Ignorance is bliss? Ken Lay may have been as clueless as his lawyers claim. It shouldn't matter

Conspiracy of Fools

By Kirt Eichenwald

Broadway, $26.00

When Enron collapsed three years ago, it was reasonable to anticipate the story that would one day be told of how the nation's seventh-largest company lost its way. Maybe the once-lean energy machine had bloated up on dot-com excess until it burst. Or perhaps California's insane electricity deregulation scheme and its lure of easy money had crazed corporate executives in Houston who were otherwise sane. But in Conspiracy of Fools, Kurt Eichenwald leaves no doubt that the criminal enterprise and deranged mismanagement at Enron were firmly established years before the tech boom peaked or rolling blackouts dimmed the Golden State.

Of course, one cannot help but ask whether many people will want to read 750 more pages on the late, unlamented giant. Other purportedly definitive accounts of the Enron saga were published more than a year ago, not to mention the ink that was spilled during the scandal's unfolding and subsequent probes and trials. For all that, Eichenwald's meticulously research-ed volume will captivate readers beyond those poor souls (myself, alas, among them) who still can't get enough of the Enron tale. His hook is chilling exploration of how far down the road to destruction any venture can travel when a collection of supremely self-assured but wrongheaded minds are given enough power. (Some readers might discern parallels, for instance, with governments past or present.) And it's also a really good read.

Eichenwald, who spent three years covering the scandal for The New York Times, too kindly uses the word "fools" to describe the characters who built up and brought down Enron. Other terms would have been apt: lunatics, greedsters, idiots.

Former Chief Executive Officer Jeff Skilling comes across as a man barely holding it together. Long before the year he both took on and abdicated Enron's top post, he was drinking too much wine, putting on extra pounds, spiraling into bouts of depression and self-pity, and veering between overweening ambition and an impulse to cast aside his career. In one weird scene, he compulsively punches his console to pick up every ringing phone on the floor during an interview with a prospective executive employee. Yet none of the calls are for him; he just transfers them as if he's the receptionist.

The aspect of Skilling's dysfunction most relevant to Enron's demise, however, was his inclination to treat the ability to perceive bad news as a sign of weakness or stupidity. He blasts employees who tell him money can't be made in the retail electricity business, or that this loss must be reported in this upcoming quarter. And because nearly everyone around Skilling wanted to please him (and the cut-throat compensation system he set up gave every reason to want to do so), fewer and fewer inconvenient realities made their way across his desk. It was the perfect medium for the rise of Andrew Fastow, the perpetual good-news man, creative enough to find a way of doing any deal, making any transaction appear profitable, pulling off the impossible every time.

Fastow's method, it is now well-known, was brazen fraud, through which he swindled millions for himself on the side. Press accounts have too often portrayed Fastow as a whiz kid or numbers genius. Eichenwald shows that, quite to the contrary, colleagues were regularly astonished by Fastow's second-rate intellect. Before his ascent to chief financial officer, underlings tried to teach him why a lack of cash flow jeopardized Enron's credit rating, but it was "like teaching basic swimming to the new lifeguard." He blithely entered deals depending on future market conditions without accounting for the most basic risk posed by interest rate changes. He sought advice on how a hedge--a financial device used to protect against the drop in value of a stock or other asset--could be used to avoid ordinary business losses. If such a hedge existed, replied Enron risk analyst Vince Kaminski, why bother having customers--"We can all just make money by hedging." Fastow appeared to absorb this comment without its intended irony. One of a core group of admirable characters in the book is that Cassandra figure, Kaminski, unheeded when early on he labeled the off-the-books partnerships an "idea so stupid that only Andy Fastow could have come up with it."

Eichenwald's book unfolds like a suspense novel, albeit an amply footnoted one, making it a more enjoyable read than previous Enron books. In The Smartest Guys in the Room, Bethany McLean and Peter Elkind of Fortune magazine devoted a mere handful of sentences to the warming tale of how Fastow very rapidly failed at running Enron's retail electricity business. Eichenwald's account brings to life, page after page, the mounting distress in the office while Fastow flounders with the task of producing the business plan. Pretty scary, when you realize this fiasco is just a steppingstone on his path to chief financial officer.