Once upon a time, there lived a structured-finance guy. He did deals with big banks, like Merrill Lynch, Citibank, Smith Barney, Wachovia, Bank One, Greenwich Natwest.
When his company, Enron, wanted to sell its interest in two Nigerian power-producing barges, he had a bright idea! He would call his friends at Merrill Lynch and see if they would like to buy the barges for the low, low sum of $12 million dollars.
They would!
So Mr. Fastow went about the business of selling the barges to Merrill Lynch.
Finally, a deal was struck and Mr. Fastow’s barges were sold to Merrill Lynch!
But the government didn’t like the deal. They said it was illegal because of a “Secret Side Deal.”
The government got very angry and threw all the bankers in jail!
7 Comments
September 18, 2008 at 6:17 am
So the fact that the buy back was confirmed at a higher price doesnt matter..that the barges go off the book at a convenient time and come back in again? If thats correct then we need ML to be canonized soon cause its a miracle.
September 18, 2008 at 11:33 am
The central issue was whether or not the barges were a true sale, meaning the full risk would have to be transfered. More than ample proof shows that it was a true sale.
September 18, 2008 at 11:01 pm
Agreed, but there was a buy back attached before hand, so in effect ML was taking no risk and it was just convenient for Enron.
Honestly, do you think that enron was a miracle which was demonized and killed by the media.
It looks as if you are saying that they were the google of the energy world but antagonized media and paid for it..
I have a problem here..though i find your point of view extremely interesting. Jim Chanos is no saint but a trader who spotted weakness and went for the kill or overkill may be..I dont think the enron guys were smart at all, I mean what they did was simply take the whole country for a ride.
September 18, 2008 at 11:26 pm
You’re just wrong; there was no guarantee that Enron would buy back the barges. Enron said that if ML didn’t want them in six months, they would help find a third-party buyer, which they did and which is completely legal.
I don’t think Enron was a “miracle”. I think it was a very good company that was attacked in the summer of 2001 by a perfect storm of circumstances. They were suffering a depressed stock from the post-bubble pressures, as were many companies at the time. Additionally, Chanos had planned to attack the stock that summer, and he did. The WSJ along with several other publications continued to print wildly irresponsible stories about the company, implying there was something very wrong with LJM when in fact there was not. These things had an effect. For a recent example, see what happened to Wachovia’s stock when Meredith Whitney gave her opinion about it before the second quarter earnings release.
I don’t think they antagonized the media; I think they believed that if they just didn’t answer all the crap that was flying around it would go away. They gambled and lost on that score.
Jim Chanos was irresponsible. He made BILLIONS when Enron collapsed. It is his right to short stock but it is not his right to spread lies about a company just so he can make money. Not cool.
The guys at Enron were brilliant. I’ve talked to many of them. I can tell you, they’re not dummies. They didn’t take the country for a ride. They absolutely had good products that were sold at fair prices to those who wanted them.
September 19, 2008 at 12:32 am
Thanks for the reply, I stumbled upon your site almost by mistake, my sources ( if they can be called that) have been the ‘ conspiracy of fools’ and ‘ smartest guys in the room ‘ till now and they as i see now have been very one sided. I have read some posts here and im also reading deep capture now.
This is a completely different perspective and obviously my brain refuses to digest this view…i have only read bad things about Enron and accepted it face value..which now seems to be have another side to it.
Thanks for the site, and for the replies really appreciate it.
September 19, 2008 at 12:38 am
Shankar,
I’m glad you’re here and please keep asking questions. The facts simply do not support the myth of Enron as a corrupt, evil corporation. Conspiracy of Fools is a great book – but it’s largely fiction. Every Enron person I’ve spoken to has laughed at it. It’s just not true.
Smartest Guys In The Room doesn’t even make an attempt at being objective. I’ve written a post called Everything Wrong With Smartest Guys In The Room. If you haven’t read it, just google it and you can find it. It’ll clear up a lot of the lies of that book and movie.
You are right – I am one of the few people screaming loudly from the rooftops that there was no fraud or conspiracy at Enron. But there are others – Houston Clear Thinkers is a great blog that has a lot of good info about the Enron case. There are a few of us who didn’t just jump onto the whole “Enron is evil” bandwagon.
I’m glad your mind is open to the possibility that the Conspiracy of Fools/Smartest Guys version is not the correct one. : )
September 22, 2008 at 4:53 am
Read that article too. Really appreciate the effort to write about a different point of view. One which makes more ’sense’ then that holier then thou documentary. Thanks