Enron Gets Zapped by Its Own Greed
Articles from the LA Times and Guardian (UK) on the Enron debacle.
Note: The big E has filed chapter 11 and is soon to be out of Oregon and good riddance!
Published on Friday, November 30, 2001 in the Los Angeles Times
Enron Gets Zapped by Its Own Greed
by Doug Heller
When the stock of energy giant Enron fell to 36 cents per share this week from a high of $84 this year, the market finally accepted the reality that the company--a middleman whose main business was not producing or delivering power but trading it--was never really needed. Investors, who unlike Enron executives, didn't sell until too late lost their retirement savings and children's college tuition to the illusion.
Enron workers sacrificed their retirement plans, which were locked up in Enron stock that was frozen by Enron executives after they sold off their own shares.
California ratepayers will pay billions too much for power over the next decades to foot the bill for price gouging by Enron and its proteges. The task for both society and the market now is to prevent such mirages in the future.
The illusion that Enron had value was created through both politics and philosophy.
The company's chairman, Kenneth Lay, was one of President Bush's biggest donors and was an energy advisor to Vice President Dick Cheney. Lay was even rumored to be on the president's short list for Treasury secretary.
Lay's power over the Bush administration was so great that he has been credited with forcing the nation's chief energy regulator out of his job because the regulator disagreed with him.
Enron created itself through a growing corporate vision: If you want market share, create a market, even if there is no need for it. Lay turned a stodgy gas pipeline company into a tech-savvy energy trader.
The "make a market" mantra, in conjunction with his long-standing ties to political leaders, shifted the nation's energy system from regulated monopolies to a deregulated, wholesale market-based system with few rules and even fewer entities with the technical capacity to make sense of it.
For Enron and Lay, a market was a tool for profitability, not productivity. Rather than add efficiency to the energy delivery system, Enron simply added layers of expense.
The new energy market, with Enron at its vanguard, became a free-for-all of energy companies selling electricity back and forth like pork bellies while siphoning off the excess with each trade.
Its apparent success made Enron a shining star on Wall Street. Chairman Lay took in $141.6 million in salary, bonuses and stock in 2000. He cashed out another $20 million earlier this year. Former chief executive Jeffrey Skilling took home $70 million in 2000.
Meanwhile, what did Enron accomplish?
If a competitive market was supposed to drive prices lower, why were Californians paying so much more for their power?
Why were there blackouts?
Indeed, Enron's stock was so high due to investors' belief that the company would continue to price gouge in California and, as their deregulation model took hold, throughout the country.
Greed, cloaked in the promise of a competitive market, created and drove the deregulated energy system. So it should come as no surprise that Enron would try turning the free money skimmed from ratepayers into more free money by creating new markets.
But through foolish investments and poor management decisions, their money began to evaporate.
Without oversight, Enron managed to conceal massive mistakes. It played accounting games to hide problems and shifted money from book to book to maintain the illusion of success.
Why would Enron come clean about partnerships that were unprofitable, if no regulators were there to make it do so?
Like Icarus, the company flew too high and came crashing down. Only the small investors and pension fund mangers who bet on the company were burned, while insiders parachuted out into the sunset with all the proceeds.
The moral for society should not only be that markets need rules and limits, but also that some things don't need markets at all.
Enron took over a system that reliably moved a public good--electricity--from power plant to home. It used deregulation to make money out of nothing, simply by adding cost to the product en route.
Federal regulators should ensure that if Lay or other Enron executives deceived the public, they pay a price.
Courts should return to workers and shareholders as much of their losses as possible.
The energy system must reinstate rules.
Most important, society must recognize that when such great value is pinned on illusions, itwill also have a great cost.
Doug Heller is a consumer advocate with the Santa Monica-based Foundation for Taxpayer and Consumer Rights. Web site: www.consumerwatchdog.org
Copyright 2001 Los Angeles Times
On a lighter note.....
Enron, the Elvis of the corporate world, really is dead
The collapse of Enron in what looks like being one of the greatest corporate bankruptcies in history should be a moment to console unemployed workers. Sympathy for the victims will not, however, prevent full-throated 'yippees!' being heard around the world.
Earlier this year I nominated the Houston energy corporation for the hotly contested title of World's Worst Corporation. The angriest protester could not have invented a firm that better connected the greed of the First World to the exploitation of the Third; the groovy PR of the new economy to lamentable service in the real one.
Enron bankrolled Indian politicians who allowed it to build a power station at Dhobal near Bombay. Electricity prices tripled. The police beatings of protesters were so brutal, Enron became the subject of Amnesty's only report on a corporation rather than a dictator.
In America, Enron financed both Republicans and Democrats. Bush was impressed and took the advice of Kenneth Lay, Enron's chief executive. They agreed that what the US needed was fewer regulations, even though Enron was one of the deregulated companies bringing power cuts to California.
As in the US, so in the UK. Enron was a contributor to New Labour, which allowed Enron to take over Wessex Water (prices shot up by 34 per cent) and gave Lord Wakeham, a Tory Energy Minister, a boardroom seat.
With all this protection, Lay and his colleagues must have been managers of exceptional incompetence to bust their company. Its demise is a blow for the business journalists who drooled over Enron while ignoring the paybacks and violence. The Economist and Wall Street Journal gave loyal service, but they were outdone by Fortune magazine which wrote:
'Imagine a country-club dinner dance, with a bunch of old fogeys shuffling around half-heartedly. Suddenly young Elvis comes crashing through the skylight. Half the waltzers faint, a very few decide they like what they hear, tap their feet, start grabbing new partners, and suddenly are rocking to a very different tune. In the staid world of regulated utilities and energy companies, Enron is that gate-crashing Elvis.'
There are sad saps who believe Elvis lives. No one will make that mistake about Enron.
Guardian Unlimited © Guardian Newspapers Limited 2001
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