Thinking about Jeff Skilling

I was thinking a bit about Jeff Skilling (former Enron CEO) today.  What must he be thinking as a series of large firms that were supposedly far more stable than Enron go down one after the other to liquidity crises much like that of Enron?  Bear Stearns and Lehman, two firms that should have been rock solid, go down in the blink of an eye in a credit crunch, and all we hear from the media is how the firms fell victim to larger forces beyond their control.  At least at Enron they were up-front with the market about their taking on large risks.  Now, the government is running around in the background trying to match-make these failing companies and helping to save at least a squidge of shareholder equity.  The only thing the government did in the Enron collapse was hound Skilling and others into jail.   

Sure, Skilling may have made some overly optimistic statements about his company as he was trying to stave off the crunch, but no more so that the happy-face statements issuing from Bear or Lehman in their final days.  Executives who find themselves in a credit crunch are in a nearly impossible position.  The best way they can serve equity holders is to downplay or even bury bad news to head off the looming crisis of confidence.  But if they do so, they face presecution for making false statements about the company, ironically under laws meant to protect equity holders.


  1. Bob Smith:

    It's rather bizarre that Fannie's executives haven't been charged with fraud. At a minimum, they should have been ordered to disgorge bonuses earned as a result of their bogus financial statements.

  2. Preston Tucker:

    Interesting question and analogy. And more interesting still, at least it must be from Skilling’s perspective, is the fact he wasn't the one who was in what we now know was the impossible position of reassuring the markets in order to stave off the crunch. Skilling left in mid-August and his Enron Wholesale had continued to go gangbusters through the end of the third quarter and indeed deep into the fourth quarter. The crisis of confidence didn't start until after the October 16, 2001 earnings conference, when Enron announced write-offs that seem silly-small in light of those the markets have been dealing with in this past year.

    Tellingly, lead Skilling/Lay accusser and government cooperator Andy Fastow, when asked about Lay telling analysts on October 23 that Enron's liquidity was "strong," told the Enron prosecutors he thought the statement was "fair given what [he] knew." And he, as CFO, would have been the person who knew. It is no surprise, then, that the prosecutors didn't disclose that statement to Skilling and Lay prior to their trial, as it would have directly contradicted the government’s presentation against them. No surprise, perhaps, but that failure to disclose -- along with dozens, maybe hundreds of other examples -- violated Skilling and Lay's constitutional rights.

    Seems time to revisit the myth of crimes by Enron, before a bunch more innocent folks are thrown in jail.

  3. Cara Ellison:

    THANK YOU for writing this; I simply haven't the patience anymore to try and reason out why Enron was chosen to be criminalized as every one of these other companies are either allowed to fail without a whisper of wrong-doing or are bailed out by the gov. I am glad that Enron is being used as a counter-example by smart people like yourself when analysing the current fiasco.

  4. John David Galt:

    I like that Freudian slip, "presecution". In this case at least, prosecution IS persecution.