Smartest Guys in the Room 


I've been doing an Enron study lately. Picked up a couple of books on the Enron saga: Smartest Guys in the Room, and Sherron Watkins' Power Failure. Both are excellent reads ... 

... especially if you are an accounting geek. But, the general public should find these books insightful as well.

The Enron saga is an incredible story, especially from a mass hysteria point of view. I mean, the mass hysteria of a bunch of Enron employees + the banking community + the audit firms + the legal firms, all falling for the hysteria of being a part of the "World's Leading Company", and in their greed failing to perform their normal duties of oversight logic. That, plus the enormous arrogance and bullying of Enron's leading criminal instigators, namely Andrew Fastow and Jeff Skilling, a bullying that was replicated among several other lower-level managers, leaving everyone afraid to speak up or against the apparent accounting frauds.

And, apparent they were. The special purpose entities were enormously complicated, and set up very obviously with only one purpose in mind: to manipulate the earnings statements (e.g., to hide losses, or to defer spikes in profits to future periods, to give the appearance of "smoothly increasing earnings"). Oh, and a second purpose too: to personally enrich Fastow and a few of his specially-chosen minions. All, of course, by ripping off the stockholders and the lower-level employees. That is, in the eyes of the Enron elite, "let the chumps pay."

White-collar crime has so many victims, yet is is hardly ever caught or punished. In the Enron case, though, it appears as if many will be caught for their crimes, though maybe they'll still make off with a lot of their ill-gotten booty.

Question is: will we remember the lessons from Enron in a few years, when the economy is booming again? 

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Posted: Mon - September 26, 2005 at 05:11 PM

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