Rebirth of the Industrial Tycoon - Vol 2 Chapter 630
Chapter 630 Enron Incident
The so-called materials written by Li Weidong are still some post-mortem analysis of Enron Corporation.
The post-event summary is naturally much more accurate than the pre-prediction, and it is also more reasonable and well-founded. So when Situjian saw the information provided by Li Weidong, he immediately believed 50%.
In addition, Li Weidong once accurately predicted Japan’s economic bubble, and also accurately predicted the Asian financial crisis, and even the entire incident was accurate, which made Situjian believe Li Weidong’s prediction for six. Seventy percent.
As a top economist, being able to believe 60-70% is almost equivalent to believing Li Weidong’s judgment.
In 2001, the “911 Incident” that shocked the world occurred in the United States, which directly changed the world pattern.
What Americans did not expect was that, more than a month after the “911 Incident”, the scandal of accounting fraud broke out in Enron.
At that time, Enron was one of the top ten companies in the United States and the largest natural gas company in the world. Considering the size and status of Enron Corporation, this is undoubtedly a 9/11 incident in the economic world for the United States, and the collapse of Enron Corporation has also changed the pattern of world energy.
And it is very rare for Enron to file for bankruptcy just 25 days after it was revealed that there was a problem.
The bigger the company, the stronger the ability to resist risks. Enron ranks in the top ten in the United States and the top twenty in the world’s top 500, but it only lasted for 25 days!
Many Japanese companies that are not as large as Enron have also experienced various fraud scandals, some of which are fraudulent production data, and some, like Enron, are fraudulent in business data. It’s okay, there are only a handful of real failures.
Some international well-known large companies have experienced serious debt crises, but they can survive just by tightening their belts to increase income and reduce expenditures, or grit their teeth and sell some assets.
There are also some top big companies, in times of crisis, the government will step in to help with asset restructuring, or provide funds to partially nationalize them to save the company.
These are precedents, including in the United States. Such as the US government’s sale and rescue of General Motors, the rescue of Citibank, the rescue of Freddie Mac and Fannie Mae, all contain some means of nationalization.
However, Enron didn’t apologize, and it didn’t tighten its belt to increase income and reduce expenditure, and it didn’t get help from the government, so it went bankrupt abruptly. For a company of this size, it is absolutely incredible.
Therefore, there have always been some conspiracy theories about the bankruptcy of Enron Corporation, that someone deliberately allowed Enron Corporation to go bankrupt.
The Enron Company went bankrupt because of such a large scale. There was more than one reason for it, but a combination of many unfavorable factors, which eventually led to the bankruptcy of Enron Company.
Rome was not built in a day, and these bad factors were not in one or two days, but after decades of fermentation, the small disease became a serious disease, and finally there is no cure.
In the 1970s, there were two oil crises, one was the fourth Middle East war in 1973. This time, although the United States did not directly participate and sold a wave of weapons, the oil crisis that broke out caused the industrial production of the United States to drop by 14%. %
The second time was the political coup in Iran in 1978. This time, the United States was a direct participant, causing greater damage to American industrial production.
Therefore, throughout the 1970s, the United States implemented energy price controls to ensure stable industrial operations.
In the 1980s, the United States deregulated energy prices, and then energy prices in the United States began to adjust according to the market, which prompted energy companies to compete with each other.
Immediately after, this competition led to mergers and reorganizations among enterprises. During this period, Enron also transformed from a company that laid natural gas pipelines to a real energy company.
However, for Americans, how can it be easy to make money by playing finance?
To produce natural gas, how can you make money from natural gas hedging transactions?
So “Enron Capital” was established, and quickly replaced “Enron Natural Gas” as the most important industry under Enron. This was also Enron’s first step on the road to bankruptcy.
In order to be able to be like a duck to water in the financial market, more investors of Sheena, Enron’s CEO Kenneth, spent a lot of effort to persuade the SEC to agree to Enron’s implementation of “mark-to-market”.
Natural gas is not easy to store for a long time, so natural gas is basically mined and sold now, and everyone uses fresh natural gas.
You go to a restaurant to eat, there may be 82 year old Lafite, 82 year old ham, 82 year old cook, but definitely not 82 year old gas for cooking, because natural gas can not be stored that long.
Commodities that are more difficult to store are more volatile. Products that cannot be stored mean one price per day, so natural gas, as a commodity, can only be priced in real time, not market-based.
