In the minds of Americans, the name Enron is now synonymous with scandal. Although there hasn’t yet been a single trial, and it has only been two weeks since the first company executive publicly confessed to wrongdoing related to its fall, the famous tilted E of the Enron logo is unalterably enshrined as a villainous symbol of greed, hubris, deceit, and influence. In their new book, Bushwhacked: Life in George W. Bush’s America, Molly Ivins and Lou Dubose portray the Houston energy titan’s woes as nothing less than the inevitable outgrowth of a free-market system explicitly set up to rob the poor and middle class and give to the rich. Perhaps more than anything, the rise and fall of Enron have come to symbolize the innate idiocy of introducing competition into staid monopoly energy markets.
Although it probably arrives late to alter the more erroneous of these perceptions, 24 Days: How Two Wall Street Journal Reporters Uncovered the Lies That Destroyed Faith in Corporate America is worth reading for how it puts Enron’s fall into proper perspective. It is not a tale of the California energy crisis (and boy, do we need one). Nor is it a tale of corporate influence in the upper echelons of the Bush administration (and boy, do we need one). It does not shed new light on “the women of Enron” (as did Playboy), nor explain the seedy machinations of a “sex-drenched, out-of-control corporate culture” (Newsweek). Nor does it lull the reader to sleep in the manner of The New York Times under Howell Raines (which published twelve separate Enron stories on January 18, 2002).
Instead, 24 Days is a modest but compelling yarn by the two reporters whose stories triggered a federal securities probe into the company’s financial misdeeds. While Rebecca Smith and John R. Emshwiller may have inadvertently toppled the number-five company on the Fortune 500, to credit them with this accomplishment is unfair to them. Their accounts then and now make clear what a house of cards Enron already was. As 24 Days shows, Enron failed simply because its executives willfully misstated its financial position to prop up its stock price. Forget energy deregulation; the scandal here was financial.
This supercharged natural gas company symbolized the world of Houston energy, but its failings were very much a product of New York-style finance. In fact, Enron modeled itself after Wall Street investment banks — a culture busily getting into plenty of its own trouble in the late 1990s. Energy trading companies need pipelines full of cash, and Enron resorted to underhanded means of raising it. One source described this process as “financial engineering,” and don’t be fooled — this alone was at the heart of Enron’s spectacular collapse.
Enron gamed the system in two primary ways: It exploited energy industry accounting rules to record short-term revenue from long-term contracts, and it transferred debts and losses to a dizzying array of outside partnerships. By pumping up its revenues and hiding so many of its debts, Enron executives kept their stock price climbing and managed to look like Wall Street geniuses. After all, both strategies would have been legal if not for Enron’s impatient financial corner-cutting.
Although Smith and Emshwiller manage to make Enron’s accounting clear, in actuality it was impenetrable — indeed, shielding its books from scrutiny was one of its goals. Company documents masked conflicts of interest with doublespeak such as the “managing member of the general partner of the General Partner of the Partnership is a senior officer of Enron.” But while Enron’s financial statements weren’t at all intelligible, the law didn’t require them to be. That allowed the company to get away with chicanery such as booking $110 million in profit on a venture that actually had revenues of “a couple thousand dollars” over its entire life.
Even financial analysts paid as much as $500,000 a year to dissect such things weren’t familiar with Enron’s machinations. Of course, it wasn’t accidental that Enron complained to major investment firms when the people assigned to scrutinize its finances expressed any skepticism. Nor did it hurt that Arthur Andersen, the auditing firm hired to provide an arm’s-length review of its books, derived more than half of its $50 million in annual Enron revenues from consulting contracts that discouraged it from finding too much fault.
The horrifyingly compelling part of reading 24 Days is watching Enron reduced from titanic to bankrupt in just three and a half weeks. Once the two reporters began their steady stream of stories, Enron plunged into a death spiral and blew through a few billion dollars in less than a week. A similar death spiral later took down Arthur Andersen once a handful of its Enron auditors were discovered to have shredded relevant documents. Emshwiller and particularly Smith — the latter of whom I worked with closely at the San Jose Mercury News, and for whom I have immense respect — display no callous gloating about the tragic corporate and personal consequences of their careful reporting.
Enron and the White House have become inextricably linked due to the strong support the firm provided George W. Bush in his three bids for public office (not to mention its apparent involvement in shaping his administration’s energy policy). But the true scandal involving Enron and Bush is not what he did to make this all happen but what he hasn’t done to keep something similar from happening again. And on that topic at least, 24 Days is largely silent, while Ivins and Dubose deserve the last word. Their new book spells out concrete and practical steps designed to reassure stockholders — the real victims of this and most other late-1990s financial scandals. Among their suggestions: Overhaul accounting standards, prohibit auditors from having other business dealings with clients, regulate the type of outside financial entities Enron exploited, build a wall between investment banks and research analysts, and strengthen the independence of corporate boards. Until such reforms occur, perhaps we should all heed the advice of former Enron Chief Financial Officer Andrew Fastow, who took the proceeds of his apparently ill-gotten gains and invested them in nice, safe government bonds.
GOOD TO GO
What you should be buying next month.
1. Koba the Dread, by Martin Amis (Vintage, $14). Recording with lest-we-forget sobriety the horrific statistics — e.g., 20 million murdered — of Stalin’s Russia, noted novelist Amis blends scholarship with rollicking personal asides, including memories of his father Kingsley Amis, fellow noted novelist and onetime devoted Communist.
2. A Deadly Secret, by Matt Birkbeck (Berkley, $6.99). A seeming drifter arrested for shoplifting in 2001 was discovered to be billionaire Robert Durst — and then indicted for a grisly murder. Durst was soon eyed for investigation in unsolved Bay Area vanishings, including that of teenage Kristen Modafferi.
3. Jesus Sound Explosion, by Mark Curtis Anderson (University of Georgia, $29.95). Back in those Godspell ’70s, Christ and rock overlapped, as preacher’s son (and drummer) Anderson recalls in this sardonic memoir about backsliding, Armageddon, broken dreams, and Lynyrd Skynyrd. The book’s title is borrowed from Billy Graham’s evangelical version of Woodstock, held in 1972.
4. The Best of Callahan, by John Callahan (Ballantine, $12.95). Paralyzed wheelchair-user Callahan is one of this country’s most fearless cartoonists, as reaffirmed by this best-of collection. A bartender refuses to serve a patron with hooks for hands because “you can’t hold your liquor”; an altar boy pops out of the cake at a priests’ convention. … It’s ever so wicked.
5. Dragon of Heaven, by Zhong-Yang Huang and David Bouchard (Raincoast, $26.95). Told in first person by Bouchard alongside Huang’s astounding, almost photorealistic art, this imagined autobiography of China’s Dowager Empress Cixi is too intelligent to be just a novelty.