While reading about the debacle and collapse of Enron, I find myself constantly drawing connections between the largest bankruptcy in U.S history, and the pending doom faced by our nation’s banks. Before the U.S began to expirience an economic downturn, both Enron, and our nations banking powerhouses, such as Citigroup, both strongly resisted government regulation. Instead, companies perfered a free market without government rules and regulations. Enron, and other companies during the late 90’s, stressed the importance of free market trading and deregulation, because quite simply, thats how the big bucks are made, and to Enron, thats all that really mattered. Although free markets create massive amounts of wealth, as we saw with Enron (and now our nations banking system), thay can also create huge problems.
Enron goal as a company was to grow 15% a year. Through the best times at Enron, this unheard of statistic was a reality to Wallstreet, but underneath the surface, was a complete facade. Using questionable business ethics, Fastow manipulated the books in order to create the perception of massive company growth. Because of the free market system involving energy companies, Fastow was able to get away with the questionable business practices for many years, even amassing a huge personal profit from the deal. Hypothetically, if there was some sort of government involvement with energy trading during the time Enron was powerful, would the company still be around? Would Fastow be able to cook the books in order to fool investors? Although free markets are great tools to create tons of wealth quickly, without some governement regulation, they become extremely susceptible to human greed and short-sightedness. This idea is clearly demonstrated in the current housing market.
On Monday (February 23rd), the Government vowed to shore up the banking system. Along with the government’s promise to help the failing banks, they also promised to as much as possible, avoid bank nationalization. This is where I began to draw similarities between the nations banks and Enron. Both entities strongly oppose government regulation because they believe it only slows down economic progress. This is idea of no government regulation is where I question the motives of all people in the economic sector of America. Don’t get me wrong, I love the idea of a Keynsian free market system evoking competition, but I believe some government regulation is necessary to safegaurd our institutions. For example, look how Enron, and the largest bank CitiGroup landed themselves in trouble in the first place. Enron, with no regulation what so ever, was driven by greed to cook the books and subsequently bankrupt their entire company, leading to the greatest organizational collaspe in U.S history. Similar to Enron, the nations banks, driven by greed, dealt out risky home loans, overlooking credit problems. People are now defaulting on these loans driving our housing market into a tail spin.
Luckily for the banks, unlike Enron, the government is stepping in before a total implosion occurs. Realizing the deteriorating state of our banking system, President Obama has introduced a stimulus package to help jumpstart the economy, and hopefully bolster the banking industry. Although many economist might slap me for writing this, I believe this idea of government regulation as a form of safegaurding the economy from collapse is necessary to prevent human nature from driving us to take dangerous risks. The question I leave for discussion is where do you think the line should be drawn in terms of governement intervention in the U.S financial sector? and, would Enron still be a company if the government had regulated their practices earlier?