The smartest guys in the room
July 30th, 2010
A 2005 documentary called Enron: The Smartest Guys in the Room details Enron’s involvement in the California electricity scandal, the company’s collapse in 2001, and the criminal trials of the companies’ top executives. The movie also spends time exposing the personalities of Ken Lay, Jeffery Skilling, and the other Enron executives largely responsible for the scandals, and as the title suggests, the movie also delves into their egos.
The Securities and Exchange Commission
But the truth is—and as much as we hate to admit it—they are smart guys. Maybe even some of the smartest.
The problem with being smart is that it tends to get to your head. And when you couple smarts and ego with skyrocketing wealth, a healthy dose of opportunity, and a dash of immorality; well, the result is Enron.
Today the Securities and Exchange Commission charged Samuel and Charles Wyly, billionaire brothers who founded Sterling Software, with conducting an extensive securities fraud that reaped $550 million in undisclosed gains. The SEC began its investigation in 2004 when Bank of America reported numerous accounts on the Isle of Man because it could not determine who owned them. The SEC later discovered that these accounts, and others like it in the Cayman Islands, were trusts that the Wyly brothers had funneled hundreds of millions of dollars through, but had no formal control over. Note that Bank of America did not close the accounts until Robert Morgenthau, then district attorney of Manhattan, issued subpoenas later that year.
Sam Wyly fits the Enron-ego-mold like a self-made billionaire hand into a kid glove. He actually called his memoir 1,000 Dollars and an Idea: Entrepreneur to Billionaire . I’ll acknowledge that he’s smart and what he did with his life is impressive. Absolutely. But that’s exactly the problem.
Last year Calvin Trillin wrote an Op-Ed in the New York Times about a man in a bar who told him the reason “the financial system nearly collapsed…in one simple sentence.” He claimed, and simple it was, that it was because “all the smart guys moved to Wall Street.”
Years ago, the top graduates of Universities went on to be judges or professors. In those days income was “in inverse proportion to academic standing in the class…partly because everyone in the lower third of the class had become a Wall Street millionaire.” But then “Smart guys started to go to Wall Street” and “started this business of securitizing things that didn’t even exist in the first place.” And when they got carried away with their smarts and egos, they also started exploiting weaknesses in the system to cheat.
The same attitude and inherent problems pervade the offshore business. Those with the resources, smarts and egos to manipulate the weaknesses in the system will continue to do so. That is, until smart people, with a healthy dose of morality, get together and stop them.