Major economic issues and plot summary in Enron film

Enron (Movie) analysis

The Smartest Guys in the Room-Enron

The film is pitched around the America's seventh largest corporation that was in charge of distributing electricity and natural gas. The company was worth over 70 billion dollars in assets built over years with over 22,000 employees, it became bankrupt within 24 days. The employees lost their jobs and medical insurance, 1.2 billion in retirement benefits while the retirees lost 2 billion dollars in pension funds. The company collapsed so fast in a scandal of complicated transactions and accounting practices that shocked the corporate America. Before its bankruptcy, it was viewed by many as the new business model and the future of energy and power in America, voted six consecutive years by Fortune magazine as the most innovative company in America.

The film reveals how unethical the executives were by walking away with billions of dollars and leaving investors and pensioners with nothing. The president of the company Mr. Louis Burquet took 3 million dollars of the corporate funds and diverted it to his personal offshore account. The top executives Kenneth Lay and Jeffrey Skilling are being referred to as "The Smartest Guys In The Room" and "captains of a ship, too strong to go down." They pushed for the deregulation of the energy markets and Kenneth Lay became part of the crusade to shield the businessmen from the rules and regulations of the government. Jeff Skilling came up with a brilliant idea that transformed Enron into a stock market where energy supplies could be transferred into financial instruments that could be traded like stocks and bonds, hence the beginning of problems at Enron. He further introduced an accounting method known as "mark to market" a technique used by the brokers where the calculation of profits or losses were done on a daily basis. This technique was used to view future contracts of the company as current income and used to inflate revenues by manipulating numbers. The film shows how the numbers were kept in the books but made it difficult to understand how Enron made money a false impression that the company was making profits for purposes of keeping the stock prices high.

The company ventured into several other trades and could trade anything and anywhere in the new virtual market place which was being sold to investors in form of contracts to generate more money. Enron had several other partnerships where it could burry its losses through the complex structures called the raptors.

The figures were cooked simply to attract new investors and Andrew Fastow was employed as the Chief Financial Officer specifically to do that. He was charged with the duty of ensuring the figures were high and reported profits to please the shareholders and to attract new investments and more so to please the bosses, the company however was already in debt of about 30 billion dollars. Enron paid millions of dollars to the executives on imaginary profits that never arrived in one of their power plant Investment in India that cost millions of dollars but never became profitable since India could not afford the power produced from the plant. Enron worked with the very best Investment banks in America, the best accounting firm, the best advisors, the best law firm and the best banks to do business and it is believed that these institutions had good knowledge of the shady deals at Enron, but to the shock of many, none of them blew the whistle provided they were given a share of the loot. The film reveals that the lawyers were paid one million dollars per week as well as Arthur Andersens, the accounting firm. Merryll Linch on the other hand assisted Enron in cooking the books by pretending to purchase Enron assets while in reality it was a loan, they bought three power barges in Nigeria from Enron to keep them off the books, which was an illegal business.

The traders at Enron became powerful and could do anything to make money; their conduct of doing business was questionable, they caused artificial shortages of power to create more demand and raise the value of stocks to make millions of dollars. The company was purely a gambling house and the traders were unethical and greedy for money. They gambled away all the investors' money, rolled several power blackouts in California and caused shocks to the economy. The resignation of Jeff Skilling scared the investors due to the manner in which he resigned without prior notice, it reflected in the value of Enron Stock price, the figures came down so fast. Ken Lay took over his place and effortlessly calmed the investors and assured them of the future of their investments. Arthur Andersens, the accounting firm was already shredding Enron Records to get rid of the accounts and any other record that could be used for investigations. The executives sold their stocks while the values were still high, made millions and kept convincing investors to buy more knowing they were at the verge of collapse. They paid themselves huge bonuses and left pensioners, individual investors, and employees with nothing when it became bankrupt in December, 2001 (Kliot Jason, 2005).

The economic situation, condition issue or problems depicted in the film

Conflict of interest

Enron set up Special purpose Entities (SPE's), these were tools used to hide huge debts from appearing in its book and to divert risks. This is depicted in the movie where entities like LMJ and LMJ 2 were formed to keep debts off the balance sheets of Enron accompanied by the suspicious accounting style where no financial reports were released. Every firm must be audited by good external audit firms; records made public for investors to go through and know the state of their investment and make decisions. These never happened even with the knowledge of the board of trustees, investment bankers, the advisors the regulators and congress. They were not acting in the best interest of the shareholders (James Bone, 2009).

Politics and Business

Corporate America demands that the political donations be made in the interest of the shareholders not the managers and the political spending be made transparent. In the case of Enron the political spending was in the interest of the executives to corrupt the congress and buy access to the administration not to regulate the financial instruments that led to Enron's bankruptcy. The company spent 2.4 million dollars in donations and contributions to Bush administration and this saw Ken lay being appointed as the deregulation ambassador (The Economist, 2002).

Business ethics