Like a forensic coroner, the world is thoroughly dissecting the eviscerated bowels of Enron—once the world’s largest energy trading company and the darling of investors, analysts and business professors.
Last fall, an avalanche of bad news dramatically changed that glowing image. There were huge reductions in asset values due to failed investments; a gargantuan $1.2 billion drop in the net worth of the company; a downward correction of earnings reported for the previous four years; and a crippling downgrade from credit-rating agencies which labeled Enron as no longer creditworthy.
In the largest and most spectacular corporate collapse in American history, Enron’s market value plummeted from $80 billion to less than $400 million—with its stock outrageously retreating from a high of $90.56 per share in August 2000 to a staggeringly low 26 cents on November 30, 2001. All that, amazingly enough, without any warning. Enron had never released even one bad quarterly report prior to its flaming disintegration.
The Stench of Deception
With Enron’s downfall, the world soon became aware of the disgraceful behind-the-scenes manipulations by senior Enron executives who were enriched by tens of millions of dollars they should never have received, while lower-level employees and shareholders lost billions of dollars in retirement funds and investments. This debacle even led to the suicide of Enron’s former vice-chairman, J. Clifford Baxter, possibly associated with all the financial misdealings.
Examinations show that Enron intentionally lied about company profits, reporting earnings almost $1 billion higher than actual earnings in order to deceptively pump up its share prices. As the financial autopsy continued, cover-ups and outright fraud began to come into murky focus. A mountain of “off balance sheet” hidden debt, some $500 million, which, if revealed, could have discouraged Enron’s investors, was unearthed from the still-smoldering corporate grave.
Massive losses from undisclosed bad investments were brought to light which unveiled an incestuous web of secret special-purpose companies, unconsolidated affiliates and off-balance-sheet “partnerships.” Owned and operated by Enron’s upper executives who skimmed off enormous profits, the partnerships, affiliates and other partners in crime were designed from the start to obscure the parent corporation’s accounting and disguise its debt and losses.
Shamefully and purposefully, the partnerships were used to circumvent weak accounting rules in a Gordian knot of virtually unfathomable accounting procedures and unregulated investment instruments, solely intended to hide information from and confuse investors.
Executives at Enron clearly showed their criminal intent to deceive by almost single-handedly pushing legislation through Congress which deregulated an extremely risky and complex investment contract known as a derivative, which was later used to extreme advantage by Enron executives in their tangled web of deceit. The February 4 Wall Street Journal (wsj) stated (emphasis mine throughout), “In late 2000, Congress exempted over-the-counter derivatives from nearly any regulation. Enron led the massive lobbying effort on Capitol Hill and, with the exemption, escaped federal oversight of its trading activities.”
Over-the-counter derivatives, so called because they are negotiated privately and not traded through regulated financial exchanges, are so complex that they are almost completely incomprehensible and opaque to the non-accounting world. The sheer complexity of derivative contracts can be so confusing that in December 2001, the Financial Accounting Standards Board (fasb) issued an 800-page manual offering guidance on how to report derivatives on various financial statements. After pushing the deregulation of derivatives through Congress, Enron was perfectly armed with the financial tools to deceive virtually the entire world.
What is equally amazing and dumbfounding is that all of this was done with the blessings and even assistance of Enron’s auditors, Arthur Anderson. It came to light later that Anderson even assisted in shredding the paper trail of the questionable accounting practices and the unethical and quite-probably illegal transactions and acts within the energy trading giant.
With ever-increasing arrogance, Enron’s top executives became confidant that no one was looking over their shoulders or understanding what they were doing, and so, behind closed doors and hidden behind the beautiful facade of “America’s most innovative company” as they were lauded last year, the chambers of Enron’s inner sanctum quickly filled to the full with the stench of deception.
America’s Similar Fate
This same sudden destruction that was Enron’s fate is actually facing America and the other nations of biblical Israel (Britain, Australia, Canada and others), according to the prophecies of your Bible. Economic disasters such as Enron will likely fuel the swift destruction. If you have not already received your free copy of the late Herbert W. Armstrong’s book The United States and Britain in Prophecy, please request a copy so you may understand the biblical identities of today’s nations and the prophecies that relate to them.