The same is true for international natural gas contracts. The signed contract is only an estimated price, but when the contract is completed, it will be priced in real time. At most, it is to set an upper and lower limit for a transaction amount.
Commodities all have a futures market, such as oil trading, the contract is $100 a barrel, but then the international market price dropped to $30 a pass, and I still buy it according to the contract for $100 a barrel, which is absolutely not. possible.
Let’s not talk about the loss-making aspect, if you dare to trade like this, the futures market will be disrupted first, and OPEC will dare to slash you with a knife!
Unless it is some special circumstances, such as international sanctions, financial sanctions, etc. that hinder the seller’s transaction, or implement some local currency exchange agreements, such transactions outside the normal international system, you can buy bulk items at relatively low prices. Otherwise, in normal international transactions, it is difficult to buy products that are far from real-time pricing.
Enron’s mark-to-market pricing for natural gas clearly violated the principles of natural gas education.
And this means that Enron can record the profit of the transaction completed in the next few years according to its estimated transaction volume in one day.
In other words, when the price of natural gas is relatively high, Enron can settle the transaction amount that has not been completed on the contract, and there will be more profits on the book, but in fact he does not make so much money. .
This is like earning 1,000 a day, it does not mean that you earn 30,000 a month, nor does it mean that you earn 360,000 a year. But you take the most profitable day to calculate your annual income, the data is definitely not true.
Enron used this method to falsely report profits, which made investors pour in. Enron also took a tougher step on the road to failure.
Having a gas company mark-to-market is pretty crazy policy in itself.
There are first-class economists in the US Securities Commission, and there is no shortage of economic research staff around US Congressmen. It is impossible for them not to see what impact this policy will have.
However, from Congress to the Securities Commission, no one stopped this crazy move, which shows how powerful political sponsorship and corporate lobbying are in the United States.
Even if they started to falsely report their profits, Enron was still not satisfied, and they felt that making money was too slow!
My own Enron company, how many natural gas contracts can I sign, and how much profit can I overstate?
If you can control the natural gas transactions in the United States, won’t you earn dozens of times!
So Enron started to act as a middleman for natural gas, but the middleman earned more than just the price difference.
As a natural gas intermediary, Enron also used its own “mark-to-market” method in natural gas transactions, which is tantamount to borrowing chickens to lay eggs, and the falsely reported profits have grown exponentially.
Seeing Enron’s strong profitability, investors also flocked to it. Chase, Goldman Sachs, Citigroup, Deutsche Bank, etc., almost all investment banks hold Enron’s stocks and bonds on a large scale.
Many Americans regard Enron as a capital-guaranteed financial product, and put their wages and pensions into Enron stocks.
However, Enron is a listed company after all, and its financial reports must be regularly disclosed, and falsely reported profits can easily be detected in the accounts.
So Enron used another trick, they used the means of Special Purpose Entity (SPE).
A special purpose entity is a legal entity established for a special purpose. It is a financial service business that emerged in the United States in the 1970s and 1980s. Its purpose is mainly to isolate financial risks in financing.
Simply put, it is to set up a separate company, divest one of its own assets, and then use the company’s assets to mortgage and issue bonds, thereby butterfly financing. This is similar to the principle of corporate spin-off and listing.
In this way, the threshold for corporate financing can be greatly lowered, and risks can be better managed. Therefore, in the financial field, special purpose entities are called the greatest financial innovation of the twentieth century.
The use of special purpose entities by enterprises is to divest assets to facilitate financing.
On the other hand, Enron did the opposite. They spun off the debt so that the special purpose entity could be independent from the original company’s financial report. Therefore, Enron’s financial report is always very beautiful, and investors have always been full of confidence in Enron.
The help of Arthur Andersen Accounting Office is also indispensable.
As one of the top five accounting firms in the United States, Arthur Andersen has been serving Enron. Without the help of Arthur Andersen, Enron would not be able to have such an excellent “profit”.
All of the above are related to Enron’s financial fraud. In addition, investment power, blind expansion, management corruption, etc. are also the reasons for Enron’s collapse.
In the final analysis, there are still two words, that is “greed”!
…
Two days later, Situjian brought Li Weidong to the State Planning Commission, the predecessor of the National Development and Reform Commission.
“Director Wang, who we are going to see later, is the leader of the leading group of the Engineering Construction Committee.” Situjian said.
Li Weidong nodded, he had also heard the name of this Director Wang.
