The Trouble with Enron

January 2, 2007 9:19 AM

Open Secrets- the trouble with Enron
posted by Gyan (68 comments total)

Man, it was so dumb for those people to put all their retirement money in the company they worked for. You can't get higher risk then that. If people think capitalism is so awesome, they shouldn't whine about the consequences.
posted by delmoi at 9:32 AM on January 2, 2007

I worked in downtown Houston in 2000 when Enron was going full speed ahead (to hell). In the tunnel system where there are many lunch spots, it was easy to pick out the Enron employees from their loud mouthed swagger (badges would confirm it). Most everyone that lost all their money there had already drunk Skilling's kool-aid and was sucked up into the same greed vortex. The promise of becoming a millionaire even though your basic salary isn't even six figures blinded them from rational thoughts such as "don't put all your retirement into company stock".
posted by Burhanistan at 9:39 AM on January 2, 2007 [1 favorite]

Interesting stuff, Gyan. Thanks for posting.

I'm not convinced yet by the distinction the writer draws between 'puzzle' and 'mystery'. I need to mull that over a bit.

But the way the Enron thing is addressed is nicely done, and I like the anecdotes comparing it to solving other types of puzzles. It's notable and interesting that a number of people, including a bunch of students (!) managed to figure out that Enron was circling the drain early on, just from publicly available information.

On preview: yeah, what delmoi and Burhanistan said: diversify. Large cap, small cap, foreign, bonds. And never imagine you're smarter than the market.

BTW, needs a 'Nazis' tag. Everything is better with a 'Nazis' tag.
posted by Slithy_Tove at 9:48 AM on January 2, 2007

From the article:

“I only have one request, Your Honor,” Daniel Petrocelli, Skilling’s lawyer, said. “If he received ten fewer months, which shouldn’t make a difference in terms of the goals of sentencing, if you do the math and you subtract fifteen per cent for good time, he then qualifies under Bureau of Prisons policies to be able to serve his time at a lower facility. Just a ten-month reduction in sentence . . .”

It was a plea for leniency. Skilling wasn’t a murderer or a rapist. He was a pillar of the Houston community, and a small adjustment in his sentence would keep him from spending the rest of his life among hardened criminals.

"No," Judge Lake said.

There are large portions of the article that would fall under my would-be editor's red pen (Nazis? Cancer? It is a mystery), but this particular passage gave me shivers for how simple and powerful it is.
posted by boo_radley at 9:57 AM on January 2, 2007

Wow, the parts about Enron are interesting, but the Authors digression into the difference (in his own mind) about the difference between "Mystery" and "Puzzles" is really annoying. Cherry picked anecdotes, re contextualizing other people's statements to fit into his framework, et cetera. It's all very annoying.

He's basically talking about Information theory (and game theory) and yet he doesn't understand it very well. In my mind this falls under "Bad science writing" or maybe "bad math writing."
posted by delmoi at 10:01 AM on January 2, 2007

The whole energy trading risk management (ETRM) world is inbred and EVIL. I used to work at a company that advised the Enrons of the world and sold them software that did the mark to market stuff. Garbage in, garbage out. I wrote a lot of proposals, but none of them mentioned anything about delivering shareholder value.
posted by punkfloyd at 10:05 AM on January 2, 2007

I'm confused. Is he implying with the whole "puzzle/mystery" thing that the plea that Skilling's sentence be less harsh is reasonable, since screwing up huge complicated financial plans on wild gambles is actually a pretty easy mistake to make? (a la "Conspiracy of Fools", etc.)
posted by hermitosis at 10:12 AM on January 2, 2007

There is something to be said for investing in the place you work, assuming the company is doing well, you have much better information than the normal investor, which gives you an advantage. They were not dumb at all. They were lied too and misled.
posted by stbalbach at 10:16 AM on January 2, 2007

I sort of agree with delmoi: The parts about Enron are interesting, but Malcolm Gladwell's digressions into the differences between mysteries and puzzles are pretty annoying. Including the fact that he's wrong about the differences between a puzzle and a mystery...

For example: A puzzle -- the picture thing with interlocking pieces -- has all of the information available, it's just about making sense of what goes where. That doesn't seem to fit Malcolm's definition of "puzzle" very well.
posted by chasing at 10:21 AM on January 2, 2007

Whoa. I totally didn't mean to rewrite delmoi's first sentence nearly word-for-word. Weird. Brain glitch.

I'm still recovering from NYE...
posted by chasing at 10:23 AM on January 2, 2007

Fascinating post, thanks for sharing.
posted by Blazecock Pileon at 10:26 AM on January 2, 2007

Second delmoi on the annoying distinctions ; my guess is that these sleazebags at Enron knew exactly what they were doing, even if maybe they din't care about minute detail, which were obscure also to "experts" anyway.

