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What's he building in there?
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What the hell is
he building in there?
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It had taken Enron
16 years to go
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from about 10 billion
of assets to
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65 billion of assets.
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It took them 24 days
to go bankrupt.
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What the hell is
he building in there?
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This company collapsed
so quickly and so entirely.
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I mean it was into bankruptcy
within a matter of weeks.
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It just immediately had
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all the makings of
a gigantic scandal.
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He's hiding something
from the rest of us.
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The fatal flaw at Enron
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if there is one,
you say it was pride
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but then it was arrogance,
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intolerance, greed,
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So many of them were
blinded by the money
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that they didn't see that
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they were sinking
their own life boat
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We have a right to know.
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It just got hungrier
and hungrier.
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Sooner or later
they were doomed to go off
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that cliff at 90 miles an hour.
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It's astounding that they
got away with it for so long.
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In reality,
Enron was a house of cards.
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What we didn't know was
that the house of cards
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had been built over
a pool of gasoline
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It all sort of became
smoke and mirrors.
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Committee will come to order.
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This is a case of America's
largest corporate bankruptcy.
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00:02:01,020 --> 00:02:02,612
The question here is
what happened,
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00:02:02,856 --> 00:02:04,721
who was responsible
for it happening,
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00:02:04,924 --> 00:02:06,414
and what can we do to
prevent this sort of thing
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00:02:06,659 --> 00:02:07,648
from happening again.
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00:02:08,962 --> 00:02:11,123
I think the Enron story's
so fascinating
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00:02:11,364 --> 00:02:13,662
because people perceive
it as a story
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that's about numbers.
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That it's somehow about all
these complicated transactions.
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00:02:18,438 --> 00:02:20,269
But in reality
it's a story about people
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and it's really
a human tragedy.
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On this date, at 2:23 am,
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Sugar Land police
discovered John C Baxter
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located inside his vehicle
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with an apparent gunshot
wound to the head.
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Ah... at this time there has
been a suicide note located.
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Sir, can you give us
any indication whether
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this was related to
Enron's bankruptcy.
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We do know that he was
and Enron employee,
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00:03:57,437 --> 00:03:59,735
but as far as any other
indications of why
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00:03:59,973 --> 00:04:01,338
he committed suicide,
no we do not.
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00:04:08,348 --> 00:04:08,973
Mr. Skilling,
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00:04:09,282 --> 00:04:11,307
let me touch on something
that's sort of sad
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and that's of course
the suicide of Cliff Baxter.
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And you mentioned
he was your best friend
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in your opening statement.
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Before he died,
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00:04:21,327 --> 00:04:23,261
did you have many
conversations with him?
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Yes.
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And were any of them
relative to Enron?
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Yes.
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There's no one that knew Cliff,
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toward the end,
that didn't realize that
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he was heartbroken
by what had happened.
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And Cliff came over to my house
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and he said 'They're calling
us child molesters.'
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He says,
'That will never wash off.'
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But Mr. Skilling
you don't believe that.
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I don't believe what?
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You don't believe that
the press and everybody
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calling Cliff Baxter
or yourself or anybody
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on the Board of Directors,
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00:05:05,838 --> 00:05:07,430
denigrating or tainting you,
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00:05:07,707 --> 00:05:08,901
you don't think it's accurate
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00:05:09,142 --> 00:05:10,837
is what you're saying
to us here today.
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I do not believe...
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I did not do anything wrong
that was not in the interest
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In all the time that
I worked for Enron Corporation,
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it was in the interest of the
shareholders of the company.
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Ultimately, who was responsible
for the downfall of Enron?
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Only a few years ago,
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Enron was the nation's
seventh-largest corporation,
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valued at almost
70 billion dollars.
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Pundits praised the company
as a new business model.
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This trading floor was manned
by America's best and brightest,
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charting the futures of
energy and power.
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And high above each
with a private staircase,
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Ken Lay and Jeff Skilling
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had built their own
plush staterooms.
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They were known as
the smartest guys in the room.
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00:06:02,028 --> 00:06:05,964
Captains of a ship
too powerful to ever go down.
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00:06:06,399 --> 00:06:08,731
In the Titanic, the captain
went down with the ship.
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In Enron, it looks to me like
the captain first gave himself
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and some friends a bonus,
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then lowered himself and the
top folks down in the lifeboat
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and then hollered up and said,
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by the way, everything is
going to be just fine.
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Like Skilling,
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Ken Lay said he hadn't
done anything wrong.
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Could we have a word
with you real quickly?
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We're with CNN.
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Really not this morning,
thank you.
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Beyond the financial issues,
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some suspected
a political conspiracy.
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Enron had been the largest
corporate contributor
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to the first presidential
campaign of George W. Bush.
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This is not a political issue,
it is a business issue.
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You know Enron had
made contributions to
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a lot of people
around Washington D.C.
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And if they came to this
administration looking for help
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they didn't find any.
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To say no help had is like,
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'I did not have
political relations
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with that man, Mr. Lay.'
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00:07:01,621 --> 00:07:03,248
What about the fact
that George W. Bush
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00:07:03,456 --> 00:07:05,219
calls Ken Lay, Kenny Boy?
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00:07:05,458 --> 00:07:07,050
That's my nickname
for my husband,
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00:07:07,260 --> 00:07:08,420
which he overheard.
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So it wasn't original,
with the President?
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00:07:10,463 --> 00:07:11,657
It certainly wasn't.
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According to published reports,
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00:07:13,633 --> 00:07:17,433
your husband earned
about 300 million dollars in,
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00:07:17,670 --> 00:07:19,501
in compensation, in stocks
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00:07:19,705 --> 00:07:21,605
from Enron
over the last four years.
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What happened to
all that money?
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It's gone. It's gone.
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There's nothing left.
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00:07:31,384 --> 00:07:34,581
This is the shredded evidence
we got that came out of Enron.
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We very quickly determined that
the insiders had sold off
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a billion dollars of their stock
in the preceding several months.
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Did you convert stock
worth 66 million dollars?
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I don't know, but...
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00:07:48,935 --> 00:07:49,492
I don't have
the records with me...
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Would that be surprising to
you to learn that you did that?
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00:07:51,537 --> 00:07:53,266
No, that would
not be surprising.
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Mr. Fastow
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got only 30 million
in stock proceeds from Enron,
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but he took another
30 million out,
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00:08:02,315 --> 00:08:03,976
with his side deals.
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00:08:04,250 --> 00:08:08,311
I think there was just
an immediate sense of outrage
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00:08:08,621 --> 00:08:12,387
at Lay and Skilling and Fastow
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00:08:12,625 --> 00:08:15,594
when people realized
how much they had profited,
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00:08:15,828 --> 00:08:17,853
and how completely artificial
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00:08:18,097 --> 00:08:19,962
the appearance of
this company had been.
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News of shredding at Enron
raised more questions.
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00:08:25,438 --> 00:08:28,339
What answers were lost
in the torn documents?
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00:08:28,908 --> 00:08:32,105
20,000 employees
had lost their jobs.
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00:08:32,512 --> 00:08:36,676
$2 billion in pensions and
retirement funds had disappeared.
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Was Enron the work of
a few bad men
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00:08:40,353 --> 00:08:43,254
or the dark shadow of
the American dream?
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Lay comes to the story of
Enron from very humble roots.
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My father was
a Baptist minister and,
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00:08:59,872 --> 00:09:01,339
and he was ordained
a Baptist minister
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00:09:01,574 --> 00:09:05,567
while I was very young
probably two, three years old.
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00:09:05,778 --> 00:09:08,212
Ken Lay was a Baptist
Preacher's son in a family
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00:09:08,347 --> 00:09:09,814
that had been poor
all it's life
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00:09:10,049 --> 00:09:13,450
and he, throughout his life,
worked several jobs as a kid
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00:09:13,920 --> 00:09:17,083
and clearly had in mind that
things could be better...
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00:09:17,323 --> 00:09:18,119
and wanted things to be better.
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00:09:18,391 --> 00:09:21,451
He had a huge ambition to
make wealth for himself.
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He told a story later
about sitting on a tractor,
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dreaming about
the world of business
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00:09:26,132 --> 00:09:27,326
and how different
it could be from the way
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things were for him
and his family.
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Lay was a PhD in economics
and he became,
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00:09:34,106 --> 00:09:36,506
very early on,
a real apostle for deregulation.
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00:09:36,776 --> 00:09:38,676
He was way ahead of
the curve on this.
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He was thinking
about energy markets
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00:09:40,680 --> 00:09:43,046
that would be deregulated.
And in particular,
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00:09:43,282 --> 00:09:46,376
the natural gas industry
that was shackled by regulation.
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00:09:46,586 --> 00:09:50,420
And he pushed aggressively in
Washington to change all of that.
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In Washington,
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00:09:56,429 --> 00:09:58,329
Lay became part of
a new crusade
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00:09:58,631 --> 00:10:00,724
to liberate businessmen
from the rules
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00:10:00,967 --> 00:10:02,992
and regulations of government.
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00:10:03,269 --> 00:10:06,500
Government is not
the solution to our problem.
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00:10:06,906 --> 00:10:08,840
Government is the problem.
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00:10:09,075 --> 00:10:11,475
The societies which have
achieved the most spectacular,
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00:10:11,677 --> 00:10:14,908
broad-based economic progress
in the shortest period of time
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00:10:15,414 --> 00:10:17,245
are not the most
tightly controlled,
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00:10:17,450 --> 00:10:19,645
not necessarily
the biggest in size,
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00:10:19,919 --> 00:10:22,547
or the wealthiest
in natural resources.
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00:10:23,022 --> 00:10:25,889
No, what unites them all
is their willingness to believe
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00:10:26,092 --> 00:10:28,652
in the magic
of the marketplace.
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00:10:36,369 --> 00:10:38,496
The magic power of deregulation
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00:10:38,738 --> 00:10:42,003
pushed Ken Lay to
found Enron in 1985.
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00:10:42,608 --> 00:10:46,044
Through a merger of vast networks
of natural gas pipelines,
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00:10:46,379 --> 00:10:48,677
Lay thought Enron
would be poised to take
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00:10:48,881 --> 00:10:50,906
advantage of
the government's decision
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00:10:51,150 --> 00:10:54,517
to let gas prices float
with the currents of the market.
191
00:10:56,689 --> 00:10:59,886
Ken Lay had
a view of deregulation
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00:11:00,092 --> 00:11:01,423
from the standpoint
of all the money
193
00:11:01,661 --> 00:11:03,094
that he thought could be made.
194
00:11:03,329 --> 00:11:04,591
Ken Lay wasn't alone.
195
00:11:04,864 --> 00:11:07,332
A couple of Texas oilmen
shared his views
196
00:11:07,566 --> 00:11:10,330
on how to get government out
of the energy business.
197
00:11:10,536 --> 00:11:12,697
I think they could sort of
understand each other.
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00:11:12,938 --> 00:11:14,371
It was a professional courtesy
199
00:11:14,640 --> 00:11:17,131
between a sidewinder
and a timber rattlesnake.
200
00:11:17,376 --> 00:11:19,037
Lay was closer to the father.
201
00:11:19,311 --> 00:11:21,279
But while
he was governor of Texas
202
00:11:21,447 --> 00:11:23,438
George W. Bush was
only too happy to
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00:11:23,649 --> 00:11:25,810
make phone calls for Ken Lay.
204
00:11:26,719 --> 00:11:28,880
This absolutely has
no precedent.
205
00:11:29,121 --> 00:11:32,056
This is by far and away
the most important,
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00:11:32,425 --> 00:11:35,485
major relationship of
a Presidential family
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00:11:35,728 --> 00:11:37,992
with a single corporation
in American history.
208
00:11:38,330 --> 00:11:39,194
When Rich Kinder,
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00:11:39,465 --> 00:11:41,797
one of Enron's Executives,
left the company,
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00:11:42,034 --> 00:11:44,594
Lay arranged
for a video valentine.
211
00:11:44,904 --> 00:11:48,396
Rich, I've... been asked
to think of one thing
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00:11:48,708 --> 00:11:50,300
I could say to you
on your departure from Enron.
213
00:11:50,543 --> 00:11:53,068
It'd be this,
'Don't leave Texas.'
214
00:11:53,379 --> 00:11:56,314
Rich, you have been fantastic
to the Bush family.
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00:11:56,682 --> 00:11:58,309
I don't think
anybody did more than
216
00:11:58,517 --> 00:12:00,041
you did to support George and,
217
00:12:00,286 --> 00:12:01,719
of course,
in this stage of my life,
218
00:12:01,954 --> 00:12:04,252
and Barbara's too,
that's what really matters.
219
00:12:04,490 --> 00:12:06,253
Your family and your friends.
220
00:12:06,959 --> 00:12:08,950
Early on, George Bush, Sr.
221
00:12:09,295 --> 00:12:11,786
Helped secure billions
in government subsidies
222
00:12:12,031 --> 00:12:13,521
for Enron International.
223
00:12:13,799 --> 00:12:15,824
And he helped promote Lay as
224
00:12:16,102 --> 00:12:18,570
deregulation's
Ambassador-at-Large.
225
00:12:19,305 --> 00:12:20,704
Enron is a company...
226
00:12:21,040 --> 00:12:24,271
that deals with everyone
with absolute integrity.
227
00:12:24,477 --> 00:12:26,604
We want people to leave
the transaction with Enron
228
00:12:26,846 --> 00:12:28,074
thinking that
they've been dealt with
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00:12:28,447 --> 00:12:30,711
in the highest possible way
230
00:12:30,983 --> 00:12:33,144
as far as integrity
and truthfulness.
231
00:12:33,385 --> 00:12:36,286
He always wrapped himself
in the cloak of moral rectitude.
232
00:12:36,589 --> 00:12:38,523
But there was one episode,
early on,
233
00:12:38,791 --> 00:12:40,782
that raised questions
about whether he was actually
234
00:12:41,060 --> 00:12:44,427
walking the walk
This was the Enron oil scandal,
235
00:12:44,663 --> 00:12:46,290
also know as
the Valhalla Scandal.
236
00:12:47,233 --> 00:12:48,666
While you were
at Arthur Anderson,
237
00:12:48,901 --> 00:12:51,734
were you involved
in an investigation
238
00:12:52,004 --> 00:12:54,199
at a company called Enron Oil?"
239
00:12:54,774 --> 00:12:55,763
Yes, I was.
240
00:12:55,975 --> 00:12:58,307
The issue
with the company in 1997
241
00:12:58,477 --> 00:13:02,072
involved the misappropriation
of moneys by two traders.
242
00:13:02,782 --> 00:13:06,684
In 1987 two oil traders
made bets for Enron
243
00:13:06,952 --> 00:13:09,386
on whether the price of
oil would rise or fall.
244
00:13:10,489 --> 00:13:12,081
Oil trading is like gambling:
245
00:13:12,324 --> 00:13:14,849
Sometimes you win,
sometimes you lose.
246
00:13:15,294 --> 00:13:18,263
But Enron Oil
always seemed to win,
247
00:13:18,430 --> 00:13:20,330
much to Ken Lay's delight.
248
00:13:20,533 --> 00:13:22,262
I tried to explain to Ken Lay
249
00:13:22,434 --> 00:13:25,562
the tremendous risk that
you have in that market.
250
00:13:25,771 --> 00:13:26,965
You can lose...
251
00:13:27,306 --> 00:13:29,365
ten times your
original investment.
252
00:13:29,842 --> 00:13:31,776
A veteran trader,
Mike Muckleroy,
253
00:13:31,977 --> 00:13:35,276
was suspicious of Enron Oil's
steady high profits.
254
00:13:35,981 --> 00:13:37,812
Well this oil trading
business had profits
255
00:13:38,050 --> 00:13:39,642
that nobody could really
understand and in fact,
256
00:13:39,985 --> 00:13:41,919
that many of Ken Lay's
lieutenants questioned.
257
00:13:42,188 --> 00:13:43,416
They said this
business can't be making
258
00:13:43,622 --> 00:13:44,850
this much money legitimately.
259
00:13:45,090 --> 00:13:46,717
Something weird is going on.
260
00:13:47,126 --> 00:13:49,287
Something weird was going on.
261
00:13:49,762 --> 00:13:51,855
The first hint came
from an anonymous tip
262
00:13:52,097 --> 00:13:53,792
about the president
of the company,
263
00:13:54,033 --> 00:13:55,330
Louis Borget.
264
00:13:55,568 --> 00:13:58,537
Mr. Borget had taken
some three plus million dollars
265
00:13:58,804 --> 00:14:02,001
of corporate funds and put it
in a personal account of his.
266
00:14:02,274 --> 00:14:04,868
There were offshore
accounts phony books
267
00:14:05,077 --> 00:14:07,272
and a trail that led
from the company's treasurer,
268
00:14:07,546 --> 00:14:08,444
Tom Mastroeni,
269
00:14:08,681 --> 00:14:12,082
to a mysterious Lebanese
speculator no one could find:
270
00:14:12,318 --> 00:14:13,683
M. Yass.
271
00:14:14,186 --> 00:14:15,676
What name did you
suspect that was?
272
00:14:15,921 --> 00:14:17,286
My ass, you know.
273
00:14:17,690 --> 00:14:20,158
And M Smart,
well so that's Maxwell Smart.
274
00:14:20,392 --> 00:14:22,121
I mean, these guys
are playing games
275
00:14:22,895 --> 00:14:25,363
Borget and Mastroeni were
summoned to Houston.
276
00:14:25,898 --> 00:14:29,061
First, they presented
falsified bank records to Enron.
277
00:14:29,468 --> 00:14:31,459
Then they admitted
they had diverted company
278
00:14:31,704 --> 00:14:33,695
profits to personal accounts.
279
00:14:34,807 --> 00:14:36,365
It was brought to the attention
of the Enron Board.
280
00:14:36,575 --> 00:14:38,338
Auditors were brought
in as well,
281
00:14:38,577 --> 00:14:39,669
to look at the whole thing.
282
00:14:39,912 --> 00:14:40,879
At the board meeting,
283
00:14:41,080 --> 00:14:43,571
the auditors told Lay
that Borget and his traders
284
00:14:43,816 --> 00:14:46,842
were manipulating earnings
destroying daily trading records,
285
00:14:47,086 --> 00:14:50,385
and probably gambling
way beyond their limits.
286
00:14:50,623 --> 00:14:51,988
The next day we found out that
287
00:14:52,224 --> 00:14:54,920
Lay's decision was to
basically change nothing
288
00:14:55,160 --> 00:14:57,128
as far as
the operation's concerned.
289
00:14:57,429 --> 00:15:00,125
And the reason
he gave was that this was
290
00:15:00,332 --> 00:15:02,232
the only part of
the combined company
291
00:15:02,468 --> 00:15:04,834
that was making any money
and that he could not,
292
00:15:05,170 --> 00:15:07,400
you know,
kill the golden goose.
293
00:15:08,007 --> 00:15:10,771
The traders weren't fired,
or even disciplined.
294
00:15:11,143 --> 00:15:14,010
Instead,
Enron sent a telex to Borget:
295
00:15:14,380 --> 00:15:17,076
Please keep making us millions.
296
00:15:17,850 --> 00:15:19,943
Instead of reducing
Enron's risk,
297
00:15:20,286 --> 00:15:22,777
Lay encouraged his traders
to gamble more.
298
00:15:23,489 --> 00:15:25,616
But then their luck changed.
299
00:15:27,092 --> 00:15:28,059
Two months later,
300
00:15:28,294 --> 00:15:30,262
here I got this panic
call that they had
301
00:15:30,396 --> 00:15:33,763
drawn down 90 million dollars
in the previous five days.
302
00:15:33,966 --> 00:15:35,661
What we could do is
just try and find out
303
00:15:35,901 --> 00:15:38,699
what kind of guerilla
we had loose up there.
304
00:15:39,471 --> 00:15:42,031
Muckleroy hopped on the
next plane to New York.
305
00:15:42,308 --> 00:15:44,902
He knew Mastroeni had
another set of books,
306
00:15:45,144 --> 00:15:48,113
and he would do whatever
it took to get them.
307
00:15:49,114 --> 00:15:51,173
I basically stood over Tom
308
00:15:51,450 --> 00:15:53,918
and I told him that one of
two things was going to happen.
309
00:15:54,119 --> 00:15:55,984
Either one of
the trading partners
310
00:15:56,322 --> 00:15:57,789
that was crooked with Borget
311
00:15:58,057 --> 00:16:00,685
who was a German arms dealer
was going to kill him,
312
00:16:01,093 --> 00:16:03,493
or I was.
I said 'I'll track you down
313
00:16:03,829 --> 00:16:05,888
and find you
no matter where you go.
314
00:16:06,265 --> 00:16:07,994
And sooner or later,
I'll get you.'
315
00:16:09,168 --> 00:16:12,103
The next day, Mastroeni came
in with the real books.
316
00:16:12,371 --> 00:16:15,670
The traders had gambled away
all of Enron's reserves.
317
00:16:16,942 --> 00:16:19,809
By acting fast,
Muckleroy bluffed the market,
318
00:16:20,079 --> 00:16:22,104
and managed to
save the company.
319
00:16:23,882 --> 00:16:26,350
After Valhalla Ken Lay
maintained that
320
00:16:26,552 --> 00:16:27,780
he had been shocked
that the traders
321
00:16:28,053 --> 00:16:29,247
had gambled so recklessly.
322
00:16:29,421 --> 00:16:30,979
But Ken Lay had known
all along
323
00:16:31,290 --> 00:16:32,848
about the risks
that were taken.
324
00:16:33,058 --> 00:16:34,923
He had seen
the reports warning him
325
00:16:35,127 --> 00:16:36,754
about the traders' behavior.
326
00:16:37,663 --> 00:16:39,961
Since the fall of Enron,
Ken Lay has said that
327
00:16:40,165 --> 00:16:41,427
he can't be responsible
for things
328
00:16:41,633 --> 00:16:42,861
he didn't know about.
329
00:16:43,102 --> 00:16:44,933
Sounds like what he said
about Valhalla.
330
00:16:45,471 --> 00:16:47,268
Do you believe that
he didn't know?"
331
00:16:47,506 --> 00:16:50,907
I can answer only for one.
I can answer for Valhalla
332
00:16:51,110 --> 00:16:53,271
because Ken Lay did in fact
know about this thing.
333
00:16:53,445 --> 00:16:54,673
Because I had told him myself.
334
00:16:54,947 --> 00:16:58,178
The auditors adamantly
told Mr. Ken Lay
335
00:16:58,650 --> 00:17:01,881
that the two rogue traders
should be fired.
336
00:17:02,254 --> 00:17:04,313
Lay read the report
and he read his budget
337
00:17:04,523 --> 00:17:07,959
and estimated how much they,
the two rogue executives made
338
00:17:08,260 --> 00:17:10,353
and if they were fired
what he could lose.
339
00:17:10,662 --> 00:17:13,529
My conclusion was that this guy
is a guy who puts earnings
340
00:17:13,766 --> 00:17:15,233
before scruples
rather than reacting
341
00:17:15,434 --> 00:17:17,368
to the dishonesty right
in front of him.
342
00:17:17,836 --> 00:17:20,236
Mastroeni received
a suspended sentence.
343
00:17:20,439 --> 00:17:23,897
Borget was convicted of fraud,
and spent one year in jail.
344
00:17:24,777 --> 00:17:27,268
With his biggest moneymaker
now behind bars,
345
00:17:27,546 --> 00:17:29,013
Ken Lay had a problem:
346
00:17:29,281 --> 00:17:31,943
Who could he find
to make money for Enron?
347
00:17:33,352 --> 00:17:34,910
Every year, every day,
348
00:17:35,154 --> 00:17:37,349
every week you have to come up
with new ideas.
349
00:17:47,132 --> 00:17:49,464
Ken Lay saw in Jeff Skilling
the guy who had the answer to
350
00:17:49,668 --> 00:17:52,660
what the future of the natural
gas business was supposed to be.
351
00:17:52,938 --> 00:17:55,463
Ken Lay is also a guy who
considers himself a visionary
352
00:17:55,741 --> 00:17:58,266
and he liked other people
he thought of as visionaries.
353
00:17:58,444 --> 00:17:59,604
He liked people with big ideas.
354
00:17:59,978 --> 00:18:02,947
And Jeff Skilling was a person
with the biggest ideas of all.
