Titans of the Enron Economy
[I remember this terrific article from two years ago and I thought it might be pertinent to reread now] Titans of the Enron Economy by SCOTT KLINGER HOLLY SKLAR The Nation [from the August 5, 2002 issue] The pivotal lessons from the Enron debacle do not stem from any criminal wrongdoing. Most of the maneuvers leading to Enron's meltdown are not only legal, they are widely practiced. Many of the problems dramatically revealed by the Enron scandal are woven tightly into the fabric of American business. Outside the spotlight on Enron's rise and fall, government policies and accounting practices continue to reward and shelter many firms with harmful habits just like those of Enron. We've ranked the 100 worst companies for each habit and awarded Ennys for outstanding Enron-like performance. We've also given a Lifetime Achievement Award to the corporation with the highest combined score for Enron-like performance in all ten categories (a hint: Enron placed second). The Ten Habits of Highly Defective Corporations HABIT 1: Tie employee retirement funds heavily to company stock and let misled employees take the fall when the stock tanks--while executives diversify their holdings and cash out before bad news goes public. Winner: Coca-Cola. Once upon a time the upward slope of Coca-Cola's stock price was as smooth as a cold Coke on a warm afternoon. Over the past couple of years, however, the venerable soft drink maker's stock fizzled like New Coke. Employees saw their 401(k) retirement assets evaporate, with the stock down more than 31 percent in the three years ending November 2001. Eighty-one percent of Coke's 401(k) was invested in company stock. Not all employees fared poorly. Former CEO M. Douglas Ivester left Coke under a cloud of controversy but received a severance package valued at more than $17 million; it included maintenance of his home security system and payment of his country club dues. HABIT 2: Excessively compensate executives. Winner: Citigroup. CEO Sanford Weill took home more than $482 million between 1998 and 2000. In 2001 he made another $42 million. Weill's stock compensation plan was amazingly equipped with a reload feature: Each time Weill cashed in his options, he automatically received new options to replace them. Imagine if Citigroup customers had a reload ATM machine that automatically added replacement money to their accounts after withdrawals! While throwing money at its executives, Citigroup rips off low-income Americans with predatory lending practices. The Federal Trade Commission has brought suit against Citigroup, alleging abusive lending practices; if all charges are proven, Citigroup's liabilities could reach $500 million. HABIT 3: Lay off employees to reduce costs and distract from management mistakes. Increase executive pay for implementing this cost-cutting strategy. Winner: Lucent Technologies. Last year Lucent axed at least 42,000 jobs. While these layoffs occurred during the tech-industry tumble, Wall Street critics lay much of the responsibility for Lucent's misfortune at management's door. Lucent was the only company to end up on both the Fortune and Chief Executive 2001 worst boards of directors list. Though the board took action and fired CEO Richard McGinn in October 2000, it gave him a golden parachute of more than $12 million as a parting gift. HABIT 4: Stack the board with insiders and friends who will support lavish compensation and not ask difficult questions about the business. Winner: EMC Corporation. Only two years ago this leading producer of computer storage media could have held Thanksgiving dinner in its boardroom: The chairman, Richard Egan, his wife and son all sat on EMC's board. As a member of the board Junior got to help set Dad's allowance (and help determine his own inheritance). How many kids wouldn't love that? Of course, Dad might not have needed much help, since he also sat on EMC's compensation committee, which determined his and other executives' pay. Since winning this award, EMC has added an independent director to its board. HABIT 5: Pay board members excessively for their part-time service; pay them heavily in stock so they have a disincentive to blow the whistle on bad business practices that keep the stock price up. Winner: AOL Time Warner. AOL Time Warner is one of a growing number of companies to compensate directors solely in stock options. In 2000, according to an Investor Responsibility Research Center study, the potential value of these stock options (using SEC-specified formulas for computing the present value) was $843,200 per director--not bad for a part-time job. Each member of AOL Time Warner's board is annually granted 40,000 stock options. Directors make money for each dollar increase in the stock price. If AOL Time Warner's stock price rose $10 a share, the options would gain $400,000 in value. HABIT 6: Give your independent auditor generous non-audit consultant work, creating conflicts of interest
Enron
by David B. Shemano Charles Brown writes: Hey , on an old thread, I haven't seen you since Enron. What to you think about bookcooking on Wall Street,now ? What do I think about it? I am against it. Look, fraud is illegal in a capitalist economy. There is a certain percentage of the population that is going to try and bend the rules to take advantage. I am sure that would never occur in a socialist economy. ^^^ CB: I might remember incorrectly , but I thought you were saying that it doesn't happen much in this capitalist economy.
Re: Enron
Gerry Cohen wrote a lot about this. I can't remember which side he came down on, but he certainly agreed with David that you have to be very careful in using the language of theft when talking about capitalist surplus-value or you end up basically legitimating a whole lot of property rights-talk and missing a much more fundamentally egalitarian position. dd -Original Message- From: PEN-L list [mailto:[EMAIL PROTECTED] Behalf Of k hanly Sent: 01 July 2004 05:25 To: [EMAIL PROTECTED] Subject: Re: Enron Why does the statement assume the justness of private property? Surely it assumes the opposite. Of course the thesis is common Proudhon in fact wrote a book on property that coined the expression property as theft. In spite of the great bitterness Marx shows towards his views, Proudhon ,as Marx, thinks of the theft as basically appropriation of value of labor without the exchange being equivalent--- very much like Marx's appropriation of surplus value through ownership of means of production etc. by capitalists. What is assumed as just is that a person should be able to appropriate the value of what they produce through their labor and that private property in the means of production makes this impossible and so is inherently unjust. Cheers, Ken Hanly - Original Message - From: David B. Shemano [EMAIL PROTECTED] To: [EMAIL PROTECTED] Sent: Wednesday, June 30, 2004 8:48 PM Subject: Re: Enron In defense of David Shemano, Michael Perelman writes: David is a conservative. He speaks English with a right wing dialect, but he does so with humor (not snottiness). We can disagree with him. I usually do, but we can still be polite. I don't see him as a red meat class warrior, but as a sincere [albeit misguided] conservative]. As a I said when I first participated on this list so many years ago, I am here to learn, and believe learning results from dialectic argument. The argument that capitalism is legalized fraud and theft is a very interesting thesis which I would love to explore. (For instance, doesn't that statement, as a normative statement, assume the justness of private property, because if not, what is wrong with theft?). However, as Prof. Craven does not appear to suffer from any doubt, I doubt he would enjoy such an exchange with me. You can't please everybody. David Shemano
Re: Enron
Ken Hanly wrote: What is assumed as just is that a person should be able to appropriate the value of what they produce through their labor and that private property in the means of production makes this impossible and so is inherently unjust. The ultimate idea of right that Marx defends is from each according to his ability, to each according to his needs. The claim is that reason can show that my interest is the same as David Shemano's, namely to live a good life, and that this, for me as for him, is a life creating and appropriating beauty and truth within relations of mutual recognition. Such a life generates instrumental needs which include both its material prerequisites and the all-round development of the individual living it requires. That he and all others should have these needs met is in my interest as well as his and theirs because it's a requirement of my being able myself to live a good life in this sense. What we have to deal with here is a communist society, not as it has developed on its own foundations, but, on the contrary, just as it emerges from capitalist society; which is thus in every respect, economically, morally, and intellectually, still stamped with the birthmarks of the old society from whose womb it emerges. Accordingly, the individual producer receives back from society -- after the deductions have been made -- exactly what he gives to it. What he has given to it is his individual quantum of labor. For example, the social working day consists of the sum of the individual hours of work; the individual labor time of the individual producer is the part of the social working day contributed by him, his share in it. He receives a certificate from society that he has furnished such-and-such an amount of labor (after deducting his labor for the common funds); and with this certificate, he draws from the social stock of means of consumption as much as the same amount of labor cost. The same amount of labor which he has given to society in one form, he receives back in another. Here, obviously, the same principle prevails as that which regulates the exchange of commodities, as far as this is exchange of equal values. Content and form are changed, because under the altered circumstances no one can give anything except his labor, and because, on the other hand, nothing can pass to the ownership of individuals, except individual means of consumption. But as far as the distribution of the latter among the individual producers is concerned, the same principle prevails as in the exchange of commodity equivalents: a given amount of labor in one form is exchanged for an equal amount of labor in another form. Hence, equal right here is still in principle -- bourgeois right, although principle and practice are no longer at loggerheads, while the exchange of equivalents in commodity exchange exists only on the average and not in the individual case. In spite of this advance, this equal right is still constantly stigmatized by a bourgeois limitation. The right of the producers is proportional to the labor they supply; the equality consists in the fact that measurement is made with an equal standard, labor. But one man is superior to another physically, or mentally, and supplies more labor in the same time, or can labor for a longer time; and labor, to serve as a measure, must be defined by its duration or intensity, otherwise it ceases to be a standard of measurement. This equal right is an unequal right for unequal labor. It recognizes no class differences, because everyone is only a worker like everyone else; but it tacitly recognizes unequal individual endowment, and thus productive capacity, as a natural privilege. It is, therefore, a right of inequality, in its content, like every right. Right, by its very nature, can consist only in the application of an equal standard; but unequal individuals (and they would not be different individuals if they were not unequal) are measurable only by an equal standard insofar as they are brought under an equal point of view, are taken from one definite side only -- for instance, in the present case, are regarded only as workers and nothing more is seen in them, everything else being ignored. Further, one worker is married, another is not; one has more children than another, and so on and so forth. Thus, with an equal performance of labor, and hence an equal in the social consumption fund, one will in fact receive more than another, one will be richer than another, and so on. To avoid all these defects, right, instead of being equal, would have to be unequal. But these defects are inevitable in the first phase of communist society as it is when it has just emerged after prolonged birth pangs from capitalist society. Right can never be higher than the economic structure of society and its cultural development conditioned thereby. In a higher phase of communist society, after the enslaving subordination of the individual to the division of labor,
Re: Enron
David B. Shemano wrote: The argument that capitalism is legalized fraud and theft is a very interesting thesis which I would love to explore. (For instance, doesn't that statement, as a normative statement, assume the justness of private property, because if not, what is wrong with theft?). can we define such a thing as public property? i.e., something that belongs (i would prefer 'open' or 'available' to 'belong') to everyone (all species)? if so, anyone appropriating such property for personal use, excluding access to othres, could be said to be committing 'theft', no? --ravi
Re: Enron
k hanly wrote: What is assumed as just is that a person should be able to appropriate the value of what they produce through their labor... naive question: does this not assume that the person produces (through his labour) in a vacuum? aren't a whole slew of living and non-living things whose existence and assistance are prerequisite even for the act of the person's labour? if so, do they not have a claim to the end result of this labour? --ravi
Re: Enron
John Locke wrote that such stealing of public property was the basis of private property -- but that such theft was justified if one mixed one's labor with the stolen item. Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine -Original Message- From: PEN-L list [mailto:[EMAIL PROTECTED] Behalf Of ravi Sent: Thursday, July 01, 2004 12:40 PM To: [EMAIL PROTECTED] Subject: Re: [PEN-L] Enron David B. Shemano wrote: The argument that capitalism is legalized fraud and theft is a very interesting thesis which I would love to explore. (For instance, doesn't that statement, as a normative statement, assume the justness of private property, because if not, what is wrong with theft?). can we define such a thing as public property? i.e., something that belongs (i would prefer 'open' or 'available' to 'belong') to everyone (all species)? if so, anyone appropriating such property for personal use, excluding access to othres, could be said to be committing 'theft', no? --ravi
Re: Enron
It is worse that Jim says: Thus the Grass my Horse has bit; the Turfs my Servant has cut; and the Ore I have digg'd ... become my Property (Locke 1698, p. 307), On Thu, Jul 01, 2004 at 01:39:27PM -0700, Devine, James wrote: John Locke wrote that such stealing of public property was the basis of private property -- but that such theft was justified if one mixed one's labor with the stolen item. Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu
Re: Enron
you don't understand Locke. He didn't think of his servant as a human being, so that the servant's labor didn't produce property for her (according to Locke's labor theory of property). Instead, she was like Locke's horse. Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine -Original Message- From: PEN-L list [mailto:[EMAIL PROTECTED] Behalf Of Michael Perelman Sent: Thursday, July 01, 2004 1:50 PM To: [EMAIL PROTECTED] Subject: Re: [PEN-L] Enron It is worse that Jim says: Thus the Grass my Horse has bit; the Turfs my Servant has cut; and the Ore I have digg'd ... become my Property (Locke 1698, p. 307), On Thu, Jul 01, 2004 at 01:39:27PM -0700, Devine, James wrote: John Locke wrote that such stealing of public property was the basis of private property -- but that such theft was justified if one mixed one's labor with the stolen item. Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu
Re: Enron
Michael P wrote: It is worse that Jim says: Thus the Grass my Horse has bit; the Turfs my Servant has cut; and the Ore I have digg'd ... become my Property (Locke 1698, p. 307), On Thu, Jul 01, 2004 at 01:39:27PM -0700, Devine, James wrote: John Locke wrote that such stealing of public property was the basis of private property -- but that such theft was justified if one mixed one's labor with the stolen item. Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine One of the central contradictions of capitalism, and this is one of the fronts Indigenous activists are working on, is that the central bougeois sacreds and institutions of private property--a central contradiction that Locke certainly anticipated and tried to get around--is that these private property sacreds and institutions, that constitute core elements in the requisite social capital of capitalism, wind up exposing and indicting the very private property they purport to protect. Yes, capitalism is not only legalized fraud and theft (in capitalist as well as common sense terms), but it is also legalized murder. This is why the capitalists, through their paid whores (with all due respect to whores) in the legistlative, executive and judicial branches of the state write the laws with enough loopholes and caveats such that only non-capitalists and certain selected and more egregious capitalists are held selectively held to laws and principles others are not held to. I can bequeath, sell, give away private property only if it is not stolen in capitalist terms. Otherwise legal title would rest only with the last one to hold the property and/or with enough power and ruthlessness to hold on to it in the face of others seeking to take it; thus orderly transfers of title, continuity and stable long-term investment in and use of property would be impossible. Legal title, in bourgeois terms, comes through sale, gift, bequest--of that to thiwch one has legal title--discovery or just war. Since so much of primitive accumulation of original capitalist property that formed the foundations of present-day property and gains is not gained through any just war, discovery, or sale/gift/bequest of legally titled property, capitalist property continues to be tainted and stolen--and/or the fruits of a poisoned tree--in capitalist terms. For Indigenous Peoples, take in the case of Canada where few traties were signed, even though the colonizing and genocidal occupiers claimed Natives never held proper legal title--in capitalist terms--to Indigenous lands and resources, they nonetheless tried to create, sign and enforce fraudulent treaties that, in effect, recognized, and then sought to have surrendered, Indigenous lands and titles--lands and titles that supposedly Indigenous Peoples never held. Why then have a treaty that calls for surrendering title and control over that which one of the treating partners claimed and continues to claim the other treating partner never held legal title to and control over? That was but one of the many contradictions of capitalism and private property to which Lenin was alluding in his simple but very profound and deep metaphor that when it comes time to hang the last capitalist, he will probably be the very one who sold us the rope. Jim C.
Re: Enron
Smith (III.v,12, 362) even lumped together labouring cattle and productive labourers in his description of a world dominated by stock. On Thu, Jul 01, 2004 at 01:59:41PM -0700, Devine, James wrote: you don't understand Locke. He didn't think of his servant as a human being, so that the servant's labor didn't produce property for her (according to Locke's labor theory of property). Instead, she was like Locke's horse. Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu
Re: Enron
Jim C. writes: Since so much of primitive accumulation of original capitalist property that formed the foundations of present-day property and gains is not gained through any just war, discovery, or sale/gift/bequest of legally titled property, capitalist property continues to be tainted and stolen--and/or the fruits of a poisoned tree--in capitalist terms. For Indigenous Peoples, take in the case of Canada where few traties were signed, even though the colonizing and genocidal occupiers claimed Natives never held proper legal title--in capitalist terms--to Indigenous lands and resources, they nonetheless tried to create, sign and enforce fraudulent treaties that, in effect, recognized, and then sought to have surrendered, Indigenous lands and titles--lands and titles that supposedly Indigenous Peoples never held. In his PROGRESS AND POVERTY, Henry George argued that (almost) all of land rent should be taxed away. (The exception is rent that's due to costly improvements in the quality of the land.) To those who see this as theft, he responded that since the land had been stolen from the Indians, the landowners had received stolen goods. In normal bourgeois law, of course, the receipt of stolen goods is itself a crime, and does not justify turning them into one's private property. jd
Re: Enron
Devine, James wrote: you don't understand Locke. He didn't think of his servant as a human being, so that the servant's labor didn't produce property for her (according to Locke's labor theory of property). Instead, she was like Locke's horse. This is misleading. Until the millenia-old sense of human society as naturally hierarchical began to dissolve in the late 18th century it was not necessary (nor even desirable) to see the lower orders as non-human or less than human. They were fully human, and in the sight of God even fully equal, but god or nature had created a world in which subordination was the principle of unity and order. This is clear enough in Shakespeare; many (most / all) of his characters from the lower orders are seen as quite richly human and worthwhile, but this does not interfere in the least with an assumption that they filled their appropriate rungs of the great chain of being. It was the crumbling of this hierarchical sense of divine ordained order that generated the ideological necessity for scientific racism and scientific male supremacy in the early 19th century. Discussion of this change can be found in Stephanie Coontz, _The Social Origins of Private Life_, in Thomas Laqueur, _Making Sex: Body and Gender from the Greeks to Freud_, Volume I of Martin Bernal's _Black Athena_, Stephen J. Gould's review of Laqueur in the NYRB, and Barbara Fields, Slavery, Race and Ideology in the United States of America. Stephanie Coontz quotes from a letter from a 17th c. gentleman to his daughter, in which he says that were it not for the natural subordination of women, she would be a better writer than he. In the same spirit it would have been quite possible (whether it ever happened or not I do not know, but it would not have been a contradiction) for Locke to see that servant as a better human being than Locke himself, and yet without a quiver exploit the hell out of that servant. It was only with the Declaration of Independence and its assertion of human equality that there developed a serious need to justify such subordination by asserting biological inferiority. Carrol
Re: Enron
ravi wrote: can we define such a thing as public property? i.e., something that belongs (i would prefer 'open' or 'available' to 'belong') to everyone (all species)? if so, anyone appropriating such property for personal use, excluding access to othres, could be said to be committing 'theft', no? They hang the man and flog the woman That steal the goose from off the common, But let the greater villain loose That steals the common from the goose. Carrol
Enron
Charles Brown writes: Hey , on an old thread, I haven't seen you since Enron. What to you think about bookcooking on Wall Street,now ? What do I think about it? I am against it. Look, fraud is illegal in a capitalist economy. There is a certain percentage of the population that is going to try and bend the rules to take advantage. I am sure that would never occur in a socialist economy. David Shemano
Re: Enron
Charles Brown writes: Hey , on an old thread, I haven't seen you since Enron. What to you think about bookcooking on Wall Street,now ? David Shemano writes: What do I think about it? I am against it. Look, fraud is illegal in a capitalist economy. There is a certain percentage of the population that is going to try and bend the rules to take advantage. I am sure that would never occur in a socialist economy. David Shemano Response Jim C: On what planet and under what system has this person been living? The vast majority of real fraud under capitalism is quite legal. Capitalism is basically legalized fraud and theft. The problem is not so much that the capitalists break the laws, although they do that too, the real problem is that they write the laws so they don't have to. Once in awhile, even the laws they write so loosely as to facilitate all kinds of real fraud, theft etc are still too confining; then they get caught and individual capitalists may be sacrificed with a small slap on the wrists, to preserve the essential illusions and social capital of the whole system--from which even the slapped-on-the-wrist capitalists also benefit in the long run. Fraud is illegal under capitalism only in the case of certain blatant and narrow definitions of fraud and only when certain elements do it. Of course fraud occurs in socialist economies since socialism is a protracted transitional process (not an end-state) and of course capitalist weeds (practices, ideas, values, institutions, power relations--and yes, apologists) survive for long periods of time--hoping to return to the old order that allowed them and their privileges to flourish so well. Get real please. Jim C.
