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Friday, Nov. 24, 2006
Capitalist pigs get slaughtered
History repeats itself, like they say, first as tragedy, then as farce. Tragedy: The U.S. federal government, acting on the beliefs of free-market ideologues who came to power when Ronald Reagan took the presidency, engineered the deregulation of the nation's savings and loan institutions, otherwise known as "thrifts," which originally provided only home mortgages. The idea was to cut back on stifling paperwork and let the free market work its magic.
It did, but it was black magic: Freed from government oversight, shady new S & L executives -- including drug-smugglers and CIA contacts -- teamed up to loan money to themselves and effectively loot the institutions they were supposed to be safeguarding. The result was a massive scandal in the late 1980s, with a few criminal convictions to help the public swallow the bitter pill -- a massive, taxpayer-funded bail-out costing $157 billion (up-front; $500 billion or more over time) to clean up the mess. This was necessary because deposits had been federally insured, and public trust in the banking system seemed about to go down the toilet.
But, oh, how quickly we forget. Flash forward a decade and a bit and we get to the Farce. Deregulation, once again put forth as a magic bullet by Republicans and others scenting money in the air, is applied to the energy industry. The public was told the same free-market fairy tale, that competition would automatically lead to lower prices, ha-ha. Well, along came a giant corporate entity known as Enron, which privately controlled much of the electrical power flowing to the state of California, and which engineered deliberate shortages that led to blackouts and skyrocketing electricity rates. By the time the scheme was unraveled, Enron had collapsed in bankruptcy, its employees' pensions gone up in smoke while its executives walked away with millions upon millions -- before they too were hauled before judges.
This only goes to show how soon we forget the indispensable lesson that private profit does not necessarily translate into public good, and that an unsupervised "free" market can soon descend into a free-for-all form of robber capitalism.
In an attempt to make sure we learn our lessons this time, director Alex Gibney gives us "Enron: The Smartest Guys In The Room," a densely detailed, damning documentary on America's largest corporate bankruptcy ever. It's certainly a challenge for any director: Enron got away with paper schemes and market manipulation for as long as it did by tricky accounting and inscrutable corporate structures. Trying to explain this in a simple, clear way to an audience without MBAs is difficult, especially considering how many people with MBAs were fooled by Enron in the first place.
But the film succeeds entirely and, as it points out, the reason so many smart people were fooled for so long was because they wanted to be. Stock prices kept rising and there was money to be made.
Early on in "Enron" we see Reagan proclaim, in typical soundbite fashion, "Government is not the solution to our problems -- it is the problem." The film then goes on to show us how woefully simplistic and misguided a notion that is, tracking Enron's rise as a trader in nebulous energy "products," where the perception of being a successful, thriving company was more important than actually being one. (This approach is quite similar to that of U.S. President George W. Bush's team in the White House, and it's no surprise to learn that disgraced Enron CEO Kenneth Lay was Dubya's single largest financial backer.)
The doc trots out some incredible stories to show us just how twisted things were at what was long viewed as one of America's more profitable companies. There's Lu Pai, the head of Enron Energy Services, who was addicted to strippers, taking traders to strip clubs on a nightly basis. He quit as soon as the stock numbers looked good, marrying a stripper and leaving the country with $250 million in his pocket; the division he left behind soon lost $2 billion.
Then there's a story about an Enron power plant in India. Using an arcane accounting practice known as "mark to market," the Enron execs were paid multimillion-dollar bonuses for future -- theoretical -- power-generating profits. This despite the fact that the plant was overpriced for the Indian market, and was left unused without earning a rupee. Meanwhile, Enron's earnings reports looked great and their stock price kept rising.
The cynicism on display here is truly shocking. Gibney has unearthed tape recordings of Enron traders laughing during phone calls about the blackouts they had manufactured in California that drove electricity rates up by 300 to 400 percent. Enron CEO Jeffrey Skilling -- now serving time in a federal penitentiary -- jokes about California, saying "at least the Titanic had the lights on when it went down." Skilling is also seen saying, when hauled before a judge to explain how his business could legally report profits while concealing losses in a maze of offshore holding companies, "I did not do anything that wasn't in the interests of the shareholders." (Which included himself, of course.)
He may be right, but the question is whether you make money for your shareholders ethically or unethically, legally or illegally. And is making heaps of money for a few people while running your company into the ground, looting a state, and failing to provide actual useful goods or services, a business model that can be defended? Only if your moral compass points to one direction only: greed. Interestingly, the Bush administration was down with Skilling's values; when California appealed to the Federal Energy Regulatory Commission to impose price controls to stop Enron, they basically said "go get stuffed." And the head of the FERC? A man recommended for the job by Ken Lay, a former energy bureaucrat himself.
The recent Republican losses in the midterm elections may mean an end to the current excesses of government-business cronyism in the United States, but I wouldn't bet on it. See this doc and realize, this is not an aberration, this is what happens whenever they can get away with it. On the plus side, at least it's nice to see that the courts work, and that a skunk like Skilling will do jail time (24 years) for his white-collar crimes. In Japan, he would have gotten a 2-year suspended sentence.