ototot
A little humor. Very funny.
HOW ENRON WORKS
NEW YORK, Jan. 18 (UPI) -- Here's how Enron works.
It's really quite simple. Ismail is a successful
mule trader in Peshawar. Every year Ismail delivers
30 mules to the Kabul Mule Market and gets $40 per
mule. This year, however, the Khyber Pass is full
of warlord militias, so Ismail is not sure he can
drive his mules to market without losing a mule here
and there. Also, the demand for mules in Kabul seems
to be dropping. Maybe he'll only be able to sell 20
mules, or, God forbid, 15, and then be forced to
feed and water the rest of them on a money-losing
trek back home. In other words, it's a scary market
and Ismail is worried about feeding his family.
What Ismail needs is to limit his risk with an Enron
derivatives package. First he pays $2 per mule for a
Khyber Pass Derivative, so that any mule killed or
stolen by warlords will be reimbursed at the rate of
$20 per mule -- half the going market rate, but
still better than taking a total loss. Next, he buys
Enron Mule Futures. For $28 per contract, he
guarantees delivery of a mule in three months time.
He takes 15 of these, figuring that a guaranteed $28
mule sale is better than showing up in Kabul and
discovering that stray bombs have killed the mule
buyers. Meanwhile, at the Enron Mule Trading Desk in
Houston, eagle-eyed yuppies are studying the
worldwide mule markets and starting to have their
doubts about those $28 delivery contracts.
Mule use is dropping all over Afghanistan, even as
the mule count is dwindling. Better resell 15 contracts those 15
contracts to a European commodities broker
for $24 each, then make up that $32 loss somewhere
else while cutting the company's exposure in half.
But how to hedge the risk on the other seven? Aha! A
blip on the computer screen. A temporary mule
shortage in southern Iran! With a current mule price
of $42 in Tehran, Enron could offer a Linked Mule
Swap Double Derivative tied to the gap between the
price of mules delivered in Kabul on a given date
and the price in Tehran on the same date. Sure, you
would rather have the quick-and-clean Iran sale,
instead of the sale in Kabul that requires trucking
the mules to a foreign market. But even if you add
in $4 per mule for transport through militia-held
territory and averaged the markets together, you can
still clear eight bucks just on the gap alone.
Enron's average price-per-future-mule is now $32.57
when you include the $4-per-mule loss on the mule
futures dumped in Europe. But based on the amazing
$12 Kabul/Tehran trading gap, they can easily put
together a "delivery in either market" contract that
will allow them task $36 per mule on their Mule
Online Internet trading system. The first mule
future sells instantly for $36, and the price bobs
up to$36.50. Two mules go for $36.75, and then
there's a big jump for the last three mules to
$37.90. Enron has now off-loaded all its price-based
mule futures liability for a profit of $31.70. But
this doesn't mean they're out of the mule market in
Central Asia. It's still two months until Ismail
delivers his 30 mules, and Enron is on the hook for
his Khyber Pass derivative insurance policy.
Things are not looking good in that part of the
world, either. The chances of a mule being picked
off as a road-passage tax are pretty high, and the
loss of the whole herd would be a $600 liability.
Quickly, the financial boys go to work, and part of
that liability is resold to a consortium of
Singapore banks, Australian mutual funds, and Saudi
Arabian arms merchant Adnan Kashoggi, thereby
reducing Enron 25 percentage to 25 percent, or $150 in
potential liability against a $15 premium (remember
the$2 per mule paid by Ismail), and Enron also takes
a brokerage fee of $20 from the three other
partners, thereby reducing its real liability to
just $120. But that's still too much of a spread, so
Enron continues to hedge. Fortunately, the company
has such a diversified trading floor that Enron
mule-market experts can walk over to the traders in
the warlord-militia derivatives department. Sure
enough, at least four tribes near the Khyber Pass
are increasingly concerned about profit margins.
There simply aren't enough people to rob. Things
have gotten so bad, in fact, that the warlords are
hedging against the oncoming winter by taking
futures positions in stolen chickens, stolen
humanitarian aid trucks, and Western hostages.
There's not a mule market yet, because the warlords
have successfully converted many of the recalcitrant
villagers into pack animals. But Enron knows how to
MAKE markets. Quickly the numbers-crunchers go to
work, and they soon determine that the average
number of 100-man militia per 100-man militia is 1.4 per
year. That represents anywhere from $28 to $56 in
lost mule-thievery income if the Khyber Pass is
closed or inhospitable to traders from Pakistan.
Amortizing that amount over 12 months, the warlords
have an exposure of anywhere from $2.33 to $4.67 per
month in lost pillage. Hence Enron announces the new
Highway Robbery Derivative, in which each tribe is
guaranteed the value of two stolen mules in each
12-month period in return for paying a premium of $4
per month. Enron's hedge is now complete, and it is
a beautiful thing to behold.
The chances of Ismail losing a mule to a raiding
party are approximately one in 30, or 3.33 percent.
Since he's paying $60 for his derivative contract,
the expected loss of 3.33 percent of his herd would
result in a payment of only $20 -- a more than
comfortable spread. Meanwhile, if the mule is stolen
by a warlord holding a Highway Robbery Derivative,
then the payment to the other side would only be $28
against premiums of $48. If Ismail simply passes
through the Khyber Pass without incident and sells
all his mules at the standard price, Enron pockets
$60 from Ismail and $48 each from four warlords, in
addition to the previous profit of $31.70 from that
heady Internet mule-futures trading day and the $20
in packaging commissions. If each warlord steals his
standard 1.4 mules per year, then Enron still owes
six-tenths of one mule to the warlord, or about
$37 sale based on a $37 sale price. Total expected
profit, based on 5.6 stolen mules, one of which is
stolen from Ismail: $143.20. Total profit from all
Ismail-related mule transactions: $194.90.See, it's
simple when you know how it works. Ask Arthur
Andersen. |