Re: Enron
While many of us might agree with Jim, we should address David more respectfully. On Wed, Jun 30, 2004 at 03:34:35PM -0700, Craven, Jim wrote: David Shemano writes: What do I think about it? I am against it. Look, fraud is illegal in a capitalist economy. There is a certain percentage of the population that is going to try and bend the rules to take advantage. I am sure that would never occur in a socialist economy. David Shemano Response Jim C: On what planet and under what system has this person been living? The vast majority of real fraud under capitalism is quite legal. Capitalism is basically legalized fraud and theft. -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu
Re: Enron
While many of us might agree with Jim, we should address David more respectfully. Response Jim C: I'm sorry, did I break some list protocol? This guy can make snotty passive/aggressive sarcasm (about fraud being not possible under socialism) and basically pimp a totally bullshit revisionist/myopic/mystified view of capitalism and fraud (a view that shelters/assumes away the real origins and nature of fraud under capitalism--system with so many victims) but I can't merely suggest that he please get real? Really. OK, from now on I'll be every so polite to these snotty passive/aggressive ideologues/polemicists no matter how snotty and passive/aggressive they get. Jim
Re: Enron
David is a conservative. He speaks English with a right wing dialect, but he does so with humor (not snottiness). We can disagree with him. I usually do, but we can still be polite. I don't see him as a red meat class warrior, but as a sincere [albeit misguided] conservative]. On Wed, Jun 30, 2004 at 05:14:47PM -0700, Craven, Jim wrote: While many of us might agree with Jim, we should address David more respectfully. Response Jim C: I'm sorry, did I break some list protocol? This guy can make snotty passive/aggressive sarcasm (about fraud being not possible under socialism) and basically pimp a totally bullshit revisionist/myopic/mystified view of capitalism and fraud (a view that shelters/assumes away the real origins and nature of fraud under capitalism--system with so many victims) but I can't merely suggest that he please get real? Really. OK, from now on I'll be every so polite to these snotty passive/aggressive ideologues/polemicists no matter how snotty and passive/aggressive they get. Jim -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu
Re: Enron
David is a conservative. He speaks English with a right wing dialect, but he does so with humor (not snottiness). We can disagree with him. I usually do, but we can still be polite. I don't see him as a red meat class warrior, but as a sincere [albeit misguided] conservative]. Response: Jim C Got it Michael. As it is your list, and as I do respect you and your own work and views, I'll also respect your protocols on the list. Jim C
Re: Enron
In defense of David Shemano, Michael Perelman writes: David is a conservative. He speaks English with a right wing dialect, but he does so with humor (not snottiness). We can disagree with him. I usually do, but we can still be polite. I don't see him as a red meat class warrior, but as a sincere [albeit misguided] conservative]. As a I said when I first participated on this list so many years ago, I am here to learn, and believe learning results from dialectic argument. The argument that capitalism is legalized fraud and theft is a very interesting thesis which I would love to explore. (For instance, doesn't that statement, as a normative statement, assume the justness of private property, because if not, what is wrong with theft?). However, as Prof. Craven does not appear to suffer from any doubt, I doubt he would enjoy such an exchange with me. You can't please everybody. David Shemano
Re: Enron
We used to get conservatives here who came to convert us. All they did was to create irritation. David never has done that. Sometimes he tweaks us -- always in good humor. Michael Perelman Economics Department California State University Chico, CA 95929 As a I said when I first participated on this list so many years ago, I am here to learn, and believe learning results from dialectic argument. The argument that capitalism is legalized fraud and theft is a very interesting thesis which I would love to explore. (For instance, doesn't that statement, as a normative statement, assume the justness of private property, because if not, what is wrong with theft?). However, as Prof. Craven does not appear to suffer from any doubt, I doubt he would enjoy such an exchange with me. You can't please everybody. David Shemano
Re: Enron
Horseshit. Capitalism is not legalized fraud and theft. Capital is the expropriation of labor through its force organization as wage-labor. Such compelled organization entails the social immiseration of the overwhelming majority of the world's population. Property is not theft. It's class relations. What is it you want to learn? How capitalism required the overthrow of Allende? How the Chicago Boys' theory of economic freedom required dirty wars to make it real?You want to explore something? Explore the decline in living standards during the restoration of capitalism in Russia. Explore the lost decade in Latin America. Property isn't theft. But flacks are flacks. They should be called what they are. Jim C. called it right. He shouldn't have backed down. - Original Message - From: David B. Shemano [EMAIL PROTECTED] To: [EMAIL PROTECTED] Sent: Wednesday, June 30, 2004 6:48 PM Subject: Re: [PEN-L] Enron In defense of David Shemano, Michael Perelman writes: David is a conservative. He speaks English with a right wing dialect, but he does so with humor (not snottiness). We can disagree with him. I usually do, but we can still be polite. I don't see him as a red meat class warrior, but as a sincere [albeit misguided] conservative]. As a I said when I first participated on this list so many years ago, I am here to learn, and believe learning results from dialectic argument. The argument that capitalism is legalized fraud and theft is a very interesting thesis which I would love to explore. (For instance, doesn't that statement, as a normative statement, assume the justness of private property, because if not, what is wrong with theft?). However, as Prof. Craven does not appear to suffer from any doubt, I doubt he would enjoy such an exchange with me. You can't please everybody. David Shemano
Re: Enron
David, if you want to play here, you can't behave like that! On Wed, Jun 30, 2004 at 11:21:54PM -0700, sartesian wrote: Horseshit. Capitalism is not legalized fraud and theft. Capital is the expropriation of labor through its force organization as wage-labor. Such compelled organization entails the social immiseration of the overwhelming majority of the world's population. Property is not theft. It's class relations. What is it you want to learn? How capitalism required the overthrow of Allende? How the Chicago Boys' theory of economic freedom required dirty wars to make it real?You want to explore something? Explore the decline in living standards during the restoration of capitalism in Russia. Explore the lost decade in Latin America. Property isn't theft. But flacks are flacks. They should be called what they are. Jim C. called it right. He shouldn't have backed down. - Original Message - From: David B. Shemano [EMAIL PROTECTED] To: [EMAIL PROTECTED] Sent: Wednesday, June 30, 2004 6:48 PM Subject: Re: [PEN-L] Enron In defense of David Shemano, Michael Perelman writes: David is a conservative. He speaks English with a right wing dialect, but he does so with humor (not snottiness). We can disagree with him. I usually do, but we can still be polite. I don't see him as a red meat class warrior, but as a sincere [albeit misguided] conservative]. As a I said when I first participated on this list so many years ago, I am here to learn, and believe learning results from dialectic argument. The argument that capitalism is legalized fraud and theft is a very interesting thesis which I would love to explore. (For instance, doesn't that statement, as a normative statement, assume the justness of private property, because if not, what is wrong with theft?). However, as Prof. Craven does not appear to suffer from any doubt, I doubt he would enjoy such an exchange with me. You can't please everybody. David Shemano -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu
Re: Enron
Why does the statement assume the justness of private property? Surely it assumes the opposite. Of course the thesis is common Proudhon in fact wrote a book on property that coined the expression property as theft. In spite of the great bitterness Marx shows towards his views, Proudhon ,as Marx, thinks of the theft as basically appropriation of value of labor without the exchange being equivalent--- very much like Marx's appropriation of surplus value through ownership of means of production etc. by capitalists. What is assumed as just is that a person should be able to appropriate the value of what they produce through their labor and that private property in the means of production makes this impossible and so is inherently unjust. Cheers, Ken Hanly - Original Message - From: David B. Shemano [EMAIL PROTECTED] To: [EMAIL PROTECTED] Sent: Wednesday, June 30, 2004 8:48 PM Subject: Re: Enron In defense of David Shemano, Michael Perelman writes: David is a conservative. He speaks English with a right wing dialect, but he does so with humor (not snottiness). We can disagree with him. I usually do, but we can still be polite. I don't see him as a red meat class warrior, but as a sincere [albeit misguided] conservative]. As a I said when I first participated on this list so many years ago, I am here to learn, and believe learning results from dialectic argument. The argument that capitalism is legalized fraud and theft is a very interesting thesis which I would love to explore. (For instance, doesn't that statement, as a normative statement, assume the justness of private property, because if not, what is wrong with theft?). However, as Prof. Craven does not appear to suffer from any doubt, I doubt he would enjoy such an exchange with me. You can't please everybody. David Shemano
Re: Enron
- Original Message - From: David B. Shemano [EMAIL PROTECTED] To: [EMAIL PROTECTED] Sent: Wednesday, June 30, 2004 8:48 PM Subject: Re: Enron In defense of David Shemano, Michael Perelman writes: David is a conservative. He speaks English with a right wing dialect, but he does so with humor (not snottiness). We can disagree with him. I usually do, but we can still be polite. I don't see him as a red meat class warrior, but as a sincere [albeit misguided] conservative]. As a I said when I first participated on this list so many years ago, I am here to learn, and believe learning results from dialectic argument. The argument that capitalism is legalized fraud and theft is a very interesting thesis which I would love to explore. (For instance, doesn't that statement, as a normative statement, assume the justness of private property, because if not, what is wrong with theft?). However, as Prof. Craven does not appear to suffer from any doubt, I doubt he would enjoy such an exchange with me. You can't please everybody. David Shemano
Re: Enron
Sorry about the Lockean tabula rasa.. I meant to add a few comments to my earlier reply. If you mean by private property, personal property appropriated in a certain manner then perhaps the justness of private property in that sense is assumed in saying that private property is theft. However the context of discussion is capitalism and the relevant private property is private property in the means of production and associated laws that allow appropriation of value produced from what is owned: interest, rent, and profits. Proudhon himself says at another place that property as personal possession is freedom not theft. Cheers, Ken Hanly] - Original Message - From: David B. Shemano [EMAIL PROTECTED] To: [EMAIL PROTECTED] Sent: Wednesday, June 30, 2004 8:48 PM Subject: Re: Enron In defense of David Shemano, Michael Perelman writes: David is a conservative. He speaks English with a right wing dialect, but he does so with humor (not snottiness). We can disagree with him. I usually do, but we can still be polite. I don't see him as a red meat class warrior, but as a sincere [albeit misguided] conservative]. As a I said when I first participated on this list so many years ago, I am here to learn, and believe learning results from dialectic argument. The argument that capitalism is legalized fraud and theft is a very interesting thesis which I would love to explore. (For instance, doesn't that statement, as a normative statement, assume the justness of private property, because if not, what is wrong with theft?). However, as Prof. Craven does not appear to suffer from any doubt, I doubt he would enjoy such an exchange with me. You can't please everybody. David Shemano
Guv. Gropenfuehrer and Enron (against Palast)
LA Weekly/OCTOBER 10 - 16, 2003 Pluggging the Latest Conspiracy Theory Internet buzzes about the recall schemes of Arnold and Enron by Howard Blume Call it the most electric scandal yet to circulate about the governor-elect. As the story goes, Arnold Schwarzenegger conspired with energy barons in May 2001 to help them keep $9 billion in ill-got gains amassed by manipulating the California energy market. The evil plan? Recall Gray Davis that well-known tiger for consumers. They also had to keep Lieutenant Governor Cruz Bustamante from replacing Davis for their machinations to triumph. To do that, the conspirators would tar Bustamante for accepting campaign donations from Indians (instead of from Enrons Ken Lay). Great plot line. And plausible in a world where weapons of mass destruction vanish like a mirage and where theres a billion a week to spend in Iraq, but nary a dime for universal health coverage at home. But this scenario, though it rattles a skeleton in Schwarzeneggers closet, fails to put meat on those bones. The real question marks regarding Schwarzeneggers energy policy concern his future actions, not his past ones. The au courant spin comes from journalist Greg Palast, author of The Best Democracy Money Can Buy, whose online Arnold tell-all has become one of the Internets hottest forwards. The alleged smoking gun is a May 17, 2001, meeting that included Enron chairman Kenneth Lay, Arnold Schwarzenegger and others. This date fell during the latter part of the energy crisis, just after Lieutenant Governor Bustamante filed suit, as a private citizen, against energy providers. So far, so true. The meeting itself is apparently verified by internal Enron e-mails obtained by the Santa Monicabased Foundation for Taxpayer Consumer Rights. But from this point, Palast employs freewheeling speculation or at least he has yet to cite a source or document suggesting otherwise. Palast calls the meeting a tryst between Marias husband and the corporate con men, namely Lay and convicted stock swindler Mike Milken. Palast writes: It turns out that Schwarzenegger knowingly joined the hush-hush encounter as part of a campaign to sabotage a Davis-Bustamante plan to make Enron and other power pirates then ravaging California pay back the $9 billion. Palasts understanding of historical context is just plain off. In May of 2001, Davis was more than a year away from re-election, and his re-election was no sure thing. So concocting a recall was premature to say the least, or at least out of sequential order. And to suggest a Davis-Bustamante plan completely overlooks the mutual enmity between a guv and lite guv who were barely on speaking terms. Meanwhile, Bustamantes two energy-related lawsuits have gone nowhere, despite Palasts praise of Bustamantes cojones for bringing them on. A well-placed source in state government asserts in an interview that Bustamantes suit, though still active, has been a non-factor in attempts to collect from Enron, Dynegy et al. When the lawsuits were filed, cynics regarded Bustamantes litigation as rsum building for his 2006 campaign for governor. When that campaign arrived early because of the recall Bustamante predictably praised his lawsuits for helping to bring the energy giants to heel, a claim the government source characterized as complete horseshit. In other words, the litigation may not, in fact, be the biggest single threat to Ken Lay and the electricity lords, as Palast would have it. Consumer advocate Douglas Heller takes a middling view. Its a good lawsuit, one that we had talked about filing ourselves, says Heller, senior consumer advocate with the Foundation for Taxpayer Consumer Rights. Litigation takes a while. Heller declines to take Palast to task, but he also makes no grand conspiracy claim based on the e-mails. I dont know if Palast has documents other than the ones we gave him, he says diplomatically. The documents do offer compelling insights, even without leaping to a Schwarzenegger conspiracy. Ken Lays trip to California came at the height of the energy crisis. We had had three sets of rolling blackouts, the third a week and a half prior to the meeting, recounts Heller. The price of electricity had skyrocketed by about 1,000 percent. Californians were now paying the highest electricity bills in the nation. And one of the big utilities had filed for bankruptcy protection, while the other was pleading for a bailout in the state Legislature. Enron was still flying high. It had a great quarter. CEO Lay had recently met with Vice President Dick Cheney in Washington meetings about which Cheney still refuses to release information. Those encounters, notes Heller, are more compelling and important than Schwarzeneggers presence at the L.A. confab. Lay did indeed have a California agenda, but Schwarzenegger was not apparently a major part of it. The obvious target was then-Mayor Richard Riordan. An e
Re: Guv. Gropenfuehrer and Enron (against Palast)
I think this is a pretty good piece. Of course since it was written Scharzenegger has clearly stated his intention to depend on the free market to take care of California's electric future. I. e. deregulation. By the way, the biggest cost to California was from coordinated withholding of power, not from the well-publicized gaming of the trades -- though it was all of a piece. The major California dailies seem to employ term-limits for the reporters. People covering the electric dereg fight now turn to the academic and other economists who pitched deregulatin for explanations about what to do now, without realizing that they are printing the same opinions that supported dereg in the first place.. Asking Hogan from the Kennedy School where Gov Davis went wrong -- when Davis went wrong believing in the market -- seems ahistorical. Gene Devine, James wrote: LA Weekly/OCTOBER 10 - 16, 2003 Pluggging the Latest Conspiracy Theory Internet buzzes about the recall schemes of Arnold and Enron by Howard Blume Call it the most electric scandal yet to circulate about the governor-elect. As the story goes, Arnold Schwarzenegger conspired with energy barons in May 2001 to help them keep $9 billion in ill-got gains amassed by manipulating the California energy market. The evil plan? Recall Gray Davis that well-known tiger for consumers. They also had to keep Lieutenant Governor Cruz Bustamante from replacing Davis for their machinations to triumph. To do that, the conspirators would tar Bustamante for accepting campaign donations from Indians (instead of from Enrons Ken Lay). Great plot line. And plausible in a world where weapons of mass destruction vanish like a mirage and where theres a billion a week to spend in Iraq, but nary a dime for universal health coverage at home. But this scenario, though it rattles a skeleton in Schwarzeneggers closet, fails to put meat on those bones. The real question marks regarding Schwarzeneggers energy policy concern his future actions, not his past ones. The au courant spin comes from journalist Greg Palast, author of The Best Democracy Money Can Buy, whose online Arnold tell-all has become one of the Internets hottest forwards. The alleged smoking gun is a May 17, 2001, meeting that included Enron chairman Kenneth Lay, Arnold Schwarzenegger and others. This date fell during the latter part of the energy crisis, just after Lieutenant Governor Bustamante filed suit, as a private citizen, against energy providers. So far, so true. The meeting itself is apparently verified by internal Enron e-mails obtained by the Santa Monicabased Foundation for Taxpayer Consumer Rights. But from this point, Palast employs freewheeling speculation or at least he has yet to cite a source or document suggesting otherwise. Palast calls the meeting a tryst between Marias husband and the corporate con men, namely Lay and convicted stock swindler Mike Milken. Palast writes: It turns out that Schwarzenegger knowingly joined the hush-hush encounter as part of a campaign to sabotage a Davis-Bustamante plan to make Enron and other power pirates then ravaging California pay back the $9 billion. Palasts understanding of historical context is just plain off. In May of 2001, Davis was more than a year away from re-election, and his re-election was no sure thing. So concocting a recall was premature to say the least, or at least out of sequential order. And to suggest a Davis-Bustamante plan completely overlooks the mutual enmity between a guv and lite guv who were barely on speaking terms. Meanwhile, Bustamantes two energy-related lawsuits have gone nowhere, despite Palasts praise of Bustamantes cojones for bringing them on. A well-placed source in state government asserts in an interview that Bustamantes suit, though still active, has been a non-factor in attempts to collect from Enron, Dynegy et al. When the lawsuits were filed, cynics regarded Bustamantes litigation as rsum building for his 2006 campaign for governor. When that campaign arrived early because of the recall Bustamante predictably praised his lawsuits for helping to bring the energy giants to heel, a claim the government source characterized as complete horseshit. In other words, the litigation may not, in fact, be the biggest single threat to Ken Lay and the electricity lords, as Palast would have it. Consumer advocate Douglas Heller takes a middling view. Its a good lawsuit, one that we had talked about filing ourselves, says Heller, senior consumer advocate with the Foundation for Taxpayer Consumer Rights. Litigation takes a while. Heller declines to take Palast to task, but he also makes no grand conspiracy claim based on the e-mails. I dont know if Palast has documents other than the ones we gave him, he says diplomatically. The documents do offer compelling insights, even without leaping to a Schwarzenegger conspiracy. Ken Lays trip to California came at the height of the energy crisis. We had had three sets
Enron redux
[who needs Jerry Springer when we've still got these folks...] Enron Sues Citigroup, J.P. Morgan, Four Other Banks Sept. 25 (Bloomberg) -- Enron Corp. sued Citigroup Inc. and J.P. Morgan Chase Co., its two largest creditors, and four other banks, alleging their business dealings with the energy company contributed to its collapse in a record bankruptcy. Merrill Lynch Co., Deutsche Bank AG, Barclays PLC and Canadian Imperial Bank of Commerce are also named in the 280-page lawsuit filed yesterday in U.S. Bankruptcy Court in Manhattan. The suit is the largest of more than 50 filed by Enron in the bankruptcy court seeking to recoup as much as possible to pay creditors owed more than $67 billion. The suit may move the banks down in the payout line in Enron's bankruptcy case, behind almost all other creditors, possibly wiping out the value of the banks' claims on Enron's assets. It also may provide ammunition for Enron investors suing the banks. ``Enron was bled to death'' by a handful of former officers, led by former Chief Financial Officer Andrew Fastow, Enron said in the lawsuit. The six banks ``bear substantial responsibility'' for Enron's downfall because they ``were essential to the scheme and were also motivated by greed.'' Citigroup and J.P. Morgan provided Enron with a $250 million bankruptcy credit line. Citigroup has filed more than $4.7 billion in claims, and J.P. Morgan is owed at least $1.9 billion, court papers show. `Significant Role' In March, a bankruptcy examiner singled out Citigroup and J.P, Morgan, the two largest U.S. banks by assets, for playing ``a significant role'' in the deception that led to Enron's collapse. Neal Batson, an Atlanta lawyer appointed by the Justice Department to study the energy company's finances, said the banks were complicit in a technique that let Enron report $10.2 billion in debt on Dec. 31, 2000, when it actually owed $22.1 billion. ``The scope and complexity of the transactions in which certain Enron officers entangled Enron, with the help of the bank defendants, during the 1990s and 2000s is breathtaking,'' Enron said in the suit. Citigroup spokeswoman Leah Johnson, J.P. Morgan Chase spokesman Thomas Johnson, Merrill Lynch spokesman Timothy Cobb, Deutsche Bank spokeswoman Rohini Pragasam, Barclays Capital spokeswoman Linda Wynns and Canadian Imperial Bank spokesman Bob Waite didn't immediately return messages left at their offices by Bloomberg News after business hours Wednesday night. Enron's bankruptcy is the largest in U.S. history in terms of debt. The company collapsed after admitting it hid billions of dollars in debt in off-the-books partnerships. Enron lost $68 billion in market value from August 2000 until its Chapter 11 filing in December 2001. Decimated Pensions The Enron bankruptcy wiped out 5,600 jobs and led to the demise of Arthur Andersen LLP, once the world's fifth-largest accounting firm. Enron's collapse decimated pensions of about 28,000 employees, retirees and other beneficiaries, the U.S. Labor Department said in a lawsuit filed against the company and 21 former officers. Enron retirement funds dwindled to $10 million from a value of $2.1 billion at the beginning of 2001, the department said. Former chief executives Kenneth Lay and Jeffrey Skilling quit and are subjects of a government probe of the company. U.S. prosecutors have charged Fastow with fraud. Ben Glisan, Enron's former treasurer, pleaded guilty to conspiracy earlier this month and was sentenced to five years in prison. Three former Merrill Lynch Co. executives pleaded not guilty earlier this month to charges they conspired to defraud investors in a 1999 transaction that allowed Enron to report a phony $12 million profit. Back of the Line In July 2002, eight months after Enron's bankruptcy, WorldCom Inc. filed the largest Chapter 11 case in history in terms of assets, listing $107 billion. Enron and 13 of its units listed combined assets of $49.8 billion and debts of $31.2 billion when they sought bankruptcy protection. More than 160 Enron units have filed for bankruptcy. Once it exits from bankruptcy, Enron plans to give its creditors cash, proceeds from lawsuits and shares of Enron's remaining businesses. Competing creditors in Enron's bankruptcy case may benefit by invoking a principle called equitable subordination to push Citigroup, J.P. Morgan Chase, Credit Suisse First Boston and other banks to the back of the payment line. If the banks' bankruptcy claims are subordinated, creditors ahead of them in line must be paid in full before the banks get a penny, experts say. Equitable subordination is intended to penalize creditors who commit misconduct. It's up to a judge to decide whether the banks aided a scheme to deceive shareholders and should be punished. J.P. Morgan, Citigroup J.P. Morgan led a group of banks that lent to Enron units, creating a multilayered financing arrangement. Three partnerships were created to quickly turn Enron's
Enron and Conflict of Interest
The Spring Issue of the Journal of Economic Perspectives contains three articles under the above heading that you may find interesting. The Healy and Palepu article on The Fall of Enron is an excellent summary of what happened at Enron and may be quite useful for those who are interested in the subject. Best, Sabri
Re: From JK Galbraith's 60s to Enron
Pipe Dreams is a very nice book. Michael Pollak wrote: London Review of Books Vol. 25 No. 10 22 May 2003 Donald MacKenzie Empty Cookie Jar Pipe Dreams: Greed, Ego and the Death of Enron by Robert Bryce | PublicAffairs, 394 pp, £9.99 -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Re: From JK Galbraith's 60s to Enron
- Original Message - From: michael perelman [EMAIL PROTECTED] Pipe Dreams is a very nice book. == See, folks, there's just no way to catch up with him.. Ian
From JK Galbraith's 60s to Enron
