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By Root 6940 0

George writes that the Americans “did not develop analytical techniques and hypotheses of sufficient refinement,” relying instead on “impressionistic” analysis. George was himself one of the slightly batty geniuses of K Street, and, of course, he could easily have excused his former colleagues. They never left their desks, after all. All they had to deal with was propaganda, and their big source was Goebbels, who was a liar, a thief, and a drunk. But that is puzzle thinking. In the case of puzzles, we put the offending target, the CEO, in jail for twenty-four years and assume that our work is done. Mysteries require that we revisit our list of culprits and be willing to spread the blame a little more broadly. Because if you can’t find the truth in a mystery — even a mystery shrouded in propaganda — it’s not just the fault of the propagandist. It’s your fault as well.

In the spring of 1998, Macey notes, a group of six students at Cornell University’s business school decided to do their term project on Enron. “It was for an advanced financial-statement-analysis class taught by a guy at Cornell called Charles Lee, who is pretty famous in financial circles,” one member of the group, Jay Krueger, recalls. In the first part of the semester, Lee had led his students through a series of intensive case studies, teaching them techniques and sophisticated tools to make sense of the vast amounts of information that companies disclose in their annual reports and SEC filings. Then the students picked a company and went off on their own. “One of the second-years had a summer-internship interview with Enron, and he was very interested in the energy sector,” Krueger went on. “So he said, ‘Let’s do them.’ It was about a six-week project, half a semester. Lots of group meetings. It was a ratio analysis, which is pretty standard business-school fare. You know, take fifty different financial ratios, then lay that on top of every piece of information you could find out about the company, the businesses, how their performance compared to other competitors.”

The people in the group reviewed Enron’s accounting practices as best they could. They analyzed each of Enron’s businesses, in succession. They used statistical tools, designed to find telltale patterns in the company’s financial performance — the Beneish model, the Lev and Thiagarajan indicators, the Edwards-Bell-Ohlsen analysis — and made their way through pages and pages of footnotes. “We really had a lot of questions about what was going on with their business model,” Krueger said. The students’ conclusions were straightforward. Enron was pursuing a far riskier strategy than its competitors. There were clear signs that “Enron may be manipulating its earnings.” The stock was then at $48 — at its peak, two years later, it was almost double that — but the students found it overvalued. The report was posted on the website of the Cornell University business school, where it has been, ever since, for anyone who cares to read twenty-three pages of analysis. The students’ recommendation was on the first page, in boldfaced type: “Sell.”*

January 8, 2007

Million-Dollar Murray

WHY PROBLEMS LIKE HOMELESSNESS MAY BE EASIER TO SOLVE THAN TO MANAGE

1.

Murray Barr was a bear of a man, an ex-Marine, six feet tall and heavyset, and when he fell down — which he did nearly every day — it could take two or three grown men to pick him up. He had straight black hair and olive skin. On the street, they called him Smokey. He was missing most of his teeth. He had a wonderful smile. People loved Murray.

His chosen drink was vodka. Beer he called “horse piss.” On the streets of downtown Reno, where he lived, he could buy a 250-milliliter bottle of cheap vodka for $1.50. If he was flush, he could go for the 750-milliliter bottle, and if he was broke, he could always do what many of the other homeless people of Reno did, which is to walk through the casinos and finish off the half-empty glasses of liquor left at the gaming tables.

“If he was on a runner, we could pick him up several times a day,” Patrick