Selects: How Enron Fooled the World

**Josh** (0:00)
Hey guys, it's me, Josh, and for this week's Select, I've chosen our 2023 episode on the Enron scandal.
It's a pretty interesting episode, at the very least, just because of the mind bogglingly nut stuff that these guys did, all in the pursuit of money and personal gain. Not only did they swindle entire states, they also, as a nice cherry on top, wiped out the life savings of thousands of their own employees. It's the kind of thing that was such a big deal, it left a stain on American society as a whole, just by how cynical it made everybody about what people can get away with, just in the pursuit of wealth. At any rate, I hope you enjoy this episode, it's a good one.

**SPEAKER_2** (0:47)
Welcome to Stuff You Should Know, a production of iHeart Radio.

**Josh** (0:57)
Hey, and welcome to the podcast. I'm Josh, and there's Chuck and Jerry's here, and it's Stuff You Should Know. We mean it, you should know this stuff, because this is some serious corporate malfeasance that I think there's probably not an American over the age of 20 walking around who doesn't know about this somehow, someway, to some degree. I know they teach about this stuff in business school.
It's been written on extensively, but I mean, I didn't understand the ins and outs of it until I started researching this, and it's quite shocking. And that shocking thing that I'm talking about is the rise and fall of Enron, one of the greatest swindles in corporate American history, maybe in corporate history in the world, definitely in corporate American history.

**Chuck** (1:47)
For sure. I'm really glad you picked this because I didn't know all the ins and outs either, because this is, you know, when I was a young, late 20s, early 30s something, didn't have a care in the world.

**Josh** (1:59)
Sure.

**Chuck** (2:00)
And I finally watched The Smartest Guys in the Room today.

**Josh** (2:06)
Yeah, I saw it last night.

**Chuck** (2:08)
Yeah, the documentary based on the book, and we'll get to the authors and stuff. It was Peter Elkind, and who was the co-author?

**Josh** (2:16)
Bethany McLean. I think she was the lead author even.

**Chuck** (2:19)
Oh, okay. I knew she wrote the original articles in Forbes, so she co-authored the book. And she is in the documentary, as is Elkind, and it really is worth the watch. But just want to point out that this is an overview of the Enron scandal. It's pretty clear once you start poking around that this could be like a 10-part series.

**Josh** (2:40)
Yeah, for sure.

**Chuck** (2:41)
And there probably is a podcast series out there that covered just Enron. So there's lots of sort of ins and outs that we won't be able to touch on. But we can definitely give her the overview, which was that Enron was a corporation. Originally, it was a natural gas line pipeline operator.
But they quickly, well, not quickly, they got out of that business almost entirely when certain people were hired. And we'll sort of get to all this in a minute, too.

**Josh** (3:12)
Certain people's right.

**Chuck** (3:14)
When certain people were hired that basically said, you know what, we shouldn't even be in the pipeline industry. We should invent almost a new kind of industry, which is to use energy as financial instruments. And we should become a trading company that trades natural gas, and eventually paper pulp and electricity and you name it. We'll get into all the things that they sort of pivoted to. But Enron started, I guess we should start at the beginning, in 1985 when Houston Natural Gas Company merged with a company called InterNorth. And they combined to form this large energy corporation in Texas, mainly Natural Gas.
And the chief executive of H&G at the time was a man named Ken or Kenneth Lay, who you might have heard of.

**Josh** (4:12)
Yeah, and if you haven't prepared to meet Ken Lay several times across this episode, from the outset, I think Houston Natural Gas and InterNorth were both profitable, but I saw that neither one of the companies really benefited from the merger, although it did expand their pipeline network. Really, it just protected them from a hostile takeover. But it was just a standard gas company, no big frills or anything like that. I think the first year, it posted a $14 million loss. Put that in your hat and smoke it later with a pin.
In that, the first year Enron was around, in 1985, it posted a $14 million loss. Just remember that for later, okay?

**Chuck** (5:01)
Yeah. Also, something else you should put in your hat for later is the fact that Kenneth Lay, the gentleman I mentioned, who was the CEO of Houston Natural Gas, was also very, very tight with the Bush family. Originally, the elder Bush and later on, George W as governor of Texas, big donor to their causes politically.