'Bye, Osama, Hello, Ken
By Alan Abelson
Has anyone here seen Osama bin Laden?
Does anyone here remember who Osama bin Laden is?
Come now, surely you remember him. Tall, morose, shifty-looking dude. The mullah with the moolah. Thing is, he seems to have vanished, not only from Afghanistan and all points east and west, but also, astonishingly, from our collective consciousness.
And what makes that more than passing strange is that only yesterday or, anyway, a couple of months ago, his sallow visage constantly filled the TV screen, stared back at you in living color each and every morning from the front page of your favorite gazette, was inexhaustible grist for the barnyard creatures that people the talk shows and was on every politician's hit list. Why, the President even put out a contract on him: One of those "Wanted: Dead Or Alive" numbers, $25 million reward, no questions asked.
So how, or why, we couldn't help but wonder, did the guy go from No. 1 on the World's Most Wanted List to Osama Who? And in a veritable blink of an eye. He didn't even rate a throwaway line in Mr. Bush's State of the Union message. And Defense Secretary Rumsfeld, who exercises his larynx every chance he gets by publicly loosing a bellicose blast at one personification of evil or another, hasn't so much as murmured his name for months now.
The obvious answer is that not the least of the priorities that was set with the launch of the war on terrorism was nailing bin Laden; having somehow failed to do that, the Administration decided that maybe you can ignore him out of existence. In any case, no point in constantly reminding the folks that the Satanic Sultan, the Holy Terror, the architect of September 11, has given us the slip.
Or perhaps, what with the frenetic lives we moderns live, our busy brains just don't have enough spare room to house more than one villain at a time. So bin Laden and his brutish, one-eyed sidekick are out, Ken Lay and Jeffrey Skilling are in.
The Enron crew speaks English, as in "I respectfully assert my right to remain silent under the Fifth Amendment," wears suits instead of weirdo garb and are altogether familiar types. Not exactly lovable, maybe, but they're the kind of villains you feel more comfortable with than bin Laden and his al Qaeda gorillas. Which may largely explain why our attention was so easily deflected from Osama to Kenny-boy.
As it happens, Mr. Lay felt the better part of wisdom was to stay home from the House Energy and Commerce Committee hearings. Other former Enron muck-a-mucks, including Andrew Fastow, the company's ex-financial chief and seeming master of illusion (his speciality was in making debt disappear and profits materialize out of thin air), chose to show up and button up. Mr. Skilling decided to brave the slings and arrows of bumptious inquisitors.
Mr. Skilling apparently prepared for his ordeal by intently studying cops-and-robbers movies from the 'Thirties and adopting the standard excuse offered by the miscreants in those films: "I don't know nuttin'." That's obviously a very a formidable defense, since it quite accurately describes your generic CEO.
In his doughty insistence on his ignorance of anything naughty that went on at Enron during his watch (which implied that the only thing he was aware of when he was top dog were the company's charitable contributions, the names of his immediate subordinates and the expiration dates of his many stock options), Mr. Skilling gave fresh and literal meaning to the metaphorical phrase "being in the dark."
More specifically, he claimed not recalling a critical discussion during a board meeting relating to one of the accounting scams engaged in by Enron. The lights went out, he explained, which affected his hearing. We've heard of "night blindness," but … "night deafness"?
Mr. Skilling was, alas, not entirely persuasive. But, with heaps of other Enron hearings on the Congressional docket, he'll have plenty of time and opportunity to hone his act. We trust he doesn't mind a friendly suggestion: He ought to drop the comparison of Enron's woes with a run on a bank. The only runs on banks that Enron reminds us of were those on such long-departed institutions of ill-repute as Franklin National and Penn Square, an analogy, however apt, we have a hunch Mr. Skilling would just as soon not evoke.
As to the committee members, they acquitted themselves extremely well of any suspicion of entertaining even a rudimentary acquaintance with business and finance. Wanted: Dead or Live -- a congressman who knows the difference between an income statement and a balance sheet.
That we now have all Enron, all the time, on TV as well as in the newspapers, has only increased the scandal's capacity to rattle already jumpy investors. Even to the dimmest bulb on the Street, it's becoming apparent that there has been insidious fallout from Enron and there's lots more where that came from. We don't want to keep mouthing the same lugubrious litany week after week, but we can't help pointing out that the scandal continues to corrode investor confidence, which was pretty darn fragile to start with.
It's a fair bet that all the hullabaloo will inspire legislative and regulatory response. The possibilities -- and what follows doesn't by any means exhaust them -- include new rules designed to: beef up the security of 401(k) plans, mandate more illuminating corporate disclosure, raise boards of directors' consciousness (which the rash of Enron lawsuits should do, anyway), impose restraints on the chumminess between auditors and the corporations they're supposed to monitor, create a firewall made of something besides tissue paper separating a firm's analysts and investment bankers, put a little steel in the spines of accountants and temper the use and abuse (or are we being redundant?) of stock options.
This last is especially critical since it threatens to take away executives' incentives, most particularly their incentive to go to any lengths to kite the price of their company's stock. Imagine what earnings would be without the painstaking filigree with which they are displayed to the public and shorn of all those lovingly administered obfuscations?
We yield to no man in our conviction that the unintended consequences of reform are always noxious. For that matter, some of the intended consequences of the current blueprints for setting wrongs right could prove rather unpleasant, as well, especially when crafted by the pudgy fingers and sluggish synapses of politicians. But make no mistake, changes are a-coming and, whatever their long-range effects, their impact on the stock market will not be benign.
As Barton Biggs recently observed in one of his unfailingly stylish Morgan Stanley commentaries: "No matter what transpires, in the aftermath of Enron, accounting standards are bound to be intensely scrutinized and tightened. …Whatever the growth of the S&P 500 would have been, it will now be a certain number of percentage points less as accountants put back on their green eye shades. How many? Who knows? Even if it's only a couple, that would not be insignificant in a world of low nominal GDP and single-digit earnings growth."
The environment Barton envisages, "in which reported earnings will be less than they would have been, risk premiums will be higher, and P/Es will be lower," is wildly inconsonant with the generous valuations sported by so many stocks that stack up as prime casualties of a more sober investment mood. |