355
00:18:03,916 --> 00:18:06,578
Jeff Skilling's biggest
single idea was find
356
00:18:06,819 --> 00:18:08,787
a new way to deliver energy.
357
00:18:09,021 --> 00:18:12,115
Rather than be bound by the
physical flow of the pipeline,
358
00:18:12,424 --> 00:18:16,053
Enron would become a kind of
stock market for natural gas.
359
00:18:16,328 --> 00:18:18,319
It was a magical new idea:
360
00:18:18,597 --> 00:18:21,361
Transform energy into
financial instruments
361
00:18:21,600 --> 00:18:24,091
that could be traded
like stocks and bonds.
362
00:18:24,570 --> 00:18:26,333
So that was the one good idea.
363
00:18:26,605 --> 00:18:28,766
In 1992 using that good idea,
364
00:18:28,974 --> 00:18:31,272
we became the largest buyer
and seller of natural gas
365
00:18:31,477 --> 00:18:32,501
in North America.
366
00:18:32,744 --> 00:18:34,109
Jeff was like the prophet.
367
00:18:34,379 --> 00:18:37,041
He came in and said There's
a whole new world out there.
368
00:18:37,282 --> 00:18:38,909
Forget about
this pipeline stuff,
369
00:18:39,151 --> 00:18:40,743
you know the staid pipeline
in the ground and...
370
00:18:41,053 --> 00:18:42,520
gas in and gas out.
371
00:18:42,788 --> 00:18:46,519
We can recreate
this entire industry.
372
00:18:47,292 --> 00:18:49,021
An attorney from
Vinson & Elkins,
373
00:18:49,328 --> 00:18:52,058
Amanda Martin was one of
the first executives hired
374
00:18:52,331 --> 00:18:55,323
by Jeff Skilling and became
part of his inner circle.
375
00:18:56,368 --> 00:18:57,926
The excitement was palpable.
376
00:18:58,170 --> 00:19:01,367
You cannot imagine how proud
we all were to be there.
377
00:19:01,607 --> 00:19:04,701
And then, of course,
we had a leader who imbued us
378
00:19:04,943 --> 00:19:07,343
with a sense of confidence that
if we were smart,
379
00:19:07,579 --> 00:19:11,310
anything could be accomplished
And then the bottom line
380
00:19:11,550 --> 00:19:13,279
we began to make money.
381
00:19:14,052 --> 00:19:15,952
And that in and of itself,
382
00:19:16,155 --> 00:19:19,647
was a re-affirmation
that this could be big.
383
00:19:22,461 --> 00:19:24,986
Skilling saw the opportunity
to build an industry new
384
00:19:25,264 --> 00:19:26,788
and to start a business
from scratch.
385
00:19:27,032 --> 00:19:29,262
But he had
one specific condition
386
00:19:29,501 --> 00:19:31,298
that had to be met
before he'd join Enron,
387
00:19:31,537 --> 00:19:33,664
and it was that
he be allowed to use
388
00:19:33,872 --> 00:19:36,238
a certain kind of accounting
known as mark-to-market.
389
00:19:36,542 --> 00:19:39,136
Arthur Andersen signed off,
and the SEC approved it.
390
00:19:39,778 --> 00:19:41,746
I remember walking in
and going 'What's going on? '
391
00:19:42,014 --> 00:19:43,345
And Causey and everybody,
392
00:19:43,549 --> 00:19:45,449
I mean every one was so excited
and then came the champagne
393
00:19:45,684 --> 00:19:47,948
and We had got Mark-to-market
accounting treatment.
394
00:19:48,287 --> 00:19:51,745
And I often think about how clear
my memory was about that event.
395
00:19:52,024 --> 00:19:55,721
And that was
the beginning of a major cog
396
00:19:55,928 --> 00:19:57,657
of the downfall
ultimately of Enron.
397
00:20:00,566 --> 00:20:03,034
Mark-to-market
accounting allowed Enron
398
00:20:03,302 --> 00:20:05,566
to book potential
future profits
399
00:20:05,804 --> 00:20:07,669
on the very day
a deal was signed.
400
00:20:08,073 --> 00:20:11,065
No matter how little cash
actually came in the door,
401
00:20:11,376 --> 00:20:14,345
to the outside world,
Enron's profits could be...
402
00:20:14,613 --> 00:20:17,207
whatever Enron said they were.
403
00:20:18,050 --> 00:20:19,847
Very subjective.
404
00:20:21,553 --> 00:20:27,458
And very...
it left it open to manipulation.
405
00:20:27,659 --> 00:20:29,388
And they were saying
that we're going to sell
406
00:20:29,628 --> 00:20:32,791
power out of this
power plant in ten years
407
00:20:33,031 --> 00:20:35,727
for X dollars per kilowatt.
408
00:20:36,468 --> 00:20:39,266
And there was no way
anybody could prove that
409
00:20:39,538 --> 00:20:40,004
they could do it.
410
00:20:40,205 --> 00:20:41,069
Well...
Hey Reg.
411
00:20:41,273 --> 00:20:41,967
Good morning.
How are you?
412
00:20:42,207 --> 00:20:43,538
Finally. Great.
Good to see you.
413
00:20:43,742 --> 00:20:45,232
Jeff. Good to see you.
Todd, sit down.
414
00:20:45,544 --> 00:20:46,841
We've been working
hard on this
415
00:20:47,045 --> 00:20:48,171
and we've really pulled
out all the stops.
416
00:20:48,380 --> 00:20:50,177
Look what we got.
Origination...
417
00:20:50,415 --> 00:20:51,712
We did 20 million last year,
418
00:20:51,984 --> 00:20:54,214
I think we can do 120 million
dollars this year.
419
00:20:54,686 --> 00:20:56,677
Trading
we did 10 million last year
420
00:20:56,922 --> 00:20:59,083
we think we can do
64 this year.
421
00:20:59,324 --> 00:21:00,188
This is the key.
422
00:21:00,425 --> 00:21:01,289
We're going to move from
423
00:21:01,493 --> 00:21:03,427
mark-to-market accounting
to something
424
00:21:03,629 --> 00:21:06,154
I call H, F, V
425
00:21:06,398 --> 00:21:09,890
Hypothetical
Future Value accounting.
426
00:21:10,302 --> 00:21:13,271
If we do that
we can add a kazillion dollars
427
00:21:13,505 --> 00:21:14,597
to the bottom line.
428
00:21:14,806 --> 00:21:19,869
Whoa! Jeff... alright!
That sounds fantastic.
429
00:21:20,112 --> 00:21:23,946
Oh Jeff, thank you.
That's just supurb performance.
430
00:21:24,149 --> 00:21:25,946
And you're going to go far,
my boy.
431
00:21:26,184 --> 00:21:28,015
Probably President of
the company one day.
432
00:21:28,320 --> 00:21:29,582
You think so?
I think!
433
00:21:29,788 --> 00:21:31,847
He really believed that
the idea was everything.
434
00:21:32,057 --> 00:21:33,422
And that when you came up
with an idea,
435
00:21:33,659 --> 00:21:35,991
you should be able to book
the profits from that idea,
436
00:21:36,328 --> 00:21:37,295
right away.
437
00:21:37,496 --> 00:21:39,930
Because otherwise some lesser
man was taking the profits
438
00:21:40,165 --> 00:21:41,655
from the idea
that some greater man
439
00:21:41,900 --> 00:21:43,561
had come up with in the past.
440
00:21:44,970 --> 00:21:47,461
When Jeff Skilling applied to
Harvard Business School,
441
00:21:47,706 --> 00:21:49,833
the professor asked him
if he was smart.
442
00:21:50,075 --> 00:21:52,703
He replied,
'I'm fucking smart.'
443
00:21:53,912 --> 00:21:57,040
One of his favorite books
was The Selfish Gene,
444
00:21:57,349 --> 00:22:00,011
about the ways human nature
is steered by greed
445
00:22:00,252 --> 00:22:02,982
and competition in the service
of passing on our genes.
446
00:22:04,089 --> 00:22:04,714
At Enron.
447
00:22:04,990 --> 00:22:07,550
Skilling wanted to set free
the basic instincts
448
00:22:07,859 --> 00:22:09,690
of survival of the fittest.
449
00:22:12,564 --> 00:22:15,158
Jeff had a very Darwinian
view of how the world worked.
450
00:22:15,434 --> 00:22:17,834
He was famous for saying once
in Enron's early years,
451
00:22:18,103 --> 00:22:20,503
that money was the only thing
that motivated people.
452
00:22:22,307 --> 00:22:24,434
Skilling's notion of
how the world should work
453
00:22:24,710 --> 00:22:25,506
really trickled down,
454
00:22:25,811 --> 00:22:28,006
and affected everything
about how Enron did business.
455
00:22:28,313 --> 00:22:30,008
He instituted the system
know as the PRC,
456
00:22:30,215 --> 00:22:31,682
or Perfomance Review Committee.
457
00:22:31,917 --> 00:22:34,886
It required that people be
graded from a one to a five.
458
00:22:35,087 --> 00:22:37,783
And roughly ten percent of
people had to be a five.
459
00:22:37,989 --> 00:22:39,980
And those people were
supposed to be fired.
460
00:22:40,225 --> 00:22:42,591
Hence, this came to be know
as 'Rank and Yank.'
461
00:22:42,861 --> 00:22:44,192
I, personally, am convinced
462
00:22:45,330 --> 00:22:48,390
that the PRC process
is the most important process
463
00:22:48,767 --> 00:22:50,735
that we conduct as a company.
464
00:22:50,936 --> 00:22:52,335
I've never heard of
a company yet
465
00:22:52,571 --> 00:22:54,869
that would be successful
terminating 15 percent
466
00:22:55,107 --> 00:22:56,506
of their people every year...
467
00:22:56,742 --> 00:22:59,176
just to satisfy the fact
that the other employees
468
00:22:59,378 --> 00:23:00,436
had to vote on them.
469
00:23:00,645 --> 00:23:02,545
And so when you're being
evaluated by that group,
470
00:23:02,748 --> 00:23:06,149
you are getting direct
communication from Ken and me
471
00:23:06,385 --> 00:23:08,353
about what the objectives
of the company are
472
00:23:08,553 --> 00:23:10,248
and how you fit
with those objectives.
473
00:23:10,489 --> 00:23:12,252
It was a brutal process.
474
00:23:12,491 --> 00:23:15,585
The ability for
a 25 year old to go in
475
00:23:15,861 --> 00:23:18,887
and to be reviewed
and to be superior...
476
00:23:19,498 --> 00:23:22,934
and as a consequence get
a five million dollar bonus.
477
00:23:23,502 --> 00:23:25,265
I don't think that's
repeated in many places
478
00:23:25,437 --> 00:23:26,495
in corporate America.
479
00:23:26,738 --> 00:23:28,330
Our culture is a tough culture.
480
00:23:28,573 --> 00:23:31,542
It is a very aggressive culture.
481
00:23:33,879 --> 00:23:34,436
At Enron,
482
00:23:34,713 --> 00:23:37,511
no one was more aggressive
than the traders.
483
00:23:38,717 --> 00:23:41,311
If I'm on the way to
my boss's office
484
00:23:41,553 --> 00:23:42,952
talking about my compensation.
485
00:23:43,155 --> 00:23:44,952
And if I step on somebody's
throat on the way
486
00:23:45,157 --> 00:23:45,919
that doubles it?
487
00:23:46,158 --> 00:23:47,853
Well, I'll stomp
on the guy's throat.
488
00:23:48,427 --> 00:23:51,294
You know,
that that's how people were.
489
00:23:52,531 --> 00:23:55,591
On the trading side
we got to be the biggest,
490
00:23:55,867 --> 00:23:57,960
baddest house in town.
491
00:23:58,336 --> 00:23:59,325
And by necessity,
492
00:23:59,604 --> 00:24:01,037
if you wanted to be
in the market,
493
00:24:01,306 --> 00:24:03,740
you had to deal with Enron.
494
00:24:05,944 --> 00:24:09,243
Enron's traders were like the
super powerful high school
495
00:24:09,414 --> 00:24:11,905
clique that even the principal
doesn't dare to reign in.
496
00:24:12,150 --> 00:24:14,482
They had become
the major engine of
497
00:24:14,786 --> 00:24:17,254
at least reported profits
at the company.
498
00:24:17,422 --> 00:24:20,118
They took Jeff Skilling and
Ken Lay's belief in free markets
499
00:24:20,392 --> 00:24:22,360
and turned it into an ideology.
500
00:24:22,594 --> 00:24:25,995
But they pitch it almost
as a new economic religion.
501
00:24:29,301 --> 00:24:31,861
Enron on-line will
change the markets
502
00:24:32,103 --> 00:24:33,730
for many many commodities.
503
00:24:34,039 --> 00:24:37,873
It is creating an open
transparent marketplace
504
00:24:38,143 --> 00:24:41,271
that replaces the dark
blind system that existed.
505
00:24:42,113 --> 00:24:43,705
It is real simple.
506
00:24:44,082 --> 00:24:46,744
You turn on your computer
and it's right there.
507
00:24:46,985 --> 00:24:47,610
That's our vision.
508
00:24:47,886 --> 00:24:49,581
We're trying to
change the world.
509
00:24:54,759 --> 00:24:56,989
I think Jeff Skilling
had a desperate
510
00:24:57,329 --> 00:24:58,956
need to believe
that Enron was a success.
511
00:24:59,197 --> 00:25:00,858
I think he identified
with Enron.
512
00:25:01,099 --> 00:25:03,590
He proclaimed, at one point,'
I am Enron'.
513
00:25:05,170 --> 00:25:07,035
The other thing
about people at Enron is,
514
00:25:07,272 --> 00:25:10,469
a lot of them were former nerds
and including Jeff Skilling.
515
00:25:10,709 --> 00:25:12,574
He had been paunchy.
He had big glasses.
516
00:25:12,811 --> 00:25:14,039
He was losing his hair.
517
00:25:14,279 --> 00:25:16,338
And Jeff Skilling
one day kinda woke up
518
00:25:16,581 --> 00:25:17,809
and decided to change himself.
519
00:25:18,049 --> 00:25:20,040
And he started working out,
lost a lot of weight.
520
00:25:20,318 --> 00:25:21,649
But he really did
remake himself
521
00:25:21,853 --> 00:25:24,947
through sheer will
and force of personality.
522
00:25:25,724 --> 00:25:29,251
When Jeff got Lasik on his eyes,
everybody at Enron got Lasik,
523
00:25:29,494 --> 00:25:31,655
so nobody was wearing glasses.
524
00:25:33,298 --> 00:25:35,789
I think Jeff Skilling
is really a tragic figure,
525
00:25:36,034 --> 00:25:37,296
in a classic sense of the word.
526
00:25:37,569 --> 00:25:40,595
He's a guy that people describe
as incandescently brilliant.
527
00:25:40,872 --> 00:25:43,534
But he's also a guy who
is radically different
528
00:25:43,742 --> 00:25:44,902
than he at times
portrays himself.
529
00:25:45,110 --> 00:25:47,044
He's portrayed himself
as somebody who has
530
00:25:47,312 --> 00:25:49,712
very tightly-monitored risk.
In reality, he's a gambler.
531
00:25:49,915 --> 00:25:52,907
He gambled away huge sums of
money before he was 20 years old,
532
00:25:53,151 --> 00:25:55,346
by making wild bets
on the market.
533
00:25:58,490 --> 00:26:00,219
To Jeff Skilling,
risk was glamorous.
534
00:26:00,392 --> 00:26:01,586
He was a huge risk taker.
535
00:26:01,793 --> 00:26:04,455
He actually talked about
wanting to go on trips that
536
00:26:04,663 --> 00:26:06,688
were so perilous that
someone could actually die.
537
00:26:11,303 --> 00:26:14,534
This manifested itself
in trips that Jeff Skilling led
538
00:26:14,806 --> 00:26:17,036
for a small group of friends
and customers.
539
00:26:21,980 --> 00:26:24,710
A core cadre of
Enron guys used to go on
540
00:26:24,983 --> 00:26:26,610
these wild adventures:
541
00:26:26,818 --> 00:26:29,480
Andy Fastow would go;
Ken Rice would go.
542
00:26:29,955 --> 00:26:31,479
The trips were legend.
543
00:26:31,690 --> 00:26:34,352
You know, we can sit and think
about what strange insecurities
544
00:26:34,626 --> 00:26:36,253
they were trying to overcome.
545
00:26:36,428 --> 00:26:38,487
But it made them
feel good as men.
546
00:26:39,364 --> 00:26:41,764
And they took a particularly
memorable trip to the Baja
547
00:26:42,067 --> 00:26:44,968
twelve hundred miles of
very rugged terrain in Mexico.
548
00:26:48,840 --> 00:26:51,638
This is a trip where
people crashed bikes.
549
00:26:51,977 --> 00:26:52,739
Ken Rice was on the trip,
550
00:26:53,044 --> 00:26:56,275
and he busted a lip and
required a bunch of stitches.
551
00:26:56,481 --> 00:26:57,812
People broke bones.
552
00:26:58,016 --> 00:27:00,610
One guy flipped a jeep
and almost got killed.
553
00:27:01,119 --> 00:27:03,644
Those sorts of stories
at Enron became legend.
554
00:27:04,122 --> 00:27:06,613
And it fed the whole macho
culture of the place.
555
00:27:16,801 --> 00:27:19,395
Jeff Skilling had a way of
describing people that he liked.
556
00:27:19,604 --> 00:27:21,037
He said,
'I like guys with spikes.'
557
00:27:21,272 --> 00:27:23,866
He liked somebody with
something extreme about them.
558
00:27:26,811 --> 00:27:28,506
Ken Rice was one of
the Men with Spikes.
559
00:27:28,747 --> 00:27:30,442
He was the salesman
of the group.
560
00:27:30,649 --> 00:27:33,277
Very amiable, fun, man's man.
561
00:27:33,485 --> 00:27:37,251
And was the guy out selling
deals to energy companies.
562
00:27:37,422 --> 00:27:40,118
In the case of Cliff Baxter,
the company's chief dealmaker
563
00:27:40,358 --> 00:27:42,883
he was extraordinarily talented
at just doing a deal.
564
00:27:43,294 --> 00:27:44,784
But he was a manic depressive.
565
00:27:46,464 --> 00:27:48,364
Baxter was a very bright guy,
566
00:27:48,566 --> 00:27:51,034
very blunt would
tell Skilling whatever
567
00:27:51,302 --> 00:27:53,463
he thought was closest
to Skilling, personally,
568
00:27:53,672 --> 00:27:54,934
than anyone else
in the company.
569
00:27:55,340 --> 00:27:57,035
There was a guy named Lou Pai,
570
00:27:57,308 --> 00:27:59,003
who was a key
Skilling lieutenant;
571
00:27:59,210 --> 00:28:00,609
helped build the trading
business in the early years;
572
00:28:00,845 --> 00:28:03,075
went on to run Enron's doomed
573
00:28:03,281 --> 00:28:04,805
effort called
Enron Energy Services.
574
00:28:05,083 --> 00:28:08,109
What was the job of EES,
as you ran it?
575
00:28:08,386 --> 00:28:12,686
Ah, it was to sell energy
services to end users,
576
00:28:12,957 --> 00:28:14,424
industrial end users.
577
00:28:14,693 --> 00:28:16,217
Lou Pai is
the guy that Skilling
578
00:28:16,361 --> 00:28:17,794
tapped to run the EES business.
579
00:28:18,029 --> 00:28:18,688
Because this was,
580
00:28:18,897 --> 00:28:20,262
this was so important
to the company,
581
00:28:20,465 --> 00:28:21,432
and to Skilling's future.
582
00:28:21,666 --> 00:28:23,429
He called Lou Pai 'my ICBM.'
583
00:28:23,902 --> 00:28:25,733
And Lou Pai dispatched
his enemies
584
00:28:25,970 --> 00:28:27,631
with incredible skill.
585
00:28:27,839 --> 00:28:30,239
And if that meant leaving
bodies behind him,
586
00:28:30,408 --> 00:28:31,875
Skilling was certainly
fine about that.
587
00:28:32,343 --> 00:28:34,277
I'm not feeling anything.
588
00:28:34,512 --> 00:28:36,537
Lou Pai was kind of
a mysterious figure.
589
00:28:36,748 --> 00:28:40,013
He was kind of like
the invisible CEO.
590
00:28:40,285 --> 00:28:42,845
For awhile he was located
on the 7th floor.
591
00:28:43,154 --> 00:28:47,022
And there's a long office.
592
00:28:47,292 --> 00:28:50,455
And it was all glass-enclosed,
and you would walk by there,
593
00:28:50,695 --> 00:28:53,163
and it was just almost
all the time it was empty.
594
00:28:55,033 --> 00:28:57,558
Details didn't
interest Lou Pai.
595
00:28:58,136 --> 00:29:00,400
Only two things seemed
to motivate Pai
596
00:29:00,705 --> 00:29:04,641
money and a peculiar
fascination with strippers.
597
00:29:05,310 --> 00:29:08,302
For Pai,
it was all about the numbers.
598
00:29:14,686 --> 00:29:16,210
He was there
every night after work
599
00:29:16,354 --> 00:29:18,788
and he usually brought some of
the traders along with him.
600
00:29:19,090 --> 00:29:21,217
He spent quite a lot of
money there as well.
601
00:29:21,626 --> 00:29:23,958
Much of it charged to
the Enron expense accounts.
602
00:29:24,262 --> 00:29:25,889
There were rumors that
he brought strippers up
603
00:29:26,097 --> 00:29:27,530
to the trading floor.
604
00:29:27,766 --> 00:29:29,597
Almost everyone knew the story.
605
00:29:29,868 --> 00:29:31,859
The story is that
because he's kind of a mild,
606
00:29:32,437 --> 00:29:33,631
soft-spoken,
607
00:29:33,838 --> 00:29:37,296
almost meek individual
that maybe these...
608
00:29:37,609 --> 00:29:40,772
these strippers didn't even
believe he was the CEO.
609
00:29:40,979 --> 00:29:43,846
So he took them up
to his office.
610
00:29:44,048 --> 00:29:44,980
And I guess they,
611
00:29:45,183 --> 00:29:47,344
they put on
a little show for him there.
612
00:29:52,023 --> 00:29:53,820
One night he was at a club.
And one of the guys said,
613
00:29:54,025 --> 00:29:56,858
you know, Lou,
all the rest of us are single.
614
00:29:57,095 --> 00:29:58,255
You know,
we don't have any problem.
615
00:29:58,396 --> 00:29:59,454
But how do you keep your wife
616
00:29:59,697 --> 00:30:01,665
from smelling
the strippers' perfume on you?
617
00:30:02,133 --> 00:30:03,828
And Lou said,
'oh, I've got a secret'.
618
00:30:04,135 --> 00:30:06,262
He said, 'I stop in at a gas
station on the way home.
619
00:30:06,504 --> 00:30:08,233
And I spill a little
gasoline on myself
620
00:30:08,540 --> 00:30:09,598
and it kills the scent.'
621
00:30:09,841 --> 00:30:11,672
So the other guy shot back,
he said, 'but Lou,
622
00:30:11,910 --> 00:30:12,672
doesn't your wife then think
623
00:30:12,877 --> 00:30:14,640
you're fucking
the gas station attendant? '
624
00:30:14,879 --> 00:30:17,143
In the context of Lou Pai,
everyone was horrified,
625
00:30:17,415 --> 00:30:19,781
a pall fell over the table.
626
00:30:20,018 --> 00:30:22,043
Because Lou Pai was
not a man to trifle with.
627
00:30:22,320 --> 00:30:24,515
Two days later,
the guy who told the joke,
628
00:30:24,756 --> 00:30:25,882
as Enron legend... has it,
629
00:30:26,124 --> 00:30:28,319
was dispatched to Calgary,
Canada.
630
00:30:32,730 --> 00:30:35,858
Lou Pai lost all interest
in running EES
631
00:30:36,067 --> 00:30:38,399
as soon as the numbers
got high enough.
632
00:30:40,371 --> 00:30:44,205
I netted approximately
a hundred million dollars.
633
00:30:44,509 --> 00:30:47,069
I don't know
if that number is accurate,
634
00:30:47,312 --> 00:30:48,643
plus or minus 20 million.
