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media and political commentators have worked themselves into a frenzy
over the Enron story. The New York Times calls it "a
shocking national calamity." Hardly. The collapse of the company's
shares is a financial disaster for those Enron employees who unwisely,
if understandably, invested their 401(k) plans solely in those shares.
However, the failure of the company will be easily absorbed by the
American financial system at no cost to the taxpayer.
Comments from
reporters and politicians reveal more about the former's lack of
financial knowledge and the latter's agendas than they do about
the real story of the collapse. This is not a story about
deregulation, campaign finance, Republicans in general, and the
Bush administration in particular. None of these were a factor in
the company's failure. The real story is an old one: a group of
very intelligent people convinced themselves that their intelligence
enabled them to take risks that any normal person would not have
dreamed of. Their early success, which was considerable, reinforced
their belief in their superiority and led them to take ever greater
risks, never for a moment thinking that the whole structure they
were creating could come crashing down.
It's a safe
bet that Ken Lay's career plan did not include his retirement as
a pariah faced with national disgrace and a decade of law suits.
Had he foreseen what was coming he would have stopped it. It's obvious
that he depended far too much on his younger protégé's,
Messrs. Skilling and Fastow. His recent inability to answer technical
questions about key transactions showed that he had taken his eye
off the ball when he stepped down as CEO early last year and probably
before.
Skilling, his
chosen successor, resigned last summer after only months in the
position for undisclosed "personal reasons." It is fair
to assume that the real reason was his inability to face the humiliation
of the already steep decline in the stock price which would derail
his plans and make it impossible to live up to his boasts to the
financial community. That failure would itself have been too much
for a notoriously arrogant man to accept. Most probably, he did
not dream that the company would collapse into bankruptcy within
a few months.
Enron was a
money machine which was making its managers rich and famous. Their
attentions were directed towards keeping the company running rather
than selling-out in anticipation of its failure.
As far as the
Republican party and the administration are concerned, it should
be enough to ask: What did Enron managers get in return for their
contributions? Absolutely nothing. When they called the Commerce
and Treasury Departments they were handled politely and told that
no help would be forthcoming. Of course Henry Waxman, who would
scream "scandal" had help been given, now screams that
the shareholders should have been warned and demands a blizzard
of documents. Never mind that Treasury and Commerce had no information
that was not already public, or that had they spoken out they might
only have accelerated the collapse.
What Enron
management is guilty of is recklessness — specifically the
taking of grossly unreasonable risks with other people's money.
Knowing that the level of risk they were taking would not be acceptable
to the financial community and their trading partners, they concealed
those risks in a series of transactions with third parties that
they controlled. They will now pay dearly for those acts, as will
their auditors who clearly failed to do their duty. In addition
to possible criminal prosecution, equity would demand that they
be forced to disgorge the funds they gained from selling their own
shares in favor of their hapless employees. It would be fitting
for them to end up as bankrupt as the company they ran into the
ground.
Such an outcome
may be on the way in the person of California attorney William Lerach,
the terror of corporate officers and directors, who is moving through
the courts to achieve just that result.
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