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Non-Tech : Derivatives: Darth Vader's Revenge -- Ignore unavailable to you. Want to Upgrade?

To: Ahda who wrote (1077)	4/2/2002 11:34:01 AM
From: JBTFD	Read Replies (1) \| Respond to of 2794

I agree with you that derivatives used as a hedge are not inherently risky. But Enron used derivative transactions and special purpose entities to 1. inflate assets, 2. understate liabilities, 3. create false profits, and 4. to hide losses. Enron also encumbered itself with guarantees to some of it's special purpose entity partners that promised to "make whole" their interest at the expense of Enron shareholders. In effect, Enron did what you say in your post: put their bets on one side without covering themselves if things went wrong. (In this case what went wrong was that the value of the shares of Rhythms Net Communications and Enron both fell) This is just one of their transactions. I will post Frank Partnoy's testimony. He explains all this very well.