Questions and list of terms for:
McLean, B., and Elkind, P. (2002). Smartest Guys in the Room: The Amazing
Rise and Scandalous Fall of Enron. New York: Penguin.
Abolafia M.Y. (1996) Making Markets. Cambridge, MA: Harvard University Press; 1996.
NOTE. If you are pressed for time, for answer the big questions (at bottom), and be sure you understand the key terms. Then, as time permits, go on to the small questions. If you do NOT get to the small questions, but you spend thoughtful time with the big questions, that's fine.
bull market
bear market
CFTC
difference between profit and cash flow
management consulting
mark to market accounting
quarterly earnings target
SEC
securitization
special purpose entity
trading
Chapter 1
1. What was Lay's background and career arc?
2. Why was the natural gas industry deregulated, and how did that change the
industry? What were the anticipated and unanticipated consequences? (keep track
of this question through all the assigned chapters)
3. What were Lay's core beliefs?
Chapter 2
4. What did Enron oil do?
5. In what ways was the Enron oil scandal the "canary in the mine?"
6. What were Bourget & Mastroeni doing that was illegal?
7. What was the accounting firm, Arthur Anderson's (AA) position on these
unusual transactions?
8. What did Muckleroy realize? How did he fix it?
9. What was Lay's reaction when the scandal came to light? What did the SEC do?
The U.S. attorney's office?
Chapter 3
10. What were Skilling's strengths and weaknesses?
11. How did McKinsey play to his weaknesses?
12. How did Skilling's gas bank work? Why was it an innovation?
13. What new role did Enron take on to make the Gas Bank work?
14. What were the implications for Enron of starting to trade natural gas
contracts?
15. Why was Enron in a strong position when it started trading natural gas
contracts in the natural gas industry?
16. What were the implications for Enron of adopting mark-to-market accounting?
17. In what ways (why) was M2M accounting "susceptible to abuse?"
18. How did the audit committee, AA, and SEC respond to M2M?
Chapter 5
19. Skilling's prime motivator, and what he used to motivate others, was what?
What were the consequences?
20. Why was the Sithe deal big for Enron and how were the traders critical to
its success?
21. Why/how was securitization key to Enron's continued financial success? How
did it affect balance sheets?
22. How did special purpose entity Cactus work? Why was it good for Enron? Why
was it bad?
Chapter 6
23: What was the "greater fool theory?"
24. What kind of problems did the focus on "making the deal" create?
25. What were Mark's strength and weaknesses?
Chapter 7
26. Kinder's "setting the bar high" for quarterly profits created what kinds of
problems?
27. Why did they sell assets to EPP?
28. Why was this sleazy?
29. What evidence do you see of agency capture relative to CFTC?
Chapter 9
30. In what ways did Skilling promote a criminogenic culture at Enron?
31. Why didn't the internal risk assessment and control (RAC) unit work?
32. Explain "there was no incentive for making reasonable assumptions about how
a deal would play out? (121)
33. In what ways was it a "culture of excess?"
34. What were the tricks to reach earnings targets? Are these criminal? Why?
Chapter 10
35. What personal traits made Fastow an excellent candidate for financial
crimes?
36. Why did AA hardly ever say no to Enron?
Chapter 11
37. What were the goals of Fastow's "structured finance deals?"
38. Why were the prepays dishonest?
39. In what ways did Banks play colluding roles?
40. What regulatory changes permitted this?
Chapter 15
41. Were security analysts finding out important information to protect
investors? Why not?
Chapter 17
41. How did Enron take advantage of electricity deregulation in CA to distort
the market? Who suffered?
Chapter 19
42. In the spring of 2000 the bull market was over. What were the implications
for Enron?
44. In what was was the historical moment conducive to overly aggressive pursuit
of self interest?
45. Describe the elements in the system of restraints
46. In what ways was the historical moment conducive to the failure of the
system of restraints?
47. In what ways does the entire history of Enron illustrate Abolafia's Polanyi cycles?