WEBVTT - Selects: How Enron Fooled the World 0:00:00.760 --> 0:00:03.240 Hey, guys, it's me Joshun For this week's select I've 0:00:03.279 --> 0:00:07.039 chosen our twenty twenty three episode on the Enron scandal. 0:00:07.800 --> 0:00:11.040 It's a pretty interesting episode, at the very least, just 0:00:11.080 --> 0:00:14.880 because of the mind bogglingly nuts stuff that these guys 0:00:14.920 --> 0:00:18.320 did all in the pursuit of money and personal gain. 0:00:19.000 --> 0:00:23.160 Not only did they swindle entire states, they also, as 0:00:23.200 --> 0:00:25.880 a nice cherry on top, wiped out the life savings 0:00:25.880 --> 0:00:29.120 of thousands of their own employees. It's the kind of 0:00:29.160 --> 0:00:31.320 thing that was such a big deal. It left us 0:00:31.320 --> 0:00:34.880 stain on American society as a whole, just by how 0:00:34.960 --> 0:00:37.760 cynical it made everybody about what people can get away 0:00:37.800 --> 0:00:40.440 with just in the pursuit of wealth. At any rate, 0:00:40.520 --> 0:00:43.640 I hope you enjoyed this episode. It's a good one. 0:00:47.920 --> 0:00:53.680 Welcome to Stuff You Should Know a production of iHeartRadio. 0:00:57.560 --> 0:00:58.959 Hey, and welcome to the podcast. 0:00:59.000 --> 0:01:01.560 I'm Joshu and there's Chuck and Jerry's here, and it's 0:01:01.560 --> 0:01:02.480 stuff you should know. 0:01:03.520 --> 0:01:04.000 We you mean it. 0:01:04.040 --> 0:01:08.480 You should know this stuff because this is serious. 0:01:08.080 --> 0:01:11.560 Corporate malfeasance that I think it's probably not an American 0:01:11.600 --> 0:01:14.280 over the age of twenty walking around who doesn't know 0:01:14.319 --> 0:01:18.399 about this somehow, some way, to some degree. I know 0:01:18.440 --> 0:01:22.240 they teach about this stuff in business school. It's been 0:01:22.240 --> 0:01:26.200 written on extensively, but I mean I didn't understand the 0:01:26.240 --> 0:01:29.720 ins and outs of it until I started researching this, 0:01:29.840 --> 0:01:33.680 and it's quite shocking. And that shocking thing that I'm 0:01:33.720 --> 0:01:36.360 talking about is the rise. 0:01:36.080 --> 0:01:38.319 And fall of Enron, one of. 0:01:38.280 --> 0:01:44.680 The greatest swindles in corporate American history, maybe in corporate 0:01:44.760 --> 0:01:47.760 history in the world, definitely in corporate American. 0:01:47.400 --> 0:01:48.520 History for sure. 0:01:49.000 --> 0:01:50.560 I'm really glad you picked this because I didn't know 0:01:50.560 --> 0:01:54.440 all the ins and outs either, because this is you know, 0:01:54.560 --> 0:01:57.760 when I was a young late twenties, early thirty something, 0:01:57.960 --> 0:02:01.920 didn't have a care in the world. Sure, And I 0:02:01.960 --> 0:02:06.720 finally watched The Smartest Guys in the Room today. 0:02:06.920 --> 0:02:07.960 Yeah, I saw it last night. 0:02:08.040 --> 0:02:08.280 Yeah. 0:02:08.280 --> 0:02:12.320 The documentary based on the book, and we'll get to 0:02:12.360 --> 0:02:14.639 the authors and stuff. It was Peter Elkind and. 0:02:15.040 --> 0:02:17.680 Who was a co author, Bethany McLain. 0:02:17.840 --> 0:02:19.480 Okay, he was the lead author. 0:02:19.520 --> 0:02:23.639 Even Okay, I knew she wrote the original articles and Forbes, 0:02:23.720 --> 0:02:26.440 so she co authored the book and she's in the documentary, 0:02:26.840 --> 0:02:29.880 as is Elkland. And it really is worth the watch. 0:02:30.680 --> 0:02:32.960 But just want to point out that this is an 0:02:33.040 --> 0:02:37.360 overview of the Enron scandal. It's pretty clear once you 0:02:37.400 --> 0:02:39.359 start poking around that this could be like a ten 0:02:39.400 --> 0:02:40.120 part series. 