635
00:30:48,913 --> 00:30:50,972
He actually left Enron
with more money than anybody,
636
00:30:51,216 --> 00:30:52,649
250 million dollars,
637
00:30:52,917 --> 00:30:54,680
because he sold
all his stock in Enron
638
00:30:54,986 --> 00:30:57,318
after he got
a divorce from his wife,
639
00:30:57,555 --> 00:30:59,216
in order to marry
his stripper girlfriend,
640
00:30:59,424 --> 00:31:00,686
who had had his child.
641
00:31:04,295 --> 00:31:10,131
His exit from Enron was as
mysterious as his presence there.
642
00:31:10,401 --> 00:31:12,062
Just sort of one day,
643
00:31:12,303 --> 00:31:18,037
we all learned that Lou Pai
was no longer the CEO of EES.
644
00:31:20,044 --> 00:31:22,069
Though Lou Pai
flew away from Enron
645
00:31:22,313 --> 00:31:24,440
with 250 million dollars,
646
00:31:24,649 --> 00:31:26,139
the divisions he left behind
647
00:31:26,417 --> 00:31:28,942
lost a total of
nearly $1 billion.
648
00:31:29,420 --> 00:31:32,082
But Enron managed to
disguise that fact.
649
00:31:32,490 --> 00:31:36,654
Lou Pai became the second
largest landowner in Colorado.
650
00:31:39,831 --> 00:31:40,661
It was the number.
651
00:31:40,865 --> 00:31:42,127
It was always making
those numbers,
652
00:31:42,367 --> 00:31:43,959
and looking, you know,
it was, to me,
653
00:31:44,335 --> 00:31:46,769
the real mythology is
high school mythology.
654
00:31:46,971 --> 00:31:47,369
That, you know,
655
00:31:47,605 --> 00:31:49,698
you wanted to be the most
popular guy on Wall Street,
656
00:31:49,908 --> 00:31:53,309
and you were gonna do whatever
you had to do to stay there.
657
00:31:53,478 --> 00:31:55,002
And Jeff understood
those rules better than,
658
00:31:55,246 --> 00:31:56,406
I think, anyone else.
659
00:32:03,755 --> 00:32:05,746
Americans are making
a lot of money in stocks.
660
00:32:05,957 --> 00:32:08,926
The stock market soared to
near record highs yesterday.
661
00:32:09,127 --> 00:32:11,755
The stock market continued
its bull run Thursday.
662
00:32:11,963 --> 00:32:14,295
The Dow rose nearly 61 points.
663
00:32:14,532 --> 00:32:17,126
Even the person with
very little disposable income
664
00:32:17,435 --> 00:32:19,528
all of a sudden began to play
in the stock market,
665
00:32:19,771 --> 00:32:20,760
because nobody could fail.
666
00:32:21,005 --> 00:32:23,633
Because stock prices were
just going up and up and up.
667
00:32:23,841 --> 00:32:25,399
Another day, another record.
668
00:32:25,677 --> 00:32:27,076
And the internet
technology stocks,
669
00:32:27,345 --> 00:32:28,004
just going wild.
670
00:32:28,313 --> 00:32:31,646
Gained more than 100 points
to close at 7895.81,
671
00:32:31,883 --> 00:32:33,407
the highest finish ever.
672
00:32:33,751 --> 00:32:36,982
It was a time where
we had the biggest bull market
673
00:32:37,322 --> 00:32:38,380
in the history of the world.
674
00:32:38,623 --> 00:32:42,286
Ken Lay was right there,
acting as a cheerleader.
675
00:32:42,427 --> 00:32:44,292
Obviously our stock has
been doing very well.
676
00:32:44,562 --> 00:32:45,756
I think there's
a fairly good chance
677
00:32:45,997 --> 00:32:47,123
we could see the
stock price double
678
00:32:47,332 --> 00:32:49,027
again over the next year
to eighteen months.
679
00:32:58,343 --> 00:32:59,901
Enron mounted
a campaign to capture
680
00:33:00,144 --> 00:33:03,705
the hearts and minds
of stock analysts.
681
00:33:03,948 --> 00:33:05,973
The natural gas stocks
include Enron...
682
00:33:06,284 --> 00:33:07,251
We're never satisfied
683
00:33:07,418 --> 00:33:09,443
and I don't want us
to ever be satisfied
684
00:33:09,687 --> 00:33:11,245
with the stock price.
It should always be higher.
685
00:33:11,522 --> 00:33:14,616
Enron posted a 30-percent jump
in second-quarter profits,
686
00:33:14,892 --> 00:33:18,157
as Web-based trading boosted
its wholesale energy business.
687
00:33:18,396 --> 00:33:20,557
The game was played
on Wall Street in such
688
00:33:20,832 --> 00:33:23,494
an established way
throughout the 1990's.
689
00:33:23,735 --> 00:33:25,669
As long as
a company met or exceeded
690
00:33:25,903 --> 00:33:28,463
the analysts' projections for
quarterly earnings per share,
691
00:33:28,706 --> 00:33:29,570
the stock went higher.
692
00:33:29,874 --> 00:33:32,069
The game was called
'pump and dump.'
693
00:33:32,744 --> 00:33:34,678
Top execs would push
the stock price up
694
00:33:34,912 --> 00:33:38,473
and then cash in their
multi-million-dollar options.
695
00:33:38,750 --> 00:33:41,480
People at Enron got paid,
in large part, through stock.
696
00:33:41,786 --> 00:33:44,812
Everyone had a huge stake
in seeing the stock price go up.
697
00:33:45,323 --> 00:33:47,052
And it was driven,
very clearly,
698
00:33:47,325 --> 00:33:48,952
by the profits
every single quarter.
699
00:33:49,193 --> 00:33:50,785
They were exceedingly
conscious of that;
700
00:33:51,029 --> 00:33:52,360
Skilling was, and everyone
else in the company was.
701
00:33:52,597 --> 00:33:54,394
They posted the stock price
in the elevator.
702
00:33:54,632 --> 00:33:57,658
You were surrounded by
the health of the company;
703
00:33:57,869 --> 00:33:59,496
what's the stock price doing?
704
00:33:59,837 --> 00:34:00,861
We were consumed by it.
705
00:34:03,708 --> 00:34:07,474
This company was fixated
on its stock price
706
00:34:07,712 --> 00:34:12,240
and fixated on a massive
public relations campaign
707
00:34:12,750 --> 00:34:16,277
to convince the investment
community that they were new,
708
00:34:16,521 --> 00:34:17,783
different, innovative;
709
00:34:18,056 --> 00:34:21,685
almost heralding a new era of...
of corporate enterprise.
710
00:34:24,429 --> 00:34:25,953
Come work for us.
711
00:34:26,597 --> 00:34:28,326
We encourage our people
to do new things,
712
00:34:28,566 --> 00:34:32,263
try new things,
experiment step out.
713
00:34:32,437 --> 00:34:34,064
We begin by attracting
the kind of people
714
00:34:34,305 --> 00:34:36,273
that are more comfortable
in an environment of change.
715
00:34:37,041 --> 00:34:38,941
You know
when you work for Enron
716
00:34:39,177 --> 00:34:40,371
you're gonna see
the newest thinking.
717
00:34:40,578 --> 00:34:42,478
You're going to see the
newest markets opening up.
718
00:34:42,780 --> 00:34:45,613
Enron on-line, a fabulous,
fabulous story.
719
00:34:45,817 --> 00:34:47,910
They were so good
at their acting
720
00:34:48,152 --> 00:34:49,915
that they convinced
corporate America
721
00:34:50,154 --> 00:34:51,712
that they were smarter
than anyone else.
722
00:34:51,956 --> 00:34:54,447
Alan, with our sincere
thanks and admiration,
723
00:34:54,926 --> 00:34:58,123
we are pleased and indeed
honored to award you
724
00:34:58,329 --> 00:35:01,127
the Enron prize for
distinguished public service.
725
00:35:08,106 --> 00:35:09,403
They continued to
sell the company
726
00:35:09,640 --> 00:35:11,335
as being a very stable place
727
00:35:11,542 --> 00:35:13,567
where it could
predictably increase profits
728
00:35:13,811 --> 00:35:15,142
10 to 15 percent a year.
729
00:35:15,413 --> 00:35:17,540
In fact, to get to those
numbers Enron was doing
730
00:35:17,782 --> 00:35:20,250
all sorts of
questionable things;
731
00:35:20,451 --> 00:35:21,782
taking enormous risks.
732
00:35:22,019 --> 00:35:23,077
We like risk.
733
00:35:23,354 --> 00:35:25,379
Because you make money
by taking risk.
734
00:35:31,696 --> 00:35:34,256
By all accounts,
Enron was soaring.
735
00:35:36,834 --> 00:35:39,667
But in reality,
profits weren't going up;
736
00:35:39,904 --> 00:35:42,304
they were headed
in the opposite direction.
737
00:35:43,074 --> 00:35:47,067
Enron had vast natural gas
operations all over the world.
738
00:35:47,378 --> 00:35:49,278
They had cost
billions to build
739
00:35:49,547 --> 00:35:51,777
and most were
performing terribly.
740
00:35:52,316 --> 00:35:54,375
But in other places
in the world, in India,
741
00:35:54,619 --> 00:35:56,883
great quarter
and a great year in India.
742
00:35:57,321 --> 00:36:00,813
Phase one of Dabhol is
in operation generating power.
743
00:36:01,058 --> 00:36:03,652
Phase two is financed
and is under construction.
744
00:36:03,928 --> 00:36:06,954
My experience indicated
there were certain places that you
745
00:36:07,265 --> 00:36:09,233
assiduously stayed away from.
746
00:36:09,433 --> 00:36:11,230
And one of them,
as an example, was India.
747
00:36:11,402 --> 00:36:12,869
They built this
power plant in India.
748
00:36:13,104 --> 00:36:14,696
Nobody else would
do that at the time.
749
00:36:14,939 --> 00:36:16,702
They were terrified of
investing in India.
750
00:36:16,974 --> 00:36:19,408
Enron did it,
and did it in a big way.
751
00:36:20,344 --> 00:36:22,778
But Enron had failed to
see something basic.
752
00:36:23,047 --> 00:36:25,413
India couldn't
afford to pay for the power
753
00:36:25,683 --> 00:36:27,241
Enron's plant produced.
754
00:36:27,852 --> 00:36:30,286
Now Dabhol is a ruin.
755
00:36:32,056 --> 00:36:34,388
Though it lost a billion
dollars on the project,
756
00:36:34,625 --> 00:36:36,718
Enron paid out
multi-million dollar
757
00:36:36,928 --> 00:36:38,896
bonuses to executives based
758
00:36:39,130 --> 00:36:41,894
on imaginary profits
that never arrived.
759
00:36:42,833 --> 00:36:45,267
Where was the real money
going to come from?
760
00:36:46,170 --> 00:36:48,138
Of course the pressure
was enormous.
761
00:36:48,339 --> 00:36:50,000
You had to come up
with the next idea
762
00:36:50,308 --> 00:36:51,605
that would break through.
763
00:36:51,809 --> 00:36:53,902
Failure was not an option.
764
00:36:54,178 --> 00:36:55,873
A flurry of buy-outs
in the corporate world...
765
00:36:56,214 --> 00:36:56,873
the biggest:
766
00:36:57,081 --> 00:36:59,447
Enron announcing a buy out
of Portland General.
767
00:37:00,618 --> 00:37:04,452
The merger with PGE put Enron
in the electricity business.
768
00:37:04,655 --> 00:37:07,215
And Portland General's
position on the west coast
769
00:37:07,458 --> 00:37:11,827
gave Enron access to the newly
deregulated market of California.
770
00:37:12,997 --> 00:37:14,021
The merger, we think...
771
00:37:14,265 --> 00:37:16,233
it uniquely positions us
to ultimately
772
00:37:16,601 --> 00:37:20,059
become the largest marketer of
electricity and natural gas
773
00:37:20,371 --> 00:37:23,238
at both the wholesale
and retail level nationwide."
774
00:37:24,542 --> 00:37:26,601
What brought all this
on was the deregulation
775
00:37:26,844 --> 00:37:28,573
they said that
we would not survive,
776
00:37:28,813 --> 00:37:29,973
unless we joined forces.
777
00:37:30,281 --> 00:37:32,977
Enron, I'd never heard of 'em
until they were gonna buy us.
778
00:37:33,284 --> 00:37:35,718
They slid in here,
and when they purchased PGE,
779
00:37:36,020 --> 00:37:38,079
all the PGE stock became Enron.
780
00:37:38,389 --> 00:37:40,323
Just went through,
stamped every one of 'em.
781
00:37:40,524 --> 00:37:41,252
I looked around me,
782
00:37:41,459 --> 00:37:42,619
and all the guys that were
buyin' all this Enron,
783
00:37:42,860 --> 00:37:44,259
they were doublin' their money.
784
00:37:44,428 --> 00:37:46,760
And that whole time since then,
I put the maximum
785
00:37:46,998 --> 00:37:49,796
I could into
my 401 and savings.
786
00:37:50,034 --> 00:37:53,561
Portland General, again,
good earnings and cash flow.
787
00:37:53,871 --> 00:37:56,169
It's what's they call on Wall
Street a "trust me" story.
788
00:37:56,374 --> 00:37:57,932
People that had been
gas pipeline workers who
789
00:37:58,209 --> 00:37:59,767
for decades kept
all their money in the company
790
00:38:00,011 --> 00:38:02,343
because they thought
it was this traditional and,
791
00:38:03,447 --> 00:38:05,711
you know, safe investment
as it... as it had always been.
792
00:38:05,950 --> 00:38:07,315
And it was...
it wasn't anything close to that.
793
00:38:07,585 --> 00:38:10,315
Should we invest all of
our 401k in Enron stock?
794
00:38:10,521 --> 00:38:12,785
Absolutely.
Don't you guys agree?
795
00:38:27,104 --> 00:38:28,662
Enron is a big winner today
796
00:38:28,906 --> 00:38:30,737
One of the things
that fascinated me was that
797
00:38:30,941 --> 00:38:32,704
almost all of
the Wall Street analysts
798
00:38:32,977 --> 00:38:34,740
who covered Enron
had buy ratings
799
00:38:35,012 --> 00:38:36,639
or strong buy ratings
on the company's stock.
800
00:38:36,881 --> 00:38:42,615
Why were the analysts blinded
to the company's deceit?
801
00:38:42,820 --> 00:38:45,084
We relied on the information
that was available at the time.
802
00:38:45,289 --> 00:38:47,917
I trusted the integrity of
the company's certified
803
00:38:48,125 --> 00:38:48,989
financial statements,
804
00:38:49,293 --> 00:38:51,955
and the representations of
the company's management.
805
00:38:52,196 --> 00:38:54,130
And we've been absolutely
upfront with the analysts.
806
00:38:54,365 --> 00:38:56,697
Jeff Skilling was
the critical component
807
00:38:56,901 --> 00:38:58,698
in creating the Enron illusion.
808
00:38:59,136 --> 00:39:01,730
Time and time again
when we had a question
809
00:39:01,972 --> 00:39:04,873
to the sell-side analysts that
they couldn't answer,
810
00:39:05,242 --> 00:39:07,642
the response was,
'I'll give Jeff a call;
811
00:39:07,912 --> 00:39:09,504
I'll run this by Jeff.'
812
00:39:09,747 --> 00:39:11,408
By giving Jeff a call,
813
00:39:11,615 --> 00:39:13,913
the analysts weren't
'analyzing' at all.
814
00:39:14,151 --> 00:39:15,584
They were willing to
believe virtually
815
00:39:15,820 --> 00:39:17,720
anything Enron told them.
816
00:39:22,993 --> 00:39:25,553
Most of the analysts right
now have a target price on us
817
00:39:25,830 --> 00:39:28,458
from a hundred to a hundred
and fifteen dollars a share.
818
00:39:28,699 --> 00:39:30,599
Any analyst who didn't
buy the company line
819
00:39:30,801 --> 00:39:32,792
became an enemy of Enron.
820
00:39:33,037 --> 00:39:35,232
Enron's CFO, Andy Fastow,
821
00:39:35,473 --> 00:39:37,464
had his eye on John Olson
822
00:39:37,742 --> 00:39:40,802
one of the only analysts
skeptical of the Enron story.
823
00:39:41,045 --> 00:39:43,912
Enron loved analysts' strong
buy recommendations.
824
00:39:44,281 --> 00:39:46,306
Merrill was informed by Fastow,
825
00:39:46,584 --> 00:39:50,520
either you get somebody who is
on board with us as a strong
826
00:39:50,755 --> 00:39:54,851
buy recommendation
and loves us at the same time
827
00:39:55,393 --> 00:39:57,088
or we don't do
any business with you.
828
00:39:57,294 --> 00:40:00,195
I knew that my days
were numbered.
829
00:40:00,498 --> 00:40:01,965
This is an abuse.
830
00:40:02,233 --> 00:40:04,599
Merrill Lynch fired John Olson.
831
00:40:04,869 --> 00:40:07,030
Soon after Fastow
rewarded the bank
832
00:40:07,304 --> 00:40:09,101
with two investment
banking jobs
833
00:40:09,440 --> 00:40:11,169
worth 50 million dollars.
834
00:40:11,409 --> 00:40:13,570
Analysts were routinely
getting large bonuses
835
00:40:13,778 --> 00:40:15,541
from the investment banking
departments to bring
836
00:40:15,746 --> 00:40:18,806
in investment banking deals.
Ah... once that happens,
837
00:40:19,049 --> 00:40:22,075
you know, never was heard
a discouraging word.
838
00:40:23,387 --> 00:40:25,821
While Enron's stock
kept rising,
839
00:40:26,090 --> 00:40:28,115
its businesses kept
losing money.
840
00:40:28,993 --> 00:40:31,655
Looking at the soaring
stocks of the dot-coms,
841
00:40:31,929 --> 00:40:35,330
Skilling decided to take
Enron into cyberspace.
842
00:40:36,267 --> 00:40:38,064
We're now in
the process of seeing
843
00:40:38,302 --> 00:40:40,964
if we can create
a bandwidth trading market.
844
00:40:41,205 --> 00:40:43,196
Enron is using its
knowledge of trading gas
845
00:40:43,507 --> 00:40:45,566
to barter other forms of
energy even space
846
00:40:45,876 --> 00:40:48,174
on the information superhighway
called bandwidth.
847
00:40:48,646 --> 00:40:51,581
Ken Rice has worked at Enron
for twenty years.
848
00:40:51,816 --> 00:40:54,683
Enron has found a way to
stay ahead of the curve.
849
00:40:55,019 --> 00:40:58,284
From 7 PM to 7 AM
we're paying for bandwith that
850
00:40:58,489 --> 00:41:00,286
we are not using. Why?
851
00:41:01,058 --> 00:41:02,252
Why?
852
00:41:02,560 --> 00:41:05,358
One of our themes around here
is to always be asking why.
853
00:41:05,830 --> 00:41:07,730
Why something's
done a certain way
854
00:41:07,965 --> 00:41:09,694
or why it's not done
a different way.
855
00:41:10,000 --> 00:41:11,126
There's our market.
856
00:41:11,368 --> 00:41:13,734
Why can't we sell the
bandwidth to other companies?
857
00:41:14,038 --> 00:41:17,269
Make it a commodity
like a pork belly
858
00:41:25,950 --> 00:41:28,418
Just last week Enron
captivated Wall Street
859
00:41:28,686 --> 00:41:30,654
with its bold move
into broadband,
860
00:41:30,888 --> 00:41:33,880
teaming up with Blockbuster to
deliver movies on demand.
861
00:41:34,191 --> 00:41:38,059
It was like being
at a religious cult meeting.
862
00:41:38,329 --> 00:41:40,194
People started jumping up
from their seats,
863
00:41:40,431 --> 00:41:42,126
with their cell phones
and their Blackberrys,
864
00:41:42,500 --> 00:41:45,435
running out to the halls
to call their bosses.
865
00:41:45,903 --> 00:41:47,871
One analyst summed up
his recommendation
866
00:41:48,072 --> 00:41:50,040
to investors in one word
867
00:41:50,341 --> 00:41:55,301
Wow! Enron's stock soared
34 percent in two days.
868
00:41:55,846 --> 00:41:58,178
And you can tell from
the response of the stock market
869
00:41:58,516 --> 00:42:00,541
that they like the strategy.
It makes sense.
870
00:42:00,818 --> 00:42:02,410
They announced that they had
developed the technology.
871
00:42:02,653 --> 00:42:04,382
It would be in test markets
by the end of the year.
872
00:42:04,622 --> 00:42:05,919
And the technology works.
873
00:42:06,190 --> 00:42:08,681
The quality is great
and the customers like this,
874
00:42:08,959 --> 00:42:10,290
so we've made a lot of progress.
875
00:42:10,561 --> 00:42:13,257
The truth was that Enron
was just struggling
876
00:42:13,497 --> 00:42:15,863
with the technology
for video on demand.
877
00:42:16,100 --> 00:42:18,034
The technology didn't work
878
00:42:18,302 --> 00:42:21,430
and the deal with
Blockbuster soon collapsed.
879
00:42:21,739 --> 00:42:24,003
But with the magic of
mark-to-market Enron
880
00:42:24,208 --> 00:42:28,804
used future projections to book
$53 million in earnings
881
00:42:29,013 --> 00:42:31,379
on a deal that
didn't make a penny.
882
00:42:31,582 --> 00:42:33,015
By the end of the year 2000,
883
00:42:33,317 --> 00:42:34,784
Enron was running
out of ways to make
884
00:42:35,052 --> 00:42:36,849
the broadband business
look successful.
885
00:42:37,087 --> 00:42:40,352
They'd tried every trick
in the bag to try to create
886
00:42:40,558 --> 00:42:42,423
the illusion of a business
where there was none,
887
00:42:42,626 --> 00:42:43,558
and the people who were working
888
00:42:43,761 --> 00:42:45,422
there were getting
increasingly desperate.
889
00:42:45,930 --> 00:42:48,592
The executives started
selling their stock.
890
00:42:48,866 --> 00:42:52,802
By Enron's collapse,
Ken Rice had sold 53 million.
891
00:42:53,337 --> 00:42:56,033
Ken Lay had sold 300 million.
892
00:42:56,340 --> 00:42:58,399
Cliff Baxter 35 million.
893
00:42:58,642 --> 00:43:01,008
Jeff Skilling 200 million.
894
00:43:01,545 --> 00:43:03,536
As the fraud is perpetuated,
895
00:43:03,781 --> 00:43:06,409
all the various lies
and artifices
896
00:43:06,650 --> 00:43:08,675
begin to convince
the ringmaster,
897
00:43:08,886 --> 00:43:10,114
if you will, himself
898
00:43:10,421 --> 00:43:13,549
that it's thi
own bizarre reality.
899
00:43:13,757 --> 00:43:15,247
That in fact,
the fraud is the reality.
900
00:43:15,526 --> 00:43:17,118
The perception is the reality.
901
00:43:17,361 --> 00:43:19,261
As long as you can keep
the perception going on,
902
00:43:19,496 --> 00:43:21,020
it really isn't fraud.
903
00:43:21,565 --> 00:43:23,032
You spoke about
bandwidth trading,
904
00:43:23,300 --> 00:43:25,268
what about weather
options or futures?
905
00:43:25,436 --> 00:43:26,926
How is that market developing?
906
00:43:27,171 --> 00:43:29,503
Yeah, we have
a market in weather.
907
00:43:32,309 --> 00:43:35,642
When Enron announced its
latest plan to trade weather,
908
00:43:35,879 --> 00:43:37,972
people wondered whether
it was good science
909
00:43:38,315 --> 00:43:39,839
or science fiction.
910
00:43:41,518 --> 00:43:43,110
Do the weather guys
get punished here
911
00:43:43,354 --> 00:43:44,286
if the weather is wrong?
912
00:43:44,521 --> 00:43:45,078
I mean they predict wrong?
913
00:43:45,322 --> 00:43:46,789
I don't know, do you have any
whip marks on your back there?
914
00:43:47,091 --> 00:43:48,956
Well, it's unfortunate.
That's a good call.
915
00:43:50,828 --> 00:43:51,988
Jeff, as time went on,
916
00:43:52,329 --> 00:43:54,923
had a harder time
admitting things were wrong.
