Current Editorial
ENRON, The Trouble With Bubbles


30 January 2002
Hi everybody:

I very much agree with the message contained in the philosophical article (from New York TIMES) that is forwarded below.  I suggest that the thought it contains has a great deal to do with the difficulties we are encountering in the EMF-health hazards struggle.....

Edward Chancellor's article talks about societal and cultural behavior in times of wealth "bubbles."  It talks about the optimism, HYPE, and reckless exuberance that takes charge of society during such periods of inflated 'illusionary' economic wealth expansion.  "Illusionary" is my word, but it accurately reflects the writer's theme.  "Hype" is also my word, but "P.R." and press and political rhetorical HYPE is always a central force driving such "bubble" periods.....

The REAL consequence of the "bubble" effect, I submit, is a loss of vision ... as to what the REAL priorities and values (goals) of the society are -- or should be......

As I (and others) have pointed out many times in messages within this list (and on my website), we -- the American society, PARTICULARLY our government!! -- seem to have totally lost sight of what our goals and priorities should be ... as we careen wildly down a path of wanton pursuit of wealth, PROFIT$$$$$ and the daily value of the stock prices on Wall Street.....

Instead of such QUALITY OF LIFE GOALS as: public and private "health," environmental preservation, education, public service infrastructure, fairness in economic opportunity (including a reasonably egalitarian pension or "social security" system and a fair minimum wage), public protection against individual and corporate EXPLOITATION by the TOP 5% over the "other" 95%.......;

Instead of all those "quality" goals ... America (particularly the government and the politicians) is on a path that has put profits ahead of people, daily stock market prices ahead of honesty and integrity, and the national interest (such as the quality of life issues listed above) subservient to the interests of BIG $$$$$$$ corporations......

[And -- of course -- maintaining BIG $$$$$$$$ corporate TAXES even lower than that of the middle class; when compared on a comparable basis of taxes ACTUALLY PAID rather than the meaningless tax rate tables......]

We can see it all ... right there ... in the ENRON story......!!!

Will we learn from it???   Or will the Bush Administration (equally bad was Clinton/Gore) succeed in once again diverting our attention from their own GUILT and INVOLVEMENT in the tangled mess of governmental, corporate, and individual greed that is -- in fact -- THE SYSTEM today!

The SYSTEM is NOT working -- except for the special benefit of a very few "insider" special interests who (largely through their control of the machinery of government and the media) can manipulate it for their own special interests......  That situation is called: oligarchy.....


Roy Beavers (EMFguru)

It is better to light a single candle than to curse the darkness.....

The only thing necessary for the triumph of evil is for good men
to do  nothing.....     .......Edmund Burke (1729-1797)



Copyright 2002 The New York Times Company

January 27, 2002

The Trouble With Bubbles


LONDON As Walter Bagehot, the great 19th-century editor of The Economist, put it: "The rocks only show once the tide has gone out." In recent months, we have seen the tide of sentiment and wishful thinking, which buoyed Enron in its rise to glory, subside. The rocks, upon which the company was scuppered, emerge in ever sharper form. However, the Enron affair is not an isolated case. On the contrary, it can be seen as representative of the greatest speculative mania in the history of the world.

Speculation predates the Internet, of course, and Enron existed before Internet mania took hold. But in its hubris and attending hype, in its focus on earnings instead of ethics, in its insistence that it is unique and unprecedented in touting its innovative use of technology Enron stands as the quintessential Internet company. And its fall, like the bursting of the Internet stock bubble, has been spectacular.

One of the characteristics typical of a bubble, and especially typical of the Internet bubble and Enron, is blinding arrogance. Enron called itself the "world's greatest company" (or sometimes just the "world's leading company"), while the media raced to pile on the superlatives, dubbing Enron the "most innovative" company in America, one of the "fastest growing," one of the "most admired." Small wonder that Enron's meetings with outside investors have been compared to revival meetings.

The Houston energy company was both a leading proponent and beneficiary of the Internet boom, moving its energy trading business to an online platform. The company's Internet ambitions did not end there: it spent billions of dollars constructing a telecommunications network for trading bandwidth and delivering "killer app" services like video on demand. Enron also invested heavily in Internet and technology companies. Enron was the quintessential "weightless company" of the Information Age. Its "knowledge assets" were said to be infinitely "scalable," while the markets it hoped to dominate were forecast to be soon worth trillions of dollars.

Speculative bubbles frequently occur during periods of financial innovation and deregulation. Enron was a prime beneficiary of the deregulation of the American utility industry. By developing trading markets for energy products (and many others), it extended the financial revolution of the last quarter of a century. With characteristic hyperbole, Enron's management boasted that it could manage risk better than almost any company in the world. However, it is now clear that Enron used financial engineering to conceal risk. The failure of Enron reveals a culture of lax regulation another common feature of bubble periods.

During manias, there is a tendency for businesses to be managed for the immediate gratification of speculators rather than for the long-term interests of investors. A decline in business ethics is another common feature of boom periods. At such times, the conflicts of interest, inherent in the business world, tend to be abused. In Enron's case, the abuse of the conflict of interest between management and shareholders, or the "agency problem," as economists call it, can be measured by the difference between the more than $1 billion raised through share sales by Enron's executives and directors and the many billions of losses of by outside investors.

There were also multiple conflicts of interest between Enron and its outside advisers. Arthur Andersen earned more from its consulting services for Enron than from its auditing work. In time, we may discover whether this conflict of interest was the cause of Andersen's acquiescence in Enron's deceit.

Enron's relationship with Wall Street reveals similar conflicts. Analysts employed by the investment banks eager to provide services to Enron remained bullish on the company long after others had started to raise questions regarding the opacity of its balance sheet and its low returns on capital. Merrill Lynch put money in Enron's "special-purpose vehicles" and raised hundreds of millions of dollars from others to invest in the same. Dozens of investment banks received information about the true nature of Enron's financial situation, yet because they received it on a confidential basis, they could not share it with their brokerage clients.

Speculative manias frequently end in a wave of lawsuits and calls for greater regulation. Last year, following the collapse of the Nasdaq and the abysmal record of many I.P.O.'s, shareholder class-action lawsuits reached record levels. Enron will no doubt keep lawyers busy for years. The conflicts of interest suggested by the Enron scandal are already provoking calls for tighter regulation of derivatives, as well as the accounting and investment banking professions.

In his classic book "Lombard Street," Bagehot wrote: "The good times . . . almost always engender much fraud. All people are most credulous when they are most happy. . . . Almost everything will be believed for a little while." In the bad times that inevitably follow, people are less happy and therefore less credulous. Their vision of entrepreneurs is more jaded, investors are more suspicious and business morals more strict.

Under such circumstances, grand corporate frauds are more difficult to perpetrate. Perhaps a little less happiness is a small price to pay for a little more honesty.

Copyright 2002 The New York Times Company

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