Power Failure

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Analysts looked the other way early last year when Enron shares were soaring and the company let it be known that it might sell shares of stock in its online-trading operations. Not wanting to miss a shot at the underwriting assignment, analysts were reluctant to be tough. "When you question them in detail, they get offended," says Brian Youngberg, who recently began covering Enron for brokerage Edward Jones and began downgrading the stock in October. "It's been their culture not to disclose things."

Too few analysts asked why Lay and Skilling were eager sellers of their personal holdings of Enron stock during the first part of 2000. Murky accounting should have been another red flag. Says Rob Plaza, who follows Enron's stock for Morningstar and concedes he might have been more sharp-eyed: "If they're so profitable, why did they need all that borrowed money?"

Lawmakers may bring the hardest questioning--and the most trouble--to accountants and auditors. Arthur Andersen occupied an entire floor of Enron's headquarters, and was paid $54 million to both audit and advise the company. That relationship and previous impropriety charges against Andersen may leave it as exposed as Enron to a damaging investigation. "When I entered the business, there was an adversarial relationship between accountants and companies, and you had confidence in the numbers," says Morgan Stanley's Wien. "Today the relationship is more collegial, and you can't have that confidence." And now we know just what a crisis of confidence can do.