917
00:43:55,866 --> 00:43:58,300
And I have to believe that,
918
00:43:58,469 --> 00:44:01,461
you know, when the lights
went out at night,
919
00:44:01,705 --> 00:44:03,673
he knew what was coming.
920
00:44:08,412 --> 00:44:10,141
I would liken it
to the Titanic,
921
00:44:10,381 --> 00:44:11,973
when you've got
a captain who's saying,
922
00:44:12,282 --> 00:44:13,271
'maintain full speed'
923
00:44:13,517 --> 00:44:14,848
and they bump into
a couple of icebergs,
924
00:44:15,152 --> 00:44:17,780
and then they still
keep full speed going.
925
00:44:19,790 --> 00:44:22,088
The captain of this ship,
Enron,
926
00:44:22,326 --> 00:44:24,055
he ignored
all the warning signs.
927
00:44:24,294 --> 00:44:25,989
And there were plenty of them.
928
00:44:26,196 --> 00:44:27,424
And the captain
of the ship was?
929
00:44:27,631 --> 00:44:28,791
Kenneth Lay
930
00:44:39,943 --> 00:44:42,275
It was one of the bloodiest
days in Wall Street history.
931
00:44:42,780 --> 00:44:44,611
Shares plummeted
thirty one percent.
932
00:44:44,882 --> 00:44:46,816
High tech stocks led
Friday's fierce sell-off
933
00:44:47,017 --> 00:44:48,848
This is really
a great wake-up call.
934
00:44:49,086 --> 00:44:51,020
Millions of nervous
investors following
935
00:44:51,221 --> 00:44:53,382
the huge drop on Friday.
The Dow Jones
936
00:44:53,624 --> 00:44:56,149
Enron was especially
a big deal by the end
937
00:44:56,360 --> 00:44:58,089
of the year 2000
because by then,
938
00:44:58,328 --> 00:45:00,421
most Internet companies had
already begun to fall,
939
00:45:00,631 --> 00:45:03,099
and everybody on Wall Street was
looking for the next big thing.
940
00:45:03,367 --> 00:45:04,334
And here you had Enron,
941
00:45:04,601 --> 00:45:06,831
which appeared to be
this shining star
942
00:45:07,071 --> 00:45:08,231
of a new-economy company.
943
00:45:08,372 --> 00:45:11,273
Its stock price went up
90 percent in the year 2000,
944
00:45:11,475 --> 00:45:14,137
and had gone up over 50 percent
the year before that.
945
00:45:14,478 --> 00:45:16,275
It was an it' stock
on Wall Street
946
00:45:16,480 --> 00:45:18,880
one of those companies
that can seemingly do no wrong.
947
00:45:20,784 --> 00:45:22,877
We were the poster child
for the new economy.
948
00:45:23,120 --> 00:45:25,953
We had this culture
that had a lot of focus on
949
00:45:26,190 --> 00:45:28,124
reminding us how good we were.
950
00:45:28,392 --> 00:45:29,882
And as that culture emerged,
951
00:45:30,127 --> 00:45:32,061
then we get to Fortune
magazine telling us
952
00:45:32,296 --> 00:45:34,264
we were the most innovative
corporation in America.
953
00:45:34,465 --> 00:45:37,093
Then we really began to
feel good about ourselves.
954
00:45:37,768 --> 00:45:39,360
Well, you all did it again.
955
00:45:39,870 --> 00:45:43,033
Enron was just
recently chosen, again,
956
00:45:43,307 --> 00:45:45,104
for the sixth year in a row
957
00:45:45,342 --> 00:45:47,970
in the
most-admired-company survey
958
00:45:48,212 --> 00:45:52,478
by Fortune magazine as the most
innovative company in America.
959
00:45:53,517 --> 00:45:55,451
Well deserved. Well deserved.
960
00:45:56,320 --> 00:45:58,481
The sales pitch
still sounded good.
961
00:45:58,756 --> 00:46:01,725
But one investor saw something
in Enron's numbers
962
00:46:01,925 --> 00:46:04,223
that the stock
analysts had missed.
963
00:46:04,561 --> 00:46:06,358
By and large,
the analysts admitted to us,
964
00:46:06,563 --> 00:46:09,054
in person, 'it's a black box.
You have to take it on faith.
965
00:46:09,266 --> 00:46:10,255
'Who knows where
the earnings come from?
966
00:46:10,534 --> 00:46:11,364
They just pop out.
967
00:46:11,568 --> 00:46:12,933
And all we know is,
they're always good.'
968
00:46:13,470 --> 00:46:15,131
And I kept pointing out, well,
969
00:46:15,339 --> 00:46:16,499
yeah, isn't that
the whole point of...
970
00:46:16,807 --> 00:46:20,038
if the black box is
there to fool you,
971
00:46:20,277 --> 00:46:21,244
the numbers are always
going to be good,
972
00:46:21,411 --> 00:46:22,469
until they're not.
973
00:46:22,846 --> 00:46:24,074
I'm not a beat reporter,
974
00:46:24,348 --> 00:46:26,475
so I would have had no reason
to look at Enron.
975
00:46:26,717 --> 00:46:29,345
But Jim Chanos mentioned to me
that I should take a closer
976
00:46:29,553 --> 00:46:31,077
look at Enron's
financial statements.
977
00:46:31,321 --> 00:46:33,653
And it wasn't clear from Enron's
financial statements that
978
00:46:33,891 --> 00:46:35,017
there was fraud here.
979
00:46:35,325 --> 00:46:38,419
But what was clear is that
something didn't add up.
980
00:46:38,695 --> 00:46:41,061
In March 2001, Bethany Mclean,
981
00:46:41,331 --> 00:46:43,026
a reporter
with Fortune magazine,
982
00:46:43,300 --> 00:46:46,326
first raised questions about
Enron's financial condition.
983
00:46:46,603 --> 00:46:47,900
She asked a simple question
984
00:46:48,138 --> 00:46:50,538
in the article that no one
could seem to answer,
985
00:46:50,841 --> 00:46:54,436
'how exactly does
Enron make its money? '
986
00:46:56,313 --> 00:46:57,871
You got very upset with her,
didn't you?
987
00:46:58,148 --> 00:47:02,016
I very specifically remember
the telephone conversation
988
00:47:02,252 --> 00:47:04,584
that I had with...
the Fortune reporter.
989
00:47:04,888 --> 00:47:07,220
She called up and started
asking some very,
990
00:47:07,457 --> 00:47:10,324
very specific questions about
accounting treatment on things.
991
00:47:10,561 --> 00:47:13,029
I am not an accountant.
And I could not answer them.
992
00:47:13,263 --> 00:47:15,094
He became really,
really agitated.
993
00:47:15,399 --> 00:47:17,629
He said that people who
raise questions like this
994
00:47:17,868 --> 00:47:19,392
were just trying to throw
rocks at the company.
995
00:47:19,603 --> 00:47:21,434
And that I was not ethical
996
00:47:21,705 --> 00:47:23,229
because I hadn't done
enough homework.
997
00:47:23,440 --> 00:47:24,771
And if I had done
enough homework,
998
00:47:24,975 --> 00:47:27,102
I would understand how off-base
my questions were.
999
00:47:27,444 --> 00:47:29,275
Mr. Skilling, it appears as
1000
00:47:29,513 --> 00:47:32,277
if you were trying to
bully someone
1001
00:47:32,583 --> 00:47:36,246
who was asking very basic
questions about Enron.
1002
00:47:36,486 --> 00:47:37,783
I said... said to her
1003
00:47:37,988 --> 00:47:39,853
I have got six minutes left
1004
00:47:40,290 --> 00:47:41,655
before I have to be
in a meeting.
1005
00:47:41,959 --> 00:47:43,790
And I can't get
into the details.
1006
00:47:44,027 --> 00:47:45,255
And I'm not an accountant.'
1007
00:47:45,562 --> 00:47:46,688
And she said,
'well, that's fine.
1008
00:47:46,897 --> 00:47:47,989
We're going to do
the article anyway.'
1009
00:47:48,298 --> 00:47:49,856
And I said, 'if you do that,
1010
00:47:50,100 --> 00:47:51,897
I personally think
that's unethical.'
1011
00:47:52,102 --> 00:47:53,126
And then the next day...
1012
00:47:53,370 --> 00:47:54,598
Let me interrupt you.
Our chief financial officer
1013
00:47:54,838 --> 00:47:56,271
and our chief
accounting officer
1014
00:47:56,473 --> 00:47:59,271
flew to New York at Enron's
expense, to sit down,
1015
00:47:59,509 --> 00:48:00,441
not with the editors,
1016
00:48:00,711 --> 00:48:03,407
but to sit down with
the reporter on that story,
1017
00:48:03,647 --> 00:48:06,207
and help her understand the
questions that she was asking.
1018
00:48:06,416 --> 00:48:08,043
And the next day
we sat in this small,
1019
00:48:08,285 --> 00:48:10,412
dark, windowless conference room
for about three hours,
1020
00:48:10,654 --> 00:48:13,589
going through the various aspects
of the company's business.
1021
00:48:13,790 --> 00:48:15,018
And I'll never forget this.
1022
00:48:15,259 --> 00:48:16,886
When the interview was over,
1023
00:48:17,094 --> 00:48:18,026
the other
two executives packed up
1024
00:48:18,328 --> 00:48:19,590
their things
and had left the room,
1025
00:48:19,796 --> 00:48:22,458
and Andy Fastow turned around
and looked at my editor and me,
1026
00:48:22,666 --> 00:48:24,896
and said, 'I don't care what
you write about the company,
1027
00:48:25,102 --> 00:48:26,933
just don't make me look bad.'
1028
00:48:27,337 --> 00:48:31,933
And Fastow had good reasons
for not wanting to look bad.
1029
00:48:33,076 --> 00:48:36,011
There were these partnerships
that were run by Andy Fastow
1030
00:48:36,280 --> 00:48:37,804
that were doing business
with Enron.
1031
00:48:38,048 --> 00:48:39,572
And these were disclosed
1032
00:48:39,783 --> 00:48:40,772
in the company's
financial statements.
1033
00:48:40,984 --> 00:48:42,815
But I didn't mention them
in the story I wrote,
1034
00:48:43,020 --> 00:48:43,543
because I thought,
1035
00:48:43,787 --> 00:48:44,981
well, the accountants
and the board of directors
1036
00:48:45,188 --> 00:48:46,519
have said that this is okay.
1037
00:48:46,790 --> 00:48:49,657
So I must be crazy to think
there's anything wrong with this.
1038
00:48:50,360 --> 00:48:52,294
The story
I ran was actually pretty meek.
1039
00:48:52,562 --> 00:48:54,553
The title was
'ls Enron Overpriced? '
1040
00:48:54,865 --> 00:48:57,163
But in the end,
I couldn't prove that
1041
00:48:57,367 --> 00:48:59,096
it was anything more than
an overvalued stock.
1042
00:48:59,303 --> 00:49:01,635
And I was probably too naive
to suspect that it was anything...
1043
00:49:01,838 --> 00:49:02,998
anything more than that.
1044
00:49:03,240 --> 00:49:04,764
And was her article critical?
1045
00:49:05,075 --> 00:49:06,337
Yes it was.
1046
00:49:06,710 --> 00:49:09,304
The Fortune magazine article
that's out the headline is,
1047
00:49:09,513 --> 00:49:11,208
'ls Enron's Stock Overvalued? '
1048
00:49:11,481 --> 00:49:13,881
The gist of the article is that
1049
00:49:14,351 --> 00:49:16,376
Enron is sort of a black box...
1050
00:49:16,653 --> 00:49:18,052
which, sorry, it's true.
1051
00:49:18,255 --> 00:49:19,745
I mean,
it's just difficult for us
1052
00:49:19,990 --> 00:49:23,653
to show people the specifics of
how money flows through,
1053
00:49:23,860 --> 00:49:25,122
particularly
the wholesale business.
1054
00:49:25,362 --> 00:49:27,922
The entire reason
that this analysis
1055
00:49:28,165 --> 00:49:29,325
was done by Fortune magazine
1056
00:49:29,566 --> 00:49:31,796
is because Business Week
had a favorable article
1057
00:49:32,035 --> 00:49:34,299
about Enron the week before.
1058
00:49:34,538 --> 00:49:36,267
And there's this competition
with the news...
1059
00:49:36,506 --> 00:49:39,407
the news magazines have,
where one says something good,
1060
00:49:39,609 --> 00:49:41,076
the other one has to come
and find something bad.
1061
00:49:41,278 --> 00:49:43,246
So I think that was kind of
the genesis of it.
1062
00:49:43,380 --> 00:49:46,372
So the criticism,
I think, is kind of ridiculous.
1063
00:49:46,583 --> 00:49:49,575
When Bethany McLean at Fortune
1064
00:49:50,020 --> 00:49:51,647
started analyzing cash flows,
1065
00:49:51,888 --> 00:49:53,355
and she had this
wonderful article saying,
1066
00:49:53,623 --> 00:49:56,057
'take a look at first quarter,
second quarter, third quarter,
1067
00:49:56,293 --> 00:49:58,488
and end of year cash flows.'
1068
00:49:58,762 --> 00:50:00,354
There's a reason
she didn't invest in Enron
1069
00:50:00,630 --> 00:50:02,564
'cause the financials
didn't make sense.
1070
00:50:02,833 --> 00:50:04,824
But you have to be
willing to say
1071
00:50:05,102 --> 00:50:06,865
that the emperor
doesn't have any clothes.
1072
00:50:07,070 --> 00:50:10,301
And this emperor was
pretty powerful.
1073
00:50:10,774 --> 00:50:12,833
We are going to
unveil this morning
1074
00:50:13,076 --> 00:50:14,668
a new corporate vision.
1075
00:50:15,045 --> 00:50:18,412
Okay, you ready?
One, two, three.
1076
00:50:21,151 --> 00:50:22,413
How's this?
1077
00:50:25,856 --> 00:50:26,880
It's really hard to know
1078
00:50:27,190 --> 00:50:30,717
when Enron first crossed the
line into outright fraud.
1079
00:50:31,028 --> 00:50:32,120
But there isn't any doubt
1080
00:50:32,362 --> 00:50:34,159
about who the guy was
who led them there.
1081
00:50:34,364 --> 00:50:35,991
It was a protege
of Jeff Skilling's
1082
00:50:36,199 --> 00:50:37,996
by the name of Andy Fastow.
1083
00:50:45,609 --> 00:50:48,942
Andy Fastow was Enron's
chief financial officer.
1084
00:50:49,246 --> 00:50:51,146
His job was to
cover up the fact
1085
00:50:51,448 --> 00:50:54,906
that Enron was becoming
a financial fantasyland.
1086
00:50:55,185 --> 00:50:57,653
Enron essentially was
losing money on a cash basis,
1087
00:50:57,854 --> 00:50:58,912
year after year.
1088
00:50:59,222 --> 00:51:00,814
And yet it was
reporting profits.
1089
00:51:01,091 --> 00:51:03,252
So it was defying
laws of financial gravity.
1090
00:51:03,460 --> 00:51:04,449
And the way he was doing it
1091
00:51:04,761 --> 00:51:06,729
was with something called
structured finance.
1092
00:51:07,030 --> 00:51:10,295
And the maestro of all that
at Enron was Andy Fastow.
1093
00:51:10,801 --> 00:51:12,268
Andy was very young.
1094
00:51:12,536 --> 00:51:15,471
He was hired by Jeff Skilling
probably before he was even 30
1095
00:51:15,772 --> 00:51:18,605
and he idolized Jeff Skilling.
1096
00:51:18,842 --> 00:51:21,902
And he certainly wanted to
please the boss.
1097
00:51:22,446 --> 00:51:23,743
To please the Boss,
1098
00:51:23,980 --> 00:51:27,507
Fastow had to figure out a way
to keep the stock price up
1099
00:51:27,751 --> 00:51:29,685
by hiding the fact
that Enron was
1100
00:51:29,886 --> 00:51:31,979
thirty billion dollars in debt.
1101
00:51:32,722 --> 00:51:36,715
People pressured by the need
to keep the stock price up
1102
00:51:36,960 --> 00:51:38,393
begin to cheat a little bit.
1103
00:51:38,628 --> 00:51:40,596
But then the
next quarter comes along
1104
00:51:40,831 --> 00:51:42,696
and you have to
cheat a little more to
1105
00:51:43,200 --> 00:51:47,398
do the new cheating to
make up for the old cheating.
1106
00:51:47,671 --> 00:51:49,696
And before long,
1107
00:51:50,073 --> 00:51:55,375
you've created a momentum
that now you can't stop.
1108
00:51:55,912 --> 00:51:58,437
Fastow created hundreds
of special companies
1109
00:51:58,682 --> 00:52:00,343
to perform a magic trick...
1110
00:52:00,584 --> 00:52:04,042
prop up Enron's stock by
making its debt disappear.
1111
00:52:04,921 --> 00:52:06,252
To outsider investors
1112
00:52:06,456 --> 00:52:08,481
it looked like cash was
coming in the door.
1113
00:52:08,692 --> 00:52:12,753
In fact Enron was just stashing
its debt in Fastow's companies
1114
00:52:12,963 --> 00:52:14,794
where investors
couldn't see it.
1115
00:52:15,799 --> 00:52:17,858
It was black magic.
It really was.
1116
00:52:18,101 --> 00:52:20,035
You were pulling some
rabbits out of a hat.
1117
00:52:25,075 --> 00:52:27,873
They could bury debt;
they could bury losses.
1118
00:52:28,111 --> 00:52:30,511
Many of the companies
had exotic names:
1119
00:52:30,747 --> 00:52:33,614
Jedi, Chewco Raptors.
1120
00:52:34,017 --> 00:52:37,282
LJM was Fastow's
most ambitious creation.
1121
00:52:37,420 --> 00:52:39,115
It would work magic for Enron
1122
00:52:39,422 --> 00:52:41,413
and it would allow
Fastow to conjure
1123
00:52:41,658 --> 00:52:44,650
45 million dollars for himself.
1124
00:52:48,798 --> 00:52:50,459
Andy, in many ways,
1125
00:52:50,667 --> 00:52:54,535
was someone we all knew didn't
have a strong moral compass.
1126
00:52:54,804 --> 00:52:56,499
It's almost like
Jeff Skilling said,
1127
00:52:56,706 --> 00:52:58,640
'okay, we're hitting
some troubled times.
1128
00:52:58,875 --> 00:53:01,742
Let's set up Andy so we can
fill the earnings' holes
1129
00:53:02,012 --> 00:53:02,740
when we need to',
1130
00:53:02,946 --> 00:53:06,507
knowing that Andy would
probably skim a little bit
1131
00:53:06,816 --> 00:53:09,250
off each transaction
for himself.
1132
00:53:09,452 --> 00:53:13,149
There's a 'Body Heat'
kind of angle to this,
1133
00:53:13,423 --> 00:53:16,256
you know, where
Skilling is Kathleen Turner
1134
00:53:16,459 --> 00:53:18,256
and Andy is William Hurt.
1135
00:53:18,528 --> 00:53:19,552
You know, in the end,
1136
00:53:19,796 --> 00:53:22,663
he got suckered into
helping all the executives
1137
00:53:22,899 --> 00:53:24,059
meet their earnings.
1138
00:53:24,301 --> 00:53:25,928
What I wish, I, you know,
in retrospect?
1139
00:53:26,169 --> 00:53:27,500
I wish I'd never heard of LJM.
1140
00:53:27,737 --> 00:53:29,364
Is it your contention
that you knew of it
1141
00:53:29,573 --> 00:53:30,096
and it was appropriate?
1142
00:53:30,307 --> 00:53:31,535
Arthur Andersen
and our lawyers
1143
00:53:31,775 --> 00:53:33,834
had taken a very hard look
at this structure
1144
00:53:34,044 --> 00:53:35,136
and they believed
it was appropriate.
1145
00:53:35,345 --> 00:53:38,610
If the theory is that Fastow
went rogue somewhere deep
1146
00:53:38,815 --> 00:53:40,339
in the jungles of Enron
1147
00:53:40,617 --> 00:53:43,313
and was the sole agent
of the apocalypse,
1148
00:53:43,620 --> 00:53:44,917
I just don't buy it.
1149
00:53:45,222 --> 00:53:47,588
Skilling, Lay,
and the Enron board
1150
00:53:47,824 --> 00:53:50,691
had signed off
on Fastow's LJM funds.
1151
00:53:51,061 --> 00:53:53,154
They saw the benefits
of letting Fastow
1152
00:53:53,430 --> 00:53:55,022
do deals with himself.
1153
00:53:55,398 --> 00:53:57,093
It is in Enron's best interest,
1154
00:53:57,334 --> 00:53:58,926
because Enron needs the capital,
number one.
1155
00:53:59,169 --> 00:54:02,263
In a secret video tape that
surfaced after the bankruptcy,
1156
00:54:02,472 --> 00:54:05,066
Fastow can be seen selling LJM
1157
00:54:05,342 --> 00:54:07,640
to a group of
Merrill Lynch bankers.
1158
00:54:07,877 --> 00:54:10,311
He pitches them on the benefits
of investing in a fund
1159
00:54:10,580 --> 00:54:12,946
that only buys assets
from Enron.
1160
00:54:13,183 --> 00:54:15,811
Remember, I'm not sellling
the assets to myself.
1161
00:54:16,086 --> 00:54:19,453
They own the assets.
They're selling them to LJM2.
1162
00:54:19,823 --> 00:54:24,283
Fastow knew what kind of deal
he was offering as Enron's CFO.
1163
00:54:24,628 --> 00:54:27,791
He could guarantee
profits for LJM.
1164
00:54:28,198 --> 00:54:30,792
I think this is an
extraordinary opportunity.
1165
00:54:31,067 --> 00:54:33,831
He has a sort of Cheshire Cat
grin on his face as he talks
1166
00:54:34,037 --> 00:54:36,267
about all the ways that
the fund is gonna profit.
1167
00:54:36,439 --> 00:54:38,270
And he talks about the
informational advantages
1168
00:54:38,575 --> 00:54:42,170
that he is gonna have in
his dual role as Enron's CFO
1169
00:54:42,412 --> 00:54:43,902
and as the head of these funds.
1170
00:54:44,214 --> 00:54:45,875
Isn't there a question of
conflict of interest?
1171
00:54:46,116 --> 00:54:47,105
There is never
any question that
1172
00:54:47,350 --> 00:54:49,079
I will be on both sides
of the transaction.
1173
00:54:49,352 --> 00:54:51,513
I will always be on the LJM
side of the transaction.
1174
00:54:51,788 --> 00:54:54,348
He was general partner of LJM,
while at the same time,
1175
00:54:54,624 --> 00:54:55,921
being CFO of Enron.
1176
00:54:56,126 --> 00:54:57,354
You know, that's a whole
'nother ball of wax
1177
00:54:57,560 --> 00:54:59,323
when you want to talk about
that conflict of interest.
1178
00:54:59,529 --> 00:55:04,125
Because no human being should
be put in a situation where,
1179
00:55:04,668 --> 00:55:06,033
you know,
every single transaction,
1180
00:55:06,269 --> 00:55:07,463
they decide
whether they're looking
1181
00:55:07,671 --> 00:55:11,107
after Enron's best interests
or their limited partners.
1182
00:55:11,374 --> 00:55:14,275
Because this LJM
partnership existed
1183
00:55:14,511 --> 00:55:15,910
solely to do business
with Enron.
1184
00:55:16,713 --> 00:55:18,044
As you would expect,
1185
00:55:18,281 --> 00:55:20,249
Andy as Chief Financial
Officer of Enron,
1186
00:55:20,517 --> 00:55:23,714
is heavily banked, so to speak.
1187
00:55:23,987 --> 00:55:26,387
And as a result,
1188
00:55:26,656 --> 00:55:30,353
there are five or six
of the name brand banks
1189
00:55:30,627 --> 00:55:33,152
who have stepped up and said
they'll commit to this.
1190
00:55:33,697 --> 00:55:35,790
Commit they did.
And why not?
1191
00:55:36,299 --> 00:55:39,496
Fastow was letting them gamble
with Enron's chips.
1192
00:55:39,869 --> 00:55:42,463
Fastow was using Enron's stock
1193
00:55:42,706 --> 00:55:45,106
as collateral
for a lot of these things.
