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October 19, 2003
David Warsh, Proprietor


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Boxing the Compass of News

No journalistic accomplishment is more ephemeral than success in covering a highly competitive daily story. By its very nature, real news diffuses so rapidly that readers can’t keep track of who was responsible for the scoop. Editors remember, of course; at least they remember what they thought at the time. And afterwards, there are the prizes. But editors are prone to nervousness, and prize juries occasionally get it wrong. The most reliable guides, therefore, are the books. Unless the achievement was pretty concrete, and its priority pretty well established, these accounts either don’t get written, or they reflect, all too clearly, that the author had little to do with the story in real time. (Think, for example, of the way Washington Post reporters Bob Woodward and Carl Bernstein’s authoritative account of the Watergate cover-up, “All the President’s Men,” took the wind out of all other sails.)

Three books dealing with the story of Enron Corp. have now appeared; a fourth may be in the works. That is a sufficient number to permit an impressionistic boxing of the compass of news, for the books in print were written by journalists who covered the story for The New York Times, The Wall Street Journal and Fortune magazine.

And while abstracting out the three key institutional players obscures the vital role played by the other organizations that committed extensive resources to the chase — The Washington Post and The Financial Times in particular; the Chicago Tribune (in connection with the ill-fated Chicago-based accounting firm of Arthur Andersen) and The Houston Chronicle (eventually) — it renders visible some of key mechanisms by which news is covered and uncovered in the present day.

Enron is an especially interesting case for many reasons, not least because the press was so deeply complicit in its rise to prominence as “America’s seventh-biggest company.” Early in its fifteen-year history, Enron recognized that glowing press clips, as much as analysts’ recommendations and business school cases, were the royal road to success.

No news organization was more embarrassed in the process than Business Week magazine, which triumphantly splashed Enron’s Jeff Skilling on its cover just as the company began its dizzying descent. (It was no more than a superficial cut, since BW does an excellent job from week to week.). But almost everyone who was anyone got taken in at some point. Winners of the $50,000 “Enron Prize for Distinguished Public Service” included Nelson Mandela, Colin Powell, Mikhail Gorbachev — and Alan Greenspan. (Surely they were happy to cash the check!)

The story as it frequently is told is that it was a Fortune magazine writer who raised the first alarm. And it is true that Bethany McLean, a former Goldman Sachs analyst-turned journalist wrote a savvy (if somewhat cautious) article in March 2001 titled “Is Enron Overpriced?”

There were other journalists who over the years cocked at skeptical eyebrow at the company — none more so than Jonathan Weil, a reporter for the Texas regional edition of The Wall Street Journal whose prescient story about energy-trading companies’ bizarre “mark-to-market” bookkeeping practices never made it into the newspaper’s national edition. (Today Weil covers the accounting industry for the paper.)

But it is generally agreed that once the Enron story began to unwind under internal financial pressures arising from the decline of share prices — once CEO Skilling unexpectedly resigned in August 2001 — that The Wall Street Journal owned the story from beginning to bankruptcy.

And while The New York Times made a distinctive and important contribution to understanding the Enron story, it was not what you probably think.

The team that broke the story of Enron’s deceptive financial practices have told their story in “24 Days: How Two Wall Street Journal Reporters Uncovered the Lies that Destroyed Faith in Corporate America.” Authors John Emshwiller and Rebecca Smith barely knew each other when their landmark collaboration began.

He was a 51-year-old Journal lifer who had dedicated himself to covering white-collar crime. She was a 46-year-old newspaper veteran who had joined The Journal only in 1999 to cover energy companies. They had been forced by circumstance to team up to cover the ongoing California energy crisis during 2000. After some months of joint bylines, their relationship was beginning to fray.

“24 Days” thus is the story of the workings of a partnership as much as it is the story of a high-stakes journey of discovery. (At the end of the story, Smith still insists on a coin-toss to see whose name will come first on the title page.) Part of its charm is that at every turn it illuminates the far-reaching tissue of relationships upon which good news depends: with corporate spokesmen and the executives who employ them, with editors, with sources, with rival reporters, with readers.

Maybe you already have to be pretty interested in the world of investigative reporting to stay with all 400 pages of this book. But it is hard to think of a more honest or more penetrating account of the intricate chess game of venture and doubt that is required at its highest levels. Anyone who thinks that the best news organizations don’t bend over backwards to be fair should read it.

A very different sort of book is “The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron” by Bethany McLean and Peter Elkind of Fortune Magazine. Much more in the manner of “Barbarians at the Gate” and “The Predators’ Ball” and other such bestsellers than the Journal team’s tightly-focused book, McLean and Elkind set out to tell the Enron story whole. And nobody will ever call their book dull.

From the astonishing Rebecca Mark, who set out to build Enron’s water-trading business along the lines of its oil and gas operations, to Kenneth Lay’s business-failure-turned-bible-thumping son Mark, they are all here. All, that is, except the Fortune editors who, according to magazine lore, prepared a cover story in the fall of 2001, on “the dozen smartest people we know,” which, until the last minute, included Ken Lay. (Their soon-to be-discarded boss Gerald Levin, architect of the AOL-Time Warner merger, survived the cut and made it into print.) Such was the lingering power of the mystique that the Wall Street Journal was busy puncturing!

