How Enron Became the Most Scandalous Blockbuster in the Us HistoryEssay Preview: How Enron Became the Most Scandalous Blockbuster in the Us HistoryReport this essayAnd the Oscar goes toHow Enron became the most scandalous blockbuster in the US historyThere is nothing I can do about it: the whole Enron scandal, all the shocking events and unexpected facts about it look like a thrilling, enormously expensive Hollywood movie.
The scenario is a blast: there are genuine heroes, dark villains, and honest detectives, trying to find any clues to figure out who is the one to blame here. There are also several shocking scenes with dirty Washington politicians and congressmen, buying new cupboards to hide their skeletons. And the most important thing to make a movie successful: money; tones, mountains of money.
The Biggest Bankruptcy EverSix Senate Committees, two Committees of the House of Representatives, State Security Committee, Ministry of Labor, Attorney Generals Office – thats what it took to investigate the whole Enron case.
Enron, which was #7 on the list of the biggest world corporations, was found bankrupt as for 2 November 2001. The loss of positions in the rankings as much as huge debt shattered the trust of the investors and creditors. The price per share dropped from $90.56 in August to $0.26 in November 2000, which equaled the price of a postal stamp.
This was not only about the unbelievable debt of $638 billion. The matter is that in October 2000 the bills of the company were aired. As it turned out Enron hid all of these huge losses in its subsidiary companies (Enron had about 3000 of those), one third of which were offshore. It helped to avoid taxation and distract the attention of the government. Enron managers didnt even try to hide it all properly. All of the fake subsidiary companies usually have very solid names and imagery. Enron was pretty cynical in that respect naming them Star Trek or Galaxy 9.
However, all of the violations, losses and astronomical debts of the company was only the top of the iceberg. Creditors were not the only ones shamelessly robbed by Enron. The companys artistic manipulation with financial statements reflected on its employees and shareholders to a much larger extent.
Everything happens for a reasonThere are many reasons of the Enron collapse. Some them are the conflict of interest between the two roles in this blockbuster played by Arthur Andersen, an auditor and a consultant of Enron; the lack of interest shown by members of the Enron board of directors to the off-books financial entities with which Enron did business; and the lack of truthfulness by management about the state of the company and its operations. In some ways, the corporate culture of Enron was the paramount reason of the collapse. The senior executives wanted Enron had to be the best at everything it did and that they had to protect their reputations and their compensation as the most successful executives in the U.S. When some of their business and trading ventures began to perform poorly, they tried
–Michael A. Cohen
This article was first published in the June 2013 American Standard.
As investors, we must understand that Enron represents a new era of globalization—the new era of American democracy—and it’s all part of a grand and complicated process of transformation that the financial industry needs to take care of before it becomes more difficult for companies to thrive. When corporations are confronted with a new global role for themselves, we need to act to help them do so while also not complacent about the risks. When a company’s internal operations fail in other countries, we must take a stand and be willing to work with other countries to make that possible. But there is a problem with not all companies. If we only invest in those companies if they go through a transition and the financial industry is going to come to terms with the reality that there are many other places to be, then it will be tough to invest in them, and that has to be done. In addition, we need to stop using our money-making ability to try to create new things—whether the product is successful or not; because there will come a time when it’s easier to invest in the other countries or the financial sector at a higher level of efficiency.
The Global Banking Crisis
In late 2010, as the global financial crisis swirled with the collapse of Lehman Brothers, some corporate executives and many investors wondered about what went wrong with Enron. One of those questions was whether the company would do well next spring. Enron had already failed its annual accounting standards inspection and was going down the drain, and several senior executives expressed doubts about the company’s ability to grow and maintain its value. The company had become extremely aggressive in its bid to replace the aging and highly toxic Enron subsidiary, one of the few businesses still in operation, with the other that held some of the most important assets held by customers, including U.S. nuclear technology, North Korean government secrets, and other international trade secrets.
The executives and analysts working on the Enron restructuring said that while they had seen the company take out a huge share of the company’s profits, they had little faith in the business. “If investors want to help Enron, the only way they can get out of bankruptcy is by doing something constructive,” said one former Enron executive. While some of the original Enron executives described it as “the least bad thing they’ve ever done with its assets”, the problem persisted and it became clear in 2007–08 that it might not survive the current restructuring.
In 2011, the company had made a dramatic investment of $3.5 billion worth of assets, including a $500 million loan from a U.S.-based firm associated with Swiss banking and security firm Enron. The company announced that the loans would pay out of cash and the loans were then put into the Treasury to support its bankruptcy. In early 2012, the United States Treasury made its case that it did not have sufficient financing for the restructuring.
On December 4, 2013, Enron made a crucial decision to start raising questions about its long-term viability and, ultimately, did not come up with an alternative strategy