IP: Enron for Dummies

[David Farber <dave () farber net>]

http://www.nytimes.com/2002/01/26/opinion/26KELL.html

Abstract by Copernic

Enron used Wall Street magic to transform energy supplies into financial 
instruments that could be traded online like stocks and bonds.

The company did stupid and venal things, but introducing the laws of supply 
and demand into the energy system was smart business and is, by and large, 
good for customers.

To keep its mystique alive and its stock price growing, it set up 
partnerships where it could bury its losses, or generate imaginary revenues.

Here's one of the more audacious examples, pieced together by The Wall 
Street Journal: Enron invested a bunch of money in a joint venture with 
Blockbuster to rent out movies online.

Various prosecutors are undoubtedly reviewing the statutes on accounting 
fraud, insider trading and illegal destruction of documents, among other 
crimes.

These were invincible innovators, who sneered at rules.

Accountants who tried to impose the traditional discipline of the balance 
sheet were dismissed as "bean-counters," stuck in the old metrics.

Wall Street looked to new metrics, new ways of measuring the intangible 
genius of innovation, and the most important metrics were the daily 
flickers of your stock price.

Above all, everyone was looking for the killer app.

In the new- economy best seller "Unleashing the Killer App," the first 
example is a guy who realizes that gas stations in Germany are exempt from 
the country's rigid early-closing laws for most stores.

If you're asking whether the Bush administration did favors for Enron, sure 
it did --- and so, by the way, did the Clinton administration, and both 
parties in Congress.

Attention has focused on a number of fascinating loopholes lawmakers and 
regulators secretly customized for Enron.

But --- and here's another Enron Lesson --- most of what Washington 
contributed to the glory of Enron it did in plain sight.

Politicians demonized government regulation, and methodically dismantled 
the safeguards set up in previous downturns to protect little investors.

More important, a central tenet of capitalism is that people who run 
companies are subject to the discipline of the marketplace, as meted out by 
the shareholders.

In the end, with any luck, Congress will stop some of the money sloshing 
around the political system, and restore a bit of law and order to the wild 
frontier.

My wise friend Floyd Norris says there's a basic law of the market: When 
you get rich, it's because you're smart.

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