Episode 31: The Enron Scandal

I was a young adult when the Enron scandal occurred and I saw people on TV crying about how their pensions were gone. I thought to myself, "Heaven help me, I do not EVER want that to be me." I think a lot of Gen Xers concluded that retirement as the Boomers knew it wouldn't happen for us.

Enron is not an isolated incident. The Crony Capitalist system grinds on and on.

Links:

https://tubitv.com/movies/462800/enron-the-smartest-guys-in-the-room

https://www.theguardian.com/film/2005/apr/20/news

https://en.wikipedia.org/wiki/Enron_scandal

https://www.washingtonpost.com/archive/politics/2005/11/05/prosecutors-link-enron-fall-to-1987-scandal/1cc9a9d0-0a88-43f9-8d11-16972f2e9a87/

https://www.investopedia.com/terms/m/marktomarket.asp

https://www.youtube.com/watch?v=hR45ja3VjGE

https://en.wikipedia.org/wiki/2000%E2%80%932001_California_electricity_crisis

https://www.democracynow.org/2003/10/6/schwarzenegger_accused_of_involvement_in_9b

Need more? You can visit the website at: https://consaracytheories.com/ or my own site at: https://saracausey.com/. Don't forget to check out the blog at: https://consaracytheories.com/blog. 

Transcript

Transcription by Otter.ai.  Please forgive any typos! 

Welcome to con-sara-cy theories. Are you ready to ask questions you shouldn't and find information you're not supposed to know? Well, you're in the right place. Here is your host, Sara Causey.

Hello, hello, and thanks for tuning in. In tonight's episode, I want to talk about the Enron scandal, and a bit more specifically, the documentary film Enron, the smartest guys in the room. This happened when I was a young adult. I remember it vividly, and it made a big impression on me. I think there are a lot of Gen Xers that came to the conclusion when we were still just young adults, that retirement was probably not going to be an option for us. The idea of a golden parachute, a nice retirement party where you get presented with a gold watch and you have a pension and you're going to really be supported and taken care of in your twilight years. Not for us, our parents and grandparents got to have that, but our generation going forward, not so much. And I remember seeing people on TV that had investments tied up in Enron crying, talking about how they would never be able to retire. They didn't have a plan B, and they didn't know what they were going to do. And I remember thinking, heaven help me. I will not allow that to be me if I have to work until I drop dead. I guess that's what it's going to be. But damn, that will not be me. So let's saddle up, choose a frosty beverage of choice, and we will talk about Enron, the smartest guys in the room. Before I dive into the documentary itself, I'm going to go over to Wikipedia to the page titled Enron scandal. The Enron scandal was an accounting scandal involving Enron Corporation, an American energy company based in Houston, Texas, When news of widespread fraud within the company became public in October 2001 the company declared bankruptcy, and its accounting firm, Arthur Anderson, then one of the five largest audit and accountancy partnerships in the world, was effectively dissolved. In addition to being the largest bankruptcy reorganization in US history, at that time, Enron was cited as the biggest audit failure. Enron was formed in 1985 by Kenneth Lay after merging Houston natural gas and inner North several years later, when Jeffrey skilling was hired, lay developed a staff of executives that by the use of accounting loopholes, the misuse of mark to market accounting Special Purpose entities and poor financial reporting were able to hide billions of dollars in debt from failed deals and projects Chief Financial Officer, Andrew Fastow and other executives misled Enron's Board of Directors an audit committee on high risk accounting practices and pressured Arthur Andersen to Ignore the issues. Shareholders filed a $40 billion lawsuit after the company's stock price, which achieved a high of $90.75 per share in mid 2000 plummeted to less than $1 by the end of November, 2001 the Securities and Exchange Commission began an investigation, and rival Houston competitor, dynagy, offered to purchase the company at a very low price. The deal failed, and on December 2, 2001 Enron filed for bankruptcy under chapter 11 of the United States Bankruptcy Code. Enron $63.4 billion in assets made it the largest corporate bankruptcy in US history, until the Worldcom Scandal The following year, what a time to be alive. I remember it well. Many executives at Enron were indicted for a variety of charges, and some were later sentenced to prison, including lay and skilling. Arthur Anderson was found guilty of illegally destroying documents relevant to the SEC investigation, which voided its license to audit public companies and effectively close the firm by the time the ruling was overturned at the Supreme Court, Arthur Anderson had lost the majority of its customers and had ceased operating. Enron employees and shareholders received limited returns and lawsuits despite losing billions in pensions and stock prices as a consequence of the scandal, new regulations and legislation were enacted to expand the accuracy of financial reporting for public companies. One piece of legislation, the Sarbanes Oxley act, increased penalties for destroying, altering or fabricating records in federal investigations or for attempting to defraud shareholders. The act also increased accountability of auditing firms to remain unbiased and independent of their clients. End Quote, so there's a little summary, a little backdrop I want. So I'm gonna have to be necessarily vague here. But I once worked with a lady who had been at Arthur Anderson, and I was sort of like, well, how, like, what do you remember about that? How did it all go down from your perspective? And she just shot me this really like, serious death stare, and said, Don't. Ask. So there you go, Enron, smartest guys in the room. As of this recording and is available to watch free of charge on Tubi. I think it's also on some of the other platforms, like Pluto and voodoo and Plex. So you should be able to see this free of charge. I actually watched it back in 2005 when it first came out, because I wanted to better understand, how does something like this happen? So we're told in the opening segment here that Enron went from being ten billion company to a $65 billion company, and it only took them 24 days to go bankrupt. They were blinded by money, and someone in the documentary asks, How did they get away with it for so long? Well, it was smoke and mirrors. Someone else calls it a human tragedy. We're also told about the suicide of Jay Cliff Baxter. Now I will go over for a moment to The Guardian, because there's this article from 2005 titled Enron widow hits out documentary The widow of a former Enron top executive who killed himself after the company fell apart last night challenged how her husband was portrayed in a new documentary. The film Enron the smartest guys in the room opens with a dramatization of the company's former vice chairman Jake Clifford Baxter suicide in 2002 later Fortune Magazine reporter Bethany McLean, co author of the 2003 book that inspired the film, says Baxter was a manic depressive. He was never diagnosed with that illness and emotional Carol Baker told McLean and film director Alex Gibney after a two hour screening before a packed house of ex Enron employees, Jake Clifford Baxter, who was vice chairman of the company, fatally shot himself on january 25 2002 he left a note on the dashboard of his wife's car that said in part, where once there was great pride, now it's gone. He had resigned from Enron in May, 2001 the energy giant collapsed in an accounting scandal in December, 2001 so there you go. There's, as Paul Harvey would say, there's the other side of the story.

