Enron
Enron was a High Holy Place of the Market-as-God cult and Ken Lay, if not the pope, was certainly well up in the hierarchy. Its collapse is the latest in a series of blows to this sect which has flourished over the past twenty years or so with its terse creed of “End All Regulation and Let ‘Er Rip.” Recently, however, it has become evident that, while adherence to the creed does create some remarkable wealth, it tends to be concentrated in the hands of a few. The gap between haves and have-nots widens each year in all parts of the world. Because of Enron’s philosophy and culture, its collapse has focused attention on these issues. Mrs. Lay, in what was apparently an ill-considered effort to help out, added further fuel to the fire when, from one of her seventeen houses, she sobbed on national television that she and Ken now have nothing. This, when 60% of the world’s people including many in this country, in fact, have nothing.
Enron was the master of the political pay off. This was essential to ending all regulation. Some now say that this was a failed strategy as evidenced by the fact that the government did not save the company when it was in its death throes late last fall. While it’s true the government did not save it, it’s also abundantly clear that the company got more than its money’s worth. It had attained virtual veto power over many government positions where there were concerns that the regulator might be tempted to regulate. This was the case at the federal level and in Texas. It was probably the case in many other states and overseas. Now, as this is being written, a majority of the members of the House of Representatives, in defiance of the leaders of that body and in defiance of the Administration, is in the process of forcing a vote on a campaign finance reform bill that may actually have teeth. The outcome should be known by the time you read this.
The collapse of Enron has focused attention on the inadequacy of the accounting rules used by public companies and the inappropriateness of the relationships permitted between public companies and their so-called independent accountants. As a CPA and a former auditor at a Big Five (then Big Eight) firm I have doubts about how much can be accomplished in the way of rules. The rules making process, whether carried out in the private or public sector is political. The big companies have much to gain or lose by what is decided and the public, on an individual basis, relatively little—so the companies dominate. As for auditors peddling their kit bag of unrelated services to their audit clients, that should and can be stopped. And, getting that done appears to be well under way.
Finally, Enron has brought a great deal of attention to the companies’ beloved 401-K plans. The response seems to be to tinker with plan rules and I’m for that. But, more importantly, I hope that what this really does is engender a whole new appreciation for our Social Security system as presently constituted. (Please see the following piece which is on that topic.)