Director Wang is a master of mechanical engineering, a senior engineer, and a typical technical officer. In the future, he will serve as a deputy in the National Development and Reform Commission and be in charge of energy-related matters.
It is actually a pleasant thing to report to a technical official like this, because people can understand what you say, and it is easier to communicate.
Director Wang didn’t have time to read the information in detail, so Li Weidong explained it from the side.
After listening to Li Weidong’s introduction, Director Wang asked, “Chairman Li, according to what you said, will Enron’s stocks and bonds be thundered?”
“It’s not just a thunderstorm, the entire Enron company may go bankrupt!” Li Weidong replied.
Director Wang took a deep breath, and his expression suddenly became solemn. If others said that, Director Wang might sneer, but when Li Weidong said that, it would be completely different.
Director Wang knows that Li Weidong once predicted the Asian financial crisis and Japan’s economic bubble, so he still somewhat believes in Li Weidong’s prediction.
If Enron really goes bankrupt, then Huafu Gas will not be able to continue to receive technical support from Enron, and the part of the project that Huafu Gas is responsible for will also be suspended, and the construction of the entire West-East Gas Pipeline project will be suspended. will be affected.
After pondering for a while, Director Wang said: “Chairman Li, your analysis is indeed justified, but it is only an analysis after all, what I need is some more solid evidence.”
For such a large-scale project at the national strategic level, it is obvious that a decision cannot be made based on a piece of analysis that seems to be well-founded.
Li Weidong replied: “In the United States, I have already asked a financial reporter to conduct an investigation. It is estimated that the results will be available in half a month. Before that, I hope to delay the signing of the contract with Huafu Gas as much as possible to avoid major incidents. Loss.”
“It seems that Chairman Li is on the shore of the United States, and he is quite well connected. He can actually investigate a large company like Enron.” Director Wang said with a smile.
Li Weidong knew that Director Wang was trying to talk, and he had to explain it clearly.
So Li Weidong opened his mouth and said, “A big company like Enron has many eyes on it, and there are countless reporters who want to dig Enron’s black material and become famous.
And Enron has many competitors, they all want Enron to collapse, and they will send people to investigate the situation of Enron secretly.
So I don’t need a special person, I just need to reveal the direction of the investigation to those financial reporters, and by the way, give them some sponsorship fees so that they can verify the data. ”
“That’s it!” Director Wang nodded: “But it may be difficult for half a month. I still have to ensure the progress of the project, so I can buy you a week at most.”
“That’s fine!” Li Weidong paused, then continued; “Anyway, before the official start of construction, some measurement and calculation work is still needed. As long as the construction has not started, everything will be in time.”
…
Huafu Gas, General Manager Lin Mancang is sitting in the office, waiting for news.
Finally, the phone rang, and Lin Mancang picked up the phone: “Did you find it? Why do you delay signing the contract for a week at the Engineering Construction Leadership Office?”
“The reason given by the Engineering Construction Office is that there are still some procedures to go through, but this is just a nominal reason. In fact, someone came to lobby.” The phone answered.
“Who is it?” Lin Mancang asked.
“Li Weidong, Chairman of Puppy Electric.” The other party replied.
“Li Weidong? What does this have to do with him? Puppies Electric doesn’t do natural gas business. Also, as a private owner, how can he have such a big face, and even the engineering and construction office will listen to him?” Lin Mancang was puzzled. ‘s question.
“It is said that Li Weidong has successfully predicted the Japanese economic bubble and the Asian financial crisis before, and has personally reported this work to the leaders. Therefore, the Engineering Construction Office will seriously consider Li Weidong’s suggestion.” The other party said replied.
“But I didn’t offend this Li Weidong! Why did he bother us?” Lin Mancang said puzzled.
“I think it’s because of Huanghai Petrochemical. Huanghai Petrochemical has been supplying raw materials to Puppy Electric, and they have been working together for almost ten years! This time Huanghai Petrochemical failed to win this project. Li Weidong should be helping Huanghai. Petrochemical shot.” The other party replied.
“Huh! They couldn’t get this project at Huanghai Petrochemical, because their technology was outdated! They didn’t hurry to improve their skills if they weren’t as good as others. Instead, they used sly tricks behind the scenes.
Lin Mancang snorted coldly, and then asked, “Do you know what slander Li Weidong has made with the Engineering Construction Office?”
