Here are some more URL's. Thanks to everyone who contributed. RRE home page: http://dlis.gseis.ucla.edu/people/pagre/rre.html Please forward this message to anyone who can use it. Before I try to ramp down my coverage of Enron, just a few words about how I find it interesting. One angle, of course, is scandal. Watergate established a template for all subsequent administrations, with each side consciously or unconsciously using Watergate as a framework to interpret what the other side was doing, getting the taint off itself and sticking it back where (they imagine) it belongs. After a while, however, this becomes counterproductive. The fact that the Watergate frame doesn't describe Enron very well is itself being spun, somewhat confusedly, in different directions. But the important thing about Enron lies elsewhere: in the nature of markets. Enron was a bunch of alleged crooks who bought politicians, fine. But let's remember what Enron did: they manufactured markets. That is, they were in the business of creating institutions that connected buyers and sellers. This is an incredibly hard thing to do, and even economics classes do not prepare the average market participant to appreciate just how ugly even very efficient markets can be when you open the lid and watch the actual day-to-day workings of the market- making mechanism. The basic problem is that the market mechanism (be it the marketplace in the town square, the stock market, or a newly established energy trading system) is a public good, and with public goods there is always the hard question of how to pay for them. Market mechanisms also exhibit network effects, which means that they often tend to be monopolies. Most markets are also built on top of distribution systems that are themselves natural monopolies, whether the highway system, the phone system, or the electric grid. This is one of many reasons why, neoliberal ideology aside, markets are inevitably bound up with government. Another reason has to do with information. Markets require enormous quantities of accurate information, but producing accurate information is one of the hardest problems in the world. One solution to the problem has been to establish professions, such as journalism and accounting, that legitimate their professional autonomy by producing accurate information. The problem is that it's hard to keep the profession's long-term legitimation interests from being eroded by short-term competitive pressures. That's why we now have cable and radio outlets that succeed in the news market by spreading distortion and lies (they're the ones whose advertising uses words like "fairness" and "truth"), and it's why we are confronting the corrupt condition of accounting firms, stock analysts, and other information-producers in the marketplace. In these ways among others, markets are inherently unstable. That does not mean that markets are bad, or that we should get rid of them; nor does it follow that someone should pass a law declaring "let there be honest marketplaces". All it means is that we have an opportunity to cast aside ideologies and ask what market institutions really are, and what their proper relation to government might be. The answer is not obvious. The fact that Enron was closely involved with the government is not itself a scandal, given the nature of its business. But the nature of that involvement will remain a mystery to us so long as we continue to analyze it solely in terms of either "business corrupting democracy" or "government interfering in the marketplace". The fact is, we don't have the conceptual foundations we need to analyze something like the California energy market, where everything depended on institutional design processes of an extremely esoteric sort, where spectacular market dysfunctions could be set in motion by very nonobvious features of market-making rules. We don't even have a clear understanding of market-making on Wall Street. Market-making costs money, the money has to come from somewhere, and most ordinary stockholders would be most unhappy to comprehend that much of the money comes from market-makers using their inside knowledge of the scheduled orders to trade against their own customers. (This problem got worse last year with the introduction of decimalized trading, but it hardly began then; see, for example, Greg Ip, "Nasdaq market maker, seeing all the orders, becomes canny trader", Wall Street Journal, 3/3/00.) There's a lot