Category: Book Quotes of the Day

Stock market plunges reveal fraud. When the tide goes out, you get to see who is swimming naked, as Warren Buffet said famously.

The next day, Lay told employees at a companywide meeting that Enron’s fundamentals were the “strongest they have ever been” and that liquidity was “strong.” Glisan testified that Fastow warned Lay that the company would need to be restructured or sold. Five days later, Lay told BusinessWeek magazine that the company was “probably in the strongest and best shape it’s ever been.”

Enron was not a volatile trading shop, Skilling had told the public. Ruemmler brought on Delainey to destroy that notion, and he did. He testified that Enron’s wholesale energy unit’s trading gains and losses swung wildly. The unit had lost $551 million in one day in late 2000, a sum that exceeded the unit’s entire profits from the previous year. Earlier that same month, it had made $485 million in a day.

Executives like to say, “You can always tell who the pioneers are, because they’re the ones with arrows in their backs.”

“There is no CEO that I’m aware of” who could possibly know about every decision lower-level employees make. They rely on the advice of lawyers, bankers, and accountants. “Now, there may be some superman somewhere that thinks they know everything going on in their company in every department, in every level, in every country, and every employee. But I think that would be very unrealistic.”

Top corporate executives would continue to make versions of this argument for the next decade, especially in the wake of the 2008 financial crisis. Ignorance equaled innocent. Lay’s defense might have worked if prosecutors had charged him with masterminding Enron’s accounting frauds. But they were too smart and built a different case.

All the officials in the conversation understood that a task force with prosecutorial powers had some inherent weaknesses. It faces enormous pressure to emerge with some kind of charge, leading to abuses. (Similar problems plague independent prosecutors.) The public has made up its mind. Prosecutors need courage not to bring cases as the spotlight shines.

It will be readily seen that it was fully time to put an end to the system, for the gold “louis” of twenty-five francs in specie had, in February, 1796, as we have seen, become worth 7,200 francs, and, at the latest quotation of all, no less than 15,000 francs in paper money–that is, one franc in gold was nominally worth 600 francs in paper.

The question will naturally be asked, On whom did this vast depreciation mainly fall at last? When this currency had sunk to about one three-hundredth part of its nominal value and, after that, to nothing, in whose hands was the bulk of it? The answer is simple. I shall give it in the exact words of that thoughtful historian from whom I have already quoted: “Before the end of the year 1795 the paper money was almost exclusively in the hands of the working classes, employees and men of small means, whose property was not large enough to invest in stores of goods or national lands. Financiers and men of large means were shrewd enough to put as much of their property as possible into objects of permanent value. The working classes had no such foresight or skill or means. On them finally came the great crushing weight of the loss. After the first collapse came up the cries of the starving. Roads and bridges were neglected; many manufactures were given up in utter helplessness.”

Men who had foreseen these results and had gone into debt were of course jubilant. He who in 1790 had borrowed 10,000 francs could pay his debts in 1796 for about 35 francs.

It was simply a feverish activity caused by the intense desire of a large number of the shrewder class to convert their paper money into anything and everything which they could hold and hoard until the collapse which they foresaw should take place. This very activity in business simply indicated the disease. It was simply legal robbery of the more enthusiastic and trusting by the more cold-hearted and keen. It was, the “unloading” of the assignats upon the mass of the people.