Malcolm Gladwell Semi-Defends Enron's Jeff Skilling

UPDATE: Malcolm Gladwell digs himself in deeper in his "semi-defense" of Jeff Skilling and the other fraudsters of ENROn. In response to a commenter on his website who points to the ENRON off-balance-sheet-entity accounting fraud, Gladwell says that the fraud wouldn't have been fraud if it hadn't had the fraudulent elements, Gladwell writes:

My understanding is that a) its not entirely clear how those outside partnerships ran afoul of SEC rules, except in the matter of [their failing to have] the 3 percent outside equity interest]...

To the contrary. It is entirely clear how those outside partnerships ran afoul of the SEC. And of course it isn't criminal fraud if you remove the fraudulent elements that had previously been criminalized!

Gladwell seems more than a bit thick here. He also misstates the requirements for an SPE to be taken off the balance sheet--he omits the requirement that third-party investments be genuinely at risk:

As the SEC wrote in its ENRON enforcement actions:

Complaint: SEC v. Michael J. Kopper : 11) Enron engaged in myriad SPE and other transactions that were structured to achieve off-balance-sheet treatment. Under applicable accounting rules, an SPE could receive off-balance-sheet treatment only if independent third-party investors contributed at least three percent of the SPE's capital, and the third party investment were genuinely at risk, among other things. If the third party were not truly independent, or its investment were not truly at risk, consolidation of the SPE onto Enron's balance sheet would be required.

12) Starting in at least early 1997, Kopper and others devised a scheme to defraud Enron's security holders by enriching themselves through the use of certain Enron SPEs. Some of these SPEs were not eligible for off-balance-sheet treatment because the supposedly independent third party investors were controlled by the CFO, Kopper, and others and because the third party "investment" was not at risk, since Enron, the CFO, Kopper, or others provided the funds to be invested or guaranteed the investment against risk of loss. Thus, these SPEs should have been consolidated onto Enron's balance sheet.

13) Enron nevertheless engaged in various transactions with these SPEs that were designed to improve its apparent financial results. Meanwhile, Kopper and others used their simultaneous influence over Enron's business operations and the SPEs as a means to secretly and unlawfully generate millions of dollars for themselves and others...

Gladwell goes on:

The point is that even that simple phrase is arguable and complex and not nearly as straightforward as it sounds...

But the point--Gladwell's clam that ENRON's SPEs weren't fraudulent--is only "arguable" because Gladwell misstates the case.

---

A simple answer to a not-innocent question by Malcolm Gladwell--the question, you see, is part of what Gladwell calls a "semi-defense" of Enron's Jeff Skilling:

Jeff Skilling and his co-conspirators breached their fiduciary duties and falsified the accounts of ENRON for 1998, 1999, 2000, and 2001 in order to persuade investors that Enron was a well-run, profitable company, and so boost its stock price.

What is Malcolm Gladwell's question? It is:

gladwell.com: Enron: I also have a minor challenge for aficionados of the Enron case. Years ago, when I was at the Washington Post, one of my colleagues on the science desk—-Bill Booth—-called up a dozen or so Nobel Laureates in physics and asked them to explain, in plain language, the nature and significance of the Higgs Boson atomic particle. None of them could....

Can anyone explain—-in plain language—-what it is Jeff Skilling and Co. did wrong?

I’m not asking for an explanation for what they did wrong as businessmen. That’s plain. They did a mountain of stupid and arrogant things. Nor is this about what Skilling and company did that was unethical or in bad faith. There’s a mountain of evidence on that too. The question is strictly a legal one: according to the way the accounting rules were written at the time, what specific transgressions were Skilling guilty of that merited twenty-four years in prison? For the sake of argument, let’s stipulate that summaries must be three sentences or less.

When I was reporting the piece, I tried to get someone to answer this question. But everything ended up very Higgs Bosonian.

There is an easy answer to Gladwell's Higgs-boson question too:

The standard model of subatomic physics builds up everything out of a few basic elementary particles: the electron, the muon, and the tau; the electron-neutrino, the muon-neutrino, and the tau-neutrino; the up and down quarks; the charm and strange quarks; the top and bottom quarks; all the antiparticles of these; the gluon bosons; the weak-electromagnetic bosons W, Z, and the photon; and the Higgs boson.

So far we have found, in our particle accelerators, direct evidence of the existence of everything but the Higgs boson. If we are going to extend the standard model, we need to see if the Higgs boson is in fact what we think it is and does in fact behave as we think it does.

