Free Conspiracy of Fools by Kurt Eichenwald

the scandal having learned an important lesson.
    “We became involved in a business with risks that we did not appreciate well enough,” Lay told the assembled crowd. “And I promise you, we will never again risk Enron’s credibility in business ventures without first making sure we thoroughly understand the risks.”
    It was a commitment he would fail to keep.

  CHAPTER 2
    THE ELEVATOR DOORS OPENED , and Jeff Skilling stepped into the broad hallway on the forty-ninth floor of the Enron building. He walked past a few inexpensive, nondescript paintings and turned left toward a solid-oak door. Fishing out his wallet, he rubbed it against a sensor in the wall and waited for the magnetic card inside to be read. The electronic lock clicked almost instantly.
    Behind the door was a drab corridor with row upon row of empty offices and cubicles—space Enron had paid for but had little hope of filling anytime soon. Striding down the stark hallway, Skilling did not cut an impressive figure. At thirty-five, he was of medium height with a receding hairline and a few unnecessary pounds, the image of just another anonymous consultant working in the dreary surroundings of another besieged American corporation.
    It was December 1988. For weeks Skilling and his team from McKinsey had been working here, struggling with Enron’s growing and maddeningly complex challenges. Deregulation had upended the game board for gas pipelines, but Enron had yet to devise a strategy to flourish in the new world. McKinsey was supposed to fix that, but after weeks of work Skilling’s team was no closer to an answer.
    Skilling reached a large, open area lined with empty offices. His was the first on the right; a large conference table filled the room, piled high with stacks of paper—reports, memos, and other remnants of dozens of rejected strategies. He sat, reaching for a pad of quadrille paper. Something was tugging at the back of his mind—an idea, a thought, something Skilling had ruminated about for years. Maybe if he wrote it down, it would become clearer.
    Pulling a pen out of his shirt pocket, Skilling sketched an axis, then drew a declining curve. He divided the curve into sections—at five years, ten years, twenty. He tore off the sheet and scribbled calculations on the next page. After about thirty minutes, he set down his pen and studied what he had written.
    This is fucking brilliant
.
    Could it be this simple? Here, on a couple of pages, was the answer toEnron’s problems—hell, to the
industry’s
problems. Over the years, Skilling had often been electrified by his own ideas, but this one,
this
one was a gold mine. It was so elegant. It had to work.
    Tearing the second sheet off the pad, Skilling scrambled out of the office in search of Rich Kinder, who was just moving up to the job of Enron’s vice chairman. As a consultant, Skilling couldn’t just take an idea and run with it; somebody at Enron needed to give the green light. He figured Kinder not only would understand his brainstorm but would have the guts to get it done.
    On the other side of the building, Skilling rode a small executive elevator to fifty, then walked past the boardroom into Kinder’s office.
    “Rich …”
    “Jeff. What’s up?”
    Skilling laid his quadrille paper on a small conference table. “Look at this.”
    Kinder strode over to the table and skimmed the page. A bunch of numbers. He shrugged. So?
    “Let’s say we go out and buy gas reserves,” Skilling said. “Give me a number, Rich. How much is it going to cost to buy gas reserves?”
    “I don’t know, one dollar per mcf.”
    A dollar for every thousand cubic feet of gas. Just as Skilling had figured. “Okay,” Skilling said. “So if we bought reserves at a dollar, we could take them and carve them up, send them to different term markets.”
    Kinder didn’t know where this was going.
    “Different contract terms,” Skilling continued. “Twenty years, ten years, five years, it doesn’t