Enron as an Inkblot Test

In 1921, the Swisss psychoanalyst Hermann Roschach published his research on the interpretation of inkblots in the book Pyschodiagnostik. Since that time, there has been a school of psychiatry that supports then notion that the reaction of patients to inkblots can be used to analyze personality — the so-called “Roschach Inkblot Test.” The idea is that people will project their own preoccupations on to an image of random inkblots. There are different views on the interpretation of patient responses to inkblots, but there is no doubt that the term “Roschach Inkblot Test” has become a metaphor for any event where the interpretation of the event says more about the observer than about the event. The responses to the bankruptcy of the Enron energy corporation, in many cases, is suh an inkblot set.

For those who dearly wish to see a Republican scandal, the “closeness” of Enron to members of the Administration represents the “appearance” of untoward influence. Who knows, there may be a scandal somewhere that has not been discovered. It appears now that Enron executives asked for special considerations and were denied by Administration officials. Indeed, it seems Enron received more favorable consideration from the previous Administration. Enron executives accompanied that the Clinton Administration’s Trade Representative Mickey Kanter and Commerce Secretary Ron Brown on foreign missions to drum up business. This was not an evil thing. Kanter and Brown were doing something that many want the government to do: help gain American businesses entrees overseas.

It is ironic that Enron lobbied heavily with the Clinton Administration in favor of passing the Kyoto Accords. The agreement would have shifted American energy production from coal to natural gas. The shift would have benefited Enron with its large stocks of natural gas. Now alignment of goals between Enron and the Clinton Administration does not imply corruption. The Clinton Administration was ideologically inclined to support Kyoto and were not pushed into that position by contributions from Enron.

For those who want “campaign finance reform,” the Enron case represents additional reason to limit political contributions, and hence free speech rights. In actuality, the situation persuasively makes just the opposite case. If Enron bought influence with all its campaign contributions and could not buy a bailout to save itself, then they managed their lobbying even worse than they did their main business.

For those who oppose privatizing some portion of Social Security, the fact that Enron employees lost great fractions (if not all) of their the 401(k) retirement savings when the Enron stock collapsed is one more reason to avoid trusting people to make their own decisions about retirement investment. Of course, such a conclusion deliberately overlooks the fact that any partial replacement of Social Security investments on the part of individuals would be far more diversified than a fund comprise of a single stock.

The Enron bankruptcy is in some ways a good thing. One premise of capitalism is that poorly run companies loose the economic battle and fall by the wayside.

Nonetheless, in addition to suspected insider trading of Enron stock by corporate executives, there does appear to be a grave accounting scandal here. Some large accounting firms that make a lot of money auditing large corporations have a vested interest in overlooking poor, creative, or just plain fraudulent accounting practices. When the dust settles, the Arthur Anderson accounting firm may find itself as legally liable as Enron for potentially fraudulent reporting.

In a recent column, George Will reminded other Conservatives that free markets are government creations that need to provide transparency to economic transactions. It is a government obligation to enforce such a transparency. From the Enron debacle, we should learn several important lessons:

  1. Structures need to be adjusted to mitigate the vested interests accounting firms have with companies. Accounting firm executives should not have separate consulting contracts with the companies they audit. Perhaps the accounting firms should be limited to having only a certain fraction of their income dependent on a single company. For large firms, perhaps consortia of accounting firms should be used, each keeping an eye on the other. Large companies, like large governments, can sometimes become a law unto their own.
  2. The regulations governing 401(k) retirement programs should be amended. Perhaps compensation in company stock by companies in the retirement programs they are sponsoring could be limited to a certain percentage. In addition, employees should have the immediate right to diversify their accounts in other investments.

If the Enron collapse leads to reforms in these two areas, the entire debacle could yet produce important positive consequences

Too Crazy to Make Up

In the category of “Too Crazy to Make Up” we have two items this week.

Monument to Political Correctness and Historical Revisionism

It seems that New York City developer Forest Ratner is returning to his senses. He had originally commissioned a $180,000 monument commemorating the sacrifice of the New York City Firefighters during their rescue efforts after the attacks on September 11. In the wake of public criticism Ratner agreed to reconsider the nature of monument.

The monument was to be based on the famous photograph by Thomas Franklin, showing three New York City firemen raising an American flag over the ruins of the twin World Trade Centers. The photo was reminiscent of the raising of the flag over Iwo Jima in World War II.

Most people see three proud firefighters in the image. It seems that some people, who can only look at the world through a prism that splits the world into different colors, saw only white firefighters. In an act of historical inaccuracy and “affirmative action,” a model of the future monument showed a white, a black, and an Hispanic firefighter. No one would have objected to a different or an additional monument that might have showed different ethic or race groups as firefighters. People objected to deliberate historical inaccuracy in pursuit of a political agenda. People should remember that the mindset that is willing to revise history when necessary is often the same one applied to the revision of history textbooks re-written to emphasize multiculturalism.

ACLU and Airport Security

Many people are excessively concerned about airport security. However, it can be safely asserted, without fear of contradiction, that the American Civil Liberties Union (ACLU) does not suffer from this affliction. The ACLU is challenging in court the citizenship requirement for airport screeners contained in the recent Aviation and Transportation Security Act. Since we are now treating screeners as quasi-law enforcement personnel, requiring citizenship seems like a rather nominal requirement.

No one should claim surprise at this ACLU position. It follows in the wake of other ACLU positions. For example, the ACLU argues that the application of facial recognition technology at airport security checkpoints is an unconstitutional invasion of privacy. In 1996, the ACLU expressed its concern that, “…the privacy of all airplane passengers is jeopardized by the trend towards heightened security measures.” In a prescient observation, the ACLU worried that, “Intrusive `body scanners,’ personal interrogation, and a national database designed to track travel habits warn of future compromises that all travelers will have to make the next time an undetected terrorist attack occurs.” One wonders why they did not also worry about the attack itself.

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