Welcome to the AP Economics Blog for Students of Boston College High School. It is in this forum that students will discuss issues in AP Economics class.
Sunday, September 4, 2011
Enron: The Smartest Guys In The Room
A documentary about the Enron corporation, its faulty and corrupt business practices, and how they led to its fall.
It seems as if the Enron employees were making money by simply predicting their investments would make a profit, and they would invest on their speculated profit and continue this process. They would use tactics like this to report profits even after they had made huge loses. The irresponsibility and cheating by these people to benefit themselves at the expense of others is sickening.
After reading my classmates responses it seems to me this film illustrates what the unending need of wall street to see profit quarter after quarter after quarter to judge a companies health has done. Enron in using devious reporting methods, (reporting profits before they had made them them) was able to deceive investors into believe they were a far healthier corporation than they actually were. I agree with my classmates who say this is an example of corporate greed and golden parachutes however I also believe some responsibility for this lies with the investors who demand profit for unsustainable lengths of time.
Enron: The Smartest Guys in the Room Response. It seems to me that the company Enron basically took advantage of their power and ingenuity. For instance, the fact that an entire company can control exactly what power in a certain state costs is completely unreasonable for the citizens. This kind of monopoly may be good for business but it is morally wrong. They also seemed to advertise corporate profits when in reality it may have been a complete loss for their term. Enron seemed to be performing completely immoral business practices in order for a profitable end.
All of the things mentioned that Enron does in order to make money are absolutely awful. I one hundred percent agree with the statements about how Enron runs their business. Although after reading all of the responses to the films shady business practices seems to be the most reoccuring theme in the process of making money.
The story of Enron is a testament to absolute greed and how it corrupts absolutely. From the start Enron made many mistakes, the most egregious of which was using mark to market accounting, which allowed Enron to report future profits on a deal even before they made the money. This became grossly inflated once they moved to hypothetical future value accounting. Enron's history was always marked by scandal starting with the Valhalla scandal, in which traders diverted profits from trading into personal accounts instead of into Enron accounts. Management didn't even care because they were still making money from it. Enron had a history of reporting losses as profits due to mark to market accounting, such as the case of the Dabhol, India power plant, they lost $1,000,000,000 dollars on that venture and yet they reported massive profits due to MTM accounting. In addition to this, most of Enron's executives were huge risk takers, especially Jeff Skilling, who loved to take trips going on motocross trips and adventures where people could die. He took this love of risk into business. That is not very responsible. Then there was one Lu Pi , who loved money, performed his job well and loved strippers. He ran a division of Enron and then left the company a very rich man. But the thing that enrages me the most about Enron was their business practices concerning selling power to California. In times of rolling blackouts Enron would shut down power plants just to increase the price of power and then turn them back on just so they could sell power at a higher price. Enron was manipulating an entire state! That is unethical, infuriating, and just plain illegal. Although Enron actually was an innovative company, as in the case of Jeff Skilling, this does not vindicate their shady business practices--N Zheng
The actions taken by the company Enron show what competition and the need to show profits is doing to the business world. Originally the company was daring and high profile and skirted the line of ethics, which was okay because it was able to make substantial profits. The fact is that in the business world what matters most is that your company makes money, not how it makes money. As the company began to lose its ability to actually make money, as it had when it first opened, it had to develop new ways to show profit. Enron took what had formerly been a risk taking company and turned the possible money to be gained from those risks into money. This money was not guaranteed, and often the actual deals went bad and the company lost money. To the investors in the company Enron looked like it was making money with all its ventures. Unfortunately, for those who worked at the company, it was impossible to continue to say that profits kept rising when in reality the company was failing. The more the company failed, the harder it was to hide their backroom deals and the more insane the plans came to make money. In order to stop the company’s spiraling descent, Enron created false energy supply problems in California to boost the cost and make more money. Through their deals with the President and power in all facets of U.S. government, Enron was able to make two billion dollars off of normal citizens. Enron’s fall from power was swift and celebrated by Californians, after causing so much harm via lies and extortion. The company was left penniless, but its leaders were richer than ever, while its workers were without jobs.
