================================================================== Stuck In Traffic "Current Events, Cultural Phenomena, True Stories" Issue #41 - February 2002 Current Events Enron: What Should Have Happened Cultural Phenomena The Network Is The Computer =================================== Current Events Enron: What Should Have Happened In all the excitement over the Enron bankruptcy, I don't think I've yet heard anyone articulate a vision of what should have happened differently. I suppose we'll just have to wait and see how it all drags out in the courts. But I can't help but make a few observations. Failing companies, which is to say, companies that are unable to provide a product or service at a profit, are supposed to go bankrupt. Most companies in fact do go bankrupt. I've heard it said that only 1 in 5 start up companies survive their second year. But for most start up companies, the financial risk is relatively small. Tiny in fact. Lenders of start up capital are experienced in determining the amount of risk they can afford to take on a start up company and they are quick to limit their investments to an amount that the owners of the start up are likely to be able to repay. So for most bankruptcy cases, the amount of damage is not so severe that the business owners are ruined for life with no hope of getting back on their feet again. But in the Enron bankruptcy, many people lost their life savings. And it's not just the poor Enron employees who had their 401(k) savings locked up in Enron stock. Other major pension funds were heavily invested in Enron as well, so the damage goes beyond Enron employees. So the question in my mind is, "How did Enron lose so much money for so long?" Why didn't anyone pull the plug on them sooner? Why wasn't the downfall of Enron a steady, public decline in their stock price? In other words to Enron lose all that money in the span of a single quarter? Did the fact that the stock price plummeted from $80.00 a share to pennies in a matter of weeks reflect that fact that the company literally ruined itself in a matter of weeks. I don't know anything about the business Enron was in. But I doubt seriously that a large company, the seventh largest in the nation by some accounts, could ruin itself so thoroughly in a matter of weeks. It's far more likely, it seems to me, that Enron had been getting into trouble for some time, but had been managing to hide its troubles through a series of increasingly questionable schemes. These shady practices are just starting to come to light and it will be very interesting to see how the pieces of this scheme are uncovered and analyzed. I suspect it will look something like a slippery slope ordeal. I'm sure that for a while, Enron's accounting practices were up to par with the accounting practices that are standard and acceptable. I doubt that any company could get _started_ in a fraudulent way. And then as Enron's performance became weaker and weaker, they started engaging in more and more questionable accounting practices to hide their poor performance. And at some point they crossed the line into unethical accounting practices. You would think that their auditors would have raised the appropriate red flags at some point before the stock price plummeted. The whole purpose of an independent auditor is to ensure that there are no surprises in the companies books that would mislead its investors. Seemingly this didn't happen in the Enron case. But even the most complicated shell game can't hide the truth forever. And neither can fraudulent accounting. From what we've seen so far in press accounts of the Enron bankruptcy, the management of Enron eventually shifted their focus away from trying to hide the companies failure to preventing anyone from doing anything about it, which is where the real travesty of the Enron bankruptcy starts. The day Enron announced that its employees would not be allowed to sell their Enron stock out of their 401(k) plans should have been the last straw, especially since it has now become clear that the top executives, presumably those who had access to the “big picture” of Enron's troubles, were still apparently able to sell their stock and get out of the impending doom. Hindsight is always 20/20 of course. But it seems that fundamental unfairness of saying that line employees can't sell their stock to limit their losses while top executives can should never have been allowed especially if the rules about who can sell their stock changed at the last minute. In other words, if the Enron policy had stated from the beginning, that line employee pensions are locked up in Enron stock and there is no way for the line employee to get out of the investment of Enron stock, one might be able to make a claim that the employees had been fairly warned. But it's my understanding that the policy that locked employees into the stock (and therefore into losing their savings) changed well after the program was established with out an option for the line employees to get out. It's all done nice and neatly with paper and rules, but it was outright theft and fraud. So after the questionable accounting started to come to light, they prevented