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May. 4th, 2013 09:42 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
ivyficI am reading The Smartest Guys in the Room, about Enron. This is for grad school, but in a round about way--I made sure to be reading it when I went for my interviews, because if publishing taught me one thing, it's always be reading a relevant book when you go for an interview. Which lead to a fantastic conversation with my interviewer. I then set it aside, but now I've got to get it finished before I see the guy again.
But. I was thinking.
If I were Enron, the moment I got an acceptance letter to grad school, I would have calculated the net present value of my future earnings--assuming, of course, that I made partner at a big accounting firm--and book it all as profit right then. Then I'd write myself a big bonus on that profit. But, you say, I haven't actually gotten any cash flow yet. In fact, a bunch of cash is supposed to flow out.
No problem. I'd securitize the future earnings and sell slices of it, removing it from my balance sheet and turning it into a chunk of change. I'd secure financing for the tuition and other expenses. And I wouldn't monitor my expenses at all--I'd fly first class to Boston, stay at a fancy hotel, and hire consultants to do my schoolwork for me.
Then I'd fail out of school. But no matter, rather than writing off the tuition expense, I'd add it to the "snowball"--if I never got an official letter telling me I was kicked out, I'd just let it sit as an asset on my balance sheet forever.
Here's the thing with Enron. The press may have been fooled--and actually, a lot of it wasn't; there were a number of highly critical articles that came out from reporters that actually did their due diligence. Wall Street may have been fooled--but they wanted to be. When it comes down to it, Wall Street is just as much about short term gains as Enron was, and here's a company that promised and delivered 15% growth every year, regardless of underlying economics.
But nobody who had anything to do with the company was fooled. They may not have known about the actual illegal transactions, but everyone who dealt with Enron knew they were riding for a fall.
But. I was thinking.
If I were Enron, the moment I got an acceptance letter to grad school, I would have calculated the net present value of my future earnings--assuming, of course, that I made partner at a big accounting firm--and book it all as profit right then. Then I'd write myself a big bonus on that profit. But, you say, I haven't actually gotten any cash flow yet. In fact, a bunch of cash is supposed to flow out.
No problem. I'd securitize the future earnings and sell slices of it, removing it from my balance sheet and turning it into a chunk of change. I'd secure financing for the tuition and other expenses. And I wouldn't monitor my expenses at all--I'd fly first class to Boston, stay at a fancy hotel, and hire consultants to do my schoolwork for me.
Then I'd fail out of school. But no matter, rather than writing off the tuition expense, I'd add it to the "snowball"--if I never got an official letter telling me I was kicked out, I'd just let it sit as an asset on my balance sheet forever.
Here's the thing with Enron. The press may have been fooled--and actually, a lot of it wasn't; there were a number of highly critical articles that came out from reporters that actually did their due diligence. Wall Street may have been fooled--but they wanted to be. When it comes down to it, Wall Street is just as much about short term gains as Enron was, and here's a company that promised and delivered 15% growth every year, regardless of underlying economics.
But nobody who had anything to do with the company was fooled. They may not have known about the actual illegal transactions, but everyone who dealt with Enron knew they were riding for a fall.