Bethany Mclean Quotes

Never, ever do the easy wrong instead of the harder right.

People also felt that a great crime had been committed, yet there was not going to be a great punishment.

The tale of Enron is a story of human weakness, of hubris and greed and rampant self-delusion; of ambition run amok; of a grand experiment in the deregulated world; of a business model that didn’t work; and of smart people who believed their next gamble would cover their last disaster—and who couldn’t admit they were wrong.

Say you have a dog, but you need to create a duck on the financial statements. Fortunately, there are specific accounting rules for what constitutes a duck: yellow feet, white covering, orange beak. So you take the dog and paint its feet yellow and its fur white and you paste an orange plastic beak on its nose, and then you say to your accountants, ‘This is a duck! Don’t you agree that it’s a duck?’ And the accountants say, ‘Yes, according to the rules, this is a duck.’ Everybody knows that it’s a dog, not a duck, but that doesn’t matter, because you’ve met the rules for calling it a duck.

McKinsey partners tend to be designers of ditches, not diggers of ditches. When it comes to executing their lofty theories, well, consultants lean toward leaving those messy realities to the companies themselves.

Back in those less complicated times, there were lots of industries that operated more or less by rote: the old banker’s motto, for instance, was “3-6-3”: take money in at 3 percent, lend it out at 6 percent, and be on the golf course by 3 P.M.

He once gave a speech advising anyone who wanted to complete a power project to “get all the lawyers in one room, then shoot ’em—in the mouth, because it’s impossible to miss.

The after-the-fact rationalizations were strikingly similar to the mind-set that produced the Enron disaster in the first place. The arguments were narrow and rules-based, legalistic in the hairsplitting sense of the word. Some were even arguably true—in the way that Enron itself defined truth. The larger message was that the wealth and power enjoyed by those at the top of the heap in corporate America demand no sense of broader responsibility. To accept those arguments is to embrace the notion that ethical behavior requires nothing more than avoiding the explicitly illegal, that refusing to see the bad things happening in front of you makes you innocent, and that telling the truth is the same thing as making sure that no one can prove you lied. Take

Sometimes wrong, but never in doubt.

Going to work every day was like my hair was on fire and all I had to put it out was a hammer.

Figuring out whether a deal was worth doing was nothing if not an exercise in calculating risk: did the size of the potential return justify the risk of all the things that could go wrong? That’s a question that every executive at every company has to be willing to tackle. A company that lacked the

I don’t like shorts promoting their position.

Part of the problem was that EES hadn’t done much more than guess at the energy loads its customers would require. Part of it was those faulty price curves, with their excessively optimistic assumptions.

unmistakable message to boardrooms across the country: You can’t lie to shareholders. You can’t put yourself in front of your employees’ interests. No matter how rich and powerful you are, you have to play by the rules.

designer of ditches, not a digger of ditches,

Bethany McLean and Peter Elkind’s business classic The Smartest Guys in the Room on Enron

Because they could come up with plausible rationales for why a given structure was technically valid, they believe they were on the right side of the law. They were, in fact, proud of what they were doing. In their view, they were doing what every other company was doing, except they were doing it better and smarter, because they were Enron, where everything was done better and smarter. But while people at Enron were smart about bending the rules, they were not smart at all about understanding where all that bending was taking them.

Everything was perception; nothing was real.

Those who want to blame all of Enron's woes on the greedy former CFO claim that Enron was a good business brought down by Andy Fastow. But that was never true. Ultimately, Enron was a bad business that was, for a time, propped up by Andy Fastow.

It was an astonishing comment on the mores of American life at the dawn of a new century. In the aftermath of one of the largest corporate scandals in American history, precious few were willing to concede that they had done anything wrong.... To accept these arguments is to embrace the notion that ethical behavior requires nothing more than avoiding the explicitly illegal, that refusing to see the bad things happening in front of you makes you innocent, and that telling the truth is the same thing as making sure no one can prove you lied.

Which offers up the problem: no company can prosper over the long term if every employee is a free agent, motivated solely by greed, no matter how smart he is. No company can function if it only hires brilliant MBAs - and sets them against each other. There is a reason companies value team players, just as there's a reason that people who get along with others tend to do well in corporate life. The reason is simple: you can't build a company on brilliance alone. You need people who can come up with ideas, and you also need people who can implement those ideas and are well compensated for doing so.

had

Muckleroy began to hear from friends in the business, as he later recalled, “that we were huge on the wrong side of a trade.” But so unconcerned were the Enron brass that at the company’s mid-August board meeting, the Enron board increased Borget’s trading limits by 50 percent. One skeptical Enron executive who attended that meeting returned to his office and told a colleague: “The Enron board believes in alchemy.

Muckleroy quickly discovered that things were far worse than anyone realized. Enron Oil was short over 84 million barrels. The position was so huge that it amounted to roughly three months’ output of the gigantic North Sea oil field off the coast of England. If Enron were forced to cover its position, it would have been on the hook for well over $1 billion. “Less than worthless” was exactly the right description: when you added $1 billion-plus to Enron’s $4 billion in debt, the company’s total debts outstripped its net worth. And, of course, given how strapped the company was for cash, there was simply no way it could cover its trading losses without filing for bankruptcy. But Enron got lucky.