more where that came from, and we need a crash now and then to make it all evident. Perhaps the crash cycle is even part of the natural order of the market. If any Bush administration officials broke any laws, then sure, send them to jail. And the analogy between Enron's deception about its books and the Bush administration's systematic deceptions about the budget is most certainly the sign of a shared culture. But the real story here is about our lack of comprehension of markets. There's a reason why historically the economy does worse under the "pro-business" party -- it's because "pro-business" doesn't mean "pro-market". You can see this in the contrast between Clinton-era SEC head Arthur Levitt, who made his career protecting investors, and Bush-era SEC head Harvey Pitt, who made his career resisting Levitt's reforms by representing, among others, Arthur Andersen. Those reforms are back on the table, and we will see whether the voices in Congress who are taking responsibility for resisting reform are matched by voices in the administration. Enron, for its part, supported politicians for a good reason -- they needed to engage with the government in order to build new marketplaces -- and they disproportionately supported Republicans for a bad reason -- they had a fiduciary interest in ensuring that those new marketplaces were designed in the way that produced the maximum return on their shareholders' investments. And there is no sign that anyone on the Republican side spent ten seconds knowing or caring about the difference. If you want a scandal, look there. Enron ended up shooting itself because it underestimated the forces that any new market mechanism sets into motion. Modern market mechanisms only operate because they are integrated with second- and third-order markets that allow market participants, including most importantly the market-makers themselves, to manage risk, for example through derivative contracts. Nobody understands how those things work, and Enron certainly didn't. Derivative trading is the economic equivalent of plutonium, and the new markets that Enron created didn't have remotely the institutional framework that was required to contain the stuff. That framework includes audit and regulation, none of which was on the job. Audit was off the job because the accounting industry has become totally corrupt, and regulation was off the job because regulatory systems are established reactively at best. That's why Enron ended up stuffing debt into offshore, off-the-books "entities", and that's why people got hosed. The necessary reforms are profound, but they won't happen so long as our understanding of markets remains primitive. Primitive theories of markets were alright in the old days when markets themselves were primitive. But the Internet changes that. It is now technically and economically feasible to build marketplaces of tremendous complexity, that engage in real-time dynamics that are very hard to understand. The traditional economic equilibrium models, still unfortunately taught in school, are based on an economic theory in which markets are literally made by magic. What Enron shows us is that the very human non-magic of market-making will only become more obtrusive at the rate we're going. Please by all means send me URL's that relate to this more fundamental dimension of the problem. war America's Chaotic Road to War http://www.washingtonpost.com/wp-dyn/articles/A42754-2002Jan26.html How Bin Laden Network Spread Its Tentacles http://www.observer.co.uk/islam/story/0,1442,636449,00.html http://www.observer.co.uk/islam/story/0,1442,587375,00.html http://www.observer.co.uk/islam/story/0,1442,640079,00.html http://www.observer.co.uk/islam/story/0,1442,577943,00.html http://www.observer.co.uk/islam/story/0,1442,577971,00.html http://www.observer.co.uk/islam/story/0,1442,576688,00.html long article on Mohamed Atta http://www.latimes.com/news/printedition/asection/la-000006940jan27.story Pentagon Plans New Command For US http://www.washingtonpost.com/wp-dyn/articles/A42765-2002Jan26.html CIA's New Celebrity Exposes Its Failings http://www.latimes.com/news/printedition/opinion/la-000006738jan27.story WTC Fresh Kills Investigative Site http://cryptome.org/wtc-fk/wtc-freshkills.htm Out of the Rubble, Artifacts of Anguish Saved for Posterity http://www.nytimes.com/2002/01/27/nyregion/27STEE.html civil liberties crisis in detention centers for asylum-seekers in Australia