Rating: 
Summary: Who will be among the smartest guys in a federal prison?
Review: This book will be especially valuable to those who have a keen interest in "the amazing rise and scandalous fall of Enron." I also commend to their attention Smith and Emshwiller's 24 Hours: How Two Wall Street Journal Reporters Uncovered the Lies that Destroyed Faith in Corporate America. The "smartest guys in the room" included Kenneth Lay, Jeffrey Skilling, Rebecca Mark, Andrew Fastow, Kenneth Rice, and Clifford Baxter. Whereas Smith and Emshwiller explored the same company as investigative reporters, McLean and Elkind seem (to me) to have approached their subject as corporate anthropologists. Both books reach many of the same conclusions as to what happened...and why. Two significant differences are that Smith and Emshwiller limit their attention primarily to a period in 2002 extending from October 16th (when Enron announced huge losses caused by two partnerships) to December 3rd (when Enron filed for Chapter 11 bankruptcy); McLean and Elkind cover a two-year period of the company's "amazing rise and scandalous fall." Also, McLean and Elkind devote far more attention to each of the "smartest guys"; Smith and Emshwiller seem far less interested in them, except in terms of the impact of their mismanagement and corruption. Let's say there are two books about the collapse of the twin towers at the World Trade Center; one focuses on the human tragedies associated with it whereas a second book addresses design, construction, and structural issues. Obviously, both approaches are valid. McLean and Elkind suggest that the eventual collapse of Enron was caused less by the greed of senior-level Enron executives than it was by their arrogance and incompetence. Their lack of basic business acumen is astonishing as is their defiance of regulatory agencies and contempt for customers. None of them seems to have had a moral "compass." They exemplified, indeed nourished a culture of brutal competition between and among their subordinates. Each used Enron as a personal ATM as well as a means by which to structure all manner of corporate partnerships and high risk/high yield investments without fear of any personal liability. If one prospered, so did they. If it failed, the loss was Enron's. On to another. Primary blame for all this must be shared by Lay, Skilling, and Fastow. McLean and Elkind rigorously examine the inadequacies of each, suggesting that if only one of the three had not been involved, it is probable that Enron would not have had the problems it did. Attorneys, accountants, brokers (notably Merrill Lynch) and bankers (especially Citibank and JP Morgan Chase) apparently were aware of Enron's bending and then breaking of various laws but were earning so much in fees that they chose to remain at the Enron "trough" side-by-side with Lay, Skilling, Fastow, and other Enron executives. Consider this brief excerpt from Chapter 10 (page 149): Here's how another former employee explains the process: "Say you have a dog, but you need to create a duck on the financial statements. Fortunately there are specific accounting rules for what constitutes a duck: yellow feet, white covering, orange beak. So you take the dog and paint its feet yellow and its fur white and you paste an orange plastic beak on its nose, and then you say to your accountants, 'This is a duck! Don't you agree that it's a duck?' And the accountants say, 'Yes, according to the rules, this is a duck.' Everybody knows that it's a dog, not a duck, but that doesn't matter, because you've met the rules for calling it a duck." There are so many other brief, equally revealing excerpts which I am tempted to include but won't. Earlier, I suggested that McLean and Elkind display in this volume many of the skills of a corporate anthropologist. I also commend them on their skills as storytellers. Of course, it helps to have many colorful characters and such an interesting narrative. Among business books, this is one of the rare "page turners." If Enron remains a classic example of organizational dysfunction, my guess is that this book will remain the definitive analysis of the causes and effects of that dysfunction.
Rating:
Summary: Unbelievable expose'
Review: This is an incredible book documenting what white collar crime can do to society. The executive members of Enron and Arthur Andersen and V Elkins should all be under the jail.
They knew what they were doing and rationalized their decisions based on greed and ego.
If they were so smart, why could they not do the right thing?
This book should be required reading for any business major and perhaps a college course.
Read it and weep. It is a sorry testimonial to all that can and often does go wrong with the world of business.
Rating:
Summary: How the Train Was Wrecked -- The Inside Story
Review: This is one terrific piece of reporting by two talented journalists. McLean and Elkind tell the inside story of Enron's improbable rise and astonishing fall. One measure of their talent is that they paint vivid portraits of all of the principal players at Enron, Jeffrey Skilling, Kenneth Lay, Rebecca Mark, Amanda Martin, Andrew Fastow, Lou Pai, Clifford Baxter, and describe in telling detail what made each of these men and women tick, their backgrounds, their goals, their triumphs and their failures. And in doing so, they answer a fundamental question: who were these guys who rose so fast and crashed so hard? Not surprisingly, there are few sympathetic characters in this book, which, given its overarching themes of greed, arrogance and ultimate tragedy, has a novelistic cast, particularly as the authors recount Enron's final and doomed year.
But the book is far more than simply a collection of character sketches of some unattractive, sleazy and dishonest strivers: it also lays out in depth, but always with lucidity, exactly how Enron carried out its brazen swindles, how it consistently misled Wall Street and its investors about the true weakness of its business, and how it hid its debt through accounting frauds and the use of phony SPEs. One of the book's strengths is how it lays out in patient detail just how these many scams operated, in a level that was rarely, if ever, captured in daily journalism.