1194
00:55:45,308 --> 00:55:47,299
They were betting their own
company on the transactions.
1195
00:55:47,911 --> 00:55:49,674
With the prospect of returns
1196
00:55:49,913 --> 00:55:51,813
that would exceed
two thousand percent,
1197
00:55:52,115 --> 00:55:55,744
96 individual bankers
invested in LJM.
1198
00:55:55,985 --> 00:56:00,046
And America's major banks put up
as much as $25 million each.
1199
00:56:00,256 --> 00:56:03,089
It's sort of the Who's
Who of Wall Street:
1200
00:56:03,293 --> 00:56:07,957
JP Morgan Chase CS
First Boston Citibank
1201
00:56:08,264 --> 00:56:11,859
Merrill Lynch, DeutscheBank...
1202
00:56:12,268 --> 00:56:16,705
These are some of the premier
investment banks in the world.
1203
00:56:17,040 --> 00:56:19,235
It's hard for us
to poke holes in this.
1204
00:56:19,376 --> 00:56:20,240
Good.
1205
00:56:22,679 --> 00:56:24,704
It's just amazing
how skilled Enron
1206
00:56:24,948 --> 00:56:27,815
and Andy Fastow were
at working Wall Street,
1207
00:56:28,051 --> 00:56:29,575
playing on Wall Street's greed,
1208
00:56:29,819 --> 00:56:31,753
in order to get money
out of them.
1209
00:56:31,988 --> 00:56:35,082
To quote Lenin,
1210
00:56:35,492 --> 00:56:39,394
they were the investment
bankers useful idiots.
1211
00:56:42,465 --> 00:56:44,524
As disturbing as
Enron's own misconduct,
1212
00:56:44,768 --> 00:56:46,861
is the growing evidence that
1213
00:56:47,070 --> 00:56:49,163
leading U.S.
Financial institutions
1214
00:56:49,439 --> 00:56:53,068
not only took part in Enron's
deceptive practices,
1215
00:56:53,510 --> 00:56:57,844
but at times designed,
advanced and profited from them.
1216
00:56:58,114 --> 00:57:02,210
The Enron fraud is the story
of synergistic corruption.
1217
00:57:02,419 --> 00:57:05,217
There are supposed to be checks
and balances in the system.
1218
00:57:05,422 --> 00:57:07,447
The lawyers are
supposed to say no.
1219
00:57:07,690 --> 00:57:09,658
The accountants are
supposed to say no.
1220
00:57:09,926 --> 00:57:11,757
The bankers are supposed
to say no.
1221
00:57:11,995 --> 00:57:14,691
But no one who was supposed
to say no said no.
1222
00:57:14,898 --> 00:57:16,456
They all took their
share of the money,
1223
00:57:16,666 --> 00:57:18,497
from the fraud and put it
in their pockets.
1224
00:57:18,701 --> 00:57:20,726
Enron paid its advisers well.
1225
00:57:21,004 --> 00:57:24,303
In 2001 the accounting
firm Arthur Andersen
1226
00:57:24,541 --> 00:57:26,270
received one million a week.
1227
00:57:26,676 --> 00:57:28,906
Enron's law firm,
Vinson & Elkins,
1228
00:57:29,279 --> 00:57:30,837
did nearly as well.
1229
00:57:31,281 --> 00:57:35,047
Everyone had their
hand out at the table.
1230
00:57:35,285 --> 00:57:36,980
They were all being paid.
1231
00:57:37,287 --> 00:57:39,346
And as long as Enron continued,
1232
00:57:39,656 --> 00:57:41,521
they received their fees.
1233
00:57:41,958 --> 00:57:44,426
They were a part of the process.
1234
00:57:44,761 --> 00:57:46,251
So it's hard now to say,
1235
00:57:46,529 --> 00:57:48,087
'oh, we didn't know anything.'
1236
00:57:48,364 --> 00:57:51,629
Had we known then what we know
now about Enron's practices,
1237
00:57:51,935 --> 00:57:54,563
we would not have engaged in
these transactions with Enron.
1238
00:57:54,838 --> 00:57:57,033
The facts that we now have
come to light about Enron,
1239
00:57:57,307 --> 00:57:58,774
however,
were not known at the time.
1240
00:57:59,008 --> 00:58:00,635
I believe that
the Citigroup professionals
1241
00:58:00,910 --> 00:58:03,777
involved with these
transactions acted in good faith.
1242
00:58:04,047 --> 00:58:09,576
I'd like you here to
look at one Citi email,
1243
00:58:09,652 --> 00:58:13,213
The email trail here
is all too lurid.
1244
00:58:13,456 --> 00:58:15,481
Oh, for instance,
one email I remember,
1245
00:58:15,692 --> 00:58:19,594
where the banker writes,
'Enron loves these deals.
1246
00:58:19,896 --> 00:58:21,227
They produce cash,
1247
00:58:21,464 --> 00:58:23,659
but they don't have to show
the debt on the balance sheet.'
1248
00:58:23,900 --> 00:58:25,800
Now, a high school student
can figure out that.
1249
00:58:26,035 --> 00:58:30,495
The banks were all knowing
articipants in this wrong-doing.
1250
00:58:31,541 --> 00:58:34,601
Meryll Lynch assisted Enron
in cooking it's books
1251
00:58:34,944 --> 00:58:38,345
by pretending to purchase
an existing Enron asset
1252
00:58:38,581 --> 00:58:41,846
when it was really
engaged in a loan.
1253
00:58:42,819 --> 00:58:45,344
The accounting sham involved
the sale of an interest
1254
00:58:45,555 --> 00:58:47,352
in three Nigerian barges
1255
00:58:48,291 --> 00:58:50,919
Nigeria is a long way
from Manhattan.
1256
00:58:51,160 --> 00:58:51,956
Yet for some reason,
1257
00:58:52,195 --> 00:58:55,255
toward the end of
the fourth quarter in 1999
1258
00:58:55,431 --> 00:58:57,262
Merrill Lynch suddenly
decided to buy
1259
00:58:57,534 --> 00:59:00,731
three Nigerian power
barges from Enron.
1260
00:59:01,037 --> 00:59:03,232
Nigerian power barges
have nothing to do
1261
00:59:03,473 --> 00:59:04,838
with Merrill Lynch's business.
1262
00:59:05,074 --> 00:59:07,065
It was a blatantly
illegal transaction.
1263
00:59:07,644 --> 00:59:09,043
It was just taking the barges,
1264
00:59:09,312 --> 00:59:11,212
getting them off
of Enron's books,
1265
00:59:11,414 --> 00:59:13,473
having Merill Lynch,
if you will,
1266
00:59:13,750 --> 00:59:17,208
warehouse them for five months
and then buying them back.
1267
00:59:17,387 --> 00:59:19,412
Mr. Martin, you...
you've testified here today
1268
00:59:19,722 --> 00:59:23,214
that there was no guarantee.
And you said that under oath.
1269
00:59:25,061 --> 00:59:26,585
Here's a document,
1270
00:59:26,829 --> 00:59:29,423
saying that the head of
your whole division here
1271
00:59:29,899 --> 00:59:34,063
was going to confirm
that understanding.
1272
00:59:37,774 --> 00:59:39,036
Over the year 2001,
1273
00:59:39,275 --> 00:59:41,505
Skilling became
increasingly despondent.
1274
00:59:41,778 --> 00:59:43,245
He'd always been a moody guy,
1275
00:59:43,413 --> 00:59:44,880
but people who knew
him said he became
1276
00:59:45,148 --> 00:59:47,116
just increasingly volatile.
1277
00:59:47,317 --> 00:59:49,376
Show up for work unshaven,
looking blurry-eyed.
1278
00:59:49,619 --> 00:59:51,052
And I think it was
the battle of holding these
1279
00:59:51,287 --> 00:59:54,450
two totally disjointed
thoughts in his mind at...
1280
00:59:54,657 --> 00:59:55,419
at the same time.
1281
00:59:55,625 --> 00:59:57,559
One is Enron
a super-star company
1282
00:59:57,794 --> 01:00:00,627
and the other of feeling like
it was all crumbling away.
1283
01:00:01,397 --> 01:00:03,991
The first cracks
in Skilling's public image
1284
01:00:04,233 --> 01:00:05,791
appeared in
a conference call with
1285
01:00:06,035 --> 01:00:08,299
analysts in April, 2001.
1286
01:00:08,538 --> 01:00:10,267
And then Jeff Skilling
took questions.
1287
01:00:10,740 --> 01:00:13,106
And about mid-way
through the session...
1288
01:00:13,343 --> 01:00:14,571
there was a question.
1289
01:00:14,777 --> 01:00:18,941
It was sort of aggressively
wondering out loud
1290
01:00:19,148 --> 01:00:20,410
why it was that Enron,
1291
01:00:20,683 --> 01:00:22,947
as a financial services
company in effect,
1292
01:00:23,219 --> 01:00:25,517
could not release
a balance sheet
1293
01:00:25,722 --> 01:00:26,984
with its earning statement,
1294
01:00:27,190 --> 01:00:28,953
like most financial
institutions do.
1295
01:00:29,192 --> 01:00:31,490
You're the only financial
institution that can't produce
1296
01:00:31,694 --> 01:00:33,992
a balance sheet or a cash flow
statement with their earnings
1297
01:00:35,898 --> 01:00:37,832
Well, you, you...
1298
01:00:38,234 --> 01:00:42,500
Well, thank you very much.
We appreciate it, asshole.
1299
01:00:43,873 --> 01:00:45,204
And then quite audibly
1300
01:00:45,441 --> 01:00:47,534
you could here
Skilling say asshole!
1301
01:00:47,910 --> 01:00:49,673
And then he said, 'asshole'.
1302
01:00:49,912 --> 01:00:52,278
As I understand it,
you called him an asshole.
1303
01:00:53,049 --> 01:00:55,017
And this just
caused unbelievable
1304
01:00:55,251 --> 01:00:56,809
amounts of consternation
all across Wall Street
1305
01:00:57,053 --> 01:00:58,145
because people thought,
1306
01:00:58,354 --> 01:01:00,845
'A Fortune 500 CEO
losing it like this,
1307
01:01:01,057 --> 01:01:04,117
calling publicly
an investor an asshole? '
1308
01:01:04,360 --> 01:01:06,123
If I could go back
and redo things,
1309
01:01:06,329 --> 01:01:10,561
I would not now,
have used the term that I used.
1310
01:01:10,767 --> 01:01:12,826
Mark Palmer,
Enron's chief PR guy,
1311
01:01:13,036 --> 01:01:15,300
Even ran a note up to Skilling,
telling him to apologize.
1312
01:01:15,571 --> 01:01:17,266
And he just took
the piece of paper
1313
01:01:17,407 --> 01:01:19,466
and tucked it under the pile
of papers on his desk.
1314
01:01:19,742 --> 01:01:20,299
And afterwards,
1315
01:01:20,543 --> 01:01:22,101
Enron's traders who had
erupted in cheers
1316
01:01:22,311 --> 01:01:24,779
when Skilling called this guy
an asshole made him a sign.
1317
01:01:25,048 --> 01:01:26,447
It was a play off
Enron's motto
1318
01:01:26,683 --> 01:01:29,117
'Ask Why' and the sign said
'ask why asshole.'
1319
01:01:31,220 --> 01:01:34,485
My personal feeling was that
Jeff looked at the numbers
1320
01:01:35,124 --> 01:01:40,289
and he knew that
we were in a massive hole.
1321
01:01:40,830 --> 01:01:43,321
It was the only time
that I saw him truly,
1322
01:01:43,533 --> 01:01:47,025
truly worried about keeping
the stock price up.
1323
01:01:47,236 --> 01:01:48,669
And he just kept saying to me,
1324
01:01:48,871 --> 01:01:51,032
'I don't know what the hell
I'm going to do.'
1325
01:01:54,677 --> 01:01:56,975
The broadband business was
in complete meltdown.
1326
01:01:57,346 --> 01:01:59,177
And there were all sorts
of other problems
1327
01:01:59,415 --> 01:02:00,973
that Jeff Skilling
as the company's Chief
1328
01:02:01,184 --> 01:02:02,776
Operating Officer was
wrestling with.
1329
01:02:03,019 --> 01:02:04,418
And in the middle of all this,
1330
01:02:04,687 --> 01:02:06,985
Ken Lay walks in Jeff
Skilling's office holding up
1331
01:02:07,290 --> 01:02:10,953
fabric swatches for the new G5
45 million dollar corporate
1332
01:02:11,160 --> 01:02:12,127
jet he wanted to buy.
1333
01:02:12,428 --> 01:02:14,362
And he said to Jeff,
1334
01:02:14,630 --> 01:02:16,063
asked him
a very important question,
1335
01:02:16,332 --> 01:02:17,765
'which of these
cabin configurations
1336
01:02:18,067 --> 01:02:19,261
do you like best, Jeff? '
1337
01:02:20,636 --> 01:02:24,072
While Ken Lay was stressing
over the corporate jet,
1338
01:02:24,407 --> 01:02:26,841
EES was headed for
a crash landing.
1339
01:02:27,176 --> 01:02:29,736
Facing 500 million in losses,
1340
01:02:30,012 --> 01:02:32,173
Lou Pai's top leuitenant,
Tom White,
1341
01:02:32,482 --> 01:02:34,882
wondered how EES
could show a profit
1342
01:02:35,218 --> 01:02:36,685
by the end of the quarter.
1343
01:02:37,320 --> 01:02:40,551
One of the things
that was always a strange
1344
01:02:40,790 --> 01:02:41,882
occurrence at Enron was
1345
01:02:42,925 --> 01:02:46,292
for weeks before
a quarterly report
1346
01:02:47,029 --> 01:02:49,429
we would be under
the impression that
1347
01:02:49,665 --> 01:02:51,394
we weren't going to
make our numbers.
1348
01:02:51,667 --> 01:02:53,157
But then somehow,
miraculously,
1349
01:02:53,636 --> 01:02:56,696
we always made the numbers,
and then some.
1350
01:02:56,939 --> 01:03:00,204
But then a question was
asked to Tom White,
1351
01:03:00,376 --> 01:03:03,038
'how is it that
we made the numbers? '
1352
01:03:03,346 --> 01:03:08,113
And his answer was,
'One word, California.'
1353
01:03:16,692 --> 01:03:19,058
The first clues to
Enron's new strategy
1354
01:03:19,295 --> 01:03:21,263
hit California with a jolt.
1355
01:03:22,498 --> 01:03:24,932
It started at Noon
rolling across the state.
1356
01:03:25,134 --> 01:03:27,432
Sacramento, San Francisco,
Beverly Hills,
1357
01:03:27,670 --> 01:03:29,001
Long Beach, San Diego
1358
01:03:29,305 --> 01:03:32,604
Twenty six thousand miles of
California power lines.
1359
01:03:32,909 --> 01:03:34,308
Enough to circle the Earth.
1360
01:03:34,677 --> 01:03:36,144
But for the second day
in a row,
1361
01:03:36,379 --> 01:03:39,177
not enough electricity
for America's largest state,
1362
01:03:39,415 --> 01:03:41,508
and the world's
sixth largest economy.
1363
01:03:41,784 --> 01:03:43,274
The first thing we heard about
this energy crisis is well,
1364
01:03:43,452 --> 01:03:45,010
our lights are going to go off
in the middle of winter
1365
01:03:45,221 --> 01:03:46,654
when we're using half
the electricity
1366
01:03:46,856 --> 01:03:48,187
we normally use
during the summer.
1367
01:03:48,491 --> 01:03:50,083
The Bay Area got hit
by not one,
1368
01:03:50,359 --> 01:03:51,917
but two rolling blackouts.
1369
01:03:52,161 --> 01:03:54,561
We only need
twenty eight thousand
1370
01:03:54,764 --> 01:03:56,061
to thirty thousand
megawatts in December.
1371
01:03:56,332 --> 01:03:58,994
We have an installed capacity
in California at the time
1372
01:03:59,235 --> 01:04:00,725
forty-five thousand megawatts.
1373
01:04:00,937 --> 01:04:03,667
Plenty o' power to meet
our electric demand.
1374
01:04:03,906 --> 01:04:05,965
Of course,
we had blackouts in December.
1375
01:04:06,309 --> 01:04:08,777
The people who control
California's power grid
1376
01:04:08,978 --> 01:04:11,139
say once again they're worried
about having to blackout
1377
01:04:11,347 --> 01:04:12,939
the Northern half of the state.
1378
01:04:13,282 --> 01:04:15,250
When the rolling blackouts
started hitting California
1379
01:04:15,451 --> 01:04:17,078
there was definitely a lot of
excitement in the air.
1380
01:04:17,386 --> 01:04:18,478
It was something new.
1381
01:04:18,688 --> 01:04:20,349
It was something that hadn't
been encountered before.
1382
01:04:20,556 --> 01:04:23,252
It was,
'how is this event going to
1383
01:04:23,426 --> 01:04:24,358
effect the price of power? '
1384
01:04:24,594 --> 01:04:26,562
Control's rotating attitudes
are being implemented.
1385
01:04:26,829 --> 01:04:27,761
I knew.
1386
01:04:28,030 --> 01:04:31,022
I knew that there was
illegality going on.
1387
01:04:31,300 --> 01:04:32,528
I could feel it.
I could smell it.
1388
01:04:32,735 --> 01:04:33,360
I could sense it.
1389
01:04:33,636 --> 01:04:34,898
And there was
no other explanation.
1390
01:04:35,104 --> 01:04:36,935
Because the numbers
just didn't add up.
1391
01:04:37,139 --> 01:04:38,697
We had enough power
in California.
1392
01:04:38,975 --> 01:04:40,875
It was never
about lack of supply.
1393
01:04:41,110 --> 01:04:42,407
When I ran for Governor
in 1998,
1394
01:04:42,678 --> 01:04:45,146
not one human being asked me
about electricity.
1395
01:04:45,348 --> 01:04:46,940
This thing kind of
came out of the woods,
1396
01:04:47,149 --> 01:04:47,979
as far as I was concerned.
1397
01:04:48,217 --> 01:04:49,275
And I was trying
in the early days
1398
01:04:49,518 --> 01:04:52,385
to learn what was happening;
how we could fix the problem.
1399
01:04:55,124 --> 01:04:57,388
California was
selected by Enron
1400
01:04:57,660 --> 01:04:59,787
as the prime place
to experiment
1401
01:05:00,062 --> 01:05:02,462
with this new concept of
deregulated electricity.
1402
01:05:02,665 --> 01:05:05,099
Reducing electricity cost
is only one benefit
1403
01:05:05,701 --> 01:05:07,328
from choice and competition.
1404
01:05:07,670 --> 01:05:10,503
In 1996, under pressure
from energy companies,
1405
01:05:10,773 --> 01:05:13,037
Governor Pete Wilson and
the California legislature
1406
01:05:13,309 --> 01:05:17,006
passed a bill allowing for
the deregulation of electricity.
1407
01:05:17,346 --> 01:05:19,644
I wasn't in
the Legislature in 1996,
1408
01:05:19,882 --> 01:05:22,646
but I can tell you that there
isn't a legislator alive
1409
01:05:22,852 --> 01:05:25,412
that can tell you
with any sophistication
1410
01:05:25,721 --> 01:05:28,690
how a deregulated electricity
market ought to work.
1411
01:05:28,991 --> 01:05:30,049
Not a one.
1412
01:05:30,793 --> 01:05:34,058
California's deregulated system
was a bizarre compromise
1413
01:05:34,297 --> 01:05:36,993
between legislators
and free-market advocates.
1414
01:05:37,300 --> 01:05:39,860
The rules were complicated
and hard to follow.
1415
01:05:40,770 --> 01:05:42,067
Inside Enron,
1416
01:05:42,338 --> 01:05:44,932
California's system was
little more than a joke.
1417
01:05:45,207 --> 01:05:46,401
And once in place,
1418
01:05:46,709 --> 01:05:50,770
Enron made sure that the joke
would be on California.
1419
01:05:51,113 --> 01:05:53,081
I remember the conversation
I had with Ken.
1420
01:05:53,316 --> 01:05:54,806
At the end of it he says 'Well,
1421
01:05:55,084 --> 01:05:56,016
Dave, old buddy,
let me just tell you.
1422
01:05:56,352 --> 01:05:58,582
It doesn't matter really to us
1423
01:05:58,821 --> 01:06:01,551
what kooky rules you
Californians put in place.
1424
01:06:01,824 --> 01:06:03,587
I got a bunch of really
smart people down here
1425
01:06:03,859 --> 01:06:05,793
who will figure out how to
make money anyhow.'
1426
01:06:07,663 --> 01:06:10,791
One of the smartest guys
at Enron was Tim Belden,
1427
01:06:11,033 --> 01:06:13,126
who ran the west
coast trading desk.
1428
01:06:13,970 --> 01:06:15,699
Tim Belden was
a fervent believer
1429
01:06:15,938 --> 01:06:17,428
in the idea of free markets
1430
01:06:17,673 --> 01:06:20,233
and as such he spent hours
poring over the new rules
1431
01:06:20,443 --> 01:06:22,843
for the deregulation of
California's energy industry,
1432
01:06:23,279 --> 01:06:26,248
looking for loopholes that Enron
could exploit to make money.
1433
01:06:26,816 --> 01:06:29,250
He found plenty.
After the bankruptcy,
1434
01:06:29,418 --> 01:06:31,579
a confidential memo surfaced
revealing the names of
1435
01:06:31,821 --> 01:06:35,450
Belden's strategies to game
the California market
1436
01:06:35,858 --> 01:06:39,055
Wheel Out, Get Shorty, Fat Boy
1437
01:06:39,829 --> 01:06:43,629
Recently, audio tapes of the
Enron traders were discovered.
1438
01:06:43,899 --> 01:06:45,127
What do you want to
call this project?
1439
01:06:45,735 --> 01:06:46,997
Probably have a catchy
name for that.
1440
01:06:47,970 --> 01:06:48,937
How about, you know,
1441
01:06:49,138 --> 01:06:51,072
something friendly
like 'Death Star'?
1442
01:06:55,911 --> 01:06:58,038
The tapes revealed
Enron's contempt
1443
01:06:58,314 --> 01:07:01,545
for any values except one,
making money.
1444
01:07:04,453 --> 01:07:05,579
Hey John, it's Tim.
1445
01:07:05,821 --> 01:07:07,379
Regulatory's all
in a big concern
1446
01:07:07,656 --> 01:07:10,022
about is we're wheeling power
out of California.
1447
01:07:10,259 --> 01:07:11,783
He just steals money
from California
1448
01:07:12,028 --> 01:07:13,620
to the tune of a million
Can you rephrase that?
1449
01:07:13,863 --> 01:07:16,263
Okay, he arbitrages
the California market
1450
01:07:16,499 --> 01:07:18,228
to the tune of a million
bucks or two a day.
1451
01:07:24,273 --> 01:07:26,605
An arbitrage opportunity
has been defined to me
1452
01:07:26,842 --> 01:07:28,901
as any opportunity to
make abnormal profits.
1453
01:07:29,111 --> 01:07:30,806
So an abnormal profit would be
1454
01:07:31,280 --> 01:07:34,477
returns above
and beyond the norm.
1455
01:07:34,717 --> 01:07:37,481
I was told that a good trader
is a creative trader.
1456
01:07:37,720 --> 01:07:39,551
And a creative
trader is a trader
1457
01:07:39,755 --> 01:07:42,383
that can find
arbitrage opportunities.
1458
01:07:43,159 --> 01:07:45,821
One of those opportunities
was called Ricochet.
1459
01:07:46,362 --> 01:07:48,762
I'll see you guys.
I'm takin' mine to the desert.
1460
01:07:49,131 --> 01:07:51,691
In the midst of energy
shortages Enron's traders
1461
01:07:52,101 --> 01:07:54,661
started to export power
out of the state.
1462
01:07:55,071 --> 01:07:57,835
When prices soared,
they brought it back in.
1463
01:07:58,174 --> 01:08:00,540
So we fuckin' export
like a motherfucker.
1464
01:08:00,843 --> 01:08:02,708
Getting rich?
Trying to.
1465
01:08:06,248 --> 01:08:08,512
Traders would stay after
a twelve hour shift
1466
01:08:08,851 --> 01:08:11,877
and pour over maps of
the western energy grid.