“Li Weidong said that there is a problem with Enron’s financial report. They are likely to experience thunderstorms and even close down. At that time, there will be no way to provide us with technical support, and the project we are responsible for cannot continue.” The phone answered. .
“Enron will go bankrupt? Hahaha, what are you kidding? It’s a Fortune 500 company, the world’s largest natural gas company! How could it go bankrupt! The engineering and construction office would even believe this kind of deceitful nonsense!” Lin Mancang gasped Hum said.
“Mainly because Li Weidong’s previous predictions were too accurate.” The phone answered.
“Then you can’t rely on predictions to make decisions! If predictions work, let’s find a fortune-telling belt to build a natural gas pipeline! I really don’t ask people to ask ghosts and gods!” Lin Mancang said angrily.
“Mr. Lin, what should we do? Are we going to wait a week?” The phone asked.
“This time I have an excuse to delay for a week, next time I have an excuse to delay for two weeks, and maybe it will be a month later!” Lin Mancang took a deep breath and continued; “I am reporting to the group now, and let me The group helps us put pressure on us!”
…
Huanghai Petrochemical and Song Jinlong are holding a decision-making meeting again.
“Dong Song, this Li Weidong is really unreliable. He also said that he can help us get the project back. What’s the result? Today is the day when Huafu Gas signed a contract!”
“Yeah, back then, the bulls were so bragging that they even had to close down the Enron company, as if they were omnipotent! Now, nothing has been done!”
“Dong Song, we shouldn’t have trusted this Li Weidong at that time. These are private companies, nine out of ten cheat!”
“That Li Weidong still wants our New Oriental Motor, and now he probably doesn’t have the face to contact us! If I were Li Weidong, I would like to find a hole to get in.”
Song Jinlong’s face was also embarrassing. After all, he was the first person to believe in Li Weidong. Although his subordinates are saying that Li Weidong is not, they are also mocking Song Jinlong in disguise, and Song Jinlong also feels very ashamed.
At this moment, the secretary came in, leaned into Song Jinlong’s ear, and said, “Dong Song, Li Weidong from Puppy Electric is calling.”
“Does Li Weidong still have the face to call?” Song Jinlong looked unhappy, and then said, “If you don’t answer, just say I’m in a meeting. I’m very busy now.”
“I guess he wants to apologize! Song Dong, I think it’s better to give people a chance to apologize!” The eldest old Du next to him said, showing a little gloating expression.
Lao Du is relying on the old to sell the old, and he made it clear that he wanted to see a joke.
This is both Li Weidong’s joke and Song Jinlong’s joke!
Song Jinlong couldn’t get off the stage for a while, so he said, “Put the phone into the conference room, and turn on the speakerphone. I want to see what that Li Weidong has to say!”
Soon, the call was picked up, and the speakerphone was turned on, and everyone in the conference room could hear it.
Li Weidong’s voice rang from the phone: “Chairman Song, have you read the latest issue of Fortune?”
“What “Fortune” magazine?” Song Jinlong asked subconsciously.
“Fortune magazine in the United States is the most famous financial magazine in the world. The Fortune 500 is the magazine that runs the Fortune 500.” Li Weidong explained.
“I didn’t see it.” Song Jinlong continued coldly: “We’re not the world’s top 500, so let’s see what that thing does!”
“But Enron is one of the top 500 companies in the world!” Li Weidong laughed and continued, “Dong Song, quickly find a copy of the latest “Fortune” magazine. There is an article on Enron. I read it. You’ll know later, I’ve been doing things these days!”
…
The parent company of Huafu Gas is Huafu Group, which is one of the top state-owned holding companies in China.
Lin Mancang asked Huafu Group for help, Huafu Group decisively helped, and the Engineering Construction Office could only complete the contract with Huafu Gas.
At the scene of the signing ceremony, the contract is already in front of you, and you just need to sign it.
Lin Mancang took the pen from his subordinate with a proud face, signed his name on the contract, and then stamped the official seal on it.
Immediately afterwards, he handed the contract to Director Wang, who then signed and sealed it.
Just as Director Wang picked up the pen, a secretary from the Engineering Construction Office hurried in.
However, another staff member stopped the secretary: “Director Wang is signing a contract. I’ll talk about it later!”
“No, this matter will be reported to Director Wang immediately!” The secretary pointed to the Fortune magazine in his hand, and then said, “An accident happened to Enron in the United States!”
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(end of this chapter)