Enron Ever After
Ten years ago this month, the company that once dominated Houston collapsed in a cloud of debt. But its ghost still haunts the city—and America.
In mid-October, someone sent me a listing for a condominium in a cushy Houston high-rise that was for sale at the reduced price of $6.9 million, a full 20 percent off. At more than 12,000 square feet, the condo was, according to the description, a “magnificent Italian Renaissance–inspired” residence with four bedrooms, four full and five half baths, Houston views “in all directions,” and “ten privately owned underground parking spaces in premier locations” (this in addition to valets at the ready 24/7). Fountains flowed on balconies planted with caladiums. There was a billiards room, a separate family room with a marble fireplace surround, and much, much more. “This unrivaled masterpiece exemplifies artisan craftsmanship throughout,” the listing continued, and, indeed, the vaulted brick ceiling in the kitchen, the rough-hewn, possibly hand-carved beams in the family room, and the abundant brocade evoked Renaissance royalty, or at least people who yearned to be viewed as such. This was, after all, a place with nine toilets. The owners, despite their obvious wealth and power, seemed to require constant reminders of both.
The finicky former king and queen of this palazzo in the air were none other than the late Ken Lay and his wife, Linda, who actually had been Houston royalty during the city’s Enron era, when Ken was CEO. The real estate photos of their home inspired me to imagine Lay, sometime just before the guilty verdict in his 2006 securities fraud trial, standing on one of his four prohibitively expensive balconies, alone. The fountains would be burbling hundreds of feet above the traffic dancing in and out of River Oaks while he gazed at the city below, knowing, because even someone as optimistic as he was would have known, that he was a goner. Born into a poor family, Lay became the kind of CEO who insisted on drinking his daily coffee from fine china and who once sent his corporate jet to fetch his daughter’s furniture home—from the South of France. But then the entire world Lay had built—from the seemingly thriving global energy company to friendships with U.S. presidents to the de facto mayorship of Houston—vanished, first in a sea of prosecution and then in the wake of his own death, which occurred on a post-verdict stay at a lavish ranch in Colorado.
Ten years after Enron collapsed on a cold, rainy December day, however, the memory, not to mention the schadenfreude, still lingers. You would think that after all the headlines, trials, jail terms, legal settlements, and untimely deaths, the company’s ghost could be put to rest, particularly in a city that prides itself on looking forward and has a serious aversion to global embarrassment. “You’re going to pick at the scab,” a friend with Enron connections chided when I called for a chat; she, like a lot of people who experienced the company’s collapse personally, has been more than happy to move on. But she can’t, really, and neither can Houston. Even a decade later, it is still easy to be drawn into all sorts of Enron debates, like whether it was or was not a “real” company—as opposed to, say, a wild casino run by delusional, greed-crazed traders. People still argue over whether Jeff Skilling, Enron’s president, did or did not deserve such a lengthy prison sentence for something that either was or was not truly illegal. There are even those who believe that Lay is alive somewhere, with a new face and his fortune intact.
Part of the reason Enron remains with us is that it was such a local story, and so many of the players are still around. Rich Kinder, who left the company in 1996 when Lay refused to turn over the reins in a timely fashion, now runs an immensely successful pipeline company, Kinder Morgan, with several former Enron execs. Kinder and his wife, Nancy, who was for a time Lay’s invaluable executive assistant, inhabit the most rarefied echelon of Houston society. The same is true of John Arnold; once a trading prodigy at Enron, he now has his own hedge fund and, with his wife, Laura, the requisite philanthropic foundation. Skilling continues to appeal his 24-year sentence from his prison cell in Englewood, Colorado, but Andy Fastow, certainly the most useless CFO in history, was transferred earlier this year from prison to a halfway house to finish his 6-year sentence for wire and securities fraud. His wife, Lea, a former Enron assistant treasurer who also was incarcerated for her part in the scandal, has already begun to reemerge in the city’s social circles—under her maiden name. Sherron Watkins, who famously warned the oblivious Lay that he was facing a wave of accounting scandals, earns a nice living giving speeches on corporate governance around the world. And literally hundreds of other people are back cheering on their kids at West University Little League games and jockeying for space in the carpool line at various elite private schools.