Yet one would think that accurate, detailed analysis like the one carried by the college students would have discovered the stock was very overpriced and that an alarm would have prevented the chaos ; if anything this suggests such analysis aren't routinely done..or that they are simply not reported when doing so isn't profiteable (or is damaging) for the analyst.

About diversification of investment : all eggs in the same basket is very very dangerous, always was. Still considering money isn't eggs and that buying different baskets is expensive , how much does diversifying really cost ?

When I questioned some bank tellers / investment "managers" about contractual aspect and demanded them to show math explanations, all I got was a lousy "but interest rates are low" and yadda yadda yadda , but only ONE time was exposed to an obscure equation that would have scared most of the consumers anyway. Obviously, the guy couldn't tell the difference between multiplier and multiplication.

Financial market isn't for consumers, not even for many college graduates.
posted by elpapacito at 10:39 AM on January 2, 2007

it was so dumb for those people to put all their retirement money in the company they worked for. You can't get higher risk then that. If people think capitalism is so awesome, they shouldn't whine about the consequences.

I completely agree, but it should be said that in the heady days of the dot-com boom 1998-2000, I knew of more than a few paper millionaires at a few companies whose managers implicitly and overtly pressured them not to convert their stock options and diversify their portfolios in an expression of "teamwork" and "commitment" to the company. I understood this to be the case at Enron as well. Such a thing is completely unethical, of course, but I can understand why some people did it (naïveté/fear).

Most reasonable companies did then and do now strongly encourage employees to diversify their portfolios/retirement funds.
posted by psmealey at 10:43 AM on January 2, 2007

do now strongly encourage employees to diversify their portfolios/retirement funds

Which also suggest these managers aren't getting any kickback from investment companies.
posted by elpapacito at 10:45 AM on January 2, 2007

I *really* like this article and especially the examination of the concepts of puzzle and mystery. It makes tremendous sense to me in so many arenas.

In a post-Cold War world of “openly available information,” Inman said, “what you need are observers with language ability, with understanding of the religions, cultures of the countries they’re observing.” Inman thought we needed fewer spies and more slightly batty geniuses.

While I don't agree that "more slightly batty geniuses" are what's in order, I do think the ability to see the mosaic pieces in relation to the complex big picture is meaningful.

I also liked the part about the group of six students at Cornell University’s business school who decided to do their term project on Enron. Here is the students' paper about Enron [pdf].
posted by nickyskye at 10:54 AM on January 2, 2007 [1 favorite]

So the moral of this story is that the information is out there, but it takes a lot of work to interpret it, and even then you might not interpret it correctly. Oh joy!
posted by furtive at 10:59 AM on January 2, 2007

> There is something to be said for investing in the place you work, assuming the company is doing well,
> you have much better information than the normal investor, which gives you an advantage. They were
> not dumb at all. They were lied too and misled.

This piece added two very interesting points to what I knew about Enron:

1, the lesser point - the people who built the company and put together all the shady, risky deals; they were greedy, they were heartless, they were strictly out for quick gigabucks, but they also probably didn't fully understand the tangled web they themselves were weaving and how all the pieces were interrelated. Nobody would have designed Enron from the beginning to be the company it ended up being. There's so much ad-hockery. We have this financial problem, so we'll spin out this addition to the tangled web to deal with it. Oh, that generates three more problems. So we'll then dream up this, this and this further extrusion of the tangled web to deal with them. And on and on, until the whole Rube Goldberg contraption collapses.

2, the greater point, relating to the quoted text - the Enron contraption was of course promoted with propaganda, puffery and unrestrained cheerleading--lies, in short--but the truth of how crazy risky the company's carryings-on were was right out there and available in required financial filings, "concealed" only in the sense that it would take training and persistance to dig it out and understand it. And not extraordinary training and persistance either, just reporter-level. Did clerk-typists believe the propaganda and lose everything? Put the top execs in the tank and swallow the key. But did any lawyers or accountants do the same? Bad on them, they had at least the information available to a reporter and probably better, being insiders. They had an obligation to themselves to pay closer attention.
posted by jfuller at 10:59 AM on January 2, 2007

But did any lawyers or accountants do the same? Bad on them, they had at least the information available to a reporter and probably better, being insiders. They had an obligation to themselves to pay closer attention.

Not telling you anything you don't know, but the reason why not is because no one wants to be the one to kill the goose the lays the golden egg. Worse still on Arthur Andersen, because their lack of oversight over the Enron account (as well as WorldCom, Sunbeam, etc.) caused their own collapse as well.
posted by psmealey at 11:11 AM on January 2, 2007

So the moral of this story is that the information is out there, but it takes a lot of work to interpret it, and even then you might not interpret it correctly. Oh joy!

Pretty much. Having majored in business and had my face buried in more than my fair share of annual reports, I cannot remember a single instance where bad news ever made it onto those pages.