If we remove the Higgs boson from the standard model, it looks then as if nothing has any mass and everything travels at the speed of light always: the Higgs boson is kinda important in making our universe look like it does.

The impression I get is that neither Bill Booth nor Malcolm Gladwell tried very hard to get their respective questions answered in a way they would judge satisfactory.

Comments

[trostky]

Maybe it's easier for an economist to explain the physics to layfolks.

[John Emerson]

"Few" in the sense of "23 plus antiparticles". I liked the old Rutherford atom better.

[pj]

Here's a more plain language answer:

They lied to investors about the financial performance of the company in order to get those investors to buy stock, or not to sell the stock they already owned.

[agum]

neither Bill Booth nor Malcolm Gladwell tried very hard to get their respective questions answered

What do you expect from the glibbest author* in the English-speaking world?

*apologies to Steven Johnson

[steve]

"If we remove the Higgs boson from the standard model, it looks then as if nothing has any mass and everything travels at the speed of light always..."

Not precisely true. Even in the absence of a Higgs field, strong dynamics due to quantum chromodynamics (quarks and gluons) will generate dynamical masses for some particles (e.g., gluons get confined into massive glueballs, and quarks into massive protons and neutrons), so not everything moves at the speed of light.

In fact, most of the rest mass in ordinary matter comes from gluon dynamics and very little from the Higgs effect. That the Higgs boson is responsible for the origin of mass is a slightly incorrect marketing idea originally concocted to convince Congress to fund high energy colliders (in particular, the SuperCollider in Texas, which was ultimately cancelled).

The task put to those Nobelists was not entirely trivial!

[Brad DeLong]

It's nice that there's always somebody coming by on the internet who really knows what he is talking about...

[Maynard Handley]

(1) Counting antiparticles as different is not in any way a useful way of looking at the universe. To put it very crudely, "particles" change with time in a way such that their complex phase rotates clockwise -- from 0 to 90 degrees to 180 degrees etc --- while, "antiparticles" have a complex phase that rotates anticlockwise as time increases. They appear exotic for the (still unresolved) reason that there aren't many of them around our part of the universe, but conceptually they are no different from particles of different helicities. You wouldn't want to start claiming that photons whose electric field vector rotated clockwise with time should be treated as a different "particle" from those whose electric field vector rotated anti-clockwise, would you?

(2) To the best of my knowledge Brad's summary is not in fact correct. My understanding is not that the Higgs particle is responsible for all the mass in the universe, but that it responsible for the mass of a very restricted part of the universe, namely that of the W and Z particles. The issue, specifically, is that a certain way of interpreting field interactions, based on differential geometry, and called gauge theory, does a pretty good job of explaining the weak interaction. (Not a great job because of various ad-hoc fudge factors; and because it only works if the W and Z are massless.)
Meanwhile gauge theory does appear to do a great job of explaning the color force (which binds quarks into protons, neutron etc), the electro-magnetic force, and, (in a way that is significantly different physically, but rather similar mathematically) gravity.

So at this point what can one do?
Option (a) is to say, well if the same sort of general idea (all interactions are gauge interactions) works well in two out of four, well but sorta different in 1 out of 4, and sorta OK in the 4th out of 4, let's assume that deep-down it's all gauge, and try to figure some excuse mechanisms that explain why the fit to the weak interaction is poor, in particular the mass of the W and Z. This is the role of the Higgs field.
Option (b), which I believe has (not yet) no real traction, is to say "come on guys, you're deluding yourselves. By the time you fit everything we know about the weak interaction into the gauge model, goddamn it looks ugly; the Higgs field is the least part of it. Meanwhile you're just as deluded in claiming that gravity is the same sort of thing as these other gauge fields, since the one involves rotations in real space-time, while the other involves rotations in abstract spaces that seem to have no link to space-time as we know it. Give it up --- if they're all going to be united as fundmentally the same underlying mathematical/physical idea, it's going to be something else, not gauge theory as currently defined".

Personally, since I think the existing electroweak theory is a godawful Frankenstein's hybrid, I hope for the second alternative to be the one that comes to pass. But we shall see.

[JRoth]

All this time bemoaning the Press Corps, and Prof. DeLong is still baffled by their M.O.: ask questions and, if the answer wasn't already in their internal databanks, reject it. Thus, since none of the physicists said, "well, a Higgs boson is small, cube-shaped, and usually green," they didn't offer what a journamalist would recognize as an "answer." Similarly, no one told Gladwell "Skillings and Lay held up a stagecoach at gunpoint," so no one could "answer" his question.

