Mainstream America loves to dream. But those dreams turned to financial nightmares when the massive house of fraud known as Enron collapsed a few years ago. Later, nightmares turned to anger as Americans harmed by the collapse (investors, employees and energy customers) pointed their collective fingers at Ken Lay and Jeff Skilling, proclaiming, "THEY are to blame for all this!"
Are they really? Anyone familiar with the details of the Enron story knows that Ken Lay was the cheerleader of the fraud, and Jeff Skilling was the architect (although these two men would blame the convenient scapegoat Andy Fastow), but neither acted alone. In truth, they were supported by an immense cast of additional players, from corrupt bankers and accounting firms to investors and employees who saw in Enron exactly what they wanted to see: Free money. The true story about Enron you probably don't want to hear is that the Enron fiasco was as much the product of the mass hallucinations of greedy Americans than the devious plans of its corporate leaders. That's a big claim, so allow me to explain it.
Silly beliefs and the madness of crowds
Although I previously said that mainstream America loves to dream, what I really meant is that mainstream America loves to hallucinate
, believing that utterly impossible things are undeniably true. Most Americans, for example, believe that financial details don't really matter as long as the spending party continues. Americans believe that you can get something for nothing if you just manage to fool enough people. Americans believe that greed is good, that the free market can do no evil, and that the highest expression of capitalism is only revealed through the individual expression of personal greed.
Maybe not all Americans believe this, but the vast majority do. And so it was no surprise that when Enron was cooking its books, creating "profits" out of thin air, and screwing California out of billions, all the Americans involved just went along. To which Americans am I referring? Well, let's see...
First we have the Enron traders, who were caught on tape saying, "Burn, baby, burn!" as wildfires destroyed power transmission lines in California right during the rolling blackouts. Why would Enron traders want transmission lines to burn? Because scarcity creates profits. And Enron traders, the world now knows, fabricated scarcity by exporting power from California and shutting down power plants under false pretenses. Enron traders didn't just go along, they plotted the demise of the California economy for their own personal gain. And these were all bright-eyed, top-of-the-class, A+ American boys at the helm, by the way.
Next we have the Arthur Anderson accounting firm, which signed off on all the fraud while pretending not to notice that the books were cooked longer than a fifty-pound Thanksgiving turkey. Why did Arthur Anderson go along? It may have had something to do with the $1 million in fees charged to Enron every week. Arthur Anderson has since been convicted of fraud and lost many of its corporate clients, not to mention at least 30,000 employees. Sometimes accounting firms get exactly what they deserve.
We also have the investors, who, like most American investors, were too mesmerized by the promise of free money to actually examine Enron's cash flow statements before handing over their hard-earned cash. Wall Street has a way of giving investors exactly what they deserve, and when get-rich-quick Americans follow the advice of so-called financial analysts who give BUY ratings on companies they don't even understand, what they deserve is bankruptcy. Not so coincidentally, that's what they got.
(Don't send me angry emails if you're one of these Enron investment victims. If you stashed your retirement savings in Enron based on the tip of a bank's investment analyst, then you're what Wall Street calls "the greater fool." Didn't you know Wall Street is rigged? Didn't you know the ratings of companies are bought with outright bribery? You mean you didn't know that? Well welcome to the world of expensive education. Now you know. Next time, subscribe to the Martin Weiss Safe Money Report and you won't get screwed.)
Too many Americans, you see, think the stock market is a giant ATM. They underestimate risk (if they understand it at all) and overestimate the potential for gain, all while following the sheeple to the slaughter. They're quick to blame Kenneth Lay for his complicity in the fraud (and no doubt he is the primary evil-doer), but reluctant to examine their own greed and gullibility in participating in this free lunch, get-rich-quick moneymaking scheme.
Next we have the investment bankers. These banks, like Citibank, Chase, JP Morgan and many others, went along with the Enron scam, too. In fact, they helped fund it. And at times when cooler heads should have prevailed at these brand-name banks, the Americans making the decisions at these banks saw the promise of easy profits too juicy to pass up. So they bought in and now they're being sued for billions by Enron investors. It's like a man robbing a house and finding a stash of heavy gold bars. In his attempt to carry them all, he collapses under their weight and dies of internal injuries.
Finally, we also have the Enron employees who mostly knew something funny was going on but made a critical error, thinking that as long as we keep getting paid, and our retirement accounts keep growing, we'll keep our mouths shut. And they did. They went along with the whole scam when they could have been the whistleblowers that brought down the house of cards before more people were harmed. (To their great credit, there were a few whistleblowers at Enron, but they were the exception, not the rule.) I'm not suggesting that all Enron employees knew what was up, but a whole lot of them did. And that weekly paycheck dissuaded most from asking too many questions.
So, you see, it wasn't merely Ken Lay and Jeff Skilling who are to blame here. Nor the sixteen other top executives and traders who pleaded guilty. Yes, those at the top of Enron certainly deserve what they have coming, but the whole grand system of American greed is really the culprit here. This fraud could have been stopped by honesty or sanity at any point in the scam: the investment bankers, the stock analysts, the accounting firm, the investors or the employees. But everybody was bamboozled by greed, and they all went along to avoid rocking the very boat they thought was making them rich (but which was actually sinking like the Titanic). Essentially, everyone was on the take.