The CEO says he always did what was best for the shareholders. We're told that Enron presented a new business model to which I've written lol by the side a ship too powerful to ever go down. We also see ties between Enron and old W, and we see W using the kinlay nickname Kenny boy. The money is gone. There's nothing left. The company was basically an artifice. $2 billion in pensions and retirement funds. That's how much was tied up and represented there $2 billion and think about that. That's been more than 20 years ago, how much money that would be today, 2 billion in pensions and retirement funds. And that's why you had people on television crying that they were never going to be able to retire because there was no plan B. We're told that Enron and its cronies were apostles for deregulation. I've also written, lol, Oh, I bet we're told that Ken Lay found Enron in 1985 and they show a video clip of Ken Lay with both of the George buchas Poppy and W we also learn about something called the Valhalla scandal. I'm going to skip over now to an article from The Washington let me see if Washington Post from November 4, 2005 prosecutors link Enron fall to 1987 scandal. The byline reads, lay alleged to have whitewash history. Prosecutors pursuing the fraud case against former Enron Corp Chairman Kenneth L lay, sought permission yesterday to present evidence about what they called Lay's familiar posture of ignorance, citing a trading scandal that almost destroyed the company in 1987 the Justice Department's Enron Task Force is hoping to use the long ago incident to reinforce its criminal case against lay. He denies knowing that the Houston energy firm was hurtling toward bankruptcy in late 2001 when he urged employees and investors to buy stock. Government lawyers argue that Lay's attempt to whitewash problems and his public denials during the company's earlier brush with death will help them establish a pattern in the upcoming fraud and conspiracy trial, set to begin January 17, when faced with circumstances remarkably similar to the ones alleged in the indictment, lay fraudulently attempted to dupe the public with protestations of ignorance, indications of lack of warning and rants about rogue senior executives, prosecutors John C Houston and John A Drennan wrote Michael Ramsey, a lawyer for Lay, called it an act of hysteria. Okay, I'm going to scoot down just a little bit. Enron's first crisis ensued after two traders in the Enron international oil Inc unit in Valhalla, New York, incurred $85 million in losses by making risky and ultimately disastrous bets. The debacle erased half of Enron. Ons profits for the year, it could have led to the meltdown of the company, if not for a bold and ultimately successful trading bluff by another executive. Prosecutors argue that the incident offers a rare window into Lay's thinking in the face of calamity. They claim lay improperly said that he had no idea of the problems and also misled workers in an October 1987 conference call about when he learned about them. Lay had previously defended the two traitors at the heart of the scandal, even in the face of allegations that they had misappropriated funds because they had generated millions for Enron prosecutors wrote end quote. There you go. That could be a metaphor for Wall Street, for corporate America. All in a nutshell, these people are going to be shielded from any consequences because they generated millions of dollars in profits. So at the end of the day, who really gives a shit if they defrauded people, as long as we came out on top and we made money? Who really cares? I think, also to Dr Strangelove, to the attitude of the military industrial complex, even if several million people die, as long as more people on the enemy side die, and we're considered to be the winners, that's still a win. That's still good. We learn about Enron oil seemed to win when it gambled on oil trading. They had offshore accounts and cooked books, such as money going to someone named M period Yass, which actually just stands for my ass. We're told stories of, please keep making us money. Whatever you have to do, just keep making us money. There's even the story of a German arms dealer being involved because he was the friend of a trader, which is pretty weird. Okay, we're also told about kinlay Faking shock, puts earnings before scruples. Enron becomes like a stock market for natural gas. Enron becomes like its