Lay was also at the Come to Jesus meeting. He made a few tepid remarks about how the company needed to embrace gas deregulation. But mostly this was Rich Kinder’s show. “Enough of this!” he declared, and then he lit into the group. He was tired of the chaos, tired of people going behind his back to Lay, tired of the constant complaints and excuses about why the company wasn’t doing better. And it was going to stop. The company’s problems were like alligators, he growled. “There are alligators in the swamp,” he said. “We’re going to get in that fucking swamp, and we’re going to kick out all the fucking alligators, one by one, and we’re going to kill them, one by one.” And on that note, the meeting ended.

Skilling also had a tendency to oversimplify, and he largely disregarded—indeed, he had an active distaste for—the messy details involved in executing a plan. What thrilled Skilling, always, was the intellectual purity of an idea, not the translation of that idea into reality. “Jeff Skilling is a designer of ditches, not a digger of ditches,” an Enron executive said years later. He was often too slow—even unwilling—to recognize when the reality didn’t match the theory. Over time his arrogance hardened, and he became so sure that he was the smartest guy in the room that anyone who disagreed with him was summarily dismissed as just not bright enough to “get it.

Enron Oil was supposed to have strict controls to prevent the possibility of large losses; its open position in the market was never supposed to exceed 8 million barrels, and if losses reached $4 million, the traders were required to liquidate the position. Yet when the Arthur Andersen auditors had tried to check whether Enron Oil was complying with the policy, they later reported, they discovered that Borget and Mastroeni had made a practice of “destroying daily position reports.” Still, Andersen refused to opine on the legality of what had come to be known internally as Borget and Mastroeni’s “unusual transactions,” claiming that it was beyond their professional competence.

The Enron executives were terrified of offending Borget. Before the accountants went to Valhalla to interview Borget, Seidl sent the head oil trader a memo detailing Andersen’s concerns so that he would be better prepared to address them. After one conference call among Arthur Andersen, Seidl, and Borget, Seidl sent a telex to Borget. “Lou,” it read. “Thank you for your perservance [sic]. [Y]ou understand your business better than anyone alive. Your answers to Arthur Andersen were clear, straightforward, and rock solid—superb. I have complete confidence in your business judgment and ability and your personal integrity.” Then he added, “Please keep making us millions….

Securitizations exploded, with everything from lotto winnings to proceeds from tobacco lawsuits being turned into securities that could be sold to the investing public.

On January 30, 1992, the SEC told Enron that it would not object to the use of mark-to-market accounting beginning that year. On getting the word, Skilling was ecstatic. He quickly gathered his troops in the conference room of the thirty-first floor, where his group had its offices. To celebrate, he brought in champagne: champagne to toast an accounting change!

They believed that the market was the ultimate judge of their work and their worth. The market created a true meritocracy: you either made money because you made good trading decisions or you lost money because you made bad ones. Enron traders didn't concern themselves with ethics or morality apart from the unyielding judgment of the markets. Maximizing profit was not inconsistent with doing good, they believed, but an inherent part of it, and the judge of good and bad was the immediate consequence of a split-second trade. The highest compliment a trader could pay a colleague was to call him intellectually pure. The worst insult was to accuse someone of making a deal that wasn't economic.

Because the government is taking practically every penny of profit that the two companies generate to shrink the federal deficit, Fannie and Freddie have not been allowed to rebuild any capital, which could absorb losses in the event of another downturn in the housing market.

Why do we need long-term fixed-rate mortgages in a world where the work force of the future is going to change jobs and move every three to five years?

Wall Street that Enron was an aggressive user of structured finance devices such as special purpose entities (that’s the SPE in Hecker’s song), securitizations, and off-balance-sheet partnerships. “If there was a whiz-bang structure somebody had, the place to sell it was down there on Smith Street, because they were buying,” says one banker. Andy Fastow’s team, says another banker, were “black belts in structured finance.” “It started out as pure, clear, legitimate deals,” says a former senior Enron executive. “And each deal gets a little bit messier and messier. We started out just taking one hit of cocaine, and the next thing you know, we’re importing the stuff from Colombia.

A joke goes: “What’s the difference between the GSEs in the United States and Repsol in Argentina?” The punchline: “Argentina settled.

But “if it’s destroyed in the course of the normal policy and litigation is filed the next day, that’s great, you know, because we’ve followed our own policy, and whatever there was that might have been of interest to somebody is gone and irretrievable.” Two

she suggested deleting senior Andersen partners from the circulation list for Enron e-mails because it “increases their likelihood of being a witness.” Duncan,

The load was so great that Andersen summoned a shredding truck from a local disposal company called Shred-It. (The company’s motto: “Your secrets are safe with us.”)

Skilling was the one Enron executive who did not take the Fifth Amendment before Congress, though his lawyer advised him to do so.