http://www.abc.net.au/news/2002/01/item20020127121525_1.htm http://www.smh.com.au/news/0201/27/national/national1.html http://www.spareroomsforrefugees.com/ http://www.abc.net.au/news/2002/01/item20020127121525_1.htm Powell Asks Bush to Reverse Stand on War Captives http://www.nytimes.com/2002/01/27/politics/27DETA.html http://www.washingtontimes.com/national/20020126-76636371.htm Milosevic War Crimes Case Faces Collapse (I have less and less confidence in the Independent, though) http://news.independent.co.uk/world/europe/story.jsp?story=116523 Big Brother Awards France http://www.bigbrotherawards.eu.org/2001/presse.html the Bush scandals Appearances Count in Conflicts of Interest (in this case, at the EPA) http://www.latimes.com/news/printedition/opinion/la-000006739jan27.story Bush's Nomination of Pickering Deserves Rejection (of all the people he could choose, this guy really tells you something) http://www.freep.com/voices/editorials/ejudge26_20020126.htm Enron's Run Tripped by Arrogance, Greed http://www.latimes.com/news/printedition/asection/la-000006925jan27.story Enron Operated Amid a Financial Maze http://inq.philly.com/content/inquirer/2002/01/27/national/ENRON27.htm Enron's Culture Fed Its Demise http://www.washingtonpost.com/wp-dyn/articles/A42770-2002Jan26.html Enron Spread Influence Far and Wide ("Enron operated in a way that was reminiscent of tobacco companies") http://www.chron.com/cs/CDA/story.hts/special/enron/1226925 Powerful Figures Behind Firm's Rise -- and Crash http://www.latimes.com/news/printedition/asection/la-000006664jan26.story The Scandal That Has Left the Credibility of American Politics in Shreds http://news.independent.co.uk/world/americas/story.jsp?story=116215 Bush Is Indebted To Enron's Professional Abettors, Too http://www.tpj.org/Lobby_Watch/andersen.html jargon watch: study the Cheney quote starting in the fourth paragraph (breaking the issue down into vague concepts for purposes of exaggeration) http://dailynews.yahoo.com/htx/ap/20020127/pl/enron_cheney_1.html Poll Finds Enron's Taint Clings More to GOP Than Democrats (jargon doesn't always work, but the jargoneers are rarely accountable for it) http://www.nytimes.com/2002/01/27/business/27POLL.html?pagewanted=print When They Say It's Not About Politics http://www.arktimes.com/dumas/012502dumas.html Enron Death Perplexes Investigators ("the subcommittee had been very interested in speaking with Mr. Baxter") http://www.msnbc.com/news/694040.asp Baxter Death Ruled Suicide; Probe Goes On http://www.latimes.com/news/printedition/asection/la-000006977jan27.story Enron Debacle Shakes Up Congress' Agenda; War Now Shares Spotlight http://www.latimes.com/news/printedition/asection/la-000006975jan27.story What Did Ken Lay Know on August 20th? (I'd rather know what his board's audit committee knew) http://www.businessweek.com/bwdaily/dnflash/jan2002/nf20020124_5842.htm Questionable Accounting Practices Led Fellow "Big Five" to Ignore Enron Case http://www.public-i.org/story_01_012502.htm Enron-Type Accounting Problems Widespread, ex-SEC Chief Says http://www.msnbc.com/news/693330.asp more on Harvey Pitt versus Arthur Levitt (from last month) http://www.thenewrepublic.com/121701/chait121701.html Drip, Drip, Drip: Eroding the Barriers to Corporate Crime http://www.commondreams.org/views02/0126-01.htm 1999 Deal Failed After Scrutiny of Enron Books http://www.nytimes.com/2002/01/27/business/27DEAL.html?pagewanted=print Report: Enron Spent at Least $1.8 Million on Texas Politicians http://www.chron.com/cs/CDA/story.hts/special/enron/1226916 White House Changed Draft Plan to Help Enron: Lawmaker http://abcnews.go.com/wire/Politics/reuters20020126_97.html Army Secretary Takes on Afghan, Enron Wars http://www.latimes.com/news/printedition/asection/la-000006665jan26.story http://www.washingtonpost.com/wp-dyn/articles/A43944-2002Jan26.html Media Missed Clues to Enron's Troubles http://www.latimes.com/news/printedition/asection/la-000006635jan26.story A Feeling of Disbelief and Betrayal in a City Known for Boom and Bust http://www.latimes.com/news/printedition/asection/la-000006666jan26.story everything else A Riddle: Why Does Netscape Still Exist? ("answer: so that AOL can sue Microsoft") http://www.business2.com/articles/web/print/0,1650,37401,FF.html The Paradox of the Best Network (dumb networks are the best for society, but they aren't profitable) http://www.netparadox.com/ end
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