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Capitalism produces 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 un-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 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 to make a bunch of money--by creating all kinds of odd partnerships to drain off the company's profits and multiply them.
Although the facts aren't all yet in, apparently they 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 making employees keep their worthless Enron stock in their 401(k) retirement plans, asking Arthur Anderson, their auditors, to do things they shouldn't and so on.
It's not like this hasn't happened before. Ivan Boesky and Michael Milliken tried the same thing with corporate "junk" bonds. The pioneering example was a man named Ponzzi, who took in money from one set of investors and then paid some of it out to other earlier customers, always one step ahead until finally the whole scheme caught up with him.
These disasters seem to be inherent in American capitalism. They are based on a basic human foible--greed.
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.
And something like Enron will happen all over again.
Times may change, but people don't.
Carl Heintze is a frequent contributor to The Sun.
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Sunnyvale, California Since 1994