0:02:40.800 --> 0:02:41.520 Yeah for sure. 0:02:41.560 --> 0:02:44.040 And there probably is a podcast series out there that 0:02:44.080 --> 0:02:47.240 covered just Enron. So there's lots of sort of ins 0:02:47.240 --> 0:02:49.520 and outs that we won't be able to touch on, 0:02:49.760 --> 0:02:52.480 but we can definitely give her the overview, which was 0:02:53.320 --> 0:02:58.080 that Enron was a corporation. Originally it was a natural 0:02:58.120 --> 0:03:04.480 gas line pipeline operator, but they quickly, well not quickly, 0:03:05.320 --> 0:03:09.280 they got out of that business almost entirely when certain 0:03:09.320 --> 0:03:11.600 people were hired and we'll sort of get to all 0:03:11.600 --> 0:03:15.600 this in a minute too. Certain people, when certain people 0:03:15.639 --> 0:03:18.799 were hired that basically said, you know what, we don't 0:03:18.800 --> 0:03:22.200 we should even be in the pipeline industry. We should 0:03:22.240 --> 0:03:25.720 invent almost a new kind of industry, which is to 0:03:25.919 --> 0:03:32.000 use energy as financial instruments, and we should become a 0:03:32.120 --> 0:03:37.880 trading company that trades natural gas and eventually paper pulp 0:03:38.080 --> 0:03:42.240 and electricity and you name it. Like, we'll get into 0:03:42.280 --> 0:03:44.880 all the things that they sort of pivoted to. But 0:03:46.600 --> 0:03:48.360 in rounds started, I guess we should start at the 0:03:48.400 --> 0:03:52.320 beginning when they in nineteen eighty five when Houston Natural 0:03:52.360 --> 0:03:56.440 Gas Company merged with a company called Inter North and 0:03:56.480 --> 0:04:02.040 they combined to form this b large energy corporation in Texas, 0:04:02.120 --> 0:04:07.360 mainly natural gas, and the chief executive of HMNG at 0:04:07.360 --> 0:04:10.600 the time was a man named ckn or Kenneth Lay, 0:04:10.760 --> 0:04:11.800 who you might have heard of. 0:04:12.480 --> 0:04:15.280 Yeah, and if you haven't prepared to meet ken Lay 0:04:15.440 --> 0:04:20.080 several times across this episode from the outset, I think 0:04:21.000 --> 0:04:24.960 Houston Natural Gas and Inner North, we're both profitable, but 0:04:25.000 --> 0:04:28.000 I saw that neither one of their the companies really 0:04:28.400 --> 0:04:32.159 benefited from the merger, although it did expand their pipeline network. 0:04:32.400 --> 0:04:36.000 Really it just protected them from a hostile takeover. But 0:04:36.080 --> 0:04:39.560 it was just a just a standard gas company, you know, 0:04:39.680 --> 0:04:42.159 no big frills or anything like that. I think the 0:04:42.240 --> 0:04:45.839 first year it posted a fourteen million dollar loss. Put 0:04:45.880 --> 0:04:48.840 that in your in your hat and smoke it later 0:04:49.839 --> 0:04:55.400 with a pin. Okay, in that the first year Enron 0:04:55.520 --> 0:04:58.640 was around, in nineteen eighty five, it posted a fourteen 0:04:58.680 --> 0:04:59.599 million dollar loss. 0:05:00.040 --> 0:05:01.279 Remember that for later, Okay. 0:05:01.440 --> 0:05:01.680 Yeah. 0:05:01.720 --> 0:05:03.920 Also, something else you should put in your hat for 0:05:04.000 --> 0:05:07.159 later is the fact that Kenneth Lay, the gentleman I 0:05:07.200 --> 0:05:10.919 mentioned who was the CEO of Houston Natural Gas was 0:05:10.960 --> 0:05:16.839 also very very tight with the Bush family, originally the 0:05:16.920 --> 0:05:21.760 elder Bush and later on George W. As Governor of Texas, 0:05:21.960 --> 0:05:26.760 big donor to their causes politically, and they ended up 0:05:26.800 --> 0:05:29.360 having a very sort of you scratch my back, al 0:05:29.440 --> 0:05:30.920 scratch yours kind of relationship. 0:05:31.440 --> 0:05:35.200 Yeah, it's I mean like I just started twirling around 0:05:35.400 --> 0:05:38.200 over and over again out of anger, like multiple times 0:05:38.240 --> 0:05:42.200 throughout the documentary, because they really go into some good 0:05:42.200 --> 0:05:45.160 details about that. But the upshot of the whole thing 0:05:45.880 --> 0:05:52.039 is George H. W and George W. Bush would not 0:05:52.279 --> 0:05:54.599 probably have been able to help en Ron out as 0:05:54.680 --> 0:05:57.919 much as they did had it not been for, of course, 0:05:58.040 --> 0:06:03.320 Ronald Reagan and the sweeping deregulations that occurred in starting 0:06:03.360 --> 0:06:06.040 in the eighties. There was just a spirit of deregulation 0:06:06.120 --> 0:06:09.719 which was, as Ronald Reagan said, they quoted in the documentary, 0:06:10.279 --> 0:06:13.640 Government's not the solution to our problems. Government is the problem. 