Enron was a specific case of a "major" company that was caught cooking the books, but when you look at areas outisde the corporate world you'll find that Enron-style accounting is the norm.
I never considered Enron a major company even when it reached #7 on the Fortune 500 list. A company that trades worthless pieces of paper, and reports gross sales of commodities (instead of profits) as revenue is a third-rate company as far as I'm concerned. This is proven by the fact that energy prices didn't move an inch even after the largest trader of energy contracts went belly-up.
Back to Enron-style accounting in the world in general. I contend that the "economic boom" of the late 1990s was primarily driven by tax policy, not by favorable economic conditions. As a result of the 1993 Democratic tax hikes, the U.S. was left with a top income tax rate of 39.6% (I believe the numbers I'm using are correct, but you'll get the point even if they are off by a little bit). After the 1995 Republican tax cuts, the top capital gains tax rate was reduced to 20% for assets held longer than 18 months (later reduced to 12), but income tax rates stayed the same. As a result of this spread between the top income tax rate and the top capital gains tax rate, smart people simply moved their money out of income-producing assets (such as bonds and value stocks) and into assets that produced little income but had enormous potential for capital gains (real estate and growth stocks). In other words, the two strongest areas of the "boom" (real estate and growth stocks) were driven only by people chasing higher after-tax returns.
There are other impacts of tax law on the stock market. Because "bracket creep" has pushed middle-income earners into higher tax brackets, they have been driven to put their money into the last two major tax shelters -- retirement accounts and home mortgages. Much of the stock market growth over the last few years has been driven by nothing more than large institutional investors plowing huge amounts of "play money" (pre-tax dollars) into stock mutual funds. This explains why investors continued to pour money into the stock market even after P/E ratios had reached record levels.
The residential real estate bubble will burst next, because its foundation is no more stable than the stock market was. A home is different than most things you buy in everyday life because the cost is amortized over a long period of time. As a result, people think of affordability not in terms of the overall price, but in terms of its monthly cost.
Consider the example of a person who pays $325,000 for a home and is paying it off over 30 years at a fixed rate of 8.5% (assume the entire home is mortgaged for the sake of this example). This comes to roughly $2,500 per month in mortgage payments. Here in the New York area I've heard countless stories of people who bought a home for $325,000 a few years ago and saw it rise in value to $375,000 in a year or less. Imagine that -- a $50,000 return on your investment in one year.
The problem is that the home isn't really worth $375,000 -- it's worth $2,500 per month. The increased "value" of the home was not caused by a change in market conditions (location, quality of the school system, etc.) but was the direct result of a reduction in interest rates. When nterest rates declined from 8.5% to 7%, a person looking to buy that same home can pay $375,000 and will have the same monthly mortage payment of about $2,500.
The person who buys a home for $325,000 and sells it a year later for $375,000 may actually get a $50,000 return on his investment, but this is only a worthwhile return if he is leaving the area for good or retiring to a much smaller home. If he is going to buy in the same area, he'll find that for the same $2,500 monthly mortgage payment he can afford a $425,000 home ($375,000 mortgage plus his $50,000 down payment).
This is all going to come crashing down here in the New York area because of enormous property tax hikes. A person who paid $2,500 per month in mortgage payments plus $500 per month in taxes was able to afford $3,000 in monthly homeowner costs (let's neglect insurance and maintenance for this case). If his taxes go up to $700 per month, then the "monthly mortgage affordability" in his area goes down from $2,500 to $2,300. According to my calculations, the guy who bought his home for $375,000 and paid $6,000 per year in property taxes will see the value of his home decline to $345,000 or so when his taxes hit $8,400 per year.
Only time will tell, but my feeling is that the real estate market is going to collapse unless mortgage rates decline enough to make up for these large property tax increases.
Creating new financial instruments and markets is almost always very beneficial to the economy and society as a whole. Though, as you say, it was the way they were accounted for that caused the big problems, not because they were paper instruments. Every time I read "worthless pieces of paper" I am reminded of nineteenth century and early twentieth century philosophers, economists, and politicians who repeated similar slogans and used them to instigate millions of genocidal murders and the oppression of hundreds of millions more.
And here is a recent article about "things" versus financial "paper things" that might be of interest to you.
There are other impacts of tax law on the stock market. Because "bracket creep" has pushed middle-income earners into higher tax brackets, they have been driven to put their money into the last two major tax shelters -- retirement accounts and home mortgages. Much of the stock market growth over the last few years has been driven by nothing more than large institutional investors plowing huge amounts of "play money" (pre-tax dollars) into stock mutual funds. This explains why investors continued to pour money into the stock market even after P/E ratios had reached record levels.
I think you are making a very good point here, and it really points out how the Rat/Communist philosophy of soaking the rich never really works, and the very negative unintended consequences of trying to do so. However, I don't view it as phony baloney accounting, because it's all a matter of money going where its treated best in the marketplace, and as usual the market will eventually self correct. Still, Greenspan's mistake is still the costliest in history as he wrecked the economy when the markets were already entering a corrective phase.