Selects: How Enron Fooled the World
Episode of Stuff You Should Know · June 27, 2026 · 1 h
Josh Clark and Chuck Bryant recount the rise and collapse of Enron, from deregulation and the California energy crisis to accounting fraud, bankruptcy and its aftermath.
Summary
In this rerun of a 2023 episode, hosts Josh Clark and Chuck Bryant traced Enron from its 1985 formation through the merger of Houston Natural Gas and InterNorth under Kenneth Lay to its 2001 bankruptcy. They drew heavily on the documentary The Smartest Guys in the Room, based on the book by Bethany McLean and Peter Elkind. Both hosts linked the company's rise to 1980s deregulation and to Lay's ties to the Bush family. Clark argued that deregulation itself was not the problem, but that it was carried out incorrectly.
The hosts described how Jeffrey Skilling, hired from McKinsey, turned Enron into an energy trading firm and introduced a "rank and yank" employee review system. They covered the manipulation of California's electricity market, including schemes such as Ricochet and Death Star, and CFO Andrew Fastow's special purpose entities. Clark also explained how the company abused mark-to-market accounting to book revenue on deals that had not yet made money. The complicity of Arthur Andersen, Wall Street analysts and banks was a recurring theme.
The episode then turned to the collapse: Skilling's sudden resignation, Sherron Watkins's warning letter, Arthur Andersen's document shredding, the earnings restatement and the failed Dynegy merger. Enron filed for Chapter 11 bankruptcy in December 2001. The hosts also discussed the fallout for employees, who were locked out of their 401(k) plans, and the criminal convictions of Skilling, Lay and Fastow. They closed with the passage of the Sarbanes–Oxley Act and a listener mail tribute from a college graduate named Gavin to his mother.
Chapters
- 0:05
Introduction and Enron's origins
Josh introduces the Select, and the hosts describe the 1985 merger that created Enron and Ken Lay's Bush family ties.
- 5:35
Deregulation and the free market
The hosts discuss Reagan-era deregulation, the 1984 FERC change and human greed in markets.
- 9:23
Skilling, the gas bank and company culture
Jeffrey Skilling joins from McKinsey, builds a trading business and institutes a cutthroat employee ranking system.
- 15:39
Lobbying and the California energy crisis
Enron lobbies for deregulation and manipulates California's electricity market through fabricated scarcity.
- 22:46
Hiding losses: SPEs and mark-to-market
The hosts explain how Fastow's special purpose entities and mark-to-market accounting inflated revenues and hid debt.
- 34:17
Enablers and early skeptics
Arthur Andersen, analysts and banks enabled the fraud, while Bethany McLean and Jim Chanos questioned it.
Linked moment · 39:25Skip to 39:25 using a listen link in the info box.
39:25The collapse
Skilling resigns, Watkins warns Lay, Andersen shreds documents, earnings are restated and Enron files for bankruptcy.
- 46:22
Fallout and convictions
Employees lose jobs and savings, executives are convicted, Arthur Andersen folds and Sarbanes-Oxley is passed.
- 56:57
Listener mail
Chuck reads a tribute from listener Gavin to his mother.
Key points
What was said, by whom, with the exact words. Timestamps jump to the moment.
- Josh Clark
Clark argues that deregulation is not inherently bad but was done incorrectly by fully removing oversight.
“Not that there's a problem with deregulation, that it was done incorrectly like it seems to be every single time”
- Chuck Bryant
Bryant argues that free-market deregulation fails to account for greedy humans who exploit the system at others' expense.
“there are inevitably going to be greedy humans with so much hubris that they sell their souls to make money”
- Josh Clark
Clark suggests that powerful people who deregulate often don't care about consequences because they profit before things blow up.
“They know that they're going to make a boatload of money by the time the thing really kind of blows up sometime down the line”
- Josh Clark
Clark describes Skilling's policy of firing the bottom 10% of employees each year as Machiavellian and psychotic.