But as localized as Enron was, its staying power comes from the fact that it was also, unfortunately, a national story, the first act of an American tragedy. Initially, after Skilling was sent to jail and Lay was laid to rest, Enron could be written off as an anomaly, a bunch of Texas yahoos run amuck. But then came WorldCom, Tyco, HealthSouth, and more, followed by the mortgage crisis and the great financial meltdown, and Enron began to seem like the proverbial canary in the coal mine. As Bethany McLean, the co-author of The Smartest Guys in the Room, noted in the Guardian in 2008, just as Enron executives were more than willing to sell clients bad investments rolled into a private equity fund, so too were Wall Street firms willing to package worthless home mortgages into glamorous financial instruments. Enron knew how to keep its ever-growing debt off its balance sheet; Citigroup did too. Enron bullied the government into weakening pesky regulations, browbeat the rating agencies that should have been protecting consumers, and in various ways silenced the accounting and law firms that propped it up long after it had ceased to be a going concern.
Enron also presaged a new attitude of ethically dubious financial elitism, which helped drive the excesses of the mortgage crisis. The company’s highfliers saw ordinary people—who couldn’t possibly be as smart as they were—as chumps, deserving of whatever punishment they got. (Remember the tapes that surfaced of Enron traders mocking poor grandmothers in California?) This thinking also infected Lehman Brothers, Bear Stearns, Goldman Sachs, and other Wall Street firms. Even the American public itself seemed to take its cue from Enron. From Miami to San Diego, people roped themselves into astronomical mortgages and debt loads, as if they too believed that only a hopeless loser couldn’t afford a McMansion and a BMW. Who cared what was actually on your balance sheet? You deserved to live like an investment banker. Massive debt was just a minor drawback. If it was good enough for Citi, it was good enough for the average joe.
The most significant difference between Enron’s collapse and the collapse of the financial system that followed was that with Enron, people on the outside were actually outraged enough by what happened to pressure the government into prosecuting. In retrospect, that seems to have occurred because Enron was a smaller crisis and not system-threatening. The collapse of Lehman Brothers, we now know, imperiled the entire American financial complex; Enron, a friend pointed out, “was bear-baiting—the bear was on a chain.”
In Houston, the more cynical view is that the Enron prosecutions and the regulations that followed served as an excellent lesson for the financial services industry, a primer on how to keep doing what they’ve been doing in ways that might be unethical but are not technically illegal. “The commercial banks went to school not only on Enron but on all the other players in the same arena,” said John Olson, a longtime Enron critic and hedge fund manager. Or as a former Enron executive put it, “We gave people a blueprint for how to avoid being prosecuted.” And the idea was simple: Why game the system in a publicly traded company when you can use a bank or a hedge fund? This worked catastrophically well. Only in the past few months has the public finally grown angry enough to organize into a movement like Occupy Wall Street.
As any of those protesters will be happy to tell you, no one—so far—has been prosecuted in connection with the 2008 financial collapse. This has led some remaining Enron loyalists to challenge the fairness of Skilling’s jail sentence and insist, as Skilling did, that what killed Enron was not inner rot but “a run on the bank”—just like what happened to Lehman. (Although as Sherron Watkins told me, “That’s true, but it’s like saying you died of a heart attack when you were already three hundred pounds overweight.”) There is a small underground of local revisionist historians, in fact, who believe that what Enron foreshadowed was not widespread financial chicanery but overzealous prosecutions in the financial sector. And, of course, there is no small amount of defensiveness still lingering. Just as it is hard now to find a George W. Bush cheerleader in Houston, it’s not easy to find a local law firm that admits to representing Enron—even in the good old days.
Still, one event has given me hope that Enron’s legacy will not all come to naught. Kinder Morgan just announced a $21 billion deal that will make it the largest natural gas pipeline company in the U.S. and the country’s fourth-largest energy company. Anyone who studies the history of Enron can see that the trouble started when Rich Kinder left; he was a man who had been through bankruptcy before, and he made it his business to ensure that Enron never fell prey to any financial silliness. Of course, he also has nine toilets in his house, but at least he’s earned them.