Monday, 21 May 2007

McEnron Economics

Here’s something linking business and politics. It’s a commonplace observation that McBroon is indulging in ‘Enron Economics’ on a large scale, what with PFI and all.

I know a bit about Enron (*coughs*). Au fond, Enron went bust for the oldest reason of all: it was growing rapidly and its profits ran way ahead of its cashflow. The usual ways to avoid being dragged under by this are (a) forgoing growth (yeah, right) and (b) borrowing.

But for Enron to borrow openly would have meant losing Investment Grade status – and with it, the ability to transact its most profitable deals. So it turned to ‘off-balance-sheet’ devices. Initially these were mostly quite clever (*coughs again*) and legitimate securitisations: but the appetite was insatiable and eventually it all collapsed in circumstances of criminal farce.

Turning to Wee Gordo’s use of Enron Economics, I have these questions for those who understand such things.

1. why would a sovereign nation with a developed economy and enormous borrowing capacity bother with such fun and games? (Is anyone fooled?)

2. how and when, exactly, is it all going to come unstuck?

Let’s see how far we can get with this knotty exam question before the Slicker himself returns and puts us right.

Do not attempt to write on both sides of the paper at once.

13 comments:

Anonymous said...

Labour mong scum hope, when a Tory administration takes over, as it inevitably will eventually.

Labour took over a booming economy by any standard, and will give back a pretty stagnant and debt ridden one...

Will the people know or appreciate this? Maybe.

Nick Drew said...

Shotgun - It's an interesting dilemma for Brown, isn't it? He'd dearly like to be PM for a decade himself, which sort of rules out a deliberate scorched-earth strategy for the next year or so.

But if he sees the writing on the wall for 2010 - slash-n-burn is probably on the menu, wouldn't you think?

Anonymous said...

1.
Broon simply failed to understand market economics.

2.
Its already unstuck. PFI schools can't get a lightbulb changed without threatening legal action against the contract holders.

Electro Kevin said...

Nick - what is considered to be 'growth', is it domestic consumer spending and activity ?

Don't we have an overseas trade defecit ?

Nick Drew said...

Kev - that might be one for Slicker to answer sur son retour. I'm keen to proceed on a sound footing in this little exercise, hence canvassing expert input.

I know what growth meant in the Enron case (and what happened next, in detail) and am hoping Slicker or someone can help me build the on analogy that is suggested by the 'Enron Accounting' label, to see if there are any helpful parallels.

Steven_L said...

I was always led to believe that 'economic growth' was a growth in GDP, I think they adjust fro inflation (using whatever figures are in fashion) but not for population/immigration or to take into account GDP that's been created through putting people on the public payroll.

I might be wrong though.

Steven_L said...

Oh, and my answers to the question:

1) To stay in power, keeping up the boast of 'record economic growth'.

2) During the next recession.

Nick Drew said...

Steven - thanks for these posts, I appreciate the input.

Can you explain your answer to 1) some more ?

My puzzle is this: McBroon could surely have borrowed as much ££ 'on-balance-sheet' as via PFI ('off-balance-sheet' per the Enron analogy), and just as cheaply - in fact probably more cheaply because the security remains the same - sovereign risk - but the operational costs would be less.

In Enron's case, when it was discovered that (some of) their borrowing technically shouldn't have been classified O-B-S, the game was up.

In McBroon's case, every bugger knows PFI is effectively sovereign risk.

So ... what has McBroon gained? And does it all only collapse when a recession comes (pace Steven) or for some 'structural' reason a la Enron?

pommygranate said...

mate - a much larger off-balance sheet item than PFI is govt pensions. Seeing as tho we now all live much longer, and public sector workers still get to retire at 60, and they still get index-linked, defined-benefit pensions, there is a mountain of liabilities awaiting the govt.

The rating agencies, Moodys and S&P, now count as part of a company's debt, its pension liabilities. they typicall take the annual cash outflow that goes toward apying pensions, multiply by six, and then add that back to the company's total debt.

I wonder what this would do to our debt/GDP ratio?

Nick Drew said...

Pom - welcome - good point, so question for you:

don't financial analysts concerned with UK Govt debt make their own estimates of such things and factor them in to the price? Is the 'benefit' of smoke-&-mirrors for McBroon that it's hard for them to do this & they'll probably under-estimate the liabilities?

The risk-management dept in your trading shop will probably take the opposite approach - if they don't have accurate figures on a counterparty, they'll assume the worst to be on the safe side. So the cost of business for that counterparty goes up!