It is truly terrifying that the press established in the First Amendment takes as its motto "Don't confuse me with the facts."

[Ken Houghton]

I do expect better from Gladwell, but note that the DeLong Higgs Boson answer is four sentences, and therefore would not fit in his understanding.

pi gives the plain answer, but that begs the follow-up question: Gladwell says "according to the way the accounting rules were written at the time, what specific transgressions were Skilling guilty of that merited twenty-four years in prison?" This implies that, in Gladwell's mind, violating accounting rules IN ITSELF has to result in 24 years in prison. Any criminal activity that, say, requires violating accounting rules, is moot to the sentence.

Given Gladwell's question, I'm not certain he would accept pi's all-too-accurate simplification, which notes the fraud perpetrated, but does not detail the accounting rules.

[Maynard Handley]

"
After 42 fruitless years searching for the Higgs boson, I think a few of the physicsts who have spent billions of taxpayer dollars on this snipe hunt should join Skilling in jail...
"

I am reminded of general relativity. It's not like anyone thought that was ever going to be useful.
When the first GPS satellites went up, they didn't fully believe this GR mubo-jumbo the physicists were telling them, so the circuits to perform the relevant corrections (time runs at slightly different speeds on the earth's surface and at the satellite because they are in different gravitational fields) were made flexible so they could be adjusted as necessary.
Nowadays, of course, the GR corrections are wired into the GPS chipsets.

Positrons --- what are they good for? Well PET for one thing.

A more speculative example is muon-catalysed fusion. It's not clear it will ever work; heck it's not clear what it will take to make fusion work, but damn, if we could get it to work it would help with an awful lot of problems here on earth.

Of course not all research pans out; but I think it is fair to say that money poured into science research has been about the largest paying investment in the history of the world, since at least around 1850. Right now the Higgs looks totally dreamy and of no possible use. Maybe the idea is completely wrong; maybe the idea is right, and even then, once it is confirmed, you ask "so what". And the answer is, as always, who knows what the future will bring?
You are SO confident in your knowledge of the future, SO sure that we have reached the peaks of technology that going forward requires nothing more from theoretical physics, that you are willing to ignore 150 years of history? You're willing to be Robert Peel, asking of Michael Faraday "Of what use is electrical induction" and convinced you'll come off on the non-foolish side of the exchange?

[Peter]

In response to Maynard Handley's 150 years of payoffs for research: I would put the period for which we've had direct commercial payoffs from scientific research at much further back, at least 420 years, when explorer Sir Walter Raleigh employed his own personal mathematician, Thomas Harriot, to improve the reliability and success of Raleigh's trans-Atlantic sailing expeditions to the New World. Among other "useless" inventions, Harriot invented the less-than symbol.

[MobiusKlein]

Isn't Gladwell being extra obtuse, not realizing that these accounting rules were created to avoid the very kind of self-dealing & enriching that occured at Enron?

Accounting rules are not just around to employ accountants - they have the serious purpose of detecting fraud. And breaking those rules is often done to hide actual fraud. (and accidental breakage does happen - which is why we punish based on the results of the break, not just on the mere fact that the rules were broken.)

[Easterhack]

Well, as long as we're gonna start physics nit picking.... the oft made claim that General Relativity corrections are essential to the functioning of GPS is a myth. The corrections are indeed made, but if we knew nothing about General Relativity the total impact to the GPS error budget would only be about a centimeter.

[steve]

Alphie: Modern physics has progressed substantially in the last 50 years, even though we have yet to find the Higgs boson. For example, quantum chromodynamics (QCD), the theory of quarks and gluons, is both beautiful and accurate. It predicts the properties of numerous nuclear particles, based on the gauge group SU(3) and only a few input parameters (the strong coupling constant and the light quark masses). It was developed in the 70's, so less than 50 years ago. It is every bit as elegant as GR and much better tested.

Regarding Gladwell: he is and always has been a very sloppy thinker. See, for example:

http://gladwell.typepad.com/gladwellcom/2006/12/more_thoughts_o.html

a discussion of discrimination by car salesman which originally appeared in his book Blink. Posner completely destroyed Gladwell, but it took hundreds of comments on his blog for Gladwell to grasp the stupidity of his position.

I used to enjoy Gladwell's writing -- he has interesting taste in subject matter. But I've found his critical analysis to be quite flawed.

[tom s.]

