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

To: JBTFD who wrote (1091)	4/5/2002 6:25:36 PM
From: Henry Volquardsen	Read Replies (2) \| Respond to of 2794

The SPVs to my understanding were not set up using only, or even largely, derivatives. Particularly early on, before the whole Enron mess became toxic, they were pretty straight forward....assets funded by debt and backed by some form of Enron performance guarantee. Later on as their need grew they started employing the derivatives and they were swaps to my understanding. As I understand the structures they would do a present valuing of the side on which Enron would receive payment. In this fashion they would receive cash flow upfront and then repay it through the other side of the swap. If you drew out the cash flows of this type of swap and then placed it alongside the cash flow of a loan it would be identical. That is the basis for my opinion that they weren't really derivatives but loans masquerading as derivatives for accounting reasons. I know this appears irrelevant for the purpose of why Enron died and what the nature of the fraud was. But it is relevant for discussing what reforms are needed to prevent it happening again.