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ENRON: the collapse


Nobody has said 'sorry' so far

By Tracy Corrigan
Published: October 19, 2008, 00:03

To err is human, and so is the desire to rub other people's noses in their mistakes. But there is one thing that brings us up short in our wish to find fault, and that is remorse. More than a year into the financial meltdown, there has been very little sign of that from anyone.

Alan Greenspan, the former US Federal Reserve chairman, who helped create the conditions for the crisis by keeping interest rates too low for too long, seems entirely unabashed. I have heard Sir Martin Jacomb, a former chairman of Barclays, call for bankers to show more contrition, but I haven't caught any of them doing so. Nor have I noticed any regulators admitting that their oversight was inadequate, or accountants apologising for letting through shaky numbers.

This is not altogether surprising. An instinctive desire to shirk blame is not the only reason for the silence. In America, shareholder lawsuits have started to fly, and class action lawyers have been setting up shop in London. Saying sorry could be construed as an admission of guilt, and bankers are no doubt being counselled against it, which must be nice for them.

In America, where the desire to atone seems no more pronounced than anywhere else, the matter is frequently taken out of executives' hands. What do the former bosses of corporate giants Tyco, WorldCom and Enron have in common? Answer: Dennis Kozlowski of Tyco, Bernie Ebbers of WorldCom and Jeff Skilling of Enron are all doing time, admittedly for company-specific fraud.

Privatised gains, socialised losses.

I'm not suggesting that we string up all the bankers connected to the credit crisis. In a global financial crisis that catches almost all businesses in its wake, it is much harder to distinguish the victims from the perpetrators, and the well-intentioned, who may have made honest mistakes, from the negligent. But that doesn't mean it isn't worth trying.

The Federal Bureau of Investigation is currently examining the conduct of 26 businesses affected by the credit crisis, including Lehman Brothers, AIG (American International Group) and mortgage giants Fannie Mae and Freddie Mac. Last week, the former chairman and chief executive of the bankrupt Lehman, Dick Fuld, was subjected to a grilling by a House of Representatives committee. In his testimony, he blamed a systemic lack of confidence, short-sellers and regulators, but he didn't blame himself - not even for his failure to make more of an effort to find a buyer for Lehman while he still could. But at least he had to sit there being publicly castigated.

From the vigorous debates on the Treasury Secretary's bail-out plan to the regular grillings of bankers and executives by politicians, America's open democratic system appears to be fully functional, even if its banking system isn't.

Within the next few years, I would imagine that more than one American executive will be behind bars as a result of his role in the credit crisis. I very much doubt that will be the case in Britain. The Government has - rightly - won accolades for its smart response (latterly) to the crisis. But there has yet to be a full debate in Parliament on the nationalisation of the banking sector, and the Treasury Select Committee does not appear to have any plans to call executives from the British banks receiving taxpayers' money.

If their answers are anything like as unconvincing as those of Fuld - who responded to the charge that executives had privatised gains and socialised losses by noting that Lehman Brothers had tried to align shareholders' and employees' interests - at least we would have the satisfaction of seeing them wriggle in their seats.

I'm also losing patience with countless attempts to create some sort of moral equivalence between bank bosses who were paid a lot of money to run their institutions professionally, and consumers who suddenly found themselves with more debt than they could handle.

It is one thing to chastise style-obsessed shopaholics who run up massive credit card bills by living beyond their means. But pouring scorn on people who, struggling to climb on the housing ladder, jumped at the offer of 100 per cent mortgages peddled by the banks, seems grossly unfair. Gearing up to buy a thin-walled, two-bedroom flat a stone's throw from the North Circular looks more like desperation than greed to me.

In America, there is evidence to suggest mortgage brokers were encouraged to push products at sub-prime borrowers in order to feed the securitisation machine, earning big fees for investment banks. Did that happen here? We need to start getting answers. But we aren't even asking the questions.

- The Telegraph Group Limited, London 2008

Enron Homepage

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Comment & Analysis

After Enron graphic

Reforms to restore confidence in business
Although investigations into Enron are continuing, and criminal prosecutions may follow, we cannot wait to learn the lessons. They are already clear. They must be acted on now. In this special report, we set out the FT's view on how to achieve this.|?Read

Corporate governance
graphic Giving meaning to the codes of best practice
At the heart of the Enron scandal is a failure of corporate governance. Similar lapses can be found in most big scandals. But they also exist where there is no scandal, merely poor performance or entrenched mediocrity.

Auditing & accounting
graphic Honest numbers require robust rules and policing
When a company and its auditors both shred documents, something has gone badly wrong with the accounting. The events at Enron require reforms both in the nature of the accounting rules and in the way those rules are policed.

