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, July 23, 2002

--- O Brave NewWorldCom ---

As expected, WorldCom spun itself into the Mother of All Bankruptcy. Stated assets in excess of $100B won't cover liabilities of a little over $40B. True economic assets are estimated in the $15B ballpark ... but not all of those are separable and fungible, some may be radically overpriced, and there are not a lot of cash-rich potential buyers in the telecom game these days.

[As always, see Ben Silverman's excellent blog for all WorldCom's dirty details.]

Pre-filing, was a five-way Mexican stand-off ... everybody holding a gun to everybody else, everybody threatening to shoot the puppy and by extension, themselves. CITI, JPM and GE negotiated a desperately needed $2B infusion in return for debtor-in-possession status -- first-served in debt repayment, in the driver's seat for restructuring, and they get first pick of venue: New York City. By luck of the draw, Judge Gonzalez is handling both Enron and WorldCom bankruptcies.

WCOM equity is worthless, WCOM debt will probably settle for next to nothing. They probably can't divest many assets, and current opinion runs against their being acquired. The end-product of bankruptcy is the same company, with new owners, with debt-holders losing most all of what they're owed in exchange for shares in the new (relatively debt-free) company.

Biggest bag-holder is J P Morgan Trust, in for a whopping $17B ... but that doesn't tell the whole tale. The JPM unit merely holds WCOM debt instruments in trust for ... who? A lot of little people? A few big people and/or institutions?

Most telecom's, I'm guessing, will lose money directly in WCOM bankruptcy. Network enterprise -- telco, airlines, electric power -- is a funny business. Telecom's all owe each other money, all help collect each others' bills. They all subsidize each other massively, since anybody's network subset has fewer connectable points of presence and less statistical redundancy.

Meanwhile WorldCom switchboards keep on plugging, though customers may suffer marginally from cost-shaving strategies. The real nightmare is for competitors. The fiber-optic glut is still out there, commodity bandwidth prices are in the crapper, value-added services are dog-eat-dog, and the NewWorldCom dog emerges free of the debt load most other dogs are carrying.

Like dominoes, telecom after telecom could go bankrupt, emerging "born again" like NewWorldCom. Telecom suppliers -- the closest this sector gets to "smokestack industry" -- are hurting, masters of a vast universe of no-account customers. And after everybody goes bankrupt, they're still all behind the eight-ball. Prices are still lousy, marketing costs are still intense, and the fiber glut is still out there. It doesn't take much surplus in any commodity to send prices through the floor. A glut of No. 2 corn will go away eventually, courtesy of rats or rot or industrial conversion or livestock elasticities or actual human consumption. Fiber just sits there, while encoding and transponding technologies pack more and more messages into each strand.

So after everyone goes bankrupt, they've still got problems. The palette of solutions includes demand growth (where it's not clear the curves will cross in any foreseeable futures) or world war (destroying real physical capacity), or deliberate withholding by some sort of cartel. A global restructuring is in order but there's no model, nobody to carry it out, and no barrier to the same conditions creeping up again.

There'll be a developing shortage of qualified restructuring experts, managers, trustees, examiners, along with forensic accountants and investigators, and it'll get worse as CEO's face those August 14 sign-off decisions and as existing investigations mature.

Jack Grubman, of Salomon Smith Barney, of CitiGroup, is a marked man. No matter how much his picks reflected true-believer enthusiasm, he probably stretched the truth or wore conflicting hats enough to get nailed. Ebbers may be headed for personal bankruptcy, or worse. Sidgmore is under increasing scrutiny, and any number of corrosive disclosures could threaten the integrity of his shining armor.

Major financial institutions are on the hotseat. CitiGroup and J P Morgan Chase are in the Congressional crosshairs today, and getting pummeled on Wall Street. The mad science departments at many moneycenter banks were instrumental in engineering the structured financing vehicles through which borrowing was made to look like profit, and debt was made invisible. Prepays -- loans disguised as commodity swaps -- are a major issue. See this MSNBC/WSJ explanation (which unfortunately did not include the flowchart as in the print version).

We speculated back in January that events in the Greater Enron Standard Metropolitan Statistical Area could take down one or more landmark financial institutions (JPM a named case in point) through a double whammy of junk assets and legal jeopardy. We're not there yet ... but safety margins are eroding rapidly.