Man Without Qualities

Tuesday, February 11, 2003

Saint Kenneth, Holy Fool

The New York Times runs what seems to be a big "never mind" about the very same Kenneth Lay malfeasance about which the Times, especially, has hyperventilated so much. The new Times absolution says that Kenneth Lay actually believed in his company right up to the end:

IT has become an indelible moment of the recent corporate scandals: Kenneth L. Lay, then chairman and chief executive of Enron, encouraging employees in the summer of 2001 to buy company stock, even as he was secretly unloading much of his own stake. ...

Enron employees accused him of betrayal. Members of Congress demanded his indictment on insider trading charges. The event even figured in a recent television movie about Enron as evidence of corruption at the company's very top.

But this story of a hypocrite unmasked suffers from one significant flaw: it appears to be untrue.

A review of previously undisclosed personal records... as well as interviews with Mr. Lay's financial advisers and other witnesses in the government's investigation indicates that Mr. Lay retained his faith in the company virtually until its collapse. .... "This would be a case that the government would normally shy away from," said John C. Coffee Jr., a securities law expert at Columbia University. .... [P]rosecutors are said to be close to a decision on whether to charge Mr. Lay, and there has been no indication that they have pursued other avenues. .... Mr. Lay ... structured [his] finances with an apparent view that [his] compan[y] would never stumble. .... Mr. Lay ... would be able to marshal reams of records to provide proof that he was caught unaware by his company's downfall. ....

That differs sharply from the story put forward early last year, after many news organizations, including The New York Times, reported that Mr. Lay had sold large numbers of shares as he urged others to buy. Many people seized on those facts as evidence of duplicity, not accounting for other possible explanations.

Fancy that.

Regular readers of the Man Without Qualities may be aware that a certain skepticism is expressed here from time to time regarding the general media coverage of the Enron matter. Of course, this skepticism has incurred the displeasure of certain rather overwrought commentators, especially those unburdened by substantial familiarity with finance or management.

But it was Paul Krugman who, in a series of brilliant columns, first proved by algebra that Mr. Lay obviously must have known that Enron was headed for disaster, and, in fact, that the former Enron Chairman is the incarnation of evil itself - columns which, by the way, eventually served as the basis of a particularly effective subplot on "Buffy the Vampire Slayer." There was this:

Time magazine's persons of the year are three whistle-blowers: Sherron Watkins of Enron, Cynthia Cooper of WorldCom and Coleen Rowley of the F.B.I. They deserve to be celebrated. After all, thanks to Ms. Watkins ... Ken Lay .... ha[s] been indicted.... Oh, I'm sorry. None of that actually happened. ... Time seems to be celebrating what should have been, not what was.

And this:

Enron executives may have deluded and defrauded their shareholders without actually breaking the law. ... [T]he absence of Enron indictments, demonstrates just how much self-enrichment corporate insiders can get away with while staying within the letter of the law."

And, of course, this:

[T]he use of "split-premium" life insurance policies ... give[s] executives largely tax-free compensation (you don't want to know the details) — is an even sweeter deal for executives of companies that go belly up: it shields their wealth from creditors, and even from lawsuits. Sure enough, reports The Wall Street Journal, former Enron C.E.O.'s Kenneth Lay and Jeffrey Skilling both had large split-premium policies.

Does the Times know that Herr Docktorprofessor Krugman has been dividing by zero in his algebra exercises again? It won't be the first time the Times has had to withdraw some anti-Enron Krugmania.

Link thanks to Dr. Manhattan

MORE: Don Luskin has more.

NOTE: To avoid confusion, the Buffy reference above is a tounge in cheek reference to Krugman's demonization of Lay. There is no real connection between Krugman's column and any Buffy subplot - not even the one in which the Mayor turns out to be a demon worshipper who turns into a huge snake demon, although that's the one I had in mind.

STILL MORE: And, of course, it's hard to see how this infamous Krugmaniacal ranting squares with Mr. Lay acting in good faith:

The Enron scandal, on the other hand, clearly was about us. It told us things about ourselves that we probably should have known, but had managed not to see. I predict that in the years ahead Enron, not Sept. 11, will come to be seen as the greater turning point in U.S. society.

All that from an honest mistake? Gee.

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