In the opening pages of his new book, Pipe Dreams: Greed, Ego, and the Death of Enron, Robert Bryce calls an Enron employee a “sphincter.” And not just a sphincter, but a “Texas-sized sphincter.” This should give you some indication of what you’re in for when talking with Robert Bryce. Here, the outspoken journalist and author talks about “the crooked E” and his experiences writing Pipe Dreams.
texasmonthly.com: Many books have been written about Enron. How is yours unique?
Robert Bryce: It may sound like bragging, but my book is the best. It’s not a boring business book. Instead, it explains, in an engaging way, why Enron failed. Pipe Dreams not only shows how Enron corrupted its financial statements with methods like mark-to-market accounting and off-the-balance-sheet financing, it also dishes the dirt on the key miscreants. My book provides detailed profiles of Ken Lay, Jeff Skilling, and Andrew Fastow, as well as people like Lou Pai, the math genius who sold more stock than anyone else ($270 million worth) before leaving Enron; Rebecca Mark, the self-obsessed diva whose bad deals in India and the water business cost Enron $2 billion; and Ken Rice, the good-for-nothing Skilling crony who headed Enron Broadband Services, a division that probably cost Enron another $2 billion or so. Pai, Mark, and Rice have largely been ignored by the other books and by the mainstream media. My book exposes their shenanigans.
texasmonthly.com: Your book is written primarily from an outsider’s perspective. Did you attempt to speak with the higher-ups? Were your sources reluctant to speak with you?
RB: I called the highest-ranking executives. None of them would talk. So I relied heavily on people who worked with them. Many of those people were reluctant to have their names used because they feared retribution. So they gave me information and referred me to other sources. By the time I finished my reporting, I’d talked to more than two hundred people, most of whom were either current or former Enron employees.
texasmonthly.com: While collecting your research, what were you most surprised to learn?
RB: I was surprised at two things. First, I was intrigued that Enron’s roots extend all the way back to the gusher at Spindletop discovered in 1901. The founders of what became Houston Natural Gas started searching for oil right after Spindletop. They found a little oil, but it was a gas strike that led them to create HNG, which became Enron.
My second surprise was the unsurpassed greed of some of the Enron executives. The most offensive example came from Lou Pai, who owns a huge ranch in southern Colorado. He often used an Enron jet to visit his property. And Pai was such a big shot that he didn’t want to drive from his home in Sugar Land all the way to the Enron hangar at Intercontinental Airport. So he had the pilots fly the jet from Intercontinental to Sugar Land to pick up his sorry butt. Never mind that each time they did that, it cost Enron about $1,700. That kind of wasteful extravagance became commonplace in the two years before Enron filed for bankruptcy.
texasmonthly.com: Do you feel Houston’s atmosphere played a significant role in the debacle?
RB: I really like Houston. It’s a great city—a fascinating, dynamic place. But it’s clear that Enron couldn’t have happened anywhere else. Houston is the energy capital of the solar system. Enron was an energy company. No other city had the infrastructure, the personnel, or, more importantly, the history of suddenly-rich promoters who could seduce the entire city. Enron seduced Houston, and the company’s failure is just the latest in a long string of boom-and-bust stories that have been part of Houston since Spindletop.
texasmonthly.com: Did the Enron executives start out morally corrupt, or did their disregard for rules develop over time as they made more and more money?
RB: I think their disregard for the rules developed over time. The money, the power, and the fame that came with Enron’s success was like a drug that kept all of them intoxicated. Rich Kinder, the president of Enron from 1990 to 1996, was constantly warning his executives not to “start smoking our own dope.” When Kinder left (to found Kinder Morgan Inc., where he made himself into a billionaire), Skilling, Lay, and the rest of the Enron big shots started smoking their own dope. It was a fatal addiction.
texasmonthly.com: Don’t get me wrong—I enjoyed reading it—but why did you feel it was important to include sexual misconduct at Enron in your book?
