Flashback, June 2001: Early Alarm Sounds About Enron

John Olson (pictured) is not a well-known name, but when he died a few weeks ago, this retired energy analyst was remembered in obituaries for his warning 25 years ago this month about one hot stock—which the object of his skepticism tried to tamp down.

Too bad that others didn’t perform proper due diligence on Enron, which six months later collapsed, in the largest bankruptcy filing to that point in U.S. corporate history.

The initial outsized expectations about Enron’s stock reminded me of a phrase coined by the otherwise colorless former Fed chair Alan Greenspan (who also died this month): “irrational exuberance.” Though Greenspan was discussing speculative market bubbles as a group, I think it applies just as much, maybe even more so, to individual stocks today.

Take a bow, Elon Musk.

You heard about that guy, right? World’s richest person. World’s first trillionaire, courtesy of a very generous compensation plan approved by shareholders of his company, Tesla.

More about him in a minute. But first, a refresher on Enron:

Through much of the Nineties, Enron was a Wall Street darling for advancing from a natural-gas provider to an energy-trading colossus. It reported incredible returns, reaching $90.75 per share on August 23, 2000 with a market capitalization of more than $70 billion, making it the seventh-largest publicly traded corporation in the U.S.

Who wouldn’t want to invest after a management guru like Gary Hamel had praised it for creating “a capacity for perpetual innovation” with an organization consisting of “potential revolutionaries”? Even pundits across the political spectrum like Bill Kristol and Paul Krugman took fees to serve on the company’s advisory committee.

Wall Street was particularly enamored of Enron head Kenneth Lay, a corporate leader used to being listened to. That respect derived not only from the eye-popping numbers he produced but from his cozy relationship with George W. Bush, a rising politico so grateful for the $122,500 contributed to his Texas gubernatorial campaigns that he nicknamed the gray-haired businessman “Kenny Boy.”

In March 2001, Lay and his successor as Enron president, Jeffrey Skilling, were annoyed when a young financial journalist, Bethany McLean, wondering how the company made its money, asked, in a Fortune Magazine article, if Enron was overpriced.

But they really grew incensed when Olson—a local analyst with long experience monitoring the energy industry—told U.S. News and World Report three months later that Enron was "not very forthcoming about how they make their money" and said no "analyst worth his salt . . . can seriously analyze Enron."

Olson chuckled over a misspelled handwritten note that Lay dashed off to his boss in the wake of that interview. The analyst’s equanimity was justified: other observers were soon pursuing the hard questions that he and MacLean had posed about Enron’s operations.

By year’s end, it had all unraveled in a massive bankruptcy and corporate scandal. In May 2006, Lay and Skilling were convicted of fraud and conspiracy charges.

So now you may be wondering, how could Lay possibly relate to Elon Musk?

Some of you reading this might see my eyebrow lifted derisively in his direction because of my distaste for his involvement with the Department of Government Efficiency (DOGE) at the behest of Donald Trump.

Or you might argue that, unlike Enron, Musk built something that can be seen—rockets, an AI startup fueling data centers, and, through Tesla, the EV, the most significant contribution to the American auto industry since Henry Ford’s assembly line.

You can even accept (as analyst Jeff Sommer does here, before swatting it down) that Tesla can build a successful colony on Mars and reap a bonanza from its military contracts.

But there’s a simpler yardstick for measuring how close Musk comes to the now-infamous Kenneth Lay: What did his prior financial reports promise investors, and did he achieve those goals?

That’s where matters become slippery. A New York Times analysis from earlier this month found that Musk was late or did not deliver on his company deadlines roughly 35 percent of the time. In 33 percent of his more than 600 claims, his companies did not provide a public update—or the plans were too vague to know if he succeeded.

And five years ago, Consumer Reports compiled a telling timeline of his continuous claims that Tesla models would shortly become fully autonomous, along with deaths of people who accepted these assurances that turned out to be—well, let’s just say premature.

In other words, if Musk were a musical, it would be Promises, Promises.

Unlike with Enron, nobody has yet proven that Tesla’s accounting practices are fraudulent. But it would be enormously difficult to decipher even if anyone tried to do so. Now with Vanity Fair, Bethany MacLean has questioned the ethics and governance behind his complicated 2019 acquisition of Solar City.

Testifying before Congress in 2002, Olson cautioned that “It is axiomatic on Wall Street that if a stock price is rising arithmetically, management egos tend to rise exponentially.”

That was the case as Lay pressured editors and analysts for better press coverage, and maybe even more so with Musk. He was only half-joking when he said, while hosting Saturday Night Live in 2021, “To anyone I’ve offended, I reinvented electric cars and I’m sending people to Mars in a rocket ship. Did you think I was also going to be a chill, normal dude?”

Put that together with his use of ketamine, a dissociative drug, and you’ll understand why in The Atlantic last year, Shayla Love wrote that Musk’s “cognitive and psychological health is of concern not only to shareholders of his companies’ stocks but to all Americans.”

One last resemblance between Lay and Musk: each backed a successful candidate who then followed through on the ballyhooed businessman’s policy prescriptions. Lay, for instance, influenced Bush’s gubernatorial policies on electricity deregulation, taxes and tort reform.

Musk’s Presidential beneficiary-patron has permitted him even more latitude. Past robber barons were content to bribe and sway officeholders, but in taking his position with DOGE, Musk joined the government, if briefly.

That takeover was so swift and audacious that observers could hardly rouse themselves to ask if self-interest might be the principal reason for his lightning strike against the agencies that regulated his enterprises. Were he alive today, Kenny Boy might be asking, “Why didn’t I think of that?”