The Blackstone Group and Dynegy Inc. have entered into a definitive merger agreement. Dynegy stockholders will receive $4.50 in cash for each of their shares. This is a 62% premium on the closing share price as of the Thursday, August 12.
Separately, but not-so-separately, Blackstone and NRG Energy have entered into an agreement through which NRG will buy four natural gas-fired assets currently owned by Dynegy for a total cash consideration of $1.36 billion. Three of the facilities involved are in California, the other is at Casco Bay, Maine.
The closing of the merger transaction between Dynegy and Blackstone is contingent upon the concurrent closing of the Blackstone and NRG deal.
News involving Dynegy always perks up my ears because Dynegy was involved in the big energy-markets story of 2001, the demise-of-Enron. Dynegy was the white knight who never quite arrived to save the damsel from the dragon of insolvency.
That's an episode that goes unmentioned in the company's official version of its own history. But there is a fine account, with some Dynegy background, in the Smith/Emshwiller book n Enron's fall.
Smith/Emshwiller tell us that the companies jointly announced a merger agreement at 5 PM Houston time, November 9, 2001. "Who would have imagined it? Enron officials had looked down on Dynegy as one of the little kids on the energy block, with assets of a 'mere' $25 billion compared with Enron's more than $60 billion. The planned merger was just one more example of the unintended consequences of the Enron debacle...."
Showing posts with label Enron. Show all posts
Showing posts with label Enron. Show all posts
Sunday, August 15, 2010
Sunday, June 27, 2010
Skilling's Partial Victory
In October 2006, a federal court judge sentenced Jeffrey Skilling, former CEO of Enron, to 24 years and four months in prison. He began serving that sentence later that year, while pursuing his appeal.
The appeal led to a decision by the U.S. Supreme Court Thursday, June 24, in which the Court rejected Skilling's contention that pretrial publicity and community prejudice in the area of Houston, Texas, made it impossible for Skilling to get a fair trial there.
The court did, though, prune the "honest services" statute -- the Byzanrine growth of which has long been encouraged by ambitious prosecutors -- and then determined that if that statute is interpreted as the Court now holds it must be, Skilling did not on the facts on the record commit the crime.
The defense had argued that the court should go further and simply declare the honest-services statute, section 1346, [which criminalizes "a scheme or artifice to deprive another of the intangible right of honest services"] vague for voidness. But the court said that it will not declare a statute void if it can save it by a reasonable construction, which is what it proceeded to do.
As it applies to old-fashioned bribery the "honest services" language seems easy enough to understand. If I accept payment from my employer (i.e. a corporation and its shareholders) to do my job in a careful and lawful way, then accept a payment from a third party to do the job in a careless or illegal way, then follow through on my promises to that third party, one can see how I have cheated my employer.
But the government didn't charge Skilling with taking a bribe from some competitor or speculator who might benefit from Enron's fall. Indeed, the government at one point stiulated that there are no facts supporting such a contention. It accused him of artificially inflating the company's stock price by misrepresentations about its financial condition, and it contended that this was less than the "honest services" his employters were entitled to expect. Since the statute (as the court has now reinterpreted it) doesn't covered that, the convictions that depend on that statute cannot stand.
Skilling's defense team will be entitled to argue on remand that this taints the whole of the case against him, and the government will be entitled to try to sever the counts that it obviously taints from those that (the prosecution will of course argue) it does not affect at all. This litigation will be around for some time yet. With luck, we'll get another Enron trial.
The appeal led to a decision by the U.S. Supreme Court Thursday, June 24, in which the Court rejected Skilling's contention that pretrial publicity and community prejudice in the area of Houston, Texas, made it impossible for Skilling to get a fair trial there.
The court did, though, prune the "honest services" statute -- the Byzanrine growth of which has long been encouraged by ambitious prosecutors -- and then determined that if that statute is interpreted as the Court now holds it must be, Skilling did not on the facts on the record commit the crime.
The defense had argued that the court should go further and simply declare the honest-services statute, section 1346, [which criminalizes "a scheme or artifice to deprive another of the intangible right of honest services"] vague for voidness. But the court said that it will not declare a statute void if it can save it by a reasonable construction, which is what it proceeded to do.
As it applies to old-fashioned bribery the "honest services" language seems easy enough to understand. If I accept payment from my employer (i.e. a corporation and its shareholders) to do my job in a careful and lawful way, then accept a payment from a third party to do the job in a careless or illegal way, then follow through on my promises to that third party, one can see how I have cheated my employer.
