Scene 8: An Unholy Partnership
Below, darkly, Fastow's lair: a dingy place at the bottom of Enron. Fastow flits happily between complex piles of paperwork, records and maybe screens.
Fastow (to us) I don't know if you're big fans of hedging. I can't see how you wouldn't be. A hedge is just a way of protecting yourself from risk. You literally hedge your bets. If you got a lot of money in airlines, for example, you might think, hey, this is all going really well, lots of people fly – my investment is safe and going up. But what happens if there's a huge airplane crash, maybe people die, oh no, folk get scared of flying and your stocks plunge. Well, the smart guy hedges his airline investment with – maybe – an investment in a car rental company. When air travel frightens people, they want to feel in control, they'll drive interstate. So when your airline shares go (noise and motion of plane crashing) , your car rental shares go (noise and motion of car brooming upwards.) So you never lose money. Whoop … whoop.
(He repeats the same gestures again, of a plane crashing, then the car brooming upwards. And then the upward car again. A beat. The crashing plane.)With enough imagination you don't ever have to lose anything. When I write down everything that can possibly go wrong, as a formula. A formula I control. Nothing seems scary any more.
He goes back to his calculations.
Skilling Andy. Andy, you had a baby.
Fastow (delighted) Yeah.
Skilling Congratulations, fella. You got a picture?
Fastow In my wallet.
Fastow starts looking for his wallet.
Fastow Oh man, it's down the hall. Shall I – ?
Skilling I don't (mind) –
Fastow You really wanna –
Skilling Do it next time.
Fastow He's called Jeffrey.
Skilling Wow. Great name(!)
Fastow Hey, who's done more for me in this world, you know?
Skilling You know what I was doing when my daughter was born?
Skilling I was on the phone from the hospital negotiating my deal. To come work here.
Fastow You get a good deal?
Skilling makes a so-so gesture and sound.
Fastow You know when you have a baby and it gets handed to you for the first time? I had this incredible, indescribable feeling – this defining realisation that in my life, from this point on – So. Many. Things could go. Wrong.
Skilling I guess.
Fastow And I say that as a man who knows how to manage risk. Risk is just the fear of losing something. Risk is life, basically.
Skilling These. What are these?
He is looking at papers covered in complex scrawlings. Maybe they're half-screwed up.
Fastow (proud) Oh, these are the Raptors.
Fastow Financial models I'm –
Skilling Are these hedges?
Fastow Not as you'd normally understand them. But they're a way of managing risk. I'm playing with them. Just in my own time, just for …
Skilling For fun?!
Fastow (finds all three) Raptor One, Raptor Two, Raptor Three …
Fastow Like in Jurassic Park.
Skilling You're thirty-seven years old.
Fastow It's actually really well done.
Skilling So these are protecting you against losses in investments?
Fastow Yeah. Like, you know, with hedging how – say you've got a lot of money in airlines –
Skilling I know about your planes and cars thing, Andy, I've heard you at parties –
Fastow OK, well, I've been seeing if there's a way of making a model that acts like the car rental company, without actually having to give my money to the car rental company.
Casually intrigued, Skilling looks through them all.
Skilling A little theoretical.
Fastow Well, that's the thing. A theoretical car rental company hedges your airline investment just as good as a real one does. On the books.
Skilling Well, sure, unless planes fall.
Fastow Yeah, but they almost certainly won't. It's crazy to have all this money flying out the door for things that probably won't happen. This model locks in the high value of your first investment. You own that, that's real.
Skilling These are interesting.
Fastow Yeah … ?
Skilling I could do with more guys like you.
Skilling is having some pain.
Fastow You OK?
Skilling These shoes … they're not broken in.
Fastow What size are you? You want mine?
Skilling No, Andy, I don't want your shoes. Thanks.
Fastow You like 'em? They're Italian.
Skilling Yeah I, jeez, I don't know. They're fucking shoes.
Fastow Great news about the stock price.
Skilling You want to get a beer?
Fastow (excited) I got a beer.
He opens up a tiny fridge that's been installed somewhere in his office/lair.
Skilling You got a refrigerator?
Fastow Yeah, I just asked 'em. I called up and said. Came down same day. Put it in.
Skilling Who did?
Fastow We did.
Fastow It's a long way up to the … thing.
They open and drink two beers.
