Enron’s Desire

Enron’s Desire

In 1996, US Energy market was fully open and Enron utilise the controversy using electricity trading Manipulate supplies and thus prices during the power crisis in the summer of 2000 in California.

Integrity of Capital Markets

Market Manipulation

Enron trading different kind of futures, long term supply contracts ,and hedges even weather derivatives. As margin going down, Enron had to find a new and more profitable instruments to trade. After all there are over 1200 separate trading books including broadband capacity which would cover the cost when some special problems happened. And the EnronOnline launch would be a brilliant idea, however, insufficient working capital to fund the book Enron used the short term commercial paper market for this, a market that was dry up in the immediate after major liquidity problems posting.

Mark to Market Accounting

the VPP open the way to agree the Mark-to-Market. It begins seen to accept by standard and set the precedent to be the first outside the financial sector to adopt this approach, The SEC and Enron both “recklessly” forgot the unsuitability of it years by years, This major change affect the most of result and allow Enron to take up front most of the profits on contracts and requirement to write them down if their value diminished.

Professionalism

知法犯法算是Misrepresentation還是Misconduct

The basic SPE methodology was simple. They sold SPE or kept on Enron’s books as a merchant asset. To create a merchant asset , the trader would forecast the future price curve for the underlying product, calculate the future cash flows and apply a discount rate to compute the net present value which could either be sold to an SPE created for that purpose They used this move to attract the most. The financial involvement of Enron officers and employees in the SPEs increased that interest. Enron was the only supplier for some products and extended the mark-to-market principle to longer period, for which it had to derive its own price curves.

In order to making money, they were instead of trying meet their budget, Enron revisit the deal and “tweak the numbers”. According to the former employee’s words that it was known as “marking up the curve”.

Duties to Clients

Performance Presentation

Lack of Self-regulation

Enron had a large risk control group which was split into four departments. This was supposed to ensure that the traders’ pricing was appropriate for the risks being assumed.

But too many activity level lead to risk control department tired to do the math rather than correct the issue back when the assumption is misleading.