everyone they could from taking reasonable action on the information, thus delaying the inevitable downfall for a little longer. The last gasp of the dying company seems to have been a lobbying effort for a tax payer bailout. From press accounts so far, it seems that high ranking Enron officials were trying to get access to high ranking government officials during the Final Days. No one knows what they asked for, but it's not too hard to imagine that it was some sort of a bailout. And it also seems that the chairman of Enron's biggest lender, Robert Rubin, tried to lobby the administration on Enron's behalf. It's unclear, so far, whether the government did anything to prolong the inevitable downfall of Enron at tax payer expense. There certainly wasn't a GM style bailout package. So far there doesn't seem to have been any benefit doled out to Enron at tax payer expense. No Enron exec seems to have bought his way out of trouble they way, say, Mark Rich did. Certainly it seems that Enron's troubles only accelerated in the final days. But only time will tell if government favors were bought and sold. The travesty of the Enron bankruptcy, it seems to me, is not that the company went bankrupt, but that it didn't go bankrupt sooner, while the losses were still manageable. The travesty is that Enron's financial status was hidden from view using what is starting to appear to be fraudulent accounting practices. And the travesty is that Enron deliberately prevented its employees from selling their stock and limiting their losses while top Enron executives did just that. Whatever reforms come out of the Enron scandal should be designed not to prop up failing companies, but to ensure that their failures come to light sooner and to ensure that all investors can have access to the same information and can act accordingly. =================================== Cultural Phenomena The Network Is The Computer Many Moons ago, Sun Microsystems had a marketing campaign on the theme of "The Network Is The Computer." At first I thought this was kinda dumb, but I've come to appreciate the sentiment. It seems to me that the bulk of my sit-down-at-the-PC time these days is engaging in some form of communication with other people over the net. I guess that's not too surprising. But the thing that has surprised me recently is that I treat the net as more and more of a storage device. Let me give you an example. Back in the days when Babylon 5 was showing, I was very into the show and I would collect episode guide information like a true fan. But I would copy this information from the network and spend great deals of time formatting the information into a file on my local hard drive. These days, I like to keep up with Buffy The Vampire Slayer and Angel. I still like to keep up with the episode guide information, particularly information about when there will be new episodes vs re-runs. But these days I don't bother storing the information on my local machine. I just rely on the information being somewhere out there on the net. I don't even bother to book mark pages. (I can never keep my bookmarks organized in any semblance of usefulness). So whenever I want to look up episode guide, I just go to a search engine, (I happen to like Yahoo!) and dig around for a few seconds and I can find pretty much whatever I need. Kind of an interesting shift in perspective, I think. ======================================= About Stuck In Traffic Stuck In Traffic is a monthly magazine dedicated to evaluating current events, examining cultural phenomena, and sharing true stories. Why "Stuck In Traffic"? Because getting stuck in traffic is good for you. It's an opportunity to think, ponder, and reflect on all things, from the personal to the global. As Robert Pirsig wrote in Zen and the Art of Motorcycle Maintenance, "Let's consider a reevaluation of the situation in which we assume that the stuckness now occurring, the zero of consciousness, isn't the worst of all possible situations, but the best possible situation you could be in. After all, it's exactly this stuckness that Zen Buddhists go to so much trouble to induce...." Contact Information All queries, submissions, subscription requests, comments, and hate-mail should be sent to Calvin Powers via E-mail (calvin@cspowers.com). Copyright Notice Stuck In Traffic is published and copyrighted by Calvin Powers who reserves all rights. Individual articles are copyrighted by their respective authors. Unsigned articles are authored by Calvin Powers. Availability The Web based version of Stuck In Traffic can be found at http://www.StuckInTraffic.com/ To subscribe to the free e-mail edition of Stuck In Traffic, go to http://groups.yahoo.com/group/StuckInTraffic Trades If you publish a 'zine and would like to trade issues or ad-space, send your zine or ad to either address above. Alliances Stuck in Traffic supports the Blue Ribbon Campaign for free speech online. See http://www.eff.org/blueribbon.html for more information. Stuck In Traffic also supports the Golden Key Campaign for electronic privacy and security. See http://www.eff.org/goldkey.html ==================================================================