Enron: the Smartest Guys in the Room was a critically acclaimed 2005 documentary film based on a book of the same name by Fortune reporters Bethany McLean and Peter Elkind. They tell the story of how a whole range of suspect corporate practices (most notoriously mark-to-market accounting) were used to whip up hype and investor confidence around a company with little material strategy. As a quasi-Darwinian corporate culture was imposed by the free market zealots running the corporation, this all began to spiral out of control, with mounting piles of debt being constantly shuffled off the books, ultimately leading to widespread criminality and one of the biggest business scandals in American history.
Stock market bubbles? Assets valuation out of touch with reality? Does this all sound familiar? Remember this was before the financial crisis. In this RSA podcast Bethany McLean considers the financial sector as a whole and the practices of corporate governance which continue to persist within it. Perhaps unsurprisingly the same actors implicated in the Enron scandal are found to be at fault for the financial crisis. Not least of all the rating agencies who, as McLean points out, played a crucial role in validating the Enron bubble, before doing largely the same thing with the portfolios of sub prime mortgages which drove the credit crunch.
Perhaps the most fascinating moment comes 39 minutes in when someone who could easily be the figurative voice of capital – you’ll know who we mean when you hear him – condemns the ‘greedy people’ who borrowed beyond their means. McLean comprehensively demolishes this popular and ideological right wing meme in a way which is profoundly reasonable and non-partisan. All in all, a rather impressive analysis from a rather impressive woman.