It's very easy to be greedy

Remember that sleaze Gordon Gecko from the movie Wall Street? His motto was "Greed is good!" and the top managers of Enron certainly practiced what Gecko preached.

I just saw The Smartest Guys in the Room, which is the story of the rise and fall of Enron, and it's an amazing and appalling story of how greed at the top trickled down to the company's front lines, with its traders running amok, going so far as to shut down power plants in California in order to drive up the price of Enron stock so they could earn generous bonuses.

Enron was in the habit of counting estimated/predicted future profits as income. It also hid its debts in offshore satellite firms which it effectively owned. It financed itself by talking leading investment banks like CitiBank, J.P. Morgan, Chase, and Merrill Lynch into lending it money merely based on its reputation as a hot company. It didn't do this purely through fraud or "smoke and mirrors." No, just as much it relied upon the greed of people in the banks, in their law firm, and in their accounting firm (Arthur Anderson, which also had a conflict of interest through acting as a consultant to Enron as well). It also bribed and bullied stock analysts into giving its stock favorable ratings and reviews.

The firm was flying high as a Wall Street darling when, in 2001, senior reporter for Fortune Bethany McLean asked a smple question which for a healthy and honest firm would have had a simple and obvious answer: "How does Enron make money?" She asked this because, strangely, Enron was in the habit of not producing financial reports.

With the publication of McLean's Fortune article, "Is Enron Overpriced?" more questions arose, and Enron's house of cards began to tumble. Jeffrey Skilling, the CEO during this period left for undisclosed "personal reasons" a few months before Enron declared bankruptcy. By doing so, he left Ken Lay, the Chairman, holding the bag. Lay became the CEO at the helm when the firm was forced by circumstances into bankruptcy.

Unfortunately for Skilling, he probably didn't bail soon enough to protect the huge profits he made by dumping his Enron stock. (The one winner in this category is Lou Pai, former CEO of the Enron Energy Services subsidiary, which failed, and who took $335 million in profits early enough to escape insider training charges, and who quickly became the second largest land owner in Colorado).

The biggest tragedy of the failure of Enron, though, isn't the big people. It's the little people who had Enron stock in their portfolios. This includes numerous employees of Enron. To take one example, when Enron bought Portland General Electric, PGE employees' PGE stock became Enron stock, which was frozen when Enron filed for bankruptcy. While the stock was frozen (could not be sold), the value of the stock was not frozen, and so all of these little people had to watch the value of their investment decline daily until it was worth virtually nothing.

And then let's not forget all the individual investors and mutual funds which were heavily invested in Enron. Countless Enron investors were left holding Enron's bag while Enron execs tried to ascond with hundreds of millions of Enron funds. Funds which, if recovered at all, will be in the "pennies on the dollar" range.

The tragic truth is that even if we learn a lesson or two from this financial train wreck, it can happen again, and again, and again, as long as people believe that "gree is good." And so...it will happen again, as sure as the sun will rise tomorrow morning.