Isaiah 30:8-9, 12-13 foretell America’s end-time disaster, which will be surrounded by perverse financial and economic dealings. Under God’s inspiration, the Prophet Isaiah wrote (rsv), “And now, go, write it before them on a tablet, and inscribe it in a book, that it may be for the time to come [the end time] as a witness for ever. For they are a rebellious people, lying sons, sons who will not hear the instruction of the Lord; Therefore thus says the Holy One of Israel, ‘Because you despise this word, and trust in oppression and perverseness, and rely on them; therefore this iniquity shall be to you like a break in a high wall, bulging out, and about to collapse, whose crash comes suddenly, in an instant.’”
What is most frightening about the Enron debacle is the close parallel between Enron and the American government. Congress too is cooking the books through accounting devices which ignore long-term liabilities, such as Social Security and Medicare, while using those funds to falsely inflate revenue. Can we see how rich and powerful lawmakers are today stealing those future retirement funds and setting up the “little man” for eventual financial disaster?
As reported in the wsj of February 14, “Members of Congress are having a gay old time accusing Enron executives of ‘economic terrorism’ [but] the pot may want to consider the color of its own financial books. The little-known but scary truth is that the federal government also disguises some of its liabilities, or simply leaves them off balance sheets altogether. … [I]n the long run this is likely to cost more Americans more money than anything Enron did.”
It is easy to compare Enron’s off-balance-sheet partnerships with U.S. government sponsored enterprises (gses)—federal debts and liabilities which are kept off the books. According to the Office of Management and Budget’s 2001 report, those obligations currently stand at a nightmarish $3.1 trillion.
The wsj pointed out that former Enron ceo Jeffrey Skilling “could have used government ‘surplus’ mathematics as a model” for his scams at Enron. “For everyone else, a dollar spent to purchase a car cannot also be used to buy a sweater. The federal budget, however, routinely spends the same dollar twice. Beltway accounting rules allow the exact same tax dollar simultaneously to reflect, say, a decrease in the deficit and an increase in the Social Security trust fund.
“This sort of double-counting may help keep up political appearances, but it works only in theory and only for so long. Eventually, the government will find itself in an Enron-like situation, with retirees thinking they have government-held assets—after all, that’s what the balance sheets say—that turn out to be only political promises.”
Enron is clearly a warning shot across the bow of America’s ship of state to stop its financial perversity, along with all of its arrogance, greed, covetousness, deceit and financial chicanery.
Locked in Steerage
In the 1997 movie Titanic, one truly dramatic scene was when the ship’s crew locked down the stairways to the lower decks of the doomed liner after it had been ripped open by an iceberg. Those lower-class, steerage passengers were prevented from coming up on deck where the lifeboats were being loaded with upper-class passengers, based on the rationale that the “expendable” steerage passengers could possibly take lifeboat seats away from the prominently important and moneyed passengers.
Such was also the case at Enron.
The January 16 wsj reported, “Last fall, amid the growing news of financial woes at the energy-trading company, Enron officials ‘locked down’ the employee retirement-savings plan to make administrative changes. Although long planned, the lockdown was poorly timed: It prevented employees from moving out of Enron stock as its price continued to plummet.
“The recent disclosures that Enron Chairman Kenneth Lay and top aides were aware of significant troubles at the company two months before the lockdown—yet went ahead with it anyway—have magnified the wrath of employees who have lost millions [known now to be billions] of dollars in retirement savings.”
As Enron’s high-flying stock dove from its $90 peak to less than $1 per share, Tom Padgett, a lab technician at one of Enron’s subsidiaries, breathlessly watched his retirement account balance plunge from $650,000 to $11,000 while he was “locked in steerage,” unable to sell Enron’s stock which comprised a majority of his retirement savings.
Wayne and Cathie Stevens worked for Enron-owned Portland General Electric. After Enron bought the company in 1997, they watched gleefully as their value in company stock tripled over the ensuing years and then, sadly, nose-dived from $720,000 to $2,300 almost overnight. They are now grappling with financial ruin.
Other financial horror stories abound. Steve Berman, an attorney representing several Enron workers, stated at a Senate hearing last December that “In two short months, Enron snuffed out the future that thousands of workers [an estimated 21,000] built over a lifetime. … These people are not venture capitalists or high-rolling investors. These were lunch-pail people who worked hard, day-in and day-out for their entire lives” (http://investor.cnet .com tech news service, Dec. 18, 2001).
