Friday marks the 10th anniversary of Enron’s chapter 11 bankruptcy filing. Americans learned that this lionized giant, which seemed to represent the future of energy and corporate success, was in fact a bundle of frauds and hustles.
Led by the politically connected Ken Lay and Jeff Skilling, Enron was honored as “America’s Most Innovative Company” for six consecutive years by Fortune magazine. There was no there there. In the place of actual productive work was a bunch of complex frauds and gambling in energy markets that led to blackouts in California. In the end, 22,000 employees lost their jobs and shareholders — the stock was heavily pushed to investors by Wall Street — were wiped out. So were the workers, who put most of their 401(k) savings in Enron shares. They’re still picking up the pieces of their lives.
Enron’s sins sound familiar: Using deregulation to create swindles, a lapdog board of directors and the co-conspiracy in the whole con by one of the world’s most respected accounting firms, Arthur Andersen, and Citigroup’s Sandy Weill. As the house of cards collapsed, the entire poker game fell down for similar frauds at WorldCom, HealthSouth and Tyco.
The scandals helped usher in recession and ended the long bull market. But top executives were successfully prosecuted and sent to prison by the George W. Bush Justice Department. Mr. Bush also signed the Sarbanes-Oxley bill, which although criticized for adding extra reporting and transparency burdens to business, has prevented another round of scandals at publicly traded firms. Boards became more robust and independent.
Yet this didn’t translate to Wall Street or the big banks, which avoided either jail or the fate of Arthur Andersen. Sen. Phil Gramm, a big recipient of Enron contributions, and President Bill Clinton led the repeal of Glass-Steagall in 1999. Wall Street, aided by Alan Greenspan’s Federal Reserve and captured regulators, spent the next seven years cooking up the biggest batch of business rackets (“innovations”) in history. We’re living in the ashes, and nobody in charge was prosecuted or went to jail.
Between these two squalid bookmarks, more has been done to discredit capitalism, destroy the legitimacy of American institutions and damage the American economy than the most fervent communist plotter could ever have hoped.
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Today’s Econ Haiku:
Young Werther’s sorrows
Pale against EU crisis
Need a Goethe guy