Quote of the week from an Enron (ENE) castoff and a story about the collapse:
___________
"It's coming to me slowly, the realization that my security is no longer there," said Vines, a former truck driver for an Enron subsidiary. One night recently, his wife surprised him with a passage from Ecclesiastes:
Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
"I didn't diversify," Vines said. "I didn't know it said to do that in the Bible."
_________
Bye-Bye, Boom-and-Bust
Diversified Houston Able To Weather Enron Storm
By Paul Duggan
Washington Post Staff Writer
Tuesday, December 11, 2001; Page E01
HOUSTON, Dec. 10
When Charles Weiss, a telecommunications engineer at Sprint Corp., changed jobs a year ago, he was looking forward to good raises, fast promotions and a better retirement package with Enron Corp., the strongest and richest player in the multibillion-dollar energy-trading business.
Now, a week after Enron filed the biggest bankruptcy in U.S. history, Weiss, 49, stands forlornly in the rubble, one of 4,000 Houston employees laid off by the company as it tries to resurrect itself.
"I was trying to do something with the second half of my career," he said today, his voice freighted with regret. He lost not only his $82,000-a-year job as a technical manager of Enron's fiber-optic network, but almost all of the $300,000 in retirement savings he rolled over from Sprint's 401(k) plan to Enron's.
Though the stock had been gradually declining for months, it nose-dived after Enron officials announced onOct. 16 that the company had lost $681 million in the third quarter, and its shareholder equity was reduced by $1.2 billion.
While federal agencies and Congress investigate Enron's stunning crash, examining its accounting practices and a web of complex partnerships, Weiss and other ex-employees already have fixed blame -- on top Enron officials.
"They ruined us," Weiss said. "What Enron did was perpetrate financial terrorism on the employees and shareholders of the company. That's the only way I can describe it."
But in Houston, where dizzying economic swings used to accompany every up and down in the energy industry, the impact of the Enron debacle is likely to be minimal, analysts said.
Although the energy industry remains vital to the city, its economy is far more diverse today than it was in the boom-and-bust years of the 1970s and '80s. And the trading business is just one segment of Houston's large energy industry -- with Enron, large as it was, just one of the players located here.
"Losing 4,000 jobs really isn't much," said Barton Smith, director of the University of Houston's Institute for Regional Forecasting. "I always hate to say that, because there are personal dimensions -- it certainly means a lot to those 4,000 people. But to the economy here, it's almost nothing."
Economists here cite the oil bust of the mid-1980s, when Houston's fortunes depended almost entirely on the energy industry. Plummeting oil prices resulted in the loss of about 250,000 jobs -- a municipal Great Depression.
Houston had thrived on high oil prices in the 1970s while the rest of the nation was mired in stagflation. When prices crashed in the '80s, so did Houston. At the time, energy-related businesses, mainly in gas and oil exploration, made up 82 percent of the city's economic base, said Smith of the forecasting institute.
After the bust left tens of thousands of people out of work and millions of square feet of downtown office space vacant, Smith said, hundreds of companies from across the country relocated here, drawn by low rents and the huge available labor pool. "All types and sorts of companies," Smith said. "High-tech, medical, manufacturing, engineering, consulting, and on and on."
Today, energy-related businesses are down to 49 percent of the economic base. The ups and downs of the energy industry continue to affect Houston's economic health, but not nearly as much as before.
In the late 1990s, for example, when a widespread economic crisis in Asia caused oil prices to plunge to their lowest levels since 1986, Houston suffered no net loss of jobs, Smith said. The overall job-growth rate merely slowed to 1.8 percent in 1999 from 5 percent the year before.
There is no obvious sign that the internal financial problems behind Enron's collapse are common to other energy traders, economists said.
From 1995 to 2000, the number of people employed worldwide by Enron and two of its Houston-based competitors, El Paso Corp. and Dynegy Inc., climbed to 40,000 from 10,000, according to a report by the energy research firm John S. Herold Inc. So far, Enron has retained about 3,500 employees out of a Houston workforce that once numbered 7,500.
In their office towers in Houston's downtown energy alley, Enron's competitors appear to be going strong, eager to claim the customers that Enron lost in the weeks before it finally imploded.
At an energy symposium here last week, James M. Donnell, president of the trading company Duke Energy North America, offered an upbeat assessment of the business, predicting it will continue to thrive.
"I don't think any one player steps into Enron's shoes," he said. Enron practically invented the business, aggressively lobbying for electricity and natural gas deregulation, which allowed energy to be traded like pork bellies, soybeans and other commodities. "They were a fabulous market maker," Donnell said, "and I think their [customers] will be distributed to various organizations."
There is one notable difference in the job losses accompanying the Enron failure, according to Michelle Michot Foss, head of the university's Energy Institute: "The thing about this event that's different is that when people get laid off, they usually don't get laid off with all these fundamental questions about their pensions," she said. "Here we have people losing their jobs, and their retirement funds are wiped out. That's what really adds to the anger and worry."
Of the 21,000 people employed worldwide by Enron before the layoffs, 12,200 are enrolled in the 401(k) plan, according to the company. At the end of last year, $1.3 billion of the plan's $2.1 billion in assets, or more than 60 percent, was in Enron stock. That portion "just melted down," said Robin Harrison, a lawyer in one of half a dozen lawsuits filed against Enron by participants in the retirement fund.
Although employees had numerous options for where to invest their 401(k) contributions, many of them put all or most of their money in Enron stock because of their faith in the company, Harrison and other lawyers said. By not diversifying, the employees broke a cardinal tenet of wise investing -- a common mistake among unsophisticated investors, according to personal finance experts.
All of Enron's matching contributions went into company stock. Many employers across the nation follow the same practice, though it runs counter to the rule of diversification.
Stories like Charles Weiss's abound here.
"On December 31, 2000, my 401(k) account with Enron was worth $615,000," said Tom Padgett, who just turned 59. "When I checked it last week, it was $11,000."
Padgett, who makes $48,000 a year as a lab technician, has worked since 1966 in a factory that makes gasoline additives. When Enron bought the plant in the early 1990s, Padgett's retirement savings went into the Enron plan. Enron sold the factory last summer, so Padgett still has a job. But because the new owner did not offer a 401(k) plan, he left his retirement savings with Enron.
"I was going to buy a small place up in East Texas and move out to the country," said Padgett, who has five grandchildren. He had planned to retire next June, at age 59 1/2, when he could draw on his 401(k) money without a tax penalty. Before the stock collapsed, he and wife were shopping for land.
"We were going to kick back and relax up there," he said. "Buy some horses, cows, some chickens, things like that. Have the grandkids up to visit as often as we could."
Now he figures to work at least 10 more years. "Betrayal is a good word for what Enron did to me," Padgett said. "There're other words, but you couldn't print them."
Aubrey Vines, 63, of Shreveport, La., said his 401(k) account -- all in Enron stock -- is now worth less than $10,000 -- compared with $750,000 a year ago.
"It's coming to me slowly, the realization that my security is no longer there," said Vines, a former truck driver for an Enron subsidiary. One night recently, his wife surprised him with a passage from Ecclesiastes:
Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
"I didn't diversify," Vines said. "I didn't know it said to do that in the Bible."
© 2001 The Washington Post Company |
