Learning from Enron

Tens of thousands of people lost their jobs, and thousands more lost their shirts when Enron went bankrupt in December. Retirement funds and savings disappeared, the stock market dipped, and the public’s confidence in the foundations that prop up the financial world were badly shaken.

How does one of the largest energy companies in the world, with reported revenues of $101 billion in 2000, collapse like a house of cards?

It’s simple. A house of cards is all Enron really was, aided on its way to the top by bottom dealing, card tricks, and sleight of hand. Compared to other companies their size, Enron didn’t own a whole lot in the way of assets. They were, first and foremost (and aside from various failed attempts to branch out into Internet and communications) energy traders, buying bulk power at one price and selling it for a profit. That’s as uncomplicated as it can be put.

With energy prices fluctuating wildly in the past few years, they didn’t make a lot of money.

That’s not what they told their investors, however. They created partnerships with other companies and subsidiaries, and counted the assets of those spin-offs as their own. They took loans from major financial institutions, include $215 million from CIBC, and put them into the debit column on the spread sheet.

Their accountants and auditors should have seen what was going on a long time ago, and concerns were raised about Enron’s accounting practices as long ago as 1995. Whether their auditors were stupid, crooked or in on the scheme has yet to be established. Meanwhile, the card house continued to grow and grow, nudged by shady management.

When things looked ready to collapse, the rats at the top kept down low and abandoned ship with as much cheese as they could carry. They quietly cashed out of the company, unloading their stock on an unsuspecting public, and emptying the corporate bank accounts and retirement funds on their way out the door.

Those people don’t have to worry about how all of this looks, because if they get away with it, a lot of them will never have to work again. I say "if" because many of these executives are guilty of more than shady dealing and questionable conduct. There’s a strong possibility that several of these executives were complicit in criminal activities and will be stripped of their assets as a result. Some Enron executives will likely wind up in jail over this.

And not one of those country club jails, either. The public wants to make an example of these people, and the courts will probably see things the same way.

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