The Enron Nobody-Dunnit

The Enron blame game has become a virtual merry-go-round. The company’s top executives, Ken Lay and Jeff Skilling, cling to the view that they were simply undone by a panicked reaction to what turned out to be a mild U.S. recession anyway.

Savor the moment. As a matter of fact, Enron’s corporate fast-buck artists pass the blame as quickly as customers get a piping hot hamburger at a U.S. fast-food restaurant. “Does a CEO of McDonald’s company go and close out the cash drawers of every store every night?” complained Mr. Skilling in one U.S. television interview. Lawyers already warn that it may not be possible to prove criminal misconduct.

How the Enron execs got away with their scheme says a great deal about the current state of business culture in the United States. In particular, the far-flung network of professional collusion that brought about the scandal extends far beyond that between Enron’s bosses and the shredding auditors at the now-indicted accounting firm of Arthur Andersen.

In short, the fiasco is rooted in a mad rush moving from liberalizing markets and deregulation to the questionable concept of “self-regulation.” More and more, it becomes apparent that powers that should have operated in some antagonistic fashion — such as corporate lawyers, investment bankers, stock analysts, members of the U.S. Congress, accounting bodies and Washington lobbyists — ended up in partnership together.

To be sure, attempting to free the market from the stifling influence of government ownership and control is the essence of healthy deregulation. But to go further and remove all controls helps to open the door to the kind of mess á la Enron that devastates investors and garners headlines.

After all, operating major parts of the U.S. economy on the notion of “trust me” is highly dangerous business. It was none other than Ronald Reagan — hardly an advocate of regulation — who brought the words “trust, but verify” to superpower arms control. Why should the financial markets be treated any differently?

Certainly, the unholy alliance of Enron hubris and Andersen cover-up is the best example of this collusion. But what about the Wall Street analysts working for top investment banks — and “earning” $500,000 base salaries during the recent stock market boom? In exchange for such princely compensation, they kept up the hype — and pulled in yet more suckers to invest in Enron as it headed south.

Now, these pied pipers of the bull market claim that they were lied to by Enron — a company that explicitly never opened its books to them. The collective failure of these analysts is staggering. They failed to do the honorable thing — and refuse to issue recommendations for Enron stock absent full disclosure.

And don’t even think of placing any blame on the members of the U.S. Congress who write the laws that govern the financial markets. They rejected stiffer accounting rules that might have prevented the problem from occurring in the first place — but they won’t shoulder any blame for that failure.

In fact, these same elected officials are happy to run hearings in which they point the finger at somebody else — anybody else, in fact — but themselves.

Thus, the huge financial black hole created by Enron is — by all accounts — almost nobody’s fault at all. It just sort of “happened” — and the proof was sliced up into tiny bits of confetti.

In fact, laying the blame for such a colossal failure at the doorstep of rogue accountants — and ignoring the rest — brings to mind a disturbing parallel.

In this interpretation, U.S. authorities have made a choice to emulate the Soviet bureaucrats faced with the Chernobyl nuclear power plant disaster.

In the latter event, as you may remember, the immediate reaction was to fence off the site — and avoid discussing the larger implications. The world was told that there was one faulty nuclear installation in the Ukraine region — but that the Soviet nuclear energy system as a whole was in great shape. In short, don’t worry — and stop digging.

The goal in maintaining such a silence in the case of Enron’s collapse is clear. To keep digging and get to the roots of the collusion and bad faith involved would only disturb “market confidence,” these post-Soviet imitators now pronounce.

Of course, there is one enormous attraction in an appeal to keep quiet — and “keep the market confident.” That is, almost nobody — from failed corporate executives and financial analysts who misled the public to grandstanding politicians — will pay an appropriate price for their failure.

One has to worry that, despite all the current wave of media attention, the mechanisms that usually hold those who make mistakes at the level of Enron’s disastrous collapse will before long seem to have frozen.

Feed the masses a big show in the media — and hope they will take the show for real reform, this school holds. If that were indeed to happen, then those who are to blame for the fiasco may not be called to account for abandoning their responsibilities — and wildly chase short-term profit.

And yet, despite all the cynical ploys currently undeway in the United States, one truth hopefully still stands: Until such time as those who are guilty of duping shareholders and undermining the market’s checks and balances are forced to abandon their hiding places — investors will have little reason for confidence in the U.S. market.