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Cybernaut

Learning from Enron

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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.

What went into the paper shredders, and what went on behind closed doors during the past few years will no doubt be scrutinized for years. The close ties to prominent politicians, especially Republican politicians, and especially President George W. Bush, will keep this case in the public eye for a long, long time.

As tedious as this investigation may seem sometimes, understanding what happened at Enron is important because things are going to change.

Investors are wondering how many other companies out there might be cooking the books, more hype than substance. How far does the corruption go?

To restore the credibility of stock trading, the government is going to have to reform the auditing process, and impose stiff penalties against companies that pad their books. More transparency will also be needed at every level of the game to ensure that stock prices accurately reflect a company’s value. If the CEO of a major corporation is selling his or her shares, the public should know that, too.

Furthermore, the issue touches on the subject of campaign reform. Politicians will no longer be able to accept soft money contributions, or curry favours from corporations. These rules will change the way industry can lobby government, and to what extent representatives of private corporations can help shape government policy.

In the long run it could also help the Green Party emerge as a viable third party in the U.S. as the investigation helps people become aware just how close the ties are between politicians and big business.

While it’s doubtful that this sad event will lead to a new age of enlightenment, Enron is a shining example of how the whole economic system is flawed, inviting these kinds of abuses. At the root, economics are based on perception, how people are feeling these days and what the corporations are telling us in their annual reports, rather than a simple measure of profits and losses.

To read more about the Enron scandal, check out the following sites.

For more about Enron and its ties to the Republicans, check out Michael Moore’s letter to George W. at www.michaelmoore.com/2002_0128.html . Another good site, which Moore uses is Open Secrets at www.opensecrets.org.

For regular updates on the investigation, visit any of the following business news Web sites: Fortune at www.fortune.com , CNN Financial News at www.cnnfn.com , and the Microsoft Networks/NBC News portal at www.msnbc.com .

The strangest trip of all is the actual Enron site at www.enron.com . Check out the "Company History & Milestones" section, or read the press releases announcing the resignation of key Enron executives. It’s almost as if the IT and PR departments kept the Web site going out of spite.