I saw this impressive documentary during its short run at London's Barbican Centre in mid-2006. It was roughly the same time that the trial of Kenneth Lay and Jeff Skilling was coming to a climax. The production values are high and the interviewees were very articulate and credible. Unlike other reviewers, I can't say I've yet read the book.
In retrospect it seems that it was Skilling and not Lay who was most culpable for the debacle that occurred. As the film progresses it is clear that Lay became an increasingly marginal figure in the Frankenstein's monster of a corporation that he had created. He seems to have been reduced to the role of a cheer-leader and front man. Lay may have suffered from moral infirmity, but then how many great business leaders are whiter than white? The problem with Lay is that I believe his concept for Enron's business was based upon a serious misconception: that energy (i.e., the supply of electricity, which in this instance must be differentiated from the raw commodities - coal, natural gas, etc. - that create power) can be traded like most other, tangible goods. Lay assumed that an efficient market could be created for electricity and he advocated the abdication of the state from the regulation and supply of electricity. However, the electricity 'market' was infested with jurisdictional issues, never mind the fact that supply is unevenly distributed and subject to inherent engineering problems (which is itself both a cause and a consequence of state intervention). Moreover, Lay's ambition (worthy in itself) was to create a global market, but on the international level the jurisdictional and technical problems were even more severe than in the domestic U.S. market. The uneven and problematic nature of the supply of electricity, and the fact that Lay had to get his business up and running meant that from the start Enron was preoccupied with the exploitation of arbitrage opportunities - i.e., technical and price differentials across exclusive and overlapping boundaries. Of course almost every trading company does just that, but in the case of Enron this meant dealing almost exlusively in the exploitation of bottlenecks, blockages and other inefficiencies in supply, which had the effect of seriously exacerbating these inefficiencies. This was the root cause of the moral hazard and corruption that was to follow. As the ideological climate of the 1980s and 1990s supported deregulation (and Enron encouraged that trend), and as the electricity market had been comparatively neglected by economists and policy-makers, a lot of bad policy decisions were made as governments ceded control of supply to the markets. Enron, having chosen (by default) the side of darkness - of inefficient deregulation (as in California) as the best way of making money in the absence of a perfect market - soon found itself morally compromised. The other reason why Lay's idea wasn't squashed from the outset was that this was the era of the 'new paradigm', the doctrinaire belief in the perfectibility of markets and the neoliberal assumption that state intervention is always bad for consumers. Lay's failure to serve any time in prison (due to Providential intervention) was therefore - I think - fair, although his sanctimonious denial of responsibility was a further, self-inflicted blow to his reputation. Enron might just have worked if no government anywhere played a role in the supply of electricity, but that is probably never going to happen. Lay was therefore: (a) a cynical opportunist, or (b) a deluded prophet and fantasist who was far too far ahead of the curve, or (c) both.
No, the people at fault in Enron were Skilling (a particularly odious individual with no genuine sense of self-knowledge, and who continues to evade real responsibility for his actions), and his minion Andy Fastow. These two individuals hijacked the company and made the disaster irretrievably inevitable, rather than merely probable. It was Skilling's pseudo-Darwinian complex that handed the company over to the traders. I don't doubt that traders are useful, up to a point, but they ought always to be kept under close control, whereas in Enron's case, Skilling goaded them on. The bug-eyed Enron traders who were interviewed here were a particularly disagreeable lot. Skilling grafted onto Lay's silly idea the notion that as the company was not really dealing with tangibles (redundant Indian power plants aside) its losses could be placed off-balance sheet in shell companies with funny names without too many issues arising, together with the infamous 'mark to market' stratagem. How could we blame him for doing this? Isn't it what banks do by 'securitising' mortgages so that they have little or no credit risk and can therefore lend with abandon to sub-prime borrowers for the sake of capturing market share? Wasn't Skilling simply using the same assumptions that are inherent in fractional reserve banking? The only detail that he forgot - fatally - was that Enron wasn't a bank and could therefore be allowed to fail. Skilling should have got a much longer prison term - not because of the fraud he perpetrated - but because that sort of appalling, hubristic arrogance needs to be punished severely as a deterrent to other moral derelicts who find themselves in positions of power they don't deserve.
It's a pity that the creators of this excellent film didn't interview the other authors of the debacle: the bankers, fund managers, politicians, economists, journalists, philosophers and regulators who made this perversion of capitalism possible by promoting a flawed concept of a liberal economy, and then telling us that there are no real alternatives when it goes painfully awry.
