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.
Tuesday, April 02, 2002

--- Feeding Frenzy Turns to Slim Pickin's ---

As Enron fell into bankruptcy, many stated assets turned out to be imaginary, while securitized liabilities crept out of the SPE woodwork and crawled back onto the balance sheet. That leaves billions outstanding in ordinary claims (IOU's and trade payables), unpaid compensation to employees (and some retirees), shareholder claims (for securities fraud, etc.), potential fines, as well as ongoing expenses on continuing operations.

These may be dwarfed by a wildcard -- legal treatment of forward derivatives contracts where Enron owes somebody money, versus offsetting contracts where another party (often the same party) owes Enron money. Standard bankruptcy treatment would void the inconvenient "Enron gives" contracts, and enforce the convenient "Enron receives" contracts. But in the world of hedged derivatives trading, standard treatment is a blueprint for impermissibly viceful schemes of "bankruptcy for fun and profit".

Behind these ordinary claims, there's another giant wildcard. Enron may end up on the hook for tens of billions of dollars in civil or criminal or even RICO penalties and restitution for energy market manipulations preceding the bankruptcy.

Enron had a considerable portfolio of genuine assets .. the remnant of its shift to "asset light" strategery. Some units have been sold off. Others -- notably power generation facilities in several nations -- could be liquidated favorably except that they're tied up in conflicting claims, with interested parties trying to outguess each other on all the other imponderables. Some of these assets are hobbled or even mothballed pending resolution of claims and assurances of contract fulfillments.

Enron disbursed nearly $800M in "performance based" executive compensation in the run-up to collapse. (DOJ has the spreadsheets. So does the NYT.)

In the "chump change" department, bankruptcy court gave Enron the green light to spend up to $130M in key employee retention bonuses. (That comes out of the same pot of money as ordinary employee severance payments. Good luck to all you non-key employees!)

Farther down the food chain, folks who owed Enron money have an annoying habit of turning up insolvent. Last year, Enron thought they had a $3B deal to sell PGE to Sierra Pacific (Nevada Public Power), but Nevada -- drained by Enron's "California" energy holdup -- couldn't pay the piper. Enron let Sierra escape a $1B commitment for less than $10M. Maybe the purchase commitment was wrongfully induced in last year's energy panic, but Enron creditors could've used the extra billion. Like a poorly-adapted parasite, Enron had a way of sucking all the life out of its hosts.

All this has Enron creditors looking down the line to other culpable "deep pockets" such as ... Andersen? But Andersen is on the ropes.

Andersen audited the nonprofit Baptist Foundation of Arizona, which turned out to be a good old-fashioned Ponzi scheme, leaving some 13,000 investors holding the bag to the tune of $570M. Andersen settled adverse claims on this account for $217M. Last week it announced it is unable to make payment as required by the terms of settlement.

Why not? Andersen planned to pay the claim through its insurance carrier, Bermuda-based Professional Services Insurance Co.... which appears to be insolvent.

Why insolvent? Among other reasons, Andersen seems to be in arrears to the tune of $100M in premiums. Andersen had already tapped its insurors for $75M (liabilities) plus $7M (fines) for Waste Management, $100M for Sunbeam, and other debacles, possibly not yet including those smoldering in Australia, Indonesia and Singapore.

I don't think it's clear whether PSI disallowed the claim, or Andersen exceeded its cumulative coverage, or PSI is under water for other reasons, or PSI and Andersen (which is part owner of PSI!) had a falling out, or whether PSI was ever properly capitalized to write this business in the first place. But Arizona's A.G. is pissed, and so are a bunch of judges and lawyers and plaintiffs, and probably another circle of people the first bunch promised to pay out of the Andersen settlement.

It probably doesn't help that Andersen currently has no clear lines of authority, nobody who can sit down and negotiate (or renegotiate) for the firm. "White Knight" Paul Volcker and the firm's lawyers can't even agree on whether to admit improper conduct in the "water over the dam" department. Adding insult to injury, Andersen's document destruction policy -- the policy that has them in deep double dutch with DOJ -- was authored by one of the partners on the Waste Management account ... one of the partners Andersen failed to punish, in the Houston office they failed to clean out after last year's major slap on the wrist.

Small comfort to creditors that Andersen partner earnings distributions will be scaled back about 1/3 ... but that won't stop the bleeding, or the desertions.

Overseas affiliates are bailing faster than USian's. From Russia, re attempts to strike a deal with Deloitte & Touche: "The interests of the US dominated, and they tried to drag out a solution before concluding a deal would be impossible if the US was involved ... Valuable time was lost." (

If that weren't enough, Andersen is implicated in a half billion dollars worth of "dark fiber" swaps between Enron and Qwest in Q3 2001, as both firms struggled to look profitable on paper. My guess: swims like a duck, quacks like a duck, gets indicted like a duck.

Andersen has been trying to negotiate a settlement of indirect claims through Enron. Andersen's best offer was reported in the $750M ballpark, but that included a big chunk of insurance money, plus maybe as much as $500M out of pocket. Andersen doesn't appear to have means to make good on either.

$500M out of pocket sounds big, but that's only about $100K per partner, or $6K per worldwide employee ... a painful nick, but hardly a cut to the bone out of an average partner's half-million-dollar annual income. In the end, the partners wouldn't dig very deep to save the firm, or -- more likely -- didn't strongly believe it could be saved in any event ... with or without DOJ's criminal indictments.

Enron claimants are reluctant to go easy on Andersen, even as it sinks into oblivion, because failure to pursue these claims aggressively might prejudice their case against the next echelon of deep pockets -- the megabanks and financial service industry. And then things get interesting.

JP Morgan Chase, for instance, has reserved a couple billion dollars for Enron-related contingencies. JPM holds roughly $1T in assets, against roughly $1T in liabilities. The difference between those two big rough numbers is about $40B ... JPM's book value. In the ordinary course of business, that's a big number. But $40B is a short stack next to $60B of evaporated ENE market cap, and up to $100B (counting treble damages) of western power market claims, and some very large unknown number resulting from out-of-the-money derivatives contracts. If the wildcards fall the wrong way, the Enron effect (plus Global Crossing, and Qwest, and whatever else) could be materially adverse, to say the least.