The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron

by Bethany McLean

Over time, Enron securitized just about everything that wasn’t nailed down—fuel-supply contracts, shares of common stock, partnership interests—and even some things that were nailed down. For instance, Enron securitized the profits it expected to generate from many of Rebecca Mark’s international assets, including plants in Puerto Rico, Turkey, and Italy. In total, from 1997 to 2000, according to one analysis, Enron booked $366 million in net income from such power-plant securitizations. Securitization, at least the way Enron did it, provided a great short-term boost. But as with so many other Enron deals, it created ticking time bombs of debt, debt that was rarely supported by the true value of the asset, because it was often based on unreasonably optimistic assumptions about what would happen over a period of years. “It was a purported sale, but it looked and smelled like a financing,” as a former Enron International executive puts it. It also created holes for the future. After all, if you’ve generated earnings and cash from selling something, you can’t claim those earnings or cash flow the next year or any year afterward. “Enron borrowed from the future until there was nothing left to borrow,” says one Enron executive. “If shareholders understood the extent to which the future was being mortgaged . . .” ponders another. At the time of its bankruptcy, Enron had over $2 billion in off-balance-sheet debt related solely to securitizations.