Enron's End Run

The nation's recession, like any recession, will damage firms that didn't plan for recession. But last week's fall of the $60 billion energy-trading firm Enron is more than a lesson in ant-and-grasshopper economics.

It's a warning that governments should be more careful in how they deregulate public utilities such as electricity. Enron's rapid rise in the 1990s was due mainly to its aggressive tactics in filling the free-market vacuum left by energy deregulation.

Much trust was heaped upon Enron by its thousands of customers, who expected it to act like a public utility. But its tricky accounting and overextended investments revealed a swashbuckling attitude toward services that are basic to everyone.

Enron's swift demise showed how thin its halo was as the dominant trader in energy markets. Its lack of transparency and financial discipline, as well as its culture of excessive risk-taking, was much like that of Long-Term Capital Management, the giant financial hedge fund - run by Nobel prize-winning economists - that needed a federal bailout in 1998.

Various probes of Enron will be needed, but governments themselves should look at how to better deregulate public services and to keep track of private firms that replace them.