Enron: The Smartest Guys in the Room 2005 - Alan Greenspan - Money for Nothing: Inside the Federal Reserve 2013 - Harold Blum - John Milton - Alan Wilson - P J O’Rourke - Baruch Spinoza - Winston Churchill - Oliver Wendell Holmes - Thomas Sowell - -
Who was responsible for the downfall of Enron? Only a few years ago Enron was the nation’s seventh largest corporation. Enron: The Smartest Guys in the Room, written McLean & Elkind & Gibney, 2005
Ken Lay and Jeff Skilling had built their own plush state rooms. They were known as the smartest guys in the room. Captains of a ship too powerful to go down. ibid.
News of shredding at Enron raised more questions. ibid.
20,000 employees had lost their jobs. ibid.
In Washington, Lay became part of a new crusade to liberate businessmen from the rules and regulations of government. ibid.
George Bush senior helped secure billions in government subsidies for Enron International. ibid.
In 1987 two oil traders made bets for Enron on whether the price of oil would rise or fall ... Enron Oil always seemed to win. ibid.
At the board meeting the auditors told Lay that [Louis] Borget and his traders were manipulating earnings, destroying daily trading records and probably gambling way beyond their limits. ibid.
Lay encouraged his traders to gamble more. ibid.
Enron would become a kind of stock market for natural gas ... Transform energy into financial instruments that could be traded like stocks and bonds. ibid.
Market to market accounting allowed Enron to book future potential profits on the very day the deal was signed. ibid.
‘The insiders had sold off a billion dollars of their stock in the preceding several months.’ ibid. Bill Lerach, attorney for shareholders
Though Lou Pai flew away from Enron with $250 million the divisions he left behind lost a total of nearly $1 billion but Enron managed to disguise that fact. ibid.
Enron mounted a campaign to capture the hearts and minds of stock analysts. ibid.
The game was called Pump and Dump. Top execs would push the stock price up and then cash in their multi-million dollar options. ibid.
Enron had vast natural gas operations all over the world. They had cost billions to build and most were performing terribly. ibid.
The analysts weren’t analysing at all; they were willing to believe virtually anything Enron told them. ibid.
‘Enron has created the market to buy and sell bandwidth like a commodity. Ask why.’ ibid. Enron advert
Enron’s stock soared 34% in two days. ibid.
When Enron announced its latest plan to trade weather, people wondered whether it was good science or science fiction. ibid.
[Andrew] Fastow had to figure out a way to keep the stock price up by hiding the fact that Enron was $30 billion in debt. ibid.
Traders soon discovered that by shutting down power plants they could create artificial shortages that would push prices even higher. ibid.
The year-long energy crisis would cost the state of California $30 billion. ibid.
Ken Lay did have easy access to the Bush administration. ibid.
Jeff Skilling abruptly resigns. ibid.
The SEC launched an investigation when the Wall Street Journal published articles revealing Fastow’s murky deals. Enron announced massive financial restatements. ibid.
Enron’s accounting firm Arthur Anderson had begun destroying its Enron files. On October 23rd Anderson shredded more than one ton of paper. ibid.
Enron declared bankruptcy. ibid.
Regulations of derivatives transactions that are privately regulated by professionals is unnecessary. Alan Greenspan, 24th July 1998
Greenspan’s ideology won out … The nation’s most powerful banking regulator considered regulation itself obsolete. Money for Nothing: Inside the Federal Reserve, 2013
So we expected someone who had been through that experience to be much more insightful, much more understanding, a much better regulated person. And regulation means being able to let go, as it were – to enjoy a football game or a soccer game. A more understanding – yes rational – but also a perfectly emotional person. The regulatory aspect of the human mind would really be in charge. Instead of being overwhelmed by our passions and our impulses. That one would be master or mistress of one’s own passions. Dr Harold Blum, psychoanalyst
If we think to regulate printing, thereby to rectify manners, we must regulate all recreations and pastimes, all that is delightful to man … And who shall silence all the airs and madrigals, that whisper softness in chambers? John Milton, Areopagitica, 1644
Whenever regulation increases, personal freedom decreases. Alan Wilson
Regulation creates a moral hazard. P J O’Rourke
He who seeks to regulate everything by law is more likely to arouse vices than to reform them. It is best to grant what cannot be abolished, even though it be in itself harmful. How many evils spring from luxury, envy, avarice, drunkenness and the like, yet these are tolerated because they cannot be prevented by legal enactments. Baruch Spinoza
If you have ten thousand regulations you destroy all respect for the law. Winston Churchill
The general rule, at least, is that while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking. Oliver Wendell Holmes, Pennsylvania Coal Company v H J Mahon 260 US 415 415 1922
Although the functions of a regulatory commission are fairly straightforward in theory, in practice its task is far more complex and, in some respects, impossible. Moreover, the political climate in which regulatory commissions operate often leads to policies and results directly the opposite of what was expected by those who created such commissions.
Ideally, a regulatory commission would set prices where they would have been if there were a competitive marketplace. In practice, there is no way to know what those prices would be. Only the actual functioning of a market itself could reveal such prices, with the less efficient firms being eliminated by bankruptcy and only the most efficient surviving, with their lower prices now being the market prices. No outside observers can know what the most efficient ways of operating a given firm or industry are. Indeed, many managements within an industry discover the hard way that what they thought was the most efficient way to do things was not efficient enough to meet the competition, and end up losing customers as a result. The most that a regulatory agency can do is accept what appear to be reasonable production costs and allow the monopoly to make what seems to be a reasonable profit over and above such costs. Thomas Sowell, Basic Economics