More Pigs at the Trough: What Enron and WorldCom Can Teach Us About Goldman and AIG

America, it seems, can't wait to get back to business -- risky business -- as usual. No matter how atrocious business has been.

Newsweek's latest cover story declares that The Great Recession is over. A Merrill Lynch report concurs, saying, "The recession is over...We are bullish on global equities." Goldman Sachs is placing riskier bets on the market than it did before the financial meltdown (and setting aside huge amounts of money to pay its executives).

The problem is, this victory dance is being done on top of the same shaky financial system that nearly toppled over, sending us all plummeting into the economic abyss. And while the market is over 9,100 (with another 10 percent gain predicted by the end of the year) and Goldman, Citi, and Bank of America are reporting multi-billion dollar profits, unemployment is heading to 10 percent, foreclosures continue at a rate of 10,000 a day, credit card defaults are hitting record highs, and states all across the country are cutting vital services to the bone.

We've seen this headlong rush to move on before. And it should be making us very afraid.

In 2003, I wrote a book called Pigs at the Trough detailing the corporate greed and malfeasance that brought us the financial scandals at Enron, WorldCom, Tyco, Global Crossing, and many others. Rereading it in the midst of the current crisis, I was stunned to see the direct line connecting the outrages of 2003 to the predicament we are facing today, and how they set the stage -- and opened the door -- for the much larger, more sophisticated, and much more dangerous excesses that drove the housing and financial collapse of the past year.

So when I was asked by my publisher to release an updated and expanded version of Pigs, I was delighted to do so. It comes out today.

Of course, when I originally wrote Pigs, I didn't know that in just six years America would find itself in the midst of a slew of fresh corporate outrages that would lead to a worldwide economic meltdown. But I can't say that I was surprised. The reason is simple: the system that allowed the scandals at Enron, Tyco, Global Crossing, et al. was never really reformed.

Yes, there were window-dressing changes, and Band-Aid legislation. But the guiding philosophy -- that the free market would regulate itself, and that Wall Street always knew best -- remained in place. Indeed, it was given a much freer rein.

So it's been déjà vu all over again. With one big difference that makes this current crisis so painful: the scale of it all. In 2003, the corporate crooks were largely playing with shareholders' money. The new batch of Pigs is playing with taxpayer money -- trillions of it. And if we don't reform the system, given the exponential worsening of things between 2003 and now, the next financial collapse will surely be more than we can withstand.

What we are experiencing is not so much Back to the Future as it is Forward to the Past. Enron's Ken Lay, meet Merrill Lynch's John Thain. WorldCom's Bernie Ebbers, meet AIG's Joe Cassano.

And how's this for an ironic connection: Bernie Madoff will serve his sentence in the same North Carolina prison where John Rigas and his son Tim have been since 2007. As you may recall, John, the founder of Adelphia Communications, and Tim, the company's Chief Financial Officer, were two of the many villains of the previous financial debacle -- and among the Pigs I profiled in my book. Politics makes for strange bedfellows and crime can make for strangely appropriate ones.

It's as if nothing has been learned since the last go-round. It's just that the numbers have gotten much larger -- and the risks to our well-being much greater.

Two days before Enron went bust, the company gave senior employees $55 million in bonuses while simultaneously coming out against any financial assistance for the 4,500 workers who had just been fired. There was outrage and recrimination. But we quickly moved on. And a little over seven years later found ourselves once again outraged, this time by AIG's plan to pay $165 million in bonuses to the same people who had driven the company to brink of collapse and the need for a $180 billion government bailout.

Similarly, in 2002, on the same day WorldCom stunned the world with the magnitude of its accounting fraud, the company's inner circle began an extravagant, all-expenses-paid vacation in Maui. There was outrage and recrimination. But we quickly moved on. And six years later were outraged by the $443,000 luxury spa retreat executives of AIG took just days after the government unveiled the first $85 billion of the taxpayer-funded bailout package for the insurance giant.

