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Enron used mark-to-market accounting to record the entire estimated lifetime value of long-term contracts as profit on the day the deal was signed, based on its own internal forecasts. This decoupled reported earnings from cash, rewarded dealmakers for signing deals rather than for deals that worked, and created a treadmill where ever-larger new deals were needed to cover the lack of real returns from old ones.
CFO Andrew Fastow created special-purpose entities like LJM and the Raptors that were nominally independent but capitalized largely with Enron's own stock, and he personally managed and profited from them. These vehicles bought troubled assets and hedged investments so that losses and debt disappeared from Enron's books. When Enron's stock price fell, the hedges collapsed with it, because they had been backed by the very stock they were meant to protect.
Enron's Performance Review Committee graded employees against one another and forced the bottom 15 percent out every cycle, while stars received huge bonuses tied to booked deal value. This produced a culture where employees hoarded information, undermined colleagues, and pushed through bad deals, because the system measured relative short-term wins rather than long-term value or honesty.
The book argues Enron's fraud persisted because the parties meant to check it had financial or reputational stakes in believing it. Arthur Andersen earned large consulting fees alongside its audit work, banks earned deal fees by financing the partnerships, and Wall Street analysts and the press celebrated Enron as an innovator.