of "Darwinian Struggle" and organisational chaos as well as CEO of Enron for much of it's time as most hyped corporation; Rebecca Mark of the Enron's international division, deeply involved in the exploitative contract for a mega power station in India that eventually collapsed, who takes her belief in positive thinking to pathologically insane lengths that are as far away from reality as Enron's share price is from the real value of the company.
In amongst this story of Hubris and Nemesis, the authors don't forget that Enron couldn't have been possible without a cast of thousands including Banks, Accountants, offshore havens, Politicians, Regulators, the Media, and Investment Analysts. This part of the analysis isn't particularly deep but at least it puts the whole Enron scam into a broader context. Readers who want an entertaining and systematic analysis of the hype around the 1990's boom, which forms a good deal of the backdrop to the Enron story, will find an excellent account in Thomas Frank's One Market Under God.
A gripping book, that puts into a narrative form the sordid story of the rise and fall of Enron in a form that is comprehensible to the general reader, without compromising on the ins-and-outs of the machinations that went on behind the scenes. Well recommended.
Yes it can be complex but it is not unfathomable by any means (I do have a business background but am not an accountant). It is important to understand such a multi-layered build up of 'success' for Enron as it helps to explain the sheer scale of the meltdown, the biggest corporate bankruptcy ever...apart from WorldCom and Lehman Brothers which followed.
I would wholeheartedly recommend this book - if it were fiction it would be unbelievable.
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