The Job Fair We believe in markets. Sometimes there's an aberration. But over time, markets figure out value. -Ken Lay, Spring 1997 DECEMBER 14, 2001 Enron closing price: $0.30 Sherri Saunders was out of place. She was two decades too old, several shades too gray, and a few pounds too heavy to be at a job fair and she knew it. But she was there anyway, eleven days before Christmas 2001, tiny beads of sweat forming on her forehead as she walked the long, wide curving concourse at Enron Field. Sherri Saunders wasn't alone. Thousands of other former Enron employees were there, too, all of them hoping to impress one or more of the 200 corporations that had set up tables at the brand-new stadium on the edge of downtown Houston on the unseasonably warm afternoon. All of the companies were hoping to snare a few of Enron's best and brightest for their own. For Sherri, a woman used to having an orderly daily schedule and an orderly life, the scene at the job fair was discombobulating. And it drove home the fact that she was-for only the second time in her adult life-out of a job. Saunders had been working for Enron for two and a half decades. She had started in 1978 at Northern Natural Gas in Omaha as a Telex operator. Back in those days, before e-mail and high-speed faxes, she was the communications clerk, the one company official who handled all electronic correspondence for the company. In 1980, she moved to Houston and got a different job with Northern Natural, later called InterNorth, the pipeline company that merged with Houston Natural Gas in 1985 and became Enron. Since then, she'd applied her clerical and organizational skills in half a dozen different parts of the company. She'd been making less than $50,000 per year, a sum that included all of her overtime and bonuses. As a "noncommercial" person at Enron, her bonus was limited to $3,000 per year. But Houston was cheap. She and her husband, Bill, were living in a smallish apartment, saving as much as they could, and dreaming about traveling as soon as Sherri retired. Sherri didn't really expect to get much out of the job fair, but the truth was she and her husband, Bill, a handsome man with a shock of white hair, really didn't have anything else to do. Bill was seventy-one and already retired. He had a few consulting deals, but they weren't big. And he was curious about the job fair. He wanted to see what was happening and to see the new ballpark. Sherri was there because she needed a job. She also hadn't been able to say good-bye to many of her friends and coworkers. On December 3, she, along with thousands of other Enron employees, had been fired. And when the word came down, her supervisor had told her she had half an hour to get out of the building. The push out the door under watch of security guards and Houston Police Department officers had been disorienting. There'd been no time to seek out her friends, to grieve with them, to exchange e-mail addresses and home phone numbers. The sting was still fresh. "I worked for that company for twenty-four years. And when the time came, they said, `You have thirty minutes to get your things and get out of the building.' It was just done so coldly." It was a truly lousy end to what Sherri had hoped would be the last job she'd ever have. Plus, Enron had good medical benefits, a fact that was particularly important now that she and Bill were getting older. Now all of that was gone. And here she was, two years away from retirement, out of a job, out of prospects, and facing a decidedly unhappy Christmas. The lines of unemployed people waiting to talk to recruiters were only driving home the magnitude of the disaster. Bill had a little money in his pension fund. But he was Canadian, and so was his pension, which meant that those Canadian dollars didn't go far in Houston. Sherri's retirement fund had all been in Enron stock. A year earlier, her 401(k) plan had been worth nearly $1 million. By the time she walked past the concession stand at Enron Field, it was worth less than $100,000. Sherri wasn't getting much warmth from the recruiters. Sure, they were taking her résumé, but there were no promises. More than 4,000 other former Enron employees were at the job fair, nearly all of them younger than Sherri Saunders. Most were better educated and better dressed, with bigger bank accounts. But Sherri went to as many tables as she could, including the ones for El Paso, the giant gas company that was one of Enron's key rivals. After ninety minutes or so, she had handed out fifteen résumés. The job fair was "for the younger crowd," she said. "There's no way they were going to hire a person like me. I don't care what they say, there's age discrimination. I'm fifty-four, and I'm starting over." There was plenty of irony in the location of the job fair. Just twenty months earlier, Enron's CEO and chairman, Ken Lay, was on top of the world, and that world revolved around Enron Field. April 7, 2000, was