I have often heard that Enron was an example of a failure of deregulation, but I’m short on specifics? Anyone got a cliff notes version from an Austrian perspective?
Just from some quick searching, let me post some links:
http://www.cato.org/event.php?eventid=4899
The way I also understood it was like this: Enron operated in the cracks of crazy regulatory schemes created by politicians. They were also very buddy-buddy with politicians.
“Enron’s boom and bust is the story of how company founder and chairman Ken Lay developed a sophisticated business model based on rent-seeking (political capitalism). Of particular note, Enron tried and failed to parlay climate alarmism, “energy sustainability,” and social corporate responsibility into business viability.” - Cato link
I would also add that as Enron’s financial situation deteriorated, they adopted business practices of selling stuff to subsidiaries, putting the sale as income and never adjusting for the loan on that income.
The reality and the main steam media reality were two different things. The reality is that the business model was a complete failure and as the executives tried more and more desperate measures to save the company they kept digging a larger and larger hole for themselves. Eventually the whole thing crashed. Not one of the executives who supposedly sold their shares actually sold all of their shares. The CEO Ken Lay did not sell all as the media reported but kept I heard most of his shares that became worthless.
Keep in mind that what Enron did was against Generally Accepted Accounting Principals but…
Congress does this all the time. They take money from Social Security and never keep the liability.
Fannie and Freddie and AIG were much worse as Enron only lost its stock price but these jokers used the government to stick tax payers for gazillions.
I don’t know the whole story. So I have two questions :
1/ Who is the culprit ? The S.E.C. ? Arthur Andersen ? The prohibition of Insider Trading ? Or… the principal–agent problem ?
2/ I don’t understand what this passage about “corporate law” is saying.
http://www.econlib.org/library/Columns/Mcchesneyenron.html
“Which raises a third, crucial lesson. Not only are shareholders already protected legally, but in the American legal system they are protected by state law. (I have not read of any Congressional committee evaluating the laws already protecting Enron shareholders, have you?) Although Ralph Nader and others tried hard to federalize corporate law in the 1960s and 1970s, nothing of the sort resulted. Just as there is no federal law of contracts, or federal law of property, there is no national corporate law. Similarly, any criminal fraud here is covered by existing state law. (There is a national system of securities regulation, but the Enron story is not about securities violations other than those already illegal by standards of traditional state-law fraud.)”