Author: Bethany McLean, Peter Elkind

Publisher: Portfolio Trade; Reprint edition

Pub. in: September, 2004

ISBN: 1591840538

Pages: 464

Measurements: 8.2 x 5.5 x 1.1 inches

Origin of product: USA

Order code: BA00310

Other information: ISBN-13: 978-1591840534

As we learn in The Smartest Guys in the Room, through complicated and "creative" accounting tricks, including hiding massive debt, the people at Enron, led by Ken Lay, Jeff Skilling, Andy Fastow, and others, successfully portrayed their company as being almost magically profitable. This resulted in inflated credit ratings and astronomical loans, which, in turn, resulted in a soaring share price, which would then be leveraged against all sorts of shady deals, furthering the illusion of extraordinary profit. Lay - the great showman, who knew so little about the inner workings of his company. Skilling - the brilliant "visionary" - no one could quite follow what he was saying, until people realized he was the emperor who wore no clothes. The banks and brokerage houses - complicit in questionable deals and accounting techniques, as long as they continued to receive exorbitant commissions and saw Enron's stock price continue to rise. The public continued to be fooled until it all fell like a house of cards towards the end of 2001, leaving some very sorry investors, especially the lower level employees who had not cashed in millions in stock options as did their bosses, but were encouraged to put their life savings in this supposedly infallible company.

The authors meticulously describe (sometimes to a fault) many of Enron's biggest scams, which differs from the movie, where the nuts and bolts are not discussed. We learn about Fastow's so-called "independent" affiliated corporations (trading mostly on Enron stock, while Fastow skimmed whenever he could), the California energy debacle, the various international power plant disasters, the broadband catastophe, and the incredible arrogance of the Enron traders. Thank goodness the authors provide a "Cast of Characters" at the beginning of the book, or I would have been totally lost with all the names involved.

The Enron story can be succinctly summarized on pp.319-320, when the authors describe one astute investor's discovery about a corporation called "Baldwin United," considered a hot investment in the 1980's:

"Baldwin was, in essence, a giant Ponzi scheme that raised money secretly through its subsidiaries, turned the money over to the parent to support its enormous capital consumption, and used agressive mark-to-market [anticipated profit as opposed to actual earnings] assumptions on its portfolios and annuities to create fabulous earnings growth. When it comes to stock-market frauds, history does repeat itself [i.e. Enron]."

In the end, perhaps, one can refer to the old adage that if something sounds too good to be true, it probably is. I was lucky enough to be reading the book throughout the Enron trial (as I'm writing this, the witnesses have all testified, and the lawyers are about to do summations). As the authors state (p. 417): "The government portrayed Enron as a company that was operated to create the illusion of prosperity, not the reality. In other words: a fraud."

A very interesting, albeit difficult, read. It's much different than the movie of the same name in its focus on detail, so it doesn't matter whether you see the movie, or read the book, first.

(From quoting an American reader)

Better with The Accidental Investment Banker: Inside the Decade That Transformed Wall Street :

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