Student Response: I didn't know very much about the Enron incident but after reading a few responses it seems pretty straight foward. Enron lied about how much money they were making or losing and released false revenue reports. This incident again brings me back to the idea that the government needs to be more involved in the finacial dealings with large corporations because it's obvious that greed will always conquer. I'm sure there are plenty of rich business types that think they are above the law and that nothing can touch them, which ultimately leads to corruption.
From what I can gather from all of the responses on this movie, It just seems to be another classic case of a business that breaks rules and does whatever it can to make money. The fact that this motif came up in practically every movie or response I read, just goes to show what America has become and how making money in life is apparently everything anyone would ever need.
Although these men were some of the most brilliant around, they used this intelligence for unsound business practices. From what I can gather like many of the business films that were viewed in this summer assignment, Enron bent the rules in order to create a profit even at the expense of the customer. After viewing many of these videos about companies like Enron it seems to me like it is tough to fine a genuine company working for the customer. As viewed in Mike Keefe's post I see that Enron used "devious reporting methods" to try to gain more customers. I can compare this to the Inside Job where the investment firms were still rated AA or A2 right before they collapsed. This lack of communication or even misled rating deceived many customers into doing business with these firms. Therefore, from viewing these posts and other videos I can say that many of the businesses in America are/were corrupt in order to gain profits even if it took not following regulations or risking customer's money. Executives such as Jeff Skilling took extreme risks in order to get extremely rich even if it bankrupted customers. All of these actions lead down to one word, selfishness.
Your post (on the BC High website) about In Enron: The Smartest Guys in the Room really sums all the fraud that was taking place inside the comany. Regrading India, how were they able to cover up their success? Did they come out with partial or fake reports, or just state that they were doing well? Also, the theme of employees paying for the executive's greed and mistakes seems to be prevalent in many of the movies, such as Inside the Meltdown and Inside Job. Hopefully companies learned from the fraud and stupidity that took place in and around 2008, and will think twice before repeating those actions now after seeing the meltdown that it created.
Watching the hit TV show “Leverage” was the ideal preparation for this movie. In this particular episode, titled “The Boiler Room”, a hedge-fund manager manipulates his clients to give him money (often life-savings), which he in turn pockets, much like the Bernie Madoff scandal of this past year. I digress, yet this episode was the ideal start to a documentary such as Enron in which CEO’s manipulate their clientele to purchase stock in a company that allocates its funds elsewhere in order to feign progress. This particular practice was certainly ingenious, there is little argument in this field since it brought billions in revenue for the stock traders. And yet, there is nearly unanimous recognition that such a practice is inhumane and cruel. This dichotomy of genius and cruel was also seen in Hitler’s reign and caused Stanley Milgram to perform the infamous Milgram Experiment that demonstrated an inherent need to obey authority. Allow me to continue this potential digression: it was the findings of this experiment, according to the filmmakers, that influenced the CEO and underlying share holders of Enron’s decision to cripple the lives of hundreds of thousands in California by causing power outages state-wide. I found this particularly fascinating, that the filmmakers missed a crucial difference between the two cases: in Milgram’s case their was no incentive to continue lest the inherent satisfaction of obeying authority. In the instance of Enron, however, the incentive was great: a large bonus and monetary gains.
Economics focuses on the predictable outcomes of incentives and opportunity cost. Certainly there was a loss of psychic income, or the act of feeling good about oneself in the sale of stock, however the incentive was larger and thus the CEO’s commit such an atrocity. As seen in my diatribe above I enjoyed the psychoanalysis that this business practice likened itself to and at the same time was angered by its outcome. Enron certainly took from the innocent and gave to the powerful and it is multinational corporations such as this that make government regulation of corporation a necessity. Atrocities such as this make Ethics class all the more practical in their application to the real world.
“Enron: Smartest Guys in the Room” The Enron scandal has been a case that I have been interested in for a few years. I feel that our generation is too young to have understood what happened when the Enron scandal was unraveled, and I would like to watch this movie to understand more about what occurred. From what I have read, it seems that false speculation, and lies about profits led to increases in profit on paper, but a rapidly failing business. Employees were stealing money and lying about it to make the company appear stable.
