COMMENTARY: The Tidal Wave From Enron’s Fall
Martin Hill
Editor
Six months ago, California state Attorney General Bill Lockyer drew heat for suggesting Enron Corp. CEO Kenneth Lay should be locked in a prison cell with an amorous inmate named Spike.
Today, Enron is in bankruptcy, its accounting measures are under scrutiny, its top executives (including Lay) are being sued for insider trading, and this week Congress is scheduled to begin hearings on the company’s collapse.
An inmate named Spike aside, Lockyer may yet get his wish.
Lay drew Lockyer’s ire because of Enron’s role in California’s energy deregulation fiasco. Enron’s so-called pioneering form of energy arbitrage was a big contributor to driving electricity prices out of control. The company helped push the energy industry-written deregulation law through the state Legislature, then subsequently made billions of dollars off the state’s ensuing energy crisis.
Subsequently, Lay pulled political strings in an attempt to convince state officials to drop their investigation of energy firms (including Enron) and let ratepayers absorb the massive debts piled up by the state’s utilities.
In fact, Lay’s political web spread across the country. A longtime friend of the president’s family, Lay is said to have virtually written the White House energy policy. He also reportedly engineered the ouster of former Federal Energy Regulatory Commission Chairman Curtis H & #233;bert because of the latter’s concerns about the impact of arbitrage on the energy market.
H & #233;bert’s concerns appear to have been well founded. Once hailed as one of the top 10 corporations in America, Enron now appears to have reached that lofty height through a feat of accounting legerdemain. Few if any of the nation’s investment analysts or regulators seemed to question why, if Enron was so successful, it was still billions of dollars in debt. Only the vast profits Enron raked in from California’s manic energy market kept the fragile glass pyramid from toppling.
When California’s energy market stabilized, the pyramid finally shattered, wiping out $60 billion of stockholder value. That included the retirement accounts of Enron employees who were required to invest them in the company and, until recently, not allowed to sell their shares.
Evidently, that didn’t apply to Lay and his cohorts at the top of Enron. According to a suit filed by Amalgamated Bank this month, Lay and other executives sold off more than $1.1 billion in stock over the past three years at prices the suit says were falsely pumped up by rosy predictions of company wealth.
All this has led many to wonder where the accountability lies. Where, asks Rep. John Dingell, D-Michigan, ranking member of the House Energy and Commerce Committee, was the Securities Exchange Commission, the Financial Accounting Standards Board, the lawyers, the bankers, the analysts?
“Where,” he asks, “was common sense?”
Common sense, however, is often the first victim of hubris. Enron’s foundation began to crack long before the company sat like a vulture over the ruins of California’s deregulatory disaster. Like last year’s dot-bomb fiasco, Enron’s growth was spurred by the lure of quick and easy money. Those swept up by the same lure eventually became Enron’s victims.
Unfortunately, they probably won’t be Enron’s last victims. The collapse of so powerful a corporation does not occur without leaving ripples, and the ripples from Enron’s fall will likely tower like rogue waves as they sweep across the nation.
The billions in debt owed by Enron will probably go unpaid, or repaid with only pennies on the dollar. There will be repercussions felt by some of the nation’s top investment firms. Regulatory pressures will be increased. And in Washington, lawmakers are already calling this President George W. Bush’s “Whitewater,” and mulling the need for a special prosecutor.
Yes, California’s attorney general may get his wish yet. If he does, Lay better hope his cellmate isn’t an Enron investor.
, Martin Hill
