Posted by: Kiddo March 14, 2012
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ENRON AND GOLDMAN PARALLEL
First of all how did Enron collapse?
Shady accounting practice, questionable reporting of assets and cashflow, complicated financial model (with shielding SPEs) with high risk offshore account all led to inflated stock price of the corporation, which later fizzled as it had to. Investor’s confidence waned and SEC probed an investigation. This all led to Enron’s demise.
That’s the straight up story. But, what’s the root cause? What are the similarities that I talk about here?
To begin with, Goldman Sachs, like Enron has a very powerful lobby. If you even have a little interest in financial market, you might have heard about how Goldman is lobbying to exempt half of swaps books. They are basically trying to stay outside the Dodd-Frank regulations. Enron employed similar tactics through out its operation. With power, comes arrogance; Enron thought that since they have all the powerful politicians and regulators in their pocket, they can manipulate any kind of reporting. I don’t know if you are aware how they used to manipulate California’s energy; just a small example. What’s Goldman doing? There are few accounting discrepancies we know that they have instituted. In 2009, they altered their year-end reporting dates so that one cannot easily compare past quarter results. This is just one accounting practice that was caught; google and you will find numerous other issues.
Now, to the root cause. Enron didn’t collapse just because they hid some accounting practice. The culture was the root cause behind their failure; the profit-only culture; they accepted inflation and illegal practices to focus on their bottom line. This is what the author of the article is claiming here. Goldman sold high-risk derivatives that they knew would fail, to their customer; that’s down right criminal act. SEC fined them $550M for subprime mortgage CDO “fraud.” Focus shifted from a good operation+customer loyalty+profit to profit only. That’s what caused Enron to fail; too much focus on profit w/o much consideration to anything else. Goldman is heading that way.
If you don’t see any parallel, then I have nothing to say. Also, if you want to refute anybody’s claim, come up with a coherent and intelligent argument.
First of all how did Enron collapse?
Shady accounting practice, questionable reporting of assets and cashflow, complicated financial model (with shielding SPEs) with high risk offshore account all led to inflated stock price of the corporation, which later fizzled as it had to. Investor’s confidence waned and SEC probed an investigation. This all led to Enron’s demise.
That’s the straight up story. But, what’s the root cause? What are the similarities that I talk about here?
To begin with, Goldman Sachs, like Enron has a very powerful lobby. If you even have a little interest in financial market, you might have heard about how Goldman is lobbying to exempt half of swaps books. They are basically trying to stay outside the Dodd-Frank regulations. Enron employed similar tactics through out its operation. With power, comes arrogance; Enron thought that since they have all the powerful politicians and regulators in their pocket, they can manipulate any kind of reporting. I don’t know if you are aware how they used to manipulate California’s energy; just a small example. What’s Goldman doing? There are few accounting discrepancies we know that they have instituted. In 2009, they altered their year-end reporting dates so that one cannot easily compare past quarter results. This is just one accounting practice that was caught; google and you will find numerous other issues.
Now, to the root cause. Enron didn’t collapse just because they hid some accounting practice. The culture was the root cause behind their failure; the profit-only culture; they accepted inflation and illegal practices to focus on their bottom line. This is what the author of the article is claiming here. Goldman sold high-risk derivatives that they knew would fail, to their customer; that’s down right criminal act. SEC fined them $550M for subprime mortgage CDO “fraud.” Focus shifted from a good operation+customer loyalty+profit to profit only. That’s what caused Enron to fail; too much focus on profit w/o much consideration to anything else. Goldman is heading that way.
If you don’t see any parallel, then I have nothing to say. Also, if you want to refute anybody’s claim, come up with a coherent and intelligent argument.