WMDs and Enron
I have to admit it. I originally bought into the government’s story about WMDs in Iraq. I even supported the war because of it. Then, upon learning that it was an intentionally false narrative, my world was turned upside down.
So it is with Enron.
Upon learning that it was the unwinding of Raptor and the failure to issue stock (as Enron said it would) that led to Enron’s bankruptcy, my world was again turned upside down. And it begged the most fundamental of questions:
If Raptor were not the cause of losses in 3rd quarter 2001, why did Ken Lay intentionally make it sound like it was?
If the Board actually approved of all the SPE deals (which it did), why did Lay say they were a problem?
Why was the WSJ running articles about LJM and Fastow?
Since Lay and the Board knew what Fastow was earning (proved decisively at the Lay/Skilling trial), why did Lay say it was a “revelation” and use the excuse to fire Fastow?
When everyone knew that Enron had some serious problem (e.g. International, Water, Merchant Investments, New Power), why was Lay saying everything was hunky-dory?
Now, the revelations from former Enron executives:
Ken Lay and Greg Whalley’s strategy was: (1) to blame the losses from the businesses/assets and Causey/Duncan accounting mistakes on Fastow; (2) to argue that they solved the problem by eliminating Fastow; and (3) to assert that everything in the business was fine.
The articles in the WSJ about LJM and Fastow were planted by Cliff Baxter. Execs say that they still don’t know whether Baxter planted the articles as part of Lay’s strategy to demonize Fastow. They think not; rather, they believe that it was done purely out of animus, and that the PR problem it caused gave Lay another reason to sacrifice Fastow. They point out that it is rather ironic that Baxter was planting the stories, since Baxter used LJM more than any other exec to make his numbers.
The document shredding at AA and Enron was done to protect AA and Causey. It turns out that AA was on probation for its botched Waste Management and Sunbeam audits. Another sanction by the SEC would have caused its auditing license to be suspended, effectively putting it out of business.
It was insane for Lay to assert everything in the business was OK. Everyone, especially the banks, equity analysts, and rating agencies knew the opposite was true (Dabhol, anyone?) There is no doubt that by suggesting that Fastow’s actions were nefarious, it caused the market to get more, not less, nervous. And it probably paved the way for the government to turn what would have been a minor civil settlement into a major criminal case. Raptor/LJM/Fastow were the non-existent WMDs and Ken Lay was Dick Cheney.