From: Peter C. McCluskey (pcm@rahul.net)
Date: Sun Jan 27 2002 - 11:37:43 MST
mail@HarveyNewstrom.com (Harvey Newstrom) writes:
>those options. CNN also reports that Enron froze the employee's 401K funds
>so that employees were prevented from selling their stock while executives
>continued selling theirs.
These reports appear to be more misleading than Enron's financial reports
were. According to Investor's Business Daily, employees were prevented
from selling their stock for a period of about 2 weeks in late October
and early November.
According to SEC filings (see http://biz.yahoo.com/t/e/ene.html), Enron
executives stopped selling after August 2 (except for one director - I'm not
sure whether he's an executive - who sold $39.50 worth of stock on Nov. 28).
CEO Ken Lay actually bought nearly $2 million worth of stock in August.
It's possible that the SEC filings are incomplete, but I don't know where
else the media would get their info about stock sales.
Prior to August, executives did a lot of selling, but that was also true
in other companies in industries in which Enron operated (e.g. Calpine),
so it's hard to tell what role inside info played in motivating the sales.
The publicly available info about weak energy prices and the faltering
economy are arguably sufficient to explain much of the sales.
>Lay and other executives did not lose money on stock. They sold early and
>made hundreds of millions in profits while investors lost money and
>employees were blocked from selling their stock. Internal Enron memos show
>that executives knew they were "probably" going to have a financial
>collapse, and that they were selling their stock, while at the same time
>they were predicting massive profits to their employees and encouraging them
>to buy even more stock.
As far as I can tell, executives sold at prices above $40 per share, and
later urged employees to buy when prices were below $40 per share. I think
they were irresponsible to urge employees to buy, and it looks like some of
their accounting practices were improper, but I see no signs that they were
hypocritical in the way that you imply.
>This was not a failure of the free market and capitalism. This company did
>not operate under those rules.
It sounds like you are trying to define the free market as a system of
rules under which fraud is impossible. The trouble with that is that there
is no reason to think that such a system can be implemented.
Fraud has happened under all economic systems that I'm aware of. As far
as I can tell, our current quasi-free market set up the appropriate
incentives, Enron and Arthur Andersen executives badly misjudged those
incentives, and the resulting lawsuits appear likely to bankrupt most of
them. Arthur Andersen has over 2000 partners who are personally liable
for any lawsuits the company loses, and have no obvious defense against
shareholder lawsuits.
If the economy had continued to grow as nicely as the stock market was
suggesting two years ago, and energy prices had remained high, the risks
that Enron took would probably have paid off quite well, and most people who
noticed the accounting problems would probably have considered them minor.
Probably a portion of the blame can be laid on the Federal Reserve for
pumping up the money supply in 1999, and the problems with California's
electricity regulations may also have destabilized energy markets in ways
that contributed to Enron's misjudgments, but these are very indirect and
partial causes of the problem.
Stock market bubbles seem to be a natural feature of markets, and at their
peaks lots of people misjudge risks. In market based systems, those people
get punished fairly quickly, and the misallocation of resources that they
created gets corrected about as quickly as seems humanly possible. Under
most non-market systems, the equivalent problem rarely gets corrected or
punished. When was the last time a government employee lost money for
persuading taxpayers to finance a boondoggle?
On Friday, January 18, 2002 6:19 PM Robert J. Bradbury
bradbury@aeiveos.com wrote:
> A fairly good editorial by Paul Krugman in the NY Times
> today about "A System Corrupted" regarding the Enron affair.
I suggest doing a google search on "Krugman enron puff" to find some
of the things Krugman wrote about Enron at around the time he received
money from Enron.
-- ------------------------------------------------------------------------------ Peter McCluskey | Free Jon Johansen! http://www.rahul.net/pcm |
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