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News ::
"In Enron's Wake, Ripples or Tidal Wave?" WWP
14 Dec 2001
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.

Will it set off ripples or a tidal wave?
Enron collapse stuns Wall Street

by Richard Becker

Dec. 5, 2001
Workers World

Will it set off ripples or a tidal wave?
Enron collapse stuns Wall Street
By Richard BeckerDec. 5, 2001The 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
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."

- END -
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