A brief history of the biggest financial scandal of this century
If you are interested in read about the Enron collapse, the largest financial bankruptcy in American financial history, turn to The Report of Investigation by the Special Investigative Committee of the Board of Directors of Enron Corp by William Powers, Raymond Troubh and Herbert Winokur.
It is posted on the Internet: news.findlaw.com/hdocs/docs/ enron/ sicreport. All the details of the great rip-off are there and this is just a small summary of the accounting gimmickry, the wickedness of Wall Street that tells of the rottenness at the heart of American capitalism. The background first. Enron was formed a mere 15 years ago between two old-line natural gas companies, Houston Natural Gas and Internorth.
With the spreading de-regulation of natural gas and electricity, Enron decided not to do business as usual; instead it changed tack and became an entrepreneurial trader of energy, not just in the US but in many places in the world, including Maharastra in India.
In particular, it made ingenious use of financial instruments known as derivatives that enabled it to hedge investments. That is, if a company wanted to guarantee the price it would pay for, say, electricity in 2004, Enron would enter into a contract with the company to provide power at that price.
Enron would, in turn, hedge the guarantee by making a derivative with another investor to sell electricity to Enron in 2004 at the agreed-upon-price. It eventually traded instruments like these based on just about everything
