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Discussion in 'Politics, Religion, Social Issues' started by pseudobrit, Apr 30, 2005.
Ebert's review provides a good synopsis.
Regardless of their ethics and/or morals, the corporation was successful until they got to messing with derivatives. If you recall, it was errors in playing the derivatives market that bankrupted Barclay's Bank. That also would have bankrupted Long Term Capital Management but for the intervention of the US Government and the "jawboning" of forced loans for a bailout.
The deal with derivatives is using a very low margin as leverage in "betting" on the direction of interest movements. From what I read, derivatives exposure on a worldwide basis is somewhere in the tens of trillions of dollars.
But Enron's betting wrong on derivatives is what led to all their bookkeeping irregularities and the lying. Bigwigs trying to save their butts...
roger needs better staff. it's Andersen, not with an 'o'.
It did? As a long time Barclays customer, I'm surprised I didn't notice that...
Disregarding the ethics and morals would be ignoring the whole issue.
skunk, you'd have to Google to find the details, but the Barclay's fiasco was worldwide news for months. Basically, some young-guy VP in their derivatives department bet wrong. Result: Bankruptcy. Now, who bought the assets and took over the bank and bought the name, etc, I dunno.
Enron did the old "buy low, sell high" thing with electricity that thousands of Californians and Floridians are doing with houses. IOW, business as usual. When the Enron bosses got into the derivatives business, they bet wrong. Those responsible for the decision making started playing the proverbial CYA game--which, as we all know, didn't work.
The Enron guys weren't as smart as Soros. I may disagree with his politics, but he's smart enough to manipulate currencies and play in the world of derivatives to wind up with a net of a billion bucks a year. (Okay, okay, so in 2003 he only netted some $900 million...)
One thing I've noticed through the years is that there are a lot of folks who are completely honest--as long as things are going well and times are good. When something goes wrong in their own little financial world, shame on their creditors or business partners or employees. Or wives and kids, for that matter. (That's why I won't get into a business deal with anybody unless I'm the only one who can sign checks. )
The bottom line is that if you learn of any big corporation that gets into the derivatives game, either sell that stock or maybe--if you've the courage for some risk--short it. Derivatives is indeed a zero-sum game.
No, where Enron bet wrong was in betting that no one would notice that they were rigging the game. If only the Justice Department was as steadfast as MLB has been with Pete Rose...
Enron's ethics are at the heart of the matter. Or would it be fair to say that disregarding Saddam's ethics, he was quite good at managing his country? Would that mean living in Saddam's Iraq was Good Times?
I've Googled it without success. AFAIK, Barclays have never gone bankrupt. They had a rough patch, sure, but not that rough. Gimme a link if you insist...
This is the only thing I could find in a couple minutes of searching.
Fifty million? I'd hardly notice...
Glad I was in error about the full-bore bankruptcy. Barclay's has always been well-known, worldwide--and known as conservative as to policies. Heck, I even cashed a money order in one of their banks in Hong Kong, some 55 years ago. The decor positively reeked of Old Money. Come to think of it, I believe it was a Barclay's branch in the Turks and Caicos where I played courier for some guys setting up an offshore account, back in '87 or so...
The first reports about their losses from miscalculations in the derivatives market had it that the amounts of money owed exceeded the bank's net worth. Since they didn't go bankrupt, that means they got some sort of assistance, some form of bailout which kept them in business. If $50 million or so was the amount of loss, that's much less than the early reports of hundreds of millions on up into the billions. The guy who got them in trouble was some young VP in, as I vaguely recall, their Singapore branch. But there was a bunch of newspaper coverage about the troubles.
Long Term Capital Management, with some four or five Nobel Prize economists on the board of directors, managed to miscalculate on derivatives for losses in the neighborhood of some four or five billion dollars. There was a lot of US Government pressure on banks such as Morgan-Stanley to bail them out. Maybe there oughta be a Nobel Prize for Common Sense, but that's not likely...
Again, thanx for the correction on Barclay's...
I am sure you are trying to mention Barings rather than Barclay's?
rat, are you thinking of Barings Bank?
guns at dawn
Ah, so. Well, nothing like a Super Senior Moment...If I didn't have a long, long history of failure to remember names, I'd really start to worry.
Back to the topic: I disremember how many years back I started seeing references to "derivatives". I still don't claim to fully understand the process of the fantastic amounts of leverage. The whole deal is certainly not for the faint of heart. Per The Daily Reckoning and Strategic Investment, the exposure in derivatives is in the tens of trillions of dollars--more than the GDP of the entire planet.
The Enron guys were quite competent at gathering information as to what electric generating companies had excess capacity, and what transmission systems were capable of carrying more amps than their normal loads required. This came at a time when California's demand created a seller's market. So, they made a ton of money.
Like a lot of folks, a windfall of money went to their heads as though they had made it through superior smarts. You can see it in folks who win lotteries, or some eighth-grade dropout farmer whose land overlies oil. So, having a lot of money wasn't enough; Enron tried to pyramid its loot by getting into the derivatives market. Hubris ruled the day.
(Note that SecTreas Rubin led the effort to bail out Long Term Capital Managment and used governmental influence in a near-bludgeoning manner. The Bushies did not try to bail out Enron, although it's quite possible they considered it a lost cause from the git-go and any help would be a waste of poitical capital.)
Every now and then a line from a movie is quite apropos to real life: "A man's gotta know his limitations."
You're leaving out a little part of this story right in here 'Rat...
The queen's elevator* deal Enron laid on California gave them both a ton of money and a severe case of the Egos--which mix led to their downfall. We've already done a thread or two on Enron, California and electricity...
* aka royal shaft
Well here's the thing: It bears repeating because Enron was in on the discussions that produced California's electricity deregulation under then-govener Wilson. And they were also likely in on the Bush administration's discussions regarding energy policy. If they were, the policy should be suspect at best. Once you know a criminal has been involved in formulating policy, particularly one whose crimes involve manipulation of the very thing that the government policy is to address, you can't trust anything they say.
It seems untenable that the Bushies would refuse to release at the very least the names of the people involved in formulating that policy, if not more.
But I guess we've had a thread or two on Enron, the Bush Administration, and energy policy as well.