Derivatives and Evil at a West End theater in London

February 22, 2010

This past Monday my new employer, the London School of Economics, took me to see “Enron” to a theater. (As nice a perk as it gets for a financial sociologist like myself). For three hours, co-blogger Yuval Millo, myself and other colleagues watched with amusement the story of the company that symbolized the marriage of finance and fraud. Or derivatives and evil.

Although unexceptional as a play, the performance is a masterpiece at financial communication. “Enron” the play is no highbrow drama, but it sets the standard for how derivatives can be communicated to the public.

The plot is the well-known tragic story of three flawed but remarkable men. Ken Lay, Jeff Skilling and Andrew Fastow set out to conquer the world with an equal-part cocktail of financial innovation, free-market ideology and hard lobbying (Rebecca Mark also appears, but eventually is sidelined). Their story is eaten up by investors, and Enron becomes the darling of the world’s capital markets. Reality (profits, production, revenues) struggles to catch up. And their managers decide to close the gap through fraudulent financial engineering, enabled by minionic accountants, lawyers and bankers. See the Financial Times here if you want more of the actual company story. It’s gripping.

In the end, of course, no amount of social construction could keep the numbers at bay. Journalists ask difficult questions. Skilling breaks down. The firm collapses. Employees and investors are ruined. Fin. (The anti-performativity bloggers at OrgTheory will smile at this breakdown of the construction)

Sounds simplistic? It is, unfortunately. There is little “character development” through the play. The playwright, 28 year old Lucy Prebble, did not include a hint of the reflectiveness that makes, say the character of Edmund so compelling in Shakespeare’s King Lear. None of Hamlet’s self-doubt. No single positive aspect of Skilling worth reporting.

And yet I think the play is an absolute triumph. Its goal, as I see it, is not complexifying the simple but rather simplifying the complex. In effect, Enron is a masterpiece at communication. It tells how derivatives and financial engineering can enable fraud with the directness of a Spanish baroque painting.

Indeed, Enron reaches climax when Andrew Fastow proposes LJM, the off-balance sheet vehicle that would buy toxic Enron-generated assets. This allowed the company to falsely mark its derivatives positions at a profit. The initiative would normally be illegal, as the law requires that the firms that buy such debt be independent from the management of the company that sells it. But Fastow found a loophole. Enron could own three percent of the independent company. And that company could itself be three percent owned by another one. And so on, such that Fastow could create a pyramid structure that controlled a seemingly-independent company.

This point was amazingly well made in the play using a device of boxes-within-boxes. A single small box could hold a bigger one, which in turn could hold a bigger one. As Fastow made this point, he vividly grabbed the smallest box, and it suddenly became illuminated with a red LED light. Waving the light like a magician, he conveyed his idea to Skilling, who proceeded to make Fastow chief financial officer. As this happened, the spectator sitting on my left (a professor of human resource management) uttered “aha!”. He was having an epiphany. Nine years after the event, he had finally understood Enron’s fraud.

Or take the “raptors,” the financial vehicles that “followed” Enron and ate up the debt that it created. These were represented as man-sized dinosaurs, clad in a suit and with red eyes. They opened up suitcases full of dollar bills and ate them up, often chocking on them. Again, brilliant, effective, memorable.

Enron, in short, is exemplary in starting a course that many should follow. Bridging the gap between the few who understand derivatives, and the many who suffer their consequences. It also opens up many questions about the nature of communications when derivatives are involved: are banks handling well their communications? are politicians explaining well their macroeconomic policies? are hedge funds wise to keep mum about themselves and let the public stereotype them?

5 Responses to “Derivatives and Evil at a West End theater in London”

  1. zsuzsannavargha Says:


    That’s a great topic…and incidentally the topic of a paper I am working on, how banks demonstrate financial products to consumers. Home loan plans and mortgages are shown in less vivid images, I’m afraid. But it does have to do with finding a way to literally enact the construct. I think the Enron raptors and LED boxes were so effective because it’s been nine years. A good demo can capture a key mechanism in the inside of the object and show it in action. This pretty much seems like a hindsight job.

  2. danielbeunza Says:

    Demonstrating financial products. That is the challenge facing the entire world! It seems that banks are emphasizing simplicity. Here’s my pic collection of the advertising I see in London, and other stuff.

    Thomson Reuters
  3. zsuzsannavargha Says:

    You have a nice collection of ads and you’re right, the banks are focusing on simplicity after the crisis. I wonder how this relates to the other simplicity, the push on the regulatory side for fewer and clearer product features and presentation. I’m thinking of Elizabeth Warren and the plans for a Consumer Financial Protection Agency in the US, or the Fair Treatment of Customers in the UK.

    What they are worried about is the fine print as well as the jargon. This is connected to two related concerns: how consumers can understand the products they are buying, and how to buy only the products you “need.”

    The ads seem to promise jargon-free service, like a mortgage application. But does that mean that the product documentation will be just as legalistic or mathematical and extensive? ING makes an extra connection: a simpler mortgage application is faster.

    A question that all sides seem to be grappling with is, can you decouple the demonstration from the product itself? Can you have fair exchange if you show a complex financial product in a simple way?

  4. Great post Daniel… I’ve read the Prebble play, but not yet seen it performed — your analysis is, in my mind, spot on…

    It is interesting to see the ways in which the visual arts (and analysis) and cultural products are mediating the latest crisis, and the challenges posed when trying to represent the economic….

    During my last visit to London, I saw 2 theatrical performances that explicitly deal with the object of our preoccupation: David Hare’s ‘The Power of Yes’ and the Shunt Theater Group’s production of ‘Money.’ While Hare’s production (at the National Theater, no less) is didactic and a bit tiresome, it does achieve the effect of financial pedagogy (which is also its weakness).

    However, “Money” is a remarkable — and unique — production, loosely based on Emile Zola’s “L’argent.” I don’t want to give too much away (this is a production that needs to be experienced, in every sense of the word), but the theme of speculation is pushed to its limit in this staging.

    I hear the show is running through March, so don’t miss it if you get the chance:

  5. danielbeunza Says:

    Zsuzsi and Robert —

    On the issue of the small print vs the billboard ad on the tube: you are absolutely correct. The small print is where it matters. I think that the treat of a regulatory body has meant that banks have now realized that they can no longer make the cognitive blindspots of the clients the center of their business model. Banks need to reinvent themselves as firms that help the consumers plan their financial life. And demonstration is key. If they want to see ideas for playful demonstration, they should check

    Robert, thanks much for the excellent advice. A friend had suggested I go to see The Power of Yes but now I think we should absolutely try Money instead. More generally, the open question is how long will people continue to show up for artistic events based on money. I actually curated one art show of those characteristics, but alas it was before the credit crisis… ahead of my time as the vain say.

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