SoX and other "reforms" in the wake of Enron be damned; the slimes in charge will always find new and novel ways to conceal their crimes.
posted by dr_dank at 11:12 AM on January 2, 2007

Enron execs were telling their own employees to buy buy buy even while they knew the stock was about to freefall (and while they and theirs were cashing out).

Nobody has ever alleged that the only deception going on was in the fine print and appendices of annual reports; so while the truth may have been entirely out in the open, so was all kinds of outright deception.

I also agree that the puzzle v. mystery distinction was either puzzling to me, or mysterious. I'm not sure which.
posted by Nahum Tate at 11:22 AM on January 2, 2007

Yet one would think that accurate, detailed analysis like the one carried by the college students would have discovered the stock was very overpriced and that an alarm would have prevented the chaos ; if anything this suggests such analysis aren't routinely done..or that they are simply not reported when doing so isn't profiteable (or is damaging) for the analyst.

I would argue that the analyses are not done to any great extent, because that's not how most money is made in the stock market.

Something I learned early on in investing, and still use as my guiding principle: It doesn't matter how good the company is; plenty of good companies suck as investments. Investors want to buy stock in companies that a lot of people think are going to do well. Momentum, not quality, is what makes stock prices rise, generally. It's a sophisticated crap shoot, really.
posted by Benny Andajetz at 11:28 AM on January 2, 2007

Oh, yeah, and not to burst anyone's bubble- but the stock market was designed to raise capital, not to make people rich.
posted by Benny Andajetz at 11:33 AM on January 2, 2007

So the moral of this story is that the information is out there, but it takes a lot of work to interpret it, and even then you might not interpret it correctly. Oh joy!

The moral of the story is that if you lie, cheat, and steal, you will end up in prison or dead...and sooner than you think.

/yea, I know we all end up dead, but not quite as soon as others.
//wrote a big part of the db that tracked the enron bankruptcy, and know waaaaay more about this than is rational.
///they knew what they were doing, and that it was wrong.
////is this Fark?
posted by wah at 11:35 AM on January 2, 2007

Management lies to support soaring stock prices pulled them in, where they were trapped like flies by the way the company matched their 401k contributions - with Enron stock that could not be sold until they were fifty. When the stock price started to crash, employees couldn't sell their stock and get out. Not exactly the "invisible hand" of a "free market" at work. More like the criminal scam it turned out to be.
posted by crispynubbins at 11:40 AM on January 2, 2007

Agreed, the writer could have explained his usage of mystery v. puzzle better before heading leading us through his labyrinth of anecdotes. It's an interesting method of analysis that I think is poorly illuminated in the article; from Nazis to prostate cancer with only a line break for transition, those digressions are distracting from the point. And the point was that intelligent decisions require skilled analysis instead of more information? If so, then this article's analysis is ironically overstuffed with superfluous information.

I think Burhanistan's comment and jfuller's comment about the swagger of Enron are as important as anything else. People making financial decisions, or decisions of any sort, are more easily swayed by the cockmanship of wealth before evaluating complex information. This swagger gets reported, hyped, and amplified by the financial press and the analysts who are all trying to sell something and peddle influence. It's revealing that the business school students that had no money of their own to play the market could see that Enron's finances were a house of cards (and I wonder what grade they received on this project).

Having worked and lived in Reston, Va. during the 1990's I got to witness the swagger of the AOL stock price millionaires. Anyone with an eye to the future could see that it was a short-lived boom, even before the Time-Warner merger, with the age of the modem quickly coming to an end. But that didn't matter to so many people; it only required the outrageous success of a couple of lucky and highly-visible folks to get the techie and financial sectors of Northern Virginia to buy into the swagger to turn the area into a pro-AOL company town. Now the the enthusiasm of this area still blindly follows the money, with Homeland Security dollars flowing freely to high-tech and bio-tech contractors to make new hometown heros.

Anyhow, good link Gyan. Thanks.
posted by peeedro at 11:42 AM on January 2, 2007

I just finished reading 'Offshore', which delves deeply into Enron's use of thousands of offshore business fronts as SPE's to further obfuscate the discovery process. I'm surprised this fact doesn't get a mention more often in all the looking-back-at-Enron articles...
posted by bhance at 11:55 AM on January 2, 2007

Not only are "Homeland Security dollars flowing freely", they are flowing in large numbers to the expected recipients. Since the money flow is based soley on threat, a belief that something may happen, it looks like a bright future for this area of the economy. If nothing happens, and the fear remains, the threat continues. If something happens, fear spikes and the threat gets worse.
posted by crispynubbins at 11:59 AM on January 2, 2007

About diversification of investment : all eggs in the same basket is very very dangerous, always was. Still considering money isn't eggs and that buying different baskets is expensive , how much does diversifying really cost ?

