Enron effect: loud, but not clear

Opening today in Washington: a drama with compelling charactersand moral overtones, but a plot so complex that only an attentive CPA may be able to follow it to the end.

The show in question is the congressional Enron investigation, of course. Lawmakers are lifting the curtain on a series of hearings in which they plan to question firm officials and accountants about the energy firm's spectacular collapse.

But don't expect a neat story arc and fast, satisfying resolution. Enron's tale promises to be so hard to untangle that past congressional probes - Iran-contra, say - may look as simple as "Pat the Bunny" by comparison.

Will Enron hearings lead to important changes in financial-disclosure law? Probably. Will they prove politically explosive? Right now, it doesn't seem that they will.

"So far I'm not seeing the two things it takes to make a political scandal fly: an easy-to-understand angle, and obvious partisan benefit," says Glenn Harlan Reynolds, law professor and government investigations expert at the University of Tennessee in Knoxville.

That Congress would hold a full-dress investigation of Enron and its financial dealings has been inevitable since the firm filed for bankruptcy last year.

First of all, Enron was the largest company in history to ever seek court protection from its creditors, with $49 billion in assets at time of filing. It was as if the economy of Delaware had ground to a halt overnight.

Second, the moral framework of the Enron story was enough to produce outrage in even a casual observer. That top executives could cash in stock while lower-downs saw their retirement funds evaporate is a situation tailor-made for the hot lights of the House Government Reform and Oversight Committee.

Third, Enron's political links at least demand an explanation. The firm was George Bush's single largest financial backer. While most of its political cash flowed to Republicans, some important Democrats, such as Sen. Joseph Lieberman, took Enron contributions, as well.

The result: At least eight congressional committees have launched Enron investigations. Two of the most important probes, one in the Senate Governmental Affairs Committee, the other in the House Energy and Commerce Committee, hold kick-off hearings today.

The House Energy and Commerce panel has been particularly aggressive in its pursuit. Its populist Republican chairman, Rep. Billy Tauzin of Louisiana, has struck a deal with the committee's ranking Democrat, the famously combative Rep. John Dingell of Michigan, to share documents and pool investigators in an attempt to have as large an impact as possible.

Mr. Tauzin dispatched subpoenas to everyone from Arthur Andersen chief executive Joseph Berardino on down for Thursday's hearing on the apparent massive destruction of Enron-related accounting documents.

"No one's getting a free pass on this one," said panel spokesman Ken Johnson.

Overall, lawmakers'' interest in the Enron matter has already produced some revelations. It was a House request for documents that turned up a letter written by a senior Enron executive that warned, presciently, that the company's creative approach to accounting could cause its whole business to implode.

But a funny thing has happened on the way to congressional opening statements. The multifaceted Enron probe has developed into something that promises to be both important and difficult for the average voter to follow.

Its politics has become very complicated, for one thing. Many Democrats have hoped that they could tie Enron to the Bush administration and its pro-corporate policies. But so far that hasn't happened, though more evidence could yet emerge.

Such revelations as the fact that Clinton officials, was well as the Bush administration, lobbied officials in India on behalf of an Enron project has made it appear as if there is blame all around.

In addition, the very proliferation of congressional hearings will make the investigation story line hard to follow.

Then there's the fact that the wrongdoing now emerging is all about such things as derivatives, off-balance sheet entities, and debt reporting. Congressional hearings work best when they have clear story lines and vivid characters. Think Ollie Norrth - not offshore banking. "There is potential illegality here, no question about that," says Jason Thomas, an economist at Citizens for a Sound Economy. "But it's too complex for an average person to understand."

Congress may well produce legislation at the end of its Enron probe. Tauzin's commitee, for instance, expects to at least draft legislation that would increase disclosure requirements for power marketing companies.

But the emerging Enron story seems to be one of top executives who, for whatever reason, went beyond many existing financial laws and regulations. Such actions may be a matter for the courts more than Congress. "Legal mechanisms are going to be more efficient [than hearings] to address this," says Mr. Thomas.