Cultural Revolutions

Unstable U.S. Credit Structure

Enron, a derivatives trading firm, filed the largest bankruptcy in U.S. history on December 2, 2001.  The media has framed the scandal as a simple morality play pitting good against evil, with the Texas firm’s top management and the Bush administration competing for the latter role.  Naturally, neoconservatives blame the Clinton administration for the entire scandal.  Both ignore the larger issue: an unstable U.S. credit structure, which I discussed at length in “Economic Liberty and American Manufacturing” (Views, January).

At its peak, Enron’s stock sold for $90.75.  Today, it fetches less than one dollar per share.  How did such a large firm, with more than 20,000 employees, disappear into bankruptcy in a matter of months?  Public records and economic reasoning tell the story.  Enron’s 2001 annual report, filed last April with the Securities and Exchange Commission, explained its business model: Enron’s operations “are principally engaged in the transportation of natural gas through pipelines to markets throughout the United States; the generation, transmission and distribution of electricity . . . ; [and] the marketing of natural gas, electricity and other commodities and related risk management and finance services worldwide.” ...

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