Its extremely difficult to fully verbalize my feelings about Enron. I became personally involved with the Corporation; soon before the scandal and bankruptcy. My time there was limited, but what I experienced amassed a lifetime of emotion & wisdom. A young, hopeful corporate warrior soon became a jaded, depressed person. Ignorance is Bliss. This is the first time I’m attempting to catalog my experience & understandings of this company. I believe in 2014 this continues to be a historical lesson that has not been fully grasped by the US. Even so, it continues to have a reverberation within our fragile economy & political theater. It shines a light on the vulnerable underbelly of the United States sociopolitical economic system. As it became an emotional fulcrum in my life, it continues to be a historical fulcrum for Amerika. Enron will not go away. Enron must be understood and talked about. It is too important to become a historical footnote. From this perspective, of anecdotes and analysis, I begin this journey of self-revelation. This post is extremely important to me and I hope you find it relevant and life changing.
In 2001, I was a young upstart wannabe corporate warrior. I was a Senior at NYU Stern School of Business. I was studying Finance; along with a co-major in International Business & minor in Politics. Politically motivated from my time as a US House Page in 1996-1997, I was attempting to understand and navigate real economic motivations. I was an academic analyst soon to be in the eye of a historical economic hurricane! Today I find these insights gained as irreplaceable. As such, I cannot keep it to myself any longer. I must share whatever wisdom I have. In doing so, I find myself starting with the application for my Senior Summer Internship. I found investment banking and finance extremely boring. I found it, however, academically important to understand the machinations of the world realpolitik. With this understanding I gravitated to the upstart 6th largest Corporation in the United States. Enron.
I was lucky to achieve a Summer Analyst position on the 6th floor of the Headquarters of the 6th largest Corporation in the United States. I was to support Enron Energy Services – Energy Portfolio Management – Fast Track Group. This was a test group, not fully realized into operational success. It was a test group meant to play out political and economic objectives for Enron Executives. I vaguely understood this at the time. My Manager was named Craig Sutter. My mentor was Celia Delahuesay (I’m sorry for the spelling nowadays). Much of this can be cross referenced via the FERC lists that can be accessed online. My name pops up. Of this I was to provide general support of the Origination group. The Fast Track Group at its core was a Sales force. The goal was to sell to Companies with an energy spend of $10-$30 million. They were to build contracts that would provide stable, fixed rates of gas & electricity. Enron would then find ways to absorb the costs and profit on the wholesale end. This concept is very important as it eventually had catastrophic results for the State of California under Governor Gray Davis. On my part, I was to smooth out the numbers on the contracts and ensure that energy spends were “smooth” enough to provide a basis to sell the fixed contracts. Of this, Originators were to grow a business out of nothing. It was a new exciting frontier; one that has been largely lost in the aftermath. It also was a piece of the puzzle’s totality in understanding the vast machinations of this Corporation.
Enron Energy Services was one of many departments pushing the envelope of new economic environments. Enron Broadband, Enron Energy Services, Enron Wind, etc were truly attempting to build viable business models. Of this though, the economic situations became manipulated. If you can sell a growth rate, you can sell a stock price: essentially setting up a probable pump & dump scenario. Growth rates pushed the economic envelope in the late 90’s early 2000’s. It was how Investment Bankers were justifying wild stock prices for all these internet stocks. With this bubble, trickle-down exuberance allowed companies like Enron manipulate the regulatory & economic macro-environment.
I started my Summer Internship not fully grasping the scope and breadth Enron had in 2001. It was after more education, study, & personal revelation that I began to realize the multifaceted realities this Company brought about. First and foremost, $ENE Stock Price must be addressed. It was when things slipped that the house of cards fell. A stock price is derived via a basic Financial formula. Dividends divided by the market cap rate minus growth rate. Dividends are cut and dry. Market Cap is “verified” by Accounting Firms such as Enron’s Arthur Anderson. Growth Rate is a hypothetical of what future growth may hold.