....Financial market isn't for consumers, not even for many college graduates.
posted by elpapacito

Upthread this point was raised. My view is that the cost of diversification is minor, just put all savings not in company retirement in a no-load diversified mutual fund. Its investing 101. If you don't understand this, you shouldn't be investing.

As far as people losing their savings, I rarely get too emotional about folks experiencing the downside of greed. I'll almost gaurantee that the same folks crying about being lied to, would be chortling with glee if they thought that they were getting rich on the backs of other speculators in the market, and not been too concerned about the morality of it. Maybe I'm just cynical and certainly there were exceptions, but I knew several mid-level Enron employees and I'm pretty sure they would have been plenty happy to make the money regardless of the 'ethics', and I'd think they were fairly typical.

Bulls make money, bears make money, pigs get slaughtered.
posted by sfts2 at 12:38 PM on January 2, 2007

Seems like there's a figure/ground problem going here. I thought Gladwell's main purpose was to set out the puzzle/mystery distinction he draws, with Enron and Iraq and the US response to 9/11 as illustrations--situations in which knowing more does not lead to a clearer understanding. "Mysteries require judgments and the assessment of uncertainty, and the hard part is not that we have too little information but that we have too much." The Iraq fiasco came about not through lack of info about supposed weapons of mass destruction, but through lack of judgment about the likely consequences of our invasion, deposing of Saddam, and general blundering about (Chandrasekaran's Imperial Life in the Emerald City is chock full o' illustrations).

Of course, that all presumes good faith on the part of the Bush administration, rather than the desire in the short term to achieve re-election as the War President.

So, drawing on these terms: as we re-assess the Bush presidency 3/4 of the way through, is it more like a puzzle or a mystery?
posted by palancik at 12:40 PM on January 2, 2007

So, drawing on these terms: as we re-assess the Bush presidency 3/4 of the way through, is it more like a puzzle or a mystery?

It's a puzzlefuck!
posted by psmealey at 1:08 PM on January 2, 2007

Gladwell = most overrated "intellectual" journalist du jour. Enron wasn't a puzzle or a mystery. It was a con game and a pyramid scheme. We know how they work. Mystery solved. Puzzle solved. Gladwell is the kind of journalist who makes people feel smarter because he supposedly makes complex ideas understandable. What he does, really, is oversimplify and obfuscate with metaphors and analogies (rather like Tom Friedman, his counterpart in professional bullshit punditry). I find him galling to read.

And too bad Ken Lay died early and couldn't be Skilling's cell mate.

None of this excuses the fools who invested everything. Greed attracts the greedy.
posted by spitbull at 1:17 PM on January 2, 2007

The concept of an open secret is interesting when it comes to Enron and other political or social situations. Puzzles are solved when previously hidden information is found out. A mystery, however, is about something being hard to comprehend, in spite of the facts being known.

In hindsight Enron was a simple con game but it continued in plain view. And that, to me, is mysterious.

Gladwell's writing about the thinking process and behavior patterns is worth a look.
posted by nickyskye at 1:47 PM on January 2, 2007

spitbull writes "Gladwell is the kind of journalist who makes people feel smarter because he supposedly makes complex ideas understandable. What he does, really, is oversimplify and obfuscate with metaphors and analogies (rather like Tom Friedman, his counterpart in professional bullshit punditry). I find him galling to read."

Like Freidman, but nowhere near as bad. Friedman's writing is cringe-worthy. I find Gladwell more shrug-worthy.

Also, I don't know who gets to determine the exact shades of meaning of the words "mystery" and "puzzle", but I'm pretty sure it's not national-security expert Gregory Treverton. Personally, I would have assigned these particular shades in a manner directly opposite to Treverton's, with "mystery" implying some secret or hidden knowledge. For what it's worth, the OED agrees with me.

OK, the more that I think about it, the more this is pissing me off. Etymologically, in terms of common usage, and according to any good sense, Treverton (and Gladwell) are making the distinction between these words in exactly the wrong way.
posted by mr_roboto at 2:37 PM on January 2, 2007

Example : if I give you a xyz pages long contract that requires a sound understanding of financial maths (college level equations) and a sound understanding of accounting methods and you give it a cursory glance and decide to sign it, it is clear that you have accepted whatever is written in the contract, at least for the parts of the contract that are legal.

So don't complain if you don't understand the maths and find your account reduced to zero.

Example2: I give you balance sheet with enough footnotes to read for a long while. Each and every footnote branches into another 20 pages long contract , in crystal clear language, but about a topic requiring at least an MBA. On top of this the nature of the contract is such that their effect intersect or compensate each other by a mere change of account. Iit's all evident, nothing is left secret, but it is all obscure, but to very very few.

