Will it set off ripples or a tidal wave?
Enron collapse stuns Wall Street
By Richard Becker
The collapse of Enron--just a month ago the seventh-ranked
corporation on the Fortune 500 list--was as quick as it was
complete. While many of the consequences of the Enron debacle
are as yet unseen, its effects are already reverberating
through the world's stock markets and banks.
From more than $30 per share in late October, Enron's stock
fell to 26 cents on Dec. 2. A year ago, it was trading at more
than $80 a share. The total value of the company's stock has
fallen from over $80 billion to around $300 million in the same
period.
Last year, Enron's revenue was over $101 billion. It won the
Financial Times's "energy company of the year" award. Until
last month, a banner on the corporate headquarters read, "The
World's Leading Company."
But on Dec. 3, Enron became the largest U.S. corporation in
total assets ever to file for bankruptcy, after Dynegy, another
energy trading company, renounced its planned $9 billion
takeover of Enron. Dynegy cited irregularities in Enron's
financial reports. Announcing the cancellation of the merger
deal, a Dynegy spokesperson said, "Enron had burned through
$1.5 billion [advanced by Dynegy] in less than three weeks.
Importantly, neither the treasurer nor the chief financial
officer could explain where it went."
Certainly Enron executives have engaged in an enormous
amount of the kind of cheating and falsifying that is endemic
to capitalism.
Just as certainly, however, deception was not the main cause
of Enron's implosion. Underlying the transnational
corporation's collapse is the world crisis of over-production,
a crisis that has driven down energy prices around the globe.
As the recession has spread from Japan and Latin America to
Europe and the U.S., demand for energy has fallen and so, too,
have prices.
While much media attention has focused on the threat that
Enron's demise poses for banks and other investors, those most
devastated are the company's workers.
Enron workers lose pensions, jobs
As it announced its bankruptcy filing, Enron simultaneously
fired 4,000 of 7,500 employees at its Houston, Texas,
headquarters, and told the rest to stay home until they were
called back. Thousands more of Enron's 21,000-strong workforce
have been fired in England and elsewhere.
Beside the thousands who have been abruptly fired, virtually
the entire workforce have lost their pensions. The company's
401(k) pension plan appears to have consisted entirely of Enron
stock. Workers were forbidden to sell any of this stock until
they reached a minimum age of 54.
Enron workers have agonizingly watched the total destruction
of their pensions as the stock price first gradually dropped,
losing 60 percent of its value over 10 months, then plummeted.
Pension plans lost more than 99 percent of their value.
No such disaster confronted the Enron top executives, due to
the simple fact that they could dump the stock of the company
they were running into the ground while it was still worth
something. Kenneth Lay, for example, sold 400,000 shares over
the last year, at times when the price ranged from $42 to
$80.
Glorified pirates and Bush advisers
Enron was labeled Houston's "leading corporation" in recent
years. The company paid $100 million to have the baseball
stadium where the major league Astros play named "Enron
Field."
Enron was glorified by business magazines and politicians
alike. And not just any politicians--although the company
spread the campaign contributions around to those in a position
to help its oil, gas and electricity trading.
Enron was one of the major donors to the campaign of George
W. Bush. So weighty was Enron's influence that Bush made
Kenneth Lay, then CEO of Enron, his chief energy adviser after
winning the 2000 presidential election.
In the winter of 2000-2001, Enron, along with Dynegy, Duke
Power, Reliant and other energy traders took advantage of
recent electricity deregulation in California. By manipulating
the deregulated market, the energy traders were able to push
prices up by more than 1,000 percent. Even California's
emphatically pro-business Gov. Gray Davis called Enron a
"pirate" company for its role in the state's energy crisis.
Enron's investment in the Bush campaign paid off big-time.
In February 2001, President Bush, advised by Enron's Lay,
refused to place any cap whatsoever on California's electricity
prices.
But even the California windfall, amounting to hundreds of
millions in super-profits, couldn't save Enron.
Enron, over-production and the banks
Enron's holdings had spread worldwide since its founding 15
years ago. Today it owns 25,000 miles of natural gas pipeline
in the U.S. and 8,000 miles more in South America, water
treatment plants in Britain, power plants in Italy, Poland,
Turkey, Guatemala, Nicaragua, Puerto Rico, and the Philippines,
among others.
Enron has a 65-percent stake in the giant new Dabhol power
plant in Maharashtra, India, and much, much more.
Enron's rapid expansion was premised on an ever-growing
market for power. But the market has severely contracted in the
past year. Oil prices have dropped from $38 to $18 per barrel,
as demand fell.
To finance its expansion, Enron borrowed billions. Now many
big banks from England to Japan to the U.S. are holding loans
that may be unrepayable, or repayable at only a fraction of
their original value.
Citigroup and J.P. Morgan reportedly have combined
"exposure" of $1.7 billion, half of it unsecured. Four Japanese
financial groups are expected to lose upwards of $8
billion.
But the biggest threat may be to several banks in India,
which are said to be owed several billion dollars for the
Dobhal project. India's finance minister, Yashwant Sinha, was
quoted as saying that the Enron crisis "has created
uncertainties."
The scope of the Enron fallout is not yet fully known, and
government, banking and stock market spokespersons are playing
it down. But one Wall Street analyst, Marjin Smit, said on Dec.
3, "It makes you wonder if this is just the tip of the iceberg.
Sentiment is really taking a blow based on this one
situation."
The BBC quoted another market analyst, who spoke only on
condition of anonymity: "Everyone wants to make it look as if
they weren't fooled by Enron. But underneath the calm exterior,
a lot more companies are panicking than it may seem."
Reprinted from the Dec. 13, 2001, issue of
Workers World newspaper
This article is copyright under a Creative
Commons License.
Workers World, 55 W. 17 St., NY, NY 10011
Email: ww@workers.org
Subscribe wwnews-subscribe@workersworld.net
Support independent news http://www.workers.org/orders/donate.php)
HOME
:: U.S. NEWS ::
WORLD NEWS ::
EDITORIALS ::
SUBSCRIBE ::
DONATE
Email
this article
Printable
page