The Smartest Guys in the Room

by Ted on April 20, 2005

I’m one of the bloggers who got to see the Enron1 documentary “The Smartest Guys in the Room.” (It’s remarkable the extent to which this Onion review stole my thunder. I soldier on.)

There are so many ways that the filmmakers could have gone wrong. It could have been a dull parade of talking heads, or an airy exploration of the “culture of greed” with minimal specifics about Enron. It could have been a thin, unsatisfying hit piece like Bush’s Brain. It could have been incomprehensible to viewers without an accounting degree.

Instead, it’s the cinematic equivalent of a well-structured business book like Liar’s Poker. A film which spends about as much time talking about the Dabhol power plant in India as it does talking about strippers2 is taking its subject matter seriously. There’s an admirable depth and scope; I had the feeling that the filmmakers knew a lot more than they could fit in. It does an especially good job at explaining some of the big issues: how the institutions which should have blown the whistle (banks, lawyers, accountants, and analysts) had perverse incentives to keep Enron going, and how the pressure to beat expectations led to escalating fraud every quarter. The section on California is particularly infuriating to folks who remember how concerns about market manipulation were treated with blithe condescension.

Like many historical documentaries, the film tells the story of events that didn’t happen on camera, so it succeeds or fails on the strength of its editors. Luckily, the editing does a skillful job of mixing “real” footage (largely Congressional hearings), stock footage with voiceovers, and interview clips. The quick pacing and chapter-like structure help make the movie feel shorter than it is. It looks great, like someone took their time.

I have a few quibbles. It’s a touch light on the details of Enron’s financial chicanery. (I’d really like to know what “Death Star” meant, for example.) At points when I disagreed with the angle that the filmmakers were taking, I realized that there wasn’t much effort spent representing opposing views3.

But it’s an admirable, intelligent documentary about complex subject that captures many of the pleasures of a good nonfiction book. Well worth the time.

1 Full disclosure, as it were: I worked as an analyst at Enron in the London office for about six months in 2001, almost to the end. I’m not bitter; I didn’t get burned on stock and learned quite a lot.

2 Albeit with some pretty gratuitous visuals.

3 For example, some people had most or all of their retirement accounts invested in Enron stock. That’s an important part of the story. It would also have been appropriate to show someone, anyone, pointing out that these people had made a horrible, foolish decision on their own. UPDATE: Atrios notes that Enron’s 401k matching contributions were paid in Enron stock, which I didn’t realize.



jet 04.20.05 at 2:50 pm

“2 Albeit with some pretty gratuitous visuals.” Now I have to go see it. Oh yeah, and to better understand what went wrong and all that.


BG 04.20.05 at 3:17 pm

Sadly, the explanation for the financial entity named “Death Star” is pretty prosaic. It was just that, Andy Fastow who created it, was a huge star wars fan. There was also an entity or two called things like Jedi and Jedi II.


Matt 04.20.05 at 3:36 pm

On Fn 2- they might have been following the Jack Handy School of film-making:
“I think a cute movie idea would be about a parrot who is raised by eagles. It would be cute because the parrot can’t seem to act like an eagle. After a while, though, to keep the movie from getting boring, maybe put in some pornography. Later, we see the happy parrot flying along, acting like an eagle. He sees two parrots below and starts to attack, but it’s his parents. Then, some more pornography.”


jet 04.20.05 at 3:41 pm

‘”Death Star”: Enron would overschedule its expected power transmissions to create the illusion that the state’s grid would be overloaded, then receive state payment for “relieving” the congestion. The beauty of this con, the company’s memos noted, is that “Enron gets paid for moving energy to relieve congestion without actually moving any energy or relieving any congestion.” It’s the sort of protection deal that would make Tony Soprano proud.’


Cryptic Ned 04.20.05 at 3:53 pm

That’s “The Smartest GUYS in the Room”, not Kids.


luci phyrr 04.20.05 at 3:55 pm

With the usual caveats like: haven’t seen it, and don’t know squat about stock options and accounting procedures ‘n stuff. But…

I’ve had a hard time understanding the resonance of the Enron story for lefties (an’ I’m one). Like this quote from the linked Onion review:

robbing tens of thousands of rank-and-file employees of their jobs and retirement savings.

So, yeah, people lost their jobs. If there hadn’t been fraud would they still be employed? Or, would they even have been hired in the first place, if not for the growth and profitability (fraudulent, of course) of the company?

We have provisions for laid-off employees in the US (and voters apparently don’t want more), what’s different about Enron jobs from those lost to incompetent management, or trade dynamics, etc.? Is it a different category of “wronged”?

Investors in Enron stock have a beef, as the company’s position was misrepresented, but the employees?

And the stock options: the execs got to sell right before the stock tanked because their employment contracts allowed it. The rank and file were not allowed to sell because their contracts didn’t allow it. Correct me if I’m wrong, but isn’t that a standard feature of many employment contracts – a waiting period before the ability to exercise the options?

So are people upset that the rich and powerful get superior compensation packages to the working stiffs? (And if execs weren’t allowed preferential stock option contracts, wouldn’t they just demand more straight pay?)