London Review of Books Vol. 25 No. 10 22 May 2003 Donald MacKenzie Empty Cookie Jar Pipe Dreams: Greed, Ego and the Death of Enron by Robert Bryce | PublicAffairs, 394 pp, £9.99 Enron: The Rise and Fall by Loren Fox | Wiley, 384 pp, £18.50 snip Can the managers of a corporation like Enron be trusted to act in the interests of its owners (the shareholders)? The question is as old as the joint stock company as a legal form. Adam Smith suspected the answer was 'no'. In Volume III of Capital, Marx warned that directors might swindle shareholders, although he also welcomed the growing separation of managerial control from legal ownership as a transitional step towards socialism. In 1932, Adolf Berle and Gardiner Means estimated that 'perhaps two-thirds of the industrial wealth' of the US was in the hands of large corporations controlled by their managers rather than their owners. This paved the way, they argued, for what we would now call a 'stakeholder' form of capitalism - one that would recognise the legitimacy of interests other than those of shareholders. In 1967, J.K. Galbraith claimed that the separation of ownership from control meant that corporations no longer pursued the traditional goal of capitalist firms: maximum profit. The corporation was in the hands of what Galbraith called the 'technostructure', a managerial cadre whose goal was growth of output, because that would bring them larger departments to manage and thus higher pay and better promotion possibilities. Whether growth was the most profitable use of the corporation's capital was a secondary matter; shareholders had no real influence any longer. As Galbraith put it, 'the annual meeting' of shareholders of the 'large American corporation is, perhaps, our most elaborate exercise in popular illusion'. In the 1980s and 1990s, however, it seemed as if managerial and shareholder interests had been reconciled. In the 1980s, corporate raiders brought off a series of increasingly audacious takeovers, largely financed by 'junk' bonds (bonds which rating agencies deem to be below investment-grade). The very names of these raiders - Carl Icahn, T. Boone Pickens, Sir James Goldsmith - brought fear to Galbraithian managers, whom they ruthlessly displaced. Underperforming corporate assets were sold off, workforces were dramatically shrunk, bond- holders paid - and both raiders and shareholders were greatly enriched. Gradually, corporations built defences. Enron, for example, was born in 1985 when InterNorth, a larger pipeline company, merged with Kenneth Lay's Houston Natural Gas and thus avoided falling into the hands of Irv the Liquidator, the corporate raider Irwin Jacobs. However, the traumas of the 1980s taught corporate managers that they neglected share prices and profits at their peril. The ideal new-style managers were people like Enron's second-in-command from 1988, Rich Kinder (pronounced Kinn- der). Although now remembered with nostalgia by the former Enron employees who have spoken to Fox and Bryce, he was no softy. It was he, not Lay, who was responsible for detailed management, and he kept costs and staff numbers firmly under control, reduced the corporation's already large debts, and viewed any expenditure 'like the money was coming out of his own personal chequebook', as one ex-employee told Bryce. Over-enthusiastic underlings were frequently put down by Kinder telling them: 'Let's not start smoking our own dope.' That, however, seems to be exactly what Enron started to do after Kinder's departure in 1996. If the office gossip recycled by Bryce and Fox is to be believed, Enron's high-intensity buzz contributed to numerous sexual liaisons among its workaholic staff, and an alleged affair between Kinder and Lay's personal assistant may have caused a rift between the two men. Kinder's replacement, Jeff Skilling, was a 'big strategy' man rather than a tight-wad. He was a Baker scholar from the Harvard Business School - in other words, in the top 5 per cent of an already elite MBA class - and before he joined Enron had been an employee of the world's pre-eminent consulting firm, McKinsey Company. In the late 1990s, Enron's creative juices flowed unrestrained: this was the period of the 'most innovative company' awards. Control over costs, however, seems to have slackened. Staff numbers grew rapidly, and among them were many high-flying MBAs from leading universities, at correspondingly expensive salaries. The private jets got more up-market. Assets such as Wessex Water, the Buenos Aires water company AGOSBA and the Brazilian utility Elektro Eletricidade were bought not because they were cheap but because they offered entry into new and potentially profitable markets such as water trading and Latin America. Debt accumulated - but Enron grew, becoming the seventh largest corporation in the US. It was as if the Galbraithian technostructure was back in control, but with two fatal differences. In the 1960s, managers had been concerned
Enron recap
Title: Enron recap This was posted by a California Nader group. (Nader 2000 | California [EMAIL PROTECTED]) Enron: Under Cover of Dark and the War By Matt Bivens WASHINGTON (Moscow Times [Russia], Feb. 17) -- The Enron scandal has all but disappeared from view. Let's check in on it, shall we? You remember Enron: It claimed to be making and holding onto lots more money than it really was; it suckered people, including its own employees, into believing it was a success; its top executives paid themselves lavishly and then, when the pyramid shuddered, cashed out early. That's the usual chronology, but the 800-pound gorilla it omits is the summer of 2001 in California, when energy traders like Enron created a phony energy crisis in which, for the third summer in a row, they could ransom their energy for eye-poppingly outrageous sums. There's not much doubt left today that the California energy crisis was an Enron-esque game. Just 10 days ago, a fifth former Enron exec entered a federal guilty plea. He admits he and his colleagues intentionally defrauded Californians intentionally brought about those lucrative power outages. Enron, of course, wasn't alone. Traders over at Reliant Energy (just renamed Center point) have been caught on tape laughing about being the cause of power failures across the West Coast, and then under cover of dark sneaking away with the publics hard-earned money it was cool and fun. So, game over, right? There's a consensus that 55 million Californians were ripped off by the Fraudster 500; now it's just a matter of doling out the jail time and the public shame, collecting what money can be recovered, and ordering regulators to prevent it recurring, right? Uh, no. For starters, Americans have forgotten Enron. We're too busy duct-taping our windows shut against the possibility of a chemical, biological or nuclear attack. The press derides the new government civil defence advice as duct and cover, a joking reference to the old duck-and-cover Cold War drills, in which school kids would hide under their desks from Comrade Stalin, but that hasn't stopped hoarders from buying up all the flashlights and bottled water in my hometown. With no one watching, it's back to business as usual and the Bush administration is eager to do the bidding of the oligarchy -- sorry, wrong country -- of its favourite campaign contributors. So those Reliant traders who thought themselves so cool earned their company a playful wrist slap: Their $13.8 million fine equals .03 percent of Reliant's (rape-of-California) 2001 revenues of $40.8 billion. If Reliant had [car]jacked a Mercedes, this would be equivalent to a judge ordering it to keep the car but return any change found behind the seat. The fine was set by the Federal Energy Regulatory Commission, or FERC, and for anyone who missed the point, the White House just appointed a new FERC commissioner: Joseph Kelliher, a former aide to Vice President Dick Cheney. Kelliher was the Enron go-to guy -- he was once handed Enron's dream list of government policies and dutifully relayed it to Boss Cheney. Meanwhile, the man who used to run Enron's corrupt energy trading division is not only not in trouble, he's secretary of the U.S. Army that, incredibly, makes him the man in charge of the Army budget. Ken Lay, the former Enron chief, is also doing well. He's having a day in court soon because he's suing the U.S. government. He and his wife think the U.S. tax authorities owe them $130,000 from the mid-1980s. So this is why they say the first casualty of war is truth. -- --- Drop Bush, Not Bombs! --- During times of universal deceit, telling the truth becomes a revolutionary act. George Orwell END OF THE TRAIL SALOON Live music, comedy, call-in radio-oke Alternate Sundays, 6am GMT (10pm PDT) http://www.kvmr.org --- I uke, therefore I am. -- Cool Hand Uke I log on, therefore I seem to be. -- Rodd Gnawkin Visit Cool Hand Uke's Lava Tube: http://www.oro.net/~dscanlan
Re: Enron and P/A
- Original Message - From: Devine, James [EMAIL PROTECTED] Ian writes: Some questions I've been asking while looking at the Enron document: Are there sets/classes of optimal contracts whereby fraud is rational? [especially as the fraud seems to have exploited intertemporal optimization strategies] yes, when optimal is defined from an individual viewpoint (i.e., profit-max, utility-max, or greed) and there is incomplete and asymmetric info. It's not optimal from some larger perspective. Can't we, for the sake of attempting exposition, posit the Enron-IRS dyad in terms of intertemporal optimization showing Enron *minimizing* one variable over time [tax exposure] in order manipulate it's balance sheets to parlay it's relative [to the other participants/competitors in it's various markets] maximization of profits? It seems to me that the software/algorithms they were using for accounting purposes gave them an enormous sort of scoop on how to exploit the interstices of the law and that those strategies are far more complex than what can be modeled using mainstream micro. In that sense the JCT report is a test bed for future models/explanations, no? I agree that from an even larger perspective even optimization becomes a complete wash, just as it does in, say, ecology or evolutionary biology, and that the optimization becomes a wash once we go from micro *into the multi-agent dynamics within the firm itself*. Here the p/a problems take on a complexity that eludes a lot of the givens of Hart and Laffont et al. with the exception of their explication of *unobservability* and the ability to extract intrafirm rents as a result. Hart, for instance, writes: Agency theory ascribes all contracting costs to the cost of *observing* variables. If a variable is observable by both parties, then the theory assumes that it can be contracted on costlessly. He also notes that as a result of the bulk of research on optimal incentive contracts and the fact that while the results can throw important light on the determinants of managerial compensation packages and on certain aspects of the organization of production, the agency approach falls afoul of the same criticism that besets neoclassical theory. That is, it does not pin down the *boundaries* of the firm [or say much about the internal organization of firms]. [Both quotes are from Firms, Contracts and Financial Structure which can't make it past the table of contents in dealing with the JCT's reports...] Now if there is one thing Enron did that messes with the received view on the boundaries of the firm as explicated in mainstream micro, it was the proliferation of legally real, but ultimately *fictitious* enterprises and agents in order to blur the distinction between simulated and real trades. To borrow another term from philosophy, it became a kind of solipsist while using unobservability and deceit vis a vis outside and inside principals to create the illusion that it was creating real markets and trades when all they were were programs inside a bunch of workstations--the SPE's. In a sense we could say this is asymmetric information and malfeasance making a hyper-toxic stew, but then the question is still pushed back to why the firm thought that was a rational way to proceed, especially if they did not even interpret their circumstances in that manner? Can principal/agent theory explain how principals and agents use the p/a theory itself to perpetrate fraud? I don't know. = Me neither, but it might be worth trying to find out. For example, lets say, for the sake of discussion, that a lot of Enron's upper management went through the business admin., accounting and/or economics dept. at the University of Texas: http://www.bus.utexas.edu/department/accounting/faculty_staff/vaysman/teaching /Analytical_Research/ or something extremely similar. Aren't we in the same sort of dilemma as what happened with the questions at LTCM, namely how can you fire the geniuses? It's the performative dimensions of econ. theory that we're going to have to come to grips with because if the mainstream is cranking out more and more folks walking around with these models to engage in sophisticated variations on looting. Is fraud reducible to adverse selection and moral hazard? fraud is definitely based on incomplete and asymmetric info, but I don't know if the two most famous versions of this problem (adv. selection and moral hazard, a.k.a. the P/A problem) sum up all of the different kinds of fraud that can occur. (Counterfeiting currency or forging checks seem to be examples of fraud based on incomplete info, but not AS or P/A.) === Neither Hart nor Laffont's work list fraud or malfeasance in their indexes. I know Williamson goes into the issue a bit, but if he was surprised by this [don't know but it might be worth finding out], then it would seem we'd need far, far richer models
Enron and alegality
When greed is fact and control is fiction Enron's spectacular collapse was not an isolated financial disaster, says Frank Partnoy. It was symptomatic of a new culture of concealment in business and a reckless disregard of risk Friday February 14, 2003 The Guardian The 1990s were a decade of persistently rising markets - 10 years of economic expansion, with investors pouring record amounts into stocks and pocketing double-digit returns year after year. The recent stock price boom was the longest-lived bull market since the second world war. Some stocks or sectors suffered periodically, but almost anybody who remained invested throughout the decade made money. During this time, stocks became a part of daily conversation and investors viewed the rapid change and creative destruction among companies as investment opportunities, not reasons for worry. The decade was peppered with financial debacles, but these faded quickly from memory even as they increased in size and complexity. The billion dollar-plus scandals included Robert Citron of Orange County, Nick Leeson of Barings and John Meriwether of Long-Term Capital Management, but the markets merely hiccoughed and then started going up again. When Enron collapsed in late 2001, it shattered some investors' beliefs and took a few other stocks down with it. Then Global Crossing and WorldCom declared bankruptcy, and dozens of corporate scandals materialised as the leading stock indices lost a quarter of their value. Most investors were perplexed. The conventional wisdom was that markets would remain under control, that the few bad apples would be punished and that the financial system overall was not under any serious threat. The conventional wisdom is wrong. Any appearance of control in today's financial markets is only an illusion. Markets have come to the brink of collapse several times in the past decade, with the failures of Enron and Long-Term Capital Management being prominent examples. Today, the risk of system-wide collapse is greater than ever. The truth is that the markets have been - and are - spinning out of control. The relatively simple markets that financial economists had praised during the 1980s as efficient and self-correcting had radically changed by 2002. The closing bell of the New York stock exchange was barely relevant as securities traded 24 hours a day around the world. Financial derivatives were as prevalent as stocks and bonds, and nearly as many assets and liabilities were off-balance sheet as on. Companies' reported earnings were a fiction and financial reports chock-full of disclosures that would shock the average investor if they ever even glanced at them - not that anybody ever did. If investors believe in the fiction of control and ignore the facts, the markets can continue to rise. But if investors question their faith, the downturn will be long and hard. As investment guru James Grant recently put it: People are not intrinsically greedy. They are only cyclically greedy. There have been three major changes in financial markets in the past 15 years. First, financial instruments became increasingly complex and were used to manipulate earnings and avoid regulation. Second, control and ownership of companies moved apart as even sophisticated investors could not monitor senior managers and even diligent senior managers could not monitor increasingly aggressive employees. Third, markets were deregulated. These changes spread through financial markets like a virus. Before 1990, markets were dominated by the trading of relatively simple assets: mostly stocks and bonds. The sinaqua non of the 1980s was the junk bond, a simple fixed-income instrument no riskier than stock. The merger mania of the 1980s, driven by leveraged buyouts in which an acquirer borrowed heavily to buy a target's stock, involved straightforward transactions in stocks and bonds. Individual investors shied away even from stocks, and most people kept their savings in the bank or in certificates of deposit, which paid more than 10% annual returns during most of the decade. From 1968 to 1990, individuals sold more stock than they bought and money flowed out of the market. Birth of derivatives Derivatives - the now notorious financial instruments whose value is derived from other assets - were virtually unknown. The two basic types of derivatives, options and futures, were traded on regulated exchanges and enabled parties to reduce or refocus their risks in ways that improved the overall efficiency of the economy. Customised, over-the-counter derivatives markets, often used for less laudable purposes, were less than 1% of their present size, and most complex financial instruments still had not been invented. In Barbarians at the Gate, the classic book about 1980s finance, derivatives are not even listed in the index. Some companies used basic forms of derivatives in the 1980s, including plain-vanilla interest rate swaps. But the forms of structured
Enron and P/A
Title: Enron and P/A [was: RE: [PEN-L:34711] Re: RE: re: What is wrong with the mainstream economics?] I wrote: why can't Enron be explained using the (relatively mainstream) theory of the principal/agent problem? Ian writes: Some questions I've been asking while looking at the Enron document: Are there sets/classes of optimal contracts whereby fraud is rational? [especially as the fraud seems to have exploited intertemporal optimization strategies] yes, when optimal is defined from an individual viewpoint (i.e., profit-max, utility-max, or greed) and there is incomplete and asymmetric info. It's not optimal from some larger perspective. Can principal/agent theory explain how principals and agents use the p/a theory itself to perpetrate fraud? I don't know. Is fraud reducible to adverse selection and moral hazard? fraud is definitely based on incomplete and asymmetric info, but I don't know if the two most famous versions of this problem (adv. selection and moral hazard, a.k.a. the P/A problem) sum up all of the different kinds of fraud that can occur. (Counterfeiting currency or forging checks seem to be examples of fraud based on incomplete info, but not AS or P/A.) ... what is the moral theory implicit in p/a theory? I don't remember the historical basis for the term moral hazard (which, strictly speaking is different from the P/A problem since it refers to insurance). But I would guess that the morality centers on simple notions of trust relations, i.e., trusting an agent to do what he or she has been hired to do or trusting an insuree to not burn down the insured building (etc.) Enron was a hothouse for what ethicists call akrasia*. Would the scale and scope of p/a theory need to be enlarged to encompass such phenomena? it seems that the problem of akrasia fits with adverse selection. In a competitive process subject to adverse selection, the scum -- the akrasiacs -- rises to the top. But of course ortho-econ doesn't deal with or criticize individual personal character except on the most superficial level. It doesn't, for example, deal with the way in which competitive market relations encourage akrasiac personalities to develop. (For this kind of stuff, see the work of the sociologist Richard Sennett, e.g., THE CORROSION OF CHARACTER, I believe it's called.) Can p/a theory parse and explain the distinction between expertise and fraud and other forms of akrasia? If I remember correctly, p/a theory preceded modern neoclassical economics but has been incorporated by it (and perhaps sterilized, in many cases). The early version comes from the insurance thinking and is thus amenable to common-sense thinking (rather than the abstract nonsense that NC economists get into). In any event, it would be a mistake to reduce everything to P/A (or moral hazard) and adverse selection. The main advantages of those theories is that they are (1) very mainstream these days but (2) undermine the _laissez-faire_ crap and unrealistic general equilibrium thinking that plague the profession. ... *akrasia aristotelianism, ethics, Socrates, psychology, will literally, bad mixture, the Greek term for the character flaw of incontinence or weakness of the will, the condition in which an agent is unable to perform actions that are known to be right. Although Socrates apparently held that doing good follows directly from knowing what is good, Aristotle believed akratic human behavior to be commonplace, and offered an extended account of its origin and consequences. Recommended Reading: Alfred R. Mele, Irrationality: An Essay on Akrasia, Self-Deception, and Self-Control (Oxford, 1992); Justin Gosling, Weakness of the Will (Routledge, 1990). - JD
Re: Enron and alegality
In a message dated 2/13/2003 9:33:38 PM Eastern Standard Time, [EMAIL PROTECTED] writes: Friday February 14, 2003 The Guardian There have been three major changes in financial markets in the past 15 years. First, financial instruments became increasingly complex and were used to manipulate earnings and avoid regulation. Second, control and ownership of companies moved apart as even sophisticated investors could not monitor senior managers and even diligent senior managers could not monitor increasingly aggressive employees. Third, markets were deregulated. Yes. And fourth, debt-laden stock-lead consolidation in the most deregulated industries, starting with the financial industry itself. This was a key factor in the drive to misrepresent earnings, keeping stock values high and debt ratios low to fund not just executive take-outs but short term accumulation.It is also a main cause of high defaults and bankruptcies and the reason why the worst is not yet behind us. The merger mania of the 1980s, driven by leveraged buyouts in which an acquirer borrowed heavily to buy a target's stock, involved straightforward transactions in stocks and bonds. The merger mania of the 1980s lead by LBOs paled in comparison to the post deregulation stock as currency merger mania of the second half of the 90s. In sum, the 1980s were a relatively primitive period on Wall Street. Life was uncomplicated if aggressive. The financial markets became increasingly competitive and profit margins dwindled. Which is precisely why banks turned to mergers and acquisitions and corporate debt issuance for higher fee business. Trading revenues on government bond and swaps did decline as spreads tightened. That's why lots of government bond traders were either fired or became corporate bond traders - corporate bonds being less homogeneous than government bonds, therefore having more profit maneuvering room. A special committee appointed to decipher Enron's collapse spent several months reviewing documents and interviewing key parties, but its 200-page report covered just a few of Enron's thousands of partnerships and was filled with caveats about its own incompleteness. Gutless - but that's the basis for a much longer critique. A close analysis of the dealings at Enron leads to three key conclusions, each counter to the prevailing wisdom about the company. First, Enron was in reality a derivatives trading firm not an energy firm, and it took on much more risk than anyone realised. By the end, Enron was even more volatile than a highly leveraged Wall Street investment bank, although few investors were aware of it. That didn't need a close analysis. The top energy trading awards are split year after year between Wall Street and energy companies. It's not hard to figure that out. Enron won energy derivatives trading house of the year for 2001. Goldman Sachs won the same award for 2002. Same difference. Instead, in late 2001, Enron was hoist with its own petard, collapsing not because it wasn't making money but because institutional investors and credit-rating agencies abandoned the company when they learned that Enron's executives had been using derivatives to hide the risky nature of their business. No. It's stock value which was used to back so many of these deals was plummeting from mid-2001. Margin Calls. Triggers for special purpose vehicles hit. Enron was the highest volume trader in the corporate arena. They built the most used energy trading system. It was all out in the open. These people offered risk management consulting services to other corporations, so they could trade derivatives with them. It was known in the industry. Third, Enron was arguably following the letter of the law in nearly all of its dealings, including deals involving off-balance sheet partnerships and infamous special purpose entities. These deals, which blatantly benefited a few Enron employees at the expense of shareholders, nevertheless were disclosed in its financial statements, and although these disclosures were garbled and opaque, anyone reading them carefully would have understood the basics of Enron's self-dealing - or, at a minimum, been warned to ask more questions before buying the stock. There were several Enron partnerships in which they were specifically not following accounting standards, notably maintaining a 3% independent ownership in their partnerships. If anyone investigating had the guts to make the case stick, there are technicalities that makes these dealings illegal. Beyond the issue of whether acts that are deliberately misleading are illegal. To the extent that Enron, its accountants and bankers were aggressive in transactions designed to inflate profits or hide losses, they weren't alone. Dozens of other companies were doing the same kind of deals - some with Enron - and all had strong arguments that their deals were legal, even if they violated common sense. Absolutely, And they didn't violate common sense
Enron/Bush video
Title: Enron/Bush video http://www.latimes.com/business/la-fi-enron17dec17,0,6225837.story?coll=la%2Dheadlines%2Dbusiness Videotape From '97 Enron Party Jokes About Accounting From Associated Press December 17 2002 Five years before Enron Corp. collapsed in a big accounting scandal, an executive joked at a party about making a kazillion dollars through something he humorously dubbed hypothetical future value accounting, the Houston Chronicle reported Monday. Videotaped jokes by some former Enron executives at a January 1997 party bear ironic parallels to events that helped bring down the energy conglomerate, the newspaper said. The videotape, of a going-away party for former Enron President Rich Kinder, features nearly half an hour of absurd skits, songs and testimonials by executives and prominent citizens -- including President Bush, the newspaper reported. Enron, which two years ago ranked No. 7 on the Fortune 500, filed for bankruptcy protection Dec. 2, 2001, haunted by shady accounting, hidden debt and inflated profit. Stock that had traded at $90 in August 2000 plummeted to pennies. Thousands of people were laid off. The Chronicle did not identify the source of the videotape. At the party, then-Texas Gov. George W. Bush pleaded with Kinder: Don't leave Texas. You're too good a man. And his father, former President Bush, told Kinder, You have been fantastic to the Bush family. I don't think anybody did more than you did to support George. In one skit, former administrative executive Peggy Menchaca played the part of Kinder receiving a budget report from then-President Jeffrey K. Skilling, who played himself. When the pretend Kinder expressed doubt that Skilling could pull off 600% revenue growth for the next year, Skilling described how it could be done. We're going to move from mark-to-market accounting to something I call HFV, or hypothetical future value accounting, Skilling joked as he read from a script. If we do that, we can add a kazillion dollars to the bottom line. Skilling abruptly resigned from Enron in August 2001 before news of its troubles surfaced, and has professed ignorance about much of what went on under his watch. Three Enron workers have pleaded guilty to charges including fraud and false tax returns, and former Chief Financial Officer Andrew S. Fastow has been indicted on 78 charges. On the tape, Richard Causey, the former chief accounting officer, referred jokingly to a practice that is frowned upon by securities regulators. I've been on the job for a week managing earnings, and it's easier than I thought it would be, Causey said. I can't even count fast enough with the earnings rolling in. Copyright 2002 Los Angeles Times [even though it's a Houston Chronicle/Associated Press story?] Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine
Re: Enron
