the CAMP ENRON Report

... gateway to the next Progressive Era?

Some say it's nothing but a train wreck ... roll in the big cranes, clear the track, see what the crew's been smoking. If I thought so, I'd not be writing this ... and if they thought so, they'd not be drumming so hard.

For a brief orientation, see this
Welcome to Camp Enron

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Camp Enron Archives
01/01/2002 - 02/01/2002 02/01/2002 - 03/01/2002 03/01/2002 - 04/01/2002 04/01/2002 - 05/01/2002 05/01/2002 - 06/01/2002 06/01/2002 - 07/01/2002 07/01/2002 - 08/01/2002 08/01/2002 - 09/01/2002 06/01/2003 - 07/01/2003

(2) All "major" articles of older material have now been imported, some with updates worth perusing. We'll keep it all on the main page for a while, will add a few loose pieces of history, will trim the main page and index the archives for convenience later.


free agent, loose cannon, pointy stick ... taking an imposing analytic toolkit out of the box, over the wall and into the street ... with callous disregard for accepted wisdom and standard English

reading the tea leaves from original angles, we've led with uncannily prescient takes on the federal surplus, the dotcom crash, the "Energy Crisis", the Afghan campaign, the federal deficit.

More where those came from ... stay tuned.

For brief orientation, see this
Welcome to CP

... gateway to the next Progressive Era?

For a brief orientation, see this
Welcome to Camp Enron

Many thanks to Tony Adragna and Will Vehrs, still shouting 'cross the Potomac at QuasiPundit. Early Camp Enron material can be found in QP's Dispatches department.
Saturday, March 09, 2002

--- "Status Quo is Not an Option" ---

OK, Campers, lets see how those projects are coming along ...

Enron-related reform proposals are percolating in scores of congressional committees, executive departments, think tanks, courtrooms, Wall Street conference rooms, self-regulatory bodies and ivory towers. Topics run the gamut of business practice and governance: executive compensation -- general, deferred, options, bonuses, loans, pensions, insurance ... general employee options, pensions, 401(k)'s, ESOP's ... board of directors composition, compensation, standards of conduct and liability ... personal bankruptcy, lavish homestead exemptions and executive retirement shelters ... corporate bankruptcy, including its asymmetric effect on symmetric swaps ... swaps, derivatives in general, regulation, disclosure, accounting ... Special Purpose Entities, especially offshore, applicable disclosure and consolidation thresholds ... tax accounting for options ... "trust preferred security" tax schemes ... new classes of sham transactions, especially those using tax islands as ports of call ... international holding company cash management systems ... unregistered private banks and hedge funds ... securitized lending portfolios and related off-book devices ... synthetic leases ... exotic OTC trades ... SEC disclosable events and deadlines ... security analyst independence ... white collar criminal penalties ... white collar litigation curbs ... credit rating integrity ... audit standards and auditor independence ... corporate consolidation and oligopoly.

No clear prognosis on specific measures, but "The status quo is not an option". (Senator Torricelli, to a quartet of prominent security analysts determined to sing "We're OK, blame the accountants" despite strong correlation between their firms' investment banking revenues and their "Buy" recommendations.)

It's as if we spotted a few drips, thought we had a leaky pipe, then got a whiff of the acrid smell, then tested positive for PCB's, and asbestos, and heavy metals, and radionucleides. Tracing the plume upstream we learn the whole town sits on a toxic waste dump, and it's seeping into the aquifer, and we're not the only town in the same fix. If Enron is more than an aberration, we're living atop the financial equivalent of Love Canal ... what do you do first, and how do you keep it from happening again? Expect a lot of talking -- and fingerpointing -- before any serious doings.

Current initiatives -- knee jerk first drafts -- won't lead to much directly. It will take time and work to mark the holes in our value and feedback cycles, and more time yet to plug the holes without gumming up the works ... and more time for opposition to polarize over competing solutions, and for one side to overcome the other, and then we commence the cycle of unintended consequences. But the status quo is not an option.

Trial balloons are floating from SEC and Congress, from Merrill Lynch, from the exchanges, from SIA, from FASB, from AICPA. GWB offers a mumble-something shareholder protection plan, weaker than Paul O'Neill's. None has much snap.

At SEC, Harvey Pitt lumbers reluctantly into the fray. "I do not believe that we need legislative action". He correctly notes SEC doesn't have the staff to do the job right, the job keeps getting bigger (even without Enron), and staff pay is far below scale for comparable jobs in industry or government.

All Big Five have voluntarily split -- or declared intent to split -- auditing from consulting. More radical measures are on tap: audit firm term limits, exchange-funded audits, public-funded audits. The industry as a whole is fighting mandates, clinging to "good citizenship" models of self-regulation.

The Enron dig itself proceeds slowly. The scope of issues, sheer mass of records and cast of characters is unprecedented. FBI and other white collar sleuths are swamped, and will be.

Reform has no center of action as yet ... no select committee, no blue-ribbon panel, no polarizing crusader of national stature.

My nominee for the role of Moses -- GE patriarch Jack Welch -- turns out to be an Enron dove, and has enough problems of his own right now. But he does suggest that underneath the dotcom bubble is a scandal "50 times" the magnitude of Enron. I tend to agree. Add in the fiberoptic crash, and make that ENE x 100. There are bigger, deeper scandals, and I think they'll coalesce.