1467
01:08:12,121 --> 01:08:14,419
What are the permutations
and combinations of ways to
1468
01:08:14,657 --> 01:08:16,852
move power around the west.
1469
01:08:17,126 --> 01:08:19,424
And I think that's something
that Enron knew better
1470
01:08:19,662 --> 01:08:22,495
than any other Energy marketer
in the country, period.
1471
01:08:22,798 --> 01:08:25,494
We know all of
the California imports.
1472
01:08:25,868 --> 01:08:28,029
We know all of
the California load.
1473
01:08:28,304 --> 01:08:29,999
We're getting' pretty spoiled
with all this money.
1474
01:08:30,272 --> 01:08:31,330
You said you were
getting a little scared
1475
01:08:31,540 --> 01:08:33,770
we're making a little too much.
And I tend to agree with you.
1476
01:08:35,978 --> 01:08:39,539
These are two traders,
t-r-a-d-e-r-s.
1477
01:08:39,782 --> 01:08:40,976
This is what they say.
1478
01:08:41,283 --> 01:08:43,649
'What we did was overbook
the transmission line
1479
01:08:43,919 --> 01:08:46,717
we had the rights on and said
to California Utilities,
1480
01:08:46,956 --> 01:08:49,254
'lf you want to use the line,
pay us.'
1481
01:08:49,725 --> 01:08:52,091
By the time they agreed
to meet our price,
1482
01:08:52,361 --> 01:08:54,795
rolling blackouts
had already hit California
1483
01:08:55,064 --> 01:08:57,328
and the price for electricity
went through the roof.'
1484
01:08:57,600 --> 01:08:59,830
Did you have any knowledge
that this was happening?
1485
01:09:00,102 --> 01:09:02,195
The only thing that
I'm aware of Senator,
1486
01:09:02,404 --> 01:09:03,564
is there was a,
1487
01:09:03,806 --> 01:09:05,569
there was
a difference of opinion
1488
01:09:05,841 --> 01:09:07,866
on the rules of the
independent system operator.
1489
01:09:08,110 --> 01:09:10,908
It was just set up,
the rules weren't quite clear.
1490
01:09:11,113 --> 01:09:13,411
We have traders here
from Enron
1491
01:09:13,616 --> 01:09:14,947
who were saying
they did something wrong.
1492
01:09:15,251 --> 01:09:16,275
But you don't see
anything wrong.
1493
01:09:16,552 --> 01:09:18,986
I have one last question
and then I am done.
1494
01:09:20,589 --> 01:09:24,218
Traders soon discovered that
by shutting down power plants,
1495
01:09:24,460 --> 01:09:26,860
they could create
artificial shortages
1496
01:09:27,096 --> 01:09:29,394
that would push prices
even higher.
1497
01:09:32,434 --> 01:09:34,493
Hey, this is David up at Enron.
1498
01:09:35,271 --> 01:09:37,398
There's not much demand
for power at all here.
1499
01:09:37,640 --> 01:09:38,470
If we shut it down,
1500
01:09:38,674 --> 01:09:40,471
can you bring it back up
in 3 or 4 hours?
1501
01:09:40,776 --> 01:09:41,470
Oh, yeah.
1502
01:09:41,710 --> 01:09:43,041
Why don't you just go ahead
and shut her down then,
1503
01:09:43,279 --> 01:09:44,541
if that's ok?
Okay.
1504
01:09:44,780 --> 01:09:47,340
When you see two
or three energy companies
1505
01:09:47,650 --> 01:09:51,017
with 30, 35 percent of
their entire capacity down
1506
01:09:51,287 --> 01:09:52,879
for maintenance on a single day
1507
01:09:53,289 --> 01:09:56,884
and as a result
the price of electricity is
1508
01:09:57,126 --> 01:09:58,491
skyrocketing three or
four hundred percent
1509
01:09:58,761 --> 01:10:00,388
and then a week later
someone else does it up
1510
01:10:00,596 --> 01:10:01,927
in Northern California
1511
01:10:02,164 --> 01:10:04,530
you begin to believe something's
not smelling right here.
1512
01:10:04,833 --> 01:10:07,165
We want you guys to get
a little creative.
1513
01:10:07,403 --> 01:10:07,698
Okay.
1514
01:10:07,970 --> 01:10:09,028
And come up with
a reason to go down.
1515
01:10:09,271 --> 01:10:10,602
Like a forced
outage type thing?
1516
01:10:10,906 --> 01:10:11,634
Right.
1517
01:10:11,941 --> 01:10:13,841
Those guys
at the flip of a switch
1518
01:10:14,076 --> 01:10:15,805
could just yank
the California economy
1519
01:10:16,111 --> 01:10:17,510
on it's leash whenever
they wanted to.
1520
01:10:17,746 --> 01:10:18,644
And they did it,
and they did it,
1521
01:10:18,847 --> 01:10:20,178
and they did it.
And they made so much money.
1522
01:10:20,449 --> 01:10:23,350
The heart of it is
that an industry
1523
01:10:23,586 --> 01:10:27,147
that went for a hundred years
from the days of Edison built
1524
01:10:27,456 --> 01:10:29,890
the best electrical system
in the world,
1525
01:10:30,226 --> 01:10:32,524
sold the power at reasonable
prices to consumers
1526
01:10:32,728 --> 01:10:35,697
and was very reliable
was all of a sudden
1527
01:10:35,998 --> 01:10:37,556
turned into a casino.
1528
01:10:40,836 --> 01:10:43,532
These strategies made
some money for Enron.
1529
01:10:43,772 --> 01:10:45,740
But the real money was
made by betting
1530
01:10:46,041 --> 01:10:48,009
that the price of
energy would go up
1531
01:10:48,377 --> 01:10:49,275
It did.
1532
01:10:49,511 --> 01:10:51,001
And the West Coast traders made
1533
01:10:51,213 --> 01:10:53,681
nearly two billion dollars
for Enron.
1534
01:10:59,622 --> 01:11:02,591
You can't treat electricity
like you treat oranges.
1535
01:11:02,858 --> 01:11:04,723
It's the lifeblood
of the society.
1536
01:11:04,960 --> 01:11:05,517
It can't be stored.
1537
01:11:05,761 --> 01:11:07,251
You can't turn
these people loose
1538
01:11:07,463 --> 01:11:10,728
and let them
just have a quote free market
1539
01:11:10,933 --> 01:11:13,265
because a free market is God
1540
01:11:13,469 --> 01:11:15,494
Damn expensive to
the customers.
1541
01:11:16,005 --> 01:11:17,905
There would be
ample supply available
1542
01:11:18,140 --> 01:11:19,402
at the right fuckin' price.
1543
01:11:19,642 --> 01:11:20,301
Oh, sure there would.
1544
01:11:20,542 --> 01:11:21,031
It wasn't just Enron
1545
01:11:21,310 --> 01:11:24,074
"Every company traded
according to the rules
1546
01:11:24,346 --> 01:11:26,439
that California put up there.
1547
01:11:26,882 --> 01:11:28,645
We're the future of Enron.
1548
01:11:28,917 --> 01:11:32,751
And we're fucking making half
a billion dollars for Enron.
1549
01:11:33,055 --> 01:11:34,147
Can you believe that?
1550
01:11:34,690 --> 01:11:37,181
We'll definitely retire
by the time we're 30.
1551
01:11:37,526 --> 01:11:39,289
We're talking
about a commodity that
1552
01:11:39,495 --> 01:11:40,621
normally trades
in the thirty-five,
1553
01:11:40,829 --> 01:11:41,921
forty-five dollar range.
1554
01:11:42,131 --> 01:11:43,689
High prices are when it
gets into the fifties.
1555
01:11:44,800 --> 01:11:46,563
A thousand dollars?
1556
01:11:47,069 --> 01:11:50,561
Prices aren't going to stay
at 1,000 bucks forever.
1557
01:11:51,340 --> 01:11:53,035
It weeds out the weak
people in the market.
1558
01:11:53,642 --> 01:11:55,041
Get rid of them
and you know what,
1559
01:11:55,344 --> 01:11:57,312
the people who are strong
will stick around.
1560
01:11:57,646 --> 01:12:00,206
And the Enron traders never
seemed to step back and say,
1561
01:12:00,449 --> 01:12:02,383
'Wait.
Is what we're doing ethical?
1562
01:12:02,584 --> 01:12:04,245
Is it in our best
long term interests? '
1563
01:12:04,520 --> 01:12:07,114
'Does it help us
if we totally rape California? '
1564
01:12:07,356 --> 01:12:10,519
'Does that advance our goals
of nation-wide deregulation? '
1565
01:12:10,793 --> 01:12:12,954
Instead they sought
out every loophole
1566
01:12:13,295 --> 01:12:16,059
they could in order to profit
from California's misery.
1567
01:12:16,999 --> 01:12:20,696
Temperatures in California are
hitting higher than 100 degrees
1568
01:12:20,969 --> 01:12:24,803
fueling wildfires and fears that
California's strained power grid
1569
01:12:25,074 --> 01:12:27,065
could once again near collapse.
1570
01:12:28,310 --> 01:12:29,004
What's happening?
1571
01:12:29,411 --> 01:12:30,776
There's a fire under
the core line.
1572
01:12:31,046 --> 01:12:34,379
It's been de-rated
from 45 to 2100.
1573
01:12:34,950 --> 01:12:37,384
Burn, baby, burn.
1574
01:12:37,686 --> 01:12:39,119
That's a beautiful thing.
1575
01:12:42,057 --> 01:12:45,288
I was never comfortable
on the trading floor at Enron.
1576
01:12:46,128 --> 01:12:48,824
And if I had questions,
I didn't ask them,
1577
01:12:49,064 --> 01:12:51,157
because I didn't want
to know the answer.
1578
01:12:52,368 --> 01:12:53,562
You know,
I didn't want confirmed
1579
01:12:53,869 --> 01:12:56,599
what I suspected might be true.
1580
01:12:56,905 --> 01:12:59,738
That what I was doing was,
in fact,
1581
01:13:00,042 --> 01:13:05,674
unseemly or was,
at least, unethical,
1582
01:13:05,881 --> 01:13:07,439
if not worse.
1583
01:13:09,318 --> 01:13:11,616
Why did the traders do
what they did?
1584
01:13:11,954 --> 01:13:14,514
Was it their multi-million
dollar bonuses
1585
01:13:14,757 --> 01:13:17,453
or had Enron found
a way to exploit
1586
01:13:17,659 --> 01:13:19,957
the darker side of
human behavior?
1587
01:13:21,463 --> 01:13:23,624
In the early
60's Stanley Milgram
1588
01:13:23,899 --> 01:13:26,026
tried to figure out
what characteristics
1589
01:13:26,335 --> 01:13:27,461
there were of evil people.
1590
01:13:27,703 --> 01:13:30,536
Was there an evil strain
or could normal people
1591
01:13:30,739 --> 01:13:32,070
do really bad things?
1592
01:13:32,307 --> 01:13:34,002
And so he set up
this experiment.
1593
01:13:34,209 --> 01:13:36,734
In the experiment
he had an actor playing
1594
01:13:36,945 --> 01:13:40,346
an experimental subject
and a real experimental subject.
1595
01:13:40,983 --> 01:13:42,644
Want to step right
in here and have a seat?
1596
01:13:42,885 --> 01:13:45,479
They went into this room
and he had an experimenter say,
1597
01:13:45,888 --> 01:13:48,152
'we're going to see
if mild electric shocks
1598
01:13:48,390 --> 01:13:50,290
will help people
memorize lists.
1599
01:13:51,093 --> 01:13:55,154
Incorrect... You'll now get
a shock of 75 volts.
1600
01:13:56,165 --> 01:13:57,860
Soft air.
1601
01:13:58,734 --> 01:14:00,326
He kind of did some
yelling in there.
1602
01:14:00,569 --> 01:14:02,901
The Milgram Experiment has
a lot to say about Enron
1603
01:14:03,138 --> 01:14:07,438
because I think people lost
their sense of morality.
1604
01:14:07,743 --> 01:14:09,370
Like Milgram,
once you accepted the idea
1605
01:14:09,645 --> 01:14:11,636
that behaving
inhumanly was okay,
1606
01:14:11,880 --> 01:14:12,812
you could do anything.
1607
01:14:13,081 --> 01:14:14,673
And the shocks increased
with the number
1608
01:14:14,950 --> 01:14:16,247
of mistakes that they made.
1609
01:14:16,552 --> 01:14:18,577
I can't stand the pain!
Let me out of here!
1610
01:14:18,821 --> 01:14:20,982
He can't stand it.
I'm not going to kill that man.
1611
01:14:21,323 --> 01:14:22,950
The subject,
the real subject is begging
1612
01:14:23,158 --> 01:14:25,353
the scientist-looking
person to stop too.
1613
01:14:25,594 --> 01:14:27,084
And the scientist only says
1614
01:14:27,396 --> 01:14:29,728
'the experiment requires
that you continue.
1615
01:14:30,032 --> 01:14:31,397
Please continue. Go on, please.
1616
01:14:32,167 --> 01:14:34,032
You accept all responsibility?
1617
01:14:34,303 --> 01:14:36,032
The responsibility is mine,
correct.
1618
01:14:36,305 --> 01:14:36,828
Please go on.
1619
01:14:37,139 --> 01:14:39,903
In a way,
Skilling was almost like the guy
1620
01:14:40,142 --> 01:14:41,336
telling those people below him
1621
01:14:41,610 --> 01:14:44,135
it was okay to up the power.
1622
01:14:45,981 --> 01:14:48,040
California's Electric Utilities
1623
01:14:48,317 --> 01:14:50,376
may have to pull the plug on
millions of customers.
1624
01:14:50,686 --> 01:14:53,678
It's the fucking coolest thing
I've done in a long time.
1625
01:14:53,922 --> 01:14:55,480
Holy fuck, yes.
You gotta love the west.
1626
01:14:55,824 --> 01:14:56,347
Oh.
1627
01:14:59,328 --> 01:15:01,228
During the height of
Wednesday's blackout,
1628
01:15:01,463 --> 01:15:04,261
fire crews had to free people
trapped in elevators.
1629
01:15:04,833 --> 01:15:06,767
All that money you guys
stole from those
1630
01:15:06,969 --> 01:15:08,231
poor grandmothers in California.
1631
01:15:08,537 --> 01:15:10,129
Yeah, Grandma Millie, man.
1632
01:15:10,372 --> 01:15:12,363
She's the one who couldn't
figure out how to fucking vote
1633
01:15:12,608 --> 01:15:13,666
on the butterfly ballot.
1634
01:15:13,909 --> 01:15:15,774
Now she wants her fucking money
back for all the power
1635
01:15:15,978 --> 01:15:17,639
you've charged right up her ass.
1636
01:15:26,555 --> 01:15:27,988
You must continue.
Go on, please.
1637
01:15:28,390 --> 01:15:31,416
You're gonna keep giving him
what... 450 volts every shot now?
1638
01:15:31,660 --> 01:15:33,287
That's correct. Continue.
1639
01:15:33,495 --> 01:15:35,087
It's kinda hard to say
well we should be,
1640
01:15:35,297 --> 01:15:37,060
you know we shouldn't do this
even though it's allowed
1641
01:15:37,299 --> 01:15:40,530
because you know.
I mean, that's what we do.
1642
01:15:40,769 --> 01:15:41,599
Right.
1643
01:15:42,037 --> 01:15:44,164
Best thing that could happen
is fucking an earthquake.
1644
01:15:44,406 --> 01:15:45,998
Let that thing float
out to the Pacific.
1645
01:15:46,308 --> 01:15:47,275
Put up fucking candles.
1646
01:15:50,846 --> 01:15:52,939
Milgram's discovery
was disturbing.
1647
01:15:53,181 --> 01:15:54,580
Fifty percent of
the subjects were
1648
01:15:54,783 --> 01:15:56,546
willing to shock to the death,
1649
01:15:56,818 --> 01:15:58,285
so long as the commands came
1650
01:15:58,520 --> 01:16:00,886
from a seemingly
legitimate source.
1651
01:16:09,865 --> 01:16:11,560
Tonight I'm declaring
a state of emergency
1652
01:16:11,800 --> 01:16:13,893
in California to give the state
1653
01:16:14,102 --> 01:16:16,002
the authority
and the resources to
1654
01:16:16,271 --> 01:16:17,533
keep the lights on
in California.
1655
01:16:17,739 --> 01:16:19,138
The Governor,
who's been basically
1656
01:16:19,908 --> 01:16:21,899
capitulating to
the demands of the energy
1657
01:16:22,110 --> 01:16:24,806
companies and utility companies,
needs to put his foot down.
1658
01:16:25,013 --> 01:16:27,243
We wanted the Governor to send
in the state police
1659
01:16:27,382 --> 01:16:30,010
or the National Guard to seize
control of the power plants
1660
01:16:30,285 --> 01:16:31,252
and put it back on-line.
1661
01:16:31,486 --> 01:16:32,783
And I thought we didn't have
to take over every plant,
1662
01:16:33,021 --> 01:16:34,454
we really only had to
take over one.
1663
01:16:34,723 --> 01:16:36,350
'Cause then they would
know he meant it.
1664
01:16:36,558 --> 01:16:38,549
I'm going to get
the nine billion dollars
1665
01:16:38,827 --> 01:16:39,725
back that Enron,
1666
01:16:39,928 --> 01:16:43,489
Dynergy and Reliant stole
from us and get it back to you.
1667
01:16:43,732 --> 01:16:45,256
Despite what the
people of California
1668
01:16:45,400 --> 01:16:48,733
think Enron's making money
despite California,
1669
01:16:48,937 --> 01:16:50,564
not because of California.
1670
01:16:51,039 --> 01:16:53,098
The year-long energy
crisis would cost
1671
01:16:53,342 --> 01:16:56,004
the state of California
$30 billion dollars.
1672
01:16:58,046 --> 01:17:01,812
The markets in California are
the most regulated market
1673
01:17:02,084 --> 01:17:04,109
in North America today.
1674
01:17:04,353 --> 01:17:06,685
And that's what's
causing the problem.
1675
01:17:07,089 --> 01:17:09,387
California,
it never deregulated.
1676
01:17:09,658 --> 01:17:11,649
Enron, buy stock today.
1677
01:17:12,861 --> 01:17:14,453
Thank you very much.
1678
01:17:14,730 --> 01:17:15,924
We are doing the right thing.
1679
01:17:16,264 --> 01:17:17,629
You're the good guys.
1680
01:17:17,899 --> 01:17:20,459
We are the good guys.
We are on the side of angels.
1681
01:17:21,269 --> 01:17:22,236
Oh, I can't help myself.
1682
01:17:22,471 --> 01:17:23,403
You know what the
difference is between
1683
01:17:23,605 --> 01:17:25,698
the state of California
and the Titanic?
1684
01:17:29,678 --> 01:17:31,669
This being a web cast,
I know I'm going to regret this.
1685
01:17:31,947 --> 01:17:33,642
At least when the
Titanic went down,
1686
01:17:33,915 --> 01:17:35,246
the lights were on.
1687
01:17:38,820 --> 01:17:42,483
Jeffery Skilling,
how's it feel to make a killing?
1688
01:17:42,691 --> 01:17:45,057
A top executive at one of
America's biggest power
1689
01:17:45,293 --> 01:17:49,059
companies received a raucous
welcome in San Francisco tonight.
1690
01:17:49,297 --> 01:17:51,822
Protestors heckled Enron's CEO,
1691
01:17:52,034 --> 01:17:54,264
Jeffery Skilling
outside and inside
1692
01:17:54,403 --> 01:17:56,303
during his appearance
at Commonwealth Club.
1693
01:17:56,571 --> 01:17:58,766
One of the protestors even
brought a blueberry pie
1694
01:17:58,974 --> 01:18:00,407
and delivered it herself.
1695
01:18:02,310 --> 01:18:03,208
Police!
1696
01:18:04,146 --> 01:18:07,206
A hundred and thirty two
million dollars is what he made.
1697
01:18:07,416 --> 01:18:10,783
We had a fifty percent hike
in utility rates.
1698
01:18:10,986 --> 01:18:12,920
Consumers in California
are angry.
1699
01:18:13,255 --> 01:18:14,222
And they should be.
1700
01:18:14,423 --> 01:18:15,617
And if we had anything
to do with this,
1701
01:18:15,824 --> 01:18:18,315
then we are the stupidest
people in the world.
1702
01:18:18,827 --> 01:18:20,522
I work for an organization.
1703
01:18:20,762 --> 01:18:22,127
Every day people call saying
1704
01:18:22,397 --> 01:18:24,024
they can't pay their
electricity bills!
1705
01:18:24,266 --> 01:18:27,133
You made millions of dollars
off of California...
1706
01:18:27,369 --> 01:18:28,097
Get out! Go to jail.
1707
01:18:28,303 --> 01:18:30,294
When the tidal
wave of public anger
1708
01:18:30,572 --> 01:18:32,870
started to grow
Ken Lay flew out here
1709
01:18:33,075 --> 01:18:34,940
and convened
a meeting of friends
1710
01:18:35,277 --> 01:18:37,575
and I guess he had a little
more foresight than we did.
1711
01:18:37,813 --> 01:18:39,974
He, he invited
Arnold Schwarzenegger.
1712
01:18:40,282 --> 01:18:41,544
Brought them together
at the Peninsula Hotel
1713
01:18:41,783 --> 01:18:42,613
and had a lunch meeting.
1714
01:18:42,851 --> 01:18:46,252
The notes from that meeting
really still have never surfaced,
1715
01:18:46,455 --> 01:18:48,582
but we know that
Ken Lay's pitch was
1716
01:18:48,890 --> 01:18:50,050
we've got to stay the course
1717
01:18:50,292 --> 01:18:52,783
with deregulation and
the market will correct itself
1718
01:18:53,028 --> 01:18:54,655
and everything will
turn out fine.
1719
01:18:55,297 --> 01:18:57,026
Now at... at the time
we didn't understand
1720
01:18:57,299 --> 01:18:58,664
really why he was so concerned.
1721
01:18:58,934 --> 01:18:59,525
But now we do.
1722
01:18:59,835 --> 01:19:01,029
The fact is that
Ken Lay was out here
1723
01:19:01,303 --> 01:19:02,634
because he understood that
1724
01:19:02,904 --> 01:19:04,667
Enron itself was
a house of cards
1725
01:19:04,906 --> 01:19:07,841
And if deregulation
were to collapse,
1726
01:19:08,076 --> 01:19:09,737
then Enron itself
would collapse.
1727
01:19:10,612 --> 01:19:12,375
But Ken Lay had a trump card.
1728
01:19:12,681 --> 01:19:14,945
In the midst of the energy
crisis his friend,
1729
01:19:15,250 --> 01:19:17,810
George W. Bush,
became president
1730
01:19:18,153 --> 01:19:21,088
I, George Walker Bush,
do solemnly swear.
1731
01:19:21,356 --> 01:19:23,347
I, George Walker Bush,
do solemnly swear.
1732
01:19:23,558 --> 01:19:25,116
Ken Lay's going to be
Secretary of Energy.
1733
01:19:26,261 --> 01:19:27,421
Get out of here.
1734
01:19:27,963 --> 01:19:30,124
How great would that be for
all the players in the market?
1735
01:19:30,398 --> 01:19:30,921
Lt'd be great.
1736
01:19:31,266 --> 01:19:33,393
I'd love to see Ken Lay be
Secretary of Energy.
1737
01:19:33,735 --> 01:19:37,262
Ken Lay did have easy access
to the Bush administration.
1738
01:19:37,539 --> 01:19:38,437
On April 17th,
1739
01:19:38,640 --> 01:19:40,540
he met with Vice
President Dick Cheney,
1740
01:19:40,876 --> 01:19:42,969
and strongly argued
against the imposition of
1741
01:19:43,345 --> 01:19:45,404
Federal price caps
in California.
1742
01:19:45,647 --> 01:19:47,478
We're doing everything
we can to help in California
1743
01:19:47,783 --> 01:19:49,614
on the short term basis.
There's not a lot you can do.
1744
01:19:49,851 --> 01:19:51,409
You can't manufacture kilowatts
1745
01:19:51,620 --> 01:19:52,746
in the West wing of
the White House.
1746
01:19:52,954 --> 01:19:54,922
We're fighting with both hands
tied behind our back.
