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Whom the gods would destroy, they first put on the cover of Business Week. When the Feb. 12 issue featured a cover photo of Jeffrey Skilling, you knew bad things were about to happen both to Enron and to its new C.E.O. Sure enough, on Tuesday Mr. Skilling resigned for "personal reasons." The next day he conceded that the most important of those personal reasons was the 50 percent drop in Enron's stock since January.
Is this just another tale of extravagant expectations disappointed, the kind of story that has become all too common lately? No; this case has wider significance. Enron, based in Houston, is in the vanguard of a powerful movement that hopes to "financialize" (Enron's term) just about everything -- that is, trade almost everything as if it were stock options.
That movement is as much about politics as it is about business, and the company has not been shy about using its political connections to advance its cause. With the arrival of George W. Bush in the White House -- thanks largely to Enron, a prime mover behind his campaign -- the sky seemed to be the limit.
But financialization looks more and more like a movement that has overreached itself.
Enron was originally a natural gas pipeline company, swaddled like all such companies in a tight regulatory straitjacket. In the mid-1980's, however, gas markets were set free. And Kenneth Lay, who was C.E.O. at the time and is returning to succeed Mr. Skilling, saw a great opportunity.
He transformed Enron from a company that delivered B.T.U.'s to one that dealt in contracts; as Business Week put it, the company became "more akin to Goldman Sachs than to Consolidated Edison." Enron became the lead market-maker for the new, deregulated natural gas industry; since deregulation worked well for natural gas, which increasingly became the nation's fuel of choice, Enron's new role was highly profitable.
After gas, electricity. As power deregulation became the rage across the U.S., Enron took on a key role as a broker for wholesale electricity. Soon the company was looking for new worlds to conquer: water supply, bandwidth on fiber-optic cables, data storage, even advertising space.
Then things started to go wrong. Enron abandoned its venture into water supply when it became clear that governments were reluctant to entrust so crucial a matter to the magic of the invisible hand. And skeptics found ample justification for their lack of faith when electricity deregulation, which was supposed to be a certified success story, went spectacularly astray in California.
True believers insist that the power crisis of 2000-2001, which transferred tens of billions of dollars from taxpayers to electricity-generating companies -- and quite a bit to Enron too -- was not a verdict on deregulation, that it was all the fault of meddling politicians who didn't let the market work. But this claim isn't particularly convincing, mainly because it isn't true. The real lesson of the California catastrophe was that the concerns that led to regulation in the first place -- monopoly power and the threat of market manipulation -- are still real issues today.
State and local governments, alerted by what happened in California, will henceforth be a lot more wary about deregulation. There's even a movement to reregulate electricity markets. And that means fewer opportunities for Enron, whose stock price depends on the expectation that it will keep finding new Californias to conquer.
Of course, the people Enron put in the White House are still there, and they seem to have learned nothing from California. It's true that the Bush administration sometimes compromises on its free-market principles -- it believes, for example, that energy producers need huge subsidies, even though the shortages those subsidies were supposed to correct have turned out to be imaginary (a recent cover story in Barron's warned of "the coming energy glut").
But otherwise the administration's faith in absolutely unregulated markets is unshaken. The new head of the Federal Energy Regulatory Commission -- the watchdog agency that conspicuously refused to do its job in California -- is, you guessed it, a Texan with close ties to the energy industry. And the administration continues to believe that "financialization" is the way to go on just about everything, from school vouchers to Social Security.
But it's wrong. And let's hope that it doesn't take a string of catastrophes to teach us that there are limits to what markets can do.