In a message dated 12/12/2002 1:41:33 AM Eastern Standard Time, [EMAIL PROTECTED] writes: For instance, at a time when Wall Street executives say a $100 million daily trading profit was considered sizable for a major trading operation, Enron recorded a $485 million profit on Dec. 4, 2000. For the full month - a period when, California regulators, say the company was trading with its own affiliates in an effort to raise energy prices - the records show that Enron's net trading profit was $440 million. Don't know which Wall Street executives they were speaking with, $100mln was not sizable, but average for a major trading operation. The biggest Wall Street energy traders, Goldman Sachs, Morgan Stanley, and Bank of America would consider that sort of a rounding error. The fact is, though Enron clearly manipulated the CA market, and the Oregon, Nevada and Washington markets for trading gains - you can't trade without trading partners, even if you hold all the information, as Enron did though Enron Online, the biggest energy online system. Goldman Sach's ICE system replaced Enron Online as the biggest online trading system when Enron went under. The biggest corporate energy traders in terms of volume are El Paso, American Electric Power and Duke, the biggest in finance are Goldman, Morgan Stanley and B of A. All benefited from CA. The media continues to ignore this ! point. BTW, Bank of America is lobbying the FERC to allow them to trade energy assets, not just financial instruments - sign of further deregulation of the energy / banking collaborators, in case CA wasn't a big enough mess. "They specifically told us they were not speculating," said an analyst at one of the nation's biggest brokerage houses, who insisted on anonymity. "At the time, Enron was valued at close to 40 times earnings. And Enron naysayers were saying, `How is this different from Goldman Sachs, which on a good day is valued at 12 times earnings?' " The Goldman Sachs Commodities trading operation had equivalent to Enron leverage multiples, even if the overall firm didn't. Of course, neither the FERC nor the SEC requires disclosure of individual commodities revenues, so that information isn't public. In a March 27, 2001, interview, Mr. Lay said: "We're basically making markets, buying and selling, arranging supplies, deliveries. We do not, in fact, speculate on where markets are headed." The company also denied, in meetings with Wall Street analysts, that California accounted for a large share of its profit in 2000, at the height of the state's energy crisis. Yet, Enron was named Energy Derivatives trading House of the year in 2001 by the Energy Power Risk Management Awards - the most prestigious financial / energy awards in the energy trading business. Goldman Sachs took over that position in 2002. Additionally, Enron was Natural Gas trader of the year in 2001, a position El Paso took over in 2002. El Paso though denying any CA market manipulation, had the largest trading positions outside Enron during 2001 and a 30% growth in earnings that year. Duke won the electricity award for 2001, the year Enron also won the Natural Gas trading award. http://www.eprm.com/awards01/derivatives.htm Nomi
Enron
[New York Times] December 12, 2002 Despite Denial, Enron Papers Show Big Profit on Price Bets By DAVID BARBOZA Even as Enron's top executives were insisting that the company did not engage in speculative trading, Enron was reaping the bulk of its profits during the California energy crisis by betting on the direction of gas and electricity prices, according to company records and interviews with former Enron traders and executives. Enron made the hugely profitable bets - including one that resulted in a $485 million gain on a single day in December 2000 - at a time when federal and state investigators say the company was conspiring with other energy trading companies to manipulate power and natural gas prices in the West. Indeed, Enron's standing as the nation's biggest energy trader may have bolstered its ability to profit on bets on the direction of prices. While it is unclear whether Enron could singlehandedly move markets with its trades, several Enron trading officials said that to justify their risk-taking, they told the company's executives and directors that, like a casino, Enron had a house advantage in the energy markets. A result of the speculation, the records show, was one of the most stunning runs ever for a corporate trading operation - some $7 billion in net trading profits for Enron during a power crisis that wreaked havoc on consumers in 2000 and 2001 and forced rolling blackouts in some parts of California. That tally included days with immense trading losses, including a $550 million reversal just a week after the $485 million gain. Former Enron executives said the company hid its speculative activities to shield it from criticism that it was profiting from California's energy woes. More than a year after Enron's collapse, the company's full role in the energy crisis is only now coming to light. The disclosure of its speculative trading practices, which are being reviewed by federal and state investigators, comes as California officials await a decision by a Federal Energy Regulatory Commission judge on the state's demand for billions in refunds from power merchants. That ruling is expected soon. At the time, Kenneth L. Lay, Enron's chairman and longtime chief executive, and other Enron officials said that the company was simply a middleman in the fast-growing market for buying and selling natural gas and electricity. Most of the company's profits, they said, were made on the markup taken as Enron's traders bought and then resold soaring volumes of electricity and natural gas, as well as on selling to other companies hedges against big moves in energy prices. But in recent interviews, several former traders said that a huge share of Enron's profit came from big bets on whether natural gas and power prices would rise or fall. Yes, we were speculating, said John Arnold, who was Enron's most successful trader last year, alone making a $750 million profit for the company by trading natural gas in 2001. There was a big move in 2001. I identified it early and played it with lots of leverage. In dozens of pages of profit-and- loss tables obtained by The New York Times, Enron's records show a winning streak that several trading experts called astounding. For instance, at a time when Wall Street executives say a $100 million daily trading profit was considered sizable for a major trading operation, Enron recorded a $485 million profit on Dec. 4, 2000. For the full month - a period when, California regulators, say the company was trading with its own affiliates in an effort to raise energy prices - the records show that Enron's net trading profit was $440 million. Federal regulators have also accused Enron of trying to raise prices by engaging in sham trades with an unnamed company on Jan. 31, 2001. On that day, according to Enron's internal records, the company recorded a $114 million trading profit. Over the course of 2000 and 2001, the records show single-day trading profit of $100 million or more on at least 17 days. Wall Street analysts, who bullishly endorsed Enron's shares for much of the period, said that they might have shown more restraint had they known the extent of the company's speculative trading. Enron disclosed some risk measures about its trading activities, and careful analysts could have noted how those numbers rose in 2000 and 2001. But analysts paid more heed to guidance from the company's executives. They specifically told us they were not speculating, said an analyst at one of the nation's biggest brokerage houses, who insisted on anonymity. At the time, Enron was valued at close to 40 times earnings. And Enron naysayers were saying, `How is this different from Goldman Sachs, which on a good day is valued at 12 times earnings?' In a March 27, 2001, interview, Mr. Lay said: We're basically making markets, buying and selling, arranging supplies, deliveries. We do not, in fact, speculate on where markets are headed. The company also denied, in meetings
The New York Times, Salon, Enron and Me
NY Times, Oct. 4, 2002 Web Article Is Removed; Flaws Cited By DAVID CARR The online magazine Salon has removed an article charging Thomas E. White, secretary of the Army, with participating in accounting practices that led to the collapse of Enron while he was vice chairman of Enron Energy Services. The editors of Salon said one reason they removed the article was that a critical piece of evidence, an e-mail message attributed to Mr. White, could not be authenticated. Paul Krugman, the economics columnist for the Op-Ed page of The New York Times, used the article as evidence in a column on Sept. 17, critical of Mr. White. In a column today he writes that he cannot be sure that Mr. White wrote the e-mail message. As long as the authenticity of the message remains in doubt, it should be considered unsubstantiated, Mr. Krugman writes. I erred by citing it in my column. full: http://www.nytimes.com/2002/10/04/national/04SALO.html CounterPunch, October 9, 2002 The New York Times, Salon, Enron and Me by JASON LEOPOLD (clip) The story the Times wrote about me was nothing more than a way to ensure I never work again as a journalist. The story, written by David Carr, who was put on the story because Barringer had another important assignment, suggests that I am a reckless journalist because of a correction that ran in the Wall Street Journal in March, a week before I resigned. I started at Dow Jones Newswires as bureau chief in April 2000. At that time, the California energy crisis was just two months away. My job was covering the energy industry. When the crisis hit in California I went into overdrive. In my two years at Dow Jones, I wrote 2,000 stories, was credited with being the leader on coverage of the energy crisis and won the company's journalist of the year award in my first eight months at the company for my coverage of the crisis. When the Enron debacle began, I was put on a number of investigative stories. One story that received widespread play was an article I wrote about Enron's phony trading floor. My point is this: Yes, the correction the NYT mentioned in the article is true. It was a major correction. Huge. The biggest of my career. But guess what? It was the only one in my two years at Dow Jones. Out of 2,000 stories I wrote in two years only one correction ran. I misread documents and so did the WSJ fact checkers. We had to issue a correction. When I resigned from Dow Jones to pursue a book, the company offered me more money to stay. I left Dow Jones because I did not want to work in a corporate environment like that anymore. I wanted to pursue a career writing books. That too is now in doubt. Carr knew all of this. He was aware that I wrote 2,000 stories while at Dow Jones. I even sent him my performance reviews, which were impeccable. I sent him copies of emails from Dow Jones CEO Peter Kann congratulating me on my work covering Enron. But Carr didn't care. He was going to do a hatchet job on me no matter what and he took the whole thing about the WSJ correction out of context. In addition, in one of the worst breaches of journalistic ethics, Carr revealed the identity of my source by name without my permission or my source's permission. full: http://www.counterpunch.org/leopold1009.html Louis Proyect www.marxmail.org
RE: The New York Times, Salon, Enron and Me
Title: RE: [PEN-L:31203] The New York Times, Salon, Enron and Me Carr may be a sleaze (for all I know), as suggested by the second article below, but the first article is a straight reporting job. I can't find anything wrong with it. It's not trashing Salon or Krugman as much as reporting on the article being pulled. Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine -Original Message- From: Louis Proyect [mailto:[EMAIL PROTECTED]] Sent: Thursday, October 10, 2002 6:12 AM To: [EMAIL PROTECTED]; [EMAIL PROTECTED] Subject: [PEN-L:31203] The New York Times, Salon, Enron and Me NY Times, Oct. 4, 2002 Web Article Is Removed; Flaws Cited By DAVID CARR The online magazine Salon has removed an article charging Thomas E. White, secretary of the Army, with participating in accounting practices that led to the collapse of Enron while he was vice chairman of Enron Energy Services. The editors of Salon said one reason they removed the article was that a critical piece of evidence, an e-mail message attributed to Mr. White, could not be authenticated. Paul Krugman, the economics columnist for the Op-Ed page of The New York Times, used the article as evidence in a column on Sept. 17, critical of Mr. White. In a column today he writes that he cannot be sure that Mr. White wrote the e-mail message. As long as the authenticity of the message remains in doubt, it should be considered unsubstantiated, Mr. Krugman writes. I erred by citing it in my column. full: http://www.nytimes.com/2002/10/04/national/04SALO.html CounterPunch, October 9, 2002 The New York Times, Salon, Enron and Me by JASON LEOPOLD (clip) The story the Times wrote about me was nothing more than a way to ensure I never work again as a journalist. The story, written by David Carr, who was put on the story because Barringer had another important assignment, suggests that I am a reckless journalist because of a correction that ran in the Wall Street Journal in March, a week before I resigned. I started at Dow Jones Newswires as bureau chief in April 2000. At that time, the California energy crisis was just two months away. My job was covering the energy industry. When the crisis hit in California I went into overdrive. In my two years at Dow Jones, I wrote 2,000 stories, was credited with being the leader on coverage of the energy crisis and won the company's journalist of the year award in my first eight months at the company for my coverage of the crisis. When the Enron debacle began, I was put on a number of investigative stories. One story that received widespread play was an article I wrote about Enron's phony trading floor. My point is this: Yes, the correction the NYT mentioned in the article is true. It was a major correction. Huge. The biggest of my career. But guess what? It was the only one in my two years at Dow Jones. Out of 2,000 stories I wrote in two years only one correction ran. I misread documents and so did the WSJ fact checkers. We had to issue a correction. When I resigned from Dow Jones to pursue a book, the company offered me more money to stay. I left Dow Jones because I did not want to work in a corporate environment like that anymore. I wanted to pursue a career writing books. That too is now in doubt. Carr knew all of this. He was aware that I wrote 2,000 stories while at Dow Jones. I even sent him my performance reviews, which were impeccable. I sent him copies of emails from Dow Jones CEO Peter Kann congratulating me on my work covering Enron. But Carr didn't care. He was going to do a hatchet job on me no matter what and he took the whole thing about the WSJ correction out of context. In addition, in one of the worst breaches of journalistic ethics, Carr revealed the identity of my source by name without my permission or my source's permission. full: http://www.counterpunch.org/leopold1009.html Louis Proyect www.marxmail.org
Re: RE: The New York Times, Salon, Enron and Me
Carr may be a sleaze (for all I know), as suggested by the second article below, but the first article is a straight reporting job. I can't find anything wrong with it. It's not trashing Salon or Krugman as much as reporting on the article being pulled. Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevinehttp://bellarmine.lmu.edu/~jdevine It is not about trashing Salon or Krugman. It is about trashing Jason Leopold. This reporter was abandoned by Salon and Krugman under political pressure. According to Counterpunch, the NY Times has soft-pedaled reporting on White House/energy company ties from the beginning, including the Harken-Harvard connection just posted to PEN-L: http://www.counterpunch.org/cockburn0717.html Louis Proyect www.marxmail.org
Re: Re: RE: Big Labor?s Enron
In a message dated 8/14/2002 1:05:18 AM Eastern Daylight Time, [EMAIL PROTECTED] writes: It's just the only in-depth description of the charges I've been able to find, and this is pretty significant news IMO. The notes from the House subcommittee of the financial services committee from May presents a less bias bend: http://www.nlpc.org/olap/congress/020501.html It is an important issue, underscoring the need for workers at all levels of a company to have the same rights over their retirement and investment plans as execs and the board. The related and less discussed issue wrt to ULLICO / CWA / Global Crossing is this: Over 1100 unionized Frontier workers had their Frontier shares converted to Global Crossing shares when Global Crossing acquired Frontier in 9/99. One year later, because Global Crossing was looking for cash, it sold this unit to Citizens Communications. The catch - Global Crossing decided to maintain possession of a $600mln defined benefit (i.e. supposedly company guaranteed) retirement plan, even though the workers who had contributed to the plan went to Citizens. It is almost unprecedented, though not illegal, for workers and their defined plans to be separated. One reason ULLICO invested in GC originally, way before the IPO, was that Gary Winnick 'promised' he would open GC to more unionized positions. Meanwhile, the CWA and Citizens are still involved in litigation with Global Crossing to get the assets from the plan back. Nomi Prins
Big Labors Enron
August 13, 2002, 8:45 a.m. Big Labors Enron by Joel Mowbray for National Review Online At the same time that AFL-CIO president John Sweeney is telling the public that unions are the best protector of workers amidst the corporate crime wave sweeping the country, big labor may well have a similar problem in-house to cope with. Today National Right to Work Legal Defense Fund (NRWLDF) attorneys are filing an administrative complaint with the National Labor Relations Board (NLRB) against ULLICO, a financial-services company run by union bosses that primarily invests money from union pension funds. The suit claims that ULLICO lined the pockets of some of the members of its board of directors all current or former heads of unions at the expense of the blue-collar workers whose compulsory fees already line those same pockets. NRWLDF's complaint is based on facts that were revealed in April by both the Wall Street Journal and Business Week, and it comes as a sitting grand jury is investigating possible shenanigans at ULLICO. Like so many of the recent corporate-corruption scandals, ULLICO's woes were triggered by the plummeting prices of tech stocks. The demise of Global Crossing it is now mired in bankruptcy hit ULLICO extremely hard, as it had invested in an early stage in the telecom favored by wealthy Democrats such as Terry McAuliffe. ULLICO's original $7 million investment at the founders price of $1 per share mushroomed in value, reaching a total worth to ULLICO of an eye-popping $2.1 billion when Global Crossing's stock peaked at $64.25 in May 1999. But just three years later, that investment had become worthless as Global Crossing fell victim to cutthroat competition and a bursting tech bubble. The investment in Global Crossing only occurred because of the morphing of ULLICO from its roots as a life-insurance provider for blue-collar union workers into a financial-services company, investing the money of pension funds from unions around the country. At the start of the 1990's, former Democratic National Committee official Michael Steed took the financial reins at ULLICO, converting the company from stodgy insurance carrier to a savvy financial-services outfit with substantial investments in the previously booming tech sector. Part of ULLICO's metamorphosis included making ULLICO itself an investment vehicle for various union pension funds, as well as for those sitting on ULLICO's 32-member board of directors. In 1997, ULLICO changed its longstanding policy of offering its privately held shares for a nominal, fixed price of $25 each. At Steed's direction, share prices were adjusted annually a seemly infinite amount of time in the roller-coaster financial world with new prices decided each May based on an independent audit of the books of the previous calendar year. Because of its large holding in Global Crossing, ULLICO's own net worth was tied directly to the value of the telecom's once-highflying stock. At the end of 1998, with Global Crossing's stock at $22 per share, slightly higher than its IPO price from earlier that year of $18, PricewaterhouseCoopers determined shares in ULLICO to be worth $53.94 each. ULLICO's board implemented that price in May of 1999, right as Global Crossing's stock price was surging well past its levels of just five months earlier. Near the end of 1999, with Global Crossing's stock at a still-lofty $52.56 a share a mere two weeks before ULLICO's books would close, ULLICO's Chairman Robert Georgine wrote a memo to members of the board a memo that is the genesis of much of ULLICO's current woes. On December 17, 1999, Georgine, who is also a former AFL-CIO official, extended a confidential invitation to senior ULLICO officers and directors to purchase ULLICO shares at the bargain price of $53.94. It was guaranteed money in the bank to all who bought, because with Global Crossing's stock price in the clouds, the next audit to be based on the condition of ULLICO's financial portfolio as of two weeks after the date of the memo was sure to peg ULLICO's value dramatically higher. To make crystal clear to those reading the memo that he believed it an opportune time to buy more ULLICO shares, Georgine wrote, I intend to purchase additional shares at this time. Georgine proved remarkably prescient five months later when the annual Pricewaterhouse audit nearly tripled ULLICO's share price up to $146 in May 2000. But by the time the board ratified the new, higher share price for ULLICO, Global Crossing's fortunes had already started sinking, with the stock price off by 45 percent from its year-earlier peak, down to $35 a share. In other words, with Global Crossing's stock price heading south in a hurry, the $146 stock price for ULLICO was inflated from the moment it became official. In November of 2000, ULLICO's board voted to buy back $30 million worth of its own shares at $146 a piece
RE: Big Labor?s Enron
Title: RE: [PEN-L:29426] Big Labor?s Enron is NATIONAL REVIEW -- a right-wing McCarthyite rag -- a reliable source? is the National Right to Work group -- an anti-union organization -- someone to trust? Jim -Original Message- From: Ben Day To: [EMAIL PROTECTED] Sent: 8/13/2002 8:37 PM Subject: [PEN-L:29426] Big Labor?s Enron August 13, 2002, 8:45 a.m. Big Labor's Enron by Joel Mowbray for National Review Online At the same time that AFL-CIO president John Sweeney is telling the public that unions are the best protector of workers amidst the corporate crime wave sweeping the country, big labor may well have a similar problem in-house to cope with. Today National Right to Work Legal Defense Fund (NRWLDF) attorneys are filing an administrative complaint with the National Labor Relations Board (NLRB) against ULLICO, a financial-services company run by union bosses that primarily invests money from union pension funds. The suit claims that ULLICO lined the pockets of some of the members of its board of directors - all current or former heads of unions - at the expense of the blue-collar workers whose compulsory fees already line those same pockets. NRWLDF's complaint is based on facts that were revealed in April by both the Wall Street Journal and Business Week, and it comes as a sitting grand jury is investigating possible shenanigans at ULLICO. Like so many of the recent corporate-corruption scandals, ULLICO's woes were triggered by the plummeting prices of tech stocks. The demise of Global Crossing - it is now mired in bankruptcy - hit ULLICO extremely hard, as it had invested in an early stage in the telecom favored by wealthy Democrats such as Terry McAuliffe. ULLICO's original $7 million investment - at the founders price of $1 per share - mushroomed in value, reaching a total worth to ULLICO of an eye-popping $2.1 billion when Global Crossing's stock peaked at $64.25 in May 1999. But just three years later, that investment had become worthless as Global Crossing fell victim to cutthroat competition and a bursting tech bubble. The investment in Global Crossing only occurred because of the morphing of ULLICO from its roots as a life-insurance provider for blue-collar union workers into a financial-services company, investing the money of pension funds from unions around the country. At the start of the 1990's, former Democratic National Committee official Michael Steed took the financial reins at ULLICO, converting the company from stodgy insurance carrier to a savvy financial-services outfit with substantial investments in the previously booming tech sector. Part of ULLICO's metamorphosis included making ULLICO itself an investment vehicle for various union pension funds, as well as for those sitting on ULLICO's 32-member board of directors. In 1997, ULLICO changed its longstanding policy of offering its privately held shares for a nominal, fixed price of $25 each. At Steed's direction, share prices were adjusted annually - a seemly infinite amount of time in the roller-coaster financial world - with new prices decided each May based on an independent audit of the books of the previous calendar year. Because of its large holding in Global Crossing, ULLICO's own net worth was tied directly to the value of the telecom's once-highflying stock. At the end of 1998, with Global Crossing's stock at $22 per share, slightly higher than its IPO price from earlier that year of $18, PricewaterhouseCoopers determined shares in ULLICO to be worth $53.94 each. ULLICO's board implemented that price in May of 1999, right as Global Crossing's stock price was surging well past its levels of just five months earlier. Near the end of 1999, with Global Crossing's stock at a still-lofty $52.56 a share a mere two weeks before ULLICO's books would close, ULLICO's Chairman Robert Georgine wrote a memo to members of the board - a memo that is the genesis of much of ULLICO's current woes. On December 17, 1999, Georgine, who is also a former AFL-CIO official, extended a confidential invitation to senior ULLICO officers and directors to purchase ULLICO shares at the bargain price of $53.94. It was guaranteed money in the bank to all who bought, because with Global Crossing's stock price in the clouds, the next audit - to be based on the condition of ULLICO's financial portfolio as of two weeks after the date of the memo - was sure to peg ULLICO's value dramatically higher. To make crystal clear to those reading the memo that he believed it an opportune time to buy more ULLICO shares, Georgine wrote, I intend to purchase additional shares at this time. Georgine proved remarkably prescient five months later when the annual Pricewaterhouse audit nearly tripled ULLICO's share price up to $146 in May 2000. But by the time the board ratified the new, higher share price for ULLICO, Global Crossing's fortunes had already started
Re: RE: Big Labor?s Enron
The Wall Street Journal also wrote about the union scam. What I found interesting about this story was the way right wing activists jumped on it. I wish I saw a comparable energy among the well-financed parts of the supposed left. -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Re: RE: Big Labor?s Enron
Eh, I wasn't implying assent to the perspective of the article - and certainly not to the Right to Work defense fund's anti-union crusade - by forwarding it. It's just the only in-depth description of the charges I've been able to find, and this is pretty significant news IMO. -Ben At 08:48 PM 8/13/2002 -0700, Devine, James wrote: is NATIONAL REVIEW -- a right-wing McCarthyite rag -- a reliable source? is the National Right to Work group -- an anti-union organization -- someone to trust? Jim -Original Message- From: Ben Day To: [EMAIL PROTECTED] Sent: 8/13/2002 8:37 PM Subject: [PEN-L:29426] Big Labor?s Enron August 13, 2002, 8:45 a.m. Big Labor's Enron by Joel Mowbray for National Review Online
Enron, post-structurally............
http://www.mtholyoke.edu/courses/sgabriel/post_structuralist_firm.htm
The Invisible Robert Rubin (and Enron)
Title: The Invisible Robert Rubin (and Enron) from SLATE: chatterbox The Invisible Robert Rubin He's in Citigroup's upper management. Why don't the scandal stories say so? By Timothy Noah Posted Wednesday, July 24, 2002, at 2:53 PM PT Monday's New York Times story alleging Enron-related financial improprieties by Citigroup neglected to mention that former Treasury Secretary Robert Rubin is a director and member, office of the chairman at Citigroup (which encompasses Citicorp and Citibank). So did today's follow-up in the Times, and so did today's stories in the Washington Post and the Wall Street Journal. Indeed, in a Nexis database search, Chatterbox could find no news article anywhere that contained both Rubin's name and the word prepay, the practice that has come under scrutiny. During the past few days, Rubin's name has been all over the newspapers and newsmagazines, but these all appear to be adulatory references bemoaning the fact that America must face financial turmoil with Paul O'Neill, not Robert Rubin, running the Treasury Department. (Rubin wrote one of these stories himself.) Citigroup's (and J.P. Morgan Chase's) prepaid contracts with Enron were very complex, and none of the papers has done an especially good job at explaining precisely what the scandal is. Possibly there is none. But once the editorial decision was made to give this story major play, there was no justification for airbrushing Rubin out of it, especially given what's known about Rubin's previous, ethically questionable attempt to get the Bush Treasury Department to bail Enron out. Rubin's free ride won't last because Republicans won't allow it. The Republican National Committee today spammed a research briefing to reporters headlined Rubin, Citibank Enron, and Senate Minority Leader Trent Lott told reporters that the Governmental Affairs subcommittee, whose hearings this week prompted the Citicorp stories, may want to call in Mr. Rubin and others. He continued: I don't know Mr. Rubin's involvement. I-you know, I think he did a lot of good things when he was secretary of Treasury, and I'm not alleging anything improper, but I do think, if they were involved in this kind of operation, I think it needs to be explored. You can't ask questions on one side if you're not going to ask questions on the other side if something like this is done, which looks-you know, it looks on its face suspicious. Chatterbox expects that, in the face of this pressure, financial reporters will make at least passing reference to Rubin in future stories. It's pretty appalling, though, that they've protected him so blatantly thus far. Chatterbox chalks it up not to liberal media bias, but rather to Rubin's membership in the bipartisan Society of Media Darlings, whose other members include James Baker and John McCain.
