I just finished the account of the rise and fall of Enron in The Smartest Guys In The Room. Not only is this an important story, it’s also extremely well-written. The author maintains “just the facts, ma’am” style, while cleverly weaving themes and not shying away from conclusions well grounded in the facts that are reported. It’s not just a polemic.
In the end, everyone involved was completely captured by their own greed. Arthur Anderson couldn’t say no because of the fees they earned from Enron. That meant that Enron’s stock price would continue to do well because their earnings statements were doctored. Citi and JP Morgan kept lending it money for the same reason, so its cash leaking could be covered up with loans. And Merrill and other investment banks also didn’t want to lose underwriting business, so they played nice on the analyst side. The same goes for the law firm, Vinson & Elkins. Fees!
Ken Lay was too busy spending his millions to pay enough attention to the shit Fastow was pulling, and Skilling was too arrogant to think the rules applied to Enron, anyway. All of these men were driven by greed as well. And the people who could have stopped Fastow, the real source of the problems here, the only truly, clearly non-passive party, were the accountants and the banks. The whole party would have stopped in the mid 90s or at worst the late 90s if someone at Arthur Anderson had said no, or if a bank had demanded more information.
But here are my takeaways. No matter how many laws we pass, in the end these situations come down to people. And when you have a ring of people driven by greed, no matter whether this one is supposed to be an accountant or a lawyer, trust is irrelevant. There is no defense.
Our economy will always be vulnerable to problems like this. No matter what we do, there will always will be a way to game the system if the stakes are high enough.
All we can do is maintain a healthy skepticism and keep asking questions and try to limit the damage, not eliminate it.
For the life of me, I can’t imagine why these men need so much money. In this world, anything over $5,000,000 free and clear is “fuck you” money and you can quit working and live off of secure investments for life, especially if you’re older.