I Think Joe Nocera Gets Ken Lay Wrong

Joe Nocera's take on Ken Lay and ENRON:

Even at the End, Ken Lay Didn't Get It - New York Times: THE tragedy of the former Enron chairman Kenneth L. Lay, who died yesterday at the age of 64, is... that, right up until the end, he never fully understood what he'd done wrong, or his own considerable culpability in his company's demise.... Andrew S. Fastow['s]... devious partnerships allowed Enron to disguise the truth of its financial condition and then sow the seeds of its destruction.... Jeffrey K. Skilling, too, played a greater role in Enron's collapse, since he was the company's hands-on leader, and set the tone that made greedy behavior and shady accounting standard operating procedure....

Still, it is hard to avoid the judgment that Mr. Lay was culpable for Enron's demise, though not necessarily for the crimes for which he was convicted six weeks ago. Fundamentally, the Enron jury found him guilty of lying about the state of the company from August to December 2001.... And he did lie, without question. It was during that time that Mr. Lay was finally confronted with Enron's mounting difficulties.... To face these problems squarely and publicly would have grievously damaged the company on Wall Street. So instead, Mr. Lay told the world that Enron's future never looked brighter. This was not the usual corporate spin. It was wishful thinking. And it was wrong....

[I]n the end, it was his desire to see things as he wished them to be, not as they really were, that was his fatal flaw. He never really had the judgment a good chairman or chief executive has to have. Here he is in 1987, for instance, confronted with clear evidence that some Enron traders were engaging in fraudulent behavior. He looks the other way because they are generating profits.... Here he is jetting off to India or Brazil or dozens of other places to help seal a deal to build an international power plant -- without the slightest sense of whether the deal makes any economic sense.... [H]e compounds his error by promoting Mr. Skilling to company president, without really thinking about whether his new president is up to the job.

And here he is a few years later -- and this may serve as the ultimate case study in wishful thinking -- urging the Enron board to approve a waiver of Enron's conflict-of-interest rules so that Mr. Fastow can set up his first partnership. Even now, one wonders -- what was he thinking?... [Fastow] was negotiating on each side of a transaction, as Enron sold assets to the partnerships in order to "make its numbers."

Mr. Lay genuinely thought that Mr. Fastow was doing the company a huge favor by taking on the partnerships. Even after the partnerships were exposed, he continued to defend Mr. Fastow's character, though it was clear to most others that the partnerships were inherently corrupt. More wishful thinking...

I think Joe Nocera is wrong. I think that we can be pretty sure what Ken Lay was thinking when he approved Fastow's waivers of the conflict-of-interest rules. Lay was asking Fastow--nudge, nudge; wink, wink--to do things to temporarily hide Enron's losses that would ruin Fastow's reputation and probably send him to jail if they came out. In return, Lay was allowing Fastow to greatly boost his own wealth through self-dealing. The shifting rationales for the waivers make that clear. At one moment, Lay is saying that ENRON has to grant the waivers because only with Fastow at the head of the partnerships will they be able to move fast. At the next moment, Lay is saying that ENRON won't be hurt by the waivers because Fastow's partnerships will get the assets only when they are the high bidders.

Cossacks work for czars. And it is when czars dismantle the checks-and-balances that monitor and supervise cossacks that you can be most certain that the cossacks are working directly for the czars.