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Non-Tech : The ENRON Scandal -- Ignore unavailable to you. Want to Upgrade?

To: Karen Lawrence who wrote (1512)	1/29/2002 1:07:55 PM
From: Skywatcher	Respond to of 5185

I can't say enough about how much I could CARE LESS! AHAHAHAAHAHHHA at least they are getting some financial justice! CC

To: Karen Lawrence who wrote (1512)	1/29/2002 1:09:44 PM
From: Karen Lawrence	Respond to of 5185

"Enron was an elaborately concocted financial hoax"; expert in using "the 'creative and aggressive' practice of forming special-purpose entities – often in secrecy-shrouded offshore havens – to hide debt and losses from shareholders" January 27, 2002 There is a huge difference between creative destruction and creative accounting. Some high officials don't seem to understand that difference. The great economist, Joseph A. Schumpeter, talked about creative destruction in his 1940s book, "Capitalism, Socialism and Democracy." Wrote Schumpeter, "The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers, goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates." Then came the not-to-be-forgotten words: "The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the same process of industrial mutation – if I may use that biological term – that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of creative destruction is the essential fact about capitalism." Indeed, Schumpeter believed that capitalism was so dynamic and innovative that it would be destroyed by its own success. A wealthy, highly educated class would challenge such things as income maldistribution and turn to socialism. Fast forward to 2002 and Enron, which has disintegrated. Listen to some of the people in the Bush administration. Said Paul O'Neill, treasury secretary, "Companies come and go. It's part of the genius of capitalism – people get to make good decisions or bad decisions and they get to pay the consequence or enjoy the fruits of their decisions." On the surface, it sounds a lot like Schumpeter. Lawrence Lindsey, President Bush's top economic adviser, who was once on Enron's payroll, even claimed in Schumpeterian terms that Enron "is a tribute to American capitalism." Wrong in both cases. In essence, Enron was an elaborately concocted financial hoax. But it was creative. Indeed, Enron's law firm, Houston's Vinson & Elkins, concluded that Enron's practice of forming special-purpose entities – often in secrecy-shrouded offshore havens – to hide debt and losses from shareholders was "creative and aggressive." But, claimed the law firm, it wasn't inappropriate. Unfortunately, many other companies are doing the same thing, although one hopes that few if any are concealing as much as Enron. As USD law professor Frank Partnoy told the Senate last week, Enron was a derivatives trading firm, not an energy company. Derivatives are miasmically complex by design. Little wonder that Enron turned out to be miasma, vapor, a mist with numbers and verbiage floating around. Enron stuck up its nose at hard assets and claimed it would make money by trading with other companies' assets. That's the reverse of Schumpeter: He said that creative entrepreneurs would bring a string of inventions and innovations that would destroy the old order. How right he was. On that point. But he has not yet been proved right – thankfully – on his prediction that capitalism would self-destruct in its waves of creativity. The real risk is that the creative and aggressive accounting of the Enrons of the world – and, alas, many other companies – will severely wound capitalism, although I think its destruction is quite unlikely. But as the light is shined on Enron, and the public sees that other companies' earnings are also suspect and that law, accounting and investment banking firms and bond-rating agencies have been looking the other way, the stock market could suffer. The United States has been known for its companies' transparency. Supposedly, our books are the cleanest in the world, our corporate information nonpareil. That's why so much money floods here from abroad. If we lose that reputation, it will hurt all of our pocketbooks. uniontrib.com