Recently released in cinemas in the UK following its Oscar success, The Smartest Guys in the Room has already found its way onto DVD pretty much everywhere else in Europe. Based on the identically titled book by ... The Smartest Guys in the Room tells the story of the fastest and most spectacular bankruptcy in US corporate history.
One of the most remarkable features of this piece of documentary filmmaking is its structure. Making a documentary is in some ways like writing an essay in that you have to present some kind of argument and organise the facts so as to sell that conclusion. The makers of TSGITR however have managed to give the film three separate but interlocking structures. The film begins at the founding of Enron, taking you right up to the final court cases giving the film a chronological structure, telling the story as it happened. But the film is also personal as it carefully takes the time to build a case against each of the key players. But most impressively, the film keeps these structures in place but also presents a thematic structure, giving us details of three separate sets of business practices that each contributed to the fall of Enron.
The first practice is what is known as Mark to Market accounting. Effortlessly explained by the filmmakers, this accounting technique allows companies to list not the money they have actually made from a certain line of business, but to log the potential earnings. Immediately this meant that Enron’s earnings looked much better than they in fact were, especially when disasters were logged as effective successes because they could have made the company money. This section is wonderfully made, damning not only Enron but also its crooked accountants and lawyers but also the stock market analysts who seemingly did not bother to look into how Enron actually made money until a journalist began questioning them.
The second practice was the use of “Raptor” companies. The brainchild of Fastow the Chief Financial Officer of Enron, these were corporations set up only to do business with Enron and effectively served to take Enron’s mounting debts off their books. This section of the film is somewhat less clear, particularly as to why the Enron CEO and Chairman would tolerate Fastow’s skimming of profits. Indeed, once the idea was discussed, any lawyer or accountant could have set up Raptor companies... so why keep Fastow around? The film does not make any suggestions, possibly for legal reasons, but the answer seems to be “plausible deniability”. The CEO and Chairman needed to be able to say they had no idea what Fastow was doing in order to not be responsible. How better to prove this than by allowing Fastow to pocket millions of dollars? A further weakness in this section is in the film’s explanation of how the banks benefited from providing the cash for this enterprise? Indeed, the film suggests that the banks themselves were buying Enron assets with promises to sell them back later. Where the first section was clear and lucid as to what was going on, during this section the filmmakers are seemingly content to waffle about how stock was used to keep the banks sweet. How is not clear and one suspects that the reason for this lack of clarity might again be legal.
The final section of the film is perhaps the most interesting. It deals with the California energy crisis and how Enron would manipulate the energy market by switching off power stations, exporting energy and generally manipulating the market in such a way as to make themselves billions of dollars while plunging the Californian people into a world of rolling blackouts. While intriguing and damning thanks to the audio footage from recorded phone conversations between energy traders, this section is slightly different to the other two. Whereas the first two sections were concerned with explaining how Enron set itself up for a fall, this third section seems more devoted to character assassination by highlighting the antisocial tactics used by the Enron corporation. The problems with this line of argument are A) it’s an argument that can be applied universally to all trade in stocks, shares, bonds or futures. Anyone who remembers black Wednesday in the UK will remember how the financial markets can bilk the public out of billions perfectly legally. B) This practice made the Enron Corporation billions of dollars and as such actually kept the corporation afloat and played no part in its downfall. While no doubt a populist rant about the dark side of capitalism, this section seems somewhat off the point.
Indeed, if you look at the DVD extras an interesting fact emerges. Whereas the film itself presents the politicians as powerless to stop Enron, a version of the final section cut from the film paints a very different picture. The extra argues that former Governor Grey Davis (who was recalled and replaced by Schwarzenegger) had the power to stop Enron by calling on the national guard to take over the power stations and keep them on. However, he chose not to because he was planning on running for President in 2004 and did not want to alienate Wall Street. So, when you consider the DVD extra, the final section ceases to be an out of place and unfocussed rant about capitalism and starts to become something more interesting. It effectively paints a picture of a climate where the US political classes refused to do anything to stop Enron, thereby suggesting that the third reason for the collapse of Enron was the government’s decision to turn a blind eye to its more “imaginative” business plans.
On the whole, The Smartest Guys in the Room is incredibly intelligent, well informed and beautifully made. However, is prevented from truly being fantastic by what appear to be legal and commercial factors as the second section is toned down and the third section is a polemic about market capitalism rather than the deeply unpopular argument that actually the Democrats had a real hand in the rape of California and the fall of Enron.