1747
01:19:55,157 --> 01:19:56,715
We no longer have
the power to stop this.
1748
01:19:56,992 --> 01:19:58,323
If the federal government
doesn't help us,
1749
01:19:58,560 --> 01:19:59,492
we're a dead duck.
1750
01:20:00,028 --> 01:20:02,553
At the time,
Gray Davis was a likely candidate
1751
01:20:02,798 --> 01:20:03,992
to run for president.
1752
01:20:04,232 --> 01:20:06,860
Ken Lay knew that might give
his friend George Bush
1753
01:20:07,135 --> 01:20:09,626
a political reason
to oppose California's
1754
01:20:09,871 --> 01:20:12,305
appeals for federal
price controls.
1755
01:20:12,574 --> 01:20:15,338
They know full well
my administration's belief
1756
01:20:15,544 --> 01:20:19,002
that price controls will not
solve the problem.
1757
01:20:19,314 --> 01:20:21,214
His view was that
the Federal government
1758
01:20:21,449 --> 01:20:23,474
really shouldn't get involved.
This is California's problem.
1759
01:20:24,152 --> 01:20:26,177
And I'm saying,
'with all due... due respect,
1760
01:20:26,388 --> 01:20:28,822
Mr. President, our law said
1761
01:20:29,057 --> 01:20:30,922
the Federal government
regulates this,
1762
01:20:31,159 --> 01:20:32,319
so it is your problem.
1763
01:20:32,594 --> 01:20:34,494
And you make appointments to the
Federal Deregulatory Commission.
1764
01:20:34,729 --> 01:20:37,129
So, we had a polite,
but spirited discussion on that.
1765
01:20:37,432 --> 01:20:37,864
And he says,
1766
01:20:38,099 --> 01:20:39,088
'I just can't be of help
to you on that.'
1767
01:20:39,334 --> 01:20:41,199
As I said from the very beginning
of my administration,
1768
01:20:41,403 --> 01:20:42,927
we'll work to help California,
1769
01:20:43,238 --> 01:20:44,762
in any way we can.
1770
01:20:45,173 --> 01:20:47,869
And the best way we can is
to be good citizens.
1771
01:20:49,344 --> 01:20:52,745
FERC, the federal agency which
regulates energy in America,
1772
01:20:52,981 --> 01:20:54,471
refused to intervene.
1773
01:20:55,250 --> 01:20:58,651
What was FERC doing and why
was it not taking action?
1774
01:20:58,887 --> 01:21:00,980
The chairman of FERC
was Pat Wood,
1775
01:21:01,289 --> 01:21:04,747
the man Ken Lay had personally
recommended for the job.
1776
01:21:05,026 --> 01:21:07,324
It was easy for FERC
to do Enron's bidding
1777
01:21:07,562 --> 01:21:09,052
because all it had
to do was do nothing
1778
01:21:09,297 --> 01:21:10,457
which they did very well.
1779
01:21:10,765 --> 01:21:12,756
Federal Regulators are
being pressured to act
1780
01:21:13,034 --> 01:21:15,502
by the now Democratic
controlled Senate where here...
1781
01:21:15,737 --> 01:21:19,730
A Democratic Senate forced FERC
to impose regional price caps.
1782
01:21:19,975 --> 01:21:23,411
That ended the energy crisis,
but not the political one.
1783
01:21:23,678 --> 01:21:26,272
Did Ken Lay and George Bush
have a political agenda to
1784
01:21:26,514 --> 01:21:28,311
blame the energy crisis
on Gray Davis?
1785
01:21:28,650 --> 01:21:30,811
Oh hello.
1786
01:21:31,519 --> 01:21:34,283
It's one of those
'only in California' stories.
1787
01:21:34,489 --> 01:21:36,081
The state's unpopular Governor,
1788
01:21:36,324 --> 01:21:38,815
Gray Davis,
beset by an ailing economy
1789
01:21:39,060 --> 01:21:41,290
and thirty eight billion
dollar budget deficit,
1790
01:21:41,463 --> 01:21:43,192
faces possible recall.
1791
01:21:43,531 --> 01:21:46,500
And rumored as a possible
replacement for Davis,
1792
01:21:46,735 --> 01:21:48,862
movie star
Arnold Schwarzenegger.
1793
01:21:49,237 --> 01:21:50,499
The Terminator?
1794
01:21:50,772 --> 01:21:52,467
We'll see whether
he's back or not.
1795
01:21:52,707 --> 01:21:54,504
Gray Davis has
terminated opportunities
1796
01:21:54,776 --> 01:21:56,903
and now it's time
we terminate Gray Davis!
1797
01:21:57,679 --> 01:22:01,046
No Recall! No Recall!
1798
01:22:04,286 --> 01:22:06,754
Could I predict
a phony energy crisis
1799
01:22:07,022 --> 01:22:08,046
as a result of deregulation?
1800
01:22:08,390 --> 01:22:11,052
Yes. Could I predict that
Arnold Schwartzerneger
1801
01:22:11,326 --> 01:22:13,556
would be our Governor
as a result of deregulation?
1802
01:22:14,195 --> 01:22:15,253
Never would have
come up with that.
1803
01:22:15,463 --> 01:22:16,725
That's like a bad
science fiction movie.
1804
01:22:16,998 --> 01:22:19,159
Apparently we have
all been wrong,
1805
01:22:19,534 --> 01:22:22,298
it is pronounced Caly-forn-ya.
1806
01:22:22,637 --> 01:22:23,626
Ladies and gentlemen,
1807
01:22:23,838 --> 01:22:26,033
the Governor of the great
state of California,
1808
01:22:26,308 --> 01:22:27,775
Arnold Schwarzenegger!
1809
01:22:43,458 --> 01:22:45,449
We could just hear rumbles
all the way up and down
1810
01:22:46,461 --> 01:22:48,452
Main Street here
and all throughout the city
1811
01:22:48,663 --> 01:22:51,655
that things were
very difficult at Enron.
1812
01:22:51,900 --> 01:22:54,528
One guy who a year before had
come to me and said,
1813
01:22:54,736 --> 01:22:55,464
I'm working for Enron,
1814
01:22:55,670 --> 01:22:57,900
and was very excited
but within a year
1815
01:22:58,173 --> 01:23:00,232
was waking up every night
with nightmares.
1816
01:23:00,408 --> 01:23:02,273
'I've got no life left
1817
01:23:02,544 --> 01:23:04,739
and I feel like I'm being
consumed by this company.'
1818
01:23:05,613 --> 01:23:08,081
As doubts began to surface
about the company
1819
01:23:08,316 --> 01:23:10,682
and the erratic
behavior of its CEO
1820
01:23:10,952 --> 01:23:13,284
Enron's stock began to fall.
1821
01:23:13,922 --> 01:23:15,446
I remember one of
the most poignant meetings
1822
01:23:15,657 --> 01:23:16,715
I'd ever had with Jeff.
1823
01:23:16,925 --> 01:23:18,051
I had left Enron
1824
01:23:18,360 --> 01:23:20,055
and I had come over to
talk about whether or not
1825
01:23:20,295 --> 01:23:21,489
I would return to Enron.
1826
01:23:21,763 --> 01:23:23,560
And I said, 'Jeff,
you've got a real problem.
1827
01:23:23,898 --> 01:23:26,366
The traders,
they will cut your throat,
1828
01:23:26,634 --> 01:23:29,262
if they think it will get them
to the trough sooner.'
1829
01:23:29,804 --> 01:23:31,271
Jeff was silent.
1830
01:23:31,573 --> 01:23:33,871
And he looked out the window
1831
01:23:34,309 --> 01:23:36,277
and he looked back
at me and he said,
1832
01:23:36,478 --> 01:23:39,641
'Yeah Amanda,
you're most likely right.'
1833
01:23:41,016 --> 01:23:43,883
By the end,
the traders ran Enron.
1834
01:23:44,152 --> 01:23:46,279
You know, the inmates had
taken over the asylum.
1835
01:23:49,324 --> 01:23:52,589
All through the summer,
the stock continued to decline.
1836
01:23:53,028 --> 01:23:55,724
There was a buzz that a major
1837
01:23:55,964 --> 01:23:57,829
announcement was
going to take place.
1838
01:23:58,099 --> 01:24:02,365
But we all thought that
Ken Lay was leaving
1839
01:24:02,837 --> 01:24:04,998
Enron and that he had been
1840
01:24:05,340 --> 01:24:10,243
asked by the Bush administration
to join his administration.
1841
01:24:10,545 --> 01:24:12,410
But that wasn't
the case at all.
1842
01:24:12,647 --> 01:24:14,137
It was Jeff Skilling
announcing that
1843
01:24:14,416 --> 01:24:16,646
he was stepping down
as the CEO.
1844
01:24:16,918 --> 01:24:19,614
And that took everyone
by surprise.
1845
01:24:19,888 --> 01:24:21,446
No one could believe that.
1846
01:24:22,323 --> 01:24:23,984
CEO's generally,
1847
01:24:24,192 --> 01:24:26,251
don't just resign
out of the blue
1848
01:24:26,561 --> 01:24:30,156
without a well orchestrated PR
campaign beforehand
1849
01:24:30,465 --> 01:24:32,695
to pave the way
so there's no disruptions,
1850
01:24:32,901 --> 01:24:35,062
there's no questions,
there's no front page stories,
1851
01:24:35,303 --> 01:24:37,601
which is, of course,
exactly what happened.
1852
01:24:39,541 --> 01:24:41,509
It was at that point
that I knew,
1853
01:24:41,843 --> 01:24:43,401
the architect of
the disaster knows that
1854
01:24:43,678 --> 01:24:47,011
it's crumbling and the rat is
leaving the sinking ship.
1855
01:24:48,483 --> 01:24:51,680
Two days later
I met with him and Ken Lay
1856
01:24:51,920 --> 01:24:52,944
because I had
informed the company
1857
01:24:53,188 --> 01:24:54,416
that I was going to
downgrade the stock
1858
01:24:54,689 --> 01:24:56,816
on Skilling's resignation.
1859
01:24:57,058 --> 01:24:58,047
I asked Jeff Skilling,
1860
01:24:58,326 --> 01:24:59,953
'are there any more
shoes to drop.
1861
01:25:00,195 --> 01:25:01,321
Have we seen the worst of it.'
1862
01:25:01,529 --> 01:25:03,326
And I was concerned
about the energy crisis
1863
01:25:03,531 --> 01:25:05,226
that was occurring
in California.
1864
01:25:06,601 --> 01:25:09,764
Well, Skilling convinced me
that it was for personal reasons.
1865
01:25:10,038 --> 01:25:13,371
I left his meeting feeling
sort of emotional
1866
01:25:13,575 --> 01:25:16,043
because of the concern
that he seemed to be
1867
01:25:16,277 --> 01:25:19,144
showing about the relationship
he had with his family.
1868
01:25:19,447 --> 01:25:21,108
He appeared to be distraught.
1869
01:25:21,316 --> 01:25:22,977
And I remember saying
to an investor
1870
01:25:23,651 --> 01:25:25,846
'lf he's not telling the truth,
1871
01:25:26,121 --> 01:25:28,055
then it's a good thing
he quit his day job
1872
01:25:28,289 --> 01:25:29,756
because he needs to go
to Hollywood.
1873
01:25:30,125 --> 01:25:31,786
I left Enron on
August fourteenth,
1874
01:25:31,993 --> 01:25:34,120
2001 for personal reasons.
1875
01:25:34,462 --> 01:25:36,896
Mr. Skilling
a massive earthquake
1876
01:25:37,866 --> 01:25:39,891
struck Enron right
after your departure.
1877
01:25:40,502 --> 01:25:45,064
And people in far
inferior positions to you
1878
01:25:45,607 --> 01:25:47,404
could see cracks in the walls,
1879
01:25:47,675 --> 01:25:50,610
feel the tremors,
feel the windows rattling,
1880
01:25:51,112 --> 01:25:52,579
and you want us to believe
1881
01:25:52,881 --> 01:25:55,076
you sat there
in your office and didn't...
1882
01:25:55,316 --> 01:25:57,181
and had no clue
1883
01:25:57,418 --> 01:25:58,783
that this place was
about to collapse?
1884
01:25:59,320 --> 01:26:02,221
On the day I left,
on August fourteenth,
1885
01:26:02,423 --> 01:26:05,221
2001, I believed
the company was in strong,
1886
01:26:05,393 --> 01:26:06,291
financial condition.
1887
01:26:06,494 --> 01:26:08,086
I think he was smart enough
1888
01:26:08,329 --> 01:26:09,455
and he didn't even have
to be that smart,
1889
01:26:09,664 --> 01:26:12,963
he had seen documents that
I think predicted the future.
1890
01:26:13,268 --> 01:26:15,031
I think he was smart
enough to think
1891
01:26:15,303 --> 01:26:17,237
I can get out now
and this company
1892
01:26:17,472 --> 01:26:20,532
isn't going to collapse
for a year,
1893
01:26:20,742 --> 01:26:24,075
maybe a year and a half,
so I won't get the blame.
1894
01:26:24,312 --> 01:26:26,803
It was working fine
when I left, guys.
1895
01:26:28,416 --> 01:26:30,941
After Skilling resigned,
Enron's chairman,
1896
01:26:31,186 --> 01:26:33,381
Ken Lay took over as CEO.
1897
01:26:40,395 --> 01:26:42,124
Boy, I didn't expect that.
1898
01:26:44,098 --> 01:26:45,258
But thank you.
1899
01:26:45,400 --> 01:26:46,492
Thank you very much.
1900
01:26:46,834 --> 01:26:48,597
Well, I'm delighted to be back.
1901
01:26:49,304 --> 01:26:51,499
I'm sorry Jeff did resign.
1902
01:26:51,773 --> 01:26:53,764
It was a stunning announcement,
1903
01:26:54,108 --> 01:26:56,770
that he was stepping
down as CEO.
1904
01:26:57,045 --> 01:26:58,706
And I think the flags
1905
01:27:00,515 --> 01:27:02,813
started going up at
that point for everybody.
1906
01:27:03,084 --> 01:27:04,517
We are facing
a number of challenges,
1907
01:27:04,719 --> 01:27:06,414
but we're managing them.
1908
01:27:06,721 --> 01:27:09,349
Indeed I think the worst
of that's behind us.
1909
01:27:09,924 --> 01:27:11,983
And the business is
doing great.
1910
01:27:12,493 --> 01:27:13,983
We're not the only stock
1911
01:27:14,262 --> 01:27:15,729
that's decreased
in value this year.
1912
01:27:15,964 --> 01:27:17,556
It's just that we've been
hit a little harder than...
1913
01:27:17,799 --> 01:27:18,731
than many others.
1914
01:27:18,967 --> 01:27:21,094
If a few of these
other problems disappear,
1915
01:27:21,469 --> 01:27:23,403
like California, like India.
1916
01:27:23,738 --> 01:27:26,104
I think the worst is over.
1917
01:27:26,541 --> 01:27:28,065
And I'm excited.
1918
01:27:28,376 --> 01:27:30,310
August fourteenth 2001,
1919
01:27:30,745 --> 01:27:32,440
Jeff Skilling abruptly resigns.
1920
01:27:32,747 --> 01:27:34,044
And that made me angry.
1921
01:27:34,282 --> 01:27:36,614
It made loads of
employees angry.
1922
01:27:37,018 --> 01:27:39,111
I mean, there was
a real sense of betrayal
1923
01:27:39,387 --> 01:27:41,321
by the employees.
I mean, this was, you know,
1924
01:27:41,689 --> 01:27:43,714
Jim Jones feeding
us the Kool-Aid
1925
01:27:43,925 --> 01:27:45,859
and then deciding not to
drink it himself.
1926
01:27:50,565 --> 01:27:52,260
The day after
Skilling resigned,
1927
01:27:52,533 --> 01:27:55,400
Sherron Watkins
sent a letter to Ken Lay.
1928
01:27:55,670 --> 01:27:57,501
We will begin with Ms. Watkins.
1929
01:27:57,772 --> 01:27:59,069
I am Sherron Watkins.
1930
01:27:59,307 --> 01:28:01,298
Would you identify your
counsel for the committee.
1931
01:28:01,809 --> 01:28:03,868
Yes. My counsel is
Mr. Philip Hilder.
1932
01:28:04,345 --> 01:28:06,074
When you hear the story
for the first time,
1933
01:28:06,347 --> 01:28:08,008
it's unbelievable.
1934
01:28:08,249 --> 01:28:11,616
What Sherron was telling me
it was more than accounting
1935
01:28:11,853 --> 01:28:12,979
irregularities, as such.
1936
01:28:13,254 --> 01:28:16,917
I mean, it was a massive
fraud of enormous proportions.
1937
01:28:17,258 --> 01:28:19,453
In mid to late June of 2001,
1938
01:28:19,727 --> 01:28:22,252
upon the resignation
of Cliff Baxter,
1939
01:28:22,497 --> 01:28:24,658
I went to work directly
for Mr. Fastow.
1940
01:28:24,866 --> 01:28:28,666
It has evolved to the corporate
crime of the century.
1941
01:28:28,936 --> 01:28:32,064
I was highly alarmed by the
information I was receiving.
1942
01:28:33,408 --> 01:28:34,875
What Sherron Watkins discovered
1943
01:28:35,143 --> 01:28:38,579
began the unraveling of
Fastow's complex partnerships.
1944
01:28:38,946 --> 01:28:41,676
Andy put me in charge of
this asset listing.
1945
01:28:42,050 --> 01:28:46,783
And there were about a dozen
assets that had been hedged
1946
01:28:47,021 --> 01:28:50,320
with one of Andy's entities,
the Raptors.
1947
01:28:50,658 --> 01:28:53,126
So I was working with
this spreadsheet and,
1948
01:28:53,528 --> 01:28:55,655
you know,
the math just didn't add up.
1949
01:28:55,930 --> 01:28:57,454
It didn't make sense to me.
1950
01:28:57,665 --> 01:28:59,530
I mean, accounting doesn't
get that creative.
1951
01:28:59,801 --> 01:29:00,927
You know,
I couldn't believe that
1952
01:29:01,135 --> 01:29:02,295
Arthur Andersen had
signed off on it.
1953
01:29:02,637 --> 01:29:05,538
I couldn't believe that so
many people were going along.
1954
01:29:06,708 --> 01:29:08,403
Behind Fastow's partnerships
1955
01:29:08,743 --> 01:29:11,735
were enormous guarantees
of Enron's stock.
1956
01:29:12,146 --> 01:29:14,580
Fastow had gambled
Enron's future
1957
01:29:14,782 --> 01:29:17,751
on the hope that its stock
would never fall.
1958
01:29:18,152 --> 01:29:22,111
My first reaction was that
I should warn Ken Lay.
1959
01:29:22,590 --> 01:29:23,955
The day after Skilling left,
1960
01:29:24,158 --> 01:29:26,353
I sent this one page
anonymous letter.
1961
01:29:26,627 --> 01:29:28,788
But within a week
I was meeting with Ken Lay.
1962
01:29:29,030 --> 01:29:30,497
I identified myself
1963
01:29:30,765 --> 01:29:32,790
in the hopes of really
making my point
1964
01:29:33,067 --> 01:29:35,058
that Enron really needed to
address this situation.
1965
01:29:35,303 --> 01:29:37,669
Companies rarely get away
with cooking the books.
1966
01:29:37,939 --> 01:29:40,305
But when they do survive,
it's when they come clean.
1967
01:29:40,541 --> 01:29:43,135
Not when they're exposed
from the outside.
1968
01:29:43,511 --> 01:29:45,342
Ms. Watkins, I went through...
1969
01:29:45,580 --> 01:29:47,275
Ms. Watkins did not talk
to me, Senator.
1970
01:29:47,548 --> 01:29:50,949
Well, Ms. Watkins said
Clifford Baxter told her
1971
01:29:51,285 --> 01:29:54,846
that he met with you repeatedly
to express his concern.
1972
01:29:55,156 --> 01:29:58,250
Cliff and Andy have had a...
they didn't like each other.
1973
01:29:58,559 --> 01:30:01,323
They had a very strained
personal relationship
1974
01:30:01,662 --> 01:30:04,358
and Cliff's issue
had nothing to do
1975
01:30:04,699 --> 01:30:05,893
with the appropriateness
1976
01:30:06,134 --> 01:30:07,431
or inappropriateness of
the transactions
1977
01:30:07,668 --> 01:30:11,069
I mentioned Cliff Baxter
in these memos.
1978
01:30:11,272 --> 01:30:13,206
And I remember
I made the comment to him,
1979
01:30:13,741 --> 01:30:15,299
'you're one of the good guys,
1980
01:30:15,576 --> 01:30:16,474
you know,
you're one of the people
1981
01:30:16,677 --> 01:30:20,477
fighting against this.
And it'd be alright.'
1982
01:30:20,715 --> 01:30:21,807
And he said,
1983
01:30:22,049 --> 01:30:23,073
'oh I don't think
it's going to be alright
1984
01:30:23,317 --> 01:30:25,251
for any of us involved.'
1985
01:30:28,556 --> 01:30:30,524
When I started working
on the book with Sherron,
1986
01:30:30,825 --> 01:30:32,588
I was interested in writing
about a whistleblower.
1987
01:30:32,827 --> 01:30:35,022
People don't really appreciate
1988
01:30:35,663 --> 01:30:38,894
what she did and the bravery
that it took in that company.
1989
01:30:39,167 --> 01:30:41,692
Andy Fastow would not
have put his hands
1990
01:30:41,969 --> 01:30:44,665
in the Enron candy jar
without an explicit
1991
01:30:44,872 --> 01:30:47,841
or implicit approval to do
so by Mr. Skilling.
1992
01:30:48,075 --> 01:30:50,475
I can't for the life of me
see what basis she
1993
01:30:50,678 --> 01:30:52,839
would have for suggesting
that I would know some...
1994
01:30:53,080 --> 01:30:54,980
I mean, how would
she know that?
1995
01:30:55,183 --> 01:30:56,946
And I don't see that
it's at all inconsistent that
1996
01:30:57,151 --> 01:30:59,016
there would be some things
that I don't know
1997
01:30:59,287 --> 01:31:02,586
if some people purposely kept me
from knowing some things
1998
01:31:02,890 --> 01:31:06,417
I felt like I was one lone voice
within Enron saying,
1999
01:31:06,627 --> 01:31:08,390
'look, we've...
we've committed horrible fraud.'
2000
01:31:08,596 --> 01:31:09,927
And of course
all hell broke loose.
2001
01:31:10,131 --> 01:31:13,623
Within six short weeks Enron
was spinning out of control.
2002
01:31:18,506 --> 01:31:20,030
Probably in more
normal circumstances
2003
01:31:20,308 --> 01:31:21,798
I would have
a few more words to say
2004
01:31:22,043 --> 01:31:23,567
about September the eleventh.
2005
01:31:23,845 --> 01:31:26,973
Just like America is
under attack by terrorism,
2006
01:31:27,715 --> 01:31:30,309
I think we're under attack.
And of course.
2007
01:31:31,586 --> 01:31:36,785
Now we've got the SEC inquiry,
informal inquiry...
2008
01:31:37,625 --> 01:31:39,593
The SEC launched
an investigation
2009
01:31:39,861 --> 01:31:41,351
When the Wall Street
Journal published
2010
01:31:41,629 --> 01:31:44,621
articles revealing
Fastow's murky deals.
2011
01:31:44,966 --> 01:31:47,730
Enron announced massive
financial restatements.
2012
01:31:48,336 --> 01:31:50,304
Investors began to
worry that billions
2013
01:31:50,538 --> 01:31:53,871
in mark-to-market profits
were really losses.
2014
01:31:56,410 --> 01:31:58,071
As you can see foresee,
2015
01:31:58,346 --> 01:32:02,908
the underlying fundamentals of
our businesses are very strong.
2016
01:32:03,284 --> 01:32:05,309
Indeed the strongest
they've ever been.
2017
01:32:06,587 --> 01:32:08,316
But regrettably,
2018
01:32:09,023 --> 01:32:11,116
that's not what Wall Street
is focusing on.
2019
01:32:11,959 --> 01:32:14,257
And I doubt that's what
you're focusing on.
2020
01:32:14,495 --> 01:32:16,622
This inquiry will
take a lot of time
2021
01:32:17,031 --> 01:32:19,829
on the part of our accountants
and lawyers and others.
