Why Enron Went Bust

Fortune ^ | 12/21/01 | Bethany McLean

[masadaman]

Balance sheet auditing properly done focuses on the cash generating ability of so-called assets and the likelihood of unrecorded liabilities. Big Blue's systems controls are effective at yielding numbers accurately and rapidly, but to date have not produced answers to questions such as "Should this asset be written off?

Take Enron, "partnership investments" apparently were not marked to market. Potential liabilities, guarantees, and security interests apparently were not considered as a part of that evaluation process even if it took place. Computers cannot not yet take on such questions. Computers cannot yet also cope with the issues of disclosure, aggregation and comparability.

The jabbering nonsense about complexities among the analysts, employees and the media re Enron turns my stomach. There has been accounting theory and practice for reporting on trading, trading futures,unrecognized gains and losses, unrecorded liabilities,etc. since caravans plied the Orient. Pacioli said as much and he is the father of modern accounting.

Further just within the United States, there are 20 or more commodities, options and futures regulatory boards dealing with such matters. Investment banks, commercial banks of size, mortgage banks, currency traders, commodities dealers and traders of precious metals, foodstuffs, oil,cotton, timber even TV time deal with such variables every day and the accounting methods are usually very reliable.

[independentmind]

Does someone pay you to post your garbage?

[elfman2]

"Long but excellent read."

Too long for me. Lot's a fluff. Strange, that's what the author criticizes Enron's books for.

After 8 paragraphs, I don't know anything more than before. I'll wait for a version that gets to the point.

[_Jim]

Go find someone else to bully.

What's your *real* problem this morning im?

(If you can't take the heat on FR there is alway DU for you more timid, looking for strong-group-emotional-support types ...)

[_Jim]

Does someone pay you to post your garbage?

This borders on something that can 'get you banned'.

From: http://www.freeRepublic.com/forum/a3af9e1165cec.htm

"Personal attacks, petty (and not so petty) bickering, flame wars, feuding, etc.

There's been a lot of it lately. My abuse report runneth over. I don't like it. It tears us apart and makes Free Republic look petty and vindictive, discrediting us and driving away our readers. That's why you see my reminder right there in bold letters on the posting form every time you post: "NO personal attacks!"

[independentmind]

I really don't have a problem, _Jim. Do you?

[independentmind]

Wow, I guess I should be honored to be receiving so much of your attention. What exactly about this subject makes you so uncomfortable, _Jim?

Do you realize that you are serving my purpose by continuing to bump this thread?

[_Jim]

Thanks for your reply.

I was with a firm that was in competition with Enron in a niche market a few years back. It was at that point that Energy Deregulation was taking place and Enron had bought many full-page ads touting their 'service offerings' and capabilities

I hadn't given Enron a second thought since leaving that field - until this year when thwy began experiencing financial dificulty ...

[paul51]

The bigger they are, the harder they fall. In the end, a lot of people have been fleeced and those responsible (the key executives) will escape rich and unscathed. The attorneys are going to have a field day with this one.

[Eric in the Ozarks]

I worked 16 years for a good sized oil company and we always wanted to match Enron's earnings, but never could.

[Allegra]

I wonder what the baseball stadium will be called now?

[VOA]

Which leads to a basic question: Why were so many people willing to believe in something
that so few actually understood?

Greed. And gullibility.

[Iwo Jima]

"It is one of the "seven deadly sins," after all. Don't ask me to name all seven.

If I remember correctly, they are (in no particular order): pride, avarice, gluttony, sloth, lust, envy, and malice.

[Issaquahking]

Makes a person wonder when a company's theme (song) in their ads is"Why"? Glad I never bought (stock) because I couldn't get a good gut feeling on this company's fundamentals!

[independentmind]

The jabbering nonsense about complexities among the analysts, employees and the media re Enron turns my stomach. There has been accounting theory and practice for reporting on trading, trading futures,unrecognized gains and losses, unrecorded liabilities,etc. since caravans plied the Orient. Pacioli said as much and he is the father of modern accounting.

I may be wrong about this but I think the issues regarding a lot of the partnership investments was one of control--and that can be fairly complex to ascertain at times. Some of the so-called investment partnerships should have been consolidated, which would have resulted in the elimination of certain earnings. To my mind, that is not a "mark-to-market" issue.

[Osinski]

Hey, no intention of ruffling your feathers. IMO Bush is probably as dirty as the rest of the pols in both parties, but hey, what do I know.

[longleaf]

I am trying not to envy your "total recall" memory. ;)

[masadaman]

Could be but certainly Clinton "pimped" for Enron in India. A major project requiring a $100k "donation" to the DNC. If memory serves, Mack McClarty ran this deal.

[beckett]

Not only liberals are questioning Bush's possible involvement. I've heard it described as bigger than the teapot dome scandal. Some say it'll be Bush's undoing. Lay is regarded by some as Bush's chief financial backer and last year alone he pulled out $130 MILLION in salary. From a dying company. Looks bad at the very least.

How exactly can it compare to Tea-Pot Dome? Which Enron official controlled US oil reserves? Which Enron exec is the Sec of the Interior? Which Enron exec even works in gov't? Comparisons to Tea-Pot Dome are simple partisan hype and historically totally inaccurate.

The failure of Enron will not damage the administration unless explict quid pro quo can be proven, a highly unlikely outcome. In fact, it is clear that Bush decided early in his administration to leave Enron to its fate.