The only mistery to me is why one needs a group of dedicated, math skilled and very well educated college students to produce a thesis that a company MAY be overvalued , yet stocks and many other financial instruments can be sold as socks to the public.

Of course I expect some apologist to scream "greed" as if an investing Joe is depicted as a financial scrooge, but look at what very low risk or highly diversified investments are producing..I don't have data handy, but I bet they are well under inflation.

ONe common trick is to cite a particularly good year knowing that many will only look at the PAST performance, which are meaningless.
posted by elpapacito at 3:09 PM on January 2, 2007

Quick thought...

Enron execs were telling their own employees to buy buy buy even while they knew the stock was about to freefall (and while they and theirs were cashing out).

But did any lawyers or accountants do the same? Bad on them, they had at least the information available to a reporter and probably better, being insiders. They had an obligation to themselves to pay closer attention.

I can't help but think of realtors and the housing bubble. I mean, the information that it existed and was going to pop sooner or later has been out there for a long time, but realtors (and newspapers, and others with a vested interest in keeping the game alive a bit longer) kept shouting "buy buy buy" even as they divested themselves. If we're going to condemn a company for doing it, surely we should condemn an industry for doing the same.
posted by davejay at 3:09 PM on January 2, 2007

The next Enron will be much worse. The rich will continue to get richer, even if they occasionally offer the bourgeoisie an occasional scapegoat.

Things not going well in the public sector? Too much regulation for your taste? Go private!
posted by analogue at 3:11 PM on January 2, 2007

er, the above two quotes are separate people; read as a single two-paragraph comment, it doesn't make sense. Sorry.
posted by davejay at 3:11 PM on January 2, 2007

Enron wasn't a puzzle or a mystery. It was a con game and a pyramid scheme. We know how they work. Mystery solved. Puzzle solved.

No, Enron was a very risky scheme that ultimately didn't pan out (outside of the fact that the money generated through the scheme helped elect a certain oil man President). The 'confidence game' only came into play when it became apparent that the scheme was not working, and Skilling used his rather considerable personal clout to keep it afloat a bit longer. The information was all there, including the lack of tax paying (if you maka no money, you paya no taxes).

The "mystery" of the thing was why more people didn't realize this before it happened. Considering that oil/energy markets were/are so volatile, it was a "mystery" how Enron kept reporting making so much money.

Of course, you've solved how that mystery took so long to be exposed already.

Greed attracts the greedy.

In this case it was the greed of everyone who mattered that built the pyramid, and it was the greed of the those hoping to short the stock/question its value, that helped to bring it down.

I don't really agree with blaming all the employees. Given all the information that was available, it still took experts months to figure out what the heck was going on. That's a bit much to expect from a roughneck.

I think the puzzle/mystery metahpor works here, if you understand that the "puzzle" was hard to solve because it had so many pieces, but the "mystery" was solvable if you just looked at the right ones, and did so with that knowledge that you were dealing in mysterious waters (I do agree that the disctinction is a bit fuzzy, but disagree as to the quality of Gladwell's writing.).
posted by wah at 3:19 PM on January 2, 2007

davejay: i didn't feel like posting two separate comments so i put them in the same comment separated by a line break. i am terribly sorry that my doing so has blown your mind. now your actions, davejay, have caused me to post a second comment hence defeating the original purpose of combining my two genius thoughts into one comment. curse you davejay!! i shake my fist at your comment in defiance!
posted by analogue at 3:22 PM on January 2, 2007

analogue writes "davejay: i didn't feel like posting two separate comments so i put them in the same comment separated by a line break. i am terribly sorry that my doing so has blown your mind. now your actions, davejay, have caused me to post a second comment hence defeating the original purpose of combining my two genius thoughts into one comment."

I think he was referring to the quotes in his own comment, man. Chill.
posted by mr_roboto at 3:30 PM on January 2, 2007

Of course I expect some apologist to scream "greed" as if an investing Joe is depicted as a financial scrooge, but look at what very low risk or highly diversified investments are producing..I don't have data handy, but I bet they are well under inflation.

The current consensus is that a well diversified portfolio owns the entire market. This is nearly impossible for an individual, but there are plenty of index funds that do a good job of owning most of the market. A low-fee index fund will typically return quite a bit more than inflation.
posted by b1tr0t at 3:49 PM on January 2, 2007

Gladwell's writing about the thinking process and behavior patterns is worth a look.

I've given it a look. And a shrug, if not a cringe. Knowing something about some of the scientific fields he claims to summarize and simplify, I can say with assurance he gets it wrong as often as he gets it right. Very much like Friedman. Gladwell is a bullshitter.
posted by spitbull at 3:52 PM on January 2, 2007

spitbull, Is this the Tom Friedman you don't like?
posted by nickyskye at 4:26 PM on January 2, 2007

Since we're talking Friedman, my favorite review of The World is Flat.
posted by mr_roboto at 4:31 PM on January 2, 2007 [1 favorite]

That reviewer is nit picking when he says what herded animal hunts because to hunt for can mean to search for, not only hunt as in being carnivorous. But I have to say that irate review is hilarious, while making great points.
posted by nickyskye at 5:07 PM on January 2, 2007

It was a con game and a pyramid scheme. We know how they work. Mystery solved. Puzzle solved.

