The collapse of energy giant Enron and the unfolding collapse of accounting Goliath Arthur Andersen have led to a crisis in confidence in the market and financial crisis in a number of other companies similarly situated.
Enron's accounting slight-of-hand, when exposed, forced the company to admit that hundreds of millions of dollars reported as profits were a pack of lies. Investors stampeded for the door, causing the price and the credit rating of the company to plummet and leading to the company's bankruptcy. It was the largest bankruptcy in U.S. history, but the story wasn't over. Accounting firm Arthur Andersen was soon discovered shredding Enron documents, leading investigators to think it might be trying to cover its tracks. A second huge American company was headed for meltdown.
It's hard to avoid adages in cases like these. People believe what they want to believe, and Enron was about believing and believers. The company supported academics and even endowed chairs, made campaign contributions and in general did everything it could to promote its free market ideology of deregulation. Deregulation was a sort of religion, and Enron was its prophet. The mantra: get government out of the way and let the "market" work.
Deregulation, which has been at the heart of huge economic scandals in recent decades ? including the savings and loan debacle ? made possible the fleecing of investors carried out by Enron and Andersen. It may have been fortunate the collapse came before the plan, favored from board room to White House, to shift more retirement funding emphasis from government social security to market investment, could take hold. As it was, plenty of innocent trusting people, many who were employees of Enron, lost their savings. Under the expanded plan ? the idea of privatizing social security ? America potentially stood on the verge of the greatest transfer of wealth from the middle class to the criminal class ever.
The whole campaign became something of a cultural phenomenon and it's not over with. The enthusiasm for the "new economy," symbolized by Enron, has its surviving believers. They will rise out of the ashes despite their current state of disgrace. Pundits in the media who had it all wrong for the better part of a decade will be back on the air and in print, even when not rewarded by Enron, preaching the metaphysics of economic growth, finding new signs of life in economic patterns which cannot be measured and urging investment in stocks for which there is little provable value. If you submitted a novel with this plot line, it would be rejected in a moment for requiring too much suspension of disbelief. But the players in this story are believers, big time.
Deregulation was a good idea when applied to halting the practice of government wage and price controls, but that's not at issue here. The deregulation these companies championed required removing the safeguards that protect innocent ? in this case sometimes careful but trusting ? investors. It is the equivalent of rendering investors, many of whom are lured by false promises of a guaranteed funded retirement, as swimmers in a shark-filled lagoon on a dark night. This kind of economic religion begins with corporations with a great deal of money ? investors' money ? who spend lavishly on politicians' campaign funds provided the politician is on the deregulation band wagon.
The deregulation movement is defended by people who say such political contributions are "freedom of speech." Between the "free market" and "free speech", these holy rollers of commerce have adopted the rhetoric of democracy and choice. In reality, they have devised a way to popularize laws and budgetary constraints on regulatory agencies which leads to inadequate oversight which enables the perpetrators to avoid taxes and falsify profit reports. It's been a big movement since the 1980s, and the public never seems to catch on until it's too late.
The end result is another crisis in capitalism. Not only was the corporation doing the investing a cheat, the accounting firm invented the manner of cheating, and the government rendered itself powerless, on purpose, to intervene. In the heady environment that dominated the firm's Houston headquarters even a year ago, only a fool worried about professional ethics. And when it all fell apart, everyone was soooo surprised. Right.
The investment community is irresistibly attracted to the idea of maximum return on investments and wants to believe in any scheme that seems to go in that direction, even if the path has been tried and failed before and even if it abandons good accounting and reporting practices, including oversight. Market capitalism lives or dies on the emotions of the investors. When they're afraid their investments are not safe due to inadequate safeguards, people stop investing and the system goes into decline.
As I said, people believe what they want to believe. Marxists once chanted that they had history on their side. The priests of the so-called "new economy," the economy that brought us the dot-com revolution and the Enron fiasco, urge that they are following the dictates of "human nature." They don't get it. Government is organized to protect us from human nature, not to foist its regressive side upon us. It may be in human nature to wreak violence upon a stupid and thoughtless neighbor, but government is to do its part to keep us from acting on the impulse. And if we act on it, even if we can give perfectly good reasons why someone else would have probably done the same thing under the same circumstances, government is to take steps so the next person won't follow our lead.
Acting on impulses that result in harm to others is to be discouraged by making it so expensive people won't do it. In this culture, this expense is called prison time. This would be, pardon the pun, a concrete solution to this mess.
John C. Mohawk, Ph.D., columnist for Indian Country Today, is an author and professor in the Center for the Americas at the State University at Buffalo, N.Y.