Strictly: Drilling II Message Board

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Strategies & Market Trends : Strictly: Drilling II

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To: Frank Pembleton who started this subject	12/3/2001 3:00:27 PM
From: baystock	of 36161

Enron's implosion constitutes a stark reminder of counterparty risk. The world's largest energy trader stood on the other side of vast numbers of derivative contracts. In many, many cases, the only guarantee behind the contract will have been Enron's own name and balance sheet. These are now revealed to be worth nothing. It is at times of greatest stress in the financial system that derivatives-related disasters are most likely to occur. This is partly because it is then that asset prices tend to move outside the "normal" ranges factored into the original derivatives price setting process. It is also because at extremes liquidity tends to dry up. Just when you need a buyer to close down a trade, everyone is a seller, or vice versa. The seeds of Enron's downfall were sown over many years as it pursued its aggressive growth plans. It is surely no coincidence, though, that its collapse coincides with the sudden, juddering halt to the global economy. guardian.co.uk

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