I need to call USA Today's (and Gannett boss) Al Neuhardt to task on today's editorial on Ken Lay.
Ken Lay deserves our traditional presumption of innocence. But his former chief financial officer, Andrew Fastow, has plea-bargained guilt. Any claim by Lay that he didn't know Fastow and other financial executives were falsifying the balance sheets won't fly because of Lay's own economics expertise with these degrees:
• Bachelor's in economics, University of Missouri, 1964 (with Phi Beta Kappa honors).
• Master's in economics, Missouri, 1965.
• Doctorate in Economics, University of Houston, 1970.
Difference between Lay and me: He didn't have to rely on other financial experts. He was one of them, so they couldn't dupe him.
If Enron's books were cooked, the No. 1 bean counter must take the blame.
Let me rewind the tape of my life to the early 80s. I was working on a MA in Economics at Central Michigan University before a bout of depression shot that down. I had zero credits in Accounting at the time. I later went on to pick up a BBA in Accounting, but I could have gotten an MA and a PhD in Economics without ever darkening the door of an accounting classroom.
At many schools like CMU, economics is a social science and hangs out on the academic flow chart with the history and poli-sci folks; I was a double major in political science and economics. At other colleges, it's part of the business school; business students generally have to have two classes in accounting. Even in the schools that have economics in the liberal arts camp, you'll have a lot of business students taking econ, since the vast majority of b-schools require a two-semester sequence of micro- and macro-economics; most of my CMU econ classes were at the business school's Grawn Hall.
Some people take economics from the micro-side; Managerial Economics is designed to get people to understand supply and demand curves in real life and help firms price their products. However, a lot of economists are into the macro-side, coming at economics as an extension of public policy; that was where I was at as a young adult.
You can also have a truckload of economics without taking much if any finance. Many economics courses have an intersection with finance. Money and Banking and other monetary policy classes will look at the macroeconomic side of finance, but an econ person could well be rather illiterate about derivatives and other exotic investments, especially if he did his work back in the 60s before organized options and finance futures markets came of age in the 70s.
A lot of the sophisticated futures and swaps that Enron was in would be beyond the schooling of someone with just an economics background. Even someone with a accounting degree could get lost in some of the legitimate stuff Enron was up to, let along the shady stuff; I did my doctoral dissertation on international derivatives (Nikkei put warrants), and a lot of the Enron stuff stretches my mind.
Lay's degree isn't a bean-counter's degree. He may have had a few accounting and finance classes along the way, but probably not enough to follow the jiggery-pokery that his finance guys were conjuring up. That's not to say he didn't pick up that knowledge outside of college, but you can have a doctorate in Econ and be left in the dust with the sophisticated finance and accounting that Enron was up to.
I don't know whether Lay was in on the illegal jiggery-pokery or not; that's what the federal court in Houston's going to decide. However, he could well have a case that the accounting and finance were beyond him even with a PhD in Economics; at least enough of one to give jurors a reasonable doubt.