Skilling I got a problem, Andy. We got great stock price. We're declaring huge profits using mark-to-market. Correctly. But those actual profits aren't coming through yet. So.
Fastow There's losses.
Skilling That's right. We've got the best business plan, the highest share price, the smartest graduates. Trouble is. Right now. We're not making any money.
Fastow How bad?
Skilling You with me?
Skilling I can't find. Any area. Right now. Except trading. And there, day to day, we may lose as much as we make.
Fastow You're not kidding?
Skilling I am not kidding. I don't know what I'm gonna do. I don't mind taking losses. But I can't report taking losses right now. The gap between the perception and the reality is …
He has one hand up at neck level indicating the high perception and the other he puts lower to indicate the reality.
Skilling I don't know what I'm going to do.
His arms droop despondently. Fastow dives in to hold the perception hand up.
Fastow Wait, you got a perception here, a reality here. You just need something for this to lean on while we bring this up.
Fastow brings Skilling's lower hand up to meet his higher hand.
Skilling shakes off the foolish physical intimacy.
Skilling If those Washington fucks would just deregulate electricity like Clinton promised, we'd have those profits!
Fastow Hey. Fuck it. Two guys in a room. You want my help?
Skilling What you got?
Fastow How you doing with a Chief Financial Officer?
Skilling I haven't found him yet.
Fastow You considered everybody?
Skilling Everybody with / experience of –
Fastow You considered me?
Skilling For CFO … ? One of the most powerful positions in / any corporation … ?
Skilling You're not a people person, Andy.
Fastow You really care about that?
Skilling Two guys in a room.
Fastow You ever had an affair? When you were married.
Skilling None of your fucking business.
Fastow That's a yes.
Skilling Is this something you've heard?
Fastow No, OK, wait, that's wrong. You like porn?
Skilling Do I – ? I don't have time to take a shit –
Fastow I think porn could save every marriage in this country. As internet porn goes up, divorce rates gonna go way down –
He makes gesture of one thing going up as the other goes down.That's the industry to get into, I'll say that …
Skilling Find the point.
Fastow I want to give Enron a mistress.
Skilling (beat) That's why I like you, Andy. You're fucking nuts.
Fastow Having something off the books, even if it's Jenna Jameson in an unmarked folder, your virtual mistress – she supports your marriage, strengthens it. We can do the same for a company.
Fastow For those occasions we need to … 'offload'. We create a company that exists purely to fulfil Enron's needs.
Fastow We could push debt, we could push those losses into this other entity, sell it to this entity. So we make money and move a loss off the books, wait for it to turn to profit –
Skilling Then move it back. Why doesn't everyone do this?
Fastow How would we know if they did?
Fastow I mean it! This is an area where we're expected to be creative. The regulations encourage it.
Skilling This isn't one of your theoretical models. A whole investment fund with money enough to buy bad assets off Enron? Who would do that? Who would invest?
Fastow Maybe nobody has to invest. We can make the company ourselves. I could use these raptor models. To make a sort of shadow company. A virtual Enron.
Skilling We can't do business with ourselves –
Fastow Of course not. But. The rules state, if we're gonna do business with another entity, it has to be independent from us.
Fastow But. Here's the kicker. To qualify as independent it just means three per cent of its capital has to come from independent sources.
Skilling Only three per cent?
Fastow Yeah, so ninety-seven per cent of a whole shadow company could just be … Enron stock.
Skilling So Enron can do business with a company that's ninety-seven per cent Enron?
Skilling Still gotta find that three per cent.
Fastow is excitedy scoping out the room they are standing in.
Fastow Maybe. Look, say this entity, let's call it … LJM. If this room is LJM – it's filled with Enron stock, now we own that, we don't have to pay for and it's worth a great deal. But we need three per cent of it to be real. The equivalent of this desk.
He walks around clearing the area to make the three per cent clear.
Fastow What if this three per cent is a smaller entity, designed the same way, which itself is made up of Enron stock –
Skilling Except for three per cent.
Fastow Yes, wait.
Fastow opens a drawer in the desk and takes out a shoebox that had housed his new Italian shoes. He places it on the desk.Here. And this three per cent is an even smaller entity …
He opens up the shoebox.
Skilling Made up of Enron stock …
Fastow Except for three per cent!