Of this, Cash Dividends were not utilized. This was due to the cash being diverted to fund Enron Operations & Projects. Enron had the largest natural gas pipeline in the United States at the time. This was a Cash Cow that allowed the funding of its Commodity Market operations + energy generation operations. Enron also had the largest Online Commodity marketplace at the time. Not only are commodities not regulated well, but ENE spent big bucks in Washington to ensure that Lawmakers would not get involved. Enron essentially got paid for running the marketplace, while being an active participant in its Wholesale Energy Sales. This was then supported via Projects like Enron Energy Services that were to sell energy contracts. On this note we must remember that Enron also maintained monopolistic power to many US region’s electricity transportation. Market Capitalization was underscored by the Natural Gas Pipeline and Enron Trading operations. While there was very real cash, the Market Capitalization as publicly recorded was being manipulated. Arthur Anderson was involved in the corruption and falsification of accounting data. When the house of cards fell, so did they. This in turn brought about economic recessionary pressures that were mounting from the tech bubble burst. The Growth Rate was sold to investors via Investment Banking Analysts. They utilized the falsified accounting data to pump up wild growth rates; ensuring high stock valuations. Projects such as Enron Energy Services, Enron Broadband, & Enron Wind were unproven business models. Of this they sold the dream that it would grow exponentially; justifying an analyst’s growth rate.
When Jeff Skilling said he was resigning, 30 feet from me, he said it was for family reasons. It was sudden to me. He explained that it was for family reasons and YES he was selling stock. What wasn’t said was that Ken Lay was selling stock as well. Though this is public information at the Corporate level legally, nobody seemed to put 2 and 2 together that they were jumping ship with loads of cash. Ken Lay came in as CEO to save the day. He gave the employees stock options to calm them down. As we see in hindsight, this was absolutely worthless. Of the stock, Employees were mandated to retain high levels of $ENE in their 401k portfolios. When the house of cards fell, many good people lost a life savings for retirement. At every step of the way, rules and regulations were manipulated to tailor information in the favor of high stock prices. As long as Capital Investments were coming in, the ponzi scheme could continue. Once the stock slipped, the jig was up.
As an NYU Student, at the 6th largest corporation in the country, I was cocky to say the least. I was sure of my knowledge and sure of my abilities. This mattered not as I did not receive an offer of employment from Enron. I was devistated. What I later understood is that only a handful of people were offered jobs to continue the rouse, while inquisitive people were pushed out quickly. I was well liked by all but my Manager of Fast Track Group. I had a rocky start and learned quickly that Corporate politics is always involved in operational affairs. At one point, I loudly proclaimed that “I’m smarter than half these yahoos working on this floor!” Absolutely stupid by a 21 year old to say when a Career was desired. Live and learn. Vindication soon came when everything came out. During my time in Enron Energy Services, I overheard contract analysts discussing the nature of their business. They would sell at the highest possible rates regardless of reality. The State of California learned this the hard way. Enron bled the transmission lines to California, making the anemic electricity go up into enormous costs on the spot market. California was desperate to show that they were able to maintain control, even though this was a contrived crisis. Enron got their way and came in to save the day! They then sold long-term Fixed Contracts at high rates; given justification via the spot market. Governor Davis accepted this Fixed contract with little respect for analytically minded criticism.
I’m left with many what if’s. I’m hurt to this day by the Summer of 2001 at Enron. I hope this post sheds light on Enron’s affairs as I saw them at the time. I am no expert; but then again the experts brought about this crisis. Nobody asked where the peripheral players recieved their ethics and education. Nobody seemed to care about the poor lazzes-faire regulatory environment in the US. Nobody today seems to remember the monopolistic machinations Enron involved themselves in. I believe the lessons learned from 2001 had ripples in understanding the Great Recession of 2008. 2001 Economic Crisis laid they foundation of vulnerabilities for the Great Recession. Essentially the bubble tactics utilized in the Tech Bubble & Enron then was diverted into Mortgage Backed Securities. Lehman was the result. Fast forward to today and we see huge merger proposals from the likes of Comcast & Time Warner. These regional monopolies have every incentive to manipulate the markets as seen fit to profit over the well-being of society. Above and beyond this, the internet backbone that they would control could siphon Freedoms away from Net Neutrality and Net Freedom. The forces of inequality via imperfect information is always a problem. My Enron Hauntings have helped me to understand a Progressive Regulatory Environment is key to a stable, advanced Economy.