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February 25, 2002 — The unfolding Enron spectacle is a cautionary tale about the fatal quicksand of irrational exuberance and greed, deceit and nondisclosure of pertinent public information, and government officials beholden to powerful private interests.

And beyond the daily details and sensational revelations, there are sobering questions now about the extent of “Enronitis.” Some two-thirds of the American people believe Enron’s shady accounting shenanigans are common among U.S. corporations today. It is painfully obvious that financial reporting standards have deteriorated in recent years, with corporate annual reports sometimes little more than indecipherable fictions with footnotes. Public companies revised their financial results 464 times between 1998 and 2000, an average annual rate five times as high as that during the previous two decades, according to a study by Financial Executives International, a trade association for corporate executives. Another survey in 1998 of about 100 chief financial officers at public companies found that two-thirds of them had been asked by other senior executives to misrepresent their companies’ results.

At stake here is nothing less than the integrity of our securities markets and investor trust and confidence in the American financial regulatory system. Of course, what some people are calling the biggest financial and political scandal since Teapot Dome of the 1920s also has its share of irony.

For example, in July 2000, Enron distributed a Code of Ethics to all of its employees, and, according to The Washington Post, in a memo, company chairman Kenneth Lay ordered everyone to acknowledge in writing that they had read and understood it. “Business is to be conducted in compliance with all applicable local and national laws and regulations, and with the highest professional and ethical standards.”

Alas, we now know that those were empty, window-dressing words. Just sixteen months later, America’s seventh largest corporation effectively announced that its phenomenal success of the preceding five years had actually been a lie. Instead of the huge profits reported previously, Enron had lost $586 million. Weeks later, in early December, the company collapsed, producing the largest corporate bankruptcy in U.S. history. For a good portion of that same tumultuous time, Enron employees were prohibited from unloading the Enron stock in their retirement plans.

A “culture of deception”

A recently-concluded special investigation by the Enron Board of Directors found a pervasive “culture of deception” that also included numerous, secret partnerships, some of them offshore, in which certain top Enron executives “were enriched by tens of millions of dollars they never should have received.”

The off-balance sheet financing and self-dealing that benefited Enron executives were perfectly reasonable to the major accounting firm of Arthur Andersen, in its audit of the company’s balance sheet and statements of income. “In our opinion,” the firm declared year after year in Enron’s annual reports to the Securities and Exchange Commission, “the financial statements referred to above present fairly, in all material respects, the financial position of Enron Corp.”

Similarly, The New York Times has reported that as late as last October, Enron’s principal law firm, Houston-based Vinson & Elkins, also saw nothing inappropriate with the web of backdoor transactions made by the most senior company officers.

In other words, certified public accountants and members of the bar, with prescribed, professional obligations to the public, winked and in some cases shredded while shareholders and employees were being defrauded by their clients.

The Federal Bureau of Investigation and 11 congressional committees are examining the whole rotten mess, including evidence that both Enron and Andersen destroyed thousands of documents while fully aware of their potential relevance to the various criminal and civil inquiries. At nationally televised congressional hearings, six top Enron officials, including former chairman Lay, have refused to answer any questions, citing their Fifth Amendment right against self-incrimination. This unfolding drama, of course, has all of the accoutrements of classic scandal, from courageous, unheeded company whistleblowers to a tormented, former corporate vice chairman who committed suicide last month.

Indeed, this garish spectacle is simple and viscerally understandable to us all, with symbolism as rich as any found in Greek tragedy. There are literally thousands of sympathetic, real-life victims and a host of rich, arrogant villains. According to shareholder lawsuits, 29 top Enron executives allegedly cashed in $1.1 billion in company stock before it crashed. So while Chairman Lay made $205 million in stock option profits over a four-year period (his sobbing wife Linda recently telling NBC from their $7 million Houston penthouse that “There’s nothing left”), thousands of Enron employees have lost their jobs and their retirement savings. And collectively investors have lost more than $60 billion, in a period of just six months.

Abettors in high places

But the most precipitous corporate collapse in American history is much more than a financial scandal. It is also a political scandal of historic proportion, with potentially huge public policy ramifications. There is no better example in modern times of the symbiosis between commerce and politics, between wealth and power, between access and influence. That this morality tale ultimately ends with truth and consequences might be heartening on one level, of course. But let us not forget that before the awful, inevitable, financial day of reckoning that has befallen Enron, its employees and its investors, the field of schemes for this calamity necessarily extended well beyond Houston. Enron’s influence, and the taint of its collapse, touches Washington, D.C., and every state capital in America. The financial chicanery and excesses were enabled by the supposed elixir of government deregulation, limited liability, and minimal reporting requirements for the energy futures, securities and accounting industries.

