Enron Workers' Losses a Cautionary Tale for Many Others

by Paul Krugman

 When a seemingly profitable enterprise suddenly goes bankrupt, there are surely lessons to be learned. When that enterprise is the most admired company in America, lauded by business theorists as the quintessential 21st-century corporation, one wonders if it is the tip of an iceberg.

It will take time, and many legal proceedings, before the full story of Enron's collapse becomes known. But one thing is clear: The case shows how adept corporate executives have become at shifting risk away from themselves and onto others, in particular their employees. Enron's leaders have walked away from the debacle chastened but very rich. Many employees have lost their life savings.

Behind this disaster for ordinary workers lies a little-remarked sea change in America's retirement system. Twenty years ago most workers were in "defined benefit" plans -- that is, their employers promised them a fixed pension. Today most workers have "defined contribution" plans: they invest money for their retirement, and accept the risk that those investments might go bad. Retirement contributions are normally subsidized by the employer, and receive special tax treatment; but all this is to no avail if the assets workers have bought lose most of their value.

It's easy to make the theoretical case for defined-contribution plans. Such plans expand an employee's choices; he can choose how much to save, and how to invest his money. And more choice is ordinarily good.

But the sad fate of Enron's employees highlights the difference between theory and practice. As Gretchen Morgenson pointed out in Sunday's New York Times, workers across the country have been cajoled or coerced into holding a high proportion of their retirement assets in their employers' own stock. The exploitive nature of this financial incest was emphasized by Enron's now-notorious "lockdown," in which -- purely by coincidence, say executives -- new rules forced employees to remain invested in the company's stock just as the firm began its death spiral. So much for freedom of choice.

The shift away from old-fashioned pensions coincided with an enormous bull market; surely many workers who have never seen stock prices fall since they became investors underestimate the risk of capital losses.

It's highly likely that millions of American workers will have near-Enron experiences, learning to their dismay that big chunks of their retirement savings have evaporated. They will be left dependent on the one great defined-benefit program that remains: Social Security. That is, if it's still around.

The Bush administration's commission on Social Security reform issued its latest report last week, just as Enron entered its death throes. Most of the criticism of that commission's work, my own included, has focused on its, yes, Enron-like accounting: Items seem to migrate onto or off the balance sheet to suit the commission's convenience.

Thus when the Social Security system takes in more money than it pays out, as it does at present, this has no significance -- the federal budget is unified, so it doesn't mean anything when one particular piece of it is in surplus. But in 2016, when the Social Security system starts to pay out more than it takes in, there will be a crisis.

But the commission resorts to bogus accounting only to make the case for its ultimate objective: to convert Social Security from a defined-benefit system, which guarantees retired Americans a certain basic income, to a defined-contribution system, in which the unwise or unlucky can find themselves destitute in their old age.

Some analysts I know think Social Security will be converted to a defined-contribution system, not because it is a good idea but because the financial industry -- which has enormous clout in our money-driven political system -- has so much to gain from the conversion. The fate of Enron's poor employees, victimized by a management team they thought was on their side, may truly be the shape of things to come.

How could this saga have gone on for so long without being detected? Hmmmm. Reminds me of another long running saga which was never really resolved, I mean the BCCI.

There is a lot more to come to the surface.
Some heads will roll and reputations tanished. Lets wait and see.

A public inquiry is needed urgently (in the U.S and Nigeria. Tinubu must explain what research and investigations he and his government carried out prior to engaging Enron and account for the wasting our resources.

I agree with you, but IMF/World Bank need the locals place ball and accept conditionalities that allow the likes ENRON to have full access to their economies.

Enlightened leadership is needed. Oyibo sees world economics and politics as a game. As long as we no sabi play, oyibo will always have his way.

My proposal, as start lets prepare our people's consciousness for instituion building in the West.

An IGBO DIASPORA BANK (I.D.B)(USA) and I.D.B (Europe)headquatered in Luxembourg and passported to the rest of Europe will allow us access to the western financial markets.

The market is there. The IDB can tarket and participate in the Real Estate, Capital , Project financing and Trade Insurance markets.

Enron Situation Points Out Woeful Lack of Pensions

by Marie Cocco

 THE COMPANY was a media darling. Its story line: It would bring a different era to a hidebound industry, delivering it from rusty shackles to the promised land of lean-and-mean competition.