In response to John Maffeo on Enron: The Smartest Guys in the Room
Enron's fall from glory as a major cooperation was one that I'm sure everyone in the class can still remember. Specifically, I heavily remember the lack of repercussions that lay in store for the executives in charge and obviously mainly at fault for the fraudulent behavior. As it was the government's responsibility to punish these people, was government corruption involved in this? As with most major cooperations, there were probably government connections and I wonder if this played a major part in the executives getting off.
Your account of Enron intrigues me. I wonder how many companies today are guilty of fradulent activity that goes unnoticed. Enron, you argue, made their own lies fairly evident: outages in California, unheard of success in India, and the ability to trade weather must make everyone raise their eyebrows in curiosity. Yet currently there must be more subtle ways of cheating capitalism. Insider trading is the first idea that comes to mind, yet I am certain there must be even more subtle ways of manipulating the system. Enron's success and eventual demise will hopefully reprimand any businesses before making the same mistakes.
Enron: The Smartest Guys in the Room is a documentary based upon the book of the same name by Bethany McLean and Peter Elkind. It covers the role of Enron and its corporate executives in the energy crisis in California and the declared bankruptcy of the company. Enron Corporation, began in 1985 by Kenneth Lay, had been involved in numerous scandels including suspicious income as a product of oil betting. When uncovered, Lay acted ignorant and the corruption within the company only increased from there. Jeffrey Skilling took over as CEO after the betting scandal, introducing new business practices that gave way to huge amounts of failure within the company down the road. Market to market accounting is a way of estimating potential profits before the income exists. After signing large deals, the Enron accountants would send in the future profits and, if good, would result in multimillion-dollar bonuses and increasing debt. All this was done expecting large sums of money, allowing failed business deals to place the company in further debt. This practice seems illogical, as these corporations understand that their job relies on taking risks. Taking risks, however, does not necessarily ensure success, as these wealthy business executives would have liked to believe. Similarly with the banking companies in Wall Street, Enron pursued the corrupt and greedy practice of “pump-and-dump” trading within the Internet Stock Bubble. They survived the bubble, but they hid their billions of dollars of debt until CFO Andrew Fastow stepped in. He used Enron’s shell companies designed to hide the company’s debt, while stealing from them at same time. The fall of the Enron Corporation can be put on the shoulders of its highest executives. Their corruption and blatant disregard for anyone’s wellbeing except their own bought them a one-way ticket to prison. The energy business might pay, but crime does not.
Student Response: From reading my fellow students responses and watching the films I have come to one conclusion, that is greed is the problem. Businesses such as Enron making millions and millions of dollars have extra cash to spend, so why lie about what is being made and what is being used? Greed. Just as in Inside Job all the corporations do not care whom they are affecting as long as they become even richer. Becoming wealthy through hard work and perseverance is a completely different way of life than the people that were explored in many of these films, especially in Enron: the smartest guys in the room, and in Inside Job.
Profit plays a big role in all companies. It alllows companies to spend money. They use any possibility to help them out in the end. The people in the movie are guided by greed. They countiue to think about making the next profit they do not focus on the bust they committed.
I couldn’t agree more with your frustration. The deceitful practices of CEOs and other senior executives run rampant and very often come without punishment; rather, they come with large rewards quite often. The documentary, Inside Job, addressed many of these situations which occurred during the 2008 recession. Executives of failed companies always benefited. When such businesses were bailed out, executives were awarded bonuses; when such businesses failed, executives sold their stock early and kept millions. The fact that they walk away with so much money, despite their scams and schemes, is absolutely despicable.
Pat, from the account you gave of this movie, it seems as if the main concept of the movie was similar to the one i observed in "Maxed Out" where people assumed they would make money, but if one small variable changed, their business plan was in trouble. It goes to show that not only did the housing market and the bad loans center on this idea, other major corporations used this as well. I agree this is an extremely unethical practice and, if I read that right, I am appalled that this is a legal practice.
