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LOS ANGELES — Just as we suffer from water and air pollution, there is also money pollution. Director Alex Gibney's new documentary, Enron: The Smartest Guys in the Room, shows just how disastrously insidious and corrupting it can be. Based on the book of the same name by Fortune reporters Bethany McLean and Peter Elkind, Enron chronicles the 2001 financial collapse of America's seventh largest company.
One of the largest corporate scandals in American history, with some resultant criminal cases still pending, the tale is all the more fascinating because Houston-based Enron had financial ties to both President Bush and his father, President George H.W. Bush.
The film shows how greed, arrogance and indifference on the part of Enron executives, government and the larger financial community allowed this billion-dollar disaster to happen. Surprisingly, it does so with a light enough editing touch — even pairing archival footage with such Pop songs as Dusty Springfield's "Son of a Preacher Man" and Tom Waits' "What's He Building?" — to make a complicated financial story accessible and even entertaining.
Gibney previously made The Trials of Henry Kissinger — which investigates whether some of the former secretary of state's actions qualify as war crimes — with Eugene Jarecki. Both have now made important follow-ups. Jarecki's Why We Fight, a critique of the American military-industrial complex, won the Documentary Grand Jury Prize at this year's Sundance Film Festival.
(Enron also premiered at Sundance.)
"Suddenly, it turns out we're doing something with a certain amount of crossover," Gibney says during a private interview in a quiet conference room at Le Meridien Hotel in Los Angeles. "Both have to do in a way with how money pollutes a democracy. You can almost make a double-bill out of it, the domestic and international side."
Balding with a slight goatee and frameless glasses that make him look studious, Gibney is in a very good mood right after a small group interview here. It went very well, and he clearly believes he's accomplished something important with his film. More than that, he's riding a wave of successful political documentaries that take the power structure to task — Bowling for Columbine, Fahrenheit 9/11, The Fog of War, The Corporation and more.
"Documentaries are, in a way the nightly news is not, exploring these issues and asking very tough-minded questions about people in power," he says. "I think that's one of the exciting things about documentaries now."
(This interview occurred before ABC devoted a precious hour of its Primetime Live news program to a trivial subject — an allegation that American Idol judge Paula Abdul had an affair with a contestant, a fact that only underscores the timeliness of his observation.)
Enron was created in 1985 — a merger of two existing companies — as a natural-gas exploration and supply firm. Benefiting from Reagan-era deregulation of utilities, it became increasingly involved in the commodity-like trading and wholesaling of gas and electricity. It also received approval from the Securities and Exchange Commission to use "mark-to-market" accounting, which allowed it to book all the anticipated "profits" from a long-term energy supply sale in advance.
That made the company appear far more profitable than it was. Through aggressive self-promotion and the creation of an arrogant, hyper-macho corporate culture, the firm's high-living chief executive officers — Chairman and deregulation guru Kenneth Lay and President Jeff Skilling — fostered that perception.
While Gibney was unable to interview either, he has found damning video evidence of that culture at work, such as a corporate skit in which Skilling makes fun of mark-to-market accounting. He's also used his own interviews with other Enron employees to reveal the inner workings of Enron's highly questionable business practices.
In the group interview, I ask Gibney if Enron as a public company ever served a useful purpose. "Some of their initial ideas were actually quite good for the consumer," he explains. Originally, the company tried to find natural-gas supplies for its clients at the best price. "They were acting as a kind of broker and in that context performed a pretty valuable service.
"But they got off track. It wasn't a scam from the start. They got in trouble with that mark-to-market accounting, where suddenly the gulf between the cash coming in the door and the stated profits becomes so wide it was unsustainable. It was defying laws of financial gravity. That's when things really started to go wrong."
Perhaps the most shocking revelations in Enron relate to the California energy crisis of 2000 and 2001, when supply shortages among the state's newly deregulated utilities caused rolling blackouts. It was as if a natural disaster had hit — footage in the film shows traffic crawling through intersections without traffic lights.
At the time, nobody could understand how the nation's most populous state could enter the new millennium without so critical a resource as electricity. Eventually anger over the crisis helped to fuel a successful recall of Gov. Gray Davis.
The film, however, makes clear how it happened. Enron and other predatory traders exploited deregulation and manipulated the market, going so far as to ask utilities to hold back supplies to drive up prices. Gibney found audiotapes of some of the phone calls made by Enron traders, and they are infuriating.
"In the film, hearing those audio tapes, you can see the dark side of this cutthroat capitalism that Skilling and Lay seem to be promoting," Gibney says to our small group. "And it's really staggering.
"That's the part that seems to upset people the most — when you hear people laughing about fires engulfing power lines, saying 'Burn, baby, burn,' knowing it's going to drive prices higher, or making phone calls to power plants and asking them to shut down and power plants say, 'Yeah, OK.' "
Gibney also found evidence that Lay came to California for meetings with deregulation supporters at the exclusive Hotel Peninsula in Beverly Hills. Among those attending was Arnold Schwarzenegger, who replaced Davis as California's governor. During our private interview, I ask Gibney if he thinks Lay encouraged Schwarzenegger to challenge Davis.
"I haven't seen any transcripts of that meeting, but I would guess it wasn't anything so direct as that," he answers. "Lay wanted to get together a number of people who were influential, or likely to be influential in the future, and probably sympathetic to Enron's position, to give them the pitch on why deregulation should be pushed and why people who oppose deregulation should be opposed."
Lest one think Gibney is anti-capitalist — or at least opposed to the kind of Texas-style blustery capitalism epitomized by the TV series Dallas and now his film — one look at Enron's credits reveals it's not that simple.
It is produced by HDNet Films, which makes movies shot on high-definition video, and distributed by Magnolia Pictures. Both companies are owned by wealthy Texas entrepreneurs Mark Cuban and Todd Wagner, who made their money on a speculative Internet venture, Broadcast.com. The men also own the nation's top art-house chain, Landmark Theatres, as well as HDNet, a high-definition television network. Cuban owns the Dallas Mavericks.
Back in its day, Enron promoted itself as daring young company with an "ask why" advertising slogan. In retrospect, Gibney says, that's an apt motto for this movie.
"If the film causes people to ask why more often about companies in this country, that would be a good thing," he says "Because I think there are plenty of Enrons out there. It could happen again." ©