0:06:13.880 --> 0:06:16.240 And there was this idea that was really huge in 0:06:16.279 --> 0:06:21.039 the eighties that if you got government out of the way, 0:06:21.320 --> 0:06:25.960 competition was going to drive innovation, was going to lower prices, 0:06:26.320 --> 0:06:29.680 was going to benefit society in myriad ways. That is 0:06:29.760 --> 0:06:35.040 not untrue The problem is when you deregulate fully and 0:06:35.080 --> 0:06:37.960 just basically say we're checked out from now on until 0:06:38.000 --> 0:06:43.200 something really bad happens. Something bad always happens. That's the 0:06:43.320 --> 0:06:46.359 problem with deregulation in the eighties, not that there's a 0:06:46.360 --> 0:06:49.640 problem with deregulation, that it was done incorrectly, like it 0:06:49.680 --> 0:06:51.360 seems to be every single time. 0:06:51.640 --> 0:06:54.720 Yeah, I mean, Reagan is also in the documentary quoted 0:06:54.800 --> 0:06:58.680 as talking about the magic of the marketplace, and we 0:06:58.800 --> 0:07:00.600 talked about this over and over on the show. And 0:07:00.640 --> 0:07:05.680 this is not an attack on conservatism, but deregulation in 0:07:05.720 --> 0:07:08.760 the marketplace and letting the free market decide things is 0:07:08.800 --> 0:07:13.080 one of the core tenets of conservatism generally. And what 0:07:13.120 --> 0:07:16.800 we've always kind of hammered home after years, and you 0:07:16.960 --> 0:07:18.560 said it in one way, but I'll say it in another, 0:07:18.640 --> 0:07:22.480 is it never takes into account humans are the ones 0:07:22.520 --> 0:07:26.200 that are operating these systems. And when you have money, 0:07:26.840 --> 0:07:29.800 lots and lots of money, and you have humans operating systems, 0:07:30.480 --> 0:07:35.320 there are inevitably going to be greedy humans with so 0:07:35.440 --> 0:07:40.160 much hubris that they sell their souls to make money. 0:07:40.200 --> 0:07:44.520 And that's what happens every single time. Yet it's still 0:07:44.960 --> 0:07:48.800 lessons are still not learned that there are certain kinds 0:07:48.840 --> 0:07:51.000 of humans, and they always seem to be they always 0:07:51.000 --> 0:07:53.720 seem to be the ones in charge here of these systems. 0:07:53.920 --> 0:07:56.920 They will take advantage of them to the detriment of 0:07:57.360 --> 0:07:59.800 the little guy and the little lady. And that is 0:08:00.200 --> 0:08:02.400 that would happened with Enron. 0:08:02.920 --> 0:08:04.760 Yeah, And I don't know if it's always like they're 0:08:04.800 --> 0:08:08.000 not taking into account human greed. I think most of 0:08:08.040 --> 0:08:13.360 the people who are powerful enough to deregulate federal energy 0:08:13.400 --> 0:08:17.760 regulations don't really care. In a lot of cases, they 0:08:17.840 --> 0:08:19.760 know that they're going to make a boatload of money 0:08:19.800 --> 0:08:21.920 by the time the thing really kind of blows up 0:08:21.920 --> 0:08:25.280 sometime down the line. I think it could be either one. 0:08:25.880 --> 0:08:29.560 But there was a big c change in nineteen eighty four, 0:08:30.280 --> 0:08:35.840 a big change to regulation. The Federal Energy Regulatory Commission said, Hey, 0:08:36.520 --> 0:08:41.640 you can now buy and sell gas natural gas from 0:08:41.760 --> 0:08:45.000 any seller anywhere in the United States. You don't have 0:08:45.080 --> 0:08:47.760 to just buy and sell within your state. And that 0:08:47.920 --> 0:08:51.760 opened up an entirely new market, and all of a sudden, 0:08:51.800 --> 0:08:55.160 you can make a lot more money moving this stuff around. 