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Point of View
American capitalism seems to produce greed
By Carl Heintze
Every so often the American economy seems to have to undergo something like the Enron collapse.
Since we are a nation that likes to be progressive, each Enron-type disaster needs to be bigger than the last.
Enron, if you'll notice, is a company that dealt less with substance than with reputation. It was in the gas and petroleum pipeline business, but increasingly it found itself selling contracts for energy.
One of the beauties of having a mostly regulated energy system is that the buyer and seller of energy has the consumer and the producer over a barrel--if you'll pardon the expression--in this case, over a barrel of natural gas or petroleum.
The energy producer has fixed costs inherent in making energy, and the consumer can't do much except protest when his or her fuel bill goes up. Deregulation of the fuel industry makes it possible for the company in the middle--in this case, Enron--to charge what it wants for something it doesn't produce, just distributes.
This is what last year sent the California energy business skating along the edge of disaster. Deregulated California energy companies contended that the old laws of supply and demand would create a fair price for electricity and gas. Only it didn't work that way.
Instead the producers could pretty much charge what they wanted. And there was little you and I, the consumers, and presumably those who made the energy in the first place, could do about it.
Apparently this wasn't enough for some Enron executives. They wanted more, and when they didn't get it and when they were suddenly faced with declining revenues, they began to cook the books and their profits--and at the same time make a bunch of money--by creating all kinds of odd partnerships to drain off the company's profits and multiply them.
These partnerships didn't appear on the company books. That's probably because for some odd reason, many of them were offshore in the Caribbean.
Although the facts aren't all yet in, apparently Enron executives also planned to use some of the partnership profits to make it appear that Enron was still making money when, in fact, it was losing it, and losing it fast.
There were also some other nasty parts to the Enron story, like management making employees keep their worthless Enron stock in their 401(k) retirement plans, executives asking Arthur Anderson, their auditors, to do things they shouldn't, and so on.
However intricate the machinations of Enron, its auditors and some of its executives, in the end, as in all American corporate disasters, economics finally caught up with those responsible and sent Enron into a tailspin from which it has not yet recovered.
Without profits, with big losses and with executives committing suicide, with lobbyists spending big bucks in Washington, Enron just sank out of the market, if not out of sight. The seventh largest company in the United States just sort of rolled over and died.
It's not like this hasn't happened before. Ivan Boesky and Michael Milliken tried the same thing with corporate "junk" bonds.
Oil lease schemes in the last century were similar. Speculators bought leases for land supposedly containing oil, which were in fact worthless. There wasn't any oil. But for awhile celebrities were buying the leases and donating part of the nonexistent profits to charity to avoid taxes.
Ultimately, someone found out the oil wasn't there; the whole lease plan collapsed and a large amount of money went somewhere, but not into the lease buyers' pockets.
And then there was the Penn Square bank scandal, in which a small strip mall bank in the Southwest, far from Pennsylvania, sold off worthless loans and ruined several banks up the line from them when the loans went into default.
These disasters seem to be inherent in American capitalism. They are based on a basic human foible--greed.
It is the same driving force that prompts otherwise normal citizens to buy lottery tickets.
It's what drives Las Vegas and Reno, what makes some of us addicted to gambling--the idea that somehow, somewhere you're going to get something for nothing.
It's also part of what economists call the business cycle, the rhythmic rise and fall of the economy over time. During the dot-com days, it seemed as if it wouldn't happen, as if somehow we had managed to break out of the cycle. For 10 years or so, stock prices kept going up, the economy kept getting better and better, any money invested always had a positive return, and there seemed to be limitless amounts of venture capital around for almost any harebrained scheme on the Internet.
But, of course, like Enron, it was all too good to be true. The business cycle cycled down, the dot-com revolution collapsed, and economists began predicting when times would be good again.
Well, sure as somebody made little green apples, the economy will one day go up, the Dow Jones Index will reach 11,000, and somebody else will have some new version of Enron for us to dissect and abhor.
And something like Enron will happen all over again.
Times may change, but people don't.
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Saratoga, California Since 1955
