Enron and Mississippi Essay
Enron and Mississippi
The actions of John Law of the Mississippi scandal can be compared with those of Kenneth Lay of the Enron scandal on the grounds that both were in effect the CEO’s of the companies that chartered the defrauding of so many people. Both men seemed to have an extraordinary ability to make money and to secure followers, as both were able to rise from abject poverty to a state of immense wealth. The significant difference here is that John Law had been born wealthy, but after losing his wealth and reputation was able to gain much more.
Kenneth Lay started out poor but was able to become very rich from his scheme—which in that way is similar to John Law’s own experience. Kenneth Lay may also be considered a gambler in a sense, as he was known as a great risk taker in stock trading. In the end, both ended up being in charge of a trading scheme that led eventually to the devaluation of the main currency being traded and the devastation of those who held these currencies (Mackay, 1841; Wikipedia, 2007). Another similarity shared by Law and Lay is in their ability to understand and manipulate numbers.
While Law was apprenticed in his father’s counting house, he showed great promise in mathematics. This ability he applied to gambling and later to his Mississippi scheme. In a similar way, as a young man Kenneth Law showed such understanding of mathematics he was able to major in economics at university and continue his education in this subject all the way to the doctoral level. This knowledge he later applied to his work in the Enron scheme. Both men were also known to publish papers relating to their projects.
John Law published “Proposals and Reasons for Constituting a Council of Trade” and Kenneth Lay published “Megatrends of Energy” and “Electricity Restructuring Update: Increasing Efficiencies and Customer Service are Integral to the Market Transition” (Mackay, 1841; Wikipedia, 2007). A third similarity between the two authors of these scandals is their influence with people of very high office. According to sources, Kenneth Lay was a contributor to the inaugural event of President Bush and was often invited to meet with Vice President Dick Cheney.
John Law too became friends with the French Duke of Orleans who ruled in the place of the late Louis XIV seven-year-old son. It might also be seen that both men took advantage of a critical moment in history to launch (one of) their schemes. John Law’s alliance with the Duke of Orleans came immediately following the death of the extravagant Louis XIV when France’s economy was in shambles. Kenneth Lay took the opportunity that came from the deregulation of energy in Reagan’s administration to merge his company with Internorth and form the new enterprise into Enron (Wikipedia, 2007).
John Law may also be compared to Jeff Skilling, who by many accounts was considered to be the person really in charge at Enron during its years of defrauding employees and the public (Zellner, 2002). Law was described as charismatic and loudmouthed in the account of the Mississippi scandal given by Mackay. Skilling too has been described as less than subtle, and as the intimidating architect of the actions performed by Enron. While it is controversial as to whether John Law’s scheme was actually against the law or just bad monetary policy, it was clear that he was in charge of it and responsible for its regulation.
According to many researchers of the Enron crisis, Skilling too was in charge of the Enron scheme and had the influence necessary to regulate the actions of those persons who did in fact break the laws with insider trading and other forms of illegal activities. Both CEO and protege (Kenneth Lay and Jeff Skilling) of Enron were involved in activities that led to the virtual extortion of money from their own employees encouraged to invest in a failing company. This can be compared to the taxation privileges granted the corporation being run by Law.
In fact, the policies that Law created at first boosted the confidence of the citizens in the currency, encouraging trade and the payment of taxes. In a similar way the confidence of the employees of Enron was boosted (though artificially) and through promises of an upcoming stock rebound these persons were encouraged to continue buying a failing stock while Enron executives secretly sold theirs at an alarming rate (Mackay, 1841; Wikipedia, 2007). As it regards illegal activity, there are grounds upon which both John Law and the executives Kenneth Lay and Jeff Skilling again share similarities.
As mentioned before, these two were indicted on charges of fraud. Their actions as executives of the company were in conflict with the laws governing financial actions within the United States. During the time of the Mississippi scandal, John Law might have been considered a law onto his own self. He made the declaration that anyone printing paper currency without possessing the necessary metal to back it should be punishable by death. In light of his standing in the financial arena, this might be considered a statute.
However, John Law eventually oversaw the printing of paper currency that was not backed by metal and this led eventually to the official devaluing of currency in order to make up for the discrepancy between money and metal. These subsequent actions might be considered as fraudulent as those performed by Lay and Skilling (Mackay, 1841; Wikipedia, 2007). The Regent Duke of Orleans might also be compared to Jeff Skilling, who was ranked a bit below the leading man Kenneth Lay in the Enron scheme.
Although the Regent acted in the position of king, he was second in command to John Law in the Mississippi company and therefore in the actions leading to the scandal. Still, both the Regent and Skilling were immensely powerful and had large parts to play in the scandals of their given period. In conjunction with this, John Law may again be seen in light of Kenneth Lay, who testifies that he knew very little of what was really going on in the company and would have disapproved of it if he had known.
The account given by Mackay of the Mississippi scheme reports that John Law himself was “impelled by the Regent into courses which his own reason must have disapproved. ” Each of these men therefore might also be described by the following statement based on the Mackay account: “With a weakness almost culpable” they acted in a way that established financial institutions which “based upon no solid foundation was sure to fall sooner or later” (Mackay, 1841).
Andrew Fastow, the Chief Financial Officer of the Enron Corporation performed actions during his term that might be compared to that of Financial Minister D’Argensen appointed by the regent. Both men pursued unwise (and in some cases outright fraudulent) activities and performed the actions necessary to cripple the economy (or the part influenced by Enron). Fraudulent tax activities were carried out by Fastow (with the help of his wife who was an assistant treasurer).
