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Skilling Resentenced: Echoes of Enron in Current Wall Street Crisis
Posted Jan 07, 2009 04:09pm EST by Aaron Task in Newsmakers, Banking- Although his sentence may now be reduced, Enron's former CEO is in jail (as is former CFO Andrew Fastow), while none of the major players from the mortgage industry or Wall Street have yet been charged with any crimes. ("Yet" being the operative word.)
- Enron received no government bailout.
- Enron's bankruptcy, while devastating to its employees and shareholders, did not have a major systemic impact on the U.S. economy -- unless you count Sarbanes-Oxley and other regulations that came out of the era.
In the accompanying video, Henry Blodget argues that while Wall Street was guilty of greed and stupidity, Enron was guilty of greed, stupidity and outright fraud. We may yet find fraud was committed at major Wall Street firms or (certainly) mortgage lenders, but - again - "yet" is the operative word.
That said, there are plenty of Enron echoes in the recent Wall Street debacle:
- It was the Commodity Futures Modernization Act of 2000, a.k.a. "the Enron bill", that deregulated derivatives, paving the way for the CDO and MBS orgy that ultimately crippled AIG, Bear Stearns, Lehman Brothers and other Wall Street firms.
- Enron executives were masters of the "blame the shorts" and "it's a crisis of confidence" strategies more recently employed by Wall Street CEOs, and former CEOs turned Treasury Secretary. (On a related note, going back the 1998 Long Term Capital Management crisis, how many "100-year floods" can realistically occur in one 10-year period?)
- It was Enron who introduced "off balance sheet" accounting to the corporate vernacular. It's not a stretch to believe Enron advisers like Citigroup learned some lessons from the energy trading firm when they created Structured Investment Vehicles (SIVs) that proved deadly when the credit crunch hit.
Finally, Enron was the ultimate proponent of "free and unregulated markets" and the related belief derivatives were great vehicles for diminishing risk. Wall Street firms took those theories and ran with them -- ultimately over a cliff.
25 Comments
sing4beer - Wednesday January 07, 2009 04:35PM EST
What do you mean NO FRAUD YET?........MadeOff.....hello?
altask - Wednesday January 07, 2009 04:42PM EST
j_longworth - was that because of Enron's bankruptcy, or prior? sing4beer - True re Madoff but we were talking about big Wall St firms specifically, i.e. Morgan, Citi, Goldman etc. Thanks, Aaron Task
jimdgriz - Wednesday January 07, 2009 04:46PM EST
Shorten his sentence? After the amount of damage he did to as many people as he did, I'm surprised he's not facing life plus a few thousand years... Each investor defrauded ought to be a separate count. Take $100 from a 7-11 clerk, and you'll get more time than he did.
rasputin1111 - Wednesday January 07, 2009 04:55PM EST
Lock em all up....let Bubba sort them out!
toucan777 - Wednesday January 07, 2009 05:20PM EST
I think Harvard and Yale need to stop training these MBA types. They are taught that "getting the money" anyway possible is ok!!! These elites coming from these schools seem to have no morals or ethics when it comes to earning a honest living.
redwoodkape - Wednesday January 07, 2009 05:33PM EST
Good piece. I would like to bring up a little history. Off balance sheet practices may have come to public attention with Enron, but the US government has been doing it with Social Security for as long as I can remember (early 60's.) The liabilities are not amortized in the budget but the (excess!!) revenues are counted. The cost of the Viet "executive action" (war was not declared) was kept off the books, as were Iraq I & II... and large pieces of the war on terror. Similarly, the US gov practice of assuming debt that it has no real business plan to repay can be seen as the model for much of the current debt (not credit) crisis that our society is experiencing. That might be the basis for a very interesting doctoral thesis.
hogdog - Wednesday January 07, 2009 05:36PM EST
Either free Skilling or lock all the SOB's from Freddie, Fannie, AIG, and on and on up!
j123mikes - Wednesday January 07, 2009 05:54PM EST
Enron taught SIVS to Citi?? Not likely. It was the other way around. Citi has been in the vanguard of this off-balance sheet crap for 20 years. They told Enron how to do it, and it worked until they got caught. Then Citi got caught but they have friends in high places...
frank d - Wednesday January 07, 2009 06:00PM EST
I THINK THE GOVERMENT ,SHOULD DO RANDOM CHECKS ON THESE PEOPLE , AS SOON AS THERE BOTTOM LINE LOKKS TOO GOOD TO BE TRUE, AND THEY START LOOKING FOR MORE SUCKERS TO INVEST THERE MONEY WITH THEM.
