Archive for May 5th, 2010

Smartest Crooks Know Law is on Their Side

Enron scandal did not happen by itself. It was made to happen by some crooks with lots of help from other agencies. For example Arthur Andersen one of the largest audit and accountancy partnership went out of business by playing along. Where did Enron get such a clout so suddenly and so authoritatively? It could not have been coincidence that natural gases were deregulated in 1985 and also marked the founding of Enron. How much politicians in office or outside (but with power to help the company along the way) shall be a debatable point. Remember the company’s television commercial of not so long ago, ending with the reverberating phrase, “Ask why, why, why?” That question we may phrase it as Ask Who,who,who,who?

Enron was formed in 1985 by Kenneth Lay after merging Houston Natural gas and InterNorth. With the coming of Jeffrey Skilling it was time to set special purpose entities, and it took care of accounting loopholes to hide billions in debt from failed deals and projects. Chief Financial Officer Andrew Fastow and other executives were able to mislead Enron’s board of directors and audit committee as well as pressurize Andersen from looking closely at high-risk accounting issues.

Stock prices of Enron at US$90 per share in mid-2000 caused shareholders to lose nearly $11 billion when it plummeted to less than $1 by the end of Nov.2001.On Dec.2 2001 Enron filed for bankruptcy. It was the largest corporate bankruptcy in U.S. History and also largest auditing failure. Employees and shareholders received limited returns in lawsuits, despite losing billions in pensions and stock prices. As a consequence of the scandal, new regulations and legislation were enacted to expand the reliability of financial reporting for public companies.

On looking back what was really the compelling reason for the United States Congress to pass legislation deregulating the sale of natural gas? It was all too plain that it was to give traders such as Enron to sell energy at higher prices, allowing them to thrive. After producers and local governments decried the resultant price volatility and pushed for increased regulation, strong lobbying on the part of Enron and others, was able to keep thefree market system in place.

McLean and Elkid in their book The Smartest Guys in the Room, “The Enron scandal grew out of a steady accumulation of habits and values and actions that began years before and finally spiraled out of control.”Risk takers ought to be awarded for their guts. It is an American quality’ In the end it proved crooks jumped and the spectator applauded bravely watching their motions calculated to deceive there was no hoop to begin with. When some express outrage at government controls think of Enron. It was fraud perpetrated on unsuspecting nation by people who were responsible to set checks and balances and defend the man on the street who voted them to office.(ack:wikipedia)

Free market shall allow such entities as Enron to exploit the public with the same ease as raising prices in commodities artificially by vested interests. In the case of state intervening there can be failures as mentioned in Gulf Oil Spill.

Pity that democracy is earmarked for humans withtheir faults:poor judgment greed, malice and lack of opportunites in their youth or neglected.


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Gulf Oil Spill

A blowout on April 20 led to huge fire and sinking of the Deepwater Horizon drilling rig in the Gulf of Mexico.

blowouts (explosions, followed by fire) are possible when wells are being drilled. The oil industry depends on technologically advanced equipments to deal with such eventualities. One way they do is to study with computer simulations. ‘If one tweaks one part of the equipment to make it stronger (to deal with the higher pressures, and greater temperature differential between the hot oil and the cold water), it can cause unforeseen problems with another system that interacts with it. In short technology is merely groping in the dark hoping the ground realities ever remain true to computer model.It is like a blind shooter who is the fastest draw may yet find his mark because of his speed. What we need to concern ourselves is that where one gets the problem licked it is more likely something else could go wrong from an area least expected.

The earliest oil wells in the Gulf of Mexico were in shallow waters near the coast. But as these wells have become depleted, it has been necessary to drill in ever-deeper waters. When one drills in deeper water, the challenges are greater–the pressures are greater, the temperature of the oil is higher, and the stresses on the metals involved are greater.

With such likely ‘environmental disaster scenario ‘one expects government agencies would be more vigilant to protect their green wealth,flora and fauna that could be wiped out by disasters.

In this case the government regulator downplayed environmental impact of spill.

In a 2007 the Interior Department’s Minerals Management Service presented environmental impact statement for the Western and Central Planning Area Sales, which includes the Macondo Prospect where the Deepwater Horizon rig exploded In the document which covers oil drilling leases from 2007-2012

Offshore oil spills resulting from a proposed action are not expected to damage significantly any wetlands along the Gulf Coast… Overall, impacts to wetland habitats from an oil spill associated with activities related to a proposed action would be expected to be low and temporary.” (emphases are provided by the writer of the Huffington Post. Ack:The Huffington Post-May 3,The Oil Drum report of April 28,2010 by Gail the Actuary)

benny thomas

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