''

I've given it a look. And a shrug, if not a cringe. Knowing something about some of the scientific fields he claims to summarize and simplify, I can say with assurance he gets it wrong as often as he gets it right. Very much like Friedman. Gladwell is a bullshitter.


That's interesting spitbull because I know a wee something about the main field Gladwell writes about and while he isn't 100% accurate (who is?) he is definitely right more often than wrong. Is there a reason you are swiftboating him with vague unsubstantiated accusations of chance accuracy?
posted by srboisvert at 5:17 PM on January 2, 2007

As Enron goes,so goes the nation.
posted by hortense at 5:21 PM on January 2, 2007

the company matched their 401k contributions - with Enron stock that could not be sold until they were fifty

That's technically true but a bit misleading. That restriction applies only to the mathcing contributions made by Enron, not the money that the employees contributed themselves.
posted by joedharma at 5:31 PM on January 2, 2007

Is there a reason you are swiftboating him with vague unsubstantiated accusations of chance accuracy?

First of all, I'm not sure what "the main field" he writes about is, but the ones I am thinking of appear to be cognitive science and social psychology, with a dash of perceptual pscychology as well. While I am none of the above, I work in a field that is interconnected with all three. I'd be happy to get into a point-by-point debate about Gladwell's interpretations, but to shove back at the "swiftboating" nonsense, let me just say that Gladwell cherry picks the research he reports on for "gee whiz" findings that "explain" modern trends and habits of mind. For almost every case he makes, a counter-case could be made from different research findings, and he rarely acknowledges this because the counter-case tends to be "we don't know why people do this or that or think this or that way, yet."

Science journalism is usually bad. His is no better than average. Shrug.
posted by spitbull at 6:20 PM on January 2, 2007

Shrug.

I dismiss thee, Word Hurler.
posted by carsonb at 6:37 PM on January 2, 2007

Hi. I didn't just see Enron employees in the tunnels, and I don't just know a few people who used to work there. I was an Enron employee until the day we were all laid off, working in the IT department that created the trading software and all the back-end things that made that happen (including the MTM software).

I didn't make a six-figure salary, drive a Porsche, or know what was going on until the articles started to appear in the Wall Street Journal. I didn't have a "loud mouthed swagger". Unlike sfts2's friends, I would not have been happy to make money regardless of ethics. And frankly, I'm not greedy.

Every single person I knew liked having Ken Lay as the CEO, and utterly despised Skilling from the very beginning. These were two very different men, with very different ideas of managment style. Maybe we were "drinking the koolaid" for Lay, but never for Skilling.

Like most Enron employees, I loved my job, and loved the company I worked for. The work environment in my group was one that fostered creativity and responsibility hand-in-hand, so that we were given the resources to soar and the responsibility to make sure we did not abuse those resources. An oft-told favorite story at Enron was how EnronOnline began... as just the idea of a regular guy like any of us, who was then allowed and encouraged to make a go of it.

Psmealy is right - we were encouraged to buy stock in our company, to show that we were commited to the company. Many people (just like many people now) only contributed to their 401k up to the point of the match, which was only done in Enron stock. However, the entire stock market took a dive around that time, so if you were near retirement and your own 401k contributions were in, say, and S&P 500 index fund and the matching contributions were in Enron stock - you were left with very little after the stock crash and the Enron bankruptcy.

Nahum Tate and crispynubbins have it part right, and part wrong. The execs did not just tell us to buy, while they happily sold and believed that Enron was going down. In a way, it was a bit worse. Whether by coincidence or not, Enron changed their 401k administrators at approximately the same week that they were downgraded and so starting to unwind the deals (which led to further downgrading, more deals unwound, etc.). What this meant for the employee is that during that exact time, we were unable to sell our stock. The only thing we could (and did) do was to sit at our desks, refreshing various Internet sites, and watch our stock price fall literally by the minute.

Thought this post could use the perspective of a person who was there.

As an off-topic side note, it was from my fellow Enroners that I first learned about Metafilter. It was popular with a lot of us.
posted by Houstonian at 7:12 PM on January 2, 2007 [1 favorite]

Great article, thanks Gyan.. Puzzles vs. mysteries ... the writing sang. 'Guess I'm a sucker for Gladwell.

And thanks mr_roboto for the Taibbi link. I lurve him.
posted by intermod at 8:23 PM on January 2, 2007

If I might add a question to the fray - wasn't Enron also not paying taxes because of off-shore tax shelter loopholes?

