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Power Failure “They’re still trying to hide the weenie” thought Sherron Watkins as she read a newspaper clipping about Enron two weeks before Christmas 2001 It uoted CFO Jeff McMahon addressing the company’s creditors and cautioning them against a rash judgment “Don’t assume that there is a smoking gun”Sherron knew Enron well enough to know that the company was in extreme spin modePower Failure is the electrifying behind the scenes story of the collapse of Enron the high flying gas and energy company touted as the poster child of the New Economy that in its hubris had aspired to be “The World’s Leading Company” and had briefly been the seventh largest corporation in AmericaWritten by prizewinning journalist Mimi Swartz and substantially based on the never before published revelations of former Enron vice president Sherron Watkins as well as hundreds of other interviews Power Failure shows the human face beyond the greed arrogance and raw ambition that fueled the company’s meteoric rise in the late 1990s At the dawn of the new century Ken Lay’s and Jeff Skilling's faces graced the covers of business magazines and Enron’s money oiled the political machinery behind George W Bush’s election campaign But as Wall Street analysts sang Enron’s praises and its stock spiraled dizzyingly into the stratosphere the company’s leaders were madly scrambling to manufacture illusory profits hide its ballooning debt and bully Wall Street into buying its fictional accounting and off balance sheet investment vehicles The story of Enron’s fall is a morality tale writ large performed on a stage with an unforgettable array of props and side plots from parking lots overflowing with Boxsters and BMWs to hot house office affairs and executive tantrums Among the cast of characters Mimi Swartz and Sherron Watkins observe with shrewd Texas eyes and an insider’s perspective are CEO Ken Lay Enron’s “outside face” who was interested in playing diplomat and paving the road to a political career than in managing Enron’s high testosterone anything goes culture; Jeff Skilling the mastermind behind Enron’s mercenary trading culture who transformed himself from a nerdy executive into the personification of millennial cool; Rebecca Mark the savvy and seductive head of Enron’s international division who was Skilling’s sole rival to take over the company; and Andy Fastow whose childish pranks early in his career gave way to something far destructive Desperate to be a player in Enron’s deal making trader oriented culture Fastow transformed Enron’s finance department into a “profit center” creating a honeycomb of financial entities to bolster Enron’s “profits” while diverting tens of millions of dollars into his own pocketsAn unprecedented chronicle of Enron’s shocking collapse Power Failure should take its place alongside the classics of previous decades – Barbarians at the Gate and Liar’s Poker – as one of the cautionary tales of our times From the Hardcover edition

  • Hardcover
  • 400 pages
  • Power Failure
  • Mimi Swartz
  • English
  • 21 March 2014
  • 9780385507875

10 thoughts on “Power Failure

  1. Rebecca McNutt Rebecca McNutt says:

    Power Failure is the third book I've read on the Enron scandal so far and complete with some humorous uotes it manages to be entertaining while still telling the true story of what happened and not dramatizing anything It's one of those stories that's so sad and so weird all at the same time a massive company ahead of its time in marketing and advertising anyone remember the Ask Why commercials? committing fraud in a way so blatant it seems almost implausible You've gotta admire the company's ability to pull the wool over everyone's eyes but hate it all at once

