"But I am here to tell you what you already know in your gut: This is not a political scandal. It is not another Whitewater, where you can't figure out what happened. We all know what happened. A bunch of bastards picked the pockets of their own employees. That's not a scandal. It's a blinkin' outrage." -- Richard Cohen, Washington Post, Jan. 15
The stock plummeted and there was nothing they could do about it.
So they watched as their life-savings evaporated, watched as Enron's stock prices fell, from $32.20 a share on Oct. 17 to $13.81 on Oct. 29 and then to $9.98 on a share on Nov. 12 and to less than $1 a share by late November.
Enron, a global energy-trading company, became the largest bankruptcy in US history in December, just six weeks after it had admitted to overstating profits by $586 million over a four-year period. The admission led to a stock sell-off that drove prices down, wiping out thousands of retirement accounts and leading to a series of investigations that ultimately could find their way to the White House door.
The crux of the scandal is this: High-level company officials apparently knew about the financial problems that were about to take down Enron and dumped their own stocks before the bottom fell out, making millions while employees were prohibited from doing the same. According to employees who testified before the Senate Commerce Committee last month, the company encouraged employees to invest in a 401(k) by matching contributions with company stock. Under the plan, workers under 50 were prohibited from selling the matching shares and many converted their own contributions into Enron stock. In October 2000, according to the Washington Post, 47% of the assets of Enron's 401(k) plan were invested in its stock. At the same time, the employees say they were not told of the financial trouble the firm was in or that senior managers were selling millions of dollars' worth of stock.
Then comes the fall. Enron admitted in October 2001, following an internal probe, that it had overstated profits by $586 million over the last four years. Stock prices collapsed and the company went under.
The Justice Department has opened a criminal investigation into the collapse and several congressional committees have launched probes. In addition, shareholders and employees have filed civil suits against the company and its officers.
And it appears the Bush administration may have had advanced warning of Enron's troubles. Company officials seeking federal help contacted the administration, though Treasury Secretary Paul H. O'Neill and Commerce Secretary Donald L. Evans said no help was offered. Enron officials had been major contributors to Bush over the years and apparently were involved in the drafting of the administration's energy policy in the spring.
Whatever the political fallout -- the Democrats are hoping to use the Enron collapse to help them win back a majority in both houses of Congress - the human fallout is much worse. And what's scary is that what happened at Enron can happen elsewhere.
Essentially, as David Mosberg points out in In These Times, the Enron crash is "a cautionary guide to many of the dominant trends in the American economy."
"For the past quarter century, a growing ideological chorus has contended that markets are rational and efficient -- therefore good -- and any interference, especially by government, is bad," he writes. "But as Joseph Stiglitz, a winner of this year's Nobel Prize in economics, has argued, if markets are to work perfectly on their own terms, the information available to all participants must be perfect. Since that's never true, a case to intervene in markets can always be made, if only to correct information flaws."
That's at least partly what happened with Enron. The information given to investors -- in this case, the participants in the company's 401(k) retirement plan -- was faulty at best and fraudulent at worst. They were asked to trust company officials with their retirement incomes.
But Enron overstated its profits -- by about $586 million -- "through a fiendishly complex scheme that included roughly 30 partnerships with privately held firms -- many run profitably by Enron executives -- that were used to shift debt off Enron's books. The result: a boosted stock price and inflated credit rating. The rah-rah stock ëanalysts' touted Enron even as it was collapsing. (Moberg)"
As the Washington Post reports: "The number of corporations retracting and correcting earnings reports has doubled in the past three years, to 233, an Andersen study found. Major accounting firms have failed to detect or have disregarded glaring bookkeeping problems at companies as varied as Rite Aid Corp., Xerox Corp., Sunbeam Corp., Waste Management Inc. and MicroStrategy Inc."
That leaves investors -- many of whom invested as part of their 401(k) plans or other retirement accounts -- in a difficult position, unable to make informed decisions about their financial futures. They are left to assume that the information that firms release is accurate, and when it's not, they are left with empty accounts and bleak futures.
This distortion of the process was made worse by the obscene amount of money Enron and other large corporations have dumped into the political process over the years. This money not only gave Enron executives access to the Bush administration, but also gave it a seat at the table when policy was being crafted and allowed it to operate rather freely without much interference.
That's one of the lessons we need to draw from this debacle. The legalized corruption that passes for our campaign finance system needs an overhaul, the money needs to be cleared out and the money for access game needs to end.
In addition, we need more transparency in our financial system, so that shareholders have better and more accurate information, so that corporate boards cannot mask their losses or falsely inflate their gains to manipulate stock prices. It is absurd and very possibly criminal that Enron was able to miscalculate its bottom line by about 20% and that shareholders and not the corporate officers who cooked the books have been made to pay.
And we need to develop a better pension system, one that does not rely on the stock and bond markets, that is more stable, more secure than what we have now. The retirement incomes of far too many workers are at the mercy of the stock and bond markets -- Marie Cocco reported in Long Island Newsday (N.Y.) in December that the average 401(k) balance in 2000 was $49,000 and that fewer than half of all private-sector workers are covered by a retirement plan, including those covered by 401(k) plans.
We have to look at Enron as a symptom of our sick economic order and not as the disease itself.
Hank Kalet is a poet and managing editor of The Cranbury Press and The South Brunswick Post. He can be reached via e-mail at hkalet@hotmail.com.