Mostly: Classical

[Sexton O Blake]

Not sure if you, or anyone here, has had a chance to watch "Enron: The smartest guys in the room" (now on DVD; in Toronto Library at least). An enjoyable documentary to watch.

Two things stood out for me:

First, they changed their accounting to Mark-to-Market.
Skilling's vision was to trade energies and other commodities the way Wall Street trades capital. In 1991, he convinced Enron's Audit Committee to allow him to apply mark-to-market accounting to ECT's trading books. For liquid trading activities, mark-to-market accounting is appropriate and far superior to accrual accounting. It is widely used in the capital markets. In Enron's case, it wasn't always appropriate. Many of the markets ECT was trading in were not liquid. Enron was launching those markets. ECT was entering into long-dated gas and power deals for which no liquid markets existed. In this context, mark-to-market accounting became mark-to-model accounting. Traders who were performing trades had considerable influence in how the deals were marked to model. With their bonuses depending upon the profitability of deals, there was an unaddressed conflict of interest. Skilling's trading businesses were generating considerable profits, but much of these were dubious mark-to-model profits on long-dated deals.

...

...The net effect was to allow Enron to disguise debt, park assets that were losing money, and assign inflated mark-to-market valuations to other assets. The SPEs also generated extraordinary returns for investors. Over the lives of the various SPEs, Fastow is estimated to have personally pocketed USD 45MM as an investor. This was in addition to millions of dollars Enron paid him in salary and bonuses.

http://www.riskglossary.com/link/enron.htm

Yes, the SEC allowed Enron to change their accounting to this model - as with Barings Bank - the "last bastion hope" was lost. As the late Johnnie Cochran said "Who is policing the police?" So true!


Secondly, Enron bot PXE. All stock for employees (401ks etc) were converted to Enron. Now I have always had serious problems with plowing your hard earned money into companies you work for. I say that even though, thankfully, my parents did that same thing while my father was working at Bell Canada. From what I know he was able to buy shares at a discount and without commission and fractional lots (based on any $ amount). But Bell at the time, and even so today, was never a high flying "out there" type of company - like a lot of tech companies today.

The sad part is, during the spiral, the employees could not sell their stock (prevented), at PXE, and while other high ranking officals were able to (say at Enron), they ended up losing most of their money. And lets assume that most of those employees had been contributing the same year in and year out with PXE long before Enron ever thought about taking them out.


At any rate, as cruel or sad as it might sound, I hope it at least put a smile on your face - as with myself. Life is too short to cry over what that chick I can't stand sings and you quote all the time.. what will be will be..

Cheers Mate!
B