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Nation of Enrons

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March 20, 2008 – Comments (10)

I'm not sure how original this thought was, but it occurred to me the other day that the Enron spirit didn't die out, it just infected the entire banking industry and, oh, everyone who bought real estate thinking it always goes up.

So, I wrote about it here:A Nation of Enrons

10 Comments – Post Your Own

#1) On March 20, 2008 at 3:40 PM, mandrake66 (93.94) wrote:

Hi Seth, I don't disagree with your central theme...however, I see Fred and Ethel as possibly the only actors in the whole mess who were behaving rationally.

If this were my morality play, the central villain would be Greenspan. For bad reasons he always lied about, both then and now, he opened the credit floodgates to buy his way out of the tech stock implosion without bothering to increase regulatory activity in the resulting overheated market he caused. Banks fell all over themselves trying to get good returns with all this credit in a low-interest rate, low-regulation environment and to do this they cut every corner they could, and then invented new ones so they could cut those too. Hedge funds loaded up on cheap credit to leverage themselves to the hilt and buy up all these phony securities. They were all playing a stupid, suicidal game and refuse to own up to it even now.

But Fred and Ethel were getting getting a chance to live above their means for a few years for no money down and little paperwork, flip homes for a fortune if they could time it right, and send the keys to the bank and walk away if they couldn't. So long as they didn't binge on too much debt and leave themselves with no cushion, Fred and Ethel got a great deal and they knew it. How else could they afford real estate with all that Greenspan green stuff sloshing around? They made a fortune if they were very smart, got away mostly unharmed if they were a little smart, and got floored if they were stupid. But they're the only actors in this play who were acting rationally.

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#2) On March 20, 2008 at 4:20 PM, devoish (98.38) wrote:

Fortunately 8 million homebuyers just got raises today so they can afford their resets, and avoid defaulting on their mortgages.

What? You say they did not get raises? Then why would anyone invest in homebuilders and banks today? And what is with IFC? They say we knew things were bad, and oops, now we know things are even worse than we thought. And what happens... up 20% for acknowledging their suckage?

PS. When Irwin joins the Pay Dirt team, if he recommends his namesake bank, please someone, let me know.

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#3) On March 20, 2008 at 4:40 PM, dwot (67.78) wrote:

Excellent title...

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#4) On March 20, 2008 at 4:43 PM, dwot (67.78) wrote:

I read a very good research paper on Enron written by Boyd, an SFU professor.  It was mostly conservative investors that lost there, and you'd have thought that those who were in earlier would have been better off, however, they were so confident that they basically increased their investment over time so they put their early returns back in and wiped themselves out.

Wonder how many wiped themselves out speculating on homes, or... 

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#5) On March 20, 2008 at 5:02 PM, LordZ wrote:

Well isnt there also this tax shelter thingy that every 2 years you can not pay taxes on real estate gains up to a quarter of a million dollars, so maybe some people were buying and selling to make tax free money, and they got burnt, just like bears got burnt....

How is it that the homebuilder are able to rally.

 

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#6) On March 20, 2008 at 5:25 PM, Tastylunch (29.26) wrote:

I don't know that seems like a gross oversimplification to me. Enron was not the first to try this by far I'm sure and I doubt they originated this sort of bsuiness philosophy. If anything I think it's far more likely the banking and financial  industry did this first as it's more in line with theri expertise (probably sometime after the S&L crisis, auction preferred funds) and then after they were successful less skillful players like worldcom and enron tried to ape them and got caught first.

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#7) On March 20, 2008 at 8:42 PM, TMFBent (99.82) wrote:

I never claimed Enron was the first. Enron has, up until now, been the most famous.

Worldcom didn't go down for this. Worldcom went down for more typical kinds of accounting fraud, like capitalizing what should have been usual expenses in order to keep them off the income statement.

Sj

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#8) On March 20, 2008 at 9:12 PM, lquadland10 (< 20) wrote:

We are bankrupt just read my other blogs. Soverin wealth funds will have to step in. the g-5 or g-7 bankers are manipulating the market in my humble thinking. They just don't want people to withdraw their money from the banks because the whole system will crash. If they can't cover city bank can they cover any bank? The answer is no they can't. Even if it FIDC insured. Just the cold hard facts. The country is bankrupted. Do the homework. With this week's bailout's we are stone cold broke in my humble thoughts.  Pay cash for what you want and does anyone have savings to get you through the rough time?

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#9) On March 20, 2008 at 10:19 PM, abitare (39.45) wrote:

If you have not watched Smartest Guy in the Room, the documentary about Enron BUY it, watch it and then send it to family members.

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#10) On March 21, 2008 at 11:19 AM, FourthAxis (< 20) wrote:

Seth, I gotta hand it to you, this concept is brilliant.  I read the article, told FLBuilder to read it, then forgot about it...or so I thought.  I just can't get past the concept...it's dead on.  All these families were just marking to someone else's model.  Now...even though the money faucet is on, the credit faucet is off.  All of these homes will get marked to market and it's going to be one painful "market" correction.

Thanks for the perspective. 

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