Yahoo! Finance User - Wednesday January 07, 2009 06:03PM EST
Why isn't Madoff in prison instead of his multi million house with all luxuries and his ability to send off assets? This is really teaching white collar crime a lesson!! Prison time is needed to teach these guys some lessons. I have yet to see any remorse for his actions. Prison could teach a little of that!!
Rahul D - Wednesday January 07, 2009 06:03PM EST
Enron was a little blip compared to what we are going through right now. Except this fraud is so fudged in numbers that it will be impossible to prove. This isn't far different from another Ponzi scheme hiding deep beneath the covers of derivatives and the other instruments manufactured out of thin air with imaginary value.
Cyrus B - Wednesday January 07, 2009 06:04PM EST
Enron's bankruptcy did not have a major systemic impact on the US economy??? Are you completely unaware of the wave of bankruptcies that struck the power sector in 2002 and 2003? How many moons orbit your homeworld?
snekulab - Wednesday January 07, 2009 06:07PM EST
Why didn't you mention yourself Henry? You missed an opportunity to claim that what you did isn't so bad NOW.
mdtrek2009 - Wednesday January 07, 2009 06:18PM EST
If the US court system isn't going to enforce our laws we might as well all move to Russia or China where at least they don't pretend to be judicially fair and equal.
William T - Wednesday January 07, 2009 06:26PM EST
USE A GUN GO TO JAIL. USE YOUR ACCOUNTANT TO FUDGE THE BOOKS GET AWAY LIGHTLY. MADOFF SHOULD BE IN JAIL. BECAUSE HE COULD PUT UP 10,000,000 BAIL HE GETS TO LIVE AT HOME. HOW MANY PEOPLE HAVE BEEN HURT BY THIS THUG. SEIZE ALL HIS ASSETS AND THEN DIVIDE UP FOR THOSE WHO HAVE LOST EVERYTHING. THERE ARE BILLIONAIRES WHO LOST A LOT BUT STILL HAVE BILLIONS LEFT. MILLIONAIRES WHO LOST MILLIONS BUT ARE STILL MILLIONAIRES. I'M SORRY FOR THERE LOSES BUT THERE ARE REGULAR FOLKS WHO WERE WIPED OUIT. WHO WILL STAND UP FOR THEM.
Yahoo! Finance User - Thursday January 08, 2009 08:24AM EST
QUAINT?, QUAINT?, QUAINT?, QUAINT?, QUAINT? I know you're sicjkening apologists for any Wallstreet abuse, but this is beyond belief. You two clowns should be tarred and feathered and ridden on a rail out of cyberspace. Jail for Blodget as well.
bingochipbreath - Thursday January 08, 2009 08:26AM EST
The SHORTS are behind the DEMISE of our system. Einhorn, Soros, Chanos, etc., must do some jailtime.
Yahoo! Finance User - Thursday January 08, 2009 04:18PM EST
Wrong is wrong... period! Deminishing bad behavior (criminal) by comparing it to other bad behavior doesn't change the fact that it's still bad, or criminal, behavior. Just replace the words greed and stupidity with the word negligent and yeah... I think you can go to jail for that! Why do some people think these crooks should be able to destroy so many lives, as well as our financial system and markets, without being [severely] punished, and having their own lives destroyed? Lock them up and throw away the key! That's how I see it. :o)
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j_longworth - Wednesday January 07, 2009 04:28PM EST
If you had payed for electricity in California like it was coming through a hotel mini bar you might not feel so forgiving.