Enablers are the third parties whose actions or inactions provide a sheen of legitimacy for the wrongdoers. Whereas the mob may use a waste management business to provide a cover of legitimacy for its ill-gotten gains, investment banks and corporate wrongdoers use more sophisticated means.
As in my prior post, consider Worldcom. Worldcom characterized $20 billion of payments from its subsidiary companies to its parent as having made for the "management foresight" of the parent company's top management. The reason for this odd transfer was to avoid the payment of hundreds of millions of dollars in state income tax. Worldcom could not have pulled this off without the assistance of its multi-national accounting firm, KPMG, which devised the tax scheme and provided some sheen of legitimacy to its implementation. I mean, if KPMG says it's alright to do this, it must be legitimate, right?
In the latest round of financial fraud, the enablers were the credit ratings agencies. Issuers of debt submitted their package to a ratings agency, like S&P or Moody's, to obtain a rating of the package quality. The higher the rating, the greater the seal of approval for potential investors in the package. The ratings agencies were paid by the issuers of the debt, which bound their bottom lines to how they were perceived within the investment banking industry. The temptation was thus apparent: Investment banks dangled the carrot of future lucrative business in front of the agency in exchange for the stick of favorable ratings. Wash, rise, repeat until the inevitable implosion occured.
Next time you get that nagging feeling that something seems too good to be true, look for the enablers. Sometimes a good wash can make a clunker look brand new.