The company flew high. Then it crashed calamitously low, taking its workers and retirees, but not its corporate officers, down with it. Retirees who'd been promised much were summarily told they'd get little after bankruptcy. And they would only get that because their old-fashioned, defined-benefit retirement plan was protected by a federal guarantee.

Old men took to the streets, throwing themselves at plant gates, crawling beneath trucks. They picketed government offices. They pleaded with Congress.

Laws were passed, vows were made. Never again, lawmakers said, would the government allow a flagrant corporate fleecing to lay its retirees so low.

The LTV Corp. bankruptcy of the mid-1980s (the steelmaker entered bankruptcy again last December) was altogether different from the Enron 401(k) debacle of today. Then, important people shrieked with outrage. Now they do not even whisper concern.

The Enron workers who invested their life savings in the company's stock through its 401(k) plan are broke. They must get in line at bankruptcy court, behind the big banks and the brokerages and the energy companies who are, without question, ahead of them.

Details of the caper are shocking, if not illegal. The company fraudulently pumped up its stock price with false information. It gave employees company stock, not cash, for the 401(k) plan's company "match" and encouraged them to buy more on their own. It blocked workers from selling the stock as it was becoming worthless - even as corporate officials sold theirs.

The Enron crash is a parable. The story so far is spun out as one of loyal but gullible workers who just don't get it. The TV financial advisers are saying, of course, you should not invest your retirement money in the company for which you work. Didn't you know that?

It is dandy advice for an investing public that, surveys show, cannot necessarily tell a stock from a bond. But its very premise reveals a crisis that is truer, and deeper.

They have sold us the idea that retirement is a do-it-yourself project.

The beauty, if you are an employer, is that if something goes terribly wrong, there is no contractor to sue. Most of the cost, and all the risk, is on the worker.

In exchange, workers are told they can, on their very own, build the Taj Mahal. All they need do is use well this wonderful new tool.

That is the advertising, anyway. Here is the truth: The average 401(k) balance last year was $49,000, according to the Employee Benefits Research Institute. That was before this year's downward stock spiral.

We simply don't have pensions anymore. Fewer than half of all private-sector workers are covered by any type of retirement plan, including the savings accounts that go by the name 401(k).

This is by corporate design and congressional collusion.

The last substantial piece of pension legislation enacted was a measure allowing high-income people to invest more money in 401(k)s. The only proposal moving forward now is The Retirement Security Advice Act. It would let your employers, and the big financial companies that oversee your account money, give you advice on how to invest it. Doesn't that sound secure?

There is no apparent rush to shield workers from future Enrons. The last person who tried, Sen. Barbara Boxer (D-Calif.), got thrashed by corporate lobbyists when she tried to limit company stock held by 401(k)s. The Boxer bill was thoroughly diluted. It passed, with language exquisitely crafted to apply to no plans.

Do not ponder this mystery. The financial industry is by far the biggest source of campaign contributions to candidates for federal office. It is the driving force behind President George W. Bush's plan to take Social Security, the only guaranteed retirement income most Americans will have, and turn it into a giant 401(k).

Where are you? Given the mixed reception that graced your entrance, the wind seem to have been knocked off your sail. Don't be discouraged.

Poet's corner sounds great. Look forward to reading more from the literary head hunter in the wilds of Yorkshire and his lioness! An Ohafia warrior who combines machismo with the gift of the gab, a man of word and deed with a heart of gold...what more could any woman want in a man?

quote:

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Originally posted by Amanda Wekson:
Sundiatta,

Where are you? Given the mixed reception that graced your entrance, the wind seem to have been knocked off your sail. Don't be discouraged.

Perhaps, you could let off some steam at the poet's section in any thought of your fancy? I could meet you there...

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[B][/B]"I'm far from discouraged, Lady B...."

Now that's the spirit!

Regarding Amanda's challenge to the poets corner, I can't wait to observe the beautiful written oratory and prose of the two people whose written word I can say is examplary. I'm sure OU will take it in the right way.

Turning to your exams, accept my best wishes.

You are rib-cracking funny.

Fact is, Sundiatta is nwa afo Igbo/Biafra. Strategies and words employed in conveying views can make or break them. We believe that words are palm oil with which yam is eaten. They have to be processed properly.