He got his wish, of course, and Enron thrived. With Lay as its chairman and the devilishly shrewd Jeffrey Skilling as president, Enron’s stock price soared in the 1990s. What the company counted on was the very thing that stymied observers like myself after the fact: No one really understood how Enron operated or how it made money. Even smart people took the even-smarter Jeffrey Skilling’s word for it that the company was profitable, too intimidated to ask the tough questions until it was too late. Someone in the film observes that not only was Enron a house of cards, but the house of cards was “built over a pool of gasoline,” too. What Enron was doing, essentially, was cooking the books. The company’s accounting firm, Arthur Andersen, let them use an arcane method of accounting known as “mark to market,” whereby a company declares its POTENTIAL profit as its ACTUAL profit, even if the deal in question winds up failing completely. In other words, I buy a thousand Beanie Babies from you for $10, knowing I can sell them on eBay for a total of $1,000,000.
Under “mark to market” accounting, I declare a million dollars as my profit - even though, on the way home from your house, my car falls in the river and the Beanie Babies are lost forever. If you’re alarmed that Arthur Andersen signed off on this practice, you’re not alone: You may recall that things did not end well for Arthur Andersen, legally speaking.īut that’s not all. Enron’s staff of go-getter stock salesmen, the sort of alpha males depicted in the film “Boiler Room,” convinced hundreds of ordinary people to invest in the company, thus inflating Enron’s stock price to a value that was far greater than what the company was actually worth if one examined its actual assets. Once it became apparent that Enron’s emperor was buck naked, its stock prices plummeted to what they were really worth - as low as a few nickels per share - and everyone who had invested in it lost everything. The question that will face Lay and Skilling when they are put on trial in 2006 is: How much did they know, and when did they know it? Both have already insisted, with earnest-looking faces and sad eyes, that they had NO IDEA their hirelings were engaged in such shady practices as faking an energy crisis in California in order to drive up electricity prices. The movie, which makes no pretense of being fair or balanced, relentlessly seeks to prove that such claims of ignorance are false. There’s no question that anyone who sees the film will consider Lay and Skilling guilty as charged the fact that they and others escaped with multi-million-dollar “severance packages” when the company filed for bankruptcy while all their employees got nothing certainly proves they are guilty of being bastards, if nothing else.
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