And the media share a big part of the responsibility. Back in 2003, just as the likes of Ken Lay, Jeff Skilling, Bernie Ebbers, Dennis Kozlowski, and John Rigas were being called on the carpet, the financial press was anointing a new set of corporate kings. Among them, future SEC target Angelo Mozilo, the former chairman and CEO of subprime mortgage dealer Countrywide. That year, Fortune lauded Countrywide for having "the best stock market performance of any financial services company in the Fortune 500" in over two decades.

As Connie Bruck reports in the New Yorker, in 2005 Countrywide was named one of Fortune's "Most Admired Companies" and Barron's anointed Mozilo one of the best CEOs in the world. The next year, American Banker gave him its lifetime-achievement award. The year after that, the subprime mess began to hit the fan.

And instead of holding the Horsemen of the Financial Apocalypse who are still in charge accountable, those in the financial media are ready to move on, searching for the next superstar cover boys.

With so many both on Wall Street and in the media tripping over themselves to return to the pre-meltdown status quo, it's easy to get blinded by the premature exuberance and hop on the green shoots bandwagon. But we must resist and demand fundamental reform. We cannot allow Wall Street and its lobbyists -- as I warn in Pigs at the Trough -- "to embrace reform while working diligently behind the scenes to undermine it."

If we are going to truly rebuild our free market capitalist system, we have to break the cycle of shock, followed by outrage, followed by a few high-profile show trials, followed by the punishment of a few culprits, followed by some meaningless reforms... and then we all move on. Until it starts again.

The question is, does the political will to create and implement new rules for Wall Street exist, or will the result be a series of tough-sounding-but-ultimately-toothless reform measures that allow the cancer of greed and corruption that has infected our political and financial systems to spread and become even more destructive?

Does our body politic have the strength to save itself?

 

Follow Arianna Huffington on Twitter: www.twitter.com/ariannahuff

Comments

[blessedfrog]

Hey Mozillo is now making a mint buying up forclosures.

See the poetry.

Big money

[blessedfrog]

Ahh see

The big guns make loads of money from this stuff.

So yes they've learned and repeat.

It is only the small people who get hurt.

And continue to amass the money.

[jqcitizen]

Arianna
Enron and WorldCom embarrassed or convicted a few criminals while destroying a lot of innocent employees and their families. -Foolish wars do the same thing.

But, do not forget the profiteering, rip off thieves of the Savings and Loan era. Many honest citizens lost everything and are now dead or destitute.

Who benefited? - US Senators, former Astronauts, relatives of the Bush family and other common criminals.

No wonder the owners of this country question members of congress, when, at least one of the above, claims to be qualified to be President, and actually gets support from the political party they have allegiance to.

[Artemis34]

Exactly. McCain and the Keating 5.

[Artemis34]

"It comes out today." Can't find it on Amazon.

[Artemis34]

Found it at:

http://www.amazon.com/Pigs-Trough-Corporate-Corruption-Undermining/dp/B002IPZBOK/ref=ntt_at_ep_dpt_1

Could not find the July '09 Audio CD version.

[Artemis34]

Just at the people of the US have to exert more control over government,

shareholders AND stakeholders have to exert more control over publicly owned businesses.

There should be no non-voting shares. Shareholders should be able to vote out individual board members.

See Canadian Coalition for Good Governance efforts:

http://www.ccgg.ca/

In Germany, labor really gets a seat at the table, because they are given a seat on the board by law. This has often lead to the boards' first women or minority too. Which is good for business, per Catalyst.

Another good thing about having labor on the board is they want the business to be an on-going concern which is better for the country than breaking it up and selling the assets as some are so eager to do.

[Matrsnot]

Our debt has tripled in less than 7 months and citizens should be concerned enough to vote out each and every incumbent of all parties and let us get an honest governing force in place.

[Artemis34]

Debt has grown over the past 8 years. Did you notice that?

