"This is not a political documentary. It is a crime story. No matter what your politics, "Enron: The Smartest Guys in the Room" will make you mad. It tells the story of how Enron rose to become the seventh largest corporation in America with what was essentially a Ponzi scheme, and in its last days looted the retirement funds of its employees to buy a little more time."
There is a general impression that Enron was a good corporation that went bad. The movie argues that it was a con game almost from the start. It was "the best energy company in the world," according to its top executives Kenneth Lay and Jeffrey Skilling. At the time they made that claim, they must have known that the company was bankrupt, had been worthless for years, had inflated its profits and concealed its losses through bookkeeping practices so corrupt that the venerable Arthur Anderson accounting firm was destroyed in the aftermath.
The film shows how it happened. To keep its stock price climbing, Enron created good quarterly returns out of thin air. One accounting tactic was called "mark to market," which meant if Enron began a venture that might make $50 million 10 years from now, it could claim the $50 million as current income. In an astonishing in-house video made for employees, Skilling stars in a skit that satirizes "HFV" accounting, which he explains stands for "Hypothetical Future Value." Little did employees suspect that was more or less what the company was counting on.
Skilling and Lay were less than circumspect at times. When a New York market analyst questions Enron's profit and loss statements during a conference call, Skilling can't answer and calls him an "a-hole;" that causes bad buzz on the street. During a Q&A session with employees, Lay actually reads this question from the floor: "Are you on crack? If you are that might explain a lot of things. If you aren't, maybe you should be."
What did Enron buy and sell, actually? Electricity? Natural gas? It was hard to say. The corporation basically created a market in energy, gambled in it and manipulated it. It moved on into other futures markets, even seriously considering "trading weather." At one point, we learn, its gambling traders lost the entire company in bad trades, and covered their losses by hiding the news and producing phony profit reports that drove the share price even higher. In hindsight, Enron was a corporation devoted to maintaining a high share price at any cost. That was its real product.
The most shocking material in the film involves the fact that Enron cynically and knowingly created the phony California energy crisis. There was never a shortage of power in California. Using tape recordings of Enron traders on the phone with California power plants, the film chillingly overhears them asking plant managers to "get a little creative" in shutting down plants for "repairs." Between 30 percent and 50 percent of California's energy industry was shut down by Enron a great deal of the time, and up to 76 percent at one point, as the company drove the price of electricity higher by nine times.
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