🚀 go-pugleaf

On Tue, 30 Jul 2002 17:21:15 -0700, "Rod & BJ" <soggy@pacifier.com>
wrote:

>
>"Charlie Wilkes"
>> No, that's not a reasonable assessment at all.  There was a broad
>> pattern of negligence and financial misrepresentation that the Street
>> didn't know about.
>> Charlie
>
>Wallsteet looked primarily at growth ....Enron had many years of phenomenal
>sales growth via energy trades that actually did little to actually increase
>the bottom line. Since 90% of  gross sales were these energy trades they
>built a "paper tiger" company that was built on fluff and image (even worse
>some of these trades were simply back and forth transactions with other
>energy traders). The basic flaw being you sell a energy contract worth a
>million, keep a thousand but gross sales reflect the million.....get enough
>these passing through your doors ($90billion) and you look like a major
>player. This opens the door to huge stock gains, bank loans and various
>financing but the net long term could never support the overhead. The huge
>sales created the image of a company way larger than a more appropriate
>bookeeping method of only counting commisons but nonetheless this method was
>considered legal. Once the investors and bankers lose faith in your empire
>you collapse... 

>The one area where illegal acts will come to play will be
>Enron's efforts to plump up the profits enough to get by investor scrutiny
>especially after the empire began to collapse. 

Yes.  The one area that sank the Titanic was the gaping gash below the
waterline.  

Investors knew about the hype (i.e., she's unsinkable!) and flaky
revenue practices (i.e., you can see there aren't enough lifeboats on
the deck).  

They did not know about the unsustainable and, I think, deeply
criminal means through which Enron cooked its profits (i.e., the
gaping gash below the waterline).

This is not a perfect analogy, but it works well enough. 

>The investor professionals
>and public were more than fools to embrace a largely paper company that did
>not add real value to these transactions. The Clinton energy deregulation of
>the 90's allowed and created this economic monster....duing the heady 90's
>the Enron's were being lionized as the company of the future....more fluff.
>Soggy
>
Hmm... half true, the allowed part.  Enron could not have exploited
its business model at all without energy deregulation.  But other new
companies are in similar "energy services" businesses, and they
continue to operate profitably.

Fundamentally, IMHO, Enron became a monster because its very
credible-seeming, high-level executives misled investors about the
economics and financial condition of the business.  Further, because
the independence of the audit was compromised, these abuses did not
come to light until the company neared an inevitable liquidity crisis.

This is one of those rare subjects about which I actually know
something, BTW.

Charlie