“It makes sense in a really Machiavellian kind of way, but it's also psychotic as well”
- Josh Clark
Clark says California's electricity shortage was an entirely fabricated scarcity created by Enron.
“this was an entirely fabricated scarcity of electricity. There was plenty of it”
- Josh Clark
Clark suggests that Enron's actions also appear to have been a coup to replace Gray Davis with Arnold Schwarzenegger.
“it appears to have also been a coup to get rid of Gray Davis and replace him with Arnold Schwarzenegger”
Listen from 20:43 · 2003 California gubernatorial recall election
- Josh Clark
Clark says three traders pleaded guilty and that the manipulation cost California $40 to $45 billion.
“costing the state between $40 and $45 billion in retrospect of unnecessary electrical prices and costs”
- Josh Clark
Clark says Enron's broadband and video-on-demand ventures were visionary but premature, and that the fault lay in covering up the losses.
“So their stuff that they were doing wasn't making money, which is not bad in and of itself. What was bad was when they were covering it up”
- Josh Clark
Clark explains that Enron moved toxic assets to special purpose entities and counted money borrowed against them as revenue.
“So they were hiding debt, boosting their revenues to just ridiculous heights for stuff that just should not have been counted as revenue”
- Josh Clark
Clark says mark-to-market accounting is legitimate, but Enron abused it by booking deals as revenue before earning anything.
“Like the deal would just be inked. They wouldn't have seen a penny from it. And they would add it to their balance sheets as revenue”
- Josh Clark
Clark says Arthur Andersen was so cozy with Enron that it hired Enron's internal auditors and opened an office in Enron's headquarters.
“An Arthur Anderson office in Enron's headquarters made up of former Enron auditors. That's who was watching the show”
- Josh Clark
Clark considers Enron's freezing of employee 401(k) accounts while executives cashed out to be the worst part of the scandal.
“That, to me, is probably the worst part of the whole thing”
- Chuck Bryant
Bryant notes that the average employee severance was about $4,500 while management bonuses exceeded $55 million.
“their severance package averaged about $4,500 for the average employees, while management bonuses totaled more than $55 million”
- Josh Clark
Clark says Congress responded with a law that outlawed, point for point, the practices Enron had used.
“Enron had such a huge effect that they passed a law that basically point for point outlawed all the stuff that Enron had done”
- Josh Clark
Clark argues there is no other side to the Enron story, calling it a rare black-and-white case.
“There is no other side of the story. This is one of those rare stories that is... Basically black and white”
People
In the conversation
- Josh ClarkCo-host of Stuff You Should Know
- Chuck BryantCo-host of Stuff You Should Know
Discussed
- Kenneth LayFounder, chairman and CEO of Enron
- Jeffrey SkillingFormer McKinsey consultant who became Enron CEO
- Andrew FastowEnron CFO who created the off-books special purpose entities
- Bethany McLeanJournalist and co-author of The Smartest Guys in the Room
- Peter ElkindJournalist and co-author of The Smartest Guys in the Room
- Sherron WatkinsEnron vice president who warned Ken Lay about accounting irregularities
- Jim ChanosShort seller who bet against Enron beginning in 2000
- Gray DavisGovernor of California during the energy crisis
- Arnold SchwarzeneggerAustrian-American bodybuilder, action star and former California governor, described as Stallone's longtime rival and later friend
- Ronald ReaganFormer US president to whom Pape compared Trump's political skill
- George W. BushPresident criticized for cutting taxes while going to war
Topics
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From the publisher
Until 2007, the largest single corporate bankruptcy was Enron, a $67 billion energy trading company. Its decline was breathtaking, and while it’s a fascinating story of corporate malfeasance and greed, it’s also about the lives of ruined workers. Learn all about it in this classic episode. See omnystudio.com/listener for privacy information.
Summary, chapters and key points were generated from the episode transcript on September 29, 2026. Quotes are checked word for word against the transcript.