Today at the art gallery I watched Enron: The Smartest Guys in the Room, a documentary about the financial, social, and moral disaster that was Enron, the oil/internet/utility company that crashed and burned so spectacularly in 2001. Yeah, OK, the movie came out in 2005 or something, but I didn’t see it until today (thanks, Ipod Touch!).
Basically, Enron top brass employed accounting tricks ranging from shoddy to absolutely dishonest in order to inflate the stock price. This was to increase the value of their personal stock options, and to keep the company afloat. At one point (I forget which year it was), the stock price rose 90% in one year, while the company was 30 BILLION DOLLARS in debt. Thirty. Billion. Dollars. While this undoubtedly makes one feel better about one’s personal finances (whatever my foibles, I have never managed to dig myself THAT deep into the hole), it doesn’t give one much confidence in one’s corporate overlords.
Because even a complete economic ignoramus like me can see what they were doing. Alchemy. Financial alchemy. They took something which had no value and turned it, by black magic, into money. Except they didn’t. One of the tricks they used was mark-to-market accounting, which allowed them to count projected profits from deals and projects as actual profits, whether or not the deal made any money. In many cases the money never materialized – the projects stalled, lost money, were abandoned – but were on the balance sheets as profit, and that invisible ineffable insubstantial twenty eight bazillion dollars found its way into the stock portfolios and Swiss bank accounts of Enron executives.
And eventually the situation became unsustainable. Then the crash.
Like I said, this film was made in 2005, before the most recent financial crisis, but what struck me was how much Enron’s collapse foreshadowed that of the US mortgage industry. A reliance on financial alchemy – turning a bunch of unsustainable, bound-to-be-defaulted-upon mortgages into bonds, then selling the bonds and hoping for the best – turned out, unsurprisingly, to be a really fucking bad idea. Because, you know, ALCHEMY DOESN’T WORK. Seriously. But this is a country where 50% of people aren’t sure how long it takes the earth to revolve around the sun, and 45% believe that God created the earth and everything on it sometime in the past 10,000 years, so this sort of idiotically optimistic magical thinking is hardly out of place.
And, as always, the people who suffer are the marginal ones, the ones who could have gotten a standard mortgage but were pushed into an ARM because it made more profit for the broker, the lineman from one of the power companies Enron bought who invested his retirement savings in Enron, then saw it all disappear, the millions of ordinary people ruined by reckless greed and speculation. People who just wanted to do their jobs and take care of their families and have a little modest fun on the weekends. Modest people, not the sick fucks like the Enron executives who thought they lived in a Randian paradise.
Here’s an idea: let’s put some of those guys in charge of stuff. Not the CEOs who think that you can conjure money into existence by the sheer Nietschean force of your superhuman will. They could hardly do a worse job, and they’d probably be a lot more careful.