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To print article, click Print on your browser's File menu. Go back Posted 4/30/2005 |
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Related Articles Rogues' gallery: Remembering the bubble boys Many 401(k)s still at risk Timeline: Breaking down the bubble Related Sites Check MSN Movies' listings Read the book: "The Smartest Guys in the Room" |
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Film review Enron: From Wall Street darling to disaster movie The documentary, 'Enron: The Smartest Guys in the Room,' doesn't really dig up any new dirt on the Enron scandal, but it still manages to be a sobering and sometimes startling reminder of just how out of control the heady bubble days were. By Kim Khan The documentary "Enron: The Smartest Guys in the Room" (playing in selected cities) will likely serve as a big, red, flashing warning light for potential stock-market investors. But even seasoned players -- and, one hopes, more than a few financial journalists -- will take pause as they watch one of the most admired companies in the Fortune 500 go bust in less than two months. The film, directed by Alex Gibney and based on the book of the same name by Fortune reporters Bethany McLean and Peter Elkind, offers little new to those familiar with Enron's downfall. But the narrative is smooth and the film serves as an excellent reminder of just how out of control things could get in pre-scandal Wall Street. Is "Enron" playing near you? Check MSN Movies A Wall Street darling For investors, the most interesting part of the documentary is Enron's rise, not its fall. The film stresses that one of Enron's chief goals was to make Wall Street fall in love with the company. And it wasn't hard to do. By manipulating earnings to show stellar growth and rewarding broker-dealers with lucrative investment-banking deals, Enron was popular with the buy side, sell side and retail side alike. The press has to take responsibility for some of that. Seeing shot after shot of magazine and newspaper articles celebrating the unstoppable Enron machine is disconcerting, considering nobody before McLean's February 2000 article really tried to figure out how Enron made money.
How Enron slipped by for so long is a little more understandable when we're reminded of the hype of the bull market, which the movie does with several clips of financial news providers, including CNBC. At least Enron looked like it could be making money, by trading energy and selling natural gas -- unlike some of the more ephemeral dot-com companies of the period. Of course, Enron couldn't resist tapping into the Web windfall either, and the film does a good job examining its foray into trading broadband. (The company also tried to set up a market for trading weather -- possibly even a worse-sounding idea than the XFL.) The revenue stream of the 'strong buy' rating The reputation of Wall Street analysts again takes a beating and it's pretty clear if it weren't for the spotlight-grabbing star power of tech analysts like Henry Blodget, some of those covering Enron would be household names, as well. Gibson interviews one analyst fired from Merrill Lynch for not capitulating to pressure from Enron executives to slap a "strong buy" rating on the stock. Once the analyst is gone, Merrill is rewarded with $50 million in investment-banking business by Enron CFO Andy Fastow. The person who really comes out looking best in "The Smartest Guys" is not even mentioned once: New York Attorney General Eliot Spitzer. Although there's been some backlash against Spitzer, especially in his zealous pursuit of AIG's Hank Greenberg, he's the one who finally took on analyst conflict of interest and abuses in the mutual fund industry and at specialist firms. Spitzer calls AIG a black-box company, something Enron CEO Jeff Skilling acknowledged his company was. "But it is a black box that's growing the wholesale business by about 50% in volume and profitability," Skilling told employees at a company meeting in February 2001. "That's a good black box." The merits of Spitzer's charges against AIG can be argued, but accounting irregularities have been found. And there's no dispute that there are publicly traded companies whose finances are simply incomprehensible to the average investor. With nothing but the word of the company and auditors to go by most of the time, retail investors can probably use all the help they can get. Robbing 'Grandma Millie' blind The film's most compelling segments come from recorded telephone conversations between Enron energy traders and from the company's own archives. Traders manipulating California's power grid and artificially boosting prices gloated about fleecing "Grandma Millie" and cheered a wildfire that took out power cables. While the vicious comments from traders elicited the biggest number of gasps from the audience where I watched the movie, anybody who has been around traders or a trading desk won't be astonished. Traders are there to make money and take pride in using the phrase "by any means necessary." They're not particularly concerned about who's on the losing end of the trade, as derivatives blowups like the one that bankrupted Orange County, Calif., clearly demonstrate. Enron traders exploited the loopholes in California deregulation and then set about to create false shortages. There's likely still some grudging admiration on Street trading desks for the Enron traders' sheer audacity. The videos from Enron's own collection will also cause a few squirms. At one meeting, execs answer with an emphatic "yes" and laugh maniacally when asked if employees should put all their 401(k) money into Enron stock. Enron also made a satire of its own mark-to-market accounting, where Skilling said they were moving to "hypothetical future value accounting" so they could add a "kazillion dollars" to the bottom line. It also seems like a double-bluff on Skilling's part, as if he were preparing a legal defense. "Would I be dumb enough to joke about this on video if I knew it was actually going on?" he asks. We'll see at the trial of Skilling and Ken Lay in 2006. |
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