Thinking Again About Enron

A story I was working on for my day job yesterday got me thinking about Enron again.

The story involved Amaranth,the natural-gas concern that went bust a little more than a year ago.

Both FERC and the CFTC have commenced proceedings against FERC, as have the managers of the San Diego County employees' pension fund. The two agencies claim Amaranth manipulated natural gas prices. The pension managers claim it lied about how risky its portfolio was.

Anyway, the story on which I was working yesterday involved FERC, which contracted with a professor at Rice University, in Texas, to study the natural gas market for them as a consultant, and tell them whether Amaranth had a large enough share of that market to have manipulated the prices. He said that they did.

The name of that consultant? Vincent Kaminski.

To fellow Enron-scandal nerds that name will ring a bell. He was Enron's "risk manager" when some of the decisions were made (over his protest) to take risks that proved disastrous.

Here's a news report on the Kaminski testimony at the Lay and Skilling trial last year: http://www.cfo.com/article.cfm/5623848

While my stream of consciousness flows back toward Enron, I'm also reminded of my own impression, as it unravelled, that the decisive internal battle at that company was the one in which Rebecca Mark lost out, the battle over whether Enron would be an asset-lite or an asset-heavy company.

Jeffrey Skilling believed in an asset-lite business model. Ownership of old-fashioned physical assets was a burden best shrugged off the shoulders of an up and coming new-economy company. Who needs pipelines and power plants? Less tangible assets ... contracts, trading positions, trading systems ... those were the gleam inhis eye.

Mark believed in those old-fashioned tangible assets, though. And her division was in charge of building them around the globe, including an especially controverial power plant in Dabhol, India.

Here's the URL for a rather admiring profile of Mark, post-Enron, http://www.fastcompany.com/magazine/74/enron_mark.html

And here's a less admiring view:
http://www.swaminomics.org/articles/20020216_rebeccamark.htm

The obvious truth (though even to state it would probably sound absurdly philosophical to a Jeffrey Skilling) is that physical assets ultimately back all the less tangible sorts of wealth that the Skilling's admire. If there aren't power plants, tankers, port facilities, and pipelines, then what possible good is a bright new idea of the more efficient trading of energy futures? Can it be a great business model to fob off those assets on 'somebody else' somewhere else?

Another obvious truth: lenders want collateral. Tangible assets are very good for this purpose, so they help ensure the continued solvency of any operation that possesses them.

When I've written about this subject, I've gotten a range of responses. One line of thought has been: the asset that matters most isn't the kind that Mark was in charge of. It's simply cash in the bank. Her projects were draining Enron of that asset, not building it.

But I think that's wrong. There is such a thing as being too liquid for one's own good. LTCM was dramatically tooliquid for its own good and that should have been a valuable lesson at precisely the moment that Lay was encouraging the Skilling/Mark rivalry.

But that's enough of a trip down memory lane for today. My head hurts already.