1084 ★ CHAPTER 27 From Triumph to Tragedy
the new economy. The NASDAQ, a stock exchange dominated by new technol-
ogy companies, rose more than 500 percent from 1998 to 1999. Many of these
“ high- tech” companies never turned a profit. But economic journalists and
stock brokers explained that the new economy had so revolutionized business
that traditional methods of assessing a company’s value no longer applied.
Inevitably, the bubble burst. On April 14, 2000, stocks suffered their larg-
est one- day point drop in history. For the first time since the Depression, stock
prices declined for three successive years (2000–2002), wiping out billions of
dollars in Americans’ net worth and pension funds. The value of NASDAQ
stocks fell by nearly 80 percent between 2000 and 2002. By 2001, the American
economy had fallen into a recession. Talk of a new economy, it appeared, had
been premature.
The Enron Syndrome
Only after the market dropped did it become apparent that the stock boom of
the 1990s had been fueled in part by fraud. For a time in 2001 and 2002, Ameri-
cans were treated almost daily to revelations of incredible greed and corruption
on the part of respected brokerage firms, accountants, and company executives.
During the late 1990s, accounting firms like Arthur Andersen, giant banks like
JPMorgan Chase and Citigroup, and corporate lawyers pocketed extravagant
fees for devising complex schemes to help push up companies’ stock prices by
hiding their true financial condition. Enron, a Houston- based energy company
that epitomized the new economy— it bought and sold electricity rather than
actually producing it— reported as profits billions of dollars in operating losses.
In the early twenty- first century, the bill came due for many corporate
criminals. The founder of Adelphia Communications was convicted of misuse
of company funds. A jury found the chairman of Tyco International guilty of
looting the company of millions of dollars. A number of former chief execu-
tives faced long prison terms. Kenneth Lay and Jeffrey Skilling, chief officers of
Enron, were convicted by a Texas jury of multiple counts of fraud.
Fruits of Deregulation
At the height of the 1990s boom, with globalization in full swing, stocks ris-
ing, and the economy expanding, the economic model of free trade and dereg-
ulation appeared unassailable. But the retreat from government economic
regulation, a policy embraced by both the Republican Congress and President
Clinton, left no one to represent the public interest.
The sectors of the economy most affected by the scandals— energy, telecom-
munications, and stock trading— had all been subjects of deregulation. Enron
could manipulate energy prices because Congress had granted it an exemption
from laws regulating the price of natural gas and electricity.