Going back to John Emerson's '"Few" in the sense of "23 plus antiparticles". I liked the old Rutherford atom better', and skipping lightly over the serious stuff in between, let's just note that "made up of" when it comes to particles is a classical kind of idea, relying on a prejudice that small dimensions of space correspond to something more fundamental than small values on other scales, such as energies.

The world seems to become simplest at the level of the protons + neutrons + electrons size of atoms, where energy and size are both pretty small. Go to bigger sizes or bigger energies and things get more complicated. There is no more reason to believe that we will find a set of elementary (as in simple, constituent) structures at large energies (small distances) as at large distances (small energies).

[Maynard Handley]

"
Well, as long as we're gonna start physics nit picking.... the oft made claim that General Relativity corrections are essential to the functioning of GPS is a myth. The corrections are indeed made, but if we knew nothing about General Relativity the total impact to the GPS error budget would only be about a centimeter.
"

In what way do you get from no GR to a centimeter of spatial error? The GR issue does not interact with the problem in this fashion.

The effect of GR is that the timers in the satellites have to run at a slightly different frequency from what would naively be the case.
Now of course, if we were idiots and didn't know GR (or SR for that matter) we could fix this in brute force fashion --- run the clocks at the naive speed, observe that they seem to run slightly fast, and then send up new satellites with clocks using an empirically determined fudge factor, or once a day or whatever send them a signal to reset their times. I assume that this claim of a mismatch of a centimeter is somehow hooked up to an implicit assumption of such a time reset once a day, because without a periodic reset, the spatial error simply grows unboundedly as time passes.

You can always work around any engineering problem with just empirical observation rather than theory --- but it's a whole lot cheaper if you know what the hell you are doing before you start.

[r m flanagan]

"the third party investment were genuinely at risk"

That's the argument that Gladwell should accept , or rather , if he doesn't he's not worth bothering with .

The 3% rule ,in comparison, is an artificial construct open to the query :"Well how about 2.9% ?" But there's no way of challenging the logic of the "at risk " requirement .

Now going over to Gladwell's side , many of the other activities which the Media , the SEC and the public were "shocked ,shocked to find " were going on at Ken's place , were ones which were a matter of course in almost all of the NYSE companies with which I was employed in positions up to CEO.

And no surprise.

Clearly ,the market is effective in large part because it provides rewards and penalties which motivate gifted individuals to work better . But then how can you dodge the corrolary that those motivators will NECESSARILY cause those executives to violate " bureaucratic regulations ".

How expect a motivator to be just powerful
enough to cause you to accept an 80 hour week and 60% travel schedule but NOT
quite so powerful that you'll break ANY law that stands in your way ?

Pace Rap Brown , cooking the books ( to arbitrarily choose one of a litany of prohibited actions which are part of every day business life) is as american as apple pie.

[Brad DeLong]

IIRC, 3% was originally chosen because there was no way in hell that anybody could argue that a SPE with such a low amount of outside equity was truly offloaded. The expectation was that an SPE would, of course, have a much higher amount of outside equity. After all, the point was to offload risk by trading a risky asset away for cash.

[Diamond Jim]

I took one look at BLINK and instantly decided it was a load of hogwash.

[Diamond Jim]

And my snap judgment was confirmed by this review:

http://www.nybooks.com/articles/17954

I gather from the review that Gladwell is impressed by such phenomena as Thomas Hoving's ability to make accurate snap judgments about the authenticity of artworks. I was way ahead of Halpern's exposition in responding "Hello? He's only been at it for half a century, *of course* he can make quick accurate judgments about authenticity." (In the same way, people trained as philosophers can make quick accurate judgments about whether a position is likely to be cogently argued--hence my snap judgment in the preceding post. Evaluating arguments is part of a philosopher's job description: people trained in, say, journalism are not as likely to have developed the necessary skills to do it at a snap.)

The article under discussion (which I did read in its entirety--slow day at the office yesterday) just adds further point to my question: Why does anyone take this man more seriously than, say, Richard Cohen?

[Ian Whitchurch]

My name is Ian Whitchurch.

I am the CEO of a small Australian oil company, Northern Territory Oil, which issued a prospectus late last year for a listing on the Australian Stock Exchange.

I live in Sydney, New South Wales, Australia.

Truth is not a defense against libel in New South Wales.

The answer, in three sentences or less, is that Jeff Skilling and his mates engaged in fraud by borrowing money off their mates, and claiming that this borrowed money was profits for Enron.

That borrowed money, and some other money, was then kicked back to Skilling and their mates out of Enron's corporate funds.

