Enron is the gift that keep on giving. For those of us who warned of the excesses of corporate power, Enron provides a vivid example of every abuse imaginable, and more.
In the latest episode, the public got the details of Enron’s strategy to manipulate California’s deregulated electricity market. As one of the economists who had warned that power companies like Enron could be gaming the system, I was not surprised to have my suspicions confirmed. But, I must confess to being impressed by the sophistication of their schemes.
I had assumed that most price manipulations took relatively mundane forms– for example, leaving a power plant offline for extended maintenance during a power shortage. It doesn’t take a genius to realize that this could keep electricity prices high. And it requires nothing more than not paying the repair crews to work weekends and evenings.
But Enron was a beacon of the new economy. Its managers weren’t interested in such an old-fashioned simplistic approach. Instead, they devised sophisticated trading strategies, with code names like “Get Shorty,” “Fat Boy,” and “Death Star.”
The Death Star strategy involved sending electricity over transmission lines that Enron knew were already operating at capacity. The agency managing the lines would then pay Enron to divert its electricity to some other part of the power grid. After pulling this one off a few times, the Enron crew realized that they actually didn’t even need any electricity to sell. They just had to threaten to sell it in order to collect tens of millions of dollars in fees that were ultimately paid by California’s consumers and taxpayers.
This high tech price manipulation is just the latest in Enron’s long-list of corporate crimes. Since we’re now about 8 months into the scandal, it’s worth recounting some of the highlights.
Enron hid billions of dollars of corporate debt off its balance sheets, by assigning the debt to subsidiaries. Enron inflated its profits by trading in its own stock. Enron used offshore tax havens to almost completely avoid paying income taxes over the last decade. Some top Enron officials made fortunes by creating companies that profited from their dealings with Enron. Enron forced its workers to keep their retirement money in the company stock as Enron was plunging into bankruptcy — and the top executives were selling their own stock. Enron paid off officials in developing nations to allow it to carry through environmentally harmful projects. Enron paid off everyone in sight in the United States — politicians, news commentators, and academics — to try to win their support.
In addition, Enron showed us what a corporate board of directors, consisting of highly respected individuals, does to earn its money (several hundred thousand annually in pay and stock options): nothing. And Enron showed us that Arthur Anderson, one of the most highly respected accounting firms in the world, was perfectly willing to be an accomplice in Enron’s <crimes.When> the deal got exposed, Anderson responded by putting the shredding machine in high gear.
The Enron scandal displays a level of corruption and contempt for consumers, shareholders, the general public and its own workers, that even the most cynical among us would not have believed. And it is all in broad daylight, now that the Enron crew’s “Death Star” strategy, to really stick it to California’s consumers, has been exposed.
But all this sleaze and crime, which reveals so much about corporate America, raises a serious question, “are they going to get off?” This question is troublesome, because it’s not clear that the axis of evil, Kenneth Lay, Andrew Fastow, and Jeffrey Skilling (Enron’s top execs), will ever really be held accountable for their crimes. Sure, these folks will face charges and public embarrassment, but will they go to jail for what they have done?
Remember, this is not a petty burglary we’re talking about. There are tens of billions of dollars at stake (i.e. millions of petty burglaries or car thefts) — money taken from consumers, taxpayers, shareholders, and the retirement accounts of Enron’s loyal employees.
In spite of the enormity of the crimes, at the end of the day, those most responsible will probably still be walking the streets. In fact, even if they are forced to pay large fines, they’ll probably still end up far richer than most of us could ever imagine.
If this proves true, the lesson is quite disturbing: corporate crime pays, even when you get caught.
Dean Baker is the Co-Director of the Center for Economic and Policy Research. He is the author of Social Security: the Phony Crisis, with Mark Weisbrot.