Anyone?
posted by tzelig at 10:26 PM on January 2, 2007

If I might add a question to the fray - wasn't Enron also not paying taxes because of off-shore tax shelter loopholes?

Without going through enron's SPEs, it is difficult to say for sure. But given that Enron imploded, it is unlikely that it was hiding income in those entities. Instead, it was using the SPEs to create the illusion of income, when none was actually present.

Compare Enron's collapse, bankruptcy, etc. with the Long Term Capital Management and Amaranth Advisors hedge funds. Both fell apart due to problematic, though not illegal, trading. In both cases, their assets (market positions) were rapidly taken over and quickly turned into massive profits.

If Enron was hiding massive profits (1) the management team would have pumped some of it back into the US company in order to avoid the collapse and (2) if they somehow forgot to do that, there would have been a feeding frenzy as bankers and private equity firms rushed to buy undervalued assets.

Neither seems to have happened, so it seems unlikely that massive profits were hidden offshore.
posted by b1tr0t at 10:52 PM on January 2, 2007

It should also be noted that along with folks like Houstonian, there was money in the Enron pension scheme from companies they took over, like Pacific Gas and Electricity. Guys who were linesmen in rural Oregon and had a good pension fund before their company was taken over by Enron were left with nothing after Skilling, Fastow, Lay and the others took off.

These guys should not get off. They wrecked people's lives for their own enrichment.

There is a huge problem if a bunch of MBA students can see something wrong, but no one reports it in the 'serious media' and the analysts don't wonder and probe themselves.
posted by sien at 11:04 PM on January 2, 2007

For almost every case he makes, a counter-case could be made from different research findings, and he rarely acknowledges this because the counter-case tends to be "we don't know why people do this or that or think this or that way, yet."

Science journalism is usually bad. His is no better than average. Shrug.

Perhaps all would be good if he included a "Shrug" at the end of his article? I like the fact that he doesn't provide a "maybe we don't know yet" qualifier for every single research finding as that would make reading about any science excruciating.

Attacks on science journalists are never ending. Partly, they are deserved for issues of factual accuracy, misconstrual or over hype (i'm looking at you BBC!) but they also come from people who unreasonably expect science journalism to be the same as either peer reviewed research publications or their senior undergraduate papers.

I wish there were dozens more Gladwells out there who had the balls and creativity to take some contemporary science and playfully apply it to an interesting real world narrative that takes it out the lab and into the world. I've read enough term papers, dissertations and journal articles to completely crush the joy I used to get from science. I'm thrilled when I find popsci articles that give a bit of it back and am frankly boggled by the buzzkillers who harp on about how the article ignored the ever present possibility of alternate explanations. Feel free as a reviewer to recommend that his article is rejected from JEP: General for failing to provide an exhaustive review of the literature but please don't ask the New Yorker to start publishing phd dissertations because that would suck a bit more joy out of life.
posted by srboisvert at 3:10 AM on January 3, 2007

Enron was bad, but let's admit, limited in effect (ignoring the Sox issue, which deserves its own post). If you want an blackly comedic, entertaining on-going horror story that could be a bit more damaging, and which it is harder to guard against, you might find Traders, Guns and Money by Satyajit Das of interest. (Quick interview here.)
posted by IndigoJones at 6:32 AM on January 3, 2007

Have you ever opened a link in metafilter, forgotten about it, and then got around to reading it a couple of hours later, and think, "wow, this would be a great link to post to metafilter" and try to fpp it?

I did that with this one.

Great link, great article.
posted by empath at 7:01 AM on January 3, 2007

Houstonian,

My point was attempting to generalize using Enron employees and my experience from 20 years on Wall Street about investing and ethics. I do feel bad for the more passive employees who were just trusting and along for the ride. The whole situation sucked, but OTOH I tend also to not blame the management team completely because like most financial engineering concepts, the Enron model was probably understood by the investment bankers advising the management in detail, but its unlikely they or anyone (Even Lay or Skilling) understood the entire web. Thye are easy targets, though, because of the personal excesses, which, by the way, they (Enron mgt) were not alone in.
posted by sfts2 at 7:52 AM on January 3, 2007

One other quick point, as I uderstand it the failure of the Amaranth/LTCM and Enron were from significantly different causes, although adverse market movement exacerbated Enron's situation, it was fundamentally fraud and bad accounting with off-balance sheet liabilities. In broad strokes, weren't the hedge fund problems basically due to bad bets on market direction?
posted by sfts2 at 7:58 AM on January 3, 2007

Amaranth, LTCM, and Enron all started out as legitimate companies. LTCM and Amaranth failed due to a combination of adverse market conditions and predatory bankers. Enron made use of fraudulent financial engineering techniques on their way down, ultimately making their system much worse. It isn't clear to me whether Enron reacted to unfavorable market conditions with fraud, or just decided to cook the books regardless of market conditions.