But the government didn't charge Skilling with taking a bribe from some competitor or speculator who might benefit from Enron's fall. Indeed, the government at one point stiulated that there are no facts supporting such a contention. It accused him of artificially inflating the company's stock price by misrepresentations about its financial condition, and it contended that this was less than the "honest services" his employters were entitled to expect. Since the statute (as the court has now reinterpreted it) doesn't covered that, the convictions that depend on that statute cannot stand.
Skilling's defense team will be entitled to argue on remand that this taints the whole of the case against him, and the government will be entitled to try to sever the counts that it obviously taints from those that (the prosecution will of course argue) it does not affect at all. This litigation will be around for some time yet. With luck, we'll get another Enron trial.
Sunday, May 2, 2010
Neighborhood Watch
In January, Stephen Davis and Jon Lukomnik wrote a column for Compliance Week, summarizing the decade just completed from the point of view of "executives, boards, and investors."
In large part, the column is a criticism of Sarbanes-Oxley, the corporate reform bill created in response to Enron's melt down at the start of the new millennium. Davis and Lukomnik don't have a high opinion of SOX, and prefer instead what they think of as a "neighborhood watch" approach to compliance.
Read it for yourself here.
In large part, the column is a criticism of Sarbanes-Oxley, the corporate reform bill created in response to Enron's melt down at the start of the new millennium. Davis and Lukomnik don't have a high opinion of SOX, and prefer instead what they think of as a "neighborhood watch" approach to compliance.
Read it for yourself here.
Tuesday, March 2, 2010
Skilling's arguments
The Supreme Court of the United States yesterday heard arguments on an appeal by Jeffrey Skilling, of Enron infamy.
You'll remember, although in the world of business/financial scandals this already seems a long time ago, that in October 2006, Skilling was sentenced to 24 years and 4 months in prison, and fined $45 million, and he began serving that sentence that December.
There are two questions before the court on appeal. First, was it constitutional that this case was tried in Houston, Texas, where the rest of that city's economy had been closely intertwined with Enron's fate, and where the bitterness over its failure was strong? Skilling's lawyers contend that "given the widespread community hostility toward Skilling, the [trial] court should have presumed the jurors to be prejudiced, and therefore changed venue to obtain jurors from a community that was not itself a direct victim of Enron's devastating collapse."
Second, the defense contends that section 1346, which defines "honest services" fraud, is unconstitutionally vague. That is the section of Title 18 of the US Code that criminalizes "a scheme or artifice to deprive another of the intangible right of honest services."
As it applies to old-fashioned bribery this seems easy enough to understand. If I accept payment from my employer (i.e. a corporation and its shareholders) to do my job in a careful and lawful way, then accept a payment from a third party to do the job in a careless or illegal way, then follow through on my promises to that third party, one can see how I have cheated my employer.
But there exists a much more specific anti-bribery statute, against both offering and receiving. And that doesn't appear to apply to Skilling. So what does the honest-services language accomplish? Anything specific? This is what the lawyers and Justices were thrashing out yesterday.
You'll remember, although in the world of business/financial scandals this already seems a long time ago, that in October 2006, Skilling was sentenced to 24 years and 4 months in prison, and fined $45 million, and he began serving that sentence that December.
There are two questions before the court on appeal. First, was it constitutional that this case was tried in Houston, Texas, where the rest of that city's economy had been closely intertwined with Enron's fate, and where the bitterness over its failure was strong? Skilling's lawyers contend that "given the widespread community hostility toward Skilling, the [trial] court should have presumed the jurors to be prejudiced, and therefore changed venue to obtain jurors from a community that was not itself a direct victim of Enron's devastating collapse."
Second, the defense contends that section 1346, which defines "honest services" fraud, is unconstitutionally vague. That is the section of Title 18 of the US Code that criminalizes "a scheme or artifice to deprive another of the intangible right of honest services."
As it applies to old-fashioned bribery this seems easy enough to understand. If I accept payment from my employer (i.e. a corporation and its shareholders) to do my job in a careful and lawful way, then accept a payment from a third party to do the job in a careless or illegal way, then follow through on my promises to that third party, one can see how I have cheated my employer.
But there exists a much more specific anti-bribery statute, against both offering and receiving. And that doesn't appear to apply to Skilling. So what does the honest-services language accomplish? Anything specific? This is what the lawyers and Justices were thrashing out yesterday.
