For Today's Corporate Financial Pirates Enron Is a Role Model Rather Than A Cautionary Tale

April 24, 2017

By Joe Rothstein

I spent the last few days in Houston, a city that I once visited with a lot more regulatory. This trip recalled for me an era when one of the big deals in the Houston business landscape was a company by the name of Enron. How big a deal was Enron?

For six years running, Fortune magazine crowned Enron “American’s Most Innovative Company.” From Houston, Enron managed a $100 billion, 20,000 employee business empire, the seventh largest company in the U.S., a business model taught, at the time with adulation, in schools of business academia. Kenneth Lay, Enron’s CEO, was so close to the Bush family that President George W. Bush referred to him as “Kenny Boy.” Lay was prominently considered to be a candidate as Bush’s treasury secretary.

Enron’s business was---well, actually, Enron’s business was difficult for mere mortals to understand. Most of its revenue involved trading energy-related commodities, and complex financial products. As it turned out, “complex” was a euphemism for “Ponzi scheme,” and energy trading turned out to be a form of high level extortion.

The Ponzi portion was a mind-bending number of subsidiaries created entirely to deceive outsiders about the company’s actual sales and revenue. The blackmail was highlighted when Enron artificially raised energy prices in California and other western states by taking power generation plants off line at peak use periods to create artificial shortages. Audio tapes discovered as part of subsequent investigations had Enron traders laughing and crowing about how they (expletive) “Grandma Millie.” Locker room talk to describe how they ripped off their customers.

Enron eventually collapsed. Its 20,000 employees, most of them totally innocent of all the scheming, lost their jobs and their pensions. Arthur Anderson, the huge, 120-year-old worldwide accounting firm that signed off on Enron’s bogus books, went out of business. Enron shareholders pretty much lost everything.

I’m writing about this not to recall a bygone era, but rather to point out that in today’s real world of high finance the lesson learned from Enron clearly is “Wow, we didn’t know you can make so much money rigging markets. Why didn’t we think of that?”

What should have been a cautionary tale has, instead, become a mainstream business model.

Last December, Goldman Sachs was the 18th firm in the past three years to pay settlements with the federal government over commodity price rigging. Oil, gas, aluminum, zinc—name it. The huge Wall Street firms with leverage to control prices, and to control the exchanges where so many commodity prices are set, have been found brazenly breaking laws to rig the game in their favor at consumer expense. Yes, they’ve paid penalties—more than $5 billion in total---but that’s little more than the cost of a parking ticket for companies at the center of world financial markets.

And it’s financial behemoths we’re talking about here, major banks and investment houses. The financial sector controls an astounding 40% of U.S. business profits. They control energy resources, buy up residential and commercial properties and set prices for currency, precious metals and other commodities.

Equity fund Blackstone touts itself as the largest real estate investor in the world, with $100 billion under management---office, retail, hotel, industrial and residential properties. Blackstone owns Hilton Hotels, and may have the mortgage on your home, bundled with hundreds of others in a financial “instrument.”

Business history over the past few decades is ripe with examples of equity funds buying healthy businesses using mountains of debt, stripping costs by laying off workers, and moving the companies to low wage countries.

Financial sector success is measured in increments of quarterly profits, not jobs created or products produced. On an almost daily basis we read about outrageous drug price increases, anti-competitive mergers, currency and commodity price manipulation and more to satisfy the financial sector's insatiable demand for short term financial gain.

All of this has happened over the past few decades with Republican and Democratic presidents, Republican and Democratic control of Congress, regulators settling for mere financial wrist slaps when illegality is too obvious to ignore, and law enforcers reluctant to individually punish those responsible for breaking the law, no matter how much pain and suffering willful corporate decisions have created. Regulations that once defined a more honest and level business environment have been systematically eroded. And now President Trump and Republican congressional majorities seem determined to accelerate that process.

In this finance-centric world we now inhabit, profits matter beyond all reason. This concentration of wealth and power is at the heart of the political trauma that has shaken democratic systems in the U.S. and Europe.

One of the best explanations I’ve read for Donald Trump’s election success is by humorist P.J. O’Rourke in his new book, “How The Hell Did This Happen.” Take a look.

“The election was terrible because it wasn’t an election, it was a rebellion. The war is not between Republicans and Democrats or between conservatives and progressives. The war is between the frightened and what they fear. It is being fought by the people who perceive themselves as controlling nothing. They are besieging the people they perceive as controlling everything. We are in the midst of a Perception Insurrection, or depending on how you perceive it, a Loser Mutiny.”

Enron became a huge story nearly twenty years ago because of the breathtaking scope of the fraud and the callousness of its business leadership. In today’s business world, Enron would be just another in a long line of financial pirates flying under a flag of corrupt fraudulent capitalism. No wonder, as O’Rourke says, the victims have mounted a mutiny.

(Joe Rothstein is a regular columnist for USPoliticstoday.com and author of the acclaimed political thriller “The Latina President and the Conspiracy to Destroy Her.” Mr. Rothstein can be contacted at joe@einnews.com).