Seduced by Irrational Capitalism

This great article by Loren Steffy deserves a wider audience.

The real cause of our economic crisis can't be found by searching Google or YouTube. It doesn't reside in an old newspaper story or in some long-forgotten video of congressional hearings.

If we want the answer, we need a mirror.

This crisis isn't just about credit or mortgages or complex markets.

It speaks to a failing of human nature. We became seduced by irrational capitalism.

In Houston, we know this syndrome well because, in its modern form at least, it was born here. It was tested on Smith Street, behind the mirrored facade of our most notorious skyscraper.

“The history of Enron is repeating itself,” said John Olson, chief investment officer of Sanders Morris Harris Group, who was an early and outspoken critic of that failed company.

It's not an exact replay, of course. This time it's bigger and has far broader implications. Wall Street took many of the same financial processes it developed for Enron and deployed them across entire markets.

As the current crisis unfolds, we find ourselves confronting a vernacular that's all too familiar: inflated values for illiquid assets, off-balance-sheet vehicles for hiding debt and overly optimistic risk assessments.

Enron was an insult to capitalism because it turned the basic principles of business on their heads. So did the financial firms who fed the current crisis.

Enron trussed up its corporate structure with hidden debt instruments, supported by the belief that reward could be divorced from risk. It was a cartoon of a corporation, believing that if it ran off the cliff, it could stand on air and not fall.