0:08:55.600 --> 0:08:59.480 But like you said, they figured out at Enron, you 0:08:59.480 --> 0:09:02.440 can make even more money by selling this stuff as 0:09:02.520 --> 0:09:06.520 commodities and trading on like futures and turning them into 0:09:06.559 --> 0:09:11.479 financial instruments, not actual just natural gas or oil or electricity, 0:09:11.720 --> 0:09:14.600 but the concepts of them, the right to sell it 0:09:14.720 --> 0:09:18.720 or buy that. Sometime down the road that changed absolutely everything. 0:09:19.160 --> 0:09:21.200 Yeah, and this is when things when you get into 0:09:21.360 --> 0:09:25.880 finance like this, it's not that my eyeballs glaze over. 0:09:26.000 --> 0:09:32.080 It just becomes almost and I say almost not real 0:09:32.160 --> 0:09:34.960 because it's it is kind of not real. It becomes 0:09:35.000 --> 0:09:37.920 a form of gambling in a way. And that's very 0:09:38.000 --> 0:09:39.840 much what happened to Enron in a lot of ways. 0:09:39.840 --> 0:09:42.119 And you'll kind of see here and there throughout the episode. 0:09:42.880 --> 0:09:46.680 But they as a company, after that eighty four decision, 0:09:47.280 --> 0:09:49.960 made a very faithful decision of their own in nineteen 0:09:50.000 --> 0:09:52.720 eighty nine, just a few years later, when they got 0:09:52.720 --> 0:09:56.680 a consulting firm on board Mackenzie and Company in particular 0:09:56.800 --> 0:10:01.040 consultant for that company named Jeffrey Skilling, to create what 0:10:01.040 --> 0:10:04.600 they called the a Gas Bank, which was basically, like 0:10:04.800 --> 0:10:06.400 I said earlier, like, hey, why don't we just be 0:10:06.440 --> 0:10:10.640 an intermediary between buying and selling of gas? And it 0:10:10.720 --> 0:10:13.720 was going so well that two short years later, Skilling 0:10:14.120 --> 0:10:17.560 left there and went to work full time. 0:10:17.320 --> 0:10:20.520 At Enron that's the John Gooing theme, oh. 0:10:20.400 --> 0:10:23.559 Sure, and eventually working his way up to the CEO 0:10:23.640 --> 0:10:25.040 of that company. 0:10:25.160 --> 0:10:28.840 Yes, so he was he but for the most part 0:10:28.920 --> 0:10:32.560 he was the right hand man, but essentially co CEO 0:10:33.080 --> 0:10:36.080 with Ken Lay, who I think took him on as 0:10:36.120 --> 0:10:38.959 a protege. And Jeffrey Skilling was the one who said, 0:10:39.000 --> 0:10:43.920 let's set up this market. And he also transformed the 0:10:44.000 --> 0:10:46.959 company's culture. One of the things he came up with 0:10:48.000 --> 0:10:52.120 was the idea that every year they should review and 0:10:52.240 --> 0:10:56.360 rate every employee, and the bottom ten percent of employees 0:10:56.400 --> 0:10:57.080 should be fired. 0:10:57.280 --> 0:10:58.839 So every year he. 0:10:58.960 --> 0:11:02.000 Was planning on fire hiring ten percent of their workforce, 0:11:02.400 --> 0:11:05.720 so about two thousand people every year. And the reason 0:11:05.760 --> 0:11:07.720 he was doing this is because he's saying, we can 0:11:07.760 --> 0:11:09.720 do better. We can hire the best and the brightest, 0:11:09.840 --> 0:11:12.840 We'll replace those people with much better people, and then 0:11:12.880 --> 0:11:15.120 the ones who are doing really well now we'll get 0:11:15.160 --> 0:11:17.640 moved to the back, and we'll just constantly be improving 0:11:17.679 --> 0:11:20.560 on the people that we're hiring. It makes sense in 0:11:20.559 --> 0:11:24.400 a really machiavellian kind of way, but it's also psychotic 0:11:24.480 --> 0:11:25.199 as well. 0:11:25.520 --> 0:11:28.640 Yeah, and the way I understood it from the documentary. 0:11:28.679 --> 0:11:32.319 It wasn't just like regular upper management reviews of the 0:11:32.320 --> 0:11:35.520 people that report to them, but it was all the 0:11:35.600 --> 0:11:39.079 employees rating one another like within their department. 0:11:39.120 --> 0:11:39.560 Isn't that right? 