Fastow helped to raise funds by selling securities that were supported by questionable and even downright faulty loans (Wikipedia, 2007). This is very similar to what was performed by D’Argensen, who was often in the habit of issuing currency worth a given amount and making them redeemable for a greater amount. He also demonstrated ignorance of financial issues and in re-minting coins valued at four thousand livres into smaller coins worth five thousand livres, he felt he was doing a service to the countries finances, when in fact he was doing it great harm (Mackay, 1841).
Another person to whom D’Argensen might be compared is the representative for the accounting firm Arthur Andersen that did external audits for Enron. This representative, David B. Duncan, pled guilty to charges of covering up the financial indelicacies of the Enron Corporation and keeping their fraudulent activity from the public. This is similar to the way in which D’Argensen, though working for the state, deliberately misled the people into believing in the worth of the coins and paper currency though they valued little.
Further comparison can be made between them as both D’Argensen and Duncan were fired by their employers when the scam and its detrimental effects were fully revealed. D’Argensen was removed from office by the Regent and Duncan was fired from Arthur Andersen. The public rioted against D’Argensen following his expulsion from office much in the same way that the government (as a representative of the people) sought to prosecute Duncan for his involvement in the scandal.
Further comparison can be made between D’Argensen and such Enron players as Michael Kopper (in charge of the “off-balance” sheets) and the chief accounting officer for Enron Richard Causey (Ackman, 2002). These two persons were in very good positions to view Enron’s financial books and were most likely the ones responsible for them. They, like D’Argensen, sat in paid positions and received large salaries while causing and hiding the problems that the company was facing.
Another person, Richard Buy, was also involved with Enron as the chief risk officer. He might be compared to John Law and the Regent as they were all employed in the area of assessing risk and considering whether they were worth being taken. The Parliament of France might be loosely compared to the Securities Exchange Commission, as both detected problems with the actions of the Mississippi and Enron firms. It was against the laws and judgment of these governing bodies that John Law and Kenneth Lay acted in their individual monetary campaigns.
Both governing bodies expressed distrust of the programs and were disgruntled with the outcome of the scandals. However, while the French Parliament was able to express its disgust throughout the years of Law’s activities, the Securities Exchange Council remained largely in the dark about Enron’s policies until the time of the crash. Another difference lies in the fact that the major players in the Mississippi scandal were able to silence the Parliament by arresting important parliamentary officials. This was not the case with the Enron scandal.
What did take place during the scandal that does make the Parliament somewhat comparable to the Securities Exchange Council (SEC) is their ability to control the reporting of the accounting firms (such as Arthur Andersen) that audited their company. This was the method that their “control” of the SEC took. Though there is controversy regarding the extent to which Arthur-Andersen was involved in the scandal, the fact remains that the SEC and government remained largely in the dark about Enron’s crisis due to the fact that Arthur-Andersen, for whatever reason, denied the public critical information concerning Enron’s financial activities.
This made the SEC unable to execute its policing duties much in the same way that the Parliament was unable to exercise regulatory efforts during the Mississippi scheme. The actor Chancellor D’Aguesseau represented his distrust of the proliferation of paper money to the Regent and in return was dismissed from his office as chancellor. A person that can be compared to D’Aguesseau is Daniel “Dan” Scotto who was responsible for reporting that much of what Enron had been routinely revealing to the public in its financial accounts was made up of questionable earnings reports (Smith, 2002).
D’Aguesseau was eventually recalled to the chancellorship and his office was not just to declare much of the decrees of John Law underhand and unsound (like Scotto did with Enron), but he also revoked many of them—such as the edict that made it unlawful to have more than five hundred livres worth of coin. D’Aguesseau’s later activities as Chancellor after being recalled might therefore be compared to the current activities of Enron—which has now changed its focus and its name to reflect an objective of recovery and reparation.
D’Aguesseau strove to help the country’s finances recover from the dissipation that characterized the time of John Law. This is similar to the current actions of Enron (now Enron Creditors Recovery Corporation) where even lawsuits were answered by personal payments made directly by Enron directors to the filers of those suits. However, D’Aguesseau was not made personally responsible as were these directors of Enron, but was only involved in the logistical aspects of recovery.
The methods of taking responsibility and allocating blame are also shared between the two head duos acting in both the Mississippi and Enron schemes. When Kenneth Lay found himself and his company in so much financial trouble that he had to declare bankruptcy, his constant plea was that persons other than himself (presumably Skilling and others) were responsible for the unlawful actions of the company. In a similar way, the Regent was called to answer questions concerning discrepancies with the dates of issuance of some of the bills and securities in the Mississippi scheme.
His response was basically to do what Kenneth Lay did and place the blame upon John Law—declaring all the while that he (the Regent) who should be in the best position to understand the activities of the company (especially as it regarded the use of government money and authority) was all the while in ignorance. Such good persons as M. Villars and villainous ones as M. Andre also were to be found in the Enron scandal. Monsieur Villars represented an honest man who did not become involved in the widespread speculation that was taking place within upon the stock market in conjunction with the Mississippi Company.
Daniel “Dan” Scotto can again be brought up in this position, at he appeared as upset about the whole charade as Marshall Villars was—and he too spoke up about the insanity. However, while Marshall Villars was more concerned with the craziness of the speculators, Scotto was concerned with the dishonest behavior of the Enron executives. Monsieur Andre, though born poor, made an enormous amount of wealth on the Mississippi market. The Duke de Bourbon, too, was made very wealthy by a combination of trade and “jobbing the stocks” (Mackay, 1841).
These two persons can be compared to the lower level company executives (such as Richard Buy, Richard Causey, Michael Kopper, and Andrew Fastow) who were also made enormously wealthy as a result of the Enron scheme (Ackman, 2002). The Enron shareholders and employees, on the other hand, might be compared to the French public in general who were forced to suffer poverty as a result of what the Mississippi Scheme did to the country.
University/College: University of California
Type of paper: Thesis/Dissertation Chapter
Date: 18 February 2017
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