"Shut Up and Delete This E-mail"
Why didn’t Bush try to bail out Enron, just as Clinton and Rubin bailed out Long Term Capital Management? Partly because the really big banks stood to lose a lot if LTCM crashed, so a fed rescue was engineered.
In the case of Enron two of the company’s largest creditors, Citibank and JPMorgan/Chase, well aware of the dodgy state of the company, had packaged up their Enron debt as "credit derivatives" and sold them on to pension funds. So Enron’s crash was not going to bring down the big banks, or even damage their profits (which have remained good).
But if the big banks had stood to lose out bigtime then it would have been a different story. The Senate hearings last week confirmed that the banks knew that there were big problems with both Enron and WorldCom–in fact they helped devise the "prepays" (loans disguised as trades) and other devices that concealed how highly leveraged the companies were. See "Banks ‘helped Enron disguise debt,’" Financial Times, 7/23. The next day’s FT quoted an internal e-mail exchange at Chase: One wrote simply "Dollars 5 bn in prepays!!!!!!!!" while the other replied, "Shut up and delete this e-mail." (FT, 7/24; an exchange later described as "misstatements by young bankers.")
These issues won’t go away because the big pension funds are taking the banks to court. CalPERS and CalSTRS (representing teachers) and Lacera (Los Angeles County Employees Retirement Association) have taken action against the large banks, including Citibank and Chase, that underwrote WorldCom bonds even though they knew the dreadful state of their finances.
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