0:11:39.640 --> 0:11:41.679 Yeah, that's what I took it as too, So. 0:11:41.679 --> 0:11:45.880 I mean, you don't have to like be a a 0:11:46.160 --> 0:11:50.560 soothsayer to see where that heads when. And it certainly 0:11:50.600 --> 0:11:54.000 creates competition if that's what they're all about with, you know, 0:11:54.240 --> 0:11:57.479 sort of the charter of the company creating more competition 0:11:57.600 --> 0:12:00.200 by deregulating. They sort of did the same thing than 0:12:00.240 --> 0:12:03.480 the ranks and created a very I mean I've seen 0:12:03.480 --> 0:12:09.200 it described everywhere as just overly macho and testosterone fueled. 0:12:09.600 --> 0:12:10.240 Yeah. 0:12:10.440 --> 0:12:14.040 It seems like the traders there were were hired and 0:12:14.160 --> 0:12:17.800 kept on that were especially aggressive. And there are interviews 0:12:17.800 --> 0:12:22.000 in the documentary about some of these men who were 0:12:22.040 --> 0:12:25.960 traders that were like, you would cut the throat of 0:12:26.000 --> 0:12:28.880 the guy next to you on the trading floor, your 0:12:28.920 --> 0:12:31.040 fellow employee if you felt like you could make a 0:12:31.040 --> 0:12:32.080 few extra bucks. 0:12:32.520 --> 0:12:34.720 Yeah, and that was very much encouraged, not just by 0:12:34.800 --> 0:12:39.959 Jeffrey's skilling, but ken Lay had a history of at 0:12:39.960 --> 0:12:42.840 the very least turning a blind eye, if not actively 0:12:42.960 --> 0:12:47.800 encouraging people to break the law, do immoral stuff that 0:12:47.840 --> 0:12:50.480 may or may not have been legal, all in the 0:12:50.520 --> 0:12:54.040 interest of maximizing profits. Like, if you were making money 0:12:54.080 --> 0:12:58.280 and you got in trouble, you didn't get fired because 0:12:58.280 --> 0:13:00.320 you made money for the company. That's all all that 0:13:00.360 --> 0:13:03.080 mattered was making money for the company. So in that sense, 0:13:03.160 --> 0:13:06.000 Jeffrey Skilling was a really great protege for ken Lay. 0:13:06.640 --> 0:13:09.880 But he was like ken Lay on steroids, and I 0:13:09.920 --> 0:13:12.960 get the impression, and ken Lay is always or back 0:13:13.000 --> 0:13:16.120 in the day, he was a master at presenting this 0:13:16.720 --> 0:13:19.840 really laid back, almost. 0:13:21.080 --> 0:13:22.760 Detached persona. 0:13:23.760 --> 0:13:27.120 But if you watch the documentary and you read about him, 0:13:27.760 --> 0:13:30.400 you really get the impression that he knew exactly what 0:13:30.559 --> 0:13:34.520 outcome was ten steps down the road by just nudging 0:13:34.559 --> 0:13:36.920 this thing over here, nudging that thing over there, all 0:13:36.960 --> 0:13:40.960 with plausible deniability, but at the same time presiding over 0:13:41.040 --> 0:13:48.559 this incredibly complex, complicated, masterful machination that was all dedicated 0:13:48.559 --> 0:13:51.880 to the service of making money by whatever means possible. 0:13:52.280 --> 0:13:54.719 Yeah, and Lay, I mean the reason the documentary is 0:13:54.760 --> 0:13:59.199 called The Smartest Guys in the Room is because I 0:13:59.280 --> 0:14:03.120 think an equivalent everyone would admit that kin Ley and 0:14:03.200 --> 0:14:06.880 Jeffrey Skilling, and we should introduce you to a young 0:14:06.960 --> 0:14:10.640 recruit named Andrew Fastaal who is a key player eventually 0:14:10.679 --> 0:14:13.840 becoming the CFO, and was up to all kinds of shenanigans. 0:14:14.160 --> 0:14:18.080 But these were brilliant guys with amazing ideas, and a 0:14:18.080 --> 0:14:20.480 lot of the ideas that they had for this company 0:14:21.120 --> 0:14:24.320 were really good and ahead of their time. But they 0:14:24.360 --> 0:14:28.080 had the notion that you should be able to trade 0:14:28.080 --> 0:14:31.800 and make money off of great ideas and not necessarily 0:14:31.840 --> 0:14:35.360 the results of those great ideas, because time and time again, 0:14:35.480 --> 0:14:39.280 as you'll see as we tell this story, these ideas 0:14:39.280 --> 0:14:42.960 were not making actual