RB: I didn’t start the book looking to write about sex. In fact, it was a Wall Street energy analyst who told me early in my research that if I didn’t include the sexual misconduct, I’d miss the story. He was right. The more research I did, the more I found that many of the highest-ranking executives at Enron—Ken Lay, Jeff Skilling, Lou Pai, and Ken Rice—had all been involved in either extramarital affairs or other sexual misconduct. And that misconduct was an integral part of the corruption of Enron’s culture. As one former Enron employee told me, the sexcapades created “an environment where secrets were kept.” And as we now know, those secrets included the off-balance sheet deals that totally corrupted Enron’s books.
texasmonthly.com: Did they really believe they would get away with all of their shenanigans?
RB: No. I think that in the twelve to eighteen months before the bankruptcy, increasing numbers of high-ranking employees began to see that the wheels were coming off. So they quit before that happened. Mark, Skilling, Pai, Rice, and several others all quit months before the bankruptcy.
texasmonthly.com: You point to many people and situations that caused the demise of Enron. But who do you feel is most responsible?
RB: Ken Lay is responsible. Sure, Jeff Skilling and Andy Fastow were greedy and malicious bastards, but Ken Lay was the captain of the ship, and he didn’t understand what was going on. As one military man who worked at Enron told me, “the command reflects the commander.” The failure of Enron is Ken Lay’s fault. Period.
texasmonthly.com: Why hasn’t George W. caught more flack for his friendship with the company?
RB : He’s been masterful at changing the subject. Instead of talking about Ken Lay and the dangers of corporate corruption, he and Karl Rove have made Saddam Hussein and Iraq the topic du jour. But the fact is that George W. and his GOP buddy, Texas Senator Phil Gramm, went to extraordinary measures to help Enron. Gramm went out of his way to sponsor a bill in 2000 that exempted Enron’s energy trading operations from federal oversight even though his wife, Wendy Gramm, was making over $100,000 per year as a member of Enron’s board. Just a few weeks ago, Phil Gramm announced he’s taking a job with UBS Warburg, the investment bank that took over Enron’s trading operations earlier this year. If anyone needs proof that big money is corrupting our politicians, they should look at Phil Gramm.
texasmonthly.com: Early theologians and philosophers, such as Aristotle, condemned money trading because it produced nothing for society. Has all of this shown us that there is something inherently wrong with the trading business?
RB: No. Energy is a commodity just like pork bellies and wheat. It will always be traded. The failure of Enron proves that there are limits to the trading business. Jeff Skilling and his acolytes at Enron believed that energy and dozens of other commodities could be traded simultaneously by the same company and that doing so could be profitable. That’s simply not true. And companies like Dynegy, Enron, El Paso, Reliant, and Williams are paying a heavy price while learning that lesson.
texasmonthly.com: How did your opinion of the Enron situation change after writing your book?
RB: When I began, I assumed that lots of people at Enron were corrupt. The more reporting I did, the more I realized that it was a relatively small group of executives, deal makers and traders who were corrupted by the huge paychecks and the power that came with them. There were thousands of people who worked at Enron who didn’t make big money, who were never corrupted, who only expected an honest paycheck for an honest day’s work. Those are the people who made Enron work. They did the thankless jobs that allowed the company to grow and prosper. And yet, despite their focus and dedication to their jobs and co-workers, they were screwed out of their life’s savings and their pride by the pirates at the top.
texasmonthly.com: How do you think this event will change things in America?
RB: Ultimately, it will probably be good for small investors and for corporate America as a whole. It should result in greater transparency in the stock market and harsher penalties for those who break the rules. Companies will be forced to be more open with investors, who are already more skeptical and that’s good.
But before real reform can happen, George W. Bush and Congress are going to have to give the SEC more money. Laura Unger, a Republican, who was an SEC commissioner during the Clinton Administration, said the agency needs $1 billion per year to do its job. So far, Bush has only advocated a budget of about $500 million. That’s not enough.