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.