Thin line between Visionary and Crooks?

so i just noticed that i've not written anything in this space in more than 2 months. That is quite a while huh. The summer has been busy - internship left no time to come home and collect my thoughts to write anything meaningful. Not that everything I write is meaningful. I did not want to come home and write after a day of work.

anyway, I just finished reading a book "The Smartest Guys in the Room" - the Enron story. It is a HUGE book, 470 pages but very densely packed words. Took me 4h of reading everyday for 7 days to finish it. Recommend reading it. Very well researched and written - for someone who went through a semester of accounting, economics, and finance courses recently it was easy to follow.

Here is my take on the guys who ran Enron: Visionaries who got greedy. Let me explain.

Why Visionaries?
Let me tell you why. Ken Lay and Jeff Skilling envisioned quite a few scenarios atleast 5-10 years ahead of time. Lay envisioned (PhD in Econ) de-regulation in the natural gas and electricity (power) sector way ahead of his time. Of course he lobbied hard to get them through but there is something to be said for envisioning it. There might be hard arguments against free market capitalism, esp with what went on in the last 2 years, but in a society where there is enough supply, de-regulation makes a lot of sense.

Jeff Skilling to his credit envisioned that consumer like you and me would order movies at home via their broadband line and be able to play, stop, and rewind etc. Pay per view at home basically. This was in 1999. Voila you are doing it now - albeit it is via the cable line. Same difference.

Both strongly believed in free market capitalism (if the book is to be believed).

Why were they crooks?
Let me tell you. I am not sure I need to say more than what has already been written. They got carried away. Skilling wanted to be able to trade and hedge everything: broadband capacity, water, metals, weather whatever he could. That's just being megalomaniacal. There are limits to everything - key is to realize when.

Biggest problem of it all: Lay and Skilling were slaves to Stock Prices. Nothing wrong with it on surface. You would hope that your CEO/COO is keen on seeing the Stock Price being high - as long as they are making sure your business units are generating REAL revenues and REAL profits. Pushing your units to perform at their best efficiency is good. Unfortunately, Skilling and his CFO Fastow decided to generating ACCOUNTING revenues and ACCOUNTING profits. And they were obsessed with the meeting Wall Street expectations - so much so they took whatever path to reach those numbers.

The biggest surprise to me was:
How many people were involved and got carried away in the wave despite there being signs all along that something was fishy. The people who duped investors and their employers ranged from premier investment banks (Citi, JP Morgan, Chase Manhattan, Merrill Lynch), analysts at premier investment firms (Goldman, CreditSuisse, Prudential), of course accouting firms (Arthure Anderson shut down - 60 yrs of illustrious history down the drain), and tens of top level executives.

You know who were the first ones to have the courage to ask the tough questions: two guys who ran Hedge Funds. Of course these funds were always short and that is their main goal - to spot fishy firms. But there is something to be said for Short Sellers able to spot bad firms.

One final tidbit: Enron had a great Project Finance division. They were to me some of the pioneers in this space.

I recommend reading the book if you have lotsa time to spare.

I am now onto "Blue Ocean Strategy". Promised myself to read 2 books before school starts.

More later.

hope summer was great for all of you.