Posted 9:57 AM by Robert

The Amazing Shrinking Enron Scandal: Getting The Goat

Kurt Eichenwald, a financial reporter for the New York Times, covered the Enron scandal extensively (as noted here and here), committing some of the more condemnatory and accusatory articles that appeared on the subject. Now Mr. Eichenwald has written a book on the subject, CONSPIRACY OF FOOLS - A True Story, which has duly been reviewed in the Times. But, judging by this review, the tenor of Mr. Eichenwald's book has subtly shifted from that of his articles, for the review includes this passage:

Eichenwald argues that the Enron story is less an account of criminality than of gross incompetence, a ''conspiracy of fools'' in a corporate environment grown so complicated and so given over to the imperative of enhancing share values that no one really understood what was going on. In this telling, complexity itself becomes exculpatory. Thus Kenneth Lay, Enron's chief executive officer, and Jeffrey Skilling, Lay's handpicked successor, come across as unwitting dupes of the nefarious machinations of the company's chief financial officer, Andrew Fastow, and his accomplices.

Curiously, Mr. Eichenwald seems to have been preceded in his belief that Enron management (other than Mr. Fastow) may not have actually broken any laws by none other than Paul Krugman, as I have noted:

Paul Krugman writes that "Enron executives may have deluded and defrauded their shareholders without actually breaking the law." ... Mr. Krugman wants his readers to believe that Enron executives may not have broken the fraud laws at all. Fancy that. This, after the New York Times and countless other media outlets and liberal blogs long ago convicted the entire Enron management team and its board of directors of obvious and egregious fraud. Perhaps Mr. Krugman now also wants his readers to believe that the Enron people may, under current law, be guilty of at most negligence or gross negligence. Where could he have read that? ... Mr. Krugman does not share with us his analysis of the law and economics of the Enron matter that has led him to want to lead his readers into believing that the law may not have been broken after all.

Could it be that all of the officers and directors at Enron except for Mr. Fastow and a few "accomplices" were guilty of at most gross negligence? Would such an outcome be consistent with the huge media and political hoopla this business failure occasioned? No. That coverage requires that a great many people have been up to their eyeballs in fraud, as I noted early on:

Oliver Stone's movie, JFK, competes with Plan Nine From Outer Space to be considered the most incoherent and witless creation ever committed to celluloid - but a movie based on the New York Times coverage of the Enron matter would surely threaten both of those trash classics. As the Stone movie swells to maculate giraffe, a mysterious and wholly-invented "Mr. X" - played with appealing spooky goofiness by Donald Sutherland - "explains" the Kennedy assassination by rattling off a series of unconnected activities that eventually appear to implicate all the United States armed forces, its intelligence services, most foreign governments, the ever-complacent media, Congress, the Vice President, perhaps every male in the Dallas white pages, The Man Who Could, the Woman Who Wouldn't, Moses, Christopher Columbus! It is a conspiracy so vast that it keeps its secrets by the simple expedient of leaving virtually no one outside the conspiracy to whom the conspirators could spill the beans!

Not to be outdone, Patrick McGeehan of the New York Times has today discovered in his breathless excitement that Enron's Deals Were Marketed to Companies by Wall Street! Imagine that.

But Citibank and Chase Morgan - the banks that created and marketed those "shady" products for Enron - entered into settlement agreements with the federal authorities in which those financial institutions admitted no wrong. And the British High Court has held that some of what were supposedly the more "fraudulent" special purpose structures were not fraudulent at all - and were properly accounted for. The Enron scandal just keeps getting smaller.

But what of Mr. Fastow, the Great Satan himself? We are now apparently to believe he did it all with the help of a few "accomplices." He has pled guilty to intentional fraud and received a jail sentence for it. If his plea is true, that pretty much implies that Enron's finanical statements were also fraudulent. But how much confidence does one have in Mr. Fastow's plea? It was obtained under (legally permitted) duress: the threat of imprisoning his wife and depriving their young children of any parental contact for many years. Why was that duress necessary if Mr. Fastow was the epicenter and virtual sole perpetrator of so many gigantic public evils?

Mr. Fastow apparently committed crimes other than fraud - such as bribing bankers. But when it comes to Enron's financial statements and public disclosure, doesn't Mr. Fastow look a lot like a garden variety scapegoat?