Thursday, July 30, 2009

Enron: Anatomy of Greed, by Brian Cruver

Written by a young insider who barely lasted a year in the company before the whole thing started to fall to pieces, Brian Cruver lifts a veil on the groovy, irresistible Enron culture that so attracted young business school graduates.

Cruver starts off by describing his pleasure and excitement at being hired by Enron. Everything about the place – from its architecture to its aggressive business culture – was Cruver’s dream come true. Dubbed the millionaires factory, Cruver aspired to joining that club too. However, small things niggled from day one. His friend, who worked at a stock broking company, would constantly call Cruver with unsettling bits of information about Enron that he'd just read, casting doubt on the company.

Turns out, his friend was right. As Cruver says in the beginning of the book, no one at Enron wanted to believe that the company was in deep trouble. They just wanted to believe that the amazing profits would roll on forever. That is, they wanted to believe money would continue to grow on trees.

Now I know that these people work hard, study long to get where they are, and deserve to be rewarded for their effort. But one has to wonder about these companies that have amazing stock prices and are called ‘millionaire factories’. Shouldn’t someone be questioning the whole culture of making massive amounts of money? Don't business schools teach their students the very basics of balance sheets? Aren't they taught economic history, like the fact that Ponzi schemes always come undone?

Don't get me wrong, I love our capitalist system. I love the creativity of making and selling. I love the technological innovations that the market has fostered. Yet when we get to the point of wanting to make loads and loads of money for no other reason than to be rich, not comfortable, then something’s wrong.

I thought Brian Cruver would wrap his book up with some sort of lesson that had been learnt. Rather, Cruver tries to figure out what greed actually means. Boy oh boy!

"When does desire – for money or material goods or whatever – become excessive? We live in a world in which desire builds things, invents things, cures things, and discovers things. But when does this desire become gratuitous? Is it excessive to want a better life – to want more adventure, a bigger house, a nicer car, fancier clothes, or premium dog food?"

Premium dog food? Obviously, Cruver is confusing basic human creativity with greed. Humans often want to create things – cures for illness, great inventions – not because it will make them more money than they can ever possibly spend, but because they have an instinctive need to create something, or do something that will help others.

There’s a line that commonly goes around that if we paid politicians more, we would get better ones. But I seriously doubt this. Australia’s two top pollies, Malcolm Turnbull and Kevin Rudd, have millions and millions of dollars in the bank. Would giving them more money improve their performance? I doubt it. This seems to be the argument Cruver is following, a common business argument: if you reward people with enough money, no matter what type of person they are, you will get the best results. We’ve seen this culture develop into huge pay packets for CEOs and the upper management echelons. Yet look at the corporate America now!

Here is the author again on greed:

"I don’t think it’s that simple. I think greed – or excessive desire – is defined by the means, not the end. It’s the behaviour that should be tested for excessiveness. Greedy is a term that applies to someone who lies, cheats and steals in the name of possessing more than they need or even desire. Financial success alone doesn’t equal greed, but being a scumbag with financial success does – that’s where the line should be drawn."

All of this ‘moral grappling’ about greed doesn’t seem convincing to me. Cruver joined Enron because he wanted to be one of those people who could make millions. Moreover, he wanted to make millions by creating ever more arcane and sophisticated financial products and flogging them off to whoever he could convince needed them. Indeed, in the book, he had a hard time trying to get buyers for his bankruptcy derivatives.

This is one of those fairly stock standard insider books. Cruver has a decent sense of humour and a way of describing events. Also, I very much appreciated his description of how derivatives actually work. It’s probably the first time I’ve properly understood them.

He also gives the reader all the details they need to know about the sudden decline and fall of Enron. Yet his own analysis of the whole affair, what it means culturally and economically, is pretty thin and unimpressive. It’s hard to see the greed of Cruver’s generation of M.B.A graduates producing anything of great social benefit, unless you find highly artificial financial products a boon to society.

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