BC: ENRON EXPLAINED
Explaining the Enron collapse through simple financial
terms
By DAVE BARRY .. Knight Ridder Tribune
If you're an average layperson, your grasp of high
finance consists of knowing your ATM code. So you're
probably bewildered by this scandal surrounding the
collapse of Enron, which had been the seventh-largest
corporation in America.
Today we're going to explain the Enron story, using
simple financial terms that you can understand, such
as "dirtballs."
Q. How, exactly, did Enron make money?
A. Nobody knows. This is usually the case with
corporations whose names sound like fictional planets
from Star Wars. Allegedly, Enron was in the energy
business, but when outside investigators finally
looked into it, they discovered that the only actual
energy source in the entire Enron empire was a
partially used can of Sterno in the basement of
corporate headquarters. Using a financial technique
called "leveraging," Enron executives were able to
turn this asset into a gigantic enterprise whose stock
was valued at billions of dollars.
Q. What does "leveraging" mean?
A. Lying.
Q. Why didn't Wall Street realize that Enron was a
fraud?
A. Because Wall Street relies on "stock analysts."
These are people who do research on companies and
then, no matter what they find, even if the company
has burned to the ground, enthusiastically recommend
that investors buy the stock. They are just a bunch of
cockeyed optimists. When the Titanic was in its death
throes, with the propellers sticking straight up into
the air, there was a stock analyst clinging to a
railing, asking people around him where he could buy a
ticket for the return trip.
Q. So the analysts gave Enron a favorable rating?
A. Oh, yes. Enron stock was rated as "Can't Miss"
until it became clear that the company was in
desperate trouble, at which point analysts lowered the
rating to "Sure Thing." Only when Enron went
completely under did a few bold analysts demote its
stock to the lowest possible Wall Street analyst
rating, "Hot Buy."
Q. What other stocks are these analysts currently
recommending?
A. Mutual of Taliban.
Q. Doesn't Enron have a board of directors whose
members are responsible for overseeing the
corporation?
A. Yes. They are paid $300,000 a year.
Q. So how could they have allowed this flagrant
deception to go on?
A. They are paid $300,000 a year.
Q. But didn't Enron have outside auditors? Why didn't
they discover and report these problems?
A. Yes, Enron had one of the most venerable auditing
firms in the nation.
Q. What do you mean by "venerable?"
A. We mean "stupid." As a result, Enron executives
were able to deceive the auditors via slick and
sophisticated accounting tricks.
Auditor: OK, so you're saying you made $600 million in
profit.
Executive: Correct.
Auditor: Can I see it?
Executive: Sure! It's right here in my desk! UH-oh!
The drawer is stuck!
Auditor: Wow! Just like last year!
Q. What should be done to punish the Enron executive
dirtballs who, knowing the company was in trouble,
cashed in their own stock and screwed thousands of
small investors?
A. In the interest of putting this ordeal behind us,
we believe they should receive only a slap on the
wrist.
Q. Really?
A. With a hatchet.
Q. Isn't that a pretty severe punishment?
A. Actually, it has been deemed harmless.
Q. By whom?
A. Wall Street analysts. |
