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February 06, 2002
Enron Explained
This is probably the most easily digested explanation of the Enron mess that I've come across yet.
Besides, it features cows.
Normal Capitalism: You have two cows and buy a bull. Your herd multiplies and the economy grows. You sell them and retire on the income.Enron Capitalism: You have two cows. You sell three of them to your publicly listed corporation, using letters of credit opened by your bother-in-law at the bank. You then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows. The milk rights of the six cows are transferred via an intermediary to a Cayman Island company secretly owned by your chief financial officer who sells the rights to all seven cows back to your listed corporation. Your annual report states that your corporation owns eight cows, with an option on six more.
Do you now understand how a major corporation with assets of $62 billion is declaring bankruptcy?
Courtesy of Mike Georgopoulos.
Posted by KinCross at February 6, 2002 09:10 AM