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The Damage Done

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The usually reliable Wall Street Journal gets it wrong [2] (sr) assessing the damage caused by  Lay and Skilling et al  in the Enron debacle:

Meanwhile, the damage done from this fraud was terrible: tens of
billions of dollars in market value, $2.1 billion in pension
obligations, and 5,600 jobs lost in the December 2001 collapse.

That isn’t the damage from their fraud. That’s the damage done when any company is poorly run—lost value and employees having to come to grips with lost pensions and having to look for work.  In the case of Enron, the market value was apparently a phantom—the fraud merely covered it up.

The real damage was the cost to capitalism imposed on all of us whether or not we worked for Enron or held its stock. The real damage was the disillusionment Lay and Skilling caused in the hearts and minds of Americans and the political response to that disillusionment, a new set of regulations that were unnecessary to catch and punish the Lays and Ebbers and others and that instead has made it dramatically more costly for a company to go public rather than remain private.

Lay and Ebbers and the rest of them betrayed their workers and their stockholders.  But most of all they betrayed the ethos of their professions that led to harm to all of us.

In that sense, these dishonest CEOs are most analogous in their impact not to a CEO who runs a company poorly that leads to bankruptcy, but rather to the shoe bomber. The shoe bomber’s evil desire to kill a few hundred innocent people never came to fruition. But the result is that air travel is less convenient for hundreds of millions of people forced to remove their shoes and be inconvenienced with little gain in security.

The crimes of the Enron execs and their ilk are not as heinous as the intended crime of the shoe bomber. But their immorality in violating their fiduciary commitments did far more than harm the people connected to Enron. The regulatory environment that was the result of their misbehavior is the real damage done. And that regulatory envirnment has numerous costs with few if any benefits. Millions of people bear those costs in unseen ways. To paraphrase Neil Young [3]:

I’ve seen the scandal and the damage done
A little part of it hurt everyone
Gone, gone, the damage done.