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Eight important points to enron case
- Houston Natural Gas merges with InterNorth to become Enron. This takes place in 1985.
- The Valhalla Scandals nearly did Enron in early in the career of both Lay and the corporation. Enron. Maverick traders risked everything on a series of shaky deals. Muckleroy, former Enron official, out-bluffed the market to ride out the financial crises.
- Lay formulated an exciting new idea: trading energy futures, that is, deregulating the energy market and trading energy futures in the same way that agriculture futures are traded. To bring about deregulation in the energy market, Kenneth Lay became a formidable Washington lobbyist who benefitted from close ties to the Bush family (President George H. W. Bush and President George W. Bush). (Take some time to think about some of the free-market arguments that Lay made to convince government agencies to de-regulate the energy market.)
- Lay hires Skilling who at the time was an adviser for the McKinsey group. Skilling was brilliant (called "incandescently brilliant by admirers), a Social Darwinist (distinguish Darwinist from Social Darwinist), and a risk taker. While these were admiral qualities in some contexts they ultimately failed Skilling in his work with Enron? (Why? What does Bethany McLean mean by characterizing Enron and Skilling’s role in the events that unfolded, as a tragedy? How does this compare with Greek tragedies like Oedipus and Antigone?)
- Enron develops "creative" accounting methods. Mark-to-market allows them to declare future earnings expected from a project at the moment the deal is made. While good in the short term, this method quickly put Enron on an accelerating treadmill: to maintain the illusion of profitability they had to keep making deals and declaring up front expected profits. Enron also used Special Purpose Entities to distribute risk and secure needed loans at low interest rates. SPEs were artificial corporations endowed with Enron assets like gas pipelines and energy contracts. These assets made it possible for Enron to get low interest loans and generate need cash flow. The problem was that Enron used its stock to guarantee the loans given to the SPEs. Thus, Enron had to continually make deals to appear profitable to keep its stock value rising, and we’re back to the accelerating treadmill.
- Enron took on the identity of an "idea" company. They saw themselves as a laboratory where ideas were generated by creative and brilliant people and then realized in the real world through deals made by deal-makers like Cliff Baxter and Rebecca Mark (who made the Dahbol power plant deal). Examples of ideas include Enron Broadband, the Dahbol, India Power Plant, and energy futures.
- It is now common knowledge that the California energy crises (which led to the recall of governor Gray Davis and the election of Arnold Schwarzenegger) was created by Enron traders. (The book and documentary, "The Smartest Guys in the Room," provides a convincing case for this including scary conversations between Enron traders that were tape recorded and later replayed before Congressional Committees.) Matters were worsened when Jeffry Skilling compared California to the sinking ship, Titanic; they were the same (both disasters), except for the fact that the Titanic's lights were still on when it went down. (His punishment: a pie in the face thrown by an angry California energy consumer.)
- While Enron's rise took place gradually over fifteen years, its fall was spectacular and rapid. This lends credence to the claim that Enron was a house of cards, more appearance than solid reality.
Source:
OpenStax, Graduate education in research ethics for scientists and engineers. OpenStax CNX. Dec 14, 2009 Download for free at http://cnx.org/content/col10408/1.3
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