5 February 2002
What hath Enron wrought?
They spent a lot of money on politicians.
They lied a lot about their earnings.
All of the fail-safes against these shenanigans failed in a systemic
collapse.
They misled their employees while they took damning small payoffs.
They lost it all.
I keep thinking of Icarus, flying too near the sun and falling into the sea. I think of the hopes of the rank and file of Enron, collapsing like tall buildings.
Enron didn't manufacture anything. They built partnerships to speculate in derivatives and followed the Queen's Bank to the reward awaiting all habitual gamblers. It's a shame, because they created a marketplace infrastructure that will last a lot longer than they did. In the furor over their profligate ways, appreciation of that benefit will be lost on all but Dynegy, who is buying it.
Buying politicians isn't bad, in itself. It's hard to get any attention on Capitol Hill unless you buy some face time. They say that cash is the sincerest form of sincerity. I don't have a problem with it. If we find that they bribed Andersen to cook the books, that would bother me.
"It is suspected that Enron structured many deals to inflate misleadingly reported profits, e.g. by booking most of the future profits—often just estimates at best—on long-term deals at the beginning of the deal, rather than reporting them as received over the lifetime of the deal." - The Economist
"He can’t be everywhere. He has to run a huge, big company. He can’t do everyone’s job for them ... there’s some things that he wasn’t told." - Mrs Kenneth Lay, explaining why ignorance is his excuse.
Apparently, in Mrs Lay's business theory, once a company exceeds a certain size, like huge-big maybe, there can be no accountability by the top guy. My southern bias says that a man should not hide behind his wife.
Of course, I find her crocodile tears about poverty to be unpersuasive. The personal assets of the Lay family are worth more than 99% of american families earn in a lifetime. Heck, I heard that they have an apartment worth $7 million. A man would have to gross $140,000 a year for 50 years to bring in that much. The Lays are reputed to have twice that much real estate in Colorado. Perhaps Mrs Lay is misinformed about the family's condition. That's common, for the wife to know very little about the family finances when the husband is a high flyer. Maybe if she had called him on the carpet and made him keep her informed all along, this wouldn't have happened.
Meanwhile, Mr Lay showed us that it's really easy to cook your books. Just get Andersen to sign off on it and you can say anything you want about your income. People trusted Andersen like they trusted airline security. Every system has a blind spot.
It's disappointing that the terrorists turned out to be a bunch of camping hillbillies. How could they hurt us? The same disappointment will flow when its revealed that the corruption of the leadership of Enron was petty. When you cook the books by a billion dollars and only make $30 million in the process, as has been reported about Enron's Mr Fastow, that's chump change. How can we be great when our enemies are so weak?
The weeping and wailing and gnashing of teeth fills the television, as former Enron employees demonstrate their disappointment. You know they are hurting, because Jesse Jackson is sitting next to them. Folks, I hear you. I know how it feels to lose a job, or a house, or a sense of security. It's not a good time to be insensitive, but I want to raise this nasty issue anyhow. It seems to hurt worse to be out of work when you think you have a big 401K to fall back on. The sense of loss is keener if the size is inflated.
And it's inflated. The Enron stock was not worth its market value at any time after 1998. Those 401K's were inflated by the lies of Lay's lackeys, and that hot air would not have ever paid off cold cash. Enron's shares were $20 until 1998. If the income after that period isn't real, then the losses aren't either. It's been said that Enron reported $1billion more than it made in the past year. Anyone who lost that billion lost little more than a lie.
And oh, how the lies add to the sting. When the stock was going into the tank, Enron management told the employees that the company was doing fine. While they took their own profits, they denied them to others. The unfairness of it is galling.
There was something lost besides jobs and investments. What really collapsed was faith. Faith in leadership, faith in Big 5 audits, faith in market watchers, faith in The System.
Who else is out there cooking the books? Well, I think that Microsoft is doing just the opposite of Enron. I think that they are pushing income from cash cows like Office out into future years. This is just as much a violation of the GAAP principle of periodicity as what Enron did, pushing income forward that wasn't real. It only appears to be hurting the US Treasury. And maybe affecting the P/E ratio of the stock. And the price. And the value of the 401K's that have shares in them.
It's clear that the audit firms and the wives of major executives are not performing their oversight functions. Let the buyer beware.
"Allied Irish Banks (AIB) has launched an investigation into a suspected $750m (£529m) fraud by one of its traders, who has since failed to report for work." - BBC News
Now here's a case where someone is making some real money. Instead of
losing a billion dollars that never existed, this fraud was $750 million
that did exist. And added to this fraud is an unexcused absence. That's
likely to go on his permanent record.