If Enron execs did something illegal, we prosecute them. But if people have a problem with greed and pushing the law to its limits, isn’t their problem more with capitalism in general? And if so, aren’t there a million more substantive complaints of the rich and powerful getting preferential treatment in the US economy before you get down to the problem of Enron employees not getting to sell their stocks in time?


Ted 04.20.05 at 4:20 pm

Thanks, Ned.


abb1 04.20.05 at 4:36 pm

Like many historical documentaries, the film tells the story of events that didn’t happen on camera, so it succeeds or fails on the strength of its editors.

You should see William Karel’s OPERATION LUNE


Trickster Paean 04.21.05 at 12:14 am

Luci, the reason why the rank and file weren’t allowed to sell was not the usual restrictions based on whether or not they had vested or not, but because they prevented any workers period from selling any company shares from the end of October through much of November 2001. This made it so that even those who had vested couldn’t sell, and it was during this period that the stock tanked.

“The stock lockdown began the day after Enron’s release of a $618 million third-quarter loss that sent the stock into a tailspin. On October 10 Enron stock was selling for $35 a share, on October 26 it had fallen to $15 and by November 20 it had fallen to $7. By the end of November Enron stock was selling for under 50 cents a share.”

All during this time, the management of Enron was free to sell their stocks. And yeah, I think the bastards haven’t been prosecuted enough, yeah, it’s a problem with the current regulatory scheme there is in the US, but still, the rank and file employees got shafted.


nick 04.21.05 at 1:25 am

Out of interest, Ted: did you ever end up heading north of London to the Enron gas power station? As the shit came down in October, my mother’s law office, newly-opened, provided Enron execs with unused space for emergency meetings… and she provided lots of Texans with coffee and biscuits.

(Now there’s a tale that Private Eye has told: the story of how Lord Wakeham went from being Tory energy minister to Enron UK exec.)


Seth Finkelstein 04.21.05 at 5:42 pm

Luci: “I’ve had a hard time understanding the resonance of the Enron story for lefties …”

Because it’s something people can grasp, in a very direct and personal way, where they tried to follow the entrepreneurial prescriptions of hard work, positive thinking, and savings and investment, only to be defrauded by corporate executives. That’s very resonant in a way that an abstract structural critique is not.

Regarding the “horrible, foolish decision” of not diversifying, what’s being missed there is the aspect that there’s a feeling that investing strongly in the company is a *virtuous* practice. From a financial aspect this is of course utter nonsense, but there’s an emotional aspect that’s missed as to why that bad decision is being made.


GregShasta 04.21.05 at 7:19 pm

Why the fuck wont you tell us what you learned? What was it like? How did you get hired and what did you do?


Jon R. Koppenhoefer 04.22.05 at 2:24 am

Let’s hope that someday the ‘smartest guys in the room’ are the ‘oldest cons on the cell block’ someday.


Alex 04.22.05 at 5:49 am

Re: Death Star. Not only was there a financial special-purpose vehicle entity strangelet dingwoozle entitled Jedi, there was one called Chewco (as in Chewbacca). And the Death Star was also the nickname for Enron’s head office building. As is traditional, they’d just finished the monster new headquarters complex when It All Came Crashing Down.


IJ 04.22.05 at 9:04 am

Blowing the whistle?

But the culture doesn’t support financial rectitude. The public sector leads the way of course.

In the UK, for example, the Taxpayers’ Alliance reported that nearly 20% of public spending in 2004 was wasted (£81bn). The effectiveness of watchdogs, who are appointed to act on the public’s behalf, seems a crucial matter for debate. Unfortunately, it may be too late for Arthur Andersen.

As for the wasted money in the European Union, the director-general of Internal Audit there was warned: “We have ways of breaking people like you”.

Under some pressure last year, the UK government issued a consultation document to try to change the loose culture among public servants. This document, the draft Civil Service Bill, may come to nought; but significantly it is the first time in 150 years that such a legislative step to control public spending was thought necessary. Things must be bad.


Rob 04.24.05 at 10:53 pm

Point of clarification…

Employees were not allowed to move their 401K holdings from Enron stock to something else from Oct 2001 until the end. The reason was that Enron was changing the company who administered their 401K and there needed to be a lockdown period when that transition took place. It was a serious stroke of bad luck that the transition started when the fit hit the shan. I worked with some of the people involved in that transition. They were not the type of people who would (or could) orchestrate a plan to screw employees.

Secondly… There was a level of loyalty among Enron employees unlike anywhere I have ever worked (I was a contractor). People thought of Ken Lay as a “grandpa” and some referred to Enron as “Mother Enron”. It was weird, but a lot of people that I knew had been with the company since the beginning. a few of the people I knew had large portions of their investments tied up in Enron stock because they had purchased it early on when Enron was a blip in the market and the stock was cheap. They made a lot of money over a ten year investment, but they got screwed in the end because the company was not honest with them (or anyone else). I know more than a few smart people who thought they were being loyal and who lost nearly everything because of that loyalty. It was heartbreaking ot watch. I think people forget how quickly the whole thing fell apart. The stock went from 90-something a share to pennies in a matter of months. It was a surreal thing to witness.

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