own stock market. Then they do the mark to market accounting, and this is where Arthur Andersen comes in. I'm going to hop over now to investopedia.com understanding mark to market, or MTM. Mark to market is an accounting practice that involves adjusting the value of an asset to reflect its value as based by current market conditions. The market value is determined based on what a company would get for the asset if it was sold at that point in time. End quote. Now, on the face of it, that doesn't sound terrible. Sound terrible, but you have to understand, there was a lot of shenanigans and a lot of chicanery with how Enron was apparently Val making these valuations of these assets. Well, I mean, theoretically, a week from now, it might be worth twice as much. Wink. That's the kind of thing that they were doing, there are they also started doing hVF, which was hypothetical future value accounting. And the reason why I'm laughing about that, it's not funny. I mean, the things that were perpetrated on innocent people are not funny at all. The reason why I'm laughing is because there's a creepy corporate video with horrid acting to help promote this idea of hypothetical future value accounting. Somebody on YouTube has isolated that, and so I will drop a link to it so you can see this awful, cheesy corporate video. But it's exactly that Well, I mean, hypothetically, in two years, this asset might be worth 10 million so I guess we better claim the value as being ten million today, huh? Am I right? I mean, it's just, it's headache inducing. And Jeff Skilling says of himself when he's at Harvard, I'm fucking smart, not just that he's smart, but he's fucking smart. We're also told about the so called rank and yank system, you get a performance review, and the fives get fired. So 10 to 15% of your people are getting fired each year, and it really promotes this dog eat dog culture. Whatever needs be done to get ahead, you don't want to be in the rank and yank department, so whatever you have to do to stay a cut above everybody else is what you better do. Jeff calls an investor an asshole for pointing out that they don't have legitimate balance sheets. We're also told about synergistic corruption, which I think could just simply be another great phrase to use to describe crony capitalism. It's what we seem to have running rampant in the entire country. We're also told about Enron and the California rolling blackouts. I'm going to hop over now to Wikipedia's page about the 2000 to 2001 California electricity crisis. California had installed generating capacity of 45 gigawatts at the time of the blackouts, demand was 28 gigawatts, a demand supply gap was created by energy companies, mainly Enron, to create artificial shortages. Energy traders took power plants offline for maintenance during days of peak demand to increase the price, traders were thus able to sell. Power at premium prices, sometimes up to a factor of 20 times its normal value because the state government had a cap on retail electricity charges. This market manipulation squeezed the industry's revenue margins, causing the bankruptcy of Pacific Gas and Electric Company, aka PG and E, and near bankruptcy of Southern California Edison in early 2001 so we yet again see this pattern of Enron looking for loopholes to exploit. And we're told in this documentary that they arbitrage the California market instead of stealing from the California market. Such tricky linguistics here, oh, we're just arbitraging the California market. We're not stealing we're not ripping anybody off. We're just doing an arbitrage. And the traders are caught on tape saying they're scared they are making too much money. They create this artificial electricity shortage to drive the price up even more, and they turn the electric grid into a casino. And one of the traders, or somebody on this documentary, is quoted as saying, a free market is goddamn expensive to the customer. And the traders are discussing how they will retire by the age of 30. The traders are also laughing about wildfires and electrical fires by saying, Burn, baby, burn. They laugh about stealing money from Grandma's and you can hear the contempt in their voice. Some little old lady, Grandma Rose, can't pay her electric bill. Oh, fucking Well, it's her problem. I mean, you you can hear the contempt for just average john and jane Q Public in these people's voices. It is really sickening.

