BOB GARFIELD: Not that we actually ever left -- we're back with On the Media. I'm Bob Garfield.
BROOKE GLADSTONE: And I'm Brooke Gladstone. Recently the nation's dim economic prospects got a little dimmer with the collapse of Enron, the natural gas pipeline company. As the share price spiraled down from a high of 90 dollars to about 25 cents, employee retirement plans were frozen, thousands lost their life savings, not to mention their jobs, and their losses won't even be considered until after Enron deals with 54 pages of creditors, assuming the company doesn't run out of assets first. All this due to the collective cluelessness of the analysts, auditors, regulators and the business media who are supposed to monitor the doings of public companies. James Surowiecki writes on business for The New Yorker and he joins us now. Thanks for coming on.
JAMES SUROWIECKI: Thanks for having me.
BROOKE GLADSTONE: Now Enron swapped energy futures. "Swap" is a cute term, but this is a new and extremely complex kind of transaction.
JAMES SUROWIECKI: Enron was on to something very interesting which was that they essentially moved away from being a kind of traditional provider of power and natural gas to being a trader of power and natural gas, so they would actually buy and sell electricity around the country and sort of ship it from place to place.
BROOKE GLADSTONE:So this was very cool. This was new. It got the business media and all the analysts jazzed. Is that why they didn't ask the right questions?
JAMES SUROWIECKI: That was part of it. You know it wasn't just actually even the media and the analysts. Fortune Magazine named Enron the most innovative company in America 6 years in a row, but that was actually voted by other businesses, so I think a lot of other businesses thought that what Enron was doing was very interesting, and the numbers were pretty remarkable. You know, Enron went from I think a 10, 12 billion dollar company to a hundred billion dollar company in terms of sales in the space of about 4 years. The other part of it was that Enron's [LAUGHS] financial arrangements were so complex, and they kept getting more and more complex as Enron expanded into more and more different businesses that a lot of the analysts and a lot of the media just sort of shied away. Cause the numbers were very difficult to sort of understand and certainly very difficult to explain.
BROOKE GLADSTONE:So the media didn't get it, and even if it did ask hard questions, there's one example of an analyst who asked a pretty pointed question about Enron's balance sheet and got ridiculed by Jeffrey Skilling!
JAMES SUROWIECKI: Yeah, the CEO. That's a famous moment where he actually used an expletive to describe the guy on the conference call. That was one of the things that I think ultimately really hurt Enron. I, I think actually in this case all of their sort of opaqueness and their over-confidence really did come back to haunt them. There were a few people who were sort of banging the drugs against Enron over the past year. TheStreet.com, for example, had a columnist who had, who had been talking about Enron cooking the books for a while. And there were short sellers who were also doing the same. But part of the problem was even they were going on very flimsy con-- information because Enron was really just not saying very much.
BROOKE GLADSTONE:What about the impact of deregulation? I mean part of the reason why Enron was so difficult to follow and so difficult to report on is because there were all of those outside deals and all sorts of other things that they didn't disclose! But under the rules regarding the energy business, Enron didn't have to publicize its positions like they would have had to do if they dealt with pork bellies or any other commodity!
JAMES SUROWIECKI: Yeah, Enron's whole business was predicated on the idea that energy was just another commodity. In other words in the same way that you would trade pork bellies or wheat. But Enron was able to get around the Commodities and Futures Trade Commission regulations because energy wasn't considered a commodity for the purposes of the law. So in that sense Enron was basically able to play both ends against the middle.
BROOKE GLADSTONE: So what sorts of lessons can the business media draw?
JAMES SUROWIECKI:Well I think the first one which is sort of the obvious one is not to believe its own hype. The second thing would be, I think, to say that even though a company may seem to be utterly respectable and large -- I mean Enron was literally the seventh largest company in the United States in terms of its revenue --that doesn't mean that its behavior is going to be above board, and so you know you need to scrutinize it just as closely as you would scrutinize, say, that Internet startup that, that everyone now knows was, was a fraud. The last thing I would say also is I think that the media in -- business media in general has a very hard time dealing seriously with numbers. There are some exceptions to this --TheStreet.com actually is, is one of them, I think. But part of that is because numbers tend to be boring or seem boring, but it's that kind of digging that gets you the stories in, in the case of something like Enron. And so, you know, now that Enron's bankrupt everyone's willing to write these stories, but the question is why weren't they willing to write them, you know, in June even, and I think part of it is that it's a harder pitch to say well what I want to do is dig into this balance sheet.
BROOKE GLADSTONE:How important do you think the cable business newscasts are to all of this and how well do you think they handled Enron? Any red flags at all?
JAMES SUROWIECKI: You know my impression of the cable newscasts in general is that CNBC and CNN-FN are not for the most part very well equipped to deal with stories of this, of this kind. I mean if you think about how hard it is to write about this kind of stuff, doing this kind of stuff on television is infinitely harder.
BROOKE GLADSTONE: I think I'm going to stick with my Ouija board.
JAMES SUROWIECKI: I think you're probably better off [LAUGHS] that way.
BROOKE GLADSTONE: James Surowiecki, thank you very much.
JAMES SUROWIECKI: Thanks for having me. I appreciate it.
BROOKE GLADSTONE: James Surowiecki writes on business matters for The New Yorker.