Out of the shoebox he produces a matchbox.
Skilling On and on.
Fastow Until for all this to be real, for this huge shadow company to exist, all we actually need …
He opens the matchbox and takes out a tiny red, glowing box.
He holds it up. The men are bathed in it like some totem from an Indiana Jones film.
Fastow Is this …
Skilling And how much is that?
Fastow Chump change. Few million.
Skilling If that's a few million … ?
Fastow Imagine what the whole structure is worth, what it could do for Enron.
Skilling It's made entirely of Enron stock …
Fastow (brandishing tiny box) Aaah, not entirely, this is what keeps it independent.
Skilling But we can use it to support Enron stock, making sure it doesn't fall …
Fastow Yup –
Skilling The same stock that it's made of … ?
Skilling That's fucking brilliant.
Fastow It is, isn't it?
Skilling So this shadow company, what did you call it?
Fastow LJM. After my wife and kids, Lea, Jeffrey and –
Skilling This LJM can buy bad assets off Enron that are operating at a loss. And if anyone looks into it –
Fastow It's just box after box after box. Russian dolls, until you get to …
The tiny box glows red and throbs.
Fastow And who's gonna notice something as small as this? How's something this tiny ever gonna cause any trouble?
Skilling Andy, you fucker! This is a whole new thing!
Fastow And this is just a few million, hell, I could put that in.
Skilling No, I don't like that.
Fastow Oh. OK.
Skilling Doesn't that feel a bit cheap? A special purpose entity financed by the CFO?
Fastow The CFO?
Skilling Why not? Come on, we'll get banks to put that in – Wall Street money.
Fastow (slightly surprised) Yeah, but don't we check with our accountants?
Skilling Sure.Hey! Get me Arthur Andersen!
Arthur Andersen appears to one side. He has a ventriloquist's dummy, Little Arthur.
Arthur Andersen As your accountant, we think this idea is –
A different voice from his mouth:
Little Arthur – poor to very poor.
Arthur Andersen This is due to –
Little Arthur – conflict of interest.
(to Skilling)Well, maybe we just need a more sympathetic accountant.
(to Arthur Andersen)We could always take our business elsewhere.
Arthur Andersen's dummy's eyes flit wildly.
Arthur Andersen Arthur Andersen will –
Little Arthur – approve –
Arthur Andersen – approve the strategy –
Little Arthur – if the lawyers approve.
Fastow That's what we pay a million dollars a month for?
Skilling Yeah, that's exactly what we pay a million dollars a month for.I need the lawyers!
The law firm of Ramsay and Hewitt appears to their other side: one male, one female. They appear as 'Justice'; blindfolded, with sword and scales.
Ramsay This is not a legal issue.
Hewitt This is an accounting issue.
Skilling The accountants say it's a legal issue.
Ramsay Well, it was ever thus.
Hewitt It's against your own code of conduct –
Ramsay It's their code of conduct.
Hewitt Oh yes. Quite right. Your board could waive it.
Ramsay Ask your board.
Hewitt It's really not our business.
Ramsay / Hewitt We'll bill you later on today.
Skilling I need the board.
And then, revealed on the level above Skilling and Fastow, the Board appear. The Board is made up of shadowy, dark, imposing figures with the heads of mice, and, in the centre, Ken Lay.
Skilling The accountants and lawyers are OK with it if you're OK with it, Ken.
Lay Oh, well in that case … One moment.
The Board briefly consult.
Lay Who's gonna run this thing?
Fastow I will. I mean, I want to.
Lay And who are you?
(to Skilling)You know you won't find anyone you can trust like you trust me.
Lay Young Andy Fastow?
Skilling He's our new Chief Financial Officer.
Fastow is delighted at this.
Arthur Andersen OK?
Ramsay / Hewitt OK?
Little Arthur OK.
Ramsay / Hewitt OK.
Lay OK. Here's to LJM.
He signs papers in front of him.
The Board, Arthur Andersen and Hewitt and Ramsay disappear. Fastow and Skilling hug in the centre of the circle.
Skilling You've saved my fucking life.
Fastow It's good, isn't it?
Skilling All I have to do is keep the stock price up.
Fastow Which makes LJM exist.
Skilling Which makes Enron strong.
Fastow Which keeps the stock price up.
Skilling It's better than good. It's perfect.