Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Making Money is Main Objective -- Ignore unavailable to you. Want to Upgrade?

To: Softechie who wrote (1927)	2/28/2002 2:51:42 PM
From: Softechie	Read Replies (1) \| Respond to of 2155

CAPITAL VIEWS: Greenspan Ruminates About Enron Collapse 28 Feb 11:35 By John Connor A Dow Jones Newswires Column WASHINGTON (Dow Jones)--Federal Reserve Board Chairman Alan Greenspan obviously has been doing a lot of thinking lately about the Enron debacle and what brought the former high-flying firm to its present sorry state of affairs. Here is a sampling of Greenspan's Enron-related commentary, in which he sometimes says essentially the same thing in somewhat different ways, garnered from his testimony Wednesday before the House Financial Services Committee: --"I think, after the fact, we will look back on this Enron episode as a period when we put our corporate governance back on track, which would not have happened without it, in my judgment - not fully. That is favorable to the long-term outlook." --"I think Enron...is not a significantly negative event to the economy, and in fact, in the longer run, its emergence may alter the way we govern corporations, that the long history of corporate governance will continue to be a very substantial and positive force for economic growth and productivity." --"And I don't deny that there may be other Enrons out there which we just have not - that have not been exposed; that's conceivable to me. But it cannot be a large issue." --"The Enron situation is essentially one in which there was an endeavor to imply that earnings were much greater than they really were, that increasing debt was hidden. I can think of no reason to have done what they did with their off-balance-sheet transactions than to obscure the extent of the debt they had. And what essentially was squandered in that process was the reputational capital which they had succeeded in achieving over a period of time." --"Enron is a classic case of a company whose market value is very substantially dependent on the reputation of the firm. And when it became apparent that the data that they were putting forth as representing their earnings figures were indeed false and had to be recalculated, they lost a very large part of their reputational value, and indeed it was that that ultimately did them in. Had they, for example, recognized the losses that they actually had in these affiliates early on, I have no doubt it would have hit their stock some, but it would have had a negligible impact relative to what actually happened." --"It was a very expensive business mistake which they made. I do not think that had they had a correct set of accounts that were would-be - they'd still be in business, their stock price would be lower. Their stock price would be lower because basically energy prices are lower, and their margins presumably wouldn't have changed, so their earnings would have been less viable. But they would not be in Chapter 11." --"The fact that such a substantial amount of shareholding is now for investment and not control has effectively switched the locus of control from shareholders to the CEO." --"My own judgment is that you have to be careful about trying to presume that directors are really, truly independent. I've served on innumerable boards in the private sector, and there is an asymmetry of information between an insider in a corporation and an outside director which will never be breached - which will never be brought together, I should say." --"I've served on too many audit committees to know that, even though I would consider myself independent, I would consider myself knowledgeable, I did not know what questions to ask the chief financial officer during meetings to find out what it is that conceivably is going wrong in the corporation, and he wasn't about to tell me." --"It's my impression, on the basis of experience I've had on innumerable boards on which I have served, that if you get a chief executive officer who looks toward his outside auditor as somebody to tell him what he is doing rather than somebody who should try to acquiesce in a particular set of accounting principles, you will change the whole nature of the relationship between directors, CEOs, and you will certainly create the type of independence of the audit function that will attract people back into the accounting profession and create the types of directors who will be most effectively helpful to the CEO and to the shareholders in getting appropriate corporate governance." --"...a company...whose assets are substantially physical, real...could conceivably have the reputation of its management sullied considerably or come under a cloud, and yet the company would still have sufficient physical assets to engender incomes which would give it considerable capital value. But that is not the case with Enron. Their actual real assets - pipelines and various energy-related assets - were a relatively small part of the market value of the firm." In his testimony, Greenspan discussed various underlying factors he sees as instrumental in creating the environment which ultimately led to the Enron debacle. "One was the unfortunate reversal of the FASB ruling in the early 1990s about stock option accounting," he said. "We estimate that over...the period 1995 to the year 2000, almost three full percentage points of the annual average gain in earnings resulted from the fact that stock options, rather than cash, was used as compensation amongst our major corporations. This undoubtedly had an effect of accelerating the earnings outlook.... "And so what occurred as a consequence of all of these forces was an endeavor to try to game the accounting system in a manner to create the perception of short-term earnings growth which would be confused with long-term earnings growth," the Fed chairman said. Subscribers can find Capital Views on: Telerate page [4021] Dow Jones Newswires by searching the code N/POV Bloomberg by entering NI POV Reuters by entering keyword Capital Views (John Connor, a veteran observer of the financial marketsand the Washington scene, is Washington bureau chief for Dow Jones Newswires. He can be reached by E-Mail at John.Connor@DowJones.Com) (END) DOW JONES NEWS 02-28-02 11:35 AM