PIPE DREAMS

Greed, Ego, and the Death of Enron

By Robert Bryce

PublicAffairs. 394 pp. $27.50 Admit it. Over the past 18 months you've read about Enron's downfall with fascination and indignation but also with more than a dollop of confusion. You know Enron cooked its books. And you bristle at how the energy Goliath's top executives cashed out while the rank-and-file lost their life savings. But the causes of the company's spectacular flameout -- particularly where terms like "off-balance sheet" are concerned -- escape you.

Robert Bryce's "Pipe Dreams" makes the second-largest bankruptcy in U.S. history intelligible to the non-MBA crowd (we know who we are). In folksy, occasionally laugh-out-loud prose, Bryce explains how a profitable if somewhat stodgy pipeline company morphed into an out-of-control trading business that lost investors more than $70 billion. As he relates his tale, Bryce paints a damning picture not just of the top brass in Houston but also in Washington. Enron's leadership was breathtakingly corrupt, but the fertile environment in which Enron's shenanigans flourished was the handiwork of America's political officials.

Bryce doesn't intend for his book to be an indictment of Washington culture. Instead, he focuses his attention south of the Mason-Dixon line, declaring that Enron bit the dust because the men and women in charge were ethically challenged. While this is undoubtedly correct, it's also like shooting fish in a barrel. These miscreants are so god-awful you'd be hard-pressed to make them up.

Take Jeffrey Skilling, Enron's CEO and the man most responsible for the company's transformation into a fast-paced trading outfit. Arrogant and avaricious, he instructs his minions: "All that matters is money. You buy loyalty with money. Don't ever forget that." It was Skilling who prodded Enron to adopt corrupt accounting practices, in part because he wanted to run up his bonus. His cohort was Andrew Fastow, Enron's chief financial officer -- or the "chef de cuisine" of cooked books. Fastow's shady off-balance-sheet transactions (which Bryce does an admirable job of explaining) were an illegal method of hiding Enron's burgeoning debt -- while simultaneously fattening Fastow's own bank account.

And, of course, there was Ken Lay, Enron's imperial chairman, who was more interested in hobnobbing with the Bushes on the golf course than looking after the company's finances.

A scant nine months before Enron's bankruptcy, Lay plunked down $41.6 million of the energy conglomerate's cash for a new Gulfstream jet, which he then appropriated to whisk him and his compadres to Europe.

This troika bears the most responsibility for Enron's collapse, but they received plenty of help from a cadre of secondary players. The company's board, whose members were brimming with conflicts of interest, blithely signed off on the shoddy transactions that proved Enron's undoing. Rebecca Mark, a little-known Enronista, jetted around the globe striking deals that cumulatively lost investors $2 billion (although she took home $100 million during her years with the company). And then there's Lou Pai, the technical brains behind Enron's trading business, who satiated his thirst for money and strip clubs at the corporation's expense. When he settled into retirement with a former topless dancer in 2001, he cashed out $270 million in stock options. Pai's take-the-money-and-run ethos was the norm among Enron's executives and board members.

For hoi polloi, however, that avenue was foreclosed: As Enron's stock price nose-dived, management prohibited employees from unloading their holdings in the company.

As he makes mincemeat of Enron's mandarins, Bryce doesn't just shine a light on the corruption that plagued the seventh-largest corporation in America. He also demonstrates how government officials made the Enron catastrophe possible. The company could perform its financial legerdemain in large part because its derivatives business operated outside the realm of federal oversight, an exemption decreed by Wendy Gramm during her waning days as chairman of the Commodity Futures Trading Commission in 1993. Then, five weeks after leaving public service, she joined Enron's board. Her husband, departing Sen. Phil Gramm (R-Tex.), later codified the exemption into law.

Of course, Enron couldn't get away with the equivalent of highway robbery with just an assist from the Gramms. George W. Bush -- who received generous campaign checks from Enron employees -- also looked after the company's interests. Lay (or "Kenny Boy," in W.'s lexicon) handpicked the occupants of three key posts in the Bush administration.

The Enron chief also ghostwrote portions of Vice President Cheney's energy proposal. And for months, Lay successfully insisted the federal government refrain from imposing price caps on California's spiraling energy costs, even as Enron successfully manipulated the West Coast market to gouge consumers. Kenny Boy's luck did run out, however, when the Bush administration refused to come to his company's rescue as it plunged into financial ruin in late 2001.

Bryce tells the sordid and salacious story with gusto. And while the book is a fun, instructive read, it's also harrowing. The Enron implosion was due not just to corrupt management but also to feckless government officials.

By failing to police Enron and its corporate brethren, the federal elite made it possible for Skilling and Co. to perpetuate their fraud.

Despite much pontificating in the aftermath of Enron's collapse, U.S. officials have taken only tentative steps to change the status quo. And that means few safeguards are in place to prevent investors from losing billions more dollars in the years to come.