Ken Lay's Optimism Was Outpaced by Reality

By Steven Pearlstein
Thursday, July 6, 2006

At one point during the recent Enron trial, prosecutors cross-examining Ken Lay asked the former chief executive how he could have allowed a friendly analyst to report that he was a net buyer of Enron stock at a time when, in fact, he was unloading more than half of his Enron shares.

"I suppose it depends on how you define 'net buyer,' " Lay replied, in a splendid display of Clintonian hair-splitting.

And from that moment, it became pretty clear to me who killed Enron.

It was Ken Lay himself.

Yes, Ken Lay, who engineered the merger of two obscure natural gas pipeline companies and magically transformed it into the seventh-largest public company in the United States.

Ken Lay, the self-made son of a Baptist preacher who put himself through college and graduate school and won the Horatio Alger Award set up by the champion of "positive thinking," Norman Vincent Peale.

Ken Lay, who leveraged his Washington experience and connections of the 1970s to make Enron a big winner from natural gas deregulation -- and then did it again with his campaign to launch the country on an unproven experiment in electric power deregulation.

Ken Lay, who carefully built a reputation as Mr. Houston, bringing the Astros downtown and spearheading countless civic, cultural and charitable causes.

Ken Lay, whose old-world charm and politeness earned him the extraordinary loyalty and affection of Enron employees -- the same loyal employees whose warnings about the company's financial problems he stubbornly ignored.

For many who knew him well, it was simply inconceivable that Ken Lay could have known about, let alone encouraged, the kind of financial shenanigans that led to the downfall of a company that was his life's work and the source of his power and fortune. But what they missed, and what a jury came to conclude, was that like many in corporate and public life, Lay had become a con man, unable to untangle truth from fiction.

The remarkable rise and tragic fall of Ken Lay is really a story about a man whose optimism was finally outrun by reality. Early on, he found he could succeed by putting the best face on things, stretching the truth, dismissing the doubts of naysayers. But in the end, those habits became his undoing.

The pattern began two years after the merger of Omaha's InterNorth Inc. and Houston Natural Gas Corp. in the mid-1980s, when newly formed Enron was in a financial bind because of a sharp drop in the price of natural gas. The company was able to avoid defaulting on its $4 billion in debt because of some fortuitous profit racked up by a small trading subsidiary in Valhalla, N.Y., which had decided to short the price of crude oil.

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