The Enron bubble was a prime example of the dominance of speculative finance in business.
MORE than two months after Enron, the seventh biggest corporation in the United States, filed for bankruptcy, the stench of scandal refuses to die. Shocking revelations about the company's modus operandi continue to pour in. Public and media attention was initially focussed on the company's close ties with the political establishment and the policy-making bureaucracy. However, more details of Enron's "business model", so successful until it crashed dramatically after October 2001, indicate that the Enron bubble was just an example of the manner in which speculative finance dominates business.
Enron's chief executive officer Kenneth Lay with wife Linda.
In 1985, Enron started as a pipeline company selling gas. The deregulation of the energy and electricity markets, particularly since the 1990s, for which Enron was a leading campaigner, played a major role in determining its business model, which endeared it to Wall Street for more than a decade. The new opportunities that came its way after deregulation, particularly the ambiguously defined energy-trading rules, gave Enron a head start over others. Enron increasingly became an energy broker, selling electricity and later, other commodities.
However, Enron went beyond merely bringing together buyers and sellers - which is what brokers do. Enron's innovative spirit, for which it was recognised by Fortune magazine as the "most innovative" corporation in the U.S. for six years running, was in evidence early. Normally the broker's brief is to arrange a contract between buyers and sellers for a commission on the contracted price. Enron went a step further. It entered into separate contracts with both buyers and sellers in a contract, making a profit on the difference between the two quotes. The general lack of federal controls and monitoring of energy trading enabled