Mathias's Reviews > The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron

The Smartest Guys in the Room by Bethany McLean
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May 31, 07

really liked it
bookshelves: businessprofiles
Read in March, 2007

Another excellent work that provides insight into how financial incentive regimes (Regulations, Markets, Competitor Behavior)influence the actions of micro-players (CEO's, divisional managers, etc) in the business world.

Enron's collapse is a case study of what can go wrong in an economic system that lacks adequate checks and balances coupled with the increasing disempowerment of other important economic actors (labor unions etc). Unfortunately whatever lessons have been learned from Enron have yet to materialize into a meaningful change in business practices (I understand opponents of Sarbanes-Oxly may disagree). I attribute this to the voyeuristic nature of contemporary Western society where the collapse of Enron is viewed more as reality TV (Girls of Enron in Playboy etc) rather than an opportunity to reflect on business practices that threaten the health of the international economy.

Readers will also benefit by the simple explanations offered for complex financial schemes such as the monetization of assets, securitization etc.

One of my favorite paragraphs so far:

".."say you have a dog, but you need to create a duck on the financial statements. Fortunately, there are specific accounting rules for what constitutes a duck: yellow feet, white covering, orange beak. So you take the dog and paint its feet yellow and its fur white and you paste an orange plastic beak on its nose, and then you say to your accountants, 'This is a duck! Don't you agree that it's a duck?' And the accountants say, 'Yes, according to the rules, this is a duck.' Everybody knows that it's a dog, not a duck, but that doesn't matter, because you've met the rules for calling it a duck."
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