The New York Times’ coverage of the Enron story in its news columns during this period generated more heat than light. Not that it wasn’t interesting. Many of the most poignant details of life among the glowing embers in Houston were ferreted out by reporters dispatched by former editor Howell Raines to “flood the zone.” In an extraordinary interview he gave to Charlie Rose last summer after being fired, Raines explained his strategy at one point:

“I am proud of the fact that [Business Editor] Glenn Kramon and I devised a new strategy for the Business Section, which was different from what had prevailed…. [We] moved from business section that didn’t mind getting beaten by The Wall Street Journal on mergers and acquisitions… [and a] Business Section that was written for consumers rather than for our downtown professional financial community…[to a ] business section that was much more competitive and much more hard-edged in the business and financial community…. As a result of that Glenn took that department and his achievement, not mine, and dominated the [Enron story]… and to my knowledge that is the first business story where The Times has been in the front…. Along with The Journal and Business Week and the other business publications.”

It seems likely that nobody else in the business thinks that The New York Times “dominated” the Enron story in any category other than sheer bulk. There were many good stories in the blizzard of dispatches that The Times printed once bankruptcy had been declared. Its Business Section has many excellent reporters, and in columnist Floyd Norris a powerful voice who is among the most knowledgeable commentators in financial journalism.

But there were so many stories, and so often out of that mysterious synch with stories appearing in other newspapers that, taken together, constitute the constantly moving scrum that is the edge of the story, that it was never clear that the editors had a larger picture in mind. Now veteran investigative reporter Kurt Eichenwald, who led The Times coverage in Houston, is understood to be preparing a book.

Raines’ view of his Business Section resembles the Times’ view of itself last year, in the wake of the World Trade Center bombing, when it was awarded a record-setting seven Pulitzer Prizes. The Wall Street Journal was blown out of its newsroom across the street from the Trade Center, met all its editions and kept up a steady stream of great reporting at home and abroad as well — including the Emshwiller and Smith stories about Enron. (They won the Loeb Award, business reporting’s highest honor, but not the Pulitzer.) No one who enjoys the Enron story is likely to miss the faint resemblance between the energy giant’s approach to reputation-building and that of The World’s Greatest Newspaper.

The Times did make a major contribution to the Enron story, however, and they made it early on. It may even have been the most important scoop of all. The record of it can be found in nine columns spread across 26 pages towards the back of Paul Krugman’s new collection, “The Great Unraveling.”

It was in December 2000 that the economist-turned-newspaper columnist first raised the possibility of market manipulation in the California electricity crisis, by generators deliberately withholding power. Two months later he followed up with a column on how out-of-state generators of power (like Enron) had successfully opposed permitting their utility customers to negotiate long-term contracts, thus retaining maximum market power.

And a couple of months after that, chiding lefties for crying “wolf” every time markets are deregulated, he wrote, “But now a bona fide wolf has arrived, whose predatory behavior is doing terrible damage to our most populous state — and nobody will believe it.”

(In the fashion that his careful readers will recognize, Krugman predicted that the price caps imposed by the Federal Energy Regulatory Commission wouldn’t offer California “any significant relief” — then blithely continued two months later without mentioning the caps, even though the wholesale price of a megawatt hour had dropped under $100 from a high of $750 the summer before. No exculpatory evidence need apply.)

In his commentary in the book on the columns, Krugman writes, “I approached the issue with an open mind and, better yet, enough background in economics to find some real experts and understand what they were saying. It soon became clear to me that the California disaster wasn’t the result of a shortage of production capacity. It was the result of market manipulation by energy producers and traders.

“At first, I was almost alone in making that case; the evidence, though compelling, was circumstantial, and ran counter to prevailing prejudices. But eventually evidence surfaced that was convincing even to non-economists: memos detailing strategies to game the markets; even recording of traders telling power plant operators to shut down. At that point it became clear that an enormous market raid had been carried out in broad daylight — with almost nobody willing to believe what was happening.”

I was among those who initially were skeptical of the diagnosis. But it seems to me now that Krugman turned out to be absolutely right. The industry’s conduct was the real story in California — “looting” behavior every bit as shocking (and, it turns out, as predictable) as that of many bankers in the run-up to the American savings and loan crisis of fifteen years before. The Enron saga is no more than a glorious point-making anecdote in this larger scheme of things. AndKrugman played the key role in alerting the rest of the world to this possibility.

Yet neither the New York Times (which early on put its investigative ace Jeff Gerth on the story) nor anyone else has been very successful in following up. It’s all very well to blame the outcome on the halfway deregulation of timid politicians. That was, in fact, in each case the industry’s defense. But it ignores the companies’ role in suborning the politicians’ misconduct in the first place — like the parricide who craves mercy because e is an orphan. Much more imaginative reporting will be necessary before the public has a good feel for the political economy of deregulation.

So in the end, there were two standout heroes in what we sum up as “the Enron story.” One was the team of Smith and Emshwiller at The Wall Street Journal. The other, as irritating as he can be, was Krugman at the New York Times — a fitting twist, since the economist earlier had been among the many victims compromised by Enron’s brand-building campaign, having accepted $50,000 to serve, along with luminaries such as editor William Kristol of The Weekly Standard, on a panel of informal advisers.

The supporting cast included, by all accounts, Peter Behr and April Witt of the Post, Floyd Norris and Kurt Eichenwald of The Times, and Peter Eavis of TheStreet.com, who kept up a steady drumbeat of on-line news about Enron. The team from Fortune magazine does what a newsmagazine does best, bringing to life the rascals at Enron and imposing a satisfying narrative on the story of their rise and fall.

It’s a little disappointing, though, when they write “We leave it to others to describe the resulting investigations and trials, as well as the jockeying over Enron’s spoiling remains.” The most important things in modern journalism are those that only a major newspaper can do.

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