The film Enron: The Smartest Guys in the Room truly describes how underhanded executives and higher-ups of companies can act. Through the characters of Enron CEOs Kenneth Lay and Jeff Skilling, the ideal “con men” of the business world are described, and their behavior exemplifies how selfish individuals can act in order to gain wealth and success. I feel as though the leaders of Enron were extremely aggressive in affirming their share of riches from the company and very excessive in covering up their trail of “dirty deeds” that allowed these riches to be awarded. To start, the leaders of Enron targeted successful profiteers within their company to steal from and effectively took much of their earnings for their own use. In addition, when the company started to lose money, the executives used loans to hide the major deficits and ward off any suspicions of wrong doing within their organization. The business practices of the company in general were repulsive and the furthest thing away from pragmatic. I truly hope that the public, and other investors, can learn from the fraud and deception that Enron exhibited. Yet, the worst part of the entire fiasco is that corrupt executives, such as Lay and Skilling, came away with plentiful payoffs, while the average employee at Enron made nothing.
The movie “Enron: The Smartest Guys in the Room” is about an energy company called Enron that was led by Jeffrey Skilling and later Kenneth Lay. This company appeared to be making money through false propaganda of failed business risks involving energy. Instead Enron was losing money through bad investments but it was telling the market that its losses were actually gains by raising its stock prices. After fooling the public the selfish leader company leaders would grant themselves huge personal bonuses. Obviously this system could not last forever and eventually this scam surfaced. Soon after Enron went bankrupt and all the employees lost their jobs and both employees and investors lost their savings that were invested in Enron stock. However, Jeffrey Skilling, Kenneth Lay and other company leaders came away with millions of dollars while all the other employees lost their jobs, pensions, and stock. This showed the wickedness of Enron’s leaders because they would allow so many loyal supporters of the company to lose everything while they leave with more money. The company also took a lot of money from the state of California by being the main supplying of power for the state. Enron had no sympathy for California; the traders raised the demand for power by turning off its power and then raising the price for power. By charging Californian citizens so much for power Enron was essentially stealing money from innocent people, so that the traders and company owners could increase their personal wealth. In conclusion, Enron was a corrupt company run by evil and greedy men who damaged the lives of millions of people for the sake of making excessive amounts of money.
Enron: The Smartest Guys In the Room, is the tragic story of a company that seemingly had everything, holding onto a spot of most admired and most creative company by Forbes Fortune 500 companies for six years straight, but, in reality, lost everything, taking only 24 days to go bankrupt. There are few things to commemorate here, except that of Sherron Watkins, but there is much to decry. Starting from the top down with Jeffrey Skilling and Kenneth Lay, the company was mired in pride and they believed that the company was untouchable. This ideology would prove to be a fallacy. With seven billion dollars in net worth, Enron was the seventh largest corporation in the country. The company was built on the philosophy that only the best and the brightest were employed, evidenced by the PRC, or Performance Review Committee. Enron may have had the smartest people, but these intellectuals were not in the business of making fair and lawful transactions. The most overt and corrupt practice that Enron engaged in was under the direct supervision of Andy Fastow, but many consider him to be the “fall man” for the Enron Corporation. At the end of the quarter, many times it seemed as though Enron would not hit its quota and make its numbers. Yet, almost miraculously, Enron always made its numbers with great profits. Fastow would hide Enron’s actual debt in other companies and some partnerships were created by Fastow for this exact purpose, to hide debt and make it look as though money, in the form of profits, was coming in. Appearance was far from reality in this case. Fastow used Enron stock as collateral for the business and partnership ventures. The documentary makes note of this practice in relation to the Milgram Experiment, where people were willing to do things contradictory to their conscience and their own moral character if the directive came from a person in established authority. This experiment gives a poignant view on human nature and gives a succinct explanation of why Fastow was able to get companies to act with him, and it even explains other crises, such as Enron’s forced shutdowns of California power plants. Even with corruption and illegality trickling down from the top of the company and permeating all the way down, there was one woman who decided to be the lone voice of justice among the mob. As mentioned previously, Sherron Watkins, faced with pressure and the label of “whistle blower,” still decided to make the right decisions and testify against Jeffrey Skilling and the Board of Enron. She called into question Fastow’s operations and Enron’s role in the California power outages. She tried to work for transparency and compliance and this may be the one example of such work in the sinking ship that was Enron.
It seems as if the Enron employees were making money by simply predicting their investments would make a profit, and they would invest on their speculated profit and continue this process. They would use tactics like this to report profits even after they had made huge loses. The irresponsibility and cheating by these people to benefit themselves at the expense of others is sickening.
