WHEN ASIA was hit by a desperate financial crisis in 1997, U.S. business commentators knew who to blame: Crony capitalists.

We were told that corporations in countries like South Korea were run by executives who hid financial problems. The bosses were all in bed with the government, which tailored laws to protect corporate power, and the banks, which kept lending money, no questions asked.

Now we know crony capitalism, U.S.-style--and its name is Enron. The country's seventh-largest corporation went bankrupt in December under a heap of phony accounting, massive debt, shady political deals and rip-offs of all kinds. Yet, just months before, Enron was still the celebrated symbol of the 1990s boom.

Enron was formed in 1985 out of the merger of two old-fashioned natural gas pipeline companies. But founder Kenneth Lay--a former federal bureaucrat with plenty of contacts in Washington--recognized that there were huge profits to be made from exploiting the politicians' craze for deregulating the power industry.

Enron's business strategy amounted to making sure that it was the first into any area newly freed from government control or regulation--so it could "make money in the initial chaos," as an Enron executive told the New York Times.

Essentially, the company became a giant middleman. "Enron took over a system that reliably moved a public good--electricity--from power plant to home," consumer advocate Doug Heller said of the company's role in trading supplies of electricity. "It used deregulation to make money out of nothing, simply by adding cost to the product en route."

In promoting deregulation, Lay and his protégé, Jeffrey Skilling, regularly preached the wonders of free-market competition. Yet Enron's growth depended on gaining near-monopoly powers--it eventually controlled one-quarter of all U.S. natural gas and electricity trades.

This was an invitation to price-fixing--as California consumers learned in 2000. Enron and a handful of other giant power providers exploited the state's newly deregulated system to cause a power pinch--conspiring to drive up the cost of California's electricity from $7.5 billion in 1999 to $28 billion in 2000.

Enron would have been nothing without deregulation--which is why the company bought political influence as aggressively as it did energy supplies. Right-wing ideologues already inclined toward Lay's free-market dogma were especially useful.

Wendy Gramm--the wife of Sen. Phil Gramm (R-Texas)--is a perfect example. As chair of the Commodity Futures Trading Commission under Bush Sr., she wrote the rule that exempted Enron's core business of energy trading from oversight by the federal government. Meanwhile, her husband looked after the company's interests in Congress--in return for healthy campaign contributions.

Within months of writing the rule, Wendy Gramm was out of a job following Bush's 1992 defeat. Enron came to the rescue--and put her on its board of directors. Not a bad deal for the Gramms. But it was worth every penny and much more for Enron.

Beginning in the mid-1990s, Enron tried to duplicate its success at energy trading in new fields--coal, paper, plastics, metals and even Internet bandwidth. Many of these ventures went badly wrong, so executives turned to the tried-and-true method of big business--hide the problem and hope that everything gets better.

Enron hid its mounting losses and skyrocketing debt, both in little-examined nooks and crannies of official statements and in off-the-record "partnerships" run by Enron executives. By hiding debt in the partnerships, Enron's official bottom line continued to look healthy--while executives raked in millions in fees for administering them.

Financial experts are still trying to unravel Enron's books. But Business Week magazine estimated the company's debt--hidden and not--at a staggering $50 billion. "One way to hide a log is to put it in the woods," Rep. John Dingell (D-Mich.) told Fortune. "What we're looking at here is an example of superbly complex financial reports. They didn't have to lie. All they had to do was obfuscate it with sheer complexity--although they probably lied, too."

Since the bankruptcy, commentators have lined up to criticize Enron's shady accounting. But their methods aren't much different from what's practiced throughout Corporate America--where it has become commonplace to massage the figures to keep the bottom line looking good.

What's more, no one complained about Enron's accounting hocus-pocus--as long as profits from the company's energy business stayed strong. But when energy prices started dropping as the recession took hold, the house of cards started to tumble. Wall Street investors who had looked the other way started taking a closer look at the books. And the banks wanted to know how the company would pay off its loans.

As late as September, the Washington Post reported, "16 of 17 securities analysts covering Enron rated the company's stock a 'buy' or a 'strong buy.'" But the downward spiral was well underway.

In October, Lay made the surprise announcement--a $618 million loss for the third quarter of the year. Plus investors were told that, because of the hidden debt, the company was worth $1.2 billion less than they thought. A few weeks later, management admitted that earnings for the previous five years were overstated to the tune of another half a billion dollars.

The bottom fell out of Enron's stock price. Though executives had long ago cashed in, Enron employees couldn't get their retirement savings out of company stock.

In November, a smaller rival company, Dynegy, offered to take over Enron in a last-minute bailout, but the deal broke down. On December 4, Lay announced that Enron was declaring bankruptcy, the largest in history.

Four thousand Enron workers got the boot that day. "In Houston, security guards patrolled the Enron buildings, watching employees as if they were potential thieves as they emptied their desks," wrote Pratap Chatterjee in an article for Corporate Watch. "Workers flooded into the streets in front, many crying and hugging one another as police on horseback shouted at them to disperse."

"My group was told nothing yesterday, other than to gather personal belongings and leave," a former employee wrote in a letter to the Houston Chronicle quoted by Chatterjee. "On November 30, we were given the right to move Enron's matching funds for our retirement savings plans from Enron stock to another fund. My personal account amounted to $46.01. Another friend, with almost 20 years service, had $102. This is absurd, sad, and I think, criminal."

But will anyone go to jail? Everyone--even Enron's former champions--now admits that the company's financial practices were sleazy and misleading. But so are the books at every major corporation.

Some Enron executive may yet serve jail time. But don't count on the courts to expose Enron's greater crimes--because these are the crimes of the free market, committed every day in the name of capitalism.

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