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Structured Finance
The Enron Debacle

This page uses the Enron fraud and collapse to describe the nature and intent of structured finance. It looks at the way the financial institutions used it to aid and abet Enron's fraud. It examines the roles of Citigroup bankers and analysts, accountants, lawyers, and also the political strategies used by these groups.

CONTENTS

Introduction
-Fraud
-The Real Story
-A Sick System
-Citigroup
-The Deceivers Deceived
-Structured Finance and Conscience
The Enron Scandal
-Relevance
-The Enron Story
-The customers
-Enron's wealth
-The fraud
-Comparable situations
-The critical importance of image
-Whistle Blowers
-The collapse starts
-A Life Line is offered
-The Lifeline is Withdrawn
-Bankruptcy
-Many Others Behaved Similarly?
-The investigations
Structured Finance
-Doing it Milton Friedman's way
-History of Structured Finance
-Morality
-The law
-In a Nutshell
Enron's Structured Finance
-Partnership Deals
-Prepay schemes :: Loans hidden in sales
-Other Loans became profits
-Tax Evasion
The Banks and Enron
-How Many Banks?
-Loyal Supporters
-Settling the Allegations
-A Long History Together
-Hedging Loans
Market Analysts and Enron
The Enron Accountants
The Enron Lawyers
Power and Political Influence
-Controlling Democracy
-Lobbying
-Donations Backfire for Enron
-Political Links and donations
-Arthur Andersen and Political Influence
Ideology and the Legislative Process : Oversight Failure


Introduction

Fraud

Enron was the first of the great corporate collapses of the 21st century. Like the others it blew up in a massive scandal of fraud and greed. A close look at what happened gives a very different picture to that revealed in the sound grabs and headlines which penetrate our consciousness in far off Australia.
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- - - - everyone instantly gets an epic fraud in which arrogant high-fliers stacked the deck to fleece thousands of peons to the tune of zillions. The United States of Enron The New York Times January 19, 2002
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The Real Story

The real story is not about Enron. The real story is about structured finance and the giant financial institutions who developed it, embraced it and used it as a vehicle for their own ends without any regard for the social consequences. They set up and arranged the fraud.

The real story is also about the large number of credible financial giants who participated in Enron's fraud. Without their active participation this fraud could not have occurred.

A Sick System

This is not a few bad guys, but a sick and disturbed system and we in Australia are increasingly part of that system and embrace the beliefs which give it legitimacy. Increasingly we think the way it thinks. It is interested in making money from our health care system.

It is not about illegality but about the morality and ethics of all of those involved. Some of them believed that what they were doing was legal and much of it may well have been. That it was totally immoral and quite unacceptable clearly did not worry them at all.

Citigroup

Once again Citigroup was at the helm making arrangements for the largest portion of the scam. Citigroup was less brazen in its denials when it was prosecuted and this is why it earned a lesser fine for its complicity than Morgan Chase and Merrill Lynch. Those defrauded are also pursuing a long list of other banks for compensation. They too played their part in what happened and picked up the scraps from the trough.

The Deceivers Deceived

To some extent the financiers also were victims. Because they were competitors and because Enron used several of them to assist in the fraud none of them realised how imminent the collapse was until too late. They lost money too but much less. Enron kept its own council and played one against the other.

Structured Finance and Conscience

Structured finance was the credible sounding vehicle which the co-conspirators advising Enron used to make what they were doing sound legitimate. Somewhere deep down they obviously knew that what they were doing was wrong. This was never formally objectified and recognised. It was officially seen as legitimate and the investment banks protested angrily when they were accused of complicity in fraud.

This deeper recognition of what they were doing is seen in the emails and private notes made by individuals as they interacted with one another and experienced doubts. It was the undeleted emails that finally gave the lie to public assertions, and led to large fraud settlements by the banks. It prompted shareholder litigation against the banks claiming US $25 billion.

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Here's the link to the rest of this large article: http://www.uow.edu.au/arts/sts/bmartin/dissent/documents/health/citienron.html