Enron Explained
Cutting through the hype.
By Ramesh Ponnuru, NR Senior Editor
From the February 25, 2002, issue of National Review.
It's now clear that this company was never as big as it seemed. It was, to a large extent, an illusion built on hype, accounting tricks, and outright fraud. Our eyes have now been opened.
Or have they? The generally accepted story of Enron's demise — the scandal of Enron — is almost equally overblown. Like the company itself, the scandal is largely built on hype, accounting tricks, and fraud.
No amount of hyperbole is being spared in discussions of the impact of Enron's fall. David Broder says that almost everyone is worrying about his pension now. Paul Krugman writes that it's a bigger deal than September 11 because it "told us things about ourselves that we...had managed not to see." Jonathan Alter calls Enron "a cancer on capitalism." Even the normally unflappable George Will sees a "systemic crisis of capitalism."
Reforms are said to be necessary "to keep this from happening again." It's almost always left unclear what "this" is that can't be allowed to recur. Presumably it's not that an energy company went bankrupt in the middle of a recession and a downdraft in energy prices.
True, it wasn't just any bankruptcy: Enron was the seventh-largest company in the country, and was found to be cooking its books. But it was the book-cooking that made it look so large in the first place. Michael Lynch of Reason, one of the few reporters on the Enron beat not to have succumbed to hysteria, notes that the company that was auditing Enron, Arthur Andersen, had more employees. Nobody lost electrical power. Kmart's bankruptcy was more consequential economically.
Tim, here is the kind of a National Review article, pushing its bias, that I talked about previously. The author says in the first paragraph that ENE "was never as big as it seemed". Huh? was my first reaction. Further down, he admits that ENE was the 7th largest company in the US. So then, I guess the author thinks the ENE problems have been as serious as the mainstream media says only if the company were the size of a GE, or the number one company if GE isn't it? I don't think so.
Then, he says the seriousness of the crime is overhyped. Again, I reacted with a.... Huh? Not only did the company cook its books in a fairly clever way but it got one of the largest accounting firms, the respected Arthur Anderson, to buy off on it. So either A. Anderson was fooled in some very devious way......very scary!! Or A. Anderson, the supposedly independent auditor that we all depend on to tell us the truth about a company, was bought off.........very, very scary!!! And its looking more and more like the latter was the true situation.
Not only did this collusion/deception bring down the 7th largest company in the US and hurt many individual shareholders/employees but it threatens to hurt the current presidency............one has to wonder if that isn't the real purpose of the article.......to minimize the extent and size of the problem in order to thwart any criticism and divert it away from the presidency. In other words, its National Review's politics as usual.
But whatever Ramesh's motivation is, what happened at and to ENE easily can happen again, and that's what has this country's investors very scared. Adding fuel to the fire are admissions like IBM's that they treated the income from last quarter's asset sale as operating income instead of calling it a one time gain, claiming that they are in the business of selling assets on an ongoing basis. Not necessarily illegal but pushing the boundaries of accounting law into not so virgin territory.
So, I am sorry Mr. Ponnnuru but I think that its a real problem and I suspect, as D. Ray has hinted, that in the near future, there will be some major changes to at least the accounting profession.
BTW congrats, Tim, on your good luck........I suspect you are making a nice chunk of change on the Northrup bid for TRW!!
ted |