Monday, July 27, 2009
Enron ... ah, memories
Yes, in discussing yesterday the Tollgrade proxy fight I said that Rhythm NetConnections, a company on the resume of a member of one of the contending boards, had had something-or-other to do with the Enron collapse of 2001, but I couldn't be more specific.
I've now found the specifics. Enron did have a large long equity position in RN, an Englewood-Colo. based tech company. One of Enron's infamous special-purpose entities(SPEs), LJM1, was created specifically to hedge this position out of a (well-founded) concern that RN's price might fall. The arrangement was (typically) Byzantine for Enron. But the general idea was that the SPE, which was itself funded in part by Enron's stock, would agree to compensate Enron if the value of RN's stock declined.
Rebecca Smith and John R. Emshwiller, in their book about Enron, 24 DAYS, related a conversation between Enron's chief risk officer, Rick Buy, and the head of its research group, Vince Kaminski. The story is told on the authority of Kaminski alone -- Buy doesn't remember the conversation (which is rather different of course from denying that it happened).
Anyway, the story goes that Kaminsky looked into the LJM/NC deal and said, "This is so stupid only Andy Fastow could have thought of it."
Fastow was the CFO, and directly in the chain of command above Buy, who was in turn Kaminski's boss. Kaminski thought of him as a lightweight in financial matters, but not until this point as dangerous.
Buy replied by saying that yes, it was Andy's idea, and that Andy was also going to run LJM1 as its general partner. This seemed like an absurdly bad idea to Kaminsky. An SPE is supposed to be an independent entity, or else the company spinning it off is merely (in this case) giving its stock to itself as an accounting trick. For the CFO of the parent company to be the general partner of the SPE makes it clear that is exactly what it was -- at best!
Anyway, Kaminsky expressed roughly that idea to Buy. Buy agreed but said there was nothing he could do about it, and said, "Next time Fastow is going to run a racket, I want to be part of it."
So the rather tenuous connection between RN is that a fear of a drop in RN's sales price set the above machinations into motion, and they contributed to the greater rot in that organization. Interesting, and a nice nostalgic blast, but not really a help to stockholders in Tollgrade I think.
I've now found the specifics. Enron did have a large long equity position in RN, an Englewood-Colo. based tech company. One of Enron's infamous special-purpose entities(SPEs), LJM1, was created specifically to hedge this position out of a (well-founded) concern that RN's price might fall. The arrangement was (typically) Byzantine for Enron. But the general idea was that the SPE, which was itself funded in part by Enron's stock, would agree to compensate Enron if the value of RN's stock declined.
Rebecca Smith and John R. Emshwiller, in their book about Enron, 24 DAYS, related a conversation between Enron's chief risk officer, Rick Buy, and the head of its research group, Vince Kaminski. The story is told on the authority of Kaminski alone -- Buy doesn't remember the conversation (which is rather different of course from denying that it happened).
Anyway, the story goes that Kaminsky looked into the LJM/NC deal and said, "This is so stupid only Andy Fastow could have thought of it."
Fastow was the CFO, and directly in the chain of command above Buy, who was in turn Kaminski's boss. Kaminski thought of him as a lightweight in financial matters, but not until this point as dangerous.
Buy replied by saying that yes, it was Andy's idea, and that Andy was also going to run LJM1 as its general partner. This seemed like an absurdly bad idea to Kaminsky. An SPE is supposed to be an independent entity, or else the company spinning it off is merely (in this case) giving its stock to itself as an accounting trick. For the CFO of the parent company to be the general partner of the SPE makes it clear that is exactly what it was -- at best!
Anyway, Kaminsky expressed roughly that idea to Buy. Buy agreed but said there was nothing he could do about it, and said, "Next time Fastow is going to run a racket, I want to be part of it."
So the rather tenuous connection between RN is that a fear of a drop in RN's sales price set the above machinations into motion, and they contributed to the greater rot in that organization. Interesting, and a nice nostalgic blast, but not really a help to stockholders in Tollgrade I think.
Sunday, July 26, 2009
Tollgrade
The annual meeting of shareholders of Tollgrade Communications will take place on August 5.
Here's a link to Tollgrade's recent communication with its shareholders.
As you can see there, Ramius has set out three dissident nominees: Scott C. Chandler, Edward B. Meyercord III and Jeffrey M. Solomon.
Tollgrade has focused its return fire especially on Chandler. His telecommunications experience, they tell us, consists in "leading Rhythm NetConnections Inc. first into an 'internet bubble' valuation of $9 billion and thereafter into a bankruptcy and liquidation where shareholders ultimately received $0 for their shares...."
