In response to the comment about accounting two posts above ^^^ I view mark to market accounting like I'm tempted to view deregulation. It's not a bad thing in theory, but it allows bad things to happen in reality. Do we really trust companies, even honest ones, to speculate about profits a decade down the road? Are their forecasts trustworthy enough to serve as the basis for financial reality in the present? I think M2M accounting is ********. I don't see how it's legal. Major corporations should always be able to produce a balance sheet, no matter how strong their moral compass is. M2M accounting isn't inherently fraudulent, but it facilitated Enron's fraud.
Falcon: I'm not an authority about Enron in any respect. The ONLY point I tried to make on this thread is that Enron employees were NOT coerced to put their 401k money in Enron stock.
JohhnyM, My point was that the rules of deregulation werent thought out before they were implemented. They also capped prices at the retail level while letting wholesale prices skyrocket. So the natural free market forces of supply and demand were not there. I don't defend what Enron did, I am just saying they found an advantage and took it. You make it sound like they cut-off all supply. They only owned one power generation company. Like I said before, to have an effective energy trading and marketing group you need to have supply. That way you have supply to cover your positions. Sorry but it is the way it happened.
So are you at least willing to admit that they, at the very least, used some HIGHLY immoral tactics to make a ****-ton of money? Is that ok simply because they're a business? Why? You're defending Enron because you're basically defending business in general when they do ****** things to make money. You're saying that without perfectly setup rules, it's ok for a business to do anything and everything for a buck. Correct me if I'm wrong, but that's what it sounds like.
JohnnyM, I am not saying that I am backing Enron. My point was related to the guy who worked for Enron who said it was a very entrepreneural cultural. That entrpreneural cultural (which looks aggressively for advantages), mixed in with a ****** deregulation plan, coupled with the high demand from a hot summer, coupled with a drought and no hydro that I mentioned earlier made for the "perfect storm." They seized the moment and when the smoke cleared they came out looking not so good. Many companies restrict demand of products to keep the price up. Look at what Apple did with the IPhone when they first put the product on the market. I realize that the difference in the type of product is much different. Energy is definitely more crtical to our day-to-day living than an IPhone. The other thing that kills me, is that people on here defending CA's policies for importing power instead of building the capability are the same people who complain about our reliance on foreign oil. People in CA don't want power plants in their backyard (primarily for environmental reasons) so they are happy with relying on other states for producing and sending it to them. Then they complain when they energy problems. Well you can't have it both ways.
The Savings and Loan companies a few years ago would have benefited from a little M2M with their real estate holdings.
How the SEC allowed Enron to use mark-to-market for energy-savings projects, I will never understand. I'll give you an example: you are Enron. You sign a contract with a large retail company where you promise them that you will reduce their energy use by X% by investing capital in their energy infrastructure (efficient lighting, new air conditioning equipment, etc). So you sign a contract where you promise to deliver so many kWh and CCF over the next 15 years. Then you calculate the NPV of the project, and it comes up to X million dollars. Then, once the contract is signed, with M2M you book the X million in profit right now!. The whole thing! A project that hasn't been built yet. A project that might not produce as much savings as anticipated, and it could actually not produce any savings at all. So you book the whole value of future savings today with M2M. Then, next year, if you realize that the project will not make $20M, but $5M instead, you are supposed to book, on that quarter, a $15M loss, but management hates booking a loss, so they delay the decision and time goes by and the loss is not booked to make your books accurate. The thing is, there is no way that an auditor, be it Arthur Andersen or whoever, can really understand what a complex business is doing so that they can call BS in case the business is lying. I never had to explain my work to Arthur Andersen, but I saw one of my co-workers having to do it. Andersen brought two kids who looked to be fresh out of school, probably BBA degree. My co-worker spent weeks with them explaining the process. The whole time I kept thinking, if he wanted to BS them, he had a million options for burying his BS in more BS, and they never would have been able to catch it. So the system is flawed. The SEC requires external auditing, but in many (maybe most) cases, the data can be obfuscated enough that it becomes practically impossible to discern truth from BS. Moreover, your company pays the external auditor millions of dollars to do the audit, so the auditor is hard pressed not to blow the whistle. Firms like Arthur Andersen, they would never want to lose a big account like an Enron.
It is the auditing firms responsibility to understand material transactions executed by their clients so they can render an opinion. The fact that Enron was engaging in some large, very complex transactions should have resulted in Arthur Anderson really scrutinizing those transactions to make sure they understood what was going on. You can draw at least a couple of conclusions on what happened: 1) They whored themselves out for the fees and thought Enron was too big to fail. Or.... 2) They exercised poor judgement along with a lack of supervision on the assignment of personnel to review those transactions. Either way, Arthur Anderson was on the hook. A similar meltdown is underway right now with the debt rating agencies. There is no way they will be able to argue that subprime loans bundled with other debt is worth the AAA rating given to Treasury bonds. The rating agencies get paid by the companies trying to sell the debt that is being rated. Just a wee bit of a conflict of interest there, don't you think? Many market investors relied on the rating agencies for a transparent risk assessment of the debt bundles being sold. They are going to sue the hell out of those agencies and put them out of business.
It's got nothing to do with "philosophy", in fact, that's the point- you started with an assertion, essentially that liberals (and presumably liberalism) prevented California from having sufficient generation capacity, despite the fact that they didn't really solidly control California politics until the last decade or so. I don't accept that assertion, but I'm not asking you to demonstrate it, because I've already considered and rejected the "liberals caused the California energy crisis" meme to my own satisfaction and at any rate I don't care what you think. I'm not asking you to accept my point of view, I'm just encouraging you to dig a little deeper. It's not my job to teach you how the world works
I understand your point but was looking for specifics, i.e., what special interest groups are you talking about? CA chose to go the route of not having enough supply and relying on other states for their power. I do know that environmentalists in CA are very much opposed to building power plants. The problem is they are happy to shift the problem to someone else's backyard and then have a big group hug that their state is so clean. The only problem is that aren't too happy when the group hugs are being held in the dark.