money, maybe because some of them 0:14:43.000 --> 0:14:45.720 were ahead of their time, but that didn't matter because 0:14:45.760 --> 0:14:49.280 they had ways, very creative ways to hide those debts 0:14:49.280 --> 0:14:52.560 and losses. And that's the whole sort of fall of 0:14:52.680 --> 0:14:55.520 Enron is wrapped up in that statement. But these are 0:14:55.560 --> 0:15:00.560 all really really smart guys, and they were really really 0:15:00.560 --> 0:15:03.520 good at making money, and maybe we should take a 0:15:03.520 --> 0:15:05.640 break there. It's a nice little set up, all right, 0:15:05.880 --> 0:15:07.640 and we'll come back and talk a little bit more 0:15:07.640 --> 0:15:10.880 about their lobby to deregulate, and then some of the 0:15:10.920 --> 0:15:11.800 early Shenanigans. 0:15:11.840 --> 0:15:12.320 Right after this. 0:15:13.080 --> 0:15:18.560 Should know, large holds of. 0:15:21.200 --> 0:15:34.000 SKUs watched s k as good. 0:15:35.280 --> 0:15:40.240 Okay, So after about six years after that big deregulation 0:15:40.360 --> 0:15:42.600 from FIRK that said you can buy gas and sell 0:15:42.640 --> 0:15:44.880 it at wherever in the country. That opened up a 0:15:44.960 --> 0:15:51.560 huge market, there was another watershed deregulate deregulation that's that 0:15:51.880 --> 0:15:54.920 reversed an act that went back to nineteen thirty five, 0:15:55.440 --> 0:15:59.560 the Public Utilities Holding Company Act. Pooka love that one 0:16:00.480 --> 0:16:05.040 that said, if you are generating and selling electricity, you 0:16:05.120 --> 0:16:08.920 are a local utility and we're going to regulate you 0:16:09.320 --> 0:16:12.840 like you were providing the life blood of America, because 0:16:13.000 --> 0:16:17.359 they are Electrical utilities provide the life blood of America 0:16:17.440 --> 0:16:21.200 and have since long before nineteen thirty five. And in 0:16:21.320 --> 0:16:24.440 nineteen ninety they managed to get that reversed and now 0:16:24.440 --> 0:16:27.600 all of a sudden, anybody could buy an electric utility. 0:16:27.720 --> 0:16:29.680 And Enron definitely jumped on that. 0:16:30.040 --> 0:16:34.360 Yeah, for sure, their lobby was strong to put up mildly. 0:16:34.480 --> 0:16:40.000 They hired lobbyists to lobby different states. In those states, 0:16:40.160 --> 0:16:44.560 as no surprise, ended up getting millions of dollars flowing 0:16:44.600 --> 0:16:49.600 back toward Enron. I think they hired a lobbyists for 0:16:49.600 --> 0:16:53.000 at least thirty seven states. They also helped overturn along 0:16:53.120 --> 0:16:56.800 nineteen eighty eight that said the military has to buy 0:16:56.840 --> 0:17:01.440 power from local utilities, and now let's open that back up. 0:17:02.160 --> 0:17:05.000 Pretty soon, Enron got a twenty five million dollar contract 0:17:05.480 --> 0:17:10.680 for supplying electricity to Fort Hamilton and Brooklyn. And these 0:17:10.680 --> 0:17:13.119 are just, I mean, twenty five million ins up being 0:17:13.160 --> 0:17:15.720 peanuts in the grand scheme. But these are just examples 0:17:16.160 --> 0:17:19.160 as they sort of ramped up to their schemes of 0:17:19.320 --> 0:17:23.080 how they deregulated or lobbied to get things deregulated such 0:17:23.119 --> 0:17:24.399 that it was allowed to happen. 0:17:25.040 --> 0:17:25.280 Right. 0:17:25.440 --> 0:17:27.600 And one of the things, one of the schemes that 0:17:27.840 --> 0:17:32.320 got the attention of the entire country in two two 0:17:32.320 --> 0:17:38.000 thousand and one was an electrical scheme in California. California 0:17:38.119 --> 0:17:42.879 had undergone its own electrical deregulation power deregulation, but it 0:17:42.920 --> 0:17:49.000 had had adopted this weird patchwork compromise law or set 0:17:49.040 --> 0:17:52.800 of laws that just had loopholes you could drive a 0:17:52.880 --> 0:17:55.480 truck through, and that were just really created all sorts 0:17:55.520 --> 0:17:59.480 of legal gray areas. And so rather than just kind 0:17:59.480 --> 0:18:01.919 of like here they're biting around the edges, seeing what 0:18:01.960 --> 0:18:07.480 they could do. Instead, the energy traders at Enron started 0:18:08.040 --> 0:18:10.760 figuring out how to move energy out of the state, 0:18:11.640 --> 0:18:13.360 wait for the state to be like, hey, we need 0:18:13.359 --> 0:18:18.000 some energy, and move it back at incredibly inflated prices. 