Magazine article The American Prospect

The Enron Economy. (Comment)

Magazine article The American Prospect

The Enron Economy. (Comment)

Article excerpt

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 down.

The business press. Enron's breathless cheerleaders included not only its own insiders 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. …

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