  2. Eric_W Eric_W says:

    Update My wife and I just finished watching Enron The Smartest Guys in the Room an excellent documentary made in 2005 I recommend it highly especially as many of the seeds of the current economic crisis were apparent in the machinations of the Enron boys The parallels are uncannyKen Lay was the product of a very religious background in a small Midwestern town During work on his PhD in economics he became enad of the world of stocks He parlayed InterNorth a small energy company into Enron He was a rich man having made 4 million in stock value increases from the merger of Houston Gas into InterNorth later renamed Enron He was also the highest paid CEO in the United States The company's strengths were also its weakness the constant risk taking; the high debt load to ward off potential takeovers; impassioned embrace of deregulation; constant reorganization; and instant adoption of the hottest new business ideas They were soon struggling for cashIn the meantime Lay had created a new culture at Enron It was his belief that all one had to do was hire the best and the brightest provide a free environment and things would take care of themselves He also had trouble saying no to anyone He hired an old friend to be the bad guy but it soon became apparent to all that if you made money for the company you could get whatever you wantedWatkins was hailed in 2001 following the collapse of Enron as a heroine for her whistle blowing Whether her actions actually constitute that appellation is open to uestion Certainly she was an insider and her account reveals a great deal of the financial shenanigans in greater detail than the previous book I reviewed Anatomy of Greed She interacted constantly with Lay Skilling and Fastow and if she got really nervous about what she was seeing perhaps whistle blowing was just a way of protecting her posteriorWhat started out as a new paradigm a different way of delivering energy soon became a case of the blind leading the blind or a corporate version of Dumb and Dumber as the board and Enron employees began creating numerous new ways of hiding losses even making losses look like revenue It was a huge ever increasing house of cardsWatkins is an accountant and naturally had a strong sense of the financial improprieties the company had embarked upon but the impending doom she warned of in her now famous memo to Lay should have been obvious to everyone Enron's own head of research said presciently Every era gets the clowns it deservesIf they ever make a movie of this book it will have to be a comedy It is astonishing how stupid many of the best and brightest graduates of American business schools were as they bellied up to the trough of corporate greed Sherron made an attempt to meet with Ken Lay but first she had to convince his personal secretary to arrange a meeting The secretary informed Watkins that Ken gravitates toward good news It did not bode well for the meeting Another insider told her to make the presentation as simple as possible and eliminate any accounting jargon She obliged and reworked her presentation so that her two year old daughter could understand it The meeting was a flop and it was clear to her that Lay could not understand or perhaps did not want to understand a thing she was talking about Ironically Osama Bin Laden's exploits barely dented the US economy Lay's machinations and the subseuent stock free fall provided a vicious slambang

  3. James James says:

    Watkins wasn't a whistle blowershe saw the fraud at Enron told Ken Lay about itand when he told her to be uiet about itSHE COMPLIED GOT A PROMOTION Conspiracy of Fools is an infinitely better book

  4. Mike Mike says:

    Given that Power Failure was written with Sherron Watkins a player of sorts in the situation I expected it to have some uniue insights but to be very agenda driven While Watkins comes out of it looking good the book's strength actually turns out to be its relatively straight recounting of the events One can't pretend to be unbiased about the figures involved in the Enron scandal but Power Failure does not aggressively push any particular theory about why things went wrong compared to for example Kurt Eichenwald's Conspiracy of Fools Since it manages to that without being completely boring it's a worthwhile book to have in the mix of books about Enron

