Commentaries on Enron

Enron’s collapse has not materially disrupted energy markets, but more Americans watched the hearings than viewed the Olympics. Congressional testimonies are disclosing two observations about the scandal. One is that Enron is symptomatic of a larger sickness that pervades corporate America. Financial accounting standards need to be revisited and laws that protect unethical manipulators, dishonesty, and self dealing whether by executives, auditors, or securities analysts, at public expense need to be repealed and replaced with more investor protection. Five former chairmen of the Securities and Exchange Commission have said so. The mystery is why it took Enron to bring them out of the closet. Arthur Levitt, who headed the SEC during the Clinton administration said, “What once was unthinkable in business has become ordinary. Financial statements often are not an accurate reflection of corporate performance, but rather a Potemkin (sic) village of deceit.” Ex-SEC Chairman Roderick Hills said, “We have gotten into some very bad habits.” Indeed.The second observation is that capitalism encourages and rewards people who use public resources, e.g. capital, labor, and materials, for personal gain. Take Bill Gates, for example. As one news analyst noted, “Either Enron is the perfect child of an unhealthy system or it is the imperfect child of a healthy system.” If the latter, then illegal Enron actions should be prosecuted to the fullest extent of the law. If the former, we all may have serious cause to worry about the future of capitalism.