Enron Execs walk away with the dough again
USA TODAY, June 18, 2002 Copyright 2002 Gannett Company, Inc. USA TODAY HEADLINE: Payouts anger former Enron workers 152 execs, managers got more than $745 million BYLINE: Edward Iwata BODY: Less than a week after a workers' severance-pay agreement was announced, former Enron employees and their attorneys are furious about disclosures Monday that Enron paid more than $ 745 million last year to 152 executives and managers. It's very disturbing, says Damon Silver, associate general counsel of the AFL-CIO. We're appalled at the huge amount of money paid out to a handful of people, while thousands of others were losing their jobs and retirement savings. The disclosures, made in legal filings by Enron in bankruptcy court in New York City, come after a pay agreement was reached last Tuesday by Enron, labor lawyers and an Enron employees' committee appointed by the court. Under the settlement, 4,000 former Enron employees who lost their jobs last winter will get $ 29 million in additional severance pay, on top of $ 24 million already paid. They'll get a maximum of $ 13,500 each, based on their salaries and length of employment. The settlement must be approved by bankruptcy Judge Arthur Gonzalez. The AFL-CIO's Silver says Enron officials did not tell labor lawyers about the $ 745 million while the settlement talks were going on. Enron might have had a fiduciary duty to disclose it, he contends. Attorneys for the employees believed Enron paid its managers $ 100 million or so last year, and they negotiated the severance deal based on that figure. Enron spokeswoman Karen Denne says: All of our filings have been made in accordance with the bankruptcy court's requirements. According to the bankruptcy filing, cash payments last year to Enron officials totaled $ 310 million; stock options were valued at $ 435 million. Former Chairman Kenneth Lay was paid $ 104 million last year, including a $ 1 million salary, a $ 7 million bonus and $ 82 million in loans. He also cashed out $ 34 million in stock options. Former CEO Jeffrey Skilling received $ 8.6 million last year and exercised $ 19 million in stock options, while former Chief Financial Officer Andrew Fastow got $ 2.4 million in salary and bonuses. The news angered Debra Johnson, a former Enron secretary who lost her $ 44,000-a-year job in November. Johnson, 45, a divorced mother with custody of two grandchildren, is depleting her savings and living on unemployment. She hasn't found a new job yet in Houston's hard-hit economy dominated by energy companies. This is not right, she says. Just when you think you've won some justice, you hear about this. The legal papers filed Monday by Enron detail $ 32 billion in payments to creditors last year. Attorneys for the Enron employees' committee did not return calls for comment. LOAD-DATE: June 18, 2002 Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
still another Enron scandal
http://www.commondreams.org/headlines02/0613-05.htm -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Enron: Much Bigger than You Thought
The Enron nine By William Greider http://www.workingforchange.com/article.cfm?itemid=13260
Re: Why the Enron-Andersen mess goes way beyond the US
Charles Jannuzi (and others) no doubt would be interested in Frank Partnoy's testimony to the U.S. Senate Committee on Governmental Affairs. Partnoy is also extremely critical of the ratings agencies. Partnoy wrote the investment banker insider story, F.I.A.S.C.O., a few years ago and is now a law prof. at UCSD. There's a longer law journal article by him on the questionable role of financial gatekeepers at the second link below. http://www.financialsense.com/editorials/partnoy.htm http://law.wustl.edu/WULQ/79-2/p491%20Partnoy.pdf Tom Walker 604 255 4812
Why the Enron-Andersen mess goes way beyond the US
Because if it is indicative of the faults of an entire way of doing things (OF COURSE), it undercuts the US's WTO/IMF/WB/OECD trade in services agenda, since Americanization/'haromonization' of accounting practices is key to that agenda. Also serving that US agenda, but clearly as guilty of bad or misinformation as the corporate accountants, are the 'independent' ratings agencies. BTW, has anyone but me noticed that the current US Trade Rep. (his name is probably better known in Japan than in the US) is a merchant banker (more on this later)? See excellent article below. Posted by Charles Jannuzi -- http://www.twnside.org.sg/title/twe275f.htm Even as the US financial system reels under damaging disclosures about its deficiencies sparked by the Enron collapse, one major player in the capital markets has thus far largely escaped scrutiny. The little-regulated and all-powerful rating agencies, by issuing pronouncements for which they are ultimately unaccountable, wield an oligopolistic influence that can make or break companies and indeed governments. by Chakravarthi Raghavan GENEVA: The Enron scandal, despite the efforts of the Bush administration and others, is no longer viewed as an isolated exception or one confined to the US, but as a scandal that involves corporations (several of them leading manufacturing and service corporations), Wall Street bankers, stockmarket brokers and securities analysts, audit and accountancy firms and lawyers in corporations and audit firms. It is a betrayal of capitalism, Felix Rohatyn wrote recently in the New York Review of Books. The Enron scandal and the ever-widening disclosures in its wake have spawned a spate of inquiries and investigations in Washington, but one element of US popular capitalism and the capital markets has received little attention, namely, the rating agencies. The international financial institutions (led by the IMF and the World Bank at one end, and the Bank for International Settlements at the other) or the various international supervisory organizations trying to evolve an overall policy of norms and their enforcement, seem to be paying little attention to these agencies or engaging in a conspiracy of silence not to touch them and to ignore the havoc they wreak across the world. Even the GATS Article VI and VII discussions and attempts to evolve professional standards and qualifications do not address the problem. But in the light of recent revelations and the losses to countries, trade negotiators at the WTO - as they begin to negotiate a further round of national deregulation and liberalization (including of financial services), look at a number of rules and clarifications of the General Agreement on Trade in Services (GATS) or begin the process of assessments and making offers or receiving requests for more market access - should begin to look at this important element of the market system, and how the standards and norms of rating agencies can be set transparently in an international rules-based system. From time to time, aggrieved developing-country finance ministers and firms and many others have raised questions about these rating agencies, but to no avail. Their voices of anguish and protests are summarily dismissed by the financial media and others. On the other hand, at one point last decade, the Finance Minister of Canada was accused of having discussed his proposed budget with rating agencies ahead of presentation to the Canadian House of Commons, so as to be sure that his budget and proposals would not be viewed unfavourably by the market! The rating agencies routinely issue ratings - solicited or unsolicited - and these move the markets. However, there is seldom a case of a country or corporation being downgraded or downrated - except after the event. And the US courts have even held that the unsolicited ratings issued by these firms, despite the severe financial and economic damage they may cause, are immune from legal action, on the ground that they are protected by the US Constitution's First Amendment, Freedom of Speech! Who guards the guardians? A new book, The Ratings Game, by Andrew Fight, a senior financial consultant with the French Bankers Training Institute, throws some light on the workings of the rating agencies. In one of the chapters of his book, 'Quis custodiet ipsos custodes?'(Who guards the guardians themselves?), Fight notes that the rating agencies - Moody's and Standard and Poor's are well-known names - have become very powerful and militant in the protection of their oligopoly because of the status they have been accorded by the regulatory agency of the largest economy in the world. They are 'nationally recognized statistical rating organizations'(NRSROs), but without the US Securities and Exchange Commission (SEC) ever having defined them! In 1975, the SEC issued a rule that broker-dealers, when computing net capital, should deduct a certain percentage
Enron spillover?
[Financial Times] Enron failure boosts Latin America By Richard Lapper Published: March 17 2002 18:41 | Last Updated: March 17 2002 22:32 When policymakers studied the impact of last year's two big financial disasters, Latin America seemed more vulnerable to the impact of debt default and devaluation in Argentina than to the collapse of Enron. Strangely though, so far as recent trends in the markets are concerned, the reverse seems to be the case - and it has little to do with the energy trading group's investments in the region. Of course, Argentina's broader impact on Latin American politics and development is undeniable. At last week's annual Inter-American Development Bank conference in the Brazilian city of Fortaleza, Argentina was, as one banker put it, at the back of everybody's minds. A lot of things that were considered impossible happened. A lot of what was thought to be irreversible was reversed. But for all the talk of political, ideological and what Enrique Iglesias, the bank's president, calls invisible contagion, Argentina's desperate situation is having next to no impact on Latin American markets - quite the opposite in fact. In the most striking development, Brazil, Argentina's neighbour and partner in the Mercosur customs union, is enjoying an extraordinary rally in its bond and currency markets. And that is where Enron comes in. The Enron collapse has undermined confidence in blue-chip US companies and is leading fund managers to reconsider the benefits of broader diversification. One result is a new-found interest in emerging markets. Brazil has been one of the main beneficiaries (Russia is another), partly because its markets offer the size and liquidity that international investors like. Also, Brazilian assets are relatively cheap, having fallen in price last year mainly due to Argentine-related worries. In addition, US interest rate cuts have generated liquidity, which means fund managers have cash to spend. And - again because of last year's fears - they are starting from a low base. The result has been a strong rise in Brazilian bond prices and a strengthening in its currency, the Real. Since October, yields have fallen 5 percentage points. Investors brave enough to buy at the start of the year have already enjoyed a total return of over 8 per cent. Brazil's fundamentals are supportive of this interest. Fiscal management has been tight. Brazil has been quick to adjust at the first sign of international turbulence. And there have been signs of deeper structural changes. Walter Molano, of Connecticut-based BCP Securities, points to the way Brazilian companies are now beginning to produce goods that were imported before Brazil's 1999 devaluation. Even so, Brazil has a long way to go. Public debt increased last year and will probably rise more as the government takes advantage of current market enthusiasm to issue new paper. About a quarter of the total outstanding is indexed to the dollar. Debt service ratios are falling, but among the bigger Latin economies they are still higher than anywhere except Argentina. All this makes Brazil vulnerable to a shift in mood. Moreover, Brazil faces a potentially turbulent campaign ahead of October's general elections. Last week the first sign that the campaign of Jose Serra, the favoured candidate of President Fernando Henrique Cardoso, is taking off caused further jubilation among investors but there are plenty of potential banana skins. Whatever its political stripe, the next government is likely to come under pressure to be less orthodox. The risks require more serious attention - especially after the Argentine crisis. Unfortunately, if liquidity remains abundant they are unlikely to get it. As Celso Pinto, the editor of Valor, the daily business newspaper, wrote recently: The truth is that in cycles of good liquidity many people in the markets like arguments that reinforce their appetite for risk and more return.
Re: Enron spillover?
This article is like A.G. Frank's analysis of Latin America prospering during the Depression. -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Re: The Enron-Cheney-Taliban Connection? AlterNet
Michael Perelman wrote: In case some of you have not seen this yet. I would be interested in Gene Coyle's take on this. Sorry to be so slow. I've been traveling and just catching up. I didn't find this story credible. It conflates the Enron headline-grabber with the already familiar oil grab explanation for the Afghanistan. It seems a real stretch to tie Enron to the oil pipelines to be built someday from the Caspian to somewhere. I find the oil pipeline connection to the counter-attack after 9/11 to be credible. And it is clear that Enron, with the strong support of the US State Department and financing from OPIC, was ripping off, or intending to rip off Indian electric customers. But I don't link the two stories. There are a number of errors in the piece, e. g. calling the gas coming out of the future pipeline LNG. And saying Unocal wasn't the only company laying pile. Didn't we have to fight a war first? No point in detailing this stuff here. There are also some questionable arguments or insights. The economics of an OIL pipeline of great length make more sense than the economics of a gas pipeline. To be brief, consider the North Slope oil pipeline with a terminal feeding the ships like the Exxon Valdez. A North Slope gas pipeline was never built and the associated gas has been pumped back into the field rather than brought to market. It is true that there have been proposals to build a gas pipeline from the North Slope to Valdez, plus an plant to liquify the gas, plus special tankers to transport the gas to a terminal where it would be returned to a gaseous state and then fed into a pipeline again. Proposed destinations were Japan and California. The California economics didn't make sense, and whether the Japan did I don't know, because there was a ban on exports of Alaska oil/gas back at the time. In any event, that gas hasn't found a market. And that would be a much shorter pipeline than the one discussed in the piece. There is apparently an enormous gas reserve in the MacKenzie delta in Canada. A pipeline has been studied by competing interets for decades, with the old studies resurrected last year when gas prices spiked. It isn't feasible at today's forecasted prices. This wouldn't rule out an Enron role in the Oil pipeline, but there were already enough giant companies fighting each other that letting a new boy in doesn't make much sense. Everybody seems to be jumping on the Enron rip off in India, but that has been well known for years to those following this stuff. Pratap Chatterjee and Project Underground reported on it in (I think) '98, and there were reports before that. For some reason someone in India signed a sweetheart contract with Enron. Why? I suppose for the usual reason. And Enron went to arbitration in London some years back to enforce it when the State tried to get out of it. Now there is another legal battle. To cut this off, basically I don't find credible the effort to tie the stories together. Gene Coyle http://www.alternet.org/print.html?StoryID=12525 AlterNet February 28, 2002 The Enron-Cheney-Taliban Connection? By Ron Callari, Albion Monitor Enron is a scandal so enormous that it's hard to wrap your mind around it. Not just a single financial disaster, it's actually a jigsaw of interlocking scandals, each outrageous in its own right. There's Enron the Wall St. con game, where company bookkeepers used slight of hand to turn four years of steady losses into stunning profits. There's Enron the reverse Robin Hood, which stole from its own employees even as its executives were hauling millions of dollars out the backdoor. There's Enron's Ken Lay the Kingmaker, who used the corporation's fraudulent wealth to broker elections and skew public policy to his liking. And then there are the Enron coverups, as documents are shredded and the White House seeks to conceal details about meetings between Enron and Vice President Cheney. The coverups are still very much a mystery. What were the documents that were fed into the shredder -- even after the corporation declared bankruptcy? What is the White House fighting to keep secret, even going to the length of redefining executive privilege and inviting the first Congressional lawsuit ever filed against a president? Were the consequences of releasing these documents more damaging than the consequences of destroying them? Could the Big Secret be that the highest levels of the Bush Administration knew during the summer of 2001 that the largest bankruptcy in history was imminent? Or was it that Enron and the White House were working closely with the Taliban - including Osama bin Laden - up to weeks before the Sept. 11 attack? Was a deal in Afghanistan part of a desperate last-ditch end run to bail out Enron? Here's a tip for Congressional investigators and federal
Re: The Enron-Cheney-Taliban Connection? AlterNet
This wouldn't rule out an Enron role in the Oil pipeline, but there were already enough giant companies fighting each other that letting a new boy in doesn't make much sense. Enron was such a mix of things that I think traditional journalism, however earnest, is missing the forest for the trees. Enron was a publicly traded company but clearly the guys at the top wanted to be venture capitalists. If you go into the info. on how they were trying to run venture capital funds, I have no doubt that somehow they ended up in on the Afghan Caspian pipeline story. For a start, they wanted to be a big player in any foreign access given on energy supplies for India and Pakistan. I didn't think there could possibly be a Carlyle Group (the venture capital group with apparently the greatest political access because of all the players on board) connection to the whole mess (other than the defense contractors that CG acts as a holding company for), but when I went into the info. on their energy global fund I found that that fund had only invested 1/10th of its hundreds of millions. In what? An obscure Norwegian oil drilling company with, surprise, surprise, the technology to do deep sea drilling from ships in places like the Caspian and a business plan that made much of this ability. The things you can find doing searches at Yahoo Norway! Charles Jannuzi
Re: Re: The Enron-Cheney-Taliban Connection? AlterNet
I continue to have strong disbelief of the Enron and Afghanistan pipeline story. The profits from such a pipeline would come from producing and selling oil, not the investment in the pipeline per se. And I haven't heard anything about Enron having a piece of the oil concessions. Enron, furthermore, has had for the last two or three years a strategy of not owning hard assets. They had been burned on almost all their investments -- water, electric power, etc. They were divesting and wanted to be a commodity trader, like ADM, rather than a producer of anything. Enron did have a finger in a lot of pies and perhaps it will turn out they had some involvement, but as of now I think not. Gene Coyle Charles Jannuzi wrote: This wouldn't rule out an Enron role in the Oil pipeline, but there were already enough giant companies fighting each other that letting a new boy in doesn't make much sense. Enron was such a mix of things that I think traditional journalism, however earnest, is missing the forest for the trees. Enron was a publicly traded company but clearly the guys at the top wanted to be venture capitalists. If you go into the info. on how they were trying to run venture capital funds, I have no doubt that somehow they ended up in on the Afghan Caspian pipeline story. For a start, they wanted to be a big player in any foreign access given on energy supplies for India and Pakistan. I didn't think there could possibly be a Carlyle Group (the venture capital group with apparently the greatest political access because of all the players on board) connection to the whole mess (other than the defense contractors that CG acts as a holding company for), but when I went into the info. on their energy global fund I found that that fund had only invested 1/10th of its hundreds of millions. In what? An obscure Norwegian oil drilling company with, surprise, surprise, the technology to do deep sea drilling from ships in places like the Caspian and a business plan that made much of this ability. The things you can find doing searches at Yahoo Norway! Charles Jannuzi
Re: The Enron-Cheney-Taliban Connection? AlterNet
. And I haven't heard anything about Enron having a piece of the oil concessions. Enron, furthermore, has had for the last two or three years a strategy of not owning hard assets. They had been burned on almost all their investments -- water, electric power, etc. Enron was more like the sort of predator that would end up owning a stake in a company because it knew beforehand that company was going to get a concession or a contract. The non-Russian route for Caspian oil and gas has been on the drawing boards for a lot longer than 2-3 years. Perhaps Enron wasn't a new player in the endeavour, just a confused one (but you are right, better to think otherwise til evidence is given). Afghanistan has always been a strategic piece of real estate for someone, this is just a new twist on why the US would have detailed battle plans for bombing and invading it (the US probably still has battle plans for a Russian tank invasion of western europe!). They were divesting and wanted to be a commodity trader, like ADM, rather than a producer of anything. This was the company that in the late 90s said it's pipelines were going to be information corridors and then later admitted there were no fiber cables with its pipelines (though it later bought them with the money it raised). Enron did have a finger in a lot of pies and perhaps it will turn out they had some involvement, but as of now I think not. I don't think there is a disagreement here. Notice how I emphasized their investments as venture capital, not as oil and gas developers. It would be interesting to see where the 300 million dollars in the Carlyle Energy fund came from in the past two years. Perhaps some Enroners bailing out and going where the SEC can't? I agree with you; you can't figure out what's really going on by just making simple connections (though the interlocking boards of so many of these firms make you wonder which is worse: these guys doing their jobs with all the conflicts of interest, or them not doing their jobs at all). Charles Jannuzi
Re: The Enron-Cheney-Taliban Connection? AlterNet
If the facts of their timeline check out, then Enron was, true to its rootin tootin Texas roots, even into exploration in Asia (though as has been noted, they were dumping fixed assets to raise cash). Another interesting thread is how Unocal has been interested in buying up Enron assets. And just whose 300 million dollars is it in that Carlyle Global Energy fund? Post-Enron offers some nice distressed assets, but if you are shopping for them, might I advise you to stay away from their financial services division! http://thunderbay.sfimc.net/news/2002/03/42.php Unocal/Enron Timeline of involvement in S. Asian Oil by Davo March 3 2002, Sun, 1:35pm I thought some might fin this interesting, given how much Canadian energy policy is being driven by the 'Bush Oil Team' agenda. Read what the same people dictating what will be done with our resources have been up to in Afghanistan and the rest of Southern Asia. Unocal AND Enron wanted the Trans-Afghan Gas Pipeline built. Enron had built a huge power plant in India that DESPERATELY needed cheap natural gas. June 5, 1992: Enron sent a group of officials to New Delhi to make arrangements to survey the land around Dabhol for the purpose of building a large power plant. June 20, 1992: Enron and the government of the state of Maharashtra signed a non-binding memorandum of understanding to build the plant. This led to formation of the Dabhol Power Company (DPC), a joint venture of Enron and two other American corporations, General Electric and Bechtel. February, 1993: A formal agreement was signed for a plant that could generate about 2450 megawatts at an approximate cost of $3 billion. April, 1993: Heinz Vergin, World Bank manager for India, rejects Enron's loan application, saying that the Dabhol plant is not economically viable. November, 1993: The Central Electricity Authority in New Delhi gave provisional clearance to the project. It was the largest single foreign investment in India. 1994: The Washington-based Export-Import Bank approved a $302 million loan toward a $3 billion Enron-controlled power plant in India. President Clinton took an interest in the deal, asking the U.S. ambassador to that country and his former chief of staff, Thomas F. Mack McLarty, then a presidential adviser, to monitor the proposal. August, 1995: Clinton administration's cabinet members, Treasury Secretary Robert Rubin and Energy Secretary Hazel O'Leary, personally urged India to accept Enron's proposed project. October, 1995: Indian Prime Minister Rao and Iranian Foreign Minister Ali Akbar Velayati discussed a routing alternatives for a natural gas pipeline, including one which would run through Turkmenistan, Afghanistan, and Pakistan. 1996: Mack McLarty, who later became a paid Enron director, spoke with Ken Lay on several occasions about the plant. Four days before India granted approval for Enron's project, the Houston-based firm contributed $100,000 to the Democratic Party. 1996: Enron signed a contract giving it rights to explore 11 gas fields in Uzbekistan, a project costing $1.3 billion. The goal was to sell gas to the Russian markets, and link to Unocal's southern export pipeline crossing Turkmenistan, Uzbekistan and Afghanistan. January 8, 1996: Enron and the state government of Maharashtra reached a new agreement that would shift some of the construction costs and lower the electricity tariffs. June,1997: As an advisor for Unocal, Zalmay Khalilzad drew up a risk analysis of a proposed gas pipeline from the former Soviet republic of Turkmenistan across Afghanistan and Pakistan to the Indian Ocean. He participated in talks and social meetings between Unocal and Taliban officials in 1997. June 3, 1997: Police stormed the homes of several women in western India who had led a massive protest against Enron's new natural-gas plant near their fishing village. According to Amnesty International, the women were dragged from their homes and beaten by officers paid by Enron. November 14, 1997: Enron International's CEO Rebecca Mark unveiled an energy plan that included a $300 million project to build a pipeline from Dabhol to Hazira and to the North to add 1200 km of complimentary pipeline system to the existing HBJ pipeline at a cost of $900 million. December 7, 1997: Unocal invited a Taliban contingency to visit them in Houston, Texas, housed them in five-star hotels, dined them at the home of Unocal VP and medically treated the former foreign minister, Mullah Mohammed Ghaus before he returned home. February 12, 1998: Testimony of John J Maresca, vice-president, international relations, Unocal Corporation was heard by the House Committee on International Relations and the Subcommittee on Asia and the Pacific regarding a proposed extension (of the proposed trans-Caspian pipeline) would link with the SUI pipeline system, moving gas to near New Delhi, where it would connect with the existing HBJ pipeline... June 23, 1998: In a speech to the Collateral Damage
Re: Ripplewood Holdings (stems from Chi. Tribune on Enron)
What does Ripplewood know about running a credit bank in Japan? Pt 1 The Ripplewood plan is simple actually: use high equity valuations and inflated asset prices in the US and an ability to operate as largely unregulated capital worldwide to buy up and profit from distressed Asia (Asia post 1997) The real beauty in the strategy is this: quite literally by becoming a holding company for banks in Asia, Ripplewood can use Asian savings (bank liabilities) to buy up Asia's own assets (loans, distressed assets such as failed companies that are not very leveraged but can't make loan payments , real estate, etc) Carlyle Group has made a similar move into Korea, and the others giants of privately held capital are circling the drain Softbank got involved in a similar set up with the failed Japan Credit Bank, but it looks now more and more like the JCB will end up in the hands of a French capital group because Softbank, always dependent on high stock valuations, has none This is a new twist on disintermediation: take over an Asian bank in order to invest Asian depositor's money in distressed Asian assets and keep all the profits Quite literally, trust banks have become investment banks for privately held capital The problem is the nature of the bank Ripplewood acquired First, it had big connections with the Japanese economy and MofF Second, what Ripplewood did was supposed to be a 'showpiece' for financial reform and liberalization But third, they took over a credit bank, a bank that is given tax breaks but a special mission--that mission is to make more loans to small and medium sized businesses than even credit unions or savings and loans would think of It's a huge nationwide entity with a huge amount of deposits Therefore, considering what Shinsei Bank (was Long Term Credit Bank) is supposed to be doing and what it is actually doing, and considering the huge amounts of breaks that Ripplewood got in launching Shinsei, people are angry with how it's actually turned out US advice to the Ripplewood people is for them to get better at lying about what they are actually doing Here is the background, starting from 1999 http://eeklypostcom/990927/990927chtm#popular LTCB Acquired by US Investment House Japan Long-Term Credit Bank (LTCB) has been under the management of the Japanese government since it has created about $26 billion debt [Note from Jannuzi: this is tiny actually compared to its deposits] in last October Now, it was decided that LTCB was going to be acquired by Ripplewood Holdings, the US investment house The acquisition will have a major effect on LTCB's major clients such as Daiei, a supermarket giant, Sezon Group, Sogo Department Store, Kumagai Construction Co and Hazama Construction Co [Note from Jannuzi: this list is a bankruptcy hall of shame now] These Japanese companies have huge loans from LTCB Financial specialists are now predicting that Ripplewood request for repayment of these loans and these Japanese companies will have to go to bankrupt More than 200,000 employees will be involved in their bankrupt and layoffs will cause panic in Japan [Jannuzi: and delight for vulture capital] Posted by Charles Jannuzi
Re: Ripplewood Holdings (stems from Chi. Tribune on Enron)