0:18:19.080 --> 0:18:25.320 They would purposefully take electrical utilities that they owned offline 0:18:25.720 --> 0:18:28.919 to generate more demand, a spike in demand, and so 0:18:28.960 --> 0:18:33.920 they could raise prices again. And they actually basically crippled California. 0:18:34.440 --> 0:18:38.520 I think I saw that California had a couple dozen 0:18:38.600 --> 0:18:43.359 blackouts in six months after that deregulation, after Enron started 0:18:43.480 --> 0:18:46.200 coming in and messing with stuff, whereas the six months 0:18:46.240 --> 0:18:49.439 before deregulation they had had one blackout. So if you 0:18:49.520 --> 0:18:52.240 watch the documentary and you listen, you know, you read 0:18:52.280 --> 0:18:56.359 some other sources about it. This was an entirely fabricated 0:18:58.640 --> 0:19:01.639 scarcity of electricity. There's plenty of it, and Ron just 0:19:01.640 --> 0:19:03.560 figured out that they could kind of pull this lever 0:19:03.640 --> 0:19:06.359 in that lever and charge way more by creating this 0:19:06.640 --> 0:19:07.520 fake scarcity. 0:19:07.800 --> 0:19:11.960 Yeah, and by pulling a lever like literally sometimes they 0:19:12.119 --> 0:19:15.760 called up a power company, a power plant and said 0:19:16.119 --> 0:19:19.480 pull the lever to the off position, and they have 0:19:19.600 --> 0:19:21.840 them on tape, you know, they played this in the documentary. 0:19:21.880 --> 0:19:24.960 Well they'll they called one in Las Vegas and said, hey, man, 0:19:25.160 --> 0:19:28.040 can you take this thing offline for a few hours 0:19:28.080 --> 0:19:32.160 and just just make something up because a rolling blackout 0:19:32.240 --> 0:19:36.000 meant big money all of a sudden, California again was 0:19:36.200 --> 0:19:39.160 buying their own energy back at a higher rate. And 0:19:39.320 --> 0:19:42.159 Governor Gray Davis at the time, and this is you know, 0:19:42.359 --> 0:19:45.040 I'm not like giving some full throated endorsement to any 0:19:46.320 --> 0:19:48.720 effectiveness of Gray Davis as a governor because I really 0:19:48.760 --> 0:19:52.200 don't know, but he definitely was sort of left holding 0:19:52.240 --> 0:19:55.400 the bag and scratching his head like what's going on here? 0:19:55.440 --> 0:19:59.360 Like We've got plenty of energy, and it just all 0:19:59.400 --> 0:20:02.119 through the document people are saying like this just isn't 0:20:02.119 --> 0:20:05.560 adding up in California. And some of those tapes that 0:20:05.600 --> 0:20:09.600 they play of these traders, like there was that natural, 0:20:09.760 --> 0:20:14.520 uh wildfire that broke out that jeopardized one of the pipelines, 0:20:14.920 --> 0:20:16.960 and these guys are on, you know, on tape on 0:20:17.000 --> 0:20:20.359 the phone with each other saying burn, baby, burn, because 0:20:20.400 --> 0:20:23.560 that's good for business if it knocks something offline, and 0:20:23.760 --> 0:20:27.040 is you know, make laughing at like uh, you know, 0:20:27.119 --> 0:20:30.159 old Grandma's like sweating in the summer heat because they 0:20:30.160 --> 0:20:34.840 can't get air conditioning, like the most vile, reprehensible kind 0:20:34.840 --> 0:20:37.359 of stuff in the name of making the alminer mighty 0:20:37.400 --> 0:20:38.720 dollar that you could imagine. 