Henry.
I agree that it is often innocently intentioned, but there is still little excuse for it.
Management are all to happy about money coming in.
No-one ever says 'We made that money very easily. How did we do it?'. The investigation only comes out when
'Sh*t, we lost that money very easily. I thought we were hedged. Whaddaf*@k?'
A good manager knows that if he goes on making 'unexplained, or unexplainable' profit to stop and understand what is going on. Psychology though means that we don't.
Typical.
The descriptions of these businesses in filings to the SEC defy comprehension. They were called "share settled costless collar arrangements" or "derivative instruments which eliminate the contingent nature of existing restricted forward contracts".
Even Lay seemed confused, telling reporters who asking him about these arrangements "you're getting way over my head". By then, Enron had 3,500 subsidiaries, which would allow a full-time chairman just an hour a year to look at them.
from the British Telegraph:
portal.telegraph.co.uk
Enron is simple.
You do a 10 year trade, and you book the profit (that you think you made) upfront on day one.
Hell, you would hedge it but who would sell it to you?
The market is all one-way, illiquid and a proper hedge would cost - wait for it - pretty much what you sold the product for to your client.
Salesmen are happy!
Traders are happy!
(The clever ones leave the book, and look for a clean new balance sheet, every 2-3 years)
Hell, management are ecstatic, that they have employed so many bright young things.
Shareholders are happy as they believe the profits are here to stay.
- and then the party ends!
(it's all in the timing !)
-macavity |