In retrospect it seems that it was Skilling and not Lay who was most culpable for the debacle that occurred. As the film progresses it is clear that Lay became an increasingly marginal figure in the Frankenstein's monster of a corporation that he had created. He seems to have been reduced to the role of a cheer-leader and front man. Lay may have suffered from moral infirmity, but then how many great business leaders are whiter than white? The problem with Lay is that I believe his concept for Enron's business was based upon a serious misconception: that energy (i.e., the supply of electricity, which in this instance must be differentiated from the raw commodities - coal, natural gas, etc. - that create power) can be traded like most other, tangible goods. Lay assumed that an efficient market could be created for electricity and he advocated the abdication of the state from the regulation and supply of electricity. However, the electricity 'market' was infested with jurisdictional issues, never mind the fact that supply is unevenly distributed and subject to inherent engineering problems (which is itself both a cause and a consequence of state intervention). Moreover, Lay's ambition (worthy in itself) was to create a global market, but on the international level the jurisdictional and technical problems were even more severe than in the domestic U.S. market. The uneven and problematic nature of the supply of electricity, and the fact that Lay had to get his business up and running meant that from the start Enron was preoccupied with the exploitation of arbitrage opportunities - i.e., technical and price differentials across exclusive and overlapping boundaries. Of course almost every trading company does just that, but in the case of Enron this meant dealing almost exlusively in the exploitation of bottlenecks, blockages and other inefficiencies in supply, which had the effect of seriously exacerbating these inefficiencies. This was the root cause of the moral hazard and corruption that was to follow. As the ideological climate of the 1980s and 1990s supported deregulation (and Enron encouraged that trend), and as the electricity market had been comparatively neglected by economists and policy-makers, a lot of bad policy decisions were made as governments ceded control of supply to the markets. Enron, having chosen (by default) the side of darkness - of inefficient deregulation (as in California) as the best way of making money in the absence of a perfect market - soon found itself morally compromised. The other reason why Lay's idea wasn't squashed from the outset was that this was the era of the 'new paradigm', the doctrinaire belief in the perfectibility of markets and the neoliberal assumption that state intervention is always bad for consumers. Lay's failure to serve any time in prison (due to Providential intervention) was therefore - I think - fair, although his sanctimonious denial of responsibility was a further, self-inflicted blow to his reputation. Enron might just have worked if no government anywhere played a role in the supply of electricity, but that is probably never going to happen. Lay was therefore: (a) a cynical opportunist, or (b) a deluded prophet and fantasist who was far too far ahead of the curve, or (c) both.
No, the people at fault in Enron were Skilling (a particularly odious individual with no genuine sense of self-knowledge, and who continues to evade real responsibility for his actions), and his minion Andy Fastow. These two individuals hijacked the company and made the disaster irretrievably inevitable, rather than merely probable. It was Skilling's pseudo-Darwinian complex that handed the company over to the traders. I don't doubt that traders are useful, up to a point, but they ought always to be kept under close control, whereas in Enron's case, Skilling goaded them on. The bug-eyed Enron traders who were interviewed here were a particularly disagreeable lot. Skilling grafted onto Lay's silly idea the notion that as the company was not really dealing with tangibles (redundant Indian power plants aside) its losses could be placed off-balance sheet in shell companies with funny names without too many issues arising, together with the infamous 'mark to market' stratagem. How could we blame him for doing this? Isn't it what banks do by 'securitising' mortgages so that they have little or no credit risk and can therefore lend with abandon to sub-prime borrowers for the sake of capturing market share? Wasn't Skilling simply using the same assumptions that are inherent in fractional reserve banking? The only detail that he forgot - fatally - was that Enron wasn't a bank and could therefore be allowed to fail. Skilling should have got a much longer prison term - not because of the fraud he perpetrated - but because that sort of appalling, hubristic arrogance needs to be punished severely as a deterrent to other moral derelicts who find themselves in positions of power they don't deserve.
It's a pity that the creators of this excellent film didn't interview the other authors of the debacle: the bankers, fund managers, politicians, economists, journalists, philosophers and regulators who made this perversion of capitalism possible by promoting a flawed concept of a liberal economy, and then telling us that there are no real alternatives when it goes painfully awry.