Skilling, on behalf of his mates, then lied in public to the owners of Enron about these transactions by not faithfully disclosing the substance of these transactions in the published accounts of Enron, as they were required to do so under GAAP.

Ian Whitchurch

[Alex]

"They lied to their shareholders, employees, customers, suppliers, auditors, bankers, the government, and themselves" do ya?

[Walt]

The Rutherford atom was inherently unstable. Atoms would collapse, killing us all. You'd like that, wouldn't you?

[Matt Austern]

I think, Brad, that you're ignoring the crucial piece of sneakiness in Gladwell's question. It's not that he was too lazy to get an answer that he would accept, but that the question is framed in such a way as to make sure that there could be no acceptable answer.

It's a modern-day Morton's Fork. Think about it. An answer like "he falsified the accounts to persuade investors that Enron was profitable" isn't acceptable because it doesn't specify *exactly* what the accounting rules said the accounts should look like and *exactly* which rules were violated by the lies. On the other hand, a complete answer, going into details about rules for special-purpose entities and treatment of booked contracts as profit and giving exact citations to the relevant subparagraphs of the rules, wouldn't be acceptable because it wouldn't be a simple and straightforward one-sentence explanation that any nonspecialist can understand.

It's easy to reject all explanations if that's what you've decided to do. You refuse to accept the full technical details because, after all, that's just for nerds and there are always more arcana to argue about, and you refuse to accept the one-sentence summary because it's oversimplified and it's just a summary. The only way to win a game like that is not to play.

[Doctor Jay]

Gladwell isn't doubting that the stuff the Enron execs did is illegal or unethical. He's trying to find a plain-English narrative about why it's so bad. And why they did it.

The quotation Brad gets from the SEC is full of words like SPE and "off-balance-sheet" and "money at risk" and so on.

Remember Milo Minderbinder's in Catch-22? He'd sell eggs for 15 cents and buy them back for 20? Now there's a narrative. That's the kind of story I want. Did Jeffery Skilling run a scheme like Milo Minderbinders? Or is it different somehow?

Tell me a story about buying and selling eggs, and include no words like SPE's or "off-balance-sheet".

Among the things I'd like to know is whether Enron made deals that they knew were bad, or were they just hiding deals that turned out to be turkeys. Were they trading short-term gain against long-term loss?

[David Lloyd-Jones]

Gladwell has had a very good run out of being very smart and putting on an air of wide-eyed wonder and simplicity.

With his Enron disaster he has hit the limit of his pose.

[wkwillis]

A little off thread here, but the bulk of scientfic and technological progress was made between 190x and 195x, not 195x and 200x, exact years debateable.
We seem to have run into some problems since then in terms of new types of technologies and new paradigm shifts in science.

[David Lloyd-Jones]

Doctor Jay,

The three percent rule recognises that in some situations it is legitimate to carry very large debts off your balance sheet, say if you're a trader or an intermediary of some kind.

The rule is there to make sure that if you do so you are at least forced to explain what you are doing to somebody who is then convinced of both the legality and the profitability of what you are doing enough to put up a small bit of the money themselves.

Skilling got the benefits of keeping large debts off his balance sheet without going through this simple process of explaining what he was doing to somebody else smart enough and rich enough to meet the rule.

Mindbinding enough?

[steve]

wkwillis: you should probably differentiate between technical and scientific progress.

Technical progress since 1950 has been phenomenal. Just look at Moore's law and its counterparts in communications, biotechnology, etc.

Science progress may seem less dramatic, because as we go we get more of the big things pinned down. But a careful examination would show that most of the fundamental particles, most of the mass and energy in the universe, even the nature of the big bang, were all discovered after 1950.

[Maynard Handley]

"
A little off thread here, but the bulk of scientfic and technological progress was made between 190x and 195x, not 195x and 200x, exact years debateable.
We seem to have run into some problems since then in terms of new types of technologies and new paradigm shifts in science.
"

Really? There are these nifty new devices called cell phones and microchips that, as far as my knowledge of history goes, were not part of the 1950s. Along with them go disk drives, optical fibers and lasers. All post 1950s tech.

Simulation is a huge part of modern science --- built on hardware, but also software --- algorithms that no-one had even seen as an issue in 1950.

We're seeing an absolute explosion in biology and related science --- who knows where it will end.

