Cheerleaders and Con Artists.
I've really been meaning to put the convictions of Ken Lay and Jeffrey Skilling into a broader context for over a week now, and a combination of other interests, burnout, work load, and family have pretty much killed it. But its been running through my head for a week, and I think it is time to record my thoughts.
The Lay and Skilling convictions were pretty much the last act in a series of high profile trials of the robber barons of the last decade of the 20th Century. Like the Rigas Family (Adelphia), Bernie Ebbers and Company (MCI/Worldcom), every individual charged was ultimately convicted.
But there's so much more to this story that really ought to be examined, because it was really only in the culture of the late 1990's that this could have happened.
If there was any variable that enabled Ken Lay, Bernie Ebbers, etc. to bilk ordinary investors on a scale that would have made the robber barons blush, it was the rise of internet-based stock trading. Like the Roaring 20's saw a lot of Americans enter the stock market who had absolutely no idea what they were doing, the 1990's saw the rise of the Internet, both as a target of big dollars in venture capital, and also with lots of money chasing it in the markets. Most of the frenzy was driven by small traders making stupid trades. The money didn't get any smarter anytime soon.
This led to the creation of two things that really were new. The massive phenomenon that was CNBC, which was to the late 1990's internet trading boom what CNN was to the first Iraq war. While Desert Storm made Wolf Blitzer a star, the internet boom, and CNBCs hunger for ratings made Wall Street Analysts like Henry Blodgett into stars. Markets hung on their very words, and that word, even when the Internet boom was long over, was always buy. Blodgett is gone now, along with a host of others who essemtially acted as highly-paid publicists for a whole host of companies with questionable viability, business plans, and even worse management. All this is well documented fact.
CNBC in the late 1990's was little more than pornography for the terminally greedy, and particularly the greedy that were terminally stupid. interviews with an analyst pumping whatever stock his company had just signed an investment banking deal with in the morning, followed by more such analysts at noon, followed by recaps of all the money people had made, all of it on paper, of course, in the evening. CNBC had the kind of ratings no business news program had ever enjoyed, or willl ever enjoy again. Frankly, I blame Jack Welch almost as much as I blame the Ken Lay's of the world for the fraud and corruption on Wall Street in the 1990s.
The third part of this perverted triangle of naked greed was the Republican Congress and Democratic President at the time. Bill Clinton, for all the Republican gnashing of teeth, was essentially a moderate Democrat on social issues, and pretty much dead center to center right on economics (Exhibit A: Signing NAFTA). While this certainly made him a lot better than the economic tyros who've sat in the White House as bookends (Bush I & Bush II), it also meant that he wasn't all that concerned about investors or workers as long as big business kept cutting those checks to the DLC every month.
And from 1994 onward, to make matters worse, he had to deal with the current nut job Republican Congress, who saw nothing but dollar signs as far as the eye could see. For over a decade, this Republican Congress has gleefully cut enforcement funding for the SEC. To make matters worse, when things started to melt down in 2001, the Bush Administration didn't exactly pursue the investigations with enthusiasm. It took a Democratic New York Attorney General, Elliot Spitzer, to really start to look at the financial services industry and shame the SEC into action.
But the truth of this is that there are a lot more Ken Lays out there, who were never caught, who slipped under the radar, and still lurk. It's something worth remembering. Because Enron operated for close to a year under the Bush Administration when the warning signs were abundantly clear. They bankrolled his travel for the 2000 campaign. They encouraged the White House to leave the citizens of California in the dark of rolling blackouts. They almost certainly played a role in the Bush Administrations largely successful efforts to shape energy policy to the benefit of the coal, oil and gas industries.
And they did all of this under the nose of a Republican Congress that was uninterested in funding enforcement efforts, and a Republican President who himself was once the subject of insider trading allegations (Harkin Energy) and a Republican Vice President who still draws bonuses from an oil service company (Halliburton).
Corruption doesn't happen in a vacuum. This one didn't. And the political conditions for that corruption, with the same Republican Congress and President as that of 2001, if anything, are more ideal now than they were in the late 1990s.
Something to think about as we continue to read stories of this case going through the appeals process, I think.

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