2022
01:32:22,103 --> 01:32:25,038
But it will finally
put these issues to rest.
2023
01:32:26,674 --> 01:32:29,666
At the very moment Ken Lay
was talking to employees,
2024
01:32:29,944 --> 01:32:32,970
only a few blocks away,
Enron's accounting firm,
2025
01:32:33,214 --> 01:32:34,146
Arthur Andersen,
2026
01:32:34,348 --> 01:32:36,748
had begun destroying
its Enron files.
2027
01:32:37,718 --> 01:32:39,310
On October 23rd,
2028
01:32:39,587 --> 01:32:42,647
Andersen shredded more than
one ton of paper.
2029
01:32:45,326 --> 01:32:47,658
Despite the rumors,
despite the speculation,
2030
01:32:47,929 --> 01:32:51,592
the company is doing well both
financially and operationally.
2031
01:32:51,799 --> 01:32:53,391
He was making
all kinds of statements.
2032
01:32:53,668 --> 01:32:55,693
Reassuring employees
and not just employees,
2033
01:32:55,937 --> 01:32:57,404
reassuring investors,
2034
01:32:57,638 --> 01:33:01,472
'we have no
accounting irregularities,
2035
01:33:01,676 --> 01:33:03,337
the company's in the best shape
it's ever been in'
2036
01:33:03,578 --> 01:33:05,239
From the standpoint
of Enron stock,
2037
01:33:05,413 --> 01:33:06,710
we're going to bring it back...
2038
01:33:06,981 --> 01:33:08,346
we're going to bring it back.
2039
01:33:08,583 --> 01:33:10,551
Alright,
we're down to questions.
2040
01:33:10,785 --> 01:33:12,252
I've got a few of them here.
2041
01:33:12,420 --> 01:33:14,684
'I would like to know
if you are on crack?
2042
01:33:18,492 --> 01:33:19,982
If so,
that would explain a lot.
2043
01:33:20,294 --> 01:33:21,556
If not. You may want to start
2044
01:33:21,796 --> 01:33:23,286
because it's going
to be a long time
2045
01:33:23,531 --> 01:33:24,998
before we trust you again.'
2046
01:33:25,700 --> 01:33:27,634
It certainly wasn't clear
to anyone at Enron,
2047
01:33:27,902 --> 01:33:29,096
much less anyone
outside of Enron
2048
01:33:29,337 --> 01:33:32,795
it wasn't really clear
what was going on or...
2049
01:33:33,074 --> 01:33:34,541
what was going to happen.
2050
01:33:34,775 --> 01:33:36,106
I know this is a lot...
2051
01:33:36,410 --> 01:33:38,970
There is a lot of speculation
about Andy's involvement
2052
01:33:39,313 --> 01:33:41,941
I and the board are
also sure that
2053
01:33:42,183 --> 01:33:45,084
Andy has operated
in the most ethical
2054
01:33:45,353 --> 01:33:47,321
and appropriate manner possible.
2055
01:33:47,922 --> 01:33:50,652
The next day,
Andy Fastow was fired
2056
01:33:50,992 --> 01:33:52,687
when the Enron board
discovered that
2057
01:33:52,994 --> 01:33:55,121
he had made more than
$45 million dollars
2058
01:33:55,363 --> 01:33:57,297
from his LJM partnerships.
2059
01:33:57,698 --> 01:34:00,292
The question, Mr. Fastow,
is how could you believe
2060
01:34:00,735 --> 01:34:03,863
that your actions were
in any way consistent
2061
01:34:04,105 --> 01:34:06,232
with your fiduciary
duties to Enron
2062
01:34:06,507 --> 01:34:09,067
and its shareholders
or with common sense
2063
01:34:09,310 --> 01:34:12,438
notions of corporate ethics
and propriety?
2064
01:34:13,147 --> 01:34:13,943
How do you answer, sir?
2065
01:34:14,181 --> 01:34:16,581
Mr. Chairman on
the advice of my counsel,
2066
01:34:16,851 --> 01:34:18,876
I respectfully decline to
answer the questions
2067
01:34:19,420 --> 01:34:21,149
based on the protection
afforded me
2068
01:34:21,422 --> 01:34:23,447
under the United States
Constitution.
2069
01:34:27,528 --> 01:34:29,257
Andy, in many ways,
2070
01:34:29,530 --> 01:34:31,760
I think he was set up
as the fall guy.
2071
01:34:32,066 --> 01:34:35,627
All of the Enron executives
were saying,
2072
01:34:35,836 --> 01:34:38,134
'there's your man, Andy Fastow.
He's the crook.
2073
01:34:38,406 --> 01:34:40,169
You know, he's the one
that stole from Enron,
2074
01:34:40,408 --> 01:34:41,272
stole from LJM.
2075
01:34:41,475 --> 01:34:42,806
He's the one that
cooked the books.
2076
01:34:43,077 --> 01:34:44,169
Go after him.'
2077
01:34:44,745 --> 01:34:46,269
How will you plead, Mr. Fastow?
2078
01:34:47,014 --> 01:34:49,073
I've thought about this
and thought about this.
2079
01:34:49,316 --> 01:34:52,342
And it couldn't have
just been a few executives
2080
01:34:52,586 --> 01:34:54,986
at Enron that made this happen.
2081
01:34:55,222 --> 01:34:59,352
If you think of the banks
involved Chase,
2082
01:35:00,261 --> 01:35:02,593
Morgan, Citibank
2083
01:35:04,565 --> 01:35:08,467
the billions in loans
Arthur Andersen...
2084
01:35:08,736 --> 01:35:10,226
What about Vincent and Elkins,
2085
01:35:10,471 --> 01:35:13,634
the lawyers that
represented us?
2086
01:35:13,908 --> 01:35:16,706
There had to have been
complicity across the board.
2087
01:35:17,278 --> 01:35:19,405
Because it was all too easy;
2088
01:35:19,780 --> 01:35:21,975
all too easy.
2089
01:35:26,487 --> 01:35:28,978
The Enron collapse was
an enormous tragedy.
2090
01:35:29,757 --> 01:35:33,318
This is a company that had
over thirty thousand employees,
2091
01:35:33,694 --> 01:35:35,355
and clearly with
a company that size
2092
01:35:35,629 --> 01:35:37,256
you have a lot of
senior officers
2093
01:35:37,431 --> 01:35:40,559
that have a lot of authority in
which you place enormous trust.
2094
01:35:40,835 --> 01:35:43,269
But in the case
there was at least one,
2095
01:35:43,637 --> 01:35:46,470
Andy Fastow,
that betrayed that trust
2096
01:35:47,041 --> 01:35:48,269
to the extent that
2097
01:35:48,476 --> 01:35:50,068
I did not know
what he was doing,
2098
01:35:50,311 --> 01:35:52,370
he obviously didn't share
with me what he was doing,
2099
01:35:53,114 --> 01:35:56,709
then indeed I cannot take
responsibility for what he did
2100
01:35:56,951 --> 01:35:57,940
I never heard him say,
2101
01:35:58,152 --> 01:35:59,449
'I take responsibility'
for a thing.
2102
01:35:59,653 --> 01:36:03,054
It sounded to me like
the wonderful movie, 'Chicago'.
2103
01:36:03,691 --> 01:36:05,955
I was reminded of
the puppet strings
2104
01:36:06,260 --> 01:36:08,228
and the dancers
and the tap dancing
2105
01:36:08,395 --> 01:36:10,090
and pointing at the gun,
the gun, the gun.
2106
01:36:10,397 --> 01:36:14,231
I mean. Everybody's
in step with Johnny.
2107
01:36:14,502 --> 01:36:18,097
I continue to grieve,
as does my family,
2108
01:36:18,973 --> 01:36:20,838
over the loss of the company.
2109
01:36:21,108 --> 01:36:23,269
Linda and I saw
our net worth reduced
2110
01:36:23,477 --> 01:36:25,445
from several hundred
million dollars down to
2111
01:36:25,780 --> 01:36:27,475
something less than
twenty million dollars
2112
01:36:27,715 --> 01:36:28,739
on a net worth basis.
2113
01:36:28,983 --> 01:36:29,915
And of course,
as... as you said,
2114
01:36:30,117 --> 01:36:32,915
about a million dollars
or less in liquidity.
2115
01:36:34,555 --> 01:36:37,786
I don't know whether
I'd rather be shot as a crook
2116
01:36:38,058 --> 01:36:40,356
or as an idiot.
2117
01:36:40,861 --> 01:36:45,594
I believe the only venue for me
is the 'Ride of Broken Dreams.'
2118
01:36:45,866 --> 01:36:47,299
Oh, you mean the Enron ride!
2119
01:36:47,568 --> 01:36:48,034
Let's go!
2120
01:36:48,335 --> 01:36:49,700
Enron hit the National psyche.
2121
01:36:49,937 --> 01:36:52,633
It hit it as sort of,
the time-tested lesson.
2122
01:36:52,907 --> 01:36:54,738
And that is,
if it looks too good to be true,
2123
01:36:55,042 --> 01:36:56,407
sometimes it is.
2124
01:36:59,079 --> 01:37:00,671
We're all going to be rich!
2125
01:37:03,317 --> 01:37:04,614
We broke even.
2126
01:37:13,527 --> 01:37:15,427
It is my belief that
Enron's failure was
2127
01:37:15,629 --> 01:37:18,097
due to a classic
run on the bank.
2128
01:37:19,900 --> 01:37:21,731
Don't look now but there's
something funny going on
2129
01:37:21,969 --> 01:37:23,231
over there at the bank, George.
2130
01:37:23,404 --> 01:37:24,336
I've never really seen one,
2131
01:37:24,538 --> 01:37:26,506
but that's got all the
earmarks of being a run.
2132
01:37:34,982 --> 01:37:36,847
On December 2nd 2001,
2133
01:37:37,151 --> 01:37:39,984
less than four months
after Skilling's resignation
2134
01:37:40,321 --> 01:37:42,414
Enron declared bankruptcy.
2135
01:37:44,558 --> 01:37:47,721
I remember
it was just a strange,
2136
01:37:47,962 --> 01:37:49,361
kind of surreal day.
2137
01:37:49,597 --> 01:37:52,691
We learned around nine thirty
about the bankruptcy
2138
01:37:53,000 --> 01:37:55,025
and that we were
all being let go.
2139
01:37:56,537 --> 01:37:59,267
We all felt like
we were on the Titanic
2140
01:37:59,573 --> 01:38:02,406
and the last lifeboats
had long gone
2141
01:38:02,643 --> 01:38:06,238
and we were just now
on the sinking ship.
2142
01:38:07,648 --> 01:38:09,946
We had thirty minutes
to leave the building
2143
01:38:10,150 --> 01:38:12,118
and at that point
it was no longer
2144
01:38:12,386 --> 01:38:14,320
like being on the Titanic.
2145
01:38:14,655 --> 01:38:17,215
It was kind of like being
on the Lusitania.
2146
01:38:17,358 --> 01:38:18,518
The torpedo had hit
2147
01:38:18,826 --> 01:38:21,624
and there's twenty minutes
to get out.
2148
01:38:24,598 --> 01:38:26,725
There's a lot of disbelief.
2149
01:38:27,001 --> 01:38:30,664
Very few of the rank and file
people ever dreamed that
2150
01:38:30,905 --> 01:38:32,896
Enron would
actually go bankrupt.
2151
01:38:37,745 --> 01:38:39,713
Then all of a sudden,
it was like a ghost town.
2152
01:38:42,149 --> 01:38:44,640
I can remember going
into the old building,
2153
01:38:44,885 --> 01:38:47,251
on certain floors,
ah, late in the,
2154
01:38:47,454 --> 01:38:49,581
afternoon or evening.
And it was scary.
2155
01:38:49,990 --> 01:38:51,582
There'd be like paper
blowing around,
2156
01:38:51,859 --> 01:38:52,791
and nobody there,
2157
01:38:53,093 --> 01:38:55,755
and it was just...
it was very eerie.
2158
01:39:02,336 --> 01:39:04,702
Mr. Skilling,
your opening statement was
2159
01:39:04,939 --> 01:39:07,931
extremely compassionate
to the employees.
2160
01:39:08,375 --> 01:39:10,639
And I want to show you a tape.
2161
01:39:10,878 --> 01:39:12,812
And I believe
we have it ready to go.
2162
01:39:13,113 --> 01:39:14,478
Listen to this.
2163
01:39:14,782 --> 01:39:17,012
Should we invest all of
our 401k in Enron Stock?
2164
01:39:17,251 --> 01:39:20,049
Absolutely.
Don't you guys agree?
2165
01:39:23,958 --> 01:39:27,121
Why is it that you had begun
unloading your stock?
2166
01:39:27,461 --> 01:39:30,055
Pretty heavily
before that date
2167
01:39:30,297 --> 01:39:32,322
and yet led
the employees to think that
2168
01:39:32,533 --> 01:39:34,433
they should keep buying stock?
2169
01:39:36,370 --> 01:39:36,893
Ms. Senator,
2170
01:39:37,171 --> 01:39:41,107
I have been a major shareholder
in Enron Corporation
2171
01:39:41,342 --> 01:39:42,809
and you can take
the videotape to mean
2172
01:39:43,010 --> 01:39:43,977
what you want it to mean.
2173
01:39:44,178 --> 01:39:45,907
I was a supporter of
Enron Corporation.
2174
01:39:46,113 --> 01:39:47,444
You know what happened
to those people.
2175
01:39:47,715 --> 01:39:48,739
They lost everything.
2176
01:39:48,983 --> 01:39:52,851
I feel terrible about
what happened to the employees.
2177
01:39:54,888 --> 01:39:57,857
Oh at one time,
things were really rosy for us.
2178
01:39:58,759 --> 01:40:01,057
And we all had some
really nice-looking 401ks
2179
01:40:01,295 --> 01:40:03,661
and pensions
and then it peaked.
2180
01:40:03,864 --> 01:40:05,627
And then it
just started going down,
2181
01:40:05,899 --> 01:40:07,526
and it went lower
and lower and lower.
2182
01:40:07,835 --> 01:40:10,599
At the peak
I had about 348 thousand.
2183
01:40:10,938 --> 01:40:13,168
I sold it all for 1200 dollars;
2184
01:40:13,407 --> 01:40:15,170
was what I got for it,
when it was done.
2185
01:40:19,580 --> 01:40:21,445
While Enron's stock
was plummeting,
2186
01:40:21,749 --> 01:40:23,649
the retirement
accounts of Enron's rank
2187
01:40:23,917 --> 01:40:25,908
and file workers were frozen.
2188
01:40:26,220 --> 01:40:27,687
We were frozen out of
our accounts.
2189
01:40:27,955 --> 01:40:30,423
It was right about
thirty two dollars, I believe.
2190
01:40:30,858 --> 01:40:32,416
And over that time,
2191
01:40:32,659 --> 01:40:34,320
from when it was frozen to
when it opened up,
2192
01:40:34,595 --> 01:40:35,926
I think it went down to nine.
2193
01:40:36,163 --> 01:40:37,425
And we could not access it.
2194
01:40:37,664 --> 01:40:39,063
And what came out
later that was so bad,
2195
01:40:39,266 --> 01:40:42,463
was the fact that
Ken Lay and Skilling
2196
01:40:42,669 --> 01:40:45,194
and all the top people were
movin' their money then.
2197
01:40:46,006 --> 01:40:47,303
But we couldn't.
2198
01:40:49,443 --> 01:40:53,243
The insiders had sold off
a billion dollars of their stock.
2199
01:40:53,514 --> 01:40:56,745
Compare that to the lineman
who worked for a staid,
2200
01:40:56,984 --> 01:40:59,282
old utility company
for most of his life;
2201
01:40:59,520 --> 01:41:01,385
put away money each month.
2202
01:41:01,622 --> 01:41:03,988
And what's he have to show,
at the end day,
2203
01:41:04,291 --> 01:41:06,691
for his years of hard
and decent labor?
2204
01:41:06,927 --> 01:41:08,258
He gets a big goose egg.
2205
01:41:08,862 --> 01:41:11,660
And Pai is out
in Hawaii somewhere,
2206
01:41:11,932 --> 01:41:14,025
with 350 million dollars
in the bank.
2207
01:41:14,301 --> 01:41:15,666
That's wrong.
2208
01:41:22,976 --> 01:41:27,037
There is still to this city
a layer of anger and upset.
2209
01:41:27,781 --> 01:41:29,408
I am still doing counseling,
2210
01:41:29,716 --> 01:41:31,581
three years later,
with some families.
2211
01:41:34,221 --> 01:41:36,917
Where some of those
who are most reflective,
2212
01:41:37,157 --> 01:41:38,488
it's gone to a deeper layer.
2213
01:41:38,692 --> 01:41:41,354
And they are looking
at the corporate culture itself
2214
01:41:41,662 --> 01:41:42,720
in this country.
2215
01:41:43,030 --> 01:41:44,793
You know,
you can gain the whole world
2216
01:41:45,332 --> 01:41:46,765
and all the trinkets
2217
01:41:47,000 --> 01:41:48,058
and all the trophies
of the world,
2218
01:41:48,335 --> 01:41:50,735
the corner office,
and all the perks
2219
01:41:51,004 --> 01:41:54,303
and you really can lose
your soul in the midst of this.
2220
01:41:55,676 --> 01:41:58,110
On January 25th, 2002,
2221
01:41:58,345 --> 01:42:00,677
seven weeks after
the Enron bankruptcy,
2222
01:42:00,914 --> 01:42:03,246
Cliff Baxter committed suicide.
2223
01:42:03,584 --> 01:42:05,381
With the media hounding him
2224
01:42:05,686 --> 01:42:07,779
because he was mentioned
in my memos
2225
01:42:07,988 --> 01:42:09,979
and the fact that
he'd been sued civilly
2226
01:42:10,290 --> 01:42:12,315
because he'd cashed
in for about
2227
01:42:12,526 --> 01:42:13,857
thirty million dollars
worth of stock
2228
01:42:14,094 --> 01:42:16,255
I guess it all came
crashing down on him.
2229
01:42:16,930 --> 01:42:19,694
I think Cliff's suicide
note tells it all.
2230
01:42:19,900 --> 01:42:22,733
You know,
Where there was once great pride,
2231
01:42:23,036 --> 01:42:24,435
now there is none.
2232
01:42:28,375 --> 01:42:30,366
It's very hard for me
to talk about Cliff.
2233
01:42:30,611 --> 01:42:32,374
We were very close
for many years.
2234
01:42:34,314 --> 01:42:37,374
And he was a wonderful,
wonderful man.
2235
01:42:37,718 --> 01:42:41,677
But a lot of who Cliff
was tied up in how
2236
01:42:41,922 --> 01:42:43,947
he had succeeded at Enron.
2237
01:42:44,458 --> 01:42:47,393
It is hard to look at
your life's work and say
2238
01:42:48,529 --> 01:42:49,894
it's failed.
2239
01:42:50,197 --> 01:42:54,395
But you have to take a long,
cold look at yourself and say,
2240
01:42:55,102 --> 01:42:57,798
'who was I? Who did I become? '
2241
01:42:59,239 --> 01:43:03,141
And realize that you may
have seen your shadow.
2242
01:43:05,179 --> 01:43:09,240
Andy Fastow pled guilty to
conspiracy to commit wire fraud.
2243
01:43:09,483 --> 01:43:12,850
He agreed to forfeit 23
million dollars in assets.
2244
01:43:13,387 --> 01:43:15,981
His sentence was
reduced to ten years
2245
01:43:16,290 --> 01:43:20,590
in exchange for testifying
against other Enron executives.
2246
01:43:22,396 --> 01:43:23,124
Why Enron?
2247
01:43:23,430 --> 01:43:26,661
Why not Worldcom or Tyco
or Global Crossings?
2248
01:43:26,900 --> 01:43:31,667
Ultimately in Enron the fatal
flaw was a sense that brains
2249
01:43:32,306 --> 01:43:34,968
and wiliness could
out-think the way
2250
01:43:35,209 --> 01:43:36,767
that the system
will eventually work.
2251
01:43:37,177 --> 01:43:41,113
In 2004, Jeff Skilling was
indicted for insider trading
2252
01:43:41,381 --> 01:43:43,542
and conspiracy to
defraud investors.
2253
01:43:44,017 --> 01:43:44,984
Pleading innocent,
2254
01:43:45,319 --> 01:43:47,082
he paid his
attorneys a retainer of
2255
01:43:47,321 --> 01:43:49,881
23 million dollars
to defend him.
2256
01:43:50,591 --> 01:43:54,755
Enron should not be viewed
as an aberration,
2257
01:43:54,995 --> 01:43:57,088
something that can't
happen anywhere else.
2258
01:43:57,331 --> 01:44:00,095
Because it's all about
the rationalization
2259
01:44:00,667 --> 01:44:02,225
that you're not doing
anything wrong.
2260
01:44:02,469 --> 01:44:05,233
We've involved Arthur Andersen,
we've involved the lawyers.
2261
01:44:05,439 --> 01:44:07,031
The bankers know
what we're doing.
2262
01:44:07,474 --> 01:44:10,534
There's a sense the
diffusion of responsibility.
2263
01:44:10,877 --> 01:44:12,606
Everyone was on the bandwagon.
2264
01:44:13,380 --> 01:44:14,779
And it can happen again.
2265
01:44:16,683 --> 01:44:18,082
Enron's accounting firm.
2266
01:44:18,285 --> 01:44:19,274
Arthur Andersen,
2267
01:44:19,486 --> 01:44:21,647
was convicted of
obstructing justice.
2268
01:44:22,589 --> 01:44:25,149
With its reputation
for honesty destroyed,
2269
01:44:25,459 --> 01:44:29,395
America's oldest accounting
firm fell along with Enron
2270
01:44:29,630 --> 01:44:32,929
and twenty nine thousand people
lost their jobs.
2271
01:44:33,300 --> 01:44:35,530
Enron's shareholders
are suing Enron
2272
01:44:35,802 --> 01:44:38,362
and its banks
for 20 billion dollars.
2273
01:44:42,409 --> 01:44:45,742
Ken Lay was also indicted
for conspiracy to commit fraud.
2274
01:44:46,046 --> 01:44:49,140
His attorney maintains that
no one has been hurt more
2275
01:44:49,416 --> 01:44:52,146
by the Enron bankruptcy
than Ken Lay.
2276
01:44:53,186 --> 01:44:55,120
Nice of all of you to
show up this morning.
2277
01:44:55,322 --> 01:44:57,085
With today's arrest of Ken Lay,
2278
01:44:58,225 --> 01:45:00,693
the top echelon at Enron
2279
01:45:01,061 --> 01:45:04,394
has now been called to
account for their crimes.
2280
01:45:04,698 --> 01:45:06,359
Mr. Lay, do you have
anything to say, sir?
2281
01:45:06,633 --> 01:45:08,225
A little later today I will.
2282
01:45:08,535 --> 01:45:09,502
Looking at Enron is like
2283
01:45:09,736 --> 01:45:12,261
looking at the flip side of
so much possibility
2284
01:45:12,506 --> 01:45:14,872
because like most things
that end terribly,
2285
01:45:15,108 --> 01:45:16,268
it didn't start out that way.
2286
01:45:16,476 --> 01:45:18,467
It started with
a lot of people who thought
2287
01:45:18,712 --> 01:45:19,872
they were changing the world.
2288
01:45:20,180 --> 01:45:23,115
And over time they became
victims of their own hubris,
2289
01:45:23,350 --> 01:45:24,578
victims of their own greed
2290
01:45:24,851 --> 01:45:27,285
and so it's like taking
so much promise and possibility
2291
01:45:27,487 --> 01:45:29,011
and looking at it
in a mirror and seeing
2292
01:45:29,289 --> 01:45:31,257
the flip side reflected
back at you.
2293
01:45:33,293 --> 01:45:35,523
I think the larger lesson was
2294
01:45:35,762 --> 01:45:40,028
what Enron asked of
its employees which was ask why.
2295
01:45:41,301 --> 01:45:45,328
And you know I didn't ask
myself why enough;
2296
01:45:45,572 --> 01:45:47,130
I didn't ask
managers why enough,
2297
01:45:47,374 --> 01:45:50,810
I didn't ask
my colleagues why enough.
2298
01:45:51,305 --> 01:45:57,751
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