They decide that everything is California's own fault because they are over regulated. Someone else makes the joke. At least when the Titanic went down the lights were on, the market is always going to correct itself. Now we see that some type of meeting happens between Enron and Schwarzenegger, and then, boom, he's the governor of California. I'm going to hop over now to an article that was published on Democracy Now on October 6, 2003 Schwarzenegger accused of involvement in $9 billion California swindle with Enron's Ken Lay in this we read investigative reporter Greg Palast reveals how Republican gubernatorial candidate Arnold Schwarzenegger is part of a larger scheme to help Enron and other power companies avoid paying back $9 billion in illicit profits by replacing Governor Gray Davis. Republican gubernatorial candidate Arnold Schwarzenegger wrapped up a four day bus tour across California as he headed for a rally in the state capitol yesterday, the latest polls show Schwarzenegger is still leading 135 potential replacements for Governor Gray Davis in tomorrow's recall election. Well, a new report by investigative reporter Greg Palast, published on Saturday, is charging Arnold and Ken and in Ron's Kenneth Lay involvement in a $9 billion California Swindle. At the center of the story is a private lawsuit filed last year by California's Lieutenant Governor Cruz Bustamante to make Enron and other power companies pay back 9 billion in illicit profits. The suit shows how they carried off the profits by fraudulent reporting of sales, transactions, megawatt laundering, fake power delivery, scheduling. Schwarzenegger has yet to deny that on May 17, 2001 he met with Enron chieftain Kenneth Lay and convicted stock swindler Mike Milken in a hotel room in Los Angeles. The meeting was allegedly part of a plan to recall Governor Greg Davis and replace him with someone who could make the legal threat go away. End quote, welcome, welcome. Welcome to crony capitalism. This is how it's done. Yowza. At the end, the people at the top save themselves. An interviewee says that his portfolio went from $348,000 down to $1,200 so he's one of the people for whom retirement probably not going to be in the cards. And we're told towards the end that Enron is not an aberration. I highly recommend this documentary as well as the book. If you read the book that goes along with it, it has a lot more meat and potatoes. They get into a lot more details than what somebody can do in the course of a documentary, but the documentary will at least give you a basic understanding of what was going on, and you'll be able to hear the contempt, the sarcasm, the better than in these people's voices. Oh, well, grandma can't pay her electric bill. Oh, it's like this is a casino atmosphere. It's just sickening, as I said at the beginning of this episode, for me, being a young adult at this point in time, it just seared into my brain. You cannot trust corporate America. You're not being able to trust Wall Street. This whole idea that you get the gold watch, you get to retire with a pension and you'll be taken care of. It's not. Going to be in the cards for Gen X. And of course, now we know, I mean, I think it's just a fait accompli at this point that the millennials and the Gen Z kids are not going to get a damn thing. They too will have to work until they drop dead, even though that's terrible. Don't get me wrong. The idea that these other, you know, the baby boomers and the generation right before them, to some degree, were able to get the retirement. They got lucky in terms of history, and were able to get some golden parachutes, some of them, not all of them. To be clear, I just don't think you ever want to be so dependent on the system, because you just don't know, even people that have worked for municipalities. I mean, some of those pension funds can go broke as well. We're just living in a very strange, sketchy, fraudulent time, and I don't know that anybody would want to be entirely dependent on the system. I just I think it's such a scary and precarious position to be in now, you have to come to your own conclusions. I always say I don't give you advice. I don't tell you what to do or what not to do. I just sit here and I opine for your entertainment only, and that's it. I think Enron is a cautionary tale, and I agree with the filmmakers. It's not an aberration. It's not a one time isolated thing. We can see story after story of the fat cats and the cronies doing this over and over again. When I decided to launch this podcast as a sort of personal endeavor, it's one of the things that I wanted to talk about, the dark underbelly, not just conspiracy theories in general, but also the dark underbelly that we find places like Wall Street and corporate America and Capitol Hill and all the cronies and the stuff that they do to unmercifully fuck john and jane Q Public, we have a right to know these things I don't know at this point in time. There's awful much we could do about it other than preparation. What can you do to be prepared rather than scared? And for me, Enron is one of those tales from young adulthood. I just look back on it and think, My God, I just don't ever want that to be me. Check out the documentary and come to your own conclusions. Stay a little bit crazy, and I will see you in the next episode. 

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