Not only were government laws and policies changed over the past decade for the favored few, all in the name of free market competition, in the specific case of Enron, I don’t remember anyone in Washington saying, “Houston, we have a problem.” That’s because enablers usually don’t interfere or intervene; by definition they allow and encourage, especially when they themselves are besotted and compromised.

Enron’s political influence has been pervasive and ubiquitous. The company and its executives contributed nearly $6 million over the past decade. Seventy-one current senators and 186 of their colleagues in the House have taken a share. Republicans have received 74 percent of this largesse, according to the Center for Responsive Politics.

Enron’s biggest investment

No politician in America today is closer to Enron than George W. Bush. As first reported by the Center for Public Integrity in The Buying of the President 2000, Bush’s top career patron was Enron. The company and its employees gave the Governor of Texas $550,000 in the six years before the January 2000 Iowa and New Hampshire caucuses and primaries. Enron later gave $300,000 for the Bush inaugural celebration alone. A few senior Bush administration officials today formerly worked for Enron, and at least 34 of them held Enron stock when they entered government last year. Bush’s father, while Vice President and then President, received major campaign funding from Enron and assisted the company’s Washington policy agenda in different, specific ways. Enron chairman Ken Lay was co-chairman of the Bush re-election campaign and chairman of the host committee of the Republican National Convention in Houston in 1992.

As respected political analyst and author Kevin Phillips recently wrote in the Los Angeles Times, “not in memory has a single major company grown so big in tandem with a presidential dynasty and a corrupted political system. Indeed, the Bush family has been a prominent and well-rewarded rung in Enron’s climb to national political influence.” The Bushes have done various government favors for Enron, in Texas and Washington, from the late 1980s to today. And the fact that Cabinet Secretaries Donald Evans and Paul O’Neill did not respond favorably to Enron’s entreaties for a federal bailout last October – which politically was unthinkable and thus an easy decision – doesn’t diminish the longtime closeness and mutual dependence.

Indeed, despite clumsy and disingenuous statements to obfuscate the true nature of the close Bush-Enron relationship by the President and his White House press secretary, in which a decade of familiarity disappeared and “Kenny Boy” became “Mr. Lay,” the public fortunately does recognize the Texas Two-Step when they see it. According to a CBS News/New York Times poll late last month, regarding the Enron matter, 67 percent of the American people believe that members of the Bush administration are “hiding something” or “mostly lying.”

Given this strong sentiment, stonewalling congressional requests for information about Vice President Richard Cheney’s Energy Task Force meetings with Kenneth Lay and other energy corporation executives is wrongheaded and illogical, and only stokes public suspicions. And it hardly instills confidence, frankly, that Harvey Pitt represented Arthur Andersen and the Big Five accounting firms, successfully lobbying against proposed new accounting ethics rules, before being appointed by Bush to be the chairman of the Securities and Exchange Commission. Pitt has not been notably sensitive to the public’s concerns about his independence and objectivity in the Enron-Andersen matter, and self-regulation by the accounting industry was his first impulse when the scandal hit.

Whatever specific facts emerge as legions of investigators now thoroughly examine the entrails of Enron, we have all been reminded of an inexorable truth, most eloquently iterated more than two centuries ago by James Madison, “If men were angels, no government would be necessary.”

We have learned the hard way that companies do not always protect the rights of their employees’ pensions. Accounting firms do not always accurately audit their clients’ books, whether their clients are savings and loan scam artists or energy barons. And politicians do not always represent the broad public interest, but too often the narrow economic interests who sponsor their election campaigns (less than 1/3 of one percent of the American people write a check of $1,000 to any federal candidate or political party).

The lemonade from the current lemons of the Enron scandal might be new laws safeguarding 401(k) pension rights, regulating the practices of the accounting industry and reducing the influence of money in our federal elections. As commentator George Will recently noted, the sordid spectacle of Enron “remind(s) 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.”

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Charles Lewis founded the Center for Public Integrity in 1989 and served as its executive director until...