The collapse of Enron has swiftly morphed into a go-to-jail financial scandal, laden with the heavy breathing of political fixers, but Enron makes visible a more profound scandal--the failure of market orthodoxy itself. Enron, accompanied by a supporting cast from banking, accounting and Washington politics, is a virtual piñata of corrupt practices and betrayed obligations to investors, taxpayers and voters. But these matters ought not to surprise anyone, because they have been familiar, recurring outrages during the recent reign of high-flying Wall Street. This time, the distinctive scale may make it harder to brush them aside. "There are many more Enrons out there," a well-placed Washington lawyer confided. He knows because he has represented a couple of them.

The rot in America's financial system is structural and systemic. It consists of lying, cheating and stealing on a grand scale, but most offenses seem depersonalized because the transactions are so complex and remote from ordinary human criminality. The various cops-and-robbers investigations now under way will provide the story line for coming months, but the heart of the matter lies deeper than individual venality. In this era of deregulation and laissez-faire ideology, the essential premise has been that market forces discipline and punish the errant players more effectively than government does. To produce greater efficiency and innovation, government was told to back off, and it largely has. "Transparency" became the exalted buzzword. The market discipline would be exercised by investors acting on honest information supplied by the banks and brokerages holding their money, "independent" corporate directors and outside auditors, and regular disclosure reports required by the Securities and Exchange Commission and other regulatory agencies. The Enron story makes a sick joke of all these safeguards.

But the rot consists of more than greed and ignorance. The evolving new forms of finance and banking, joined with the permissive culture in Washington, produced an exotic structural nightmare in which some firms are regulated and supervised while others are not. They converge, however, with kereitzu-style back-scratching in the business of lending and investing other people's money. The results are profoundly conflicted loyalties in banks and financial firms--who have fiduciary obligations to the citizens who give them money to invest. Banks and brokerages often cannot tell the truth to retail customers, depositors or investors without potentially injuring the corporate clients that provide huge commissions and profits from investment deals. Sometimes bankers cannot even tell the truth to themselves because they have put their own capital (or government-insured deposits) at risk in the deals. These and other deformities will not be cleaned up overnight (if at all, given the bipartisan political subservience to Wall Street interests). But Enron ought to be seen as the casebook for fundamental reform.

The people bilked in Enron's sudden implosion were not only the 12,000 employees whose 401(k) savings disappeared while Enron insiders were smartly cashing out more than $1 billion of their own shares. The other losers are working people across America. Enron was effectively owned by them. On June 30, before the CEO abruptly resigned and the stock price began its terminal decline, 64 percent of Enron's 744 million shares were owned by institutional investors, mainly pension funds but also mutual funds in which families have individual accounts. At midyear, the company was valued at $36.5 billion, having fallen from $70 billion in less than six months. The share price is now close to zero. Either way you figure it, ordinary Americans--the beneficial owners of pension funds--lost $25-$50 billion because they were told lies by the people and firms they trusted to protect their interests.

This is a shocking but not a new development. Global Crossing went from $60 a share to pennies (as with Enron, the market had said it was worth more than General Motors). CEO Gary Winnick cashed out early for $600 million, but the insiders did not share the bad news with other shareholders. Workers at telephone companies bought by Global Crossing had been compelled to accept its stock in their retirement plans. (Winnick bought a $60 million home in Bel Air, said to be the highest-priced single-family dwelling in America.) Lucent's stock price tanked with similar consequences for employees and shareholders, while executives sold $12 million in shares back to the failing company. (After running Lucent into the ground, CEO Richard McGinn left with an $11.3 million severance package.) There are many Enrons, as the lawyer said.

The disorder writ large by the Enron story is this regular plundering of ordinary Americans, who are saving on their own or who have accepted deferred wages in the form of future retirement benefits. Major pension funds can and do sue for damages when they are defrauded, but this is obviously an impotent form of discipline. Labor Department officials have known the vulnerable spots in pension-fund protection for many years and regularly sent corrective amendments to Congress--ignored under both parties. In the financial world, the larceny is effectively decriminalized--culprits typically settle in cash with fines or settlements, without admitting guilt but promising not to do it again. If jailtime deters garden-variety crime, maybe it would be useful therapy for corporate and financial behavior.

The most important reform that could flow from these disasters is legislation that gives employees, union and nonunion, a voice and role in supervising their own pension funds as well as the growing 401(k) plans. In Enron's case, the employees who were not wiped out were sheet-metal workers at subsidiaries acquired by Enron whose union locals insisted on keeping their own separately managed pension funds. Labor-managed pension funds, with holdings of about $400 billion, are dwarfed by corporate-controlled funds, in which the future beneficiaries are frequently manipulated to enhance the company's bottom line. Yet pension funds supervised jointly by unions and management give better average benefits and broader coverage (despite a few scandals of their own). If pension boards included people whose own money is at stake, it could be a powerful enforcer of responsible behavior.

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