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Tip of the iceberg

Enron shows depth of corporate greed

Published May 31, 2006 10:30 PM

In capitalist society, favorite sons often have to be thrown overboard as their ships of fortune sink.

Enron CEOs Kenneth Lay and Jeffrey Skilling, who had accumulated a huge treasure for themselves, have now been convicted of fraud and conspiracy after a four-month trial. However, unlike working-class defendants convicted of petty crimes, both remain free on bail, pending sentencing on Sept. 11. They were charged with creating complex accounting practices to cover up a mountain of debt, which showed up on their books as assets and profits.

Once viewed as the biggest corporate success story of the 1990s, Enron is now bankrupt and seen as a text-book tale of corporate malfeasance, manipulation and machination. In the stormy seas of imperialist high finance, however, this corporation represents only the tip of the iceberg.

Before the biggest scandal in the history of corporate criminal activity was exposed, Enron’s well-trained management scam med billions from tens of thousands of shareholders and employees, as well as Wall Street banks and financial institutions.

Lay was convicted on all six counts, including four counts in a separate bank fraud. Skilling was found guilty on 19 of 28 counts, including insider trading. Both men had used off-books partnerships to disguise Enron’s debt. They lied to investors and employees about the company’s financial crisis while selling their own company shares for tidy sums.

Enron’s profits were based on paper trading rather than the real flow of actual money. Even after four and one half years of a special government investigation, “it is impossible to say what was real at Enron and what was smoke and mirrors.” (Wall Street Journal, May 26)

Enron was permitted to show profits through means that were risky, volatile and speculative. It wasn’t clear how much of Enron’s profits came from outright financial manipulations and the use of derivative instruments.

This is still a very dangerous trend on Wall Street. Hedge funds representing trillions of dollars are traded each day in an unregulated market.

Cover-up angers Wall Street

The corporation’s collapse led to the downfall of the international accounting powerhouse of Arthur Andersen LLP, the company’s outside auditor, which admitted shredding piles of records. The bankruptcy also snared some of the country’s largest financial institutions, including Citigroup, JPMorgan Chase and Merrill Lynch, costing them millions in litigation costs and regulatory fines.

Enron reflected the manipulative, unpredictable and volatile nature of the stock market. Before Enron went bankrupt, it had a market value of over $60 billion.

In August 2000 its stock was selling at $90 a share. A few days before Enron declared bankruptcy, its shares traded at one dollar.

For a while Lay and Skilling had convinced their shareholders and lenders that they were accumulating huge profits by delivering energy, natural gas and other physical commodities through future contracts, and providing financial and risk management services to customers around the world. Enron had corralled the energy market in electricity and natural gas—exploiting the California market during the 2000-2001 energy crisis in that state.

As Enron began unraveling, both men claimed the corporation was in excellent condition. However, in September 2001, a few months before Enron went belly-up, Skilling dumped 500,000 shares of the company for $15 million, and Lay sold 1.8 million shares for more than $101.3 million. Lay continued to draw an $8.3 million salary and Skilling’s salary and bonuses came to $6.45 million.

After the bankruptcy, Lay sold three houses in Aspen, Colo., for $20 million and three in Galveston, Tex., for amounts he didn’t mention when he testified in court.

Enron, once the seventh-largest corporation in the U.S., abruptly filed for Chapter 11 bankruptcy on Dec. 2, 2001. On that day, while Lay and Skilling were living in luxury, around 5,600 employees were fired, ordered to pack up their belongings within 30 minutes and hustled off the property. They lost $2.1 billion in retirement savings alone.

Political damage control

An axis of corporate power—primarily oil barons and banks—dominates the White House and infests all the institutions of government. Enron, during its lifetime, had bought off both capitalist parties.

In the four-year Justice Department investigation into Enron’s criminal activities, a protective wall was built against any allegations that the White House was involved. Even the leading newspaper of big business has to admit that “Some of the big questions linger, seemingly beyond the reach of the trials. ... [N]one of the trials produced new pieces of evidence that could be termed ‘smoking guns’ despite the fact prosecutors had broad subpoena powers and access to Enron records and internal documents.” (Wall Street Journal, May 26)

The truth is that the political elite, including President George W. Bush and Vice President Dick Cheney, were enmeshed in Enron’s fortunes up to their eyeballs. For decades, Enron was nurtured and coddled by powerful forces in both capitalist parties.

You stroke me, I stroke you

The record is startling and crystal clear. Bush lied when he said that he first got to know Ken Lay in 1994. Lay financed Bush’s race for Texas governor in 1978. (www.hereinreality.com) Cheney, former head of Halliburton, met six times with Enron executives while writing up energy policy that benefited Enron in 17 different ways. Cheney still refuses to tell Congress anything about those meetings.

Cheney also met with Lay during the California energy crisis. The day after the meeting he said the Bush administration would not support price caps on energy in California, a move that cost California consumers billions—and made billions for Enron.

Attorney General Alberto Gonzales was appointed by Bush to head the Justice Department, which carried out the Enron investigation. Gonzales was formerly a partner in the powerful Houston law firm of Vinson & Elkins. Enron was their biggest client. Sources have revealed that “Vinson & Elkins may have briefed former partners [like Gonzales-M.N.] in advance on the findings of a top secret probe into Enron’s shady business dealings.” (San Francisco Chronicle, Feb. 15, 2002)

Secretary of the Army Thomas E. White was an Enron executive for over 10 years. Robert Zoelick, the recently resigned deputy to Secretary of State Condoleezza Rice, sat on Enron’s advisory council. Karl Rove, Bush’s mastermind political adviser, owned up to $250,000 worth of Enron stock, which he held until last June. Ken Lay sought out former Secretary of Commerce Don Evans and former Secretary of the Treasury Paul O’Neill for assistance.

Former President Bill Clinton also got into the act. He helped Ken Lay get a $3 billion power plant project in India for Enron. Four days before the deal went through, Enron gave $100,000 to the Democratic Party. The list goes on.

The Enron collapse raises issues far beyond the convictions of Lay, Skilling and their cronies. The political landscape is dominated by profit, plunder and greed. The roots behind Enron’s collapse are deep and wide in the corrupt culture of finance capital.

There is fear among the ruling class that the Enrons of Wall Street are no longer the exception. Already wiped off the financial map are Worldcom, Tyco and Delphi, and the list is growing.

Is catastrophe waiting in the wings for General Motors and industry-related conglomerates? Will the quasi-independent Fannie Mae agency that offers housing mortgages be next? When will the Bush/Cheney cabal unravel? Don’t touch the remote.