I watched "The Smartest Guys in Room" last night. It is an enthralling look at the rise of fall of Enron at the start of this century. What was fascinating to me was that the fraud perpetrated on investors, employees and consumers was richly and readily eaten up by the Big Banks: Citibank, CS First Boston, JP Morgan and others. They all clammered on board to take advantage of financial schemes designed to rape investors and consumers of power, schemes that were eventually uncovered by a journalist and an accountant. Enron, you see, had devised a way, with the help of its lawyers, accountants and bankers to book revenues for deals it made regardless of whether they acutally made money, whether the deals caused losses or whether they closed at all. I know this sounds crazy, but all they did was "fudge" the numbers. That's it, that's all. And nobody asked questions, 'cause they were all getting filthy rich. Interestingly, the so-called financial geniuses (Skilling, Lay and Fastow) at Enron who navigated the company's stock from a buck to $150 and then back to $0, were able to make themselves rich at the same time, although for the most part they will probably spend the next few years of their lives in prison. All except Ken Lay, who died awaiting trial.
At the heart of the conspriacy (and admittedly some would argue that the principles of these companies never intended to defraud anyone) was the complacency and in most cases, the eager particiaption by the biggest financial insituations in the world. In hearings before the US congress on the demise of Enron, the presidents of these Big Banks all shrugged their shoulders, batted their eyelashes and said "opps, they fooled us too". That may be all well and good, but the difference from my perspective is that all these major players walked away with millions of dollars in investments, pensions and bonuses. Employees of Enron, some 30,000 of them, lost in the neighborhood of $1.2 billion dollars of their retirment funds. Retirees, that is those already retired and enjoying the good life after contributing to the economy for half a century, lost in the neighborhood of $2 billion collectively. Imagine what that must have been like: happily retired, living a nice middle class life and then the next day collecting old age security and wondering what the gruel would be in the cafeteria that day in some old folks home recently featured on 60 Minutes. I know some of you out there who despise my rants will argue that I often say "tough luck" to these sad stories, but in this case the fact that those that participated in the fraud walked away relatively scott-free, irks me just a little.
But here is the point I want to make. The big banks have all begun releasing reports of huge losses due to exposure to the sub-prime credit crunch. Less then six years after being "tricked" by the geniuses at Enron, the Big Banks have now been tricked by twenty-something mortgage brokers. Again they cry "We didn't know!" and "Nobody told us!" rings out across the financial world. Doesn't anybody at the banks actually check any of these things? A fifth grader can tell you that if the deal sounds to good it probably is. Alas, the mortgages were bundled, packaged and shipped like so many plastic nik-nacs from Taiwan. Be the time the mortgagors started defaulting, nobody was quite sure who owned the properties to begin with and now, row upon row of newly minted colonial bungalow sit empty and vacant as lawyers fight over the rights for properties nobody wants. Caught twice looking the other way in less than a decade and all the Big Banks can say is "oops". I just don't get it. Warren Buffet calls it "poetic justice" but I think its more than that: Its criminal. As the great George W. once said: Fool me once...uh, you can't fool us again...
So here we are again, teetering on the verge of North American economic collapse because those at the top, who all remain wealthy no doubt, screwed the little guy. I guess they were all too busy, as they were in the days of Enron, slapping themselves on the back and smoking $90 cigars. And of course, in another five years, the banks will have turned a blind new to the newest investment fad, which will result in yet another collapse of the market. Greed, my friends, abuts all and stands as humanities greatest villian. So, keep your money under your mattress, and don't trust anyone with it except yourself. Building wealth takes time and experience and nothing of value comes easy. Be warned, as public attention drifts from this year's scandals, somewhere a business school graduate is figuring out a way to screw you right good. You can't count on the banks and you certaintly can't count on the government to protect your interests, so do it yourself.