Rhythm NetConnections? If memory serves, that was a minor player in the Enron saga, was it not? I'll look into it later this week.
Here's a link to Tollgrade's recent communication with its shareholders.
As you can see there, Ramius has set out three dissident nominees: Scott C. Chandler, Edward B. Meyercord III and Jeffrey M. Solomon.
Tollgrade has focused its return fire especially on Chandler. His telecommunications experience, they tell us, consists in "leading Rhythm NetConnections Inc. first into an 'internet bubble' valuation of $9 billion and thereafter into a bankruptcy and liquidation where shareholders ultimately received $0 for their shares...."
Rhythm NetConnections? If memory serves, that was a minor player in the Enron saga, was it not? I'll look into it later this week.
Monday, March 2, 2009
Dan Marino's sentence upheld
The 2d circuit court of appeals has denied an appeal by former Bayou principal Dan Marino of the 20 year sentence he received for his role in that fiasco.
The 2d circuit noted, parenthetically, that the trial judge might have been a bit more harsh than she had to be, but she was within the range of her discretion on such a matter.
We pause to note that we might ourselves have given greater weight than apparently did the district court to Marino's plight — his almost complete deafness and accompanying sense of loneliness, his lack of self-esteem, his bouts with cancer, his apparent fear of and deference to Israel — and his assistance to the government detailed in its “5K1 Letter” (noting his aid to the government in understanding the fraud, his immediate contrition and taking of responsibility upon discovery, and his contribution to the guilty pleas of his co-conspirators). But it is not for us to substitute our judgment for that of the district court, whose sentence was procedurally and substantively proper.
Jeffrey Skilling of Enron infamy, had somewhat better luck recently with his appeal. The circuit judges there found that the sentencing had been improper, and Skilling will get a new hearing. These things do have a lottery-like aspect to them.
The 2d circuit noted, parenthetically, that the trial judge might have been a bit more harsh than she had to be, but she was within the range of her discretion on such a matter.
We pause to note that we might ourselves have given greater weight than apparently did the district court to Marino's plight — his almost complete deafness and accompanying sense of loneliness, his lack of self-esteem, his bouts with cancer, his apparent fear of and deference to Israel — and his assistance to the government detailed in its “5K1 Letter” (noting his aid to the government in understanding the fraud, his immediate contrition and taking of responsibility upon discovery, and his contribution to the guilty pleas of his co-conspirators). But it is not for us to substitute our judgment for that of the district court, whose sentence was procedurally and substantively proper.
Jeffrey Skilling of Enron infamy, had somewhat better luck recently with his appeal. The circuit judges there found that the sentencing had been improper, and Skilling will get a new hearing. These things do have a lottery-like aspect to them.
Monday, March 17, 2008
Bear Stearns
Will the shareholders go along?
Bear Stearns, JPMorgan, and various central banking and Treasury Dept. greybeards seem to have had a busy weekend, arranging the deal whereby JPM will buy Bear.
So desperate to sell itself was BS, in fact, that JPM got a fire sale price. That raises a question in my mind: will the deal hold?
In many respects, this is analogous to the deal in November 2001 whereby Dynegy agreed to buy what was left of rapidly-imploding Enron Corp. But there was a lot of room for slippage between contract and closing. And this one never came off.
And Enron had to enter bankruptcy, resulting in eventual liquidation, anyway.
In the case of Bear Stearns, the unravelling if it comes would take a somewhat different form than it took than. It may take the form of shareholder rebellion.
"Even the headquarters building and the land on which it stands would seem to be worth more than JPM is offering for the whole company." Expect to hear some form of THAT sentence more and more often in the days to come, until you'll think Wall Street has been taken over by Henry George's disciples.
Bear Stearns, JPMorgan, and various central banking and Treasury Dept. greybeards seem to have had a busy weekend, arranging the deal whereby JPM will buy Bear.
So desperate to sell itself was BS, in fact, that JPM got a fire sale price. That raises a question in my mind: will the deal hold?
In many respects, this is analogous to the deal in November 2001 whereby Dynegy agreed to buy what was left of rapidly-imploding Enron Corp. But there was a lot of room for slippage between contract and closing. And this one never came off.
And Enron had to enter bankruptcy, resulting in eventual liquidation, anyway.
In the case of Bear Stearns, the unravelling if it comes would take a somewhat different form than it took than. It may take the form of shareholder rebellion.
