Re-watched The Smartest Guys in the Room this morning for the first time in probably 10+ years. It becomes more flabbergasting with time, not so much because of the fraud itself (I’d argue the collective conscious has become more willing to believe big lies in the ensuring 20 years) but because of all the institutions that were involved in supporting it. So many people who could and should have blown the whistle but didn’t. These days it seems like it’s the private firms rather than the public ones that are “Enroning” – more concentrated investors, less inclined to ask questions because it’s not really their money on the line. Their asset gathering business gives them the management fee regardless once that capital has been called. In a battle to be credulous, the Enrons of today die slow, down-round, more-layoffs deaths rather than testifying-before-Congress, trial-for-fraud deaths. The gulf between public and private has gotten wider and wider, with more rigorous rules and more expensive compliance that make staying private compelling, especially with trillions of dollars of dry powder waiting around to be deployed. How are the Kynikoses of the world supposed to make money when the new smartest guys in the room are private? The world’s smallest violin plays for the Jim Chanos who will remain unborn.
What do you do when you’re luckier than you are good? A detail I hadn’t picked up the first time I read the Enron story was Lou Pai. A lieutenant to Jeff Skilling, sounds like he was a smart guy who was put in charge of a business that, like everything Enron-related, might have had some fundamental value over time but became an accounting-driven blob that was too big to succeed. More interestingly, he was a recluse who almost no one ever saw, but notoriously spent big on strippers (using the corporate card, no less). When he got his stripper mistress pregnant in the late 90s, he had to divorce his wife and so cashed out his options for the settlement. He made $200+ million, the most of any Enron executive, because of his penchant for strippers! Kept himself out of the ensuing litigation and appears to have become (along with his former mistress, now wife) part of the equestrian set, having bought one of the largest ranches in Colorado, sold it for 2x more than he bought it for 15 years later in the 2000s, and decamped for Florida.
What has Lou done with himself for the past 20 years, I wonder? Does he spend much time considering his luck? Knowing all the details, does he attribute less to luck than skill – I suspect the few sentences that cover his lack of involvement in the criminal charges at Enron and the settling of other items with the government for 8-figure sums conceals an immense amount of skilled lawyering and other facts. All these grumblings aside, a quick internet search reveals that his daughter (born 1997, so presumably the product of the affair that sparked the divorce) is now a champion equestrian! Another generation or two, and one presumes the Pais will be a well-known name in the horsey set, an institution all their own. Seeing how the sausage is made sparks my outrage, but I’m a victim of my temporal circumstances. The present owner of the giant ranch Pai sold 15 years ago now belongs (several changes of ownership later) to a 30-something billionaire from Texas, a third-generation oil scion surnamed Harrison who paid $105M+ for it. This guy did nothing but be born to earn his money – at least Pai showed up to work for several decades before he bought (perhaps we should say sold) his lottery ticket. If we had a There Will be Blood style novel or movie about how the Texas oilmen of the early 20th century did what they did (I can find nothing or Harrison or his partner Abercrombie in the index of Yergman’s The Prize) would there be similar griping? A combination of skill, ruthlessness, and luck that brought about lucre? Harrison Sr., the founder of the dynasty, died in 1974. What little I can find on him beyond oil mentions the fact that he was a Regent at the University of Texas when the University president, Homer Rainey, was fired. Rainey is now seen as an important figure in academic freedom – he appears (Wikipedia is no doubt a simplifying source) to have been fired because he added a John Dos Passos book to the curriculum that some regents objected to as being “subversive and perverted”. Sounds familiar. I have not read Big Money but if the summary “Those characters who pursue ‘the big money’ without scruple succeed, but are dehumanized by success. Others are destroyed, crushed by capitalism, and ground underfoot” is correct, then it appears we’ve come full circle after all.
I wonder if Lou has read Dos Passos? He appears to have his fingers in the midstream energy pie, but I can’t find any solid mention of commercial activities since 2013. As Lou was at that point about 65 years old, perhaps he retired. I can’t wait for the memoir.
smq.world 