The Rise and Fall of Enron

...But they will be hard put to prove that Enron's absorption by a competitor—especially by one that seems interested in maintaining and expanding the free markets fostered by Enron to replace the vertically integrated monopolies that had dominated the energy business—requires a reversal of the deregulation revolution...

...What Enron and Lay deserve to be remembered for is leading the fight for competition...

...A generation of lawyers will very likely get rich as the government and private litigants seek to discover whether Enron sailed close to or over the line...

...Along the way, Enron set up markets in which natural gas could be bought and sold, in which companies could hedge against extreme weather conditions, and in which customers such as shopping mall operators could hire Enron to assemble on their behalf packages that gave them heat, light, cooling, and conservation at minimum prices...

...Which brings us to Michael Milken, another financial revolutionary...

...They are wrong, of course— witness the long-term decline in the prices of electricity and natural gas, where choice and competition have supplanted the local monopolies of yore...

...To say that Ken Lay evoked fear and loathing in establishment boardrooms is to understate the case considerably...

...professor who once served with me (and Weekly Standard editor William Kristol) on an Enron advisory board assembled by Lay to keep him and his team up to date on general public policy trends—have always been uncomfortable with the rollback in government power that deregulation represents...

...We do know that it failed to explain those techniques fully and clearly to the analysts that follow the company, a crowd willing to suffer neglect and abuse when things are going well, but waiting to pounce at the first sign of trouble...

...Ken Irwin M. Stelzer is a contributing editor to THE WEEKLY STANDARD, director of regulatory studies at the Hudson Institute, and a columnistfor the Sunday Times (London...

...By making substantial amounts of debt capital available to the large number of American companies with whom banks would not do business, Milken enabled a group of anti-establishment entrepreneurs— the so-called predators—to wrest control of sleepy companies from the cor-pocrats who felt little need to maximize the value of the assets that their shareholder-owners entrusted to their management...

...For one thing, there is as yet no indication that the mis-takes—among them expensive failures in new ventures and in some overseas projects—were other than honest ones, or that investors were deliberately kept in the dark or misled about the company's finances...

...Liberals such as New York Times columnist Paul Krugman—an M.I.T...

...Why, seeing the downfall of a conservative executive from Texas who, in addition to those disabilities, also led a revolution in two of the nation's key industries—electricity and gas—a revolution that replaced government regulation with effectively operating free markets...

...the establishment" attitude, which some took as just the sort of thing needed by entrepreneurial types setting out to revolutionize key industries, and others took as arrogance...

...Just as Enron created a market for energy in the 1990s, Milken created a market for companies in the 1980s...

...Rather, Enron's enemies are delighting in the downfall of a Houston company that was a big supporter of both Bush administrations...

...This battle was waged in the halls of Congress, in state legislatures around the country, and in regulatory agencies on the federal, state, and local levels...

...But that is a debate for other articles...

...But, like Milken, Enron did challenge and defeat the establishment...

...But there is a deeper level to this delight in Enron's misery...

...Enron's case is different, of course...

...Liberal commentators, who see every shrinkage of government power as a threat to their control over the lives and fortunes of the consumers they deem too lazy or stupid to protect their own interests, will call for reregulation...

...It included a struggle to allow military installations to buy energy from low bidders rather than be forced to buy from the utility serving their areas...

...Enron made mistakes, but creating competitive markets was not one of them...

...Lay, Enron's chairman and the driving force in its transformation from a sleepy, regulated natural gas pipeline into what was until recently the nation's most admired energy company, contributed generously to George W. Bush's campaign, and was consulted by both the president and Vice President Dick Cheney when the administration was formulating its energy policy...

...With some justification: When then-CEO Jeff Skilling famously responded to a financial analyst's question by calling him an "assh—," it was reasonable for the offending questioner and his colleagues on Wall Street to assume that Enron did not have their approbation high on the list of the goals of its financial public relations program...

...It included efforts to loosen the stranglehold on electricity markets of incumbent utilities, who used their monopoly of transmission lines to beat back threats from independent generators...

...They are chortling not just because Enron has been unable to justify to investors some of its complicated financial transactions and now faces an S.E.C...

...As a consequence, when some of Enron's transactions turned sour, share prices fell, credit ratings followed suit, traders at other companies began to worry that Enron might not have the resources to back its end of trades in gas and electricity, and the rest, as they say, is history...

...Many utility executives, their cozy monopolies now destroyed or under threat, will be glad to see Enron gone, and with it an anti-regulatory culture of innovation, daring, and swagger...

...Just as Milken attacked the financial system that protected entrenched managements, Enron attacked the regulatory system that protected electric and gas monopolies...

...Whether Enron adopted financial techniques that are beyond the pale we will not know until the S.E.C...

...This is more than just another multibillion dollar merger, which explains why liberals, who can ordinarily be expected to oppose any marriage of two large companies, are indulging in an ill-concealed chortle...

...Dynegy bought for some $10 billion a company the market had once valued at almost ten times that price, probably causing those who had bought into Enron in the early days of the Lay regime to forget that their investment, had they held it, had still quintupled in value...

...Whether in the course of his assault on the status quo Milken bent or broke some of the rules governing financial transactions is still being debated, with his defenders persuaded that his punishment for violating such rules was more the revenge of the establishment than the just deserts of a willful lawbreaker...

...And, perhaps most important, Enron fought to allow customers and suppliers to strike whatever bargains they found mutually advantageous, rather than be required to buy and sell energy through the monopolies that control transmission facilities...

...They took the misbegotten version of deregulation that afflicted Californians with an electricity shortage, followed immediately by a glut, as proof that markets can't work...

...Whatever one believes about the possible crimes and eventual punishment of Mike Milken, there can be no denying that the Milken-financed revolution turned many companies over to a breed of entrepreneurs forced to maximize efficiency in order to pay off the huge debts they incurred in acquiring control of their companies...

...Lean and hungry predators replaced fat cats, to the benefit of consumers and investors...

...In the process, it assembled a team of executives that quite naturally developed an "us vs...

...What could be more delicious than seeing a wealthy energy industry executive with conservative views laid low...

...He thereby contributed mightily to converting American industry into a lean, mean, internationally competitive machine...

...completes its investigation...

...investigation and a host of lawsuits...

...In short, Enron created markets where none existed, and replaced monopoly with competition, reducing the need for regulation and thereby lowering the cost of energy for consumers and businesses...

...In the 1980s, Milken transformed American industry as Ronald Reagan simultaneously transformed the American political scene, and as Enron would later transform the industries in which it became involved...

...BY IRWIN M. STELZER EVEN THE CASUAL READER of last week's financial news will know that Enron, the energy and trading company, has been acquired by its smaller rival, Dynegy...