Ripplewood Pt 2 I would say that the difference this time is that most Japanese investments in the US turned out very bad for them, while the private equity groups like Carlyle and Ripplewood know how to make a buck It's the same way GE Capital makes money too They aren't in Japan to re-tool the automobile industry The idea is buy up and keep what makes a lot of money and sell off the rest in packages at prices far more than what the stuff cost during the bankruptcy firesale http://wwwnightlybusinessorg/trnscrpt/2001/trnscrpt122601htm#STORY3 12/26/01: Why US Businesses Are Bargain Hunting In Japan SUSIE GHARIB: During the SL crisis in the US, investors all around the world bought up American assets, paving the way for an eventual improvement in the market Now, history seems to be repeating itself in Japan As Lucy Craft explains in the first of a two-part series, Americans could now be the catalyst for a turnaround in Japan's economy LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Forty-five-year-old buyout specialist Timothy Collins professes an aversion to the limelight, preferring a discreet low profile for himself and his New York-based private equity firm But in Japan, his Ripplewood Holdings is anything but obscure Collins is the most aggressive of a handful of foreign investors who are acquiring bankrupt Japanese companies at fire-sale prices ROBERT FELDMAN, ECONOMIST, MORGAN STANLEY: I think a lot of foreigners will be coming here looking for good deals Whether it turns into a flood depends in part on the ability of the Japanese to stand up to the plate and say, no, I want it first, which many of them may want to do But I do expect foreigners to come in and have a very active and constructive role in getting the Japanese economy back on track CRAFT: Ripplewood signed its first deal here in 1999, picking up this prestigious but failed former industrial bank; a car parts company [Jannuzi's note here: this helped Nissan report profits since they paid a huge chunk of cash for a car parts division of Nissan that Ghosn and Renault figured they no longer needed] , resort, and Japan's oldest recording company were added to Ripplewood's portfolio this year With a war chest of over $1 billion, Collins is still shopping for bargains in the chemicals, hotels, and electronics fields Other potential investors look at Japan and they say, this is a basket case You look at it, when you're looking at the distressed assets here what do you see? TIMOTHY COLLINS, FOUNDER CEO, RIPPLEWOOD HOLDINGS: Well, we don't really look at distressed assets We look industry by industry, and what we see is a country that's got the most powerful industrial infrastructure in the world It's got fabulous engineers, great technology, and a hangover from a disastrous bubble in the financial system, frankly not unlike - although elongated and exacerbated by the long length of time - not unlike some of the problems that the US is facing today So when we look at investments, we fundamentally first on the industry and second on the competitive position of the underlying enterprises And what happens on a macroeconomic basis is often a lot less relevant CRAFT: But while fans call Ripplewood visionary, detractors call the firm a vulture Hostile popular reaction to Ripplewood's headline-generating acquisitions has been reminiscent of anti-Japanese hysteria in the US, when Japanese snapped up Rockefeller Center and other trophy properties in the 1980s EDWIN MERNER, PRESIDENT, ATLANTIS INVESTMENT RESEARCH CORPORATION: People are worried that they're asset strippers So more or less they're going to come in, they're going to then sell off the pieces at a higher price than the parts are worth as a group, and then they're just going to pack their bags, put their money in their bags, and leave I think that's the fear, that they're not really serious long- term players; they're just guys who want to make quick buck and be on their way CRAFT: Collins, who has specialized in turnarounds for over 10 years in the US, calls such charges unfounded And admirers say his strategy of scouring Japan for gems in the rough, competitive but debt- saddled companies, is sound FELDMAN: I think he's perfectly right about that I did a calculation once based on a sample of about 2,500 companies A quarter of the companies, interestingly enough, have poor return on assets but also very low leverage And that's a group of companies, a quarter of this entire sample, where if you can just get some management focused on raising the return on assets, then they could bloom into very, very good companies So I think Tim is entirely right about that Lucy Craft, NIGHTLY BUSINESS REPORT, Tokyo Nightly Business Report transcripts are available on-line post broadcast The program is transcribed by eMediaMillWorks Updates may be posted at a later date The views of our guests and commentators are their own and do not
Re: Ripplewood Holdings (stems from Chi. Tribune on Enron)
Ripplewood Pt 3 And as things become totally bizarre and muddled (mostly because Koizumi deregulation and liberalization are going to have immediate postive effects), we find Ripplewood/Shinsei and its good friends, Goldman Sachs, mixed up in it all A lot of it, by the way, has to do with what is and what is not a 'bad' loan and what is and what is not an acceptable capital adequacy ratios Do credit unions and savings and loans really have to operate at international standards? http://eeklypostcom/09/09ahtm The Weekly Post Special 1: Premier Koizumi Seems to be Failing in Reviving Japanese Economy Japan's Financial Services Agency (FSA) and the Bank of Japan (BOJ) appear to be concealing the fact that a major Japanese bank is in serious financial trouble The bank is in an alarming situation The FSA and BOJ do not have any concrete plan to deal with the possibility of a run on the bank by depositors Even worse, the close cooperation that existed between the Prime Minister's Office, the FSA Minister and FSA executives in handling the nation's financial problems has started to disintegrate The three coalition government parties who have been deciding Japan's financial policies are now fighting with one another The major reason for this infighting stems from Prime Minister Koizumi's failure to set goals and policies for resuscitating Japan's ailing economy Staff members from government bodies have been swayed by their own differences in opinions as well as by the suggestions of scholars Another matter is a sex scandal involving a high-ranking FSA official, which seems to have been spread by the governing Liberal Democratic Party (LDP) The aim of the LDP's covert scandal plot seems to be to blame the mishandling of financial problems on the FSA Minister and then have him dismissed The government and LDP are blaming each other for the grave economic problems facing Japan This is not a proper response to the request for financial stability coming from the international financial community 1 Scandal In the middle of November, bank stocks were sold off heavily and the prices of Asahi Bank and Daiwa Bank stock fell below the 100-yen benchmark Japan's financial crisis worsened Under such circumstances, a memorandum was issued by a central organ of the governing LDP The memorandum leaked information on a paid date between a high-ranking official of the FSA and a woman of the Ministry of Finance The affair allegedly took place when they were working for the Japanese government in the US The memorandum says, If they used the discretionary fund to pay for their trysts, it would be serious The memorandum was aiming at eliminating the official in question The FSA has conducting a special inspection of major banks in order to complete the bailout of non-performing loans that those banks held A bailout involves a decision on what corporations should go bankrupt The corporations in question are in the construction, real estate and retail industries If one major corporation files for bankruptcy, all related companies must go bankrupt as well If this happens, it will push up unemployment The high-ranking official involved in the scandal (call him Mr A for convenience) has been in a position to lead decisions on the issue The Weekly Post has found an interesting fact about the scandal In the second week of November, the FSA, which had been busy dealing with the sharp drop in banking stock prices and a special inspection of major banks, received three phone calls The three calls were made by the Prime Minister's Office, LDP's Secretary General's Office and National LDP Headquarter Office All three offices made the same inquiries about Mr A's behavior while he was working in the US The memorandum was found to reflect such movements by the Prime Minister's and LDP offices 2 Push to Make FSA Director Resign Within the FSA, a conflict between Hakuo Yanagisawa, the Minister of Financial Affairs, and Akiharu Mori, the FSA Director General is surfacing Before the conflict, Mr Yanagisawa and Mr Mori had once been allied in a fierce fight against the policies of Heizo Takenaka, the Minister of Economic and Financial Policy Mr Takenaka's plan was to accelerate the bailout of a huge amount of bad loans held by major banks They claimed, Given the severe recession in Japan, if we force the bailout of bad loans, the economy will fall into a panic Prime Minister Koizumi had not been able to make any decision on the issue His indecisiveness made Japan's financial problems worse Pushed by aggressive movements by foreign hedge funds, he had to instruct the FSA to conduct a special inspection of the major banks This meant the defeat of the alliance between Mr Yanagisawa and Mr Mori That triggered the LDP to move toward removing Mr Mori from the position of FSA Director General Then, it related to the scandal memorandum One source of the Prime Minister Office said, Mr Yanagisawa and Mr Mori may have
Chi. Tribune on Enron
A friend did much of the legwork on this article. Investors lured by Enron's promises Documents show partners enticed by insider profits By Robert Manor, Tribune staff reporter. Tribune staff reporters Laurie Cohen and Flynn McRoberts contributed to this report March 3, 2002 A select group of blue-chip investors was offered big profits based on insider dealing at one of the Enron Corp. partnerships that later brought down the Houston energy company, internal documents show. The investors, the records show, were told that their investments would benefit from a top Enron executive's dual role working for the partnership. The investors, according to partnership-offering documents, would have exclusive opportunities to profit from Enron-oriented investments not available to the public. Among the billion-dollar institutions that bought the sales pitch were Chicago's John D. and Catherine T. MacArthur Foundation, the New York investment bank Merrill Lynch and financial giant J.P. Morgan Chase Co. When Enron chief financial officer Andrew Fastow set up the partnership in late 1999, he talked of profits as high as 5,048 percent. Fastow promised investors that he could use his position at Enron to deliver a stream of moneymaking deals. Fastow disclosed far more financial information about Enron to would-be partners than he did to Enron's shareholders. And for institutional investors he could not entice with astronomical returns, Fastow talked tough, documents and former Enron insiders say, sometimes warning that Wall Street securities firms would lose the chance to do business with Enron unless they joined his partnership. The partnership raises serious questions about conflicts of interest by corporate executives and their legal responsibility to keep all investors equally informed about business matters, experts say. The partnership, named LJM2 after the initials of Fastow's wife and two young children, offered a peculiar asset. Fastow made clear that as the manager of the partnership, and with the help of another Enron executive, he would use his position at Enron to deliver business deals developed by Enron. Investors in the partnership should benefit from Mr. Fastow's and the other principal's dual roles, which will facilitate the partnership's access to Enron deal flow, the LJM2 sales pitch reads. The partnership warned investors that if Fastow lost his job at Enron, the deals would stop. Enron used dubious investments in its dealings with LJM2 to conceal debt and falsely book earnings. When the scheme was disclosed late last year, Enron admitted it had earned almost nothing over the previous two years. That set off a cascade of events culminating in Enron's bankruptcy. The plan to profit on Fastow's conflict of interest is a bizarre business proposal, according to lawyers and industry observers. You think `Oh, my God, how are they going to make this work?' said Randal Picker, a professor at the University of Chicago Law School. It makes your eyes bug out. Picker said it is almost impossible to fairly serve two employers, as Fastow and another Enron executive in the partnership, Michael Kopper, proposed to do. And he said it is truly rare for an employer to permit such an arrangement. No red flags raised But the deal was put together by some of the best known names in finance and law. Enron approved of Fastow's conflict of interest. Chicago-based Kirkland Ellis provided legal counsel to the partnership. Merrill Lynch recruited investors. KPMG handled the auditing. And the chance to do business with Enron lured $386 million from some of the world's most sophisticated investors--J.P. Morgan, GE Capital, Credit Suisse First Boston, Aon and others. Among the investors was the MacArthur Foundation. Ray Boyer, spokesman for the foundation, said it had committed up to $15 million in March 2000 and has invested about $9.4 million. At the time, Enron was one of the most innovative companies in the world, with a ton of experience in energy investments. It appeared to be a very good investment, Boyer said. Enron's excellent credit rating, seemingly substantial risk-management business and extensive pipeline operations all made LJM2 appealing, he said. Fastow's promise to funnel insider deals to his partners caused no concern. Certainly we knew the relationship of Enron with the partnership, and at the time we were comfortable it was an acceptable way of setting up the arrangement for that partnership, Boyer said. Boyer said that while it seemed appropriate to invest in LJM2 in the past, it doesn't now. Given what we know today about the manner in which Enron conducted business, we wouldn't have made the investment, he said. The foundation was unaware that Enron allegedly would use LJM2 to artificially inflate profits and conceal debt, Boyer said. He declined to comment on how the investment has fared, citing partnership confidentiality agreements. He did say that we
Re: Chi. Tribune on Enron
There are far more interesting artifacts out there on the internet that just begged to be pieced together to see how Enron really worked. (One interesting source has been doing google searches which return html pages even after the pdf has been taken down.) It would seem that traditional journalism just can't really put the whole story together. I find this more and more--that the genres of journalism really are inadequate for dealing with the ways the world is (so they are no better at information brokering in the Hayekian market place than the investment bankers). I guess this is something the internet, once you get a handle at finding information on it, makes all too apparent. The irony is had Enron, from the 1980s onward, just followed the Carlyle Group model instead of GE and Tyco, it would still be in business offering all those too-wonderful-to- be-true returns to its investors. Carlyle Group (though it is not now merely a holding company for defense in terms of how it makes its profits) really got started because the insiders knew that with the DoD under Cheney under Bush I, consolidations and acquisitions (and insider knowledge about them) were the dynamic driving profits in defense contracting. With Enron it was the global 'liberalization' of power. If you track their power plays on the internet, it's interesting how they converged in their pursuits in the realm of largely unregulated venture capital (but the fact that Enron was still a publicly traded company was their undoing). Now if someone could turn their analytic skills toward those other publicly traded companies' adventures in global venture/vulture capital, we might find out something truly revelatory about the US stock boom. The public side of the bubble still awaits deconstruction. The non-public side of it, such as Carlyle Group, Ripplewood and Lonestar may never be cracked. Charles Jannuzi
Re: Chi. Tribune on Enron
I know nothing of Ripplewood except a short 10 Dec. Business Week article. Charles Jannuzi wrote: The public side of the bubble still awaits deconstruction. The non-public side of it, such as Carlyle Group, Ripplewood and Lonestar may never be cracked. Charles Jannuzi -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
The Enron-Cheney-Taliban Connection? AlterNet
In case some of you have not seen this yet. I would be interested in Gene Coyle's take on this. http://www.alternet.org/print.html?StoryID=12525 AlterNet February 28, 2002 The Enron-Cheney-Taliban Connection? By Ron Callari, Albion Monitor Enron is a scandal so enormous that it's hard to wrap your mind around it. Not just a single financial disaster, it's actually a jigsaw of interlocking scandals, each outrageous in its own right. There's Enron the Wall St. con game, where company bookkeepers used slight of hand to turn four years of steady losses into stunning profits. There's Enron the reverse Robin Hood, which stole from its own employees even as its executives were hauling millions of dollars out the backdoor. There's Enron's Ken Lay the Kingmaker, who used the corporation's fraudulent wealth to broker elections and skew public policy to his liking. And then there are the Enron coverups, as documents are shredded and the White House seeks to conceal details about meetings between Enron and Vice President Cheney. The coverups are still very much a mystery. What were the documents that were fed into the shredder -- even after the corporation declared bankruptcy? What is the White House fighting to keep secret, even going to the length of redefining executive privilege and inviting the first Congressional lawsuit ever filed against a president? Were the consequences of releasing these documents more damaging than the consequences of destroying them? Could the Big Secret be that the highest levels of the Bush Administration knew during the summer of 2001 that the largest bankruptcy in history was imminent? Or was it that Enron and the White House were working closely with the Taliban - including Osama bin Laden - up to weeks before the Sept. 11 attack? Was a deal in Afghanistan part of a desperate last-ditch end run to bail out Enron? Here's a tip for Congressional investigators and federal prosecutors: Start by looking at the India deal. Closely. Enron had a $3 billion investment in the Dabhol power plant, near Bombay on India's west coast. The project began in 1992, and the liquefied natural gas- powered plant was supposed to supply energy-hungry India with about one-fifth of its energy needs by 1997. It was one of Enron's largest development projects ever (and the single largest direct foreign investment in India's history). The company owned 65 percent of Dabhol; the other partners were Bechtel, General Electric and State Electricity Board. The fly in the ointment, however was that the Indian consumers could not afford the cost of the electricity that was to be produced. The World Bank had warned at the beginning that the energy produced by the plant would be too costly, and Enron proved them right. Power from the plant was 700 percent higher than electricity from other sources. Enron had promised India that the Dabhol power would be affordable once the next phase of the project was completed. But to cut expenses, Enron had to find cheap gas to fuel it. They started burning naphtha, with plans that they would retrofit the plant to gas once it was available. Originally, Enron was planning to get the liquefied natural gas (LNG) from Qatar, where Enron had a joint venture with the state-owned Qatar Gas and Pipeline Company. In fact, the Qatar project was one of the reasons why Enron selected India to set up Dabhol: it had to ensure that its Qatar gas did not remain unsold. In April 1999, however, the project was cancelled because of the global oil and gas glut. With Qatar gone, Enron was back to square one in trying to locate an inexpensive LNG supply source. Enter the Afghanistan connection. Where the Great Game in Afghanistan was once about czars and commissars seeking access to the warm water ports of the Persian Gulf, today it is about laying oil and gas pipelines via the untapped petroleum reserves of Central Asia, a region previously dominated by the former Soviet Union, with strong influence from Iran and Pakistan. Studies have placed the total worth of oil and gas reserves in the Central Asian republics at between $3 and $6 trillion. Who has access to that vast sea of oil? Right now the only existing export routes from the Caspian Basin lead through Russia. U.S. oil companies have longed dreamed of their own pipeline routes that will give them control of the oil and gas resources of the Caspian Sea. Likewise, the U.S. government also wants to dominate Central Asian oil in order to reduce dependency on resources from the Persian/Arabian Gulf, which it cannot control. Thus the U.S. is poised to challenge Russian hegemony in a new version of the Great Game. Construction of oil and natural gas export pipelines through Afghanistan was under serious consideration during the Clinton years. In 1996, Unocal -- one of the world's leading energy resource and project development companies -- won a contract to build a 1,005-mile oil
Re: Chi. Tribune on Enron
I know nothing of Ripplewood except a short 10 Dec. Business Week article. Charles Jannuzi wrote: The public side of the bubble still awaits deconstruction. The non-public side of it, such as Carlyle Group, Ripplewood and Lonestar may never be cracked. Well, complete ignorance would be better than having read a BW article. I'll post a piece about the Ripplewood plan for 'distressed Asia' shortly. Charles Jannuzi
Enron Japan's Creditors May Be Left Disappointed
The Financial Express February 26, 2002 Enron Japans Creditors May Be Left Disappointed Singapore, February 25: Creditors to Enrons Japanese units could be left in the cold as the companys assets may cover little more than the cost of liquidation, a source said on Monday Creditors will meet with the administrator of Enron assets on March 27 to find out what, if any, money will be repaid, a source involved in the liquidation process said from Tokyo After that meeting the distribution of the assets to creditors would occur, if there are any But the prospects are not great There are not many assets, the source said Creditors to Enron Japan Corp are seeking around three billion yen, the source said Enron Japan and three other Japanese affiliates of the former US energy giant filed for bankruptcy in early December, one week after the parent company filed for largest bankruptcy in US history The companys 70-to-80 employees have one months salary, or about 60 to 70 million yen coming to them The employee claims for salary and bonuses take first priority, the source said Enrons Japanese assets consist of mostly office equipment and a modest bank deposit, with the value of the companys office lease worth little more than the cost of termination, the source said The costs to close the office could exceed the overall assets, the source said The value of Enron Japans assets will be revealed at the creditors meeting The source said Enrons Japanese trading system cost about two billion yen to build, but cannot be sold to generate cash The trading system cant be sold because it is based on the US system, and they have not given their approval for its sale here in Japan, the source said Enron established a foothold in Japan in 1999 and operated various trading and marketing units in the energy and commodities industries The company had announced plans to build large thermal power plants at four different sites in Japan Reuters © 2002: Indian Express Newspapers (Bombay) Ltd All rights reserved throughout the world
Greider, Corzine, Enron
http://www.thenation.com FEATURE STORY | March 11, 2002 Reformer From Goldman Sachs by WILLIAM GREIDER Jon Corzine, the freshman senator from New Jersey, is uniquely positioned to deal with the swirling scandals of Enron and other related malpractices in high finance. He was a Wall Street insider himself and, indeed, did some deals for Enron. In 1994 Corzine rose to become chairman of Goldman Sachs, the vastly influential investment house, and presided during the decade's booming financial markets. Then he retired and spent more than $60 million (nearly one-seventh of his personal fortune) to win election to the Senate in 2000 as, in his words, a self-funded candidate. Now Corzine is aggressively speaking for reform. I'm not sure I fully accept the 'rot' concept, the Senator said with a small smile, when I asked how bad the rot is. I think we have not updated our financial system for many years, and we've allowed the theme of deregulation to erode the checks and balances in our financial system, at a period of time when technology and globalization and financial entrepreneurship were growing at geometric paces. So I think there was as much a failure to stay apace with the system as there was rot. Still, he acknowledges, the rot is real too. I think at the end of the day we will find it was more a bad-actor situation than systemic, but, you know, I wouldn't bet my life on it, he said. Corzine sees a degradation of values in business and finance that goes deeper than regulatory laws--a single-minded focus on earnings-per-share to the neglect of everything else. The system to some extent has lost track of its other objectives of social responsibility, of ethics, as they relate to employees and their position in society, he said. In any case, the Senator recognizes the need for a long-term agenda of repair and reform and has already staked out a forward position in confronting the current outrages like the false independence of independent auditors, the ease with which much-celebrated corporations falsify their earnings and indebtedness and the myriad ways in which Wall Street banks and brokerages help companies game accounting principles and the tax code. As interesting as Enron is as either a criminal or regulatory investigation, and it is, I'm mostly interested in it for purposes of revealing...the need to get on with updating our [regulatory] system for the twenty-first century, dealing with changes that we've been sitting on for a very long time, whether it's pension reform or accounting reform or corporate governance reform or campaign finance reform. Senator Corzine promises to be an influential voice in all these matters, first, because he thinks and votes like an old-fashioned economic liberal (not many of those around anymore), and second, because he is intimately familiar with the inner mechanics of how finance and corporations function together and how their excesses damage society. His manner is deliberate and precise, even cautious, but also pleasantly free of the overheated rhetoric that passes for serious discussion among his colleagues. The man is not a bomb thrower. He is an investment banker who was at the table himself when deals were done and is not eager to turn on his former occupation. Still, his own stature and integrity will be measured by how deeply he is willing to dig into the muck. The present storm is an important turning point, a beginning, at least, of the long and difficult politics needed to restore the public values and protections eroded or destroyed during the past twenty years of laissez-faire orthodoxy. Corzine is taking the public's side in that fight. Unfortunately, we don't have Teddy Roosevelt in the White House, the Senator said. And without the bully pulpit and the support of the President for a lot of the initiatives that need to be taken, I suspect we will get marginal, incremental steps but not really get at the heart of a lot of these issues. Many Democrats are as conflicted as Republicans on these matters, having taken the campaign money and bought into the virtues of deregulation themselves. Corzine, nevertheless, envisions a comprehensive reform agenda. Do I think we are going to get it in the next six months before an election? Probably not. But, you know, these are processes that will continue. That I'm optimistic about. The recurring financial crises and breakdowns during the past two decades--from junk bonds and the savings and loan collapse and major bank bailouts of the 1980s to the failure of Long Term Capital Management in 1998 and the current explosion--demonstrate the long-neglected need to rehabilitate government supervision and regulation, Corzine believes. Among other things, he wants to regulate hedge funds, reform pension protections, reconfigure the Securities and Exchange Commission with stronger enforcement powers over auditors and impose tougher limits on corporate SPEs--special-purpose entities, like Enron's off-the- books
California lawmakers: Arrest Enron execs
California lawmakers: Arrest Enron execs Author: Tim Wheeler People's Weekly World Newspaper, Feb 16, 2002 Houston workers demand justice WASHINGTON * A committee of the California State Senate has demanded that Kenneth Lay and other Enron officials be brought to California to stand trial for contempt for refusing to testify before a California Senate Committee investigating manipulation of the energy market. The committee also demanded that Enron turn over documents dealing with its roe in causing the state's power shortage last summer. If the contempt citation is approved, Enron could face fines of $1 million each day they refuse to turn over documents. State Sen. Wes Chesboro (D-Arcata) said Enron displayed contempt in three ways: conspiring to drive up energy prices, hiding its imploding financial condition from investors such as the California Pension Fund and refusing to appear when a subpoena was issued by the legislature. Chesboro said these Enron officials should go to jail. Three strikes and you're out, he said. I seriously doubt that Enron will ever send us anything more than a picture postcard from the Cayman Islands, said state Sen. Debra Bowen (D-Redondo Beach). Enron hid millions in profits in an estimated 900 dummy companies in the Cayman Islands and other secret offshore havens. Earlier, Sen. Barbara Boxer (D-Calif.) said Enron's hidden wealth should be confiscated and sent back to California to compensate for an estimated $8.9 billion in overcharges inposed on California ratepayers. Meanwhile, Karen Nussbaum, head of the AFL-CIO Women's Department, and the Rev. Jesse Jackson, president of Operation Push, joined angry Enron workers in a Houston press conference to demand that the bankrupt energy trading company pay full severance benefits in the company's collapse. The Feb. 13 press conference, held in Houston's Antioch Church took place the day after former Enron CEO Kenneth Lay refused to testify before a hearing of the Senate Commerce Committee. Debra Johnson, once a senior administrative assistant in Enron's Human Resources Division and a member of the Enron Employees Committee (EEC), also attended the press conference. I was aware that Mr. Lay would take the Fifth Amendment because he didn't want to incriminate himself with inside information he had passed on, Johnson told the World. I was a bit angry at his opening statement. He said he was saddened, but he never said he was sorry. Johnson said Lay owes the employees of Enron an apology. The executives paid themselves but they left us with nothing, she said, adding that she is two months behind on her utility bills and has been forced to apply for food stamps to feed herself and two young grandchildren she is raising. Her son is enrolled at Hampton University in Virginia and may be forced to drop out. I never thought I would be forced to wait in a welfare line for food stamps. But I am, she said. I don't have health insurance. If I get sick, I'll have to wait in the welfare healthcare line. They may leave you to die since you don't have health insurance. Johnson expressed anger that President George W. Bush and Vice President Dick Cheney have invoked executive privilege, concealing their collaboration with Lay and other oil and gas executives in Cheney's Energy Policy Task Force. Bush and Cheney are all tied in with this energy business together, she said. One won't tell on the other. If Lay didn't have something to hide, he would testify. The EEC, she said, is working for reform, to insure that it doesn't happen again, that other workers don't have to go through what we have been through.
