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The Particular Causes Of Enron's Failure

1427 words - 6 pages

The particular causes of Enron's failure are complex. There are lots of issues that have to do with the Enron collapse. Enron is a company that was called as Houston Natural Gas and then Enteron. It becomes politically connected player in the new deregulated market of energy. At one time Enron appears to have been a successful and innovative enterprise, principally engaged in trading and dealing in energy-related contracts. At some point it expanded by making substantial investments in a variety of large-scale projects. Although some of these were initially successful, others resulted in Enron incurring large economic losses. Then it appears to have embarked on covering up losses and manufacturing earnings. This succeeded for a time, but was ultimately unsustainable. These efforts allowed Enron to disguise the losses and not report debt for which it was contingently liable. They also apparently afforded certain Enron managers the opportunity of extracting personal gains at the expense of Enron's stockholders.Enron Company failed, lost money, had severe financial troubles, but it did not tell not only the government, but also its employees. Enron Company fooled the world by showing that it earned $500 million that it in fact did not earn. The following information is found so far about the company's magic acts:The key was "accounting alchemy," which means miraculously turning lead into gold, losses into profits, making debts and bad investments, or anything they wanted to simply disappear. Enron played the all-in-the-family fantasy finance game, manipulating hundreds of subsidiary companies with names out of "Star Wars," "Jurassic Park," medieval Scotland. In the early '90s, Enron made money, with, an oil partnership dubbed Jedi. One of its many subsidiaries, Raptor, which invested in Internet firms, was virtually minting money as its portfolio soared. And when Enron made a deal with Blockbuster Video to deliver movies on demand over the fiber optic cables it was installing across the country, Enron seemed to be making all the right connections.Soon Enron was America's seventh largest company in terms of revenues. But from the beginning, something was kind of fantastic. It turns out, Enron got so big very soon, with "ledger domain." Enron recorded, as revenues, what on the stock market they simply refer to as volume. Enron booked its energy trading contracts at the full contract price. By the late '90s, Enron had begun to lose money. But to keep its stock price and credibility as a trader from collapse, Enron needed to keep the game going. It started playing faster. Take Enron's movies-on-demand deal with Blockbuster. That was a real partnership: To share profits 50/50 for 20 years. But before it could even go bad- which it did- Enron created a different company, code name: Project Braveheart. A Canadian bank invested $115 million in it, in return for the first decade of supposed future earnings from the Blockbuster deal. Plus, Enron guaranteed...

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