Power Failure

As Enron crashes, angry workers and shareholders ask, Where were the firm's directors? The regulators? The stock analysts?

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To minimize the impact of this debt on Enron's financial statements, Enron insiders say, Skilling and chief financial officer Andrew Fastow created complicated private partnerships that did business with Enron but whose finances were not subject to much scrutiny. When these partnerships first began to come under the microscope three months ago, Enron was unwilling to explain them fully. In August, Lay, who is paid to look out for shareholder interests, told the New York Times, "I just can't help you on that...You're getting way over my head." An Enron spokesperson says the remark was taken out of context.

In the face of confusion about Enron's finances, investors began to flee the company's stock. Rating agencies downgraded their assessments of the safety of Enron's bonds. Those moves caused lenders to demand immediate payment of hundreds of millions of dollars in debt. And those who had traded with Enron became reluctant to continue, for fear they would not be repaid.

Losing business, Enron executives tried to sell the company to competitor Dynegy, but that deal fell apart last week. The death blow came on Nov. 19 in a filing by Enron with the SEC, detailing $690 million in debt that had to be paid almost immediately. Enron's stock plunged. "We were renegotiating daily because every time I turned around their stock price was falling," Chuck Watson, CEO of Dynegy, told TIME. "It got to the point where there was hardly any equity left in the business." Says a source close to Lay: "The Greeks would have loved this story. It's got hubris, ambition and a great disaster at the end."

That disaster falls on many shoulders. Washington policymakers must determine how to better regulate an obviously undersupervised energy-trading market--but without creating so much red tape and uncertainty that they choke off development of new wells, pipelines and power plants. "Our committee is keenly aware of the need for enhanced oversight," says Senator Jeff Bingaman, the New Mexico Democrat who chairs the Energy and Natural Resources Committee and has called for hearings on the Enron debacle.

Another stage in this drama is the impact on the administration of 401(k) retirement plans. Bobbie and Jerry Dotson are Enron employees who live in Baker, Fla. They lost most of their life savings of $1.5 million when Enron's stock tanked, taking down their 401(k) account, which was loaded with company shares. Bobbie, 62, put in for retirement last month. She had anticipated a monthly check of at least $800 plus her pension. Now she will consider herself lucky to get even the estimated $317 monthly pension that company officials recently quoted to her. "We trusted the company because we had so many years with them," she says.

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