OPINION

Enron, the crash and Greece

At a time when Greeks are trying to understand what has befallen them, and other countries – such as Britain, Spain and Portugal – are dreading that they may suffer the same fate, it is interesting that in London two theatrical plays that try to make sense of two previous disasters have met with great success. Lucy Prebble’s «Enron» at the Noel Coward Theater, is the tale of the American energy giant’s rise and fall; the once hugely successful company collapsed in the space of just 26 days in 2001, under the weight of debts in excess of 30 billion dollars. The second play makes Enron look like a simple rehearsal for the catastrophe that later befell the capitalist system itself. David Hare’s «The Power of Yes: A Dramatist Seeks to Understand the Financial Crisis» has been playing at the National Theater since October. It deals with the global credit crisis that began in 2007 and which led, among other things, to the revelation of Greece’s systemic weakness. Both Enron and the global collapse are pertinent to the situation in Greece. At the heart of all three tragedies is the uncontrolled growth of debt, in combination with the arrogance (the hubris) of protagonists who are certain that nothing will go wrong. The lessons of 2001, 2007 and of today’s Greece serve as triumphant vindication of the declaration of the late Andreas Papandreou who, reversing his prior profligacy, stated in 1993: «Either we eradicate debt or debt will eradicate us.» The trick employed by Enron’s CEO, Jeffrey Skilling, was to present future profits as today’s gains; this drove up the company’s stock price. However, when real profits were late in coming and debts started to balloon, the company created shell companies to take on the mother company’s debt and make it look good. Enron’s stock kept rising, supported by the mindless cheerleading of analysts, rating agencies and investment banks. Until the debt became just too big to hide. Then the Texan giant with strong connections to presidents Bush (both father and son) collapsed within the space of 26 days. Today Skilling is serving a 26-year jail term, while 20,000 employees lost their jobs and their life savings. Yet, no one learned anything from this. The trick of presenting future profits as today’s while hiding debt became the rotten foundation on which the international financial system based its boom. When debt grew so large that it could no longer be hidden and the international economy found itself staring into the abyss, the US government was forced to support banks and businesses with over 10 trillion dollars. As the fallen Skilling declares near the end of Prebble’s play: «The only difference between me and the people judging me is they weren’t smart enough to do what we did.» Instead of learning from his failure, though, everyone copied him. The global crash was the result of uncontrolled debt that created a huge bubble of growth but undermined the foundations of the strongest economies. «The US and the UK went from being nations of producers to being nations of borrowers,» a private equity investor notes in Hare’s play. In Greece, we grew addicted to easy money – not by cashing in future profits but by repeated borrowing at ever higher prices. Like Enron, like the banks and investment houses in the last decade, we learned to hide our debts – not through complicated securities and derivatives which confused real assets with nonsense and created chaos on a global scale, but by simply transfering debts from one budget to another. When we confessed our sins, we embarrassed the European Union’s control mechanisms, thus prompting them to take harsh action against us; we then threw ourselves at the mercy of our creditors and the rating agencies, resulting in predictably expensive loans. The terrible thing is not so much that we are heavily in debt and frightened but that we wasted all that we borrowed. We did not create a productive economy. We did not put an end to corruption. We did not demand that our politicians change course. We did not consider that which George Soros says at the end of Hare’s play: «The people who end up paying the price are never the people who get the benefits.»