0:20:39.200 --> 0:20:41.720 What's also interesting is they don't really go into detail 0:20:41.720 --> 0:20:45.080 about it, but it's it appears to have also been 0:20:45.600 --> 0:20:48.719 a coup to get rid of Gray Davis and replace 0:20:48.760 --> 0:20:51.600 him with Arnold Schwarzenegger. Yeah, because ken Lay held a 0:20:51.680 --> 0:20:56.280 meeting at the Peninsula Hotel in Los Angeles and he 0:20:56.400 --> 0:21:00.600 invited Arnold Schwarzenegger. This was long before Ard Arnold's Shortzenegger 0:21:00.720 --> 0:21:04.000 was known to have had like real political aspirations. He 0:21:04.080 --> 0:21:07.440 wasn't governor yet wasn't running for governor over a problem 0:21:07.480 --> 0:21:11.040 that Enron created. It was like that level of In 0:21:11.040 --> 0:21:14.439 addition to also just making billions and billions of dollars 0:21:14.440 --> 0:21:17.680 by strangling the state, they also managed to replace the 0:21:17.880 --> 0:21:20.240 executive of the state as well to somebody who is 0:21:20.320 --> 0:21:21.400 much more friendly to them. 0:21:21.640 --> 0:21:23.879 Yeah, and get rid of in the of course he 0:21:23.920 --> 0:21:26.639 didn't like knock them off or anything. But in California, 0:21:26.680 --> 0:21:28.840 you can ever recall it seems to come up every 0:21:30.200 --> 0:21:33.639 twelve years or so where Californians aren't happy with the governor, 0:21:33.680 --> 0:21:37.600 and so if recall vote passes, you can have just 0:21:37.800 --> 0:21:42.960 an election out of nowhere and replace that governor. While 0:21:42.960 --> 0:21:45.600 this is going on, you know, kin Leigh stands on 0:21:45.640 --> 0:21:49.720 a stage and says, we're making money in spite of California, 0:21:50.119 --> 0:21:54.280 not because of California. So just lying through their teeth 0:21:54.320 --> 0:21:57.920 on stage to their shareholders. And you know, all these 0:21:57.920 --> 0:22:01.760 little schemes had little nicknames. The one where they got 0:22:01.880 --> 0:22:03.760 energy out of California just to make them buy it 0:22:03.800 --> 0:22:06.760 back was called Ricochet. There was one called death Star, 0:22:07.560 --> 0:22:09.800 and they're on tape like joking about like, hey, let's 0:22:09.800 --> 0:22:11.640 have a nice friendly name for this one, like death Star. 0:22:12.320 --> 0:22:17.280 So they're just they're playing games with people's livelihood essentially. 0:22:17.480 --> 0:22:20.879 And lives you can make a case as well, for sure. 0:22:21.600 --> 0:22:26.400 So three of those traders plagued guilty. Jeffrey Richter, John Forney, 0:22:26.520 --> 0:22:29.800 and Timothy Belden were three of those traders who manipulated 0:22:29.840 --> 0:22:34.760 California's energy market, costing the state between forty and forty 0:22:34.800 --> 0:22:41.480 five billion dollars in retrospect of unnecessary electrical prices and costs. 0:22:42.359 --> 0:22:45.159 All Right, so Enron is doing great, They're making a 0:22:45.160 --> 0:22:48.320 lot of money and we should point out that this 0:22:48.440 --> 0:22:51.800 is just you know, Ricochet was just one little scheme. 0:22:51.840 --> 0:22:57.720 They had all sorts of schemes along the way to well, 0:22:57.720 --> 0:23:00.639 we'll get to those between nine six though. In two 0:23:00.640 --> 0:23:03.320 thousand and one, like as far as the stock market 0:23:03.320 --> 0:23:06.760 world was concerned in Run was a Darling Fortune named them, 0:23:07.160 --> 0:23:10.720 I think six years straight America's most innovative company. 0:23:10.760 --> 0:23:12.199 Every single year in a row. 0:23:12.720 --> 0:23:15.239 Yeah, But what was going on behind the scenes is 0:23:16.119 --> 0:23:21.000 these ideas and these investments in schemes that they had. 0:23:21.440 --> 0:23:22.879 You know, some of them made money, but a lot 0:23:22.960 --> 0:23:25.360 of them didn't make any money at all, and they 0:23:25.400 --> 0:23:27.639 just became really really good at hiding that fact. 0:23:28.080 --> 0:23:33.560 Yes, that was the whole thing. Like, they were very innovative. 0:23:33.640 --> 0:23:35.679 They were ahead of their time in a lot of ways. 0:23:35.680 --> 0:23:39.200 Like they got into building broad band high speed internet 0:23:39.280 --> 0:23:42.080