"Even the headquarters building and the land on which it stands would seem to be worth more than JPM is offering for the whole company." Expect to hear some form of THAT sentence more and more often in the days to come, until you'll think Wall Street has been taken over by Henry George's disciples.
Tuesday, February 19, 2008
Non-core acquisitions
Sometimes the management of a company will come under fire from its shareholders for a policy of "non-core acquisitions."
The idea is that a company should "stick to its knitting," should do what it does best. If a company has been successful in the past in the "core" area, then it has an edge there -- not just the initial success itself, but the institutional know-how built up over time, and the fact that suppliers and customers in that field have both presumably grown accustomed to its face.
There is another thought behind the complaint about "non-core acquisitions." This is the idea that "we, the stockholders don't pay you, the managers, to diversify our portfolios for us. We'll do that for ourselves."
Let's get back to the point at which we left the matter yesterday. Presumably, if I've just bought stock in Comcast, it is because I wanted some exposure in my portfolio to the risk-reward profile found historically in the type of business I know Comcast to be in. If I also want something safe (or something more risky but promising) in there, I'll also buy that. It impedes my ability to get the balance I want if the managers of the particular stocks involved are shifting their own profile.
Now we can move forward a step. I can't say I have much sympathy with this sort of complaint. After all, managers are also often criticized for failing to diversify. Suppose Blockbusters had stuck doggedly to its brick-and-mortar stores (its "core assets") and ignored the fact that the technology for movie-purchase was changing on them. They'd be defunct. But they did anticipate the change and diversify in time, doing "non-core" things in the process, which is why they're a tenable company today. Of course, along the way they made a few false steps, such as a deal with Enron but ... hey ... that's show biz.
My point then is simply that the core/non-core distinction is not itself very useful, and that when we find it being invoked, we should try to look more closely at what is really at stake.
The idea is that a company should "stick to its knitting," should do what it does best. If a company has been successful in the past in the "core" area, then it has an edge there -- not just the initial success itself, but the institutional know-how built up over time, and the fact that suppliers and customers in that field have both presumably grown accustomed to its face.
There is another thought behind the complaint about "non-core acquisitions." This is the idea that "we, the stockholders don't pay you, the managers, to diversify our portfolios for us. We'll do that for ourselves."
Let's get back to the point at which we left the matter yesterday. Presumably, if I've just bought stock in Comcast, it is because I wanted some exposure in my portfolio to the risk-reward profile found historically in the type of business I know Comcast to be in. If I also want something safe (or something more risky but promising) in there, I'll also buy that. It impedes my ability to get the balance I want if the managers of the particular stocks involved are shifting their own profile.
Now we can move forward a step. I can't say I have much sympathy with this sort of complaint. After all, managers are also often criticized for failing to diversify. Suppose Blockbusters had stuck doggedly to its brick-and-mortar stores (its "core assets") and ignored the fact that the technology for movie-purchase was changing on them. They'd be defunct. But they did anticipate the change and diversify in time, doing "non-core" things in the process, which is why they're a tenable company today. Of course, along the way they made a few false steps, such as a deal with Enron but ... hey ... that's show biz.
My point then is simply that the core/non-core distinction is not itself very useful, and that when we find it being invoked, we should try to look more closely at what is really at stake.
Wednesday, December 19, 2007
Thinking Again About Enron
A story I was working on for my day job yesterday got me thinking about Enron again.
The story involved Amaranth,the natural-gas concern that went bust a little more than a year ago.
Both FERC and the CFTC have commenced proceedings against FERC, as have the managers of the San Diego County employees' pension fund. The two agencies claim Amaranth manipulated natural gas prices. The pension managers claim it lied about how risky its portfolio was.
Anyway, the story on which I was working yesterday involved FERC, which contracted with a professor at Rice University, in Texas, to study the natural gas market for them as a consultant, and tell them whether Amaranth had a large enough share of that market to have manipulated the prices. He said that they did.
The name of that consultant? Vincent Kaminski.
To fellow Enron-scandal nerds that name will ring a bell. He was Enron's "risk manager" when some of the decisions were made (over his protest) to take risks that proved disastrous.
Here's a news report on the Kaminski testimony at the Lay and Skilling trial last year: http://www.cfo.com/article.cfm/5623848
While my stream of consciousness flows back toward Enron, I'm also reminded of my own impression, as it unravelled, that the decisive internal battle at that company was the one in which Rebecca Mark lost out, the battle over whether Enron would be an asset-lite or an asset-heavy company.
