Duncan Williamson: A Dig at Enron digenron.html

I couldn't resist this when I saw it. Don't know where it came from or who invented it but I enjoyed it and hope you do too. All tongue in cheek of course!

Some brief historical definitions:

Feudalism: You have two cows. Your lord takes some of the milk.

Fascism: You have two cows. The government takes both, hires you to taken care of them and sells you the milk.

Communism: You have two cows. You must take care of them, but the government takes all the milk and may give some back to you.

Capitalism: You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income.

And now, "Enron Style":

You have two cows. You borrow 80% of the forward value of the two cows from your bank then buy another cow with 5% down and the rest financed by the seller on a note callable if your market cap goes below $20B at a rate 2 times prime.

You now sell three cows to your publicly listed company, using Letters of credit opened by your brother-in-law at a 2nd bank, then execute a debt/equity swap with an associated general offer so that you get four cows back, with a tax exemption for five cows.

The milk rights of six cows are transferred via an intermediary to a Cayman Island company secretly owned by the majority shareholder who sells the rights to seven cows back to your listed company.

The annual report says the company owns eight cows, with an option on one more and this transaction process is upheld by your independent auditor and no Balance Sheet provided with the press release that announces that Enron as a major owner of cows will begin trading cows via the Internet site COW.com (cows on web).

Worth the read ... could you follow the Enron deal, though? Pity the poor Auditor, eh?

Duncan Williamson
24 February 2002 revised August 2003