help for impoverished Enron execs
Help for the Needy Enron Execs Source: Solidarity4ever Posted: February 14, 2002 Dear kind-hearted friends... Now that the holiday season has passed, please look into your heart to help those in need. Enron executives in our very own country are living at or just below the seven-figure salary level...right here in the land of plenty. And, as if that weren't bad enough, they will be deprived of it as a result of the bankruptcy and current SEC investigation. But now, you can help! For only $20,835 a month, about $694.50 a day (that's less than the cost of a large-screen projection TV), you can help an Enron executive remain economically viable during his time of need. This contribution by no means solves the problem, as it barely covers their per diem, ...but it's a start. Almost $700 may not seem like a lot of money to you, but to an Enron exec it could mean the difference between a vacation spent in DC, golfing in Florida and a Mediterranean cruise. For you, seven hundred dollars is nothing more than rent, a car note or mortgage payments. But to an Enron exec $700 will almost replace his per diem. Your commitment of less than $700 a day will enable an Enron exec to buy that home entertainment center, trade in the year-old Lexus for a new Ferrari, or enjoy a weekend in Rio. HOW WILL I KNOW I'M HELPING? Each month, you will receive a complete financial report on the exec you sponsor. Detailed information about his stocks, bonds, 401(k), real estate, and other investment holdings will be mailed to your home. You'll also get information on how he plans to invest his golden parachute. Imagine the joy as you watch your executive's portfolio double or triple! Plus upon signing up for this program, you will receive a photo of the exec (unsigned-for a signed photo, please include an additional $50.00). Put the photo on your refrigerator to remind you of other peoples' suffering. HOW WILL HE KNOW I'M HELPING? Your Enron exec will be told that he has a SPECIAL FRIEND who just wants to help in a time of need. Although the exec won't know your name, he will be able to make collect calls to your home via a special operator just in case additional funds are needed for unexpected expenses. YES, I WANT TO HELP! I would like to sponsor an Enron executive. My preference is checked below: [ ] Mid-level Manager [ ] Director [ ] Vice President (Higher cost; please specify which department) [ ] President (Even higher cost; please specify which department) [ ] CEO (Contribution: Average Enron janitor monthly salary x 700) [ ] Entire Company [ ] I'll sponsor an Exec most in need. Please select one for me. SPECIAL LIMITED TIME OFFER Already an Enron supporter? Don't worry, in this troubled economy, there are many executives who need your help. Ford today is laying off 35,000. The NASDAQ is deflated. Now you can show your patriotism and do something about it. The Invisible Hand will allow supporters to substitute executives from any downtrodden company listed on edcompany.com. You will never own a Bentley, wear hand-tailored silk shirts, or have a gentleman's gentleman; why deprive a worthy executive from ascending, and more importantly, from maintaining the lifestyle he so richly deserves? (pun not intended) Imagine the feeling of satisfaction, the pure joy of knowing that your sponsor ex-executive at the former spiltmilk.com will be able to have his caviar and eat it too. *It's just that easy - do it now!* Please charge the account listed below ___ per day and send me a picture of the Enron executive I have sponsored, along with my very own Enron Keep America Strong Sponsor an Enron Exec: Ask Me How! t-shirt to wear proudly. Your Name: ___ Telephone Number:___ [ ] MasterCard [ ] Visa [ ] American Express [ ]Discover Account Number: ___ Exp. Date:___ Signature: ___ Mail completed form to The Invisible Hand or call 1-900-2MUCH now to enroll by phone. Note: Sponsors are not permitted to contact the executive they have sponsored, either in person or by other means including, but not limited to, telephone calls, letters, e-mail, or third parties. Keep in mind that the executive you have sponsored will be much too busy enjoying his free time, thanks to your generous donations. Contributions are not tax-deductible. -- Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine
The Enron Effect: Rogue or Symptom?
Debating the Enron Effect Business World Divided on Problem and Solutions By Steven Pearlstein Washington Post Staff Writer Sunday, February 17, 2002; Page A01 To Thomas J. Donohue, the pugnacious president of the U.S. Chamber of Commerce, Enron is a rogue corporation, an unfortunate and dramatic exception to what is otherwise the most transparent, honest and efficient capitalist system the world has ever known. To Arthur Levitt, the former chairman of the Securities and Exchange Commission, Enron grew out of a pervasive culture of gamesmanship in a corporate world that has become so focused on stock prices and quarterly earnings that it has lost its moral compass. The business community now looks at things in terms of what they can get away with, not what is right, Levitt said this week as he shuttled between Enron hearings on Capitol Hill. Those starkly conflicting views now define the poles of a crucial debate that is just beginning to play itself out -- in Washington, which must decide the scope of regulatory reforms necessary to prevent future Enrons, and on Wall Street, where investors and lenders will decide how much more they will charge for investment capital to reflect the risk that other companies could have Enron-like problems. To a business community that largely views Enron as a corporate rogue, the widespread concern is that the media and political frenzy will generate excessive regulation that, in the words of the Business Roundtable, would unnecessarily inhibit the ability of U.S. corporations to compete, create jobs and generate economic growth. But those who see Enron as emblematic of wider, systemic problems with American-style capitalism see the need for fundamental changes in how executives are compensated, how companies report their financial results, how financial analysts rate stocks, how boards of directors are chosen, how accounting standards are devised and what rules should govern the legal and accounting professions. Business lobbyists acknowledge that over the past two weeks public opinion seems to have swung toward the fundamentalists. A Gallup poll last week found that about 3 in 4 Americans believe that the type of business practices found at Enron could also be found at some or most other large corporations. Another survey found that public confidence in big corporations had fallen to the low levels long endured by Congress and health-maintenance organizations. Scrambling to stay ahead of the wave, the Securities and Exchange Commission announced Wednesday that it would push new rules requiring companies to disclose more detailed and timely information about their finances and their executives' stock trades. Also, on Friday, the SEC's enforcement chief said the agency would ask Congress for authority to ban corporate officers and directors who have committed wrongdoing from serving in such positions in the future. Within hours of Wednesday's SEC announcement, the Financial Accounting Standards Board, the industry-funded rulemaking group criticized for taking as long as a decade to close accounting loopholes, vowed to tighten rules that have allowed thousands of corporations to inflate reported earnings while keeping debt and other liabilities off their balance sheets. On that same day, the New York Stock Exchange commissioned a panel co-chaired by former White House chief of staff Leon Panetta to review issues such as the independence of corporate board members and how they are compensated by companies whose shares are traded on the world's largest exchange. Meanwhile, key members of Congress are putting together Enron-inspired packages, including a proposal to eliminate tax breaks that encourage companies to lavish stock options on top executives. While the options were once thought to better link the interests of managers with the interests of shareholders, even some former supporters now believe that the option awards have grown so large that they have distorted business and ethical judgment, encouraging some executives to do anything to report strong earnings every quarter so the stock price will rise. If a million-dollar salary doesn't align managers' interests with shareholders' interests, then they're the wrong person for the job, said Sarah Teslik, executive director of the Council of Institutional Investors, who previously supported the tax breaks. Among the professions that cluster around the corporate boardroom, the accounting industry is in full battle gear now that the expression our auditors have reviewed it and approved it is viewed by many as an indication that something must be amiss. The president of the American Bar Association, Robert Hirshon, said he was considering appointing a special committee to figure out a way for lawyers to sound the whistle on corporate misdeeds without violating their ethical responsibilities. The corporate chief executives who make up the Business Roundtable, horrified by top Enron executives and directors
Bank exposure to Enron and Argentina
The American Banker, February 14, 2002 Copyright 2002 American Banker, Inc. The American Banker February 14, 2002, Thursday SECTION: WASHINGTON; Pg. 3 LENGTH: 464 words HEADLINE: $17B of Trouble for Top 25 Banks BYLINE: BY BARBARA A. REHM DATELINE: WASHINGTON BODY: The 25 largest banks still have $16.6 billion, or nearly 5% of their equity capital, exposed to 2001's two biggest credit problems -- Enron Corp. and Argentina -- according to a report released Wednesday by the Federal Deposit Insurance Corp. Loans to the collapsed energy trader and the South American country made up nearly half the banks' nonperforming assets, which on Dec. 31 were $35.3 billion, or 9.69% of equity capital, the FDIC said. Of those 25 largest banks, 11 blamed Enron or Argentina for fourth-quarter hits. Net chargeoffs by the 25 were up 64% in the fourth quarter, to $3.4 billion, from a year earlier. The FDIC said 30% of the net chargeoff total could be traced to either Enron or Argentina. Asked to divide the remaining loss exposures, FDIC researcher Warren G. Heller said that both Citigroup Inc. and FleetBoston Financial Group are still exposed to $6 billion of losses in Argentina, while J.P. Morgan Chase Co. has the largest exposure to Enron, at $2.06 billion. Nonperforming assets rose 25% at the 25 banks last year. The five at which they equaled the most equity capital were Bank One Corp. (18.23% of equity capital), KeyCorp (15.07%), UnionBanCal Corp. (13.89%), Comerica Inc. (13.04%), and Citigroup (12.33%), according to the FDIC. Fourth-quarter additions to loan-loss reserves held by the 25 banks totaled $11 billion, up 32.1% from the third quarter. Provisions outstripped chargeoffs by nearly $2.2 billion, according to the FDIC, but the ratio of reserves to nonperforming assets declined to 138% from 143%. Still, the FDIC noted that the equity capital and reserves held by the 25 are more than 11 times total nonperforming assets. Moving beyond the numbers, Mr. Heller noted that adverse events often highlight areas for reform and said that Enron and Argentina may require better anticipation and monitoring of overseas exposure, as well as more rapid collection of current and forward-looking domestic banking data. Last week an American Banker story took a look at much of the same data for the 10 largest banks. It quoted the Office of the Comptroller of the Currency's credit czar, David D. Gibbons, as saying that credit quality problems tend to peak six to nine months after an economic recovery begins. In his report, Mr. Heller sees a slightly longer time horizon. A 12-to-15-month period often separates the end of a recession and peak loan writeoff activity at banks, he wrote. The FDIC report includes many other details about the 25 largest banks, which hold 62% of the industry's total assets. The results can be found on the agency's Web site at http:// www.fdic.gov/bank/analytical/fyi/fyi021302.html. Copyright c 2002 Thomson Media. All Rights Reserved. http://www.americanbanker.com LOAD-DATE: February 13, 2002 Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Re: Re: Enron and California: The Smoking Gun?
regarding VCs, my personal experience is that things are opening up a bit again, but most of late 2001 VCs shifted to investing most of their money into existing investments (second-round) with brighter prospects. i think the numbers are: ~ $70b raised by VCs 2000, $55b 2001. from CNN money: total VC investments: q1 q2 1999 $5.9b $10.1b 2000 $26.2b $24.2b 2001 $10.4b $8.2b - q1 2002, VCs are sitting on about $45b, according to a VC newsletter i received a while ago. here are some links (from google search) that might be interesting: --- VC Money Still Flows, But IT Funding Takes A Hit By Chuck Ulie, InformationWeek Dec 24, 2001 (12:00 AM) URL: http://www.informationweek.com/story/IWK20011224S0003 Despite a huge drop from the year 2000's $94.3 billion, 2001 is the third most-active year for venture-capital investment, according to numbers released last week by VentureWire, which has been tracking venture-capital investment for 15 years. Private U.S. companies raised $35.3 billion in more than 3,000 financings-less than half of the 6,420 that took place in 2000. Funding remained strong in the biotech and medical devices sectors, though money for IT fell across the board. But [2001] still shapes up as a very solid year, VentureWire editor Ken Andersen says. As recently as 1998, U.S. startups only raised $13 billion. Oliver Curme of venture-capital firm Battery Ventures did 12 investment deals this year, down from about twice that number in each of the two previous years. But Curme knows firsthand that VCs aren't keeping their cash on the sidelines. We're seeing a lot of situations where we're getting outbid, he says, because there's a lot of money out there. Information sciences companies raised the most money in 2001: $29.3 billion, down from 2000's $83.4 billion. --- http://www.businessweek.com/magazine/content/01_22/b3734081.htm Where Capital Is Still Venturing As valuations return to earth, startups get another look Total VC investing sank 43%, from $20.5 billion in the fourth quarter of 2000, to $11.7 billion in the first quarter of 2001, according to researcher Venture Economics. But when VCs do buy, it looks increasingly like startups are where they want to put their money. Although the percentage of early-stage financings remained steady at 14% over the previous two quarters, 21% of all venture dollars have gone into startups so far this quarter. Surprisingly, many investors are as enamored of the Net as ever. Of the 236 seed financings in the most recent quarter, 148 are Net-related, says a PricewaterhouseCoopers/Money-Tree survey. The vast majority of those companies, some 136, are being built around the hardware and software tools needed to help consumers and businesses make better use of the Internet. For instance, Ecount.com, a next-generation online payment system, landed $11 million earlier this year. B3, a business-to-business software maker, nabbed $15 million, and Peribit Networks Inc., which is developing technology to improve network performance, got its first funding in January. Despite all the financial woes and turmoil in the telecom sector, investors are also lining up to place bets on wireless startups. Wireless, in fact, is one of the few sectors, along with biopharmaceuticals and medical devices and equipment, in which the net dollars flowing into startup deals are going up. Total spending on wireless equipment and services ventures rose from $59.5 million in the last quarter of 2000 to $93 million in the first quarter of this year, says PricewaterhouseCoopers. Everyone is looking for the killer application in the wireless space, says Jesse Reyes of Venture Economics. --- http://www.bankrate.com/brm/news/biz/thumb/20010905a.asp (with a graph showing VC investments) Venture capitalists shift focus By John Burke . Bankrate.com® Medical, health and biotech companies are already stars in the venture capitalist sky, but they are getting brighter, according to second quarter 2001 figures. These sectors raked in 13.8 percent ($1.4 billion) of invested cash last quarter. That's a couple of billion dollars behind still-favorite technology operations, but up from 11.2 percent in the first quarter and 3.95 percent higher than a year ago. --- --ravi
Enron, OPIC, Ex-Im Dabhol
http://www.atimes.com Heat from Enron's meltdown hits credit agencies By Danielle Knight WASHINGTON - The scandal and crisis surrounding the collapse of energy giant Enron Corp have reached the doors of US government agencies that finance and facilitate private projects in developing countries. One of the biggest controversies involves the Dabhol power plant in India's Maharashtra state. Environmental and human-rights organizations say the Enron debacle highlights the need for closer supervision at the Overseas Private Investment Corp (OPIC) and the US Export-Import Bank (Ex-Im). Together, these agencies have provided or insured US$2.3 billion worth of financing for about a dozen Enron projects in Asia and Latin America, says Aaron Goldzimer, a social scientist with the Washington-based Environmental Defense, a national environmental group. At least a few of these ventures, activists argue, have been environmentally destructive and associated with human-rights abuses and never should have received Washington's financial support in the first place. Not only employees and stockholders have been swindled by the Houston-based company's shady schemes, says Goldzimer. The taxpayers have been joint investors in boondoggles that profited Enron but harmed the environment and local communities, he says. Compared with other export-credit lending agencies in Japan and Europe, OPIC and Ex-Im are bound by environmental and social guidelines - including mandatory environmental assessments of proposed projects. But advocacy groups say that these standards have not been properly followed and government agencies still finance harmful business enterprises, including some of those owned by Enron. One controversial Enron project backed by the US government is the $2.8 billion gas-fired Dabhol power plant - described as the largest single foreign investment in India - that is designed to generate 2,015 megawatts of electricity. Enron was the majority owner of the project, a joint venture including General Electric, Bechtel, and the Maharashtra state government. The Dabhol plant received $640 million in financial support from OPIC and Ex-Im in the mid-1990s, including a $300 million Ex-Im loan and a total of $340 million in loans and political risk insurance from OPIC. In 1999, Human Rights Watch (HRW), a New York-based advocacy group, charged Enron subsidiaries of paying local law enforcement to suppress local opposition to the power plant. Enron is now being widely accused of arrogance and lack of transparency, but the people of Dabhol have known that all along, says Arvind Ganesan, director of the business and human-rights program at HRW. Enron, she says, has been complicit in human-rights abuses in India since 1992, when local opposition ignited over concerns about corruption and the hasty negotiations over the terms of Enron's investment. Farmers complained that the power plant had unfairly acquired their land and had diverted scarce water resources. The rights group documented how contractors for the power plant harassed and attacked individuals opposed to the project. Police refused to investigate complaints, according to the report, and in several cases actually arrested the victims on false charges. In one instance in June 1997, Maharashtra police arbitrarily beat and arrested dozens of villagers who strongly opposed the project, which is now up for sale to other investors. The US government bears special responsibility for the human-rights consequences of Enron's investment because of its aggressive lobbying on behalf of the three US-based companies developing the project, says Ganesan. Human-rights abuses aside, the project never should have been approved by OPIC and Ex-Im for purely financial reasons, say activists. The World Bank repeatedly refused to finance the project because it was not considered economically viable and its terms were seen as only beneficial to Enron. For several years, relations between Enron and the Maharashtra government have been at a rolling boil over the high cost of electricity generated by the plant. The state eventually canceled its original plan to purchase power from the plant. OPIC officials confirm that since Enron's bankruptcy, the company has filed a $180 million claim with OPIC in an attempt to recoup financial losses from the venture, arguing that the state government's decision amounts to expropriation. In another example, OPIC in 1999 approved $200 million worth of political-risk insurance for the Cuiaba gas pipeline, a joint venture between Enron and Shell Oil that aims to transport gas through eastern Bolivia to a power plant in Cuiaba, Brazil. Conservation groups, including the World Wildlife Fund and US-based Amazon Watch, strongly oppose the project. They say OPIC's backing of the project violates the agency's rules, developed during the administration of former US president Bill Clinton, that ban the funding
Re: Enron, OPIC, Ex-Im Dabhol
Ian posted the article below about OPIC and Enron. But note: Enron isn't the only company using OPIC (and the US military) to do its dirty work. Mission Energy, a subsidiary of Edison International, a new holding company arisen out of the electric utility, Southern California Edison, foisted an outrageous contract on Indonesia. This is a huge coal-fired plant from which Suharto's government agreed to buy kilowatt-hours at very, very high prices. Prices that are in dollars and were very, very high BEFORE the Indonesian currency meltdown. Much higher now. Higher prices in Indonesia than are charged in the US and which people earning Indonesian wages in Indonesian currency cannot possibly pay. Mission/Edison International happens to have an ex-US Secretary of State, Warren Christopher, on its Board of Directors and on the job of forcing a settlement by the Indonesian government. OPIC loaned on this plant, which has General Electric as part owner. General Electric is also part owner of the Enron plant at Dabhol, India Mission/Edison International secured the contract by making an Indonesian with family ties to Suharto a partner in the project. He got 15% ownership without putting in any money. His investment would come out of the future profits. Suharto's family also got the coal supply contract at what appears to be a sweetheart price. OPIC has financed dozens of power plants, gas and coal, around the world for US sponsors. Sometimes with loans or loan guarentees and other times by financially insuring the project. Of course when the deals sour or get shakey, the US govenment then moves in with threats or financial squeezes from other agencies to force complaince on countries that really shouldn't honor these one-sided deals. And/or uses it ties to the military in the other countries to reinforce or create a regime that will comply. Gene Coyle an Murray wrote: http://www.atimes.com Heat from Enron's meltdown hits credit agencies By Danielle Knight WASHINGTON - The scandal and crisis surrounding the collapse of energy giant Enron Corp have reached the doors of US government agencies that finance and facilitate private projects in developing countries. One of the biggest controversies involves the Dabhol power plant in India's Maharashtra state. Environmental and human-rights organizations say the Enron debacle highlights the need for closer supervision at the Overseas Private Investment Corp (OPIC) and the US Export-Import Bank (Ex-Im). Together, these agencies have provided or insured US$2.3 billion worth of financing for about a dozen Enron projects in Asia and Latin America, says Aaron Goldzimer, a social scientist with the Washington-based Environmental Defense, a national environmental group. At least a few of these ventures, activists argue, have been environmentally destructive and associated with human-rights abuses and never should have received Washington's financial support in the first place. Not only employees and stockholders have been swindled by the Houston-based company's shady schemes, says Goldzimer. The taxpayers have been joint investors in boondoggles that profited Enron but harmed the environment and local communities, he says. Compared with other export-credit lending agencies in Japan and Europe, OPIC and Ex-Im are bound by environmental and social guidelines - including mandatory environmental assessments of proposed projects. But advocacy groups say that these standards have not been properly followed and government agencies still finance harmful business enterprises, including some of those owned by Enron. One controversial Enron project backed by the US government is the $2.8 billion gas-fired Dabhol power plant - described as the largest single foreign investment in India - that is designed to generate 2,015 megawatts of electricity. Enron was the majority owner of the project, a joint venture including General Electric, Bechtel, and the Maharashtra state government. The Dabhol plant received $640 million in financial support from OPIC and Ex-Im in the mid-1990s, including a $300 million Ex-Im loan and a total of $340 million in loans and political risk insurance from OPIC. In 1999, Human Rights Watch (HRW), a New York-based advocacy group, charged Enron subsidiaries of paying local law enforcement to suppress local opposition to the power plant. Enron is now being widely accused of arrogance and lack of transparency, but the people of Dabhol have known that all along, says Arvind Ganesan, director of the business and human-rights program at HRW. Enron, she says, has been complicit in human-rights abuses in India since 1992, when local opposition ignited over concerns about corruption and the hasty negotiations over the terms of Enron's investment. Farmers complained that the power plant had unfairly acquired their land and had diverted scarce
Enron Creditors
Remember that the creditors do not necessarily want their principal back if there is a way to generate cash flow sufficient to meet interest payments. Of course, if the company is really going down the drain then a reorganization becomes necessary and creditors may be forced to accept new lower yield securities in order to avoid liquidation altogether. So the short answer is that the money UBS pays to Enron (if the trading operation generates sufficient returns) will be used to continue to pay creditors. Of course, while in bankruptcy there are various ways to delay paying out cash to creditors, but only if management gets the approval of the court and that really means in essence approval of the creditors. Keep in mind that Enron is now run by a new CEO (a restructuring expert who is out to please the creditors) and a new Board chairman who are, in effect, agents of the creditors not shareholders now. In 8 out of 10 public company bankruptcies, common shareholders never get their money back, but creditors can often do much better. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Enron and California: The Smoking Gun?