undoubtedly one of the best days of his entire life. That day, Enron Field opened for business, and the Houston Astros hosted the Philadelphia Phillies in the first game ever played at the new $265-million retractable-roof baseball stadium. Lay threw out the ceremonial first pitch. Then he moved to his private box and watched the game with his friend George W. Bush, governor of Texas, already the odds-on favorite to become the next president of the United States. In addition to having Bush's ear, Lay had one of the biggest plums associated with the Bush orbit: a nickname. Yes, George W. Bush, the man-who-would-be-president, had slapped Lay with the moniker "Kenny Boy." It wasn't exactly on a par with "Butch" or "Bubba" or any of the myriad other more macho Texas-style nicknames, but the nickname showed that Ken Lay was one of the chosen. W. knew who Kenny Boy was and better still, Kenny Boy knew he could call W. when he needed him. The hundreds of thousands of dollars Lay had invested in the Bush dynasty-including his work as one of the "Pioneers," Big Shots who had pledged to raise $100,000 or more for W.'s presidential campaign-was going to continue paying big dividends. And so he enjoyed the game, a game that he and Bush-and thousands of others who watched the Phillies drum the Astros-would never have seen if not for the clout of Ken Lay. In 1996, when the Astros were threatening to leave Houston for Virginia, Lay had thrown himself into the campaign to get a stadium built and save the team. He interceded with Houston mayor Bob Lanier and brokered a deal with Astros owner Drayton McLane, raising tens of millions of dollars in corporate subsidies for the team and getting the stadium referendum on the same ballot as Bill Clinton and Bob Dole. Although Houston voters had recently defeated a school bond issue, they approved the funding for the new stadium. And it was all due to Lay's power. Without Lay, the stadium "would never have been built," said Dave Walden, a Houston political consultant who served as chief of staff to Mayor Lanier. "Never. Ever. Not a chance in hell." So how was it, then, that Ken Lay-Mr. Houston, friend of the Bushes, revered and feared politico, a man who could, almost single-handedly get baseball stadiums built-had fallen so far? Here was a man who oversaw an empire upon which the sun never set. From pipelines in Houston to power plants in England, Turkey, India, the Philippines, China, and Guam, Enron had a global footprint and global reputation as the company that got things done. And all of that glory reflected back on Lay, the man who fifteen years earlier had taken the reins of a small but well-run gas pipeline company, Houston Natural Gas, and had turned it into an energy colossus. How, in the span of twenty months, could Ken Lay have gone from world-class CEO to world-class chump? It was a mind-boggling event. The Enron failure happened so quickly and with such devastating impact that no one could have predicted it. Sure, some analysts and pundits in Houston had said that Enron would fall on hard times or that its stock price would get walloped-but bankruptcy? Not a chance. And yet, mighty Enron had gone Chapter II. And it had done it Texas-style, in the biggest and gaudiest way possible-with superlatives aplenty. It was-for the span of seven months-the biggest bankruptcy in American history. (WorldCom's bankruptcy on July 21, 2002, eclipsed Enron.) With $63.4 billion in assets, Enron was nearly two times larger than Texaco when that energy firm went under in 1987. Enron failed thanks to a load of liabilities that exceeded the gross domestic product of Iraq. Suddenly, Kenny Boy was about as welcome in Kennebunkport as the Bush family's old nemesis, Saddam Hussein. The Enron failure is the biggest political scandal in American history. Teapot Dome-a scandal about payoffs to Secretary of the Interior Albert Fall by a couple of greedy oilmen-was memorable, but involved very few people. The Watergate scandal was bigger and more pernicious than Teapot Dome, but it, too, involved relatively few people: Tricky Dick Nixon, a dozen of two of his henchmen, and a few inept plumbers. Enron was different. By the time of its bankruptcy, Enron owned-or perhaps was just renting-politicians in the White House, Congress, state courts, state legislatures, and bureaucrats at every level. It's the biggest scandal ever to hit Wall Street. The problems at junk-bond trading house Drexel Burnham Lambert in the 1980s were tiny in comparison to Enron. That scandal involved Michael Milken (who went to jail for securities fraud) and a handful of others. The Enron debacle has ensnared every major investment bank in New York, including Merrill Lynch, Citigroup, J.P. Morgan Chase, UBS, and dozens of others. Those banks not only lent Enron huge sums of money and did investment banking for the company, but their executives invested in Enron's off-the-balance-sheet partnerships. And the same