[itsmyparty]

I have to listen to books now.I surely want to listen to this one.We have astronomical debt.No new industry of any kind being started.So­aring unemployme­nt.And the majority of our representatives in DC have total disconnect with the reality most of us live with.They continue to give themselves raises and perks.Some announce they don't care what the people think.They continually try to pass legislation on all fronts that intrudes on our private lives.Not one of them deserve reelection­.It is obvious that Wall Street and the Fed have to be strictly regulated.­The Patriot Act needs to go.Homelan­d Security was always a bloated,ea­rth-warmin­g,expensiv­e idea.The military needs real and deep cuts.These are all just my opinions.Y­ou make a lot of sense.Carr­y on :-)

[John Henshaw]

I tend to see the bailout as a way to avoid confronting core belief systems. I imagine that Obama understands this - but he also knows that he cannot challenge the current orthodoxy without tearing the country apart. One is tempted to think that only total meltdown and collapse of the existing system would allow for new ideas to emerge - but I'm not so sure that would be enough to shake the persistance of entrenched notions.

[Crowhaul]

Great article.

It closely parallels my ongoing efforts to see that those who would suggest that we put the pains of the Iraq invasion behind us and focus on the present and future are not heeded. In Iraq, the fact of the matter is that our taxpayer dollars have been put into the hands of persons unknown to the tune of over a trillion dollars. So not only did we violate international law; there was also a very serious theft of our taxpayer dollars.

In fact, the same strategy of 'taxpayer dollar transfers' that took place in the closing months of the Bush administration with AIG (amongst others) is essentially the same strategy that the Bush administration endorsed during the Iraq invasion (no, we can't call it a 'war').

[Artemis34]

You ask: "Does our body politic have the strength to save itself?" No.

We'll have to have at least public campaign financing before we can re-regulate banking and industry.

We may need to go all the way to a constitutional convention.

It is pretty clear the government is in the pocket of Wall Street and corporations now. We'll somehow have to break that strangle hold on power to get to meaningful change.

The cycle of boom and bust works for the elite and works for many corporations. They take advantage of bust times to suck money out of the government, buy up resources cheap, bargain down labor, dump benefits and pensions, etc. It is a win-win for them. They win when the economy is up and they win when the economy is down.

[itsmyparty]

You are sooo right!!!

[cloudminder]

A H -- you need to be made a Regent of the University of California

they need a good kick!

[breakingpoint]

it's insanity, the country is having a nervous breakdown and surrounding this malady are the vultures ready to scavenge the vulnerable - the tattered signs of an uncivilized, barbaric and criminal nation.

We're loosing justice and tossing the rule of law out the window and when that happens we also lose mercy.

Next to the Civil War this is a very low point in US history, simply because we've lost the most important thing any great nations could acquire, trust.

Obama promised hope and change, looking at the people who surround him, I just don't see it.

[Artemis34]

Right.

We elected a Democratic government to take democratic action. I'd like to see them do so!

Everything old is new again. They pulled this trick on us in the 1980s too with the savings & loan crisis.

I remember then people losing their homes because their ARMs were resetting UP at the same time interest rates were going DOWN.

Why do they do this? Well, like Willie Sutton said when asked why he robbed banks "Because that is where the money is."

Conservatives in corporations rob banks because that is where the money is and their conservative allies in government help them do it!

[humanbeing-rick]

BTW, I support the abolishment of corporate personhood.
Corporations should not be given equivalent rights as a voting, human citizen.
Especially in these days of global corporations.
Global corporations do NOT represent the best interests of America, despite what they may tell you.

[Crowhaul]

Amen, brother.

[John Robert]

The Masters of the Universe have there own set of rules. We, as taxpayers, just support them when their endeavors fail.

[PhilipTaylor]

The $24 Trillion given to the Wall Street Banks is a little over 3% of their Toxic Derivatives, but is nearly TWO YEARS of GDP growth!

This is the MORAL and the REAL Black Hole! The $24 Trillion or 3% is a couple drops in the Grand Canyon Wall Street created!

Yet $24 Trillion is TWO YEARS of BL00D and SWEAT of ALL Americans simply tossed to the Wall Street W0LVES!