Yo, Chicken,
Long time no see (you had a nice Afghanistan post, and who could forget your name?).
At the risk of sounding contrary to every media source, financial talking head AND Jesse Jackson, I fail to see the great hubbub about Enron. No, I'm not joking.
Let me summarize what happened.
A company tried to will itself bigger than it should have, using extreme leverage to support an ever higher stock price, not really disclosing much of value to analysts and investors and using offshore financing vehicles which may have failed to disclose material information in violation of the securities laws (which is a legal question and which should be resolved, over a period of years, by the courts).
Putting aside the amount of money involved, does this strike anyone as particularly unusual or newsworthy, I mean to the extent we have Jim Cramer waxing apoplectic every night? Let's be serious, CSCO has done something similar and destroyed (from its peak valuation) more equity value than Enron. AMZN's pro forma charade destroyed over $36 billion in equity value (not to mention all that funny money option stuff they used to pay employees, etc.)
I'm not saying Enron did good, I'm just saying it hardly seems this newsworthy. A company mismanaged itself and ended up in the toilet. Let's see, Kmart, Global Crossing, TWA (how MANY times?) . . .
As for Arthur Andersen, it's been known for years that allowing auditors to chase other business for their clients presents an actual conflict of interest, but no one was willing to make any rules about it. Again, not news. The shredding? Well, I'm sure whoever was shredding (nice euphemism: document retention policy) was doing so to get rid of personally embarassing memos which said things like: whether or not this is good accounting, it presents certain conflicts yada yada yada. Besides, we now live in the age of the hard drive, so nothing of import will be lost, it just may take some time to find that 13th draft copy of the auditor's letter. Art Andersen is going out of business, of course: the crime? Having the wrong client. Error in judgment, which is all accountants really have to offer.
Finally, the ENRON employees. Vot a crock. You know you're on the wrong side of an issue if Jesse Jackson is your ally. Let's imagine a typical employee, Joe Smith. Joe had a choice to take some of his compensation in a 401K plan. He decided, sure, what the heck. He had many options and one of them was to take ENE stock and if he did so he'd get an extra 50% or 100% (depending on the plan) of company matching. Being greedy, he did so. His 401K had a basis of his own money of $40,000 (that is, his compensation, taken this way) with a gift match of $40,000, so call it $80,000, and then it grew with the ENE juggernaut, to $800,000. How? Well, Joe's company was doing financial legerdemain, but Joe wasn't squawking. What's more, unlike your average punter or investor in mutual funds, Joe at least knew sort of what was going on in ENE. Or could have. And Joe was able to trade out of his shares at any time, except for the statutory lockdown periods (usually about 10 days, a couple of times a year). And Joe even had a chance in late October when ENE stock had fallen to $35/share, to sell before the lockdown. And was told repeatedly. But Joe did not. Why? Because Joe was greedy and felt the stock would recover. His $40,000 had grown to $600,000 and was down to $290,000 but no, that wouldn't be enough. Because he was counting on it going to 1.2 million, or beyond.
And Joe and his ilk are squawking now because of choices they freely made to stay fully invested in their own company which turned out to be, well, kind of flaky. Somehow (this is Jesse's turn) they have been guaranteed against the vagaries of capitalism because they have been soundbites on CNN. Tears on TV, spare me. 50 year olds who were planning on retiring and living large won't be able to, by betting the farm (literally) on ENE. What a bunch of crap.
People who bought CSCO at 82 or AMZN at 112 aren't guaranteed value and a return, why should the ENE employees?
The analysis on this "news story" is about 1/4 inch deep, about what we've come to expect from Mr. Profound Soundbite himself, Dan Rather.
That's my rant. As I said, if you're sympathetic to anything Jesse is in charge of, you've got to really begin a little due diligence.
Capitalism, regulation, creative destruction, live with it, or move to socialist France.
And that's my rant,
Kb |
