Conspiracy of Fools is an entertaining read – and quite insidious because it is well researched enough to give the veneer of truth. It isn’t true though. A deconstruction of the book will eventually be posted, but for now I’m focusing on something relatively tiny but which I think illustrates Eichenwald’s sneaky style.
Things that are quite ordinary are seized upon in the book as if they were black swans. For instance, “the revolvers”, as Eichenwald called Enron’s revolving credit facilities.
Eichenwald writes on page 5:
The revolvers. The billions of dollars in standing lines of credit that Enron had available from its major banks. That was disaster money, the financial equivalent of a nuclear fallout shelter. And Enron needed it now.
I don’t want to de-emphasize how badly Enron needed cash at the end of its short life, but “pulling down the revolvers” is not a life-or-death type of act. Most companies have revolving lines of credit. They use them for all kinds of things – building stuff, shipping stuff, buying stuff. Using them wasn’t like a “nuclear fallout shelter”; it was more like having Puff Daddy’s personal valet hold an umbrella over you during a light sprinkle. Basically it is having a loan or credit card at your fingertips instead of having to go through the trouble of actually applying for one when you need one.
It was part of Eichenwald’s strategy to make all this ordinary business stuff seem exotic and strange, and basically confuse the reader enough to make them think that sophisticated crimes were afoot. He did the same thing with take-or-pay contracts, structured finance, etc. My cynical view is that he was relying on the general ignorance of his readers. Had more people known what a “revolving credit facility” is, then I’m sure that scene on page 5 would not have been nearly so dramatic.
Incidentally, if Enron was doing the equivalent of seeking a nuclear fallout shelter, why didn’t the execs tap into its notorious “reserves” to help leverage itself out of the liquidity crisis? Instead, the executives’ first thought was to grab at some credit — a completely legitimate move. Strange how they weren’t all criminals, all the time, isn’t it? Why, one could say that pulling down the revolvers is the exact opposite of what a criminal would do since there were still retirement accounts to raid, balance sheets to manipulate, and shareholders to gouge.