The big issues haven't surfaced yet. A hard winter exposed a few unusual artifacts, and we're laying out gridlines for a big dig ... but who ya gonna call? Criminologists? Archeologists? Exorcists?

In the collateral damage department, energy dereg holds its own for now ... that may just be inertia and investigative bandwidth limitations. Major energy bills, including PUHCA-killers simmer in both houses. Sen. Feinstein has a major re-reg bill. Look for refocus later in the year, with more forensic data and immunized witnesses at the table.

Enron put Shays-Meehan/McCain-Feingold over the top, we'll see how it plays out. Won't be simple, no matter what the court does with it. Skeptics, see Mann & Ornstein.

Social Security privatizers are still running as if, but that dead horse won't hunt.

In Scandalsville it's at least Josh Marshall's meta-scandal. The chorus of Endarkened Self-Interest has piped down a bit. Remains to be seen if it's the harbinger of a new Progressive Era ... meta-analysis continues.

Enron big brass sustain their Culture (or is it "Cult"?) of Minimal Disclosure, banking on the out-of-the-loop defense. Lower down the food chain, they're cutting deals and spilling guts. DOJ is holding criminal obstruction of justice charges over Andersen's head, and -- eager to get on with its own battle for survival -- Andersen should turn state's evidence.

Andersen is well on the road to imploding, and will take more hits, as will Vinson & Elkins -- especially if Andersen flips first. And some money-center bankers are losing sleep.

Skilling thought he got away with playing cat and mouse again ... but he's the mouse, and this ain't no Tom and Jerry episode. He's not helping Congress -- who want the case in point laid out so they can argue what to do about future Enrons -- and not helping himself. If nothing else, they'll hang him for that phony trading room caper ("The Sting") ... but I doubt it'll come to that. Lay and others wait for the knock at the door. Watkins may ride it out if she doesn't overplay her role. Baxter is still dead.

The sex angle is heating up, nothing stellar yet unless you count Skilling's marriage (of spousal testimonial convenience?) to Rebecca Carter (former Enron Corporate Secretary and chief control officer, former Andersen auditor, and formerly known as "Va Voom"). A pall of darkness hangs over Houston strip clubs.

In bankruptcy court the feeding frenzy continues ... the latest tussle concerns ENE's budget for legal defense.

Global Crossing stinks higher than Enron, and may take some big buddies down with it. Down the chain of dominoes, one or another a major financial firm may fall ... and then the real fun starts.

For comic relief, Enron pulls a Mariah Carey, charging the Astro's $2.1M to take the Enron logo off their ballpark. Guess that will help peg the going rate for site de-Enron-ification.

Politically, things are pretty quiet. I still predict peak effect in 2012. Army Sec'y White looks like dead meat, and (as Josh Marshall points out) a convenient throwaway. Other names to watch: Ashcroft, Beers. GWB still strangely asserts Lay was a stranger. E-money is still trickling in from political war chests to Enron employee relief funds. (Nobody has picked up the tax angle on these contributions yet.)

In Congress, Tauzin's the showman, Hollings the loose cannon. Greenwood and Fitzgerald look good, Corzine's a major figure, and other reputations will be made and marred.

As hinted here earlier, Enron political operations were underestimated and underreported. First half federal lobbying outlays for 2001, for instance, were $2.5M ... about three times the original reported amount.

Texas has a primary election Tuesday 3/12. Latest polls suggest Enron will twist the Senate nod out of (D) Bentsen's hands, consistent with our analysis. Interesting to see how many protest votes (R) Cornyn's four no-name opponents can muster. The real fun starts this fall, and includes an uncomfortable spotlight on GWB's record as governor.

Speaking of uncomfortable spotlights ... in a hard-fought CA Governor's race, GOP seems determined to hang the Energy Crisis on incumbent Gray Davis. Not where I'd want to aim the spotlight if I were in their boots, considering where the bodies are buried and where the first Enron digs are starting.

Western power wars are far from over. FERC is to investigate Enron trading practices ... with what, when? Just reconstructing the trading log is a multi-year project. Expect heat and possibly fission as they debate how to proceed. There are some good sharp pencils who know how to chase this, maybe they'll show up on somebody's team or as friends of the court.

Some of state A.G.'s are conflicted ... suing Enron for billions in market manipulation refunds on one hand, representing state pension funds holding tons of ENE stock on the other.

Corner opposite, still no reasonable explanation for Alliance Capital Management socking Florida pension money deeper into ENE as it fell, with implications for Jeb Bush's re-election bid.

On fundamentals, still no evidence Enron ever existed as a value-producing economic entity. The markets haven't missed it.

As for economic impact, big names on the street endorse my "lower P/E's and lower E's" double-whammy thesis. Deals (of certain stripes) are inhibited, dividends becoming fashionable, and true cost of capital higher. Traditional US advantages in global capital markets have narrowed, as suggested, but it's too early to say what'll stick.

Flatland bookkeepers are still bamboozled by derivative sorcery, with no viable proposals for corrective action on the table. The fundamental covenants of financial accounting are broken.

Over the next few decades, globalization will exert unrelenting pragmatic pressure for large-scale conformity in accounting, tax and regulatory models. There's already some buzz about EU taking the lead in accounting standards ... never thought I'd see the day. On several fronts, US is the favorite for odd man out.