In a scheme that mirrors that of Enron, millions of Americans’ retirements are being threatened by the actions of American politicians, past and present. In the Christian Science Monitor of February 6, Gail Russell Chaddock wrote, “Such budgeting habits have a long history, no matter which party has controlled the process.”
Chaddock explained one specific way Washington “works the numbers”: by understating future liabilities. “Experts worry that Washington is not adequately preparing to pay the costs of Social Security and Medicare for retiring baby boomers. The federal government is collecting payroll-tax revenues, in theory, to prefund retirement benefits. But it’s not saving the money. When budgets are in surplus, some of that money is used to pay down the debt; however, the [current] president’s budget anticipates deficits through 2004. That means those payroll dollars will be spent on other programs.
“‘It’s a deceptive practice, because we’re charging higher payroll taxes now and pretending to save, but all we’re really doing is promising that some future taxpayers will have to pay higher taxes,’ says Mr. Bixby of the Concord Coalition. ‘The revenues we are collecting in advance of that show up now, making the budget look better than it should over the short term and hiding the big costs that come out after the next 10 years.’”
Again, we are witnessing the same processes in the U.S. that brought down Enron: creative accounting that hides hundreds of billions of dollars in costs, and lawmakers pressing for gimmicks to obscure the price tags of their pet spending projects. Can we recognize the self-serving greed and deceit?
Pensions and Windfalls
The February 7 wsj reported, “Enron’s bankruptcy may have wiped out most of the retirement savings of most of its workers. But one thing it didn’t take away were the pensions of its most senior executives. Financial filings disclose that former Enron Chairman Kenneth Lay, for one, used a private partnership to protect millions of dollars worth of executive pension benefits.”
Other financial filings reveal that Enron will pay Mr. Lay a pension estimated at $475,042 a year for life, and that the company had paid on his behalf a total of $1.25 million in insurance premiums in a five-year period on his $12 million life insurance policy. Other top executives with Enron have similar pension and insurance packages.
Sales of Enron stock by its senior officers also profited them mightily. As time will likely tell, those transactions were probably nothing less than “simple, old-fashioned theft,” as Senate Committee Chairman Billy Tauzin said on February 7.
Let’s follow the money trail:
• Lou Pai, former chairman of Enron Energy Services, a key subsidiary of Enron Corporation, sold 5 million Enron shares for $353 million between January 1999 and July 2001.
• Former Enron ceo Jeffrey Skilling sold more than 1 million shares of Enron stock for over $68 million.
• Kenneth Lay sold approximately $100 million in Enron stock last year.
Many of these share sales occurred just prior to and during the avalanche of bad news in late 2001 which forced Enron into bankruptcy proceedings and drove its stock down to worthlessness.
Moreover, profiting on the many “partnership” structures through insider information became a way of life for Enron’s top executives:
• Andrew Fastow, former Enron chief financial officer, allegedly made at least $30 million from heading and partly owning two of the partnerships that did business deals with the company.
• Michael Kopper, a former managing director of an Enron unit, supposedly made $10 million through the partnerships.
• Former Enron treasurer Ben Glisan acknowledged to the Senate Commerce Committee that he had received about $1 million within two months of putting $5,800 into one partnership arrangement.
The accounting firm of Arthur Anderson was paid $5.7 million in return for helping design the controversial partnerships, which investigators have found was fraught with ethical problems from the start. In 2001, Arthur Anderson’s accountants billed their new cash cow, Enron, for $25 million in auditing fees and $27 million in consulting fees.
In an internal memo in February 2001, Anderson executives noted that Enron’s fees could eventually total $100 million a year—an amount which would have dwarfed fees from other clients, thus putting Enron into the category of a golden calf to which Anderson eagerly bowed down in spite of the obvious conflicts of interest.
Further, Arthur Anderson also was the auditing firm for Global Crossing, Ltd., an international telecommunications firm headquartered in Beverly Hills, Calif. Global’s chairman, Gary Winnick, is said to have walked away from the company with $730 million just prior to the $50 billion company declaring bankruptcy at the end of January which, like Enron, left thousands of employees with no benefits and possibly no retirement funds. As with Enron, misleading accounting methods also played a part in Global’s demise.
