Did Kenneth Lay's call of doom to Paul O'Neill contain a germ of truth? The Enron chairman claimed in an October telephone conversation with the US Treasury secretary that the collapse of Enron could lead to a systemic decline in the US financial system. It was easy to deride it at the time as the desperate ravings of a man scrambling to save the company he and fellow executives had crashed into the ground. For a while the Enron saga unfolded as an extraordinary but somehow remote and isolated event, rather like the collapse of Argentina. Financial markets took the biggest ever bankruptcy in America calmly. Neither credit nor equity markets sold off. But now, three months on, it seems Lay had a point.
Enron's collapse has exposed serious shortcomings in pretty much all aspects of US corporate and financial life. At how many other corporations have executives colluded in cooking the books? If auditors have become accustomed to signing off questionable financial statements, if boards have generally failed to ask the right questions, how many more companies have got away with mis-stating their profits and misleading investors? And on what scale and for how long have they been doing it?
Has the dynamic performance of the US financial markets in recent years been based on nothing more than a huge con trick?
What is worrying is the extent to which every participant in the financial markets has been compromised.