  5. David Glad David Glad says:

    So a couple weeks back an online friend asked me just what the fraud at Enron was As I was unsatisfied with the answer I gave or less concealing liabilities through a web of complex partnerships AKA special purpose entities or SPEs and since my library had this audiobook I figured might as well listen to thisBook begins by mentioning Houston's origins including how the original promoters of the territory insisted the local waterway was navigable Barely Along with the cast of characters beginning with Kenneth Lay one early performance review warned Might be too ambitious as the history of the companies that became Enron began Formed by the merger of the two biggest natural gas pipeline players in an effort to create the only natural gas Supermajor Name Enron also seemed to be because the en was for energy and on to try to imitate the oil companies Exxon Chevron An early trading scandal within the company happened at their Valhalla NY where the traders made up fictitious profits Some personal significance to the town so was surprised when the name was mentioned Rather than fire the employees and risk the full extent of losses being known Kenneth Lay kept them Book seemed unsure whether it was Lay's mistaken optimism that they could be made obedient workers whether he thought he could secure greater loyalty from them or perhaps some other insidious reason Naturally that would fail and some of them were prosecuted and given a couple years in jail Seemed also the starting point for Enron's attempts to trade back from a loss or to obscure itThroughout the 90s the company would embrace the mark to market accounting which to some extent reflected the nature of their business but also began the steady march from initially stretching accounting and other rules to just pretending like it fell under some rule As the author notes it would be unrealistic to think a future profit on transactions could be realized between a farmer agreeing to supply a restaurant as either the farmer could have a bad harvest or the restaurant could go out of business before the end of a contract Enron would defend the practices and try to claim it had enough cash should a shortfall occur Very tiny amount compared to the liabilities if contracts started souring On the bright side Enron apparently did execute the first ever energy swap contract One company wanted a fixed rate another floating over some time period Financial institutions typically cater to companies that want one or the other and hopefully get a balanced book by finding another counter party that wants the opposite side of the riskSupposedly if George HW Bush Bush41 had won reelection in 1992 Kenneth Lay might have been made energy secretary or given another cabinet position so Enron's history might have been radically different if Richard Kinder had taken the helmHe ditched Enron in the mid 90s and went on to found the extremely successful pipeline business Kinder Morgan and amass a personal net worth in excess of 9 billion as of this review George W Bush Bush43 was apparently less fond of Kenneth Lay and is said to have referred to him as the turd in the punch bowl despite Lay's decade Republican fundraising efforts So it would seem Bush43 was better at judging people than he is given creditAt the time Richard Kinder left Jeffrey Skilling made his move to claim the chief operating officer COO position by threatening Ken Lay with uitting too and making Enron look bad if a good number of top executives exited at the same time Throughout Skilling's rise to the top job he would compete with Rebecca Mark Jusbasche head of Enron International and Azurix for a while and would ultimately trap and get Lay to force her to leave She would sell 80 million worth of Enron stock and unlike just about every other executive who sold tenshundreds of millions worth of stock who either was prosecuted or had to settle litigation and lose some of their profits the Wikipedia article for her currently suggests she never had to give back a cent Lou Pai and his 300M worth of shares sold mere out of court settlement of 315M in 2008 was probably the only bigger winnerBook smugly mentions that a lot of the company's acuisitions involved paying high valuations for companies and then in one case claiming a 50% increase in the company's value after only 27 days of ownership as part of the efforts to meet the company's earnings targets Should seem funny the author's analogy to someone trying to do that with a house Between euity and perhaps never actually taking title there might have been some people who in fact did that or similar during the housing bubble Another uarter the company met its earnings in part by doing a sale and leaseback of its headuarters Yes I do wonder if it was disclosed somewhere in the company's financial statements as companies definitely get punished for that sleight of handThe other interesting aspect was the rationale to buying and overpaying for Portland General Electric Lot of other electric utilities at the time said they would be happy to sell themselves to Enron at a 40% premium to their current market price Apparently the New York Mercantile Exchange had recently begun energy contracts for delivery in PGE's territory and Enron apparently needed to own some physical plants to tradecompete in markets Again there was some interesting chicanery as they put ownership of the plants behind special purpose entities for the sake of dealing with the regulators or some similar odd reason that seemed to only make sense at the time of the passage in the book Seemed like what they were doing was either illegal even thereOne of the few profit centers seemed to be when energy prices spiked during heat waves and obviously during the California energy crisis Apparently California's deregulation did not allow its power companies to enter into long term contracts so they were stuck having to enter the spot market and pay the inflated prices set by Enron and others who masterfully