WHAT IS THE FIX? ( for The TUMOR on FACE OF CAPITALISM!)
The Enron horror story is surprisingly similar to what happened to some companies in Asia during the 1997 financial crisis. There are DEFINITELY some problems in the U.S. financial system to fix.The Lesson from the Enron Lesion: Improve the Financial System to Protect Investors by Iris Wang. from Columbus Wired
Recently, CNBC news interrupted Mr. Greenspan's testimony to broadcast the Enron hearing instead. The Enron collapse received so much attention not because it is the largest corporation bankruptcy by sheer number in the history but because of the complicated relationship it involves and its implications. A criminal investigation into the events surrounding the bankruptcy was already on the road since last week. With digging into the affair, all the facts will be clear to the public.
The Enron collapse is devastating for a large number of investors, employees and pensioners. The public is suggested by financial advisors to "diversify, diversify, and diversify." However, if a company held in such high esteem like Enron can go under, who is safe? If many companies go bankruptcy, how could diversity work? The solution, therefore, lies in a good financial system to prevent such kind of collapse.
With current available information, I found what happened to Enron is surprisingly similar to what happened to some Asian companies during the 1997 financial crisis. White House spokesman, Ari Fleischer, argued that Enron's collapse was a corporate scandal, not a political one. However, this corporate scandal suggests that some problems that caused many Asian corporate bankruptcies during the 1997 Asian financial crisis may also exist in the U.S. financial system. To protect investors, the fundamental issue here is to fix these problems.
There are several ways that Enron is similar to some companies in Asia. First, they engage in many cross-industry businesses and some of them don't make money at all. Second, they have a close tie with government and expect to benefit from this relationship. Third, the secrecy or ambiguity of their financial books makes it possible to boost the stock price even after they met some difficulties. Finally, the collapse is caused by only one piece of new information and the following loss of investors' confidence. (So should we shoot the whistleblowers???)
Enron was a Houston-based natural gas and energy company. It delivers commodities and financial and risk management services worldwide. (Day their boy W won election, they double price in CAILF to all utility subscribers, at the pump, the SOB's. ) In late 1999, the company launched EnronOnline, the world's biggest web-based transaction system, trading everything from weather derivatives to coal. This helped Enron realize its image of transforming from a traditional pipeline company to a dotcom. Enron's CEO Mr. Lay was quoted in 2000 as saying "We're an energy and broadband company that also does a lot of other stuff." Actually, the management efficiency is impaired by the spectrum of its business. Enron invested $1.1 b in broadband business over two years but made no money.
Similarly, large conglomerates are common in Asia and take an important role in the economy. For instance, Daewoo, a Korean auto manufacturer, also invested in many industries such as restaurants, textile, and cloth. Their complexity makes even themselves hard to clarify all the business at all.
Second, they have a close tie with the government. In Asia, these companies are often controlled by people who have close relation with top government officials. The connection of Enron to Mr. Bush is known publicly. Enron and its executives donated $114,000 to Bush's presidential campaign. This connection dates back to Bush's time as Texas governor, when Mr. Lay was head of governor's business council. Since the 1989-90 election cycle, Enron has made nearly $ 5.8m in campaign contributions.
What drove these conglomerates grow is a bull market. According to an article at Financial Times on January 23, 2002, Enron's investor relations and culture- even its business model- were ideally suited to the confidence and ready money that pervaded Wall Street in the 1990s. Enron used the money it can collect to expand aggressively.
During the 90s, some Asian countries are called tigers for their fast growth. People are optimistic about these nations. Much money from western countries and from domestic individual investor is ready to flow in financial market. Their targets are large companies in the area that has privileges such as telecommunications and transportation.
In addition to a bull market, the undeveloped capital market in Asia helped these companies collect money or boost their stock prices. There is not enough transparency for investors to know the business clearly. They often counted on the close tie with the government that will benefit these companies and bail them out of any trouble. Incredibly, the similar thing happened to Enron in the U.S. market. Enron's accounts are impenetrable. It is secretive; it has off balance-sheet vehicles; it was opportunistic to the point of aggression. "The analysts were not analyzing, they were believing." says Mark Roberts, director of research at a consulting firm Off Wall Street. Analysts, who were paid to follow the sector, proceeded to issue the next "buy" recommendation even when they fail to understand Enron's books. Investors expect the management's ties to Bush administration to yield indirect dividends, such as furthering the deregulation that had enabled its business to boom. Obviously, Enron took advantage of this opacity and finally it became the victim of this opacity.
Anderson's role as Enron's auditor had already come under focus as Enron spiraled towards collapse. Enron has admitted overstating profits by nearly $600m and has made a $1.2bn write down to end off-balance sheet transactions with a fund set up by its chief financial officer. The failure of Anderson to really look behind these issues and raise fundamental questions is unbelievable. The documents shredding shows the potential conspiracy between the chief executives of Enron and Anderson.
Anderson has become the spotlight of the current hearing in the Congress. Its behavior may violate the current law. Yet some of them are legal but not proper to serve as the goal to protect investors. The current accounting system has become one "that delivers volumes of complex information about what happened in the past, but leaves some investors with limited understanding of what's happening at the present." Also, in 2000, Anderson earned $25m for audit fees from Enron and another $27m for consulting fees. The question is whether this enormous consultancy fees affect the rigor of its audit. The idea of splitting off consulting businesses from audit firms may be reconsidered.
The accounting changes required are obvious. But change must go beyond
the scope of the financial implosion. Cronyism is criticized by some
scholars to be the reason of the 1997 Asian financial crisis and seems
unique to Asia. No economic policy can be made for efficiency goal
alone. The U.S. is no exception. Politics and economic policymaking involve
money
and lobbying. Therefore, a balanced information disclosure
mechanism in financial system is necessary to balance the effects of lobbying
and the efficiency of policy-making. Only this way can entail business
to operate healthily.
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1.) AUDITS! No publicly traded corp can do
any maneuvers off the books. IMPARTIAL
GOV AUDITORS must look at the smallest tricks.
2.) Class Action Law Suits for the investors/consumers robbed by any corp and a legion of pro-bono lawyers (working for minimum salaries only) pushing those suits through. If you bought their stock, their pharm, bought their utilities, you get rebates if they steal, lie, rig, price fix. The Lawsuit will bring the loot back to the People
3.) EXPROPRIATION - The CEO's get fined, the Whole Corp is repo'd & returns to the People who run it with normal salary bureaucrats, college grads, no cronyism.
4.) YOUR THOUGHTS? write astrology at earthlink net
Miss Wang's research courtesy of
http://www.columbuswired.net/Finance/Enron_021002.htm
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