ReplyDeleteStudent Responses
ReplyDeleteAfter reading my classmates responses it seems to me this film illustrates what the unending need of wall street to see profit quarter after quarter after quarter to judge a companies health has done. Enron in using devious reporting methods, (reporting profits before they had made them them) was able to deceive investors into believe they were a far healthier corporation than they actually were. I agree with my classmates who say this is an example of corporate greed and golden parachutes however I also believe some responsibility for this lies with the investors who demand profit for unsustainable lengths of time.
Enron: The Smartest Guys in the Room Response.
ReplyDeleteIt seems to me that the company Enron basically took advantage of their power and ingenuity. For instance, the fact that an entire company can control exactly what power in a certain state costs is completely unreasonable for the citizens. This kind of monopoly may be good for business but it is morally wrong. They also seemed to advertise corporate profits when in reality it may have been a complete loss for their term. Enron seemed to be performing completely immoral business practices in order for a profitable end.
Student Response
ReplyDeleteAll of the things mentioned that Enron does in order to make money are absolutely awful. I one hundred percent agree with the statements about how Enron runs their business. Although after reading all of the responses to the films shady business practices seems to be the most reoccuring theme in the process of making money.
The story of Enron is a testament to absolute greed and how it corrupts absolutely. From the start Enron made many mistakes, the most egregious of which was using mark to market accounting, which allowed Enron to report future profits on a deal even before they made the money. This became grossly inflated once they moved to hypothetical future value accounting. Enron's history was always marked by scandal starting with the Valhalla scandal, in which traders diverted profits from trading into personal accounts instead of into Enron accounts. Management didn't even care because they were still making money from it. Enron had a history of reporting losses as profits due to mark to market accounting, such as the case of the Dabhol, India power plant, they lost $1,000,000,000 dollars on that venture and yet they reported massive profits due to MTM accounting. In addition to this, most of Enron's executives were huge risk takers, especially Jeff Skilling, who loved to take trips going on motocross trips and adventures where people could die. He took this love of risk into business. That is not very responsible. Then there was one Lu Pi , who loved money, performed his job well and loved strippers. He ran a division of Enron and then left the company a very rich man.
ReplyDeleteBut the thing that enrages me the most about Enron was their business practices concerning selling power to California. In times of rolling blackouts Enron would shut down power plants just to increase the price of power and then turn them back on just so they could sell power at a higher price. Enron was manipulating an entire state! That is unethical, infuriating, and just plain illegal. Although Enron actually was an innovative company, as in the case of Jeff Skilling, this does not vindicate their shady business practices--N Zheng
The actions taken by the company Enron show what competition and the need to show profits is doing to the business world. Originally the company was daring and high profile and skirted the line of ethics, which was okay because it was able to make substantial profits. The fact is that in the business world what matters most is that your company makes money, not how it makes money. As the company began to lose its ability to actually make money, as it had when it first opened, it had to develop new ways to show profit. Enron took what had formerly been a risk taking company and turned the possible money to be gained from those risks into money. This money was not guaranteed, and often the actual deals went bad and the company lost money. To the investors in the company Enron looked like it was making money with all its ventures. Unfortunately, for those who worked at the company, it was impossible to continue to say that profits kept rising when in reality the company was failing. The more the company failed, the harder it was to hide their backroom deals and the more insane the plans came to make money. In order to stop the company’s spiraling descent, Enron created false energy supply problems in California to boost the cost and make more money. Through their deals with the President and power in all facets of U.S. government, Enron was able to make two billion dollars off of normal citizens. Enron’s fall from power was swift and celebrated by Californians, after causing so much harm via lies and extortion. The company was left penniless, but its leaders were richer than ever, while its workers were without jobs.
ReplyDeleteStudent Response:
ReplyDeleteI didn't know very much about the Enron incident but after reading a few responses it seems pretty straight foward. Enron lied about how much money they were making or losing and released false revenue reports. This incident again brings me back to the idea that the government needs to be more involved in the finacial dealings with large corporations because it's obvious that greed will always conquer. I'm sure there are plenty of rich business types that think they are above the law and that nothing can touch them, which ultimately leads to corruption.