manipulated it Enron would carry over some of those profits to future uarters to meet earnings targets Enron's reality as usualAfter that it seemed like Enron went on steroids with the complex special purpose entities almost all of which failed in reality to meet the reuirements as none of them transferred the risk or had legitimate economic activity but merely took assetsliabilities off Enron's financial statements and strangely was able to help collateralize it with Enron's own stock Which is why things collapsed fast as Enron's stock finally began falling Some of the substantial losses came from Enron Broadband Assigning 900 highly paid employees to a division that really could only put out an inferior product as the technology was yet to evolve Same for their baked partnership with Blockbuster Would have cost Enron 70 per movie they streamed Also even from the the reader's perspective did not make much sense why Enron would sign a deal with Blockbuster as made no sense why Blockbuster would even have Internet rights for that and I suspect the studios hated Blockbuster anyway Needless to say that uickly fizzled and Enron ultimately paid Blockbuster a 5 million termination fee to walk away The end as described was naturally dramatic Coauthor Sherron Watkins claims to have tried to be the savior by saying the only way the company could survive would be if they came clean and restated their financials Saying the company's trading operations really its franchise by that point as its valuable assets were shrinking in number would cease to exist if they took too many analyst downgrades More stock analysts finally became negative and the Wall Street Journal even was able to obtain partnership documents to Enron's special purpose entities and begin shining light on the company's secrets that only tiny details had previously been known about Perhaps Enron's fall and collapse was delayed by the company's many donations made at the behest of Kenneth Lay which made him a community figure Skilling thought it a waste of money As is even now little talked about Jesse Jackson was on the receiving end of some of the money and met on numerous occasions with Lay Given all that was known seems somewhat surprising that Enron's bankruptcy took so long when the details of the partnerships began to emerge Might have been too because Dynergy had attempted to buy Enron but ultimately backed out as it became increasingly obvious just how toxic Enron was Cost Dynergy CEO Watson his job too as clearly they did not believe he did the due diligence and was probably looking toward the bragging rights of buying the once great EnronOne curious detail I noted was that part of the reason Enron did not fire Sherron Watkins as she came forward with problems at the company is that if she sued them for wrongful termination it would permit a discovery process which could have revealed embarrassing information about Enron much sooner Even if realistically speaking these lawsuits take a long time As for my personal interest could be why companies these days seem so eager to settle lawsuits even as they claim the reasons of bad publicity or it costing to fight it combined with uncertainty on eventual outcome Humorous part is Enron's Chief Financial Officer Andy Fastow who organized the special purpose entities and profited hugely from them at the time after finally being removed from the title threatened to file a 10 million suit for wrongful termination Enron's board of directors by the way waived the conflicts of interest at the time Fastow was helping to conceal the company's problems but the book suspects it was also because they did not know how much money he was making off it 40 million Since he cooperated with prosecutors he would only serve six years in prison and appropriately enough Wikipedia says he is now a clerk at a law firmFinally there were the show appearances in front of Congress and the Senate where Barbara Boxer as usual got to display her ignorance by claiming depositor insurance is such a great thing when Skilling had claimed part of Enron's failure was due to not being loaned money by banks In reality it meant banks took the risks they did knowing depositors would not scrutinize them by knowing the deposits were guaranteed Rest of it was them grilling the executives in sane ways such as asking Skilling his Harvard MBA and all whether he knew whether a corporation could use its own stock to help collateralize a loanAs for the parting uestions the book did seem to wonder whether Lay was the ultimate stooge or clever enough to keep from tying himself directly to the illegal activities He did appoint the executives to jobs who committed the crimes In any event he definitely did not deserve the wealth he had accumulated As is probably a common sentiment with Enron some uestions left unanswered on what was real plenty was definitely fake and for appearance such as economist Paul Krugman having been an Enron adviser Like many folks associated with Enron he claims he was just collecting a paycheck and maybe comes down to the big lie as coined by Hitler If you make a lie big enough it might be a long time before everyone media auditors at Arthur Anderson financial community all which Enron gave tons of fee income to uestions it and can unravel itRelated reading I found interesting was Robert Bruner's Deals from Hell which mentions Dynergy's aborted effort to buy Enron That book suggested while Enron's debt as reported in financial statements was around 13 billion in reality it was closer to 39 billion Always the book Billion Dollar Lessons which talks business failures and reminds us that charisma may not be that attractive a uality for a CEO saying the three most charismatic people in the past century were Hitler Stalin and Mao Not necessarily in that order Always a great time to toss in Charles Mackay's 170 year old classic Extraordinary Popular Delusions and the Madness of Crowds that talks about the extreme euphoria many people seem to have for the new new thing

