Comments

Everyone's (the SEC's and investors' in particular) moralising about the Skilling-Lay verdict and the fact that both of them should have to pay for deceiving shareholders shows once again how unwilling we are to accept our own part in processes. The moralising is dangerous too, because it clouds the real reason "an Enron" came about at all - investor greed.

The unprecedented rise of the Enron stock price in the late 1990's was as much the investors' faults as it was Skilling's and Lay's - at least from a greed standpoint. Who in all honesty could say that back then, had they FOUND OUT there was a fraud at Enron, with $100K+ of their 401K invested in the stock, and being given the options of either "doing the right thing" and exposing it or to just "keep ploughing ahead" and keeping it internal they would have chosen the former? Anyone with the slightest common sense would NEVER have invested in Enron at that price anyway - a gas company growing at that rate at a time when gas prices were pretty even and margins almost razor thin? - no one should have even listened to a CEO of a company like that were they rational! No, rather it was shareholder greed which above all drove that end result.

The SEC can only do so much - if investors get greedy to the point where they ASK for ANYTHING - fraudulent operations (Enron), redundant business models (Pets.com), or unsustainable long-term business plans (Boo.com) - just as long as it makes them rich on a rising stock price, they're going to get it.

Where are the voices of the majority (me included) who got just a little too greedy admitting some kind of personal blame in all this? It's always easier to pass the buck, but I think the incessant moralising over this case indicates it's high time the buck stopped with everyone invested, hoping for another year of 300% growth no matter what. Otherwise it's only a matter of time before it happens again.

Posted by Daniel M. Harrison at May 30, 2006 5:41 AM

Tom - William Jefferson [$90K of FBI money in freezer boy]- how do you weigh in - Senator Frist thinks the Exec Branch exercised appropriate authority - I agree. Not to be confused with corruption in William Jefferson Clinton admin.

Posted by Sean at May 30, 2006 6:03 AM

GREEDY INVESTORS
There is some merit to your argument, but in the end, I disagree. In a free enterprise society, the presence of consumer demand, even a lot of it, doesn't justify providing supply. We outlaw child porn and restrict the use of drugs like heroin and tobacco to specific people in specific places under specific circumstances. IMNSHO, that's a key difference between a free enterprise culture and a free market one (like Russia) where anything, including contract killing as a competitive activity, becomes de facto legal.

And let me ask your opinion on this assertion: If there weren't greedy investors, would Lay and Skilling and Ebbers, et.al. have done what they did? I strongly suspect "yes", because it served their needs beyond the pure dollars.

What's your thinking on that...do you think they were motivated by anything beyond the cash?

Posted by jeff angus at May 30, 2006 6:22 AM

The world has always had bad guys and greedy guys. Sadly it always will. Fortunately the good out weighs the bad (I am a glass is a half full kinda guy). The SEC never had a chance to prevent all the crooks from hurting the good guys. But I think that for every crook there are hundreds of hard-working honest people who make life all worthwhile.

Posted by thom singer at May 30, 2006 11:32 AM

Sean, I have no idea. I'm no Constitutional scholar. Regardless of the guy in the White House ("Court Packer" Roosevelt or whomever), I do regard separation of powers in general as Holy--regardless of the particulars of this affair. (Danny & Bill are obviously split on this.)

Posted by tom peters at May 30, 2006 6:13 PM

Daniel, humans being humans (not a pretty sight) there must be mechanisms of self- or judicial-regulation to protect us from the occasional Extreme Madness of Crowds. The whole idea of the three competing branches of government, the differences between the House and Senate, etc, etc are aimed at insuring that momentary madness does not gyrate out of control and produce a Hitler.

Right?

Posted by tom peters at May 30, 2006 6:18 PM

Tom - I agree on effectiveness of USA 3 branches checks and balances and oversight of free enterprise.

I may be biased because of career with federal government - but to me the real corruption is in city - county - state governance and oversite they "provide" due to lack of checks and balances.

Feds get away [in the end] with almost nothing [except in Mexico of course where they've taken payoffs to a fine art].

Posted by Sean at May 31, 2006 3:22 AM

Tom and Jeff,

Jeff: interesting question, was it just the money that drove the Enron guys? I think yes, but I think it's still an oversimflication to say that. Rather, the Enron scenario happened as a slow, stage by stage process - you know, for example, you lie to your wife about where you were on Friday night, then she finds out you weren't in Sutton Place having a beer with the guys and so you say you stopped by the Village to have a drink first ... and pretty soon, you find you were in New Jersey! I think it was probably a mixture of the money ... but mainly the "kill", the egoistic thrill of it all ... (the two are kind of interconnected at that level) ...

And yes, there needs to be regulation but my point isn't really that there aren't people who'll break the rules/do what they can for their own gain etc. and that there shouldn't be people to oversee that process, it's that incessant focus on this point and moral convicion is not constructive to "an Enron" happening again (after all, there are still going to be others willing to pump stock prices for personal gain).

Rather, if the investment society focused on ITS OWN ROLE in propogating such a false market, we stand much more chance of not seeing it happen again. Anger and moral conviction is not what's needed now: it's acceptance of the blame BY ALL PARTIES involved - and that includes the 401K guy who just wanted another $70,000 to buy a Porsche.

Posted by Daniel M. Harrison at May 31, 2006 9:36 AM