From what I can gather from all of the responses on this movie, It just seems to be another classic case of a business that breaks rules and does whatever it can to make money. The fact that this motif came up in practically every movie or response I read, just goes to show what America has become and how making money in life is apparently everything anyone would ever need.
ReplyDeleteSean Wilson
Student Response:
ReplyDeleteAlthough these men were some of the most brilliant around, they used this intelligence for unsound business practices. From what I can gather like many of the business films that were viewed in this summer assignment, Enron bent the rules in order to create a profit even at the expense of the customer. After viewing many of these videos about companies like Enron it seems to me like it is tough to fine a genuine company working for the customer. As viewed in Mike Keefe's post I see that Enron used "devious reporting methods" to try to gain more customers. I can compare this to the Inside Job where the investment firms were still rated AA or A2 right before they collapsed. This lack of communication or even misled rating deceived many customers into doing business with these firms. Therefore, from viewing these posts and other videos I can say that many of the businesses in America are/were corrupt in order to gain profits even if it took not following regulations or risking customer's money. Executives such as Jeff Skilling took extreme risks in order to get extremely rich even if it bankrupted customers. All of these actions lead down to one word, selfishness.
This comment has been removed by the author.
ReplyDeleteJohn Maffeo,
ReplyDeleteYour post (on the BC High website) about In Enron: The Smartest Guys in the Room really sums all the fraud that was taking place inside the comany. Regrading India, how were they able to cover up their success? Did they come out with partial or fake reports, or just state that they were doing well? Also, the theme of employees paying for the executive's greed and mistakes seems to be prevalent in many of the movies, such as Inside the Meltdown and Inside Job. Hopefully companies learned from the fraud and stupidity that took place in and around 2008, and will think twice before repeating those actions now after seeing the meltdown that it created.
Watching the hit TV show “Leverage” was the ideal preparation for this movie. In this particular episode, titled “The Boiler Room”, a hedge-fund manager manipulates his clients to give him money (often life-savings), which he in turn pockets, much like the Bernie Madoff scandal of this past year. I digress, yet this episode was the ideal start to a documentary such as Enron in which CEO’s manipulate their clientele to purchase stock in a company that allocates its funds elsewhere in order to feign progress. This particular practice was certainly ingenious, there is little argument in this field since it brought billions in revenue for the stock traders. And yet, there is nearly unanimous recognition that such a practice is inhumane and cruel. This dichotomy of genius and cruel was also seen in Hitler’s reign and caused Stanley Milgram to perform the infamous Milgram Experiment that demonstrated an inherent need to obey authority. Allow me to continue this potential digression: it was the findings of this experiment, according to the filmmakers, that influenced the CEO and underlying share holders of Enron’s decision to cripple the lives of hundreds of thousands in California by causing power outages state-wide. I found this particularly fascinating, that the filmmakers missed a crucial difference between the two cases: in Milgram’s case their was no incentive to continue lest the inherent satisfaction of obeying authority. In the instance of Enron, however, the incentive was great: a large bonus and monetary gains.
ReplyDeleteEconomics focuses on the predictable outcomes of incentives and opportunity cost. Certainly there was a loss of psychic income, or the act of feeling good about oneself in the sale of stock, however the incentive was larger and thus the CEO’s commit such an atrocity. As seen in my diatribe above I enjoyed the psychoanalysis that this business practice likened itself to and at the same time was angered by its outcome. Enron certainly took from the innocent and gave to the powerful and it is multinational corporations such as this that make government regulation of corporation a necessity. Atrocities such as this make Ethics class all the more practical in their application to the real world.
“Enron: Smartest Guys in the Room”
ReplyDeleteThe Enron scandal has been a case that I have been interested in for a few years. I feel that our generation is too young to have understood what happened when the Enron scandal was unraveled, and I would like to watch this movie to understand more about what occurred. From what I have read, it seems that false speculation, and lies about profits led to increases in profit on paper, but a rapidly failing business. Employees were stealing money and lying about it to make the company appear stable.