Jeffrey Skilling believed in an asset-lite business model. Ownership of old-fashioned physical assets was a burden best shrugged off the shoulders of an up and coming new-economy company. Who needs pipelines and power plants? Less tangible assets ... contracts, trading positions, trading systems ... those were the gleam inhis eye.
Mark believed in those old-fashioned tangible assets, though. And her division was in charge of building them around the globe, including an especially controverial power plant in Dabhol, India.
Here's the URL for a rather admiring profile of Mark, post-Enron, http://www.fastcompany.com/magazine/74/enron_mark.html
And here's a less admiring view:
http://www.swaminomics.org/articles/20020216_rebeccamark.htm
The obvious truth (though even to state it would probably sound absurdly philosophical to a Jeffrey Skilling) is that physical assets ultimately back all the less tangible sorts of wealth that the Skilling's admire. If there aren't power plants, tankers, port facilities, and pipelines, then what possible good is a bright new idea of the more efficient trading of energy futures? Can it be a great business model to fob off those assets on 'somebody else' somewhere else?
Another obvious truth: lenders want collateral. Tangible assets are very good for this purpose, so they help ensure the continued solvency of any operation that possesses them.
When I've written about this subject, I've gotten a range of responses. One line of thought has been: the asset that matters most isn't the kind that Mark was in charge of. It's simply cash in the bank. Her projects were draining Enron of that asset, not building it.
But I think that's wrong. There is such a thing as being too liquid for one's own good. LTCM was dramatically tooliquid for its own good and that should have been a valuable lesson at precisely the moment that Lay was encouraging the Skilling/Mark rivalry.
But that's enough of a trip down memory lane for today. My head hurts already.
The story involved Amaranth,the natural-gas concern that went bust a little more than a year ago.
Both FERC and the CFTC have commenced proceedings against FERC, as have the managers of the San Diego County employees' pension fund. The two agencies claim Amaranth manipulated natural gas prices. The pension managers claim it lied about how risky its portfolio was.
Anyway, the story on which I was working yesterday involved FERC, which contracted with a professor at Rice University, in Texas, to study the natural gas market for them as a consultant, and tell them whether Amaranth had a large enough share of that market to have manipulated the prices. He said that they did.
The name of that consultant? Vincent Kaminski.
To fellow Enron-scandal nerds that name will ring a bell. He was Enron's "risk manager" when some of the decisions were made (over his protest) to take risks that proved disastrous.
Here's a news report on the Kaminski testimony at the Lay and Skilling trial last year: http://www.cfo.com/article.cfm/5623848
While my stream of consciousness flows back toward Enron, I'm also reminded of my own impression, as it unravelled, that the decisive internal battle at that company was the one in which Rebecca Mark lost out, the battle over whether Enron would be an asset-lite or an asset-heavy company.
Jeffrey Skilling believed in an asset-lite business model. Ownership of old-fashioned physical assets was a burden best shrugged off the shoulders of an up and coming new-economy company. Who needs pipelines and power plants? Less tangible assets ... contracts, trading positions, trading systems ... those were the gleam inhis eye.
Mark believed in those old-fashioned tangible assets, though. And her division was in charge of building them around the globe, including an especially controverial power plant in Dabhol, India.
Here's the URL for a rather admiring profile of Mark, post-Enron, http://www.fastcompany.com/magazine/74/enron_mark.html
And here's a less admiring view:
http://www.swaminomics.org/articles/20020216_rebeccamark.htm
The obvious truth (though even to state it would probably sound absurdly philosophical to a Jeffrey Skilling) is that physical assets ultimately back all the less tangible sorts of wealth that the Skilling's admire. If there aren't power plants, tankers, port facilities, and pipelines, then what possible good is a bright new idea of the more efficient trading of energy futures? Can it be a great business model to fob off those assets on 'somebody else' somewhere else?
Another obvious truth: lenders want collateral. Tangible assets are very good for this purpose, so they help ensure the continued solvency of any operation that possesses them.
When I've written about this subject, I've gotten a range of responses. One line of thought has been: the asset that matters most isn't the kind that Mark was in charge of. It's simply cash in the bank. Her projects were draining Enron of that asset, not building it.
But I think that's wrong. There is such a thing as being too liquid for one's own good. LTCM was dramatically tooliquid for its own good and that should have been a valuable lesson at precisely the moment that Lay was encouraging the Skilling/Mark rivalry.
But that's enough of a trip down memory lane for today. My head hurts already.
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