Steven_L said...

I'm sure he could have borrowed even more than he has by issuing more gilts, apparently the treasury are fans of PFI though. I don't know why. Perhaps treasury mandarins like it because it aids their nepotistic activities.

I doubt it does actually 'collapse', just that during times of lower public spending certain parts of government are still paying back big loans and have to lay more people off, skip on more cancer treatments etc.

Anonymous said...

aaaa片, 免費聊天, 咆哮小老鼠影片分享區, 金瓶梅影片, av女優王國, 78論壇, 女同聊天室, 熟女貼圖, 1069壞朋友論壇gay, 淫蕩少女總部, 日本情色派, 平水相逢, 黑澀會美眉無名, 網路小說免費看, 999東洋成人, 免費視訊聊天, 情色電影分享區, 9k躺伯虎聊天室, 傑克論壇, 日本女星杉本彩寫真, 自拍電影免費下載, a片論壇, 情色短片試看, 素人自拍寫真, 免費成人影音, 彩虹自拍, 小魔女貼影片, 自拍裸體寫真, 禿頭俱樂部, 環球av影音城, 學生色情聊天室, 視訊美女, 辣妹情色圖, 性感卡通美女圖片, 影音, 情色照片 做愛, hilive tv , 忘年之交聊天室, 制服美女, 性感辣妹, ut 女同聊天室, 淫蕩自拍, 處女貼圖貼片區, 聊天ukiss tw, 亞亞成人館, 777成人, 秋瓷炫裸體寫真, 淫蕩天使貼圖, 十八禁成人影音, 禁地論壇, 洪爺淫蕩自拍, 秘書自拍圖片,

做愛的漫畫圖片, 情色電影分享區, 做愛ㄉ影片, 丁字褲美女寫真, 色美眉, 自拍俱樂部首頁, 日本偷自拍圖片, 色情做愛影片, 情色貼圖區, 八國聯軍情色網, 免費線上a片, 淫蕩女孩自拍, 美國a片, 都都成人站, 色情自拍, 本土自拍照片, 熊貓貼圖區, 色情影片, 5278影片網, 脫星寫真圖片, 粉喵聊天室, 金瓶梅18, sex888影片分享區, 1007視訊, 雙贏論壇, 爆爆爽a片免費看, 天堂私服論壇, 情色電影下載, 成人短片, 麗的線上情色小遊戲, 情色動畫免費下載, 日本女優, 小說論壇, 777成人區, showlive影音聊天網, 聊天室尋夢園, 義大利女星寫真集, 韓國a片, 熟女人妻援交, 0204成人, 性感內衣模特兒, 影片, 情色卡通, 85cc免費影城85cc, 本土自拍照片, 成人漫畫區, 18禁, 情人節阿性,

Anonymous said...

情色電影, aio交友愛情館, 言情小說, 愛情小說, 色情A片, 情色論壇, 色情影片, 視訊聊天室, 免費視訊聊天, 免費視訊, 視訊美女, 視訊交友, ut聊天室, 視訊聊天, 免費視訊聊天室, a片下載, av片, A漫, av dvd, av成人網, 聊天室, 成人論壇, 本土自拍, 自拍, A片, 愛情公寓, 情色, 舊情人, 情色貼圖, 情色文學, 情色交友, 色情聊天室, 色情小說, 一葉情貼圖片區, 情色小說, 色情, 色情遊戲, 情色視訊, 情色電影, aio交友愛情館, 色情a片, 一夜情, 辣妹視訊, 視訊聊天室, 免費視訊聊天, 免費視訊, 視訊, 視訊美女, 美女視訊, 視訊交友, 視訊聊天, 免費視訊聊天室, 情人視訊網, 影音視訊聊天室, 視訊交友90739, 成人影片, 成人交友,

免費A片, 本土自拍, AV女優, 美女視訊, 情色交友, 免費AV, 色情網站, 辣妹視訊, 美女交友, 色情影片, 成人影片, 成人網站, A片,H漫, 18成人, 成人圖片, 成人漫畫, 情色網, 日本A片, 免費A片下載, 性愛, 成人交友, 嘟嘟成人網, 成人電影, 成人, 成人貼圖, 成人小說, 成人文章, 成人圖片區, 免費成人影片, 成人遊戲, 微風成人, 愛情公寓, 情色, 情色貼圖, 情色文學, 做愛, 色情聊天室, 色情小說, 一葉情貼圖片區, 情色小說, 色情, 寄情築園小遊戲, 色情遊戲, 情色視訊,