WASHINGTON--Washington--narcissistic and even solipsistic, as usual-- thinks Enron's collapse is primarily a Washington, meaning a political, story. Actually, the debacle is, so far, primarily a tale of two other cities. Houston is Enron's hometown. New York is the center of the financial system that Arthur Andersen is supposed to serve. Andersen is the document-destroying accounting firm that failed--assuming, generously, that it tried--to report accurately Enron's activities.
However, Washington will star in subsequent acts of this drama that may live on, in litigation, longer than anyone reading this column. Events since Sept. 11 have confirmed Randolph Bourne's 1918 axiom that ``war is the health of the state.'' Enron's collapse is a reminder that economic scandal, too, causes the state to wax.
It will remind everyone--some conservatives, painfully--that a mature capitalist economy is a government project. A properly functioning free market system does not spring spontaneously from society's soil as dandelions spring from suburban lawns. Rather, it is a complex creation of laws and mores that guarantee, among much else, transparency, meaning a sufficient stream--torrent, really--of reliable information about the condition and conduct of corporations.
Always necessary to economic health, transparency has increasingly become crucial to civic health because of the changed demographics of stock ownership. A nation in which a majority of households own equities is neurologically wired to the stock market. Hence corporate corruption quickly begets political demoralization and cynicism.
Off and on over the years, a few capitalists have done more to delegitimize capitalism than America's impotent socialist critics ever did or today's moribund left could hope to. It is the Republicans' special responsibility to punish such capitalists.
Democrats are properly put on the defensive by corruption in organized labor and the ditziness of the cultural left. Similarly, Republicans, beginning with their post-Civil War coziness with corporate America (tariffs and all that), have had a special responsibility to police business outlaws.
Fortunately, those in the Bush administration who were approached on Enron's behalf evidently did exactly what government should do for fools and clever knaves who are ruining a corporation: nothing. But now there are things to be done.
Indignation is a precondition for whatever new laws and regulations are required to prevent behavior such as Enron's. It has been said that the absence of honest emotion is the shared characteristic of American politics and professional wrestling. One would like to hear from President Bush, regarding Enron's executives, the sort of anger he expressed over the possibility that the crybaby Secret Service agent, whose behavior caused an American Airlines pilot to bar him from a flight, might have been a victim of illegitimate profiling.
Instead, we have heard Bush's slippery--Clintonian, actually--assertion that Enron's CEO Ken Lay ``was a supporter of Ann Richards in my run in 1994'' for governor. Well, yes, but no. Lay contributed to Richards. And he contributed much more to Bush.
When the president finds his proper voice, he should say:
Arthur Andersen was both accountant and consultant for Enron.
The resulting coziness reeked of conflict of interest, and surely helped produce Enron account books that should be filed under ``fiction.'' Enron never reported even a bad (BEG ITAL)quarter
before collapsing. Consulting by accounting firms should be proscribed. And what is the point of ``peer reviews'' by the big accounting firms of one another's work if it does not discern an approaching train wreck such as Enron's?
A few senior Enron executives sold their Enron stock when they realized they were steering their ship onto the rocks. In some crucial final days, employees, locked in steerage like the lower orders on the Titanic, were blocked from selling the Enron stock that comprised, on average, 62 percent of employees' 401(k) holdings. (At 120 large corporations, employees' 401(k) plans have at least one-third of their value in their employers' stocks.) If insider trading and other laws do not proscribe such things, they should.
Amid the debris of Enron, the functions and liabilities of boards of directors need fresh scrutiny. Many boards have proved themselves unwilling (there are myriad forms of coziness between corporations and their directors) or unable to stop the most scandalous practices regarding senior executives' compensation, practices not easily distinguishable from the looting of shareholders' wealth. Let us have, at a minimum, congressional hearings that embarrass the looters, if they are capable of embarrassment.
Now Washington takes center stage. By casting a cool eye on Enron's debris and those who made it, government can strengthen an economic system that depends on it.