No one enthused as romantically over Enron as did the financial media. But there is little soul-searching among financial journalists concerning the Enron scandal. No financial media organization I know of has announced that it will now mend its ways, or at least review the process that led it to be so utterly wrong time and again. There is no public call for an explanation of the media’s role in this affair.
Journalists are hiding behind the fact that the Enron debacle is so complex that the company’s misdeeds could not be readily understood. As one journalist defensively put it, it was a green-eyeshade scandal. But Enron’s profit margins were visibly weak. Its earnings were rising rapidly while the company’s cash flow was not. How could this be? The media rarely asked, and rarely bothered to report the simple facts.
Enron was also an active manager of the reporting about itself. When Fortune, which for years had pronounced the company the most innovative in the nation, finally published a piece that was critical of Enron by the admirable Bethany McLean, a young reporter with financial training, management called on the brass at Fortune to complain. Fortune stuck with the story, but few others picked it up. At least one other editor has complained about a similar reaction from Enron management. My guess is that Enron did it frequently. This is an old trick in business journalism: Those uneducated and inexperienced reporters could not possibly understand something so complex, executives tell their counterparts in the publishing suites.
How many publishers or CEOs got calls from Enron would make a fine piece of investigative reporting; how many discouraged certain stories a better one still.
Enron also benefited from the financial press’s infatuation with free markets. Deregulation was Enron’s calling card. The full use of the financial markets was its vision. A fine vision, really, except that Enron was so ambitious that it had to cheat on an enormous scale to maintain it. In my view, deregulation is often good and it is often bad. What we need is better regulation. But Enron was a free-markets company if ever there was one, and the media lay at its feet. The media not only missed the Enron scandal, they extolled the company time and again. Why? Because everyone else said so. The press was a fat, helpless calf from Enron’s point of view, and most of Wall Street’s, for that matter.
Misleading claims for Enron were only one manifestation of a broader failure of the business media over this period. They were taken in by, and indeed a party to, the fads that swept the financial world. Enron was very much part of the biggest “big idea” of the past decade, which was that America was experiencing a “new economy”–one in which information was the key asset and “normal” stock-valuation methods no longer applied. Enron’s aggressive use of derivatives made it a classic example of new economy thinking.
This new economy of the late 1990s was an invention of the media and Wall Street. It was certainly not the contention of economic scholars, at least not initially. Over the previous two decades, the American business press, in particular weekly and monthly publications and the increasingly popular financial programs on cable television, had become highly interpretive and increasingly conferred on themselves expert authority. As a result, opposing views were often given short shrift, and the uncertainty that would normally accompany any thesis was minimized.