Also, in 2001, the Securities and Exchange Commission imposed a $7 million fine on Arthur Anderson for approving the financial statements of Waste Management, another Texas firm, knowing that the accounting methods it had used were intentionally designed to mislead investors.
We have to wonder: What other financial woes lurk out there?
The Last Hour
The Apostle Paul, led by God’s Holy Spirit, was able to see down through the ages and accurately predict the carnality and callousness of human nature in these final days of mankind’s misrule on Earth when he wrote, “But know this, that in the last days perilous times will come: For men will be lovers of themselves, lovers of money, boasters, proud … without self-control, brutal … traitors, headstrong, haughty, lovers of pleasure rather than lovers of God” (ii Tim. 3:1-4, nkjv).
As long-time readers of the Trumpet know, the Church supporting this publication teaches that mankind has entered its “last hour” (i John 2:18, rsv; see Trumpet “Personal” Nov. 2001). Being in that “last hour” means accelerating events leading to the time of greatest trouble this world has ever seen (Matt. 24:21; Dan. 12:1).
For more information on the “last hour,” please see “The Coming World Crisis” in the January 2002 Trumpet.
Events are, indeed, rapidly accelerating toward a collapse of man’s civilization as prophesied in your Bible. And God’s Word gives every indication that America’s demise will begin with its financial destruction.
A Byword and a Hissing
“You [Israel] shall become an object of horror, a proverb, and a byword among all the peoples where the Lord will lead you,” says the Eternal God in Deuteronomy 28:37 (nrsv). He goes on in the following verses through verse 52 to show the financial curses that will come upon America and the other nations of Israel in the final days as a result of disobedience to God’s law. A “byword” is the epitome of something, or the embodiment of it, meaning that Israel will be the epitome or embodiment of curses for financial perversity.
“For My people have forgotten Me,” God says of Israel. “They burn incense to worthless gods. And they have stumbled from their ways, from the ancient paths, to walk in bypaths, not on a highway. To make their land a desolation, an object of perpetual hissing; everyone who passes by it will be astonished and shake his head” (Jer. 18:15-16, nasb). The nations of Israel will become so perverse and corrupt, especially financially, that they will become an object of perpetual hissing, or scorn.
We have seen other instances of such a byword and a hissing. Remember Judas Iscariot, who betrayed Jesus Christ with a kiss on the cheek and then hanged himself in disgrace (Matt. 26:47-48; 27:3-8; it is interesting to note that in John 12:4-6, Judas is shown to have been the treasurer among the disciples, and that he was also guilty of financial treachery and theft by appropriating the funds to his own use). The betrayal of Christ by Judas was memorialized forever, with his name coming to mean one who betrays under the semblance of friendship.
Likewise, in our time today, the name Enron has become a symbol of betrayal and an object of scorn—the embodiment of financial corruption. The February 7 Daily Oklahoman editorialized on remarks by Senate Majority Leader Tom Daschle: “On Jan. 23, in remarks to reporters, he made ‘Enron’ an active verb. Nobody should ‘Enron the people,’ he said. The next day he declared, ‘I think that we are slowly Enronizing the economy.’” That article then drew attention to a headline reading, “‘Enronitis’ Sweeps Through Wall Street.”
Another epithet regarding Enron makes reference to the company’s tilted “E” logo, calling Enron “the crooked E.”
The new baseball field in downtown Houston, Tex., is trying everything possible, even going to court, to have the name “Enron Field” removed from the ballpark. That is because Enron is a name which will live in infamy through human history. That is what it means to be a “byword” and a “hissing.”
God says Israel will also be a byword and an object of perpetual hissing during the close of this age of man.
When we look at the example of Enron and compare it with America’s widespread graft, corruption, financial misdealings, bribery, scandalous campaign contributions and outright theft from the retirement benefits of Social Security and Medicare—all of which will contribute to the alarmingly sudden fall of America and the nations of Israel—we ought to see plainly, as God’s Word reveals, that an unrepentant America’s fall is as sure to occur as Enron’s sudden fall into the dust.
In Ezekiel 33:11 (rsv), God laments, “Say to them, As I live, says the Lord God, I have no pleasure in the death of the wicked, but that the wicked turn from his way and live; turn back, turn back from your evil ways; for why will you die, O house of Israel?”