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The Enron Debacle



    When people discuss the morality of government intervention in the affairs of private businesses, there are those who feel that the government is derelict in its duty if it doesn't regulate and inspect virtually everything.  Others suggest that the needs of society are best served by businesses made productive by the absence or near absence of all state control.  Beyond the federal government's questionable constitutional authority to regulate as much as it does, those of us who advocate little or no regulation point to the history of more powerful businesses making use of the government as a tool to eliminate their less powerful competitors.

    The national firm can afford an army of lawyers to do all of the things and file all of the reports necessary to be in compliance with the most complicated regulations.  The national firm can afford a battalion of lobbyists to make sure that the regulations are really complex, while favoring those things which the firm does best, and wherein it may hold exclusive patent rights. The large firm may actually have some of its employees on the working committees that actually hammer out the regulations for congressional or agency approval.

    The “Mom & Pop” business owners don't sleep well at night if they have to talk to a lawyer, and may be ruined by his fees.  If they know what a lobbyist is, suffice it to say that they have none in their employ.  “Mom & Pop” work long hours, six days a week and keep the books after church on Sunday—in the unlikely event that they were invited to the working committee, there is no time left in the day, and no budget for travel and lodging expenses.  The mid-sized business is in scarcely better a position.

    The quintessential example of big business using government to fight little business may very well be the Enron debacle.  In his day, Ken Lay and his executives were on every possible committee, wined and dined everyone of importance, contributed mightily to their political campaigns.  

    The Kyoto Protocol may well be the boldest attempt in history to control the economies of the world, based on the politically correct presumption that the temperature of the earth is rising, that the increase will be harmful, and, most importantly, that the rise in temperature is being caused by human activities which cause the emission of “greenhouse gases.”  Although based on questionable science, the protocol would cause planetary economic disruption.

     In his Politically Incorrect Guide to Global Warming and Environmentalism, (p. 194-199) Christopher C. Horner gives us his eyewitness account of how Enron was scheming to squeeze out competing energy firms:

    The media were right about Enron's ethics, but they missed the best examples of the company's unscrupulousness.  It is quite possible that the most emblematic among them were Enron's Kyoto games.  At all levels the company would lobby and connive with green groups and like-minded Big Businesses to put power-hungry America on an energy diet through the Kyoto Protocol or legislation to the same effect.  Meanwhile the company steadily bought up businesses to provide those renewable energy sources that Kyoto would force-feed on the population of the developed world....

    Don't forget the billions to be made when demand soars for Enron's gas pipelines—a network that at the time was second only to Russia's Gazprom—once coal was regulated out of business (talk about conspiring to drive up prices on consumers).  Add to this the emissions-credit trading scheme Enron planned to exploit for billions more—just like the scheme currently siphoning off hundreds of millions of dollars from Europe's energy consumers with no environmental benefit—building on their success playing bookie to an earlier cap-and-trade scheme in emissions credits of sulfur dioxide (an actual pollutant).  Top it off with Enron's building (with U.S. subsidies, of course) coal fired plants in poor countries not covered by Kyoto's restrictions—plants that would no longer have to compete so much with Europe for their coal.

    Horner gives a list of meetings between Ken Lay and other high Enron executives, and the President of the United States and other officials of the Department of Energy, the State Department, end the EPA (pp. 196-198). He concludes:

    All of this is by way of illustrating that the debate is not greens vs. business, but quite often greens and business vs. consumers and the economy.  A common refrain in environmental discussions is “even XYZ big business is ‘responsible’ on this issue.”  When you hear this, do the reporter's work and ask the question that in this context seems to be so uncomfortable:  Cui bono? For whose advantage? How, at whose expense, and what has this to do with being responsible?  Usually you will find the “even” is pure puffery to confuse an otherwise transparent example of rent-seeking.

    As mentioned earlier, reporters generally have no interest in asking such questions that simply do not fit the story template.  One Washington Post reporter even responded to me that well, huh, maybe Enron wasn't all that bad after all when informed of Enron's Kyoto shenanigans.  Whether this says more about the state of journalism or business today I leave to you.

    Enron was protected from government regulation by something called the “Enron loophole,” which exempted energy speculators trading electronically electronically from US regulation.  The “loophole” wasn't closed until more than two years after the Enron bankruptcy.

    Very likely, Enron's accountants believed that the firm was “protected”; that government regulators would look the other way if the debits and the credits would up on the wrong side of the ledger.  Many of Enron's debts and the losses that it suffered went unreported on the company's books, so as to make the company seem more valuable to investors.. Only toward the end did accountants shred the books.  Arthur Andersen went out of business as an accounting firm, loosing its CPA licenses and the right to audit firms governed under the rules of the Securities Exchange Commission

    Even after Enron went “belly up,” and thousands of employees and stockholders were left “holding the bag,” and Lay was headed to prison for his activities, his untimely funeral was attended by a former President of the United States, his First Lady, and his Secretary of State. According to MSNBC, “Enron’s demise wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in pension plans,” and the 5th U.S. Circuit Court of Appeals and the Supreme Court have ruled against investors suing the investment banks deemed responsible.  But beyond the fortunes lost, it is impossible to calculate the moral cost of all this: the lives ruined, the reputations besmirched, the officials corrupted, the smaller businesses destroyed.

Father Brusca
8 September AD 2008
Nativity of the Blessed Virgin Mary


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