The Enron Debacle and the U.S.Economy

Paper Summary:

This paper explains that the crisis at Enron has had a negative impact on the United States economy but not the total impact that many believed it would have. The author states that, when Enron began to collapse, it started an avalanche or economic panic and activity nationwide, which the U.S. managed to level out; but the lack of confidence remained heavy for more than a year afterwards. The paper concludes that, from the Enron debacles, a blue print for a better check and balance system was developed and now provides a governmental watchdog.

From the Paper:

"The key to Enron's undoing was about stock mistakes. The company committed to put $1.2 billion of Enron stock into the Raptors to make them more creditworthy. It did not promise a fixed number of shares -- it promised $1.2 billion worth, regardless of the share price, a seriously dumb move for a company that talks about hedging risks. In return for that commitment, the Raptors gave Enron $1.2 billion of promissory notes. Enron put them on its balance sheet as an asset. When a company adds to its assets and nothing else changes, its net worth rises. Hence, Enron marked up its net worth by $1.2 billion. But, as the stock prices of Rhythms, NewPower and Enron all sank, Enron faced having to fork over a ruinous number of new shares." This was the beginning of the end and the ripple affect on the stock market caused a negative impact on the nation's economy."

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