The authors also explain the development of Enron's culture, the oversized role played by its macho traders who ultimately ripped off California for millions, Andy Fastow's role as enabler to the rest of the crooks as he put together the dozens of phony deals that kept the company awash in borrowed funds (and made him staggeringly wealthy), Ken Lay's hands-off management style, the deal-making at any cost mentality that gripped Enron, and the disdain for execution once deals were completed. The book also shows how Enron intimidated its banks, accountants and lawyers into repeatedly doing its bidding when all of them should have known better.
For anybody who wonders what went wrong at Enron, and by extension in American business in the late 20th century, this is as good an explanation as there is. The only pity is that the narrative stops with Enron's chapter 11 filing. Doubtless the myriad indictments, guilty pleas and the chapter 11 case would have provided even more fascinating reading.
Rating:
Summary: Political manipulate for financial gain
Review: Tim Belden was not the typical Enron Trader. He had a master from Berkeley and worked as a researcher at the Lawrence Berkeley Laboratory. Some considered him possessing "Pure Thought" about the free markets, a true supply and demand advocate. Did Belden greed cloud his better judgement and wisdom?
Belden was a leader of a group of hyper aggressive West Cost electricity traders. Enron acquired Portland General to gain access to the electricity market. Belden believed in the beauty of the free market and had no problem exploiting the inefficiencies. The exploitations lead to serious legal charges.
In 1999, Deregulation of California's energy market provided enormous opportunities for energy traders. Lay and Skilling touted deregulation benefits and claimed potential savings of $8.9 billion for California.
Three investor owned utilities - Pacific Gas & Electric, San Diego Gas & Electric, and Southern California Edison all had long term contracts too purchase at high rates. Politicians wanted guarantees that the consumer would get their rates fixed.
This mean the burden of price increases could not be passed on too the customer. If prices climbed and prices were fixed for the consumer the losses from the price increases would be carried by the utility company and lead them into forced insolvency. Furthermore, the immature nature of the new power service markets provided no hedge capability against such uncertainty in the power prices. These companies would drown in debt. In the Summer of 2001, the weight of the higher price drown Pacific Gas & Electric as it filed for bankruptcy.
Deregulation forced utility companies to purchase power in the spot market every day forbidding long term contracts that could have guaranteed proce. The idea was to create panic and force a rate drop. The drop in rates would return money to the cities. Politically, it made sense
The California Public Utilities Commission predicted a 10 percent drop in rates. At first prices seemed to drop and deregulation was a smash with wholesale cost averaging $33 a megawatt hour. Breaking the long term contracts allowed cities to pool up reserves as lower costs gave them a profitable margin.
In 1998, CPUC was surprise to see reserve power which usually cost a dollar spike to $2,500 per megawatt then to $5,500 and four days later to $9,999 a megawatt hour. Dynegy simply offered to supply standby power at that price. Nothing was forbidding the companies from bidding to infinity.
California created two quasi-governmental agencies: the California Power Exchange whose job was to set hourly prices for electricity through auctions conducted on the previous day and on the day of delivery; the second agency called the Independent System Operator whose job was too manage the states transmission lines to ensure reliability.
If deregulation failed in California, it would harm Enron and the economics of supply and demand encouraged internal criticism of the insufficient number of power plants resulting from politics, power being bought out from California and then resold back, and abusive manipulations of the market to create profitable margins. Enron did not think CPUC rules made economic sense and on more then one occassion attempted to education by experiment.
If Enron failed in California, it would find it difficult to convince other states to use their power services - electricity and gas brokerage. It would seem Enron best course would be to cooperate and make the system work, instead Enron decides to go against the system. Enron decides too "game" the system, believing it is their job as Enron traders too make money and not benefit the state.
The results: ISO experienced 17 emergencies combining 1998 and 1998, 55 emergencies in 2000, and 70 in 2001. Prices reached a stagger $750 a megawatt. The ISO response was to cap the price at $250 a megawatt. In May, Enron's Belden and his West Coast Trading group booked $200 million. It seemed Enron was manipulating the markets too their own benefit (Fat Boy, Ricochet, Death Star, and Get Shorty). Was it a game to the Enron traders?
Why so much maintenance? Companies like Mirant, Dynegy, and Reliant took power plants off line for maintenance. By Nov nearly 25 percent of the state energy capacity was idle for maintenance. From May 2000 to June 2001 major plants only ran at 50 percent capacity. Was there really a scaracity?
Legal problems suddenly surfaced, charges of: fraud, fraud involving markets, and fictitious commodity transactions. FERC lacked subpoena power. FERC concluded there was insufficient data to "support findings of specific exercises of market power." In 2001, FERC initiated price caps of $92 a megawatt across the western market. The tactic seemed to work and prices dropped to $43 a megawatt. During the crisis California had paid $40 billion for electricity. Abuse was determined to fall on the companies that sold California its power with prices ending up seven times more expensive from a prior year. By 2000, when Belden had closed his books the West Coast power group had booked $460 million in profits. Overall, Enron's North American trading desk had made a staggering $2.2 billion for the year. Eventually, the FERC would bring hard evidence against Enron and shut down all their gas and electricity trading privileges.
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