The more we learn about Enron, the more it becomes an indictment both of our financial system and its toothless watchdogs. The real outrage is that Enron isn't more of a scandal.
In a new lawsuit filed recently by Enron shareholders, some of the country's top banks and investment banking houses are accused of conspiring with Enron to create phony partnerships that enriched insiders.
Why would bankers, models of probity, go along with the scam? The lawsuit alleges that some of the insiders who profited from the rigged books were the bankers themselves.
The suit claims that senior bank officers from such trusted institutions as Citigroup, J.P. Morgan Chase, Merrill Lynch, Bank of America, Lehman Brothers, Credit Suisse First Boston, and others created enormous, illicit profits -- not just for Enron insiders or even for the banks, but for senior banking executives who got a personal piece of the action.
If true, this would help explain why some of the smartest financiers in America seemed to be asleep at the switch. At this writing, the banks have not issued detailed comments, but they are expected to challenge the suit.
From the beginning, the leitmotif of the whole Enron affair has been conflicts of interest. Accountants who were supposed to be attesting to the honesty of Enron's books were making a bundle as Enron consultants. Politicians who were supposed to be overseeing government regulators were taking campaign contributions from industry and urging the regulators to back off. Now comes the allegation that the bankers, who had a fiduciary duty to their own customers and shareholders, may have been on the take as well.
Enron ought to be the emblem of all that's corrupt about this era of American capitalism. But Enron may never quite make it into the ranks of widely appreciated scandals, for two big reasons.
First, the subject matter is numbingly technical. Enron set itself up to take advantage of the deregulation of electricity. There is a good deal of evidence that Enron profited, not by being an honest broker of electricity contracts, but by manipulating price and supply and then rigging the rules.
In theory, deregulated markets were less vulnerable to political interference. In practice, they were more corruptible. But unlike, say Watergate, where Nixon's henchmen broke into Democratic Party headquarters, or Whitewater and its presidential dalliance with an intern, there is nothing especially sexy or easily fathomable about electricity deregulation.
And if you find that subject a bit esoteric, try some of the technical issues about accounting standards. The financial pages have been full of articles debating whether stock options for corporate executives should be counted as expenses. And that's a relatively straightforward question compared to many of the others. Enron's scam was impenetrable to all but its own insiders.
But there's second reason why Enron does not have political legs. The opposition party -- the Democrats -- were part of the problem. During the 1990s, the SEC was fighting a losing battle against new kinds of corporate scams. Politicians from both parties were opposed to a more assertive SEC.
When I was first covering economics, Republicans were the party of free enterprise and Democrats were the party of the mixed economy. Republicans believed capitalism regulated itself. Democrats knew better, remembering the Great Depression and Franklin Roosevelt's New Deal that saved capitalism from its own excesses.
As voters and citizens, we did not need to immerse ourselves in all the technical accounting details, because one party stood for the idea that capitalism needed to be regulated. In a representative democracy, our elected officials could keep track of the details.
Unfortunately, many of today's Democrats were among the leading deregulators. So even though several Enron investigations are now pending in Congress, the Democrats have largely failed to connect Enron to principled philosophical differences between the parties, because the differences are eroding.
Here is the real scandal: Both parties are letting the market system devour itself.
If investors can't trust accountants and bankers, then capitalism itself is at risk. And if politicians are corrupted by political money, there is no one to watch the watchers.
Post-Soviet Russia is a mess today because honest markets have not yet emerged. It wasn't enough that communism fell; efficient markets require democratically accountable and relatively uncorrupted government.
We in America have enjoyed both dynamic private enterprise and effective government, and each depends on the other. But Enron suggests that both institutions are imperiled.
