Learning from Enron

Enron was the biggest business scandal of its time, and legislation like the Sarbanes–Oxley Act was passed to prevent future business fraud. But did the business world truly learn its lesson from Enron’s collapse? Greed and corporate misconduct continued to be a problem throughout the first decade of the twenty-first century, culminating in the 2008– 2009 global recession. Corporations praised high performance at any cost, even when employees cut ethical corners. In the mortgage market, companies like Countrywide rewarded their sales force for making risky subprime loans, even going so far as to turn their back on loans that they knew contained falsified information in order to make a quick profit. Other companies traded in risky financial instruments like credit default swaps (CDSs) when they knew that buyers did not have a clear understanding of the risks of such instruments. Although they promised to insure against default of these instruments, the companies did not have enough funds to cover the losses after the housing bubble burst. The resulting recession affected the entire world, bankrupting such established companies as Lehman Brothers and requiring government intervention in the amount of nearly $1 trillion in Troubled Asset Referendum Program (TARP) funds to salvage numerous financial firms. The economic meltdown inspired a new wave of legislation designed to prevent corporate misconduct, including the Dodd–Frank Wall Street Reform and Consumer Protection Act.