bankers employed a gaggle of analysts who, given enough investment banking work by Enron, were happy to put out "strong buys" on the company's stock. Enron is the biggest derivatives-trading firm to go bust since the failure of the hedge fund Long-Term Capital Management in 1998. Long-Term, led by a pair of Nobel Prize-winning economists, made huge bets using predictive models based on statistical analysis. The firm lost some $4.6 billion trading derivatives, the complex financial instruments that include futures, forwards options, and swaps. The firm's positions involved so many banks that the New York Federal Reserve organized a multibank, $3.6 billion bailout, lest Long-Term's failure cause a global financial meltdown. And though Long-Term was big, Frank Partnoy, a law professor at the University of San Diego, told Congress in January 2002, that Enron's derivatives business made Long-Term "look like a lemonade stand." That's a bit of hyperbole, but there's truth in it, too. In 2000, if Enron's derivatives business had been a stand-alone Fortune 500 company, it would have been the 256th-largest company in America. That year, Enron claimed that it made more money from its derivatives business-$7.23 billion-than Tyson Foods made from selling chicken. By the time Enron failed, its derivatives liabilities exceeded $18.7 billion, an exposure that played a key role in pushing the company into bankruptcy. In addition to the hugely complex derivatives transactions Enron was making with other big energy firms and utilities outside of Enron, it was making mind-numbingly complex derivatives deals inside of Enron with Andy Fastow's off-the-balance-sheet partnerships. Those derivatives deals-all completely unregulated by federal authorities and kept secret from investors-fatally corrupted Enron's books. By the time investors learned the size and scope of Enron's derivatives deals with Fastow, on February 1, 2002, with the release of the report by William Powers, dean of the University of Texas Law School, Enron had already failed. It's the biggest scandal to ever hit accounting, the world's second-oldest profession. The once-great accounting firm Arthur Andersen wasn't just in bed with Enron, the venerable firm was providing the energy company with auditing and consulting services, while sharing office space- free shredding! -all in exchange for $52 million per year in fees. Today, Andersen, which was convicted on June 15, 2002, of obstructing justice in the Enron investigation, has all but disappeared in a cloud of ignominy. The test of the Big Five, oops, Big Four , accounting firms are now struggling to keep investigators at bay and clean up their own practices, lest they be dragged into the Enron mire. The Enron collapse is the most egregious example of executive piracy in American corporate history. A handful of executives made unbelievable fortunes-tens, even hundreds of millions of dollars-at the same time that Enron was being driven into the ground. Between 1998 and 2001, two dozen Enron executives and board members sold company stock worth more than $1.1 billion-and that's only what's been discovered so far. And that total doesn't include the huge salaries, bonuses, and other cash payments made to Enron executives during their reign of plunder. The Enron bankruptcy has changed American investors. After losing more than $70 billion in equity value in Enron alone, American stockholders watched companies that have nothing to do with Enron-names like General Electric, Tyco, and others-get hammered because of questions about their accounting. In addition to all the superlatives, the Enron bankruptcy occurred at a time when the American psyche was badly shaken. Enron went bankrupt eighty-two days after the September 11, 2001, terrorist attacks on Washington, D.C., and New York City. The Al Qaeda terrorist attacks hit America in the heart. Enron's collapse hit America in the wallet. The attacks on the Pentagon and the World Trade Center shattered America's sense of physical security. The Enron meltdown shook American investors' confidence in the entire financial system. American investors, seduced by the irrational exuberance of the Internet Age and rocked to sleep by the greatest bull market in history, were suddenly hit with the ice-cold water of reality: Even the bluest of blue-chip companies could disappear, of be made nearly worthless, almost overnight. Enron, the company of the 1990s, the company that epitomized the hyperaggressive New Economy, the company that Fortune magazine had named America's Most Innovative Company six years in a row, the first truly transcontinental pipeline company, a company whose history began at Spindletop in the dawn of the Petroleum Age, had gone bust, in a final tragic implosion of the Internet Bubble. Continue... Excerpted from Pipe Dreams by Robert Bryce Copyright © 2002 by Robert Bryce Excerpted by permission. 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