  6. Geoff Habiger Geoff Habiger says:

    If you lived through the late 1990's and early 2000's you may be aware of the basic headline grabbing story of Enron A small energy company who's core business was in pipelines and natural gas grew over the late 80's and 90's into the world's largest energy company who invented the idea of the energy trading market Through uestionable accounting poor criminal decisions and a culture that pushed everybody to make as much money as they could however they could the company eventually imploded crashing so far that the company never recovered Today Enron if people know it at all or even hear the name see the company's story as a cautionary tale at best or as a laughing stock suitable only as the butt of jokesMimi Swartz along with Sherron Watkins an Enron employee and the one held up in the press as the whistle blower who helped shed light on the company and presaged it's fall from power tells the story of Enron from before it's founding through it's rise and dominance and then the eventual fall Mimi shows us who Ken Lay Jeff Skilling Andy Fastow and the other leaders of Enron were and what drove them Usually greed Effort is taken to show how driven the company was to make money at all costs how this culture spread throughout the company and the many times that uestionable decisions were taken The story is interesting because of how willing so many people were to overlook uestionable practices in time these became illegal practices because of greed and a feeling that Enron didn't have to abide by the rules because they made them Even people who didn't get rich went along with decisions or were bullied into them and as long as people were getting rich they were willing to look the other way In that sense Power Failure is an interesting look at the kind of thinking that can easily dominate a company allowing small problems to snowball into the kind of issues that can take a company down It is important to learn this lesson because many times it is the ordinary worker who suffers the most while those at the top manage to avoid any responsibility for their actions In the case of Enron and not covered in the book because the cases were still pending at the time of publication Lay Skilling Fastow and others were all indited and convicted on charges of fraud conspiracy and insider trading For this reason alone it is important to remember the Enron story to make sure that business leaders are held accountable Mimi makes a mostly balanced look at the company trying to show it dispassionately Some might feel that including Sherron Watkins in the narrative gives a decidedly negative or one sided view of the company However I found that Sherron's story and inside knowledge of the company helped to make the company and the people there especially upper management relateable Without that perspective it would be hard for somebody who wasn't an employee to really understand let alone comprehend what went on at EnronI would recommend Power Failure for anybody who is in management or business as a cautionary tale While the events may seem like ancient history and Power Failure itself was written nearly 18 years ago the story of Enron is an important one for readers of US history as the demise of the company has had far reaching repercussions in accounting and finance The Sarbanes–Oxley Act of 2002 was a direct result of Enron's fiasco

  7. Alberto Lopez Alberto Lopez says:

    As the third Enron book I have read it added little to what I already knew about the company But if this is your first book on Enron then it will reveal everything about the Houston based company and its culture In any case the book was very pleasurable It also stayed away from being too technical

  8. Jessie Jessie says:

    Good book Well written

  9. Mike Kelley Mike Kelley says:

    Great inside look at how a company could soar so high and then crash down due to a CFO thinking he could game the system in perpetuity

  10. Amy Johanning Amy Johanning says:

    Wow It is said that money and power are the root of all evil This book proves that assertion It is unbelievable to me unfathomable actually that human beings are as greedy and narcissistic as described in this book Even the heroine the whistleblower was susceptible to these traits and as such should be given no sympathy Ken Lay CEO of Enron was found guilty of 10 counts of securities fraud circumvented incarceration by dying three months before the judge was to impose sentencing Jeff Skilling President was also found guilty sentenced to 24 years in jail Apparently part of his conviction was overturned by the US Supreme Court and remanded back to the lower courts for retrial Finally Andy Fastow CFO and responsible for most of the off balance sheet financial shenanigans that brought about Enron's downfall is currently serving a six year sentence The book was well written albeit challenging to understand the financial magic that was the special purchase entities set up by Fastow to claim the off balance sheet losses that should have been claimed by Enron One thing that is clear the stock market is easily manipulated regardless of the controls and given the amount of puts warrants and hedging done on a daily basis no wonder we find ourselves in volatile market conditions You have to wonder is our service and virtual economy anything beyond tangible production simply a house of cards? The Enron account and what is likely to take it's place in the annals of economic history the mortgage mess is a true testament that greed and narcissism run rampant and when unchecked can bring down a global economy

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