Economic Motivator

Enron's admissions also helped lead to the troubles at companies like Global Crossing Holdings Ltd. and Qwest Communications International Inc. They, in turn, prompted revelations that certain technology and telecommunications analysts might not be entirely honest when they recommend investment in companies or deals. If this were the 15th Century, the sellers of indulgences would be doing a land-office business.

Although it might appear otherwise, Enron is not responsible for the timing of these disclosures; it is really the economy. Had the economy not faltered, it is far from certain that Enron's shenanigans would have seen the light of day. No doubt as long as the stock price held up, the company may well have been able to continue to paper over the flaws in its finances. And other companies currently seeking absolution might likely to have escaped notice as well.

The economy was also the root reasonwhy so many people seemed so willing to lie so much.The prime motivator? There was quite a bit of money to be made in the last decade, and nobody wanted to be left out. That, in fact, was true for investors and the media, too, who were more than willing to go along, without asking very many tough questions of the stories that in retrospect we all now admit were too good to be true. While far from the most culpable, they share some guilt. "It's clear that everybody in this country got caught up in the frenzy of the market," says Andrew Metrick, professor of finance at the University of Pennsylvania's Wharton School. "It was just a lot of good people trying to make a lot of money. It was a feeding frenzy, not a breakdown in ethics."

Metrick's final statement is a bit unsettling since some of these "good people" at least were trying to make money by deceiving other good people and ultimately exposing them to losses. That would seem an eligible candidate for a breakdown in ethics.

Admittedly, unrealistic investor expectations of annual 20%-plus earnings growth and skyrocketing stock prices ad infinitum put terrible demands on corporate managers, analysts and accountants–demands that tempted many to push the envelope. It is true, too, that globalization, with its increased competitive pressures for every industry, has encouraged executives to bend rules and cut corners. "A mindset existed that you have to meet or beat quarterly earnings, and you can use accounting to get there," says Robert Herz, the chairman designate of the Financial Accounting Standards Board. "[The mindset] has been a little out of whack. People would like us [at FASB] to do our part. But we alone cannot do it. This effort needs cooperation and active encouragement from all parties and even a behavioral change."

Free-Market Threat

If we excuse this behavior, we are essentially saying two things: a) greed is okay, and b) making money by any means is acceptable. Needless to say, most people would agree that neither makes for a particularly nice motto, even though realists like Lawrence White, professor of economics at New York University's Leonard N. Stern School of Business, remind us that "there have always been greedy people out there and always will be."

The much bigger problem, however, is the threat to our free-market economy, which is based on trust. "This hurts the investment climate," says Douglas "Pete" Peterson, former U.S. ambassador to Vietnam and a consultant on emerging market investment. "I can't help but believe that large numbers of small investors are inclined to take a walk. Look at the market. This is not just a normal downturn driven by economic forces. The scandals have severely damaged the credibility of companies."

If this is true, then the excesses could undo much of the economic progress we have achieved over the past decade and cripple our core economic strength. This seems an unreasonable price to pay just so some people could make big money.