To paraphrase your argument:
(1) yes there was a whole lot of good work on theoretical physics (quantum mechanics, statistical mechanics, solid state) done before 1950, and, sure, none of it led to practical products until after 1950 but even so.
Planck and quanta -- 1900
First transistors -1947 or so
It was then about twenty years of engineering to turn this practical demonstration into micro-electronics.
(2) I claim that it's going to be different this time round, that if science being done now is not turned into technology I can use within three years I call it a waste of time. Screw the 50 to 70 year lags of the past.

We are, of course, seeing the same wheel of innovation right now in biology. Were you one of the people complaining in 1953 about "DNA, RNA, proteins, who cares about this fancy biochemistry'?
Or perhaps you were there at the IGY in 1957 complaining about all this money spent on understanding the earth because, what does it matter --- the climate will just go on the way it has always done?

[Matt McIrvin]

Maynard: in the standard model the Higgs particle actually is responsible for all the quark and lepton masses, not just the W and Z. The reason (from a theoretician's perspective) is that while the Higgs was introduced to give the W and Z masses, to preserve the fundamental gauge symmetry of the theory, the quark and lepton masses can't be plain old mass terms in the Lagrangian but have to be gotten by Yukawa couplings to the Higgs field's vacuum expectation value.

On the other hand, it's true that most of the mass of ordinary matter comes from QCD interactions inside the proton and neutron, not from the quark masses. Giving the electron a nonzero mass is no small thing, though.

The whole thing seems more complicated than it ought to, and nobody believes it's the fundamental be-all and end-all, but on the other hand, it's a lot better than what little consensus existed prior to 1974 and the agreement with experiment is remarkable (once you put in minor post-1974 refinements like the third generation and the neutrino masses).

It's a little frustrating, really: I think most particle physicists are aching to find some kind of failure so it can point the way to whatever lies beyond this awkward thing. And that's one reason to search for the Higgs; the variety of Higgs that exists in the standard model, as it's usually written down, is nothing but the simplest possibility. If that's all that gets found it will be kind of disappointing. It would be far cooler to find something else instead.

[anonymous ex-physics graduate student]

"Years ago, when I was at the Washington Post, one of my colleagues on the science desk—-Bill Booth—-called up a dozen or so Nobel Laureates in physics and asked them to explain, in plain language, the nature and significance of the Higgs Boson atomic particle. None of them could...."

This reminds me of a story from my graduate school days. I was in the Princeton physics department back when Joe Taylor was awarded the Nobel for proving the existence of gravity waves. There was a press conference in the main auditorium with press and photographers up front, and grad students and professors in the back.

Joe Taylor gave a speech in which he described, without using any specialized terminology or jargon, what the experimental observations (of a pulsar, if I remember correctly) were and how he and Russ Hulse used them to prove that energy was being emitted in the form of gravity waves. When he was done, one of the journalists asked if he could explain it again, this time in layman's terms. Taylor replied, quite seriously and sincerely, "I thought I just did."

The grad students, post-docs, and physicists erupted in laughter. Needless to say, none of the press joined in.

Good times, good times ...

[r m flanagan]

Brad wrote
IIRC, 3% was originally chosen because etc etc.

Of course. It was a perfectly understandable
rule like much of GAAP and like much of GAAP it lacks inherent convincingness to someone whose stock in trade is to posture as an outside-the-box commentator.

Whereas even Gladwell can't claim it's precious to rule that an "independent" entity isn't independent if its owners have a cast iron PUT and that therefore any transaction with that entity is a fraud with a facade sort of a Wizard of Oz. No way of dodging that except admitting to being stupid.

[MobiusKlein]

All + Brad:
This New Yorker article needs another review. The points you raise about it to me seem the least offensive, and ignore the issue.

Gladwell's point is that if we had all been a little smarter, we could have deciphered the Enron issue earlier since it was all laid out in their filings, albit hidden.

But the Obfuscation of the filings was exactly the problem. By making the filings obtuse, arcane, and burying details in foot notes, the day of reconing is delayed, and options can continue to be excersised for longer. They can still cash out while managing the downward trend of the stock price.

Gladwell presents examples of people who were able to pierce the veil of accounting chianary, but 100% ignores the idea that the veil should not be there in the first place. By comparing it to WWII German propaganda, he likens corporate financial reports to fluff, rather than a truth exposing process. If propaganda is the best we can expect from financial statements, why should we bother with them?

Because obscuring the truth for as long as possible was the purpose, it's effect was equivalent of direct lies. (Not even counting the specific lies about SPCs and all that.)

Brad, please take this article up again, and really break it's spine.