In Risk and Ruin, Gavin Benke traces the evolution of Enron from managing gas pipelines to engaging in accounting fraud. More specifically, Benke focuses on the factors in the business and regulatory environment that enabled the gradual shift in Enron’s use of financial derivatives. The company started using financial derivatives to profit from the deregulation of natural gas. It then attempted to apply these tools to other markets, and, finally, used a combination of questionable deals and fraudulent accounting to cover up losses from such attempts.

Risk and Ruin paints a compelling picture of Enron’s transformation. Benke’s detailed description of the Gas Bank—the company’s earliest venture into derivatives—highlights the extent to which the derivative contracts set up by the firm’s natural gas traders responded to the underlying needs of the business and the customers it served. The author offers a lucid and concise treatment of how these contracts built the foundation for the complex transactions at the heart of Enron’s failure. From its early days, Enron needed large infusions of capital. Rather than raising capital by traditional means— issuing equity (and thus decreasing the stock price) or raising debt (and thus lowering the company’s credit rating), Enron executives disguised the company’s debt as a set of hedging contracts. The contracts allowed Enron to borrow five billion dollars from 1997 onwards without disclosing the borrowing to either Wall Street analysts, the company’s shareholders, or the board of directors.

Benke uses the imagery from the company’s annual reports and marketing materials to trace the transformation in Enron’s business practices and the transformation’s portrayal to both external and internal audiences. As the company shed physical assets to focus more on its trading business, the imagery in its marketing materials became increasingly abstract, with the images shifting from including physical plants, to trading desks, to networks. Leveraging the marketing materials allows the author to address an important puzzle of the Enron scandal—namely, how Enron executives themselves came to believe in the legitimacy of their enterprise—a legitimacy that went largely unquestioned by stock market analysts and business journalists for much of Enron’s existence.

Specifically, Risk and Ruin argues that the company’s attempts to shed physical assets and capitalize on the knowledge economy reflected its attempts to follow the stock market fashion of the day. While Enron leadership enthusiastically adopted the language of the new economy, once Enron shed physical assets to focus on trading, the Enron executives were at a loss to describe the company’s business to both internal and external constituencies. Benke argues that this loss in the ability to describe the company’s business played an important role in the company’s fortunes taking a turn for the worse: “Because financial measures, such as P/E ratio, were in part indications of how optimistic stories about economies and companies were, losing authorship of these stories was dangerous for a firm like Enron” (p. 159).

Risk and Ruin draws connections between Enron and the ensuing financial crisis in 2008 and specifically the extent to which Enron served as a rehearsal for government response. The limited reverberations from the company’s collapse shored up Alan Greenspan’s faith in credit default swaps and other unregulated derivatives. “In a statement that echoed the language Jeff Skilling had used for years to describe Enron and that Fastow had used to justify more SPEs, Greenspan concluded that the ‘increased flexibility of the American economy’ through ‘the combination of deregulation and innovation in the financial sector’ was reason to rest easy” (p. 173). The collapse also informed the Bush administration that letting companies go bankrupt would not affect the health of the overall economy—lessons that served to hasten and worsen the effects of the 2008 crisis.

While Benke positions Risk and Ruin in the context of the popular accounts of the Enron scandal, his work resonates with several streams of academic research including social studies of finance and sociology of disasters. The portrayal of Enron increasingly emulating practices of investment banks seems to illustrate Karen Ho’s (Reference Ho2009) thesis that Wall Street seeks to transform nonfinancial firms it invests in to resemble Wall Street banks. Benke’s account is complementary to Ho’s in as much as she takes the perspective of the pressures exerted by investment banks and he describes the actions of executives under such pressure.

From the perspective of what can be learned from financial crises, Risk and Ruin suggests that focusing on the individual senior managers rather than the broader business and regulatory environment allowed business journalists, Wall Street analysts, and regulators to treat the company’s experience as an aberration rather than evidence of problems with the financial system. This argument for the importance of understanding systems in accident prevention is consistent with that put forth in the Charles Perrow’s Reference Perrow1984 classic text in sociology of disasters.