Comment: The Enron Economy

Just as Watergate became a metaphor for the Nixon era and
Whitewater the right's symbol for Clinton, Enron is the emblem of the Bush
administration's way of life. Enron is to George W. Bush what Teapot Dome was to
Warren G. Harding. Its demise should also signal the collapse of a whole economic
paradigm, in which smart people were traders and those left behind in the
outmoded economy were throwbacks who actually made things.

Here is a checklist of the several icons that collapsed with the fall
of Enron:

A pension double standard. Enron's retirement plan was heavily invested in its
own stock. Executives cashed out over a billion dollars, while ordinary
employees were locked in. Janice Farmer, who retired with $700,000 in Enron, told
a Senate hearing last week that she is left with a $63 monthly Social Security
check. Senators Corzine and Boxer propose a 20 percent limit for any one stock in
401(k) plans.

Bogus accounting. Since the Great Depression, the one form of regulation that
even Wall Street has supported is the regulation of stock trades and corporate
accounting. I once asked an ultra-Chicago economist if there was any regulatory
agency that he endorsed. "The SEC," he said instantly, explaining that capitalism
itself depends on honest information. Enron's entire game was to make its
business plan so complex that neither investors nor regulators nor even its own
auditors could penetrate it. While its core energy business made money (at the
expense of consumers), it had speculative off-the-books subsidiaries. These
borrowed heavily to make risky investments and eventually took the whole company

The business press. Enron's breathless cheerleaders included not only its owninsiders and stock touts but a business press that pronounced it the epitome of
the new economy. It surely was that--epitomizing all the smoke and mirrors. In
the wake of its collapse, Enron's former sycophants have turned on it, with
Forbes and Fortune running scathing denunciations. BusinessWeek
asked giddy Enron boosters what they thought now. (Gary Hamel, chairman of
Strategos, before the collapse: "Enron isn't in the business of eking the last
penny out of a dying business but of continuously creating radical new business
concepts with huge upside." After: "Do I feel like an idiot? No, but if I misread
this company in some way, I was one of a hell of a lot of people.") Well, yes.
The one holdout among the business press is, of course, The Wall Street
still trying to blame the debacle on regulators.

Deregulation generally. Enron's collapse impeaches the conceit that a market
economy can be efficiently self-policing. Enron fleeced consumers by manipulating
prices of electricity and gas; it fleeced investors and its own employees.
Tycoons do this because they can. Enron should signal a whole new era of
re-regulation--of everything from electricity to pensions to accounting
standards. And it is another warning that Social Security pensioners cannot trust
Wall Street.

But the most powerful emblem of the Enron economy is not
business opportunism run riot but cronyism. CEO Ken Lay was wired to the Bushes.
He personally gave the Republican Party $326 million in soft money in the three
years before Bush's presidential campaign. Enron executives kicked in nearly $2
million. Enron got special legislative treatment so that its operations fell in
the cracks between securities regulators and commodities regulators. When Lay
complained to Bush that the head of the Federal Energy Regulatory Commission
wasn't quite with the program, the man was replaced by a more docile successor.
Enron flew Poppy and Barbara Bush to George W.'s inauguration. Even the new
chairman of the Republican Party, Marc Racicot, is an Enron lobbyist.

Several congressional investigations are now picking through the
wreckage. The details are bewilderingly complex, but the story line is very
familiar. The watchmen are tamed, bedazzled, or bribed, while a pitchman who
claims to have invented something brand new in the history of capitalism takes
everyone to the cleaners. What remains is to connect the dots--and we can expect
Republican legislators to resist these investigations at every turn. For the dots
lead directly to both the ideology and organization of George W. Bush.

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