Risk and Ruin: Enron and the Culture of American Capitalism by Gavin Benke (review)

On February 22, 2019, a New York Times headline announced: "Jeffrey Skilling, Former Enron Chief, Released After 12 Years in Prison." The Times rehashed the wrongdoing of Skilling and Enron's other executives at length. The narrative reflected an enduring desire to see individuals involved in Enron's fraud pay for their crimes, which came to light nearly 20 years ago. However, as readers will learn from Gavin Benke in his insightful new book Risk and Ruin: Enron and the Culture of American Capitalism, the criminal actions of Enron's executives must not be understood in isolation; rather, they must be embedded in the economic world that enabled – even encouraged – Enron's practices. This approach to Enron's history adds significant context and detail to existing accounts of the firm, and benefits from methods favored in recent years by scholars addressing the history of capitalism.

Uncovering the systemic pressures contributing to Enron's fraud, Risk and Ruin explains the firm's transformation from a traditional natural gas pipeline company into, in the firm's marketing lingo, an "entrepreneurial, innovative, and vision-driven company" (p. 81). Enron emerged in Houston in 1985. The city's history shaped the ambitions of Enron's executives, who often sought in turn to mold the city to the firm's needs. Enron's early attempts to brand itself as an environmentally friendly corporation, supporting the Kyoto Protocol and other green initiatives, are intriguing and bear further examination. But the firm's environmental agenda languished alongside its mounting effort to align with Wall Street and move from an "assetbased philosophy" (Skilling's words) to more abstracted forms of exchange (p. 112).

As one industry leader put it, Enron underwent a process of "financialization," and Benke shows how the firm's path through the world of finance capitalism reflected the priorities and practices of the "new economy" of the 1990s (pp. 10, 81). Following Wall Street's lead (and later that of Silicon Valley), executives emphasized knowledge work, complexity, disruption, abstraction, and deregulation. Enron began "applying the innovations of the financial services industry to the energy business" in the trendy pursuit of shareholder value (p. 42). A key change came with Skilling's creation of the Gas Bank. This entity housed a number of complicated financial mechanisms, which Benke excels at explaining in clear prose. Importantly, it developed special purpose entities (SPEs). These shell companies sold natural gas securities to investors. But because securitization occurred within SPEs, Enron itself never recorded any debt. The seeds of fraud had been planted, and Enron reaped the spurious rewards, reporting massive profits that led analysts to value the firm's financialization.

Involvement in California's deregulated electricity market in the late 1990s, however, was the beginning of Enron's end. In the pivotal chapter "A Very Bad Year," Benke explains how executives made a series of missteps on the West Coast, prompting scrutiny. Formerly supportive business journalists and analysts began to expose the SPEs and troubling accounting practices. Enron fell into disarray; as one employee summed up the firm's trajectory in the 1990s, "What people are defining as chaos now we would probably have defined as creativity and entrepreneurship a year ago" (p. 155). Through its financial alchemy Enron had essentially borrowed $5 billion since 1997, some of which it owed to itself through SPEs. The firm declared bankruptcy in 2001.

A "reform impulse" following Enron's collapse, Benke shows, was fleeting (p. 176). The Sarbanes-Oxley Act of 2002 brought new accounting oversight, but politicians – President George W. Bush among them – preferred to focus on restoring confidence in the marketplace status quo rather than on revamping regulation. On Wall Street, Enron's failure even prompted further optimism in financialization. Some investment firms had hedged their risk in Enron through credit default swaps, leading market advocates to claim the existing economy was "self-regulating" (p. 174). Throughout Benke's...