Enron Endgame (Stifled Yawn Edition)

Is it just me or did the trial of Enron baddie Jeff Skilling go largely unobserved?

Skilling's fate is going to a jury now, reports MSNBC (and a slew of other places) to seemingly little more than yawns. Shockingly, his lawyers contend he is innocent of all charges and those who testified against him are liars and thieves.

Why don't we care more about the Enron endgame, especially when that company's collapse, perhaps more than anything else, created the context for the onerous and generally useless new accounting regime known as Sarbanes-Oxley? A few years back, Enron was seen as a symbol of pure evil, the embodiment of (depending on your POV) capitalism run amok or of government-abetted crony capitalism. Now it seems like even the left doesn't really give a shit about the disposition of the case.

Is it because it's too complicated? I caught last year's anti-Enron documentary, The Smartest Guys in the Room, and walked out thinking that the filmmakers understood Enron's actions even less than I did. Is it because Enron and Martha Stewart (two very, very different cases) and a few other popular villains function less as things-in-themselves and more as scapegoats for a market gone bad? That is, that the anger directed at Enron et al. was less about anything the company did and more about the popping of the tech bubble and the resulting loss?

For a good explainer to the key issues in the Enron meltdown--and a concise and utterly convincing refutation of the idea that Enron bilked its employees' 401(k) accounts--go here.

For the true story of California's electricity deregulation reregulation, in which Enron is often accused of playing an insidious role, read "Power Tripped: Faulty re-regulation turns out the lights in the Golden State."

Comments

[Paul W]

It's for me to track how much coverage things are getting, and "why do/don't 'we' 'care'." My primary news source is NPR in the car (and Reason, natch), and I've been getting daily Enron trial updates. Your milage may vary.

[Paul W]

"It's for me" should read "It's hard for me"

[joe]

Maybe it has something to do with the fact that Jeffrey Skilling isn't as high-profile as "Kenny Boy" Lay, who both outranked Skilling in the company, and is also the largest donor to George W. Bush throughout his political career.

[trostky]

Enron might not have bilked its employees 401(k) accounts, but it sure bilked everybody else, including its investors. And that last category includes its employees through their 401(k)s. Indeed, judging from "Smartest Guys in the Room," working at the company involved a constant barrage of "buy our shares" propaganda. Can't blame the secretary's for getting taken in, since Citigroup I-bankers did.

[Timothy]

Let's not forget that the directors are also getting majorly screwed. Not only did they get taken by the false accounting like everyone else (and many lost a boatload), because boards have to rely on executives for reporting, but also they're being sued for quite hefty sums for "lack of oversight" or something. Nevermind that as a board you have to rely on your executives for information the same way everyone else does, and nevermind that without hiring an entirely seperate accounting firm to do an independent review they'd have no way of knowing what was going on, the petty class-action jerks are going after them too.

[Timothy]

And plenty of directors agreed last year, because otherwise some jury would've taken every last bit of their cash, to pay $13 million out of pocket.

[Robert]

The "Power Tripped" article linked to is outstanding reading. Thanks for posting it.

[Dave W.]

Nevermind that as a board you have to rely on your executives for information the same way everyone else does, and nevermind that without hiring an entirely seperate accounting firm to do an independent review they'd have no way of knowing what was going on

y even have boards then?

[John]

"Maybe it has something to do with the fact that Jeffrey Skilling isn't as high-profile as "Kenny Boy" Lay, who both outranked Skilling in the company, and is also the largest donor to George W. Bush throughout his political career"

No, Skilling was the CEO of the company before Lay took over. Lay never outranked Skilling. Most of the wrong doing took place when Skilling was CEO. Skilling mysteriously resigned before it came out how bad of shape Eron was in and Lay took over and was in charge when the whole house of cards fell in. I am not saying they both are not guilty of a lot, but Jesus Joe can you at least get the facts right once in a while?

[Isaac Bartram]

"Kenny Boy" Lay...is also the largest donor to George W. Bush throughout his political career.

Which is something that I find intriguing.

First of all "Kenny Boy" wanted to make big bucks off of Global Warming, which GWB denied and Gore embraced. Of course, he did get plenty of favors from the Clinton administration too, which makes him an ungrateful sonofabitch for certain.

Second let's not forget that it was Robert Rubin who interceded to try to get a bailout from the Bush administration (of course, he might just have been looking out for citibank's interests).

Finally, it was probably to politically embarassing for the Bushies to bail out Enron. But the Democrats always seem to get away with bailing out their friends by claiming it's all for "the workers" and their jobs.

My conclusion then is that giving Bush money is proof positive that Ken Lay is a moron of the highest (lowest?) order. Gore would have been a much better buy:)

[fyodor]

Maybe Gillespie's post woke 'em up, but this story is on the front page of the New York Times as I type this.

One thing that sorta confuses me about this matter, especially regarding its political profile. Seems to me that the reason leftists like to harp on Enron as some symbol of the evils of capitalism is the company's "insidious role", as Nick put it, in California's supposed energy deregulation/privatization. But what does that even have to do with what they're on trial for, which I believe is fraudelent accounting? Can't any company engage in fraudelent accounting? Was there any added incentive for a company that took advantage of California's energy utility reforms to commit fraudelent accounting? Joe?

[lannychiu]

Actually the I-Bankers at Citi did not get taken. I-Bankers are paid in cash (not equity) at the completion of transactions, and they typically take back very little residual risk. That's why it is a great business, you make a lot of money with little risk.

The banks who extended credit lines to Enron might have lost some money, but they typically hedge those transactions so the resulting losses would be far less then face.

Lay was the CEO of Enron for a very long period of time (I believe beginning in the mid-80s), brought Skilling in and was always his superior. Skilling had the title of CEO for a short-period of time before he quit in 2000.

[Les]

No, Skilling was the CEO of the company before Lay took over. Lay never outranked Skilling. Most of the wrong doing took place when Skilling was CEO.

I am not saying they both are not guilty of a lot, but Jesus Joe can you at least get the facts right once in a while?

You shouldn't be so confident of your grasp of the facts.

[lannychiu]

As I understand it Enron was primarily comprised of 2 main divisions, a trading unit and a fixed asset division.

The trading unit was always profitable (they are the ones who took advantage of the odd California regulations). The accounting fraud was commited by the fixed asset division (they did things like build power plants in India), in the late 1980's through early 90's period this group did very well and made significant profits, but then their performance deteriorated.

The alleged accounting fraud was committed in order to paper over the fact that this division was performing very poorly.

[Dave W.]

Do you doubt that an accounting fraud actually occurred, Lannychiu?

[lannychiu]

Well it depends what you mean by accounting fraud.

As I understand it what Enron did was move a lot of their debt off-balance sheet with Special Purpose Vehicles. In and of itself this is not illegal, and a portion of the accounting code is set up to deal with these types of transactions.

What Enron did they may be considered fraud is, they did this specifically to hide debt and inflate earnings. Except for a few instances, they stayed within the letter of the law, but clearly violated the spirit. Also for their transactions they did get their auditors and lawyers to bless the transactions?

Is this a fraud? Beats me.

They weren't embezzling company funds like the folks at Adelphia, or outright lying on their financial, like the guys at Worldcomm. They were aggressively using existing accounting laws to paint the best portrait of themselves.

[Paul]

things-in-themselves

Ohhh damn, Nick's gettin' all literary on us. Schopenhauer, Mr. Gillespie?