In response to John Maffeo on Enron: The Smartest Guys in the Room
ReplyDeleteEnron's fall from glory as a major cooperation was one that I'm sure everyone in the class can still remember. Specifically, I heavily remember the lack of repercussions that lay in store for the executives in charge and obviously mainly at fault for the fraudulent behavior. As it was the government's responsibility to punish these people, was government corruption involved in this? As with most major cooperations, there were probably government connections and I wonder if this played a major part in the executives getting off.
John,
ReplyDeleteYour account of Enron intrigues me. I wonder how many companies today are guilty of fradulent activity that goes unnoticed. Enron, you argue, made their own lies fairly evident: outages in California, unheard of success in India, and the ability to trade weather must make everyone raise their eyebrows in curiosity. Yet currently there must be more subtle ways of cheating capitalism. Insider trading is the first idea that comes to mind, yet I am certain there must be even more subtle ways of manipulating the system. Enron's success and eventual demise will hopefully reprimand any businesses before making the same mistakes.
Enron: The Smartest Guys in the Room is a documentary based upon the book of the same name by Bethany McLean and Peter Elkind. It covers the role of Enron and its corporate executives in the energy crisis in California and the declared bankruptcy of the company. Enron Corporation, began in 1985 by Kenneth Lay, had been involved in numerous scandels including suspicious income as a product of oil betting. When uncovered, Lay acted ignorant and the corruption within the company only increased from there.
ReplyDeleteJeffrey Skilling took over as CEO after the betting scandal, introducing new business practices that gave way to huge amounts of failure within the company down the road. Market to market accounting is a way of estimating potential profits before the income exists. After signing large deals, the Enron accountants would send in the future profits and, if good, would result in multimillion-dollar bonuses and increasing debt. All this was done expecting large sums of money, allowing failed business deals to place the company in further debt. This practice seems illogical, as these corporations understand that their job relies on taking risks. Taking risks, however, does not necessarily ensure success, as these wealthy business executives would have liked to believe. Similarly with the banking companies in Wall Street, Enron pursued the corrupt and greedy practice of “pump-and-dump” trading within the Internet Stock Bubble. They survived the bubble, but they hid their billions of dollars of debt until CFO Andrew Fastow stepped in. He used Enron’s shell companies designed to hide the company’s debt, while stealing from them at same time.
The fall of the Enron Corporation can be put on the shoulders of its highest executives. Their corruption and blatant disregard for anyone’s wellbeing except their own bought them a one-way ticket to prison. The energy business might pay, but crime does not.
Student Response:
ReplyDeleteFrom reading my fellow students responses and watching the films I have come to one conclusion, that is greed is the problem. Businesses such as Enron making millions and millions of dollars have extra cash to spend, so why lie about what is being made and what is being used? Greed. Just as in Inside Job all the corporations do not care whom they are affecting as long as they become even richer. Becoming wealthy through hard work and perseverance is a completely different way of life than the people that were explored in many of these films, especially in Enron: the smartest guys in the room, and in Inside Job.
Profit plays a big role in all companies. It alllows companies to spend money. They use any possibility to help them out in the end. The people in the movie are guided by greed. They countiue to think about making the next profit they do not focus on the bust they committed.
ReplyDeleteAnthony Lovuolo,
ReplyDeleteI couldn’t agree more with your frustration. The deceitful practices of CEOs and other senior executives run rampant and very often come without punishment; rather, they come with large rewards quite often. The documentary, Inside Job, addressed many of these situations which occurred during the 2008 recession. Executives of failed companies always benefited. When such businesses were bailed out, executives were awarded bonuses; when such businesses failed, executives sold their stock early and kept millions. The fact that they walk away with so much money, despite their scams and schemes, is absolutely despicable.
Reply to Enron: The Smartest Guys in the Room
ReplyDeletePat, from the account you gave of this movie, it seems as if the main concept of the movie was similar to the one i observed in "Maxed Out" where people assumed they would make money, but if one small variable changed, their business plan was in trouble. It goes to show that not only did the housing market and the bad loans center on this idea, other major corporations used this as well. I agree this is an extremely unethical practice and, if I read that right, I am appalled that this is a legal practice.
The film Enron: The Smartest Guys in the Room truly describes how underhanded executives and higher-ups of companies can act. Through the characters of Enron CEOs Kenneth Lay and Jeff Skilling, the ideal “con men” of the business world are described, and their behavior exemplifies how selfish individuals can act in order to gain wealth and success.