It could be that Enron's SEC-approved decision to use mark to market accounting allowed them to book wildly unrealistic revenues. When those revenues began to fall, they may have started the book-cooking process, rather than admit their failure.

My original point was that LTCM and Amaranth fell apart so quickly that the debris could be sold for a profit. By the time Enron fell apart, there wasn't much left of value other than Aeron chairs. My implication is that LTCM used its SPEs to create paper profits, not to avoid paying taxes. LTCM did manage some of their funds via offshore entities for tax purposes, but I havn't seen anyone claim that LTCM's use of offshore entities was either illegal or fraudulent.
posted by b1tr0t at 11:16 AM on January 3, 2007

If it hasn't been mentioned already, most of this - Mark to Market Accounting, the perfidy of Skilling and Lay, etc. – is dealt with in 'Enron: The Smartest Guys in the Room' (2005).
posted by vhsiv at 2:42 PM on January 3, 2007

The movie is terrible, get the book version instead. Pipe Dreams is worth picking up as well.
posted by b1tr0t at 2:49 PM on January 3, 2007

srboisvert, you have a reasonable point. I'm a glass-half-empty kinda guy, and I often see the simplified social scientific (often dressed in natural scientific garb) truisms that are the distillations of science journalists writing for an ignorant (or assumed-to-be) public winding up being used as frames for policy and ethics debates in ways I dislike. I'll try to figure out an FPP in the next few weeks that raises questions of the state of science journalism (and the state of the science it reports) so we can have the discussion properly, over sherry.
posted by spitbull at 4:10 PM on January 3, 2007

nickyseye: Great link on that Cornell student report! I read the New Yorker article yesterday and did want to google it up.

Gladwell seems to be hinting that no one searched for the report at Enron's hey-day, but here's the thing: they _couldnt_ have! Google came out on its own only in late 2000-01-ish; it did exist before then, but it wasnt a verb. So it was unlikely that anybody would have stumbled upon this by merely Altavista-ing or Goto-ing "Enron buy or sell".

In this post-Google, Wikified world, we all know that is impossible. Which is another reason why Web 2.0 will never see the excesses committed in the turn-of-the-century dot-com boom.

On a completely serious note, the point I'm raising is this: if _complexity_ , or rather analyst time, is the main solution to 'mysteries', would the blogging/wikipedia-ing culture be a solution? I'm not sure I know the answer, but thought I'd raise a seemingly obvious question.
posted by the cydonian at 5:52 PM on January 3, 2007

In this post-Google, Wikified world, we all know that is impossible. Which is another reason why Web 2.0 will never see the excesses committed in the turn-of-the-century dot-com boom.

I'm not so sure that is true. Nowadays there is an avalanche of information out there and a lot of it is produced by vested interested trying to manipulate public opinion.

I have trouble trusting local restaurants reviews here in Birmingham because I know there are places that put up bad reviews about their competition.
posted by srboisvert at 10:51 AM on January 4, 2007

This is a delightful thread. The most interesting part of it, to me, is reading the responses. As soon as I got to the part in the original link about "puzzle versus mystery," I thought, "Oh, Gladwell," and looked to the top to find his name there.

Gladwell's someone who makes a living out of simplifying complex ideas so that the masses can understand them. However, I've actually looked at Enron's 10-K's and 10-Q's from around the time of the crash, as well as the Cornell analysis he cites, and I am certain I don't understand all the ramifications of the information presented there.

I don't know if Gladwell understands Enron's balance sheet or not, but what I do know about Gladwell is that he doesn't care if he does or not. He cares about selling a timely, topical article. He knows that what sells is an article that lets people feel themselves an expert on the topic he writes about.

And what do we see in this thread?

delmoi: Man, it was so dumb for those people to put all their retirement money in the company they worked for.

punkfloyd: The whole energy trading risk management (ETRM) world is inbred and EVIL.

elpapacito: my guess is that these sleazebags at Enron knew exactly what they were doing, even if maybe they din't [sic] care about minute detail, which were obscure also to "experts" anyway.

Here's what I take away from this thread: As long as there are folks, like the poor unfortunates I just cited above, who are happy to appoint themselves experts on things they know nothing about, there will be other, smarter folks who will make money by exploiting their combined stupidity and ignorance.

Malcom Gladwell's aware of this phenomenon, too. I wonder why he doesn't write more about it?

I appreciated Houstonian's comment, by the way. He really is an expert about what it was like to be working at Enron during the boondoggle - and he knows it.
posted by ikkyu2 at 2:12 PM on January 4, 2007

A critique of Gladwell's article.
posted by srboisvert at 1:50 AM on January 8, 2007