This isn't the story Americans want to hear. They want to hear a fairy tale about how they were all hoodwinked by a small group of corporate masterminds who executed a carefully designed system of fraud. American investors love to think they're so darned smart right up until the collapse of the company they invested in, at which point they claim they had no idea what was really going on. It's amusing how investors can go from self-proclaimed brilliance to instant stupidity in the time it takes a corporation to file for bankruptcy.
It's always easier to blame someone else than to admit you were suckered in by pure, old fashioned greed. What Americans definitely do NOT want to hear is that virtually everyone involved in the Enron circus either tolerated or outright supported the fraud. This was no isolated crime, it was a collaborative crime of the greedy masses.
But why is this saga uniquely American?
I've used the word "Americans" frequently throughout this commentary. Keen readers may ask why. Do I think this type of scandal is uniquely reserved for Americans?
There is fraud in every system of government and every system of commerce. But what makes the Enron fraud uniquely American is that it demonstrates the grandeur of the illusions under which American workers, CEOs and politicians have all agreed to operate (for the last decade or so, anyway). Those illusions are largely fiscal in nature, such as the idea that budget deficits no longer matter. America can spend all the money in the world (well, all the money in China, anyway) and it won't matter, President Bush seems to say. This sort of illusion is identical to the "black box" of financial operations at Enron, where nobody could really follow the numbers, but as long as the party continued, no one really cared. It was thumbs up all 'round. And at Enron, it was also strippers, four wheelin' and wild parties. All charged to the Enron expense accounts, of course.
America cooks its books just like Enron cooked its books. And when reality hits the fan for our national economy, you can bet there will be a whole lot more document shredding going on than the single ton of destroyed evidence discovered in a truck parked outside Arthur Anderson. The Fed, by the way, is America's Arthur Anderson. It signs off on the fiscal fraud being perpetrated by the Bush Administration, which has boosted deficit spending to higher levels than any President in U.S. history. Bush's spending habit makes Big Government Democrats look like tightwads.
What else makes this uniquely American is that Americans have come to believe a great many absurd falsehoods thought to be insane just a generation ago. They believe that their labor is inherently more valuable than the labor of anyone else in the world. They believe that whatever they're invested in (their homes, their stocks, their dollars) will go up forever and that they can bank on the expected gains. (Enron booked future profits for today's ideas like actual earnings on the balance sheet. The moment someone thought up an idea on how to scam more money out of people, some imaginary number immediately went to the bottom line as revenue. Arthur Anderson signed off on the whole thing.)
Far too many Americans believe that acquiring personal wealth at the expense of the suffering or death of others is perfectly acceptable -- required, in fact, if you wish to earn the really big bonuses in corporate America. Just look at the practices of Big Pharma. Enron's "Burn, baby, burn!" comment is equivalent to Big Pharma's greedy anticipation of the coming waves of Alzheimer's disease and obesity. The suffering of the masses fuels corporate profits. And just as Enron shut down power plants to create energy scarcity, Big Pharma and the FDA discredit alternative medicine to keep people focused on high-profit prescription drugs. Same scam, different industry.
Ultimately, most Americans still believe what Enron believed: That the free money will last forever. They think we'll all get rich by selling each other the same houses with ever-increasing prices. And Enron believed what the White House now believes about the federal budget: That the free money will also last forever, and we'll all get rich by printing more money (expanding the money supply and devaluing the dollar) to fuel more consumer spending.
Only in America can a politician actually sell the outrageous idea that we'll create abundance by spending more money we don't have. It's an idea that uniquely exists in the illusory world of the American people, I regretfully admit. Because I am, after all, an American myself, but only by birth, not by association with the outlandish ideas that have been recently adopted by the American people.
Enron was just the beginning
The most hilarious part of all this is that Americans believe the Enron scandal is over. It was just one isolated company, they think, that went awry. They have no idea the entire U.S. economy
is a giant Enron bubble waiting to collapse. Why? Largely because it's based on consumer spending powered by bubble real estate prices propped up by easy money expansion from the Fed. But explaining all that is another article altogether.
If you really understand Enron, then you understand what most people don't: That Enron didn't merely fool Americans, it mimicked them. Enron didn't scam people as much as it played to their private ambitions of greed and power. It's like parents at a school play, tossing their kid on stage with encouraging words of what great a great actor he is. It makes for entertaining theater, and people see what they want to see, but in reality the kid picks his nose during the entire second act and he's ugly, too. It doesn't stop the applause, though. People tend to create whatever reality makes them most proud, regardless of the evidence right before their eyes.
Enron ascended to bubbledom because Americans let it. And its downfall is merely a sign of much larger things to come. If you thought the Enron books were cooked, you should take a look at our federal budget and the Fed's control of the money supply. That's the financial scandal of the century, but it will never be realized by mainstream Americans until they are left penniless by its collapse. And then, of course, they'll look for somebody to blame.