This crucial story in the LA Times explains the link between the California energy crisis and the collapse of Enron. As the excerpt below indicates, Enron needed huge amounts of cash to act as a market maker in energy futures. The company then assumed that its early profit margins in this segment of their business would continue into the future and by marking to market they recorded as present day revenue those expected future returns. http://www.latimes.com/business/la-10818feb12.story?coll=la%2Dheadlines% 2Dbusiness The only reason the contracts were worthwhile was that mark-to-market, he said. You were able to take today 10 years' worth of minimal profit. But once you're into it, if your curves aren't as good as what you hoped for, your revenue line deteriorates. You lose money. And lose money EES did. Unforeseen problems with California deregulation threw off the models that predicted profits for the California book of retail customers. The exact amount is unclear, but Dickson said, We had a couple hundred million dollars of position that EES had taken for that regulatory risk, where we predicted one thing and now it was different. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Re: Enron and California: The Smoking Gun?
Steven, thank you for your many illuminating posts. This marking to market seems similar to the false revenue recognition by software firms which were seem to have thumbing their noses at SEC standards which differ for software and hardware firms. Aren't there a whole bunch of lawsuits against software start ups down there in the Valley for false revenue recognition? I would imagine that in these cases those with common shares will be left out in the cold; even those with preferred shares are getting pennies on the dollar, no? At at a time that profitability is already threatened and capital is being dissipated in military and police expenditures, it seems that the US economy can ill afford extraordinary legal expenses. I know VC firms are sitting on a $100bn or so, but I wouldn't think they'd like to see it go to covering enormous legal costs of their start ups. But hell what else are they going to do with it--create another NASDAQ bubble though led this time by biotech and medical equipment firms? rb
Re: Enron and California: The Smoking Gun?
Rakesh wrote: I know VC firms are sitting on a $100bn or so, but I wouldn't think they'd like to see it go to covering enormous legal costs of their start ups. But hell what else are they going to do with it--create another NASDAQ bubble though led this time by biotech and medical equipment firms? I had a conversation with a Silicon Valley VC a few months ago and as far as I recall his estimate was below $100 Rakesh but although I don't remember the exact amount, it was huge. This person, whose title according to his business card was Mentor-Investor, didn't have a clue about what to do next with all the money he had. I am quite curious about what they will do with that money as well. There is lots of money out there waiting to be invested in somewhere. Sabri
RE: Enron question
almost certainly yes. My screen tells me that they won out over Citigroup in a hotly contested auction, so presumably some payment will be forthcoming to the bankruptcy trustees. NB that what they've bought is the trading platform ie the computers, and probably first dibs on some key staff. They didn't take over any of Enron's old positions. dd -Original Message- From: Michael Perelman [mailto:[EMAIL PROTECTED]] Sent: 12 February 2002 01:03 To: [EMAIL PROTECTED] Subject: [PEN-L:22723] Enron question Can anybody explain how Enron was able to give its trading operation to UBS Warburg for a share of its profits? Did the creditors have to agree? -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED] ___ Email Disclaimer This communication is for the attention of the named recipient only and should not be passed on to any other person. Information relating to any company or security, is for information purposes only and should not be interpreted as a solicitation or offer to buy or sell any security. The information on which this communication is based has been obtained from sources we believe to be reliable, but we do not guarantee its accuracy or completeness. All expressions of opinion are subject to change without notice. All e-mail messages, and associated attachments, are subject to interception and monitoring for lawful business purposes. ___
Ken Dam hassles India about Enron
http://www.atimes.com Trashed at home, Enron takes it out on India By Praful Bidwai NEW DELHI - As the Enron scandal sends wave after shock wave through the US political system, the international repercussions of history's most spectacular case of corporate bankruptcy are just surfacing. Enron has become an abusive transitive verb in the United States, where some 15 committees are investigating the sleazy political connections and the energy deregulation policies that allowed the New Economy company to stage a meteoric rise. Many of the 250-plus senators and congressmen (half the total) who received Enron's donations are returning them to save themselves from further opprobrium. But in the Third World, Enron faces very little opprobrium, nor shows any embarrassment. In India, where it has the largest direct investment in an overseas industrial project, the corporation continues to make bullying and threatening moves. It is trying to drag the government of India's Maharashtra state into international arbitration over the termination of a power purchase contract signed with its subsidiary, Dabhol Power Co, rather than submit itself to Indian jurisdiction. The controversial contract for extremely expensive electricity was suspended six months ago by the Maharashtra power board, which nearly went bankrupt itself as a result of high power prices. As reported earlier, the deal was reached through shadowy, secret negotiations, and in violation of the Electricity Supply Act. Enron is also getting Washington to plead its case. Deputy Treasury Secretary Kenneth Dam, who is visiting India, has told New Delhi to resolve the Enron issue speedily and speed up economic reforms. On January 28, Ambassador Robert Blackwill made a forceful intervention at an industry meeting, saying that all foreign investment into India hinges upon a favorable resolution of the Dabhol company dispute, which feeds a chronic perception among the overseas investing community that India may not be ready yet for big-time international investment. Blackwill demanded adherence to the sanctity of contract, doubts about which can spell death to potential investors. This statement left many industrialists angry and inspired Blackwill's redescription as the Viceroy, the British crown's all-powerful representative in India during the colonial period who towered over domestic subjects. Blackwill may only be voicing the views of the Republican administration. After all, US Energy Secretary Spencer Abraham defends energy deregulation in spite of Enron's collapse and the bankruptcy of PGE, the United States' largest power distribution company. In a January 14 Washington Post article he claimed, Deregulation is working. Blackwill's remarks were indicative of US support for Enron's effort to get as much as US$2.3 billion for its 65 percent stake in Dabhol Power Co. Market analysts evaluate it at less than half that figure. Successive US administrations have heavily lobbied on Enron's behalf. Vice President Dick Cheney, himself a former energy-company boss, has been in the forefront here. This policy is rationalized by the White House. Its spokesman Ari Fleischer recently said: It's not uncommon for [companies] to have exposures, which do require contacts between American officials and government officials in other countries. In 1995, president Bill Clinton sent an official memorandum to the White House chief of staff helping Enron clinch the Dabhol deal, which was then being resisted by the New Delhi government. The US energy secretary had publicly warned India: Failure to honor the agreements between the project partners and the various Indian governments will jeopardize not only the Dabhol project but also most, if not all, of the other private power projects proposed for international financing. The threat worked. More recently, said The Washington Post, the US National Security Council reduced itself to a concierge service between Enron's Kenneth Lay and India's National Security Adviser Brajesh Mishra. Normally, these disclosures would have sparked a sharp political riposte in India, especially from opposition parties such as Sonia Gandhi's Congress. But their response has been supine. This is so in part because Cheney had spoken to Gandhi and Manmohan Singh during their US visit in June. However, pressure to liquidate or nationalize the Dabhol Power Co is likely to build up in India as the Enron investigation proceeds apace in the United States. There are three general, and three specific, lessons in the Enron story for the developing countries. First, it is absolutely vital to fight off hegemonic pressures on behalf of multinational corporations. Without such pressure, the highly unequal contract between Dabhol Power and the Maharashtra government would not have been signed in 1995. The central government of India would not have given sovereign guarantees to the project. The various Indian agencies could have resisted
After Enron, debt stalks corporate world seeking new victims
Hindustantimes.com February 05, 2002 After Enron, debt stalks corporate world seeking new victims AFP London , 04-02-2002 To be or not to be? Debt is the question. For many corporate giants wondering if they will survive the downturn or go the way of US energy titan Enron, debt is emerging as the be-all-and-end-all, a little word--but a big problem on the balance sheet. From telecoms giants such as France Telecom, to troubled airlines such as BA, from equipment outfits like NTL and Marconi, to other more staid, venerable concerns like chemicals group ICI, intimidating debt levels have already spooked investors and savaged share prices. Economists note that this is not unusual for this period in the economic cycle: a long boom encouraged companies seduced by fat returns to borrow heavily, but then a sharp turnaround and wretched market conditions have weakened prospects and exposed critical debt levels. The fear is that the debt issue could ripple through the financial system, causing a major headache for the banks and bondholders sitting on the loans, and turning investors jittery once more. We have seen the headline cases coming through, and there will be lots of ones beneath that, 7im fund manager director, Justin Urquhart-Stewart said. What you are going to see now is that all of those who can't justify their current debt position coming out and saying 'that's it--we can't carry on like this', he told AFP. Some have already admitted as much. Cable group NTL last week launched talks with bankers to restructure its imposing $17 billion (19-billion-euro) debt mountain. Equipment group Marconi and Energis have also had to work at keeper their bankers sweet, as debt levels tower above their market capitalisation. The problem has been aggravated by the failure of Enron, the US energy giant which collapsed last year, much to the embarrassment of analysts who had failed to point out the black hole at the heart of its finances. Because of this, ratings agencies such as Moody's and Standard and Poor's are expected to take a tough approach towards debt-laden companies. And a ratings downgrade can cost a debt-laden company tens of millions of dollars annually in higher interest charges--compounding the debt problem. France Telecom, which at last count was nursing debts of some 65 billion euros drummed up during the heady quest for third-generation mobile assets, is already counting the cost. Its rating outlook was notched downward on Friday and its share price has slumped. This has reminded people that their debt is a problem, said a Paris-based equities broker. And if Moody's has done this to France Telecom, which is backed by the French government, then they might have to look at Deutsche Telekom, BT and all the telecom groups. Deutsche Telekom is grappling with a similar debt mountain, but BT has managed to massage its borrowing down to a more manageable 16.5 billion pounds thanks to an exercise that others may well resort to: a rights issue. This method of drumming up cash from existing shareholders in return for new stock is rarely popular, but can help a company pay down unacceptable debt levels. ICI became the latest to go down this route, when it announced a cash call to raise 800 million pounds. The market's response? A 22 per cent slump in share price last week. There are plenty of other companies out there itching to announce rights issues and waiting for the first one to gauge the response, said Neil Bennett of the Sunday Telegraph. Now they have seen how ICI has been torn to shreds, they may wait longer. The fund managers are going to have a great many calls on their cash, he wrote. Some of the supplicants in the queue will be disappointed. This could leave some indebted companies with few options to pay their way: profits are under pressure during a time of economic downturn and growth in many sectors is unrealistic because of a glut of capacity and weak demand. You are going through a period of natural selection and we are seeing various types of beasts fall away because they can't survive, said Urquhart-Stewart, adding as a crumb of comfort: This is better news for those that are left, those that have been able to adapt to the new circumstances. If you've got cash and a good 'story' and can manage your debt, you'll be all right. Send your feedback at [EMAIL PROTECTED] ©Hindustan Times Ltd. 1997. Reproduction in any form is prohibited without prior permission. For reprinting rights, please write to us
Re: Enron SPV's (Doug's theory)
Re: Enron SPV's (Doug's theory) by Doug Henwood 04 February 2002 20:02 UTC Yeah, it looks like the rentiers were screwed - at least some of them, those that didn't get to play with the SPVs. But now they're pissed, and there's going to be a big fight to reassert their power. They're also going to have to rethink the use of stock options as a mechanism for aligning management board interests with those of stockholders. Who wants to be too sharp-eyed when the stock is rising 60% a year? There's a positive disincentive to be responsible. Doug ^^^ CB: Isn't the reason this won't go away from the NYT headlines that it was rich people that got ripped off ? Same reason that Taubman got convicted of price fixing: he was stealing from people with money. The best result from a political legal standpoint would be if it was found that Enron and Arthur Anderson did absolutely nothing illegal. This would best demonstrate the inherent corrupt nature of the wallstreet system, expose the charade of business ethics. Getting rich by any means necessary is the name of the game. What's wrong with what Enron execs did ?
Enron SPV's (Doug's theory)
Front page story in today's WSJ is pretty darn lucid. Doug, in Wall Street, you chart the shifting relations between rentiers and corporate insiders. Does this Enron case indicate that the relations have shifted again? An anomalous case? It seems that the rentiers have been juked for the sake of a narrow band of insiders? I need to re-read Wall Street. Rakesh
Re: Enron SPV's (Doug's theory)
Rakesh Bhandari wrote: Front page story in today's WSJ is pretty darn lucid. Doug, in Wall Street, you chart the shifting relations between rentiers and corporate insiders. Does this Enron case indicate that the relations have shifted again? An anomalous case? It seems that the rentiers have been juked for the sake of a narrow band of insiders? I need to re-read Wall Street. And I need to update it! Yeah, it looks like the rentiers were screwed - at least some of them, those that didn't get to play with the SPVs. But now they're pissed, and there's going to be a big fight to reassert their power. They're also going to have to rethink the use of stock options as a mechanism for aligning management board interests with those of stockholders. Who wants to be too sharp-eyed when the stock is rising 60% a year? There's a positive disincentive to be responsible. Doug
Enron and Economic Recovery
Enron and Economic Recovery by Michael Perelman 04 February 2002 00:34 UTC CB: Whatever happened to Dave our conservative bankruptcy attorney ? He could tell us a thing or two now. Humorous story from the Wall Street Journal Chaker, Anne Marie et al. 2002. Enron Debacle Means Extra Work for Companies and Professionals. Wall Street Journal (31 January): p. B 1. Estimated number of attorneys at Weil, Gotshal Manges working on behalf of Enron in its bankruptcy case: 50, each billing anywhere from $200 to $700 an hour. Estimated number of attorneys at Davis Polk Wardwell representing Arthur Andersen in Enron-related matters: more than 40. Additional office space leased in Pennzoil Place, Andersen's Houston headquarters, to accommodate Davis Polk lawyers: one entire floor. Groups of ex-Enron employees leasing space from Front Office Business Centers in Houston to start new companies: three. Technicians working to recover deleted Enron computer files at Electronic Evidence Discovery Inc. in Seattle: 40, at a cost of $150 an hour each.
Enron De-Shredding Technology
ROBERT X. CRINGELY(R): Notes from the Field InfoWorld.com Monday, February 4, 2002 BACKUP TAKES CENTER STAGE Posted February 1, 2002 01:01 PM Pacific Time IF THAT TRAFFIC doesn't get better you're going snowboarding by yourself, Amber warned after our long haul back from Lake Tahoe last week. Amber has taught this old dog some new tricks on the snowboard, and I'll hit the slopes on my own if that's what it takes. Speaking of transport, one of my spies has given me inside info on this whole Enron scandal. Andersen has been working with ADIC (Advanced Digital Information Corp.), Enron, the Securities and Exchange Commission, and lawyers to recover lost electronic documents. Andersen has a backup strategy that includes a byte-level differential backup of all employee laptops into a data vault whenever they touch the network. This corporate e-mail and memo police department is mysteriously called DREAD. So Andersen can be expected to fully disclose, even if Enron employees are handy with the delete key. Meanwhile, Andersen people still have a sense of humor. The company needed to ship one of the ADIC units off-site for data restoration and packing materials were short. The Andersen guy suggested there should be plenty of shredded paper around to do the job. The lawyers in the room didn't find that as funny as I do. -- Michael Perelman Economics Department California State University [EMAIL PROTECTED] Chico, CA 95929 530-898-5321 fax 530-898-5901
Re: Take the Money Enron.
Rakesh: Another question is who the creditor is. The creditors could be US in origin operating out of offshore accounts for purposes of tax advantage. But I don't believe the Fed's Flow of Data allows one track creditors working through offshore accounts back to their nations of origin. Karl: So what if they can or cannot. It is not an issue for the working class. It may be an issue for the bourgeoisie. But surely you aim is not to assist them in solving what may be their problems. Regards Karl Carlile (Communist Global Group) Be free to join our communism mailing list at http://homepage.eircom.net/~kampf/
Re: Enron SPV's and debt
Stephen: iv) Enron books the $100 mn as revenue today tho it may have made various promises to the bank and to future investors in the SPV to make them whole for losses (through warrants or issuance of additional ENE stock, again without full disclosure to current public shareholders). v) the SPV packages the asset into a security and sells it to large institutions or wealthy individuals as some kind of debt instrument typically, promising a return linked to the asset's future cash flows. This is done in a private placement, thus not registered with the SEC. I do not know FOF data records private placements of securities. The list of private investors in the various SPV's is only partially known. Pension funds, endowments, foundations, trust funds, are typical purchasers. Karl: This kind of stuff above is entirely designed to have a specific political effect --a bourgeois effect. Instead of analysing the Enron case to understand and highlight the way in which imperialist capital functions in its exploitation and oppression of the working Stephen tries to compete with bourgeois economic and financial commentators in spinning a story about Enron. What Enron did and did not do is, in a sense, is neither here nor there if it is not underlined by clearly defined politics based in the class interests of the working class.This is why the subscriber who suggested that value relations is the level from which wages and price must be understood. Enron must be understood from that same critical basis. Regards Karl Carlile (Communist Global Group) Be free to join our communism mailing list at http://homepage.eircom.net/~kampf/
Enron and Economic Recovery
Humorous story from the Wall Street Journal Chaker, Anne Marie et al. 2002. Enron Debacle Means Extra Work for Companies and Professionals. Wall Street Journal (31 January): p. B 1. Estimated number of attorneys at Weil, Gotshal Manges working on behalf of Enron in its bankruptcy case: 50, each billing anywhere from $200 to $700 an hour. Estimated number of attorneys at Davis Polk Wardwell representing Arthur Andersen in Enron-related matters: more than 40. Additional office space leased in Pennzoil Place, Andersen's Houston headquarters, to accommodate Davis Polk lawyers: one entire floor. Groups of ex-Enron employees leasing space from Front Office Business Centers in Houston to start new companies: three. Technicians working to recover deleted Enron computer files at Electronic Evidence Discovery Inc. in Seattle: 40, at a cost of $150 an hour each. Congressional committees and subcommittees involved in Enron investigations, at last count: 12. Investigators at Securities and Exchange Commission scrutinizing Enron: at least six. Estimated number of Houston law firms pursuing cases on behalf of unsecured Enron creditors: 20. Increase in staff at Houston office of Bernard Haldane Associates, which helps job-seekers brush up interviewing skills, to handle influx of jilted Enron workers: 25%. Value of Enron memorabilia sold on eBay since Jan. 20 (estimate as of 3 p.m. EST Tuesday): $114,923.61. EBay's estimated commission on those sales: $8,044.65. Size of crisis-management team assembled for Arthur Andersen by Chlopak, Leonard, Schechter Associates, Washington, D.C.: eight, including two partners, at estimated cost of $80,000 a month. Full-page advertisements for Andersen CEO Joseph Berardino to say we will not tolerate any unethical behavior : $600,000. Cost of damage-control services for Enron from PR firm Brunswick Group: $400,000 a month. Media inquiries handled by Brunswick daily: 275 to 400. Amount advanced so far by publishers for books on Enron debacle: $650,000. Estimated out-of-pocket expenses for a law firm to pursue a major class-action suit similar to shareholder complaints against Enron: $3 million to $5 million. Major law firms jockeying to become counsel to lead plaintiff in shareholder class-action suit: at least three. Rooms rented by CNN at Hyatt Regency Houston for crews descending on Enron earlier this month: six. Increase in viewership at CNBC in key 25-to-54-year-old group this month: 20%. Percentage of 5 p.m. newscast at Houston NBC affiliate KPRC typically devoted to Enron coverage: 45%. Stories mentioning Enron in top 50 U.S. newspapers since Oct. 1: 8,456. Wait -- make that 8,457. -- Michael Perelman Economics Department California State University [EMAIL PROTECTED] Chico, CA 95929 530-898-5321 fax 530-898-5901
For Fred M. on the Enron SPV's
Fred, The private placements are debt instruments (or variations on what is near equity-like deeply subordinated debt), backed by the collateral of the asset sold to the SPV by the parent. Often, the parent may continue to hold on to some risk associated with the SPV. And the SPV's equity (i.e. voting control) is held by the SPV. Without access to the private placement memorandum for a particular deal (in possession of the purchasers, like the MacArthur Foundation and various pension funds), one cannot tell the answer in this particular case. In most cases, the accounting reality attempts to track the underlying economic reality - i.e. is the SPV really no longer a risk to the parent. But that clearly did not happen in the core transactions at ENE. Today's release of the Powers report should be useful in assessing this. There is no way to know, however, at this point about the structure of the entire 3,000 entities. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Re: Take the Money Enron.
Hi Steven, Thank you very much for your very interesting Take the Money Enron ... I was especially interested in the following paragraph: Unfortunately, hundreds of companies now rely on this explosive combination of private placements and off balance sheet entities. The last decade has seen the American economy create a massive amount of new paper financial obligations using these structures that cannot possibly be supported by the productive base of the economy. In fact, little attention is being paid to what is happening in this real economy, made up of steel mills, auto assembly plants, health care services, and our physical infrastructure, which turn out the products and services that a society truly needs to eventually pay off all of these fictitious claims to society' s wealth. I have a data question for you: The main source of data on debt of non-financial corporations (NFCB) is the Fed's Flow of Funds accounts. It seems to me that most of the off balance sheet debt created in the 1990s would NOT be counted in the Fed's data for the NFCB sector, since the borrower in most of these cases is a financial partner of a NF corporation. At most, it would be counted in the Financial sector, whose debt increased roughly twice as fast as the NFCB sector in the 1990s. Or, in the most hidden (off-shore) cases, it might not be counted by the Fed at all. If this is correct, then the Fed's data underestimates the current debt obligations of the NFCB sector. I wonder how significant this underestimation might be? Steven (and others) what do you know about this? Thanks very much. Fred Moseley
Re: Re: Take the Money Enron.
Hi Steven, Thank you very much for your very interesting Take the Money Enron ... I was especially interested in the following paragraph: Unfortunately, hundreds of companies now rely on this explosive combination of private placements and off balance sheet entities. The last decade has seen the American economy create a massive amount of new paper financial obligations using these structures that cannot possibly be supported by the productive base of the economy. In fact, little attention is being paid to what is happening in this real economy, made up of steel mills, auto assembly plants, health care services, and our physical infrastructure, which turn out the products and services that a society truly needs to eventually pay off all of these fictitious claims to society' s wealth. I have a data question for you: The main source of data on debt of non-financial corporations (NFCB) is the Fed's Flow of Funds accounts. It seems to me that most of the off balance sheet debt created in the 1990s would NOT be counted in the Fed's data for the NFCB sector, since the borrower in most of these cases is a financial partner of a NF corporation. At most, it would be counted in the Financial sector, whose debt increased roughly twice as fast as the NFCB sector in the 1990s. Or, in the most hidden (off-shore) cases, it might not be counted by the Fed at all. If this is correct, then the Fed's data underestimates the current debt obligations of the NFCB sector. I wonder how significant this underestimation might be? Steven (and others) what do you know about this? Another question is who the creditor is. The creditors could be US in origin operating out of offshore accounts for purposes of tax advantage. But I don't believe the Fed's Flow of Data allows one track creditors working through offshore accounts back to their nations of origin. But a loss of foreign confidence may not be as great a threat if one remembers that the owners of this debt are not necessarily foreign nationals. rb
Re: Fictitious Capital and Enron
Thanks, Steve. The testimony was the clearest explanation of the Enron fiasco I have seen. Testimony of Frank Partnoy, Professor of Law, University of San Diego School of Law, Hearings before the United States Senate Committee on Governmental Affairs, January 24, 2002 According to Enron's most recent annual report, the firm made more money trading derivatives in the year 2000 alone than Long-Term Capital Management made in its entire history. Long-Term Capital Management generated losses of a few billion dollars; by contrast, Enron not only wiped out $70 billion of shareholder value, but also defaulted on tens of billions of dollars of debts. Long-Term Capital Management employed only 200 people worldwide, many of whom simply started a new hedge fund after the bailout, while Enron employed 20,000 people, more than 4,000 of whom have been fired, and many more of whom lost their life savings as Enron's stock plummeted last fall. Recent estimates of the size of the exchange-traded derivatives market, which includes all contracts traded on the major options and futures exchanges, are in the range of $13 to $14 trillion in notional amount. By contrast, the estimated notional amount of outstanding [unregulated over the counter] OTC derivatives as of year-end 2000 was $95.2 trillion. And that estimate most likely is an understatement. After 360 customers lost $11.4 billion on derivatives during the decade ending in March 1997, the Commodity Futures Trading Commission began considering whether to regulate OTC derivatives. But its proposals were rejected, and in December 2000 Congress made the deregulated status of derivatives clear when it passed the Commodity Futures Modernization Act. -- Michael Perelman Economics Department California State University [EMAIL PROTECTED] Chico, CA 95929 530-898-5321 fax 530-898-5901