Trading & markets
graphic A fresh look at rules for energy and finance
In one respect at least, Enron was a most unusual company even when things appeared to be going well. It was a huge, unregulated trading company - in effect, an investment bank that escaped all the normal prudential and conduct of business rules.

Outside observers
graphic Unofficial watchdogs need sharper eyesight
If the immediate custodians of Enron's behaviour - its board, the auditors, stock market regulators - fell down on the job, so did the outer ring of watchdogs, such as credit rating agencies, stock market analysts and business reporters.

Enron president Jeffrey McMahon stands down

Enron logo Jeffrey McMahon, president and chief operating officer of Enron, the bankrupt energy trader, resigned effective June 1. "I believe that making room for new leadership before we announce the plan for the new company is best for Enron's stakeholders and for me," said Mr McMahon, who confronted senior executives about improper accounting practices that led to Enron's collapse. 01:36  | Read

Class action names players in Enron scandal

An array of executives, lawyers, bankers and institutions were formally named on Monday in an amended class action complaint for their alleged role in the Enron scandal. 00:44  | Read

Latest Headlines
Andersen drops Enron shareholder offer to $300m

Enron in-depth - taking a closer look
The Financial Times takes a deeper look at Enron and the events surrounding its collapse in a special series of features on the collapsed energy trader.
click here

Andersen's demise
graphic Editorial comment: Countdown to four
The Fat Four. It has such a ring to it, it feels as though it has happened already: that the world of accountancy is now dominated by just four firms instead of the Big Five.

Accounting after Enron
comment analysis Rewriting the books
A special investigation into accountancy in the wake of the energy giant's collapse, examining the corporate, regulatory and accounting industries response to events.

Corporate responsibility
graphic Feeling the heat
George W. Bush wants chief executives to become more accountable for financial problems at their companies following the collapse of Enron.





Feeling the heat
In early 2000, as they rode the wave of what would become the longest economic expansion in US history, America's chief executives could do little wrong. They were lauded by the media, highly rewarded by shareholders and largely left alone by regulators and lawmakers. That era has long since passed, given a final kick into history by the collapse of Enron, the energy trader.



Enron ties itself up in knots, then falls over
In their only public statements since Enron filed for bankruptcy on December 2, top company executives have blamed its demise on a collapse of confidence in financial and energy markets. But public documents filed before the collapse, and others that have since emerged, reveal that the seeds of destruction were sown among a network of affiliates established by the energy trader.


Enron profits Enron: virtual company, virtual profits
As congress prepares for an intense round of questioning of Enron directors and officials, there is a growing suspicion that at the heart of the once-mighty energy trader was a financial hole. Evidence is accumulating that the Houston-based group, which boasted of being asset-light, may also have been light on profitability at core operations.


Jeffrey Skilling Enron chief scorned asset division
It was a tale of two businesses. Enron's aggressive trading arm, promoted by former chief executive, Jeffrey Skilling, brought it stock market favour, a rocketing share price and its eventual demise. The other part, largely concerned with developing and running energy generation and transmission assets, was scorned by Mr Skilling, who spoke of creating an "asset-light" company.


Enron Energy Services Commissions culture drove Energy Services offshoot
Although the internal report published by Enron's board blamed the company's collapse on the energy trader's top executives, a Financial Times investigation reveals that mid-level executives in at least one major Enron division, Energy Services, (ESS) also used the aggressive accounting that contributed to Enron's demise.


Skilling testifies The day the lights went out at Enron
Jeffrey Skilling, former Enron chief executive, testifies to a congressional committee portraying himself as a distant, sometimes shambolic figure who had no idea that millions of dollars in debtswas being stashed into off-balance sheet partnerships. "The Enron corporation was enormous," Mr Skilling told investigators. "Could I have known everything going on everywhere in the company?"


Money web Enron: big bucks from a company
With politicians from Colorado to Washington admitting they were beneficiaries of Enron, it is clear the influence of the nation's seventh largest company was wide. In Enron's home state of Texas, it was also deep. Those who tracked the company's 15-year transformation into the country's biggest energy trader say Enron had the loyalty of Texas until it collapsed.


Enron markets The days that Enron shook the world
Enron's collapse was felt from the company's Houston headquarters across the globe to the boardroom of a Japanese auto components maker and the shareholder assemblies of Australian banks. This FT focus looks at the shockwaves from Enron's bankruptcy as they rippled round the world 10 days after its December 2 Chapter 11 filing.

FT investigation
enron Enron: virtual company, virtual profits
Amid intense US congressional questioning of Enron directors and officials, there is a growing suspicion that at the heart of the once-mighty energy trader was a financial hole.
















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