ReplyDeleteI feel as though the leaders of Enron were extremely aggressive in affirming their share of riches from the company and very excessive in covering up their trail of “dirty deeds” that allowed these riches to be awarded. To start, the leaders of Enron targeted successful profiteers within their company to steal from and effectively took much of their earnings for their own use. In addition, when the company started to lose money, the executives used loans to hide the major deficits and ward off any suspicions of wrong doing within their organization. The business practices of the company in general were repulsive and the furthest thing away from pragmatic.
I truly hope that the public, and other investors, can learn from the fraud and deception that Enron exhibited. Yet, the worst part of the entire fiasco is that corrupt executives, such as Lay and Skilling, came away with plentiful payoffs, while the average employee at Enron made nothing.
The movie “Enron: The Smartest Guys in the Room” is about an energy company called Enron that was led by Jeffrey Skilling and later Kenneth Lay. This company appeared to be making money through false propaganda of failed business risks involving energy. Instead Enron was losing money through bad investments but it was telling the market that its losses were actually gains by raising its stock prices. After fooling the public the selfish leader company leaders would grant themselves huge personal bonuses. Obviously this system could not last forever and eventually this scam surfaced. Soon after Enron went bankrupt and all the employees lost their jobs and both employees and investors lost their savings that were invested in Enron stock.
ReplyDeleteHowever, Jeffrey Skilling, Kenneth Lay and other company leaders came away with millions of dollars while all the other employees lost their jobs, pensions, and stock. This showed the wickedness of Enron’s leaders because they would allow so many loyal supporters of the company to lose everything while they leave with more money. The company also took a lot of money from the state of California by being the main supplying of power for the state. Enron had no sympathy for California; the traders raised the demand for power by turning off its power and then raising the price for power. By charging Californian citizens so much for power Enron was essentially stealing money from innocent people, so that the traders and company owners could increase their personal wealth. In conclusion, Enron was a corrupt company run by evil and greedy men who damaged the lives of millions of people for the sake of making excessive amounts of money.
Enron: The Smartest Guys In the Room, is the tragic story of a company that seemingly had everything, holding onto a spot of most admired and most creative company by Forbes Fortune 500 companies for six years straight, but, in reality, lost everything, taking only 24 days to go bankrupt. There are few things to commemorate here, except that of Sherron Watkins, but there is much to decry. Starting from the top down with Jeffrey Skilling and Kenneth Lay, the company was mired in pride and they believed that the company was untouchable. This ideology would prove to be a fallacy.
ReplyDeleteWith seven billion dollars in net worth, Enron was the seventh largest corporation in the country. The company was built on the philosophy that only the best and the brightest were employed, evidenced by the PRC, or Performance Review Committee. Enron may have had the smartest people, but these intellectuals were not in the business of making fair and lawful transactions. The most overt and corrupt practice that Enron engaged in was under the direct supervision of Andy Fastow, but many consider him to be the “fall man” for the Enron Corporation. At the end of the quarter, many times it seemed as though Enron would not hit its quota and make its numbers. Yet, almost miraculously, Enron always made its numbers with great profits. Fastow would hide Enron’s actual debt in other companies and some partnerships were created by Fastow for this exact purpose, to hide debt and make it look as though money, in the form of profits, was coming in. Appearance was far from reality in this case. Fastow used Enron stock as collateral for the business and partnership ventures. The documentary makes note of this practice in relation to the Milgram Experiment, where people were willing to do things contradictory to their conscience and their own moral character if the directive came from a person in established authority. This experiment gives a poignant view on human nature and gives a succinct explanation of why Fastow was able to get companies to act with him, and it even explains other crises, such as Enron’s forced shutdowns of California power plants.
Even with corruption and illegality trickling down from the top of the company and permeating all the way down, there was one woman who decided to be the lone voice of justice among the mob. As mentioned previously, Sherron Watkins, faced with pressure and the label of “whistle blower,” still decided to make the right decisions and testify against Jeffrey Skilling and the Board of Enron. She called into question Fastow’s operations and Enron’s role in the California power outages. She tried to work for transparency and compliance and this may be the one example of such work in the sinking ship that was Enron.
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