Enron-and-the-SPEs-2001

Enron and the SPEs – 2001

For five years straight, Fortune magazine named it ‘most innovative company of the year’. By then Enron was a colossus, one of the world’s top seven financial services groups, and the accolade was a stunned acknowledgement of Enron’s peak – $100 billion revenues and soar away $90 share price. Enron’s winning formula baffled the shrewdest financial minds, who in any case preferred to get in on the action instead of digging too deep.

Protected by its success, wealth, and stockholders representing every level of political clout up to the White House itself, Enron’s only Achilles’ heel was its imitators. Many companies had tried to follow Enron without understanding what it actually did – and their mistakes provoked Federal agencies to speculate more closely on Enron’s slick operations. Like Al Capone, Enron was taken down by tax accountants.

Enron’s Innovations’ were twofold. Firstly, it refined old-style creative accounting to a new art form. Secondly, it used a perfectly ordinary financing technique that would attract no attention, in a novel way and on a scale without precedent. ‘Special Purpose Entities’ (SPEs) enable a company to lessen risk by placing assets in a smaller partnership that can be sold independently. Enron placed only assets that were already losing money in such partnerships; and instead of isolating the SPE from the parent company as the law required, continued to run them with its own managers, and back them with its own stock.

When federal auditors insisted that Enron treat over 4000 SPEs as part of Enron, the resulting $1.1 billion ‘charge against earnings’ caused the whole financial house of cards to collapse. Ten years later, charges of wire fraud, securities fraud, mail fraud, money-laundering and conspiracy are still hitting senior executives – including the same 140 people who took home $680 million in the year before Enron’s bankruptcy, knowing at the time that, apart from everything else, the 21,000 lesser employees’ retirement fund had been wiped out.

When: 2001

Where: Houston, Texas, USA

Toll: Arthur Andersen, one of the world’s ‘big five’ accounting firms, shriveled in size and reputation, the first of over 700 companies required ‘to restate their earnings’ in the light of their creative accounting. The scandals, rip-offs and prosecutions brought legislation, passed by the US Congress in 2002, intended to reform corporate ethics and protect ‘the little guy’. Enron links to Dick Cheney and the Bush administration have allegedly slowed the reform process.

You should know: Ken Lay. CEO and then Chairman of Enron, was George W Bush’s biggest private contributor, giving $2 million. He took home $67 million in 2000. CEO Jeffrey Skilling took $42 million and was so adept at selling that 13 of the 16 analysts who covered Enron were still advising investors to buy, a month before its bankruptcy.


Boo.com-Goes-Bankrupt-2000

Boo.com Goes Bankrupt – 2000

The dotcom frenzy reached its zenith around the millennium. At every stage of its explosive development and violent decline, its standard-bearer was Boo.com, the European online sports and high-fashion ‘e-tailer’. From its conception in 1998, Boo had value-added glamour in the form of its founders, a Swedish poetry critic and a former Vogue model. They parlayed their youth, their previous experience of running an online bookshop, and their innate style into £80 million of backing from the most prestigious sources in the USA and Europe.

To the envy of potential rivals, their investors included J P Morgan, Goldman Sachs, Benetton and Bernard Arnault of LVMH (Louis Vuitton Moet Hennessy); but instead of funding a staff of 30 and a suitably corporate mindset, the money evaporated in demonstrations of the cachet and chic they were supposed to be selling. They used Concorde like a bus (though by their own later account ‘after the pampered luxury of a Learjet 35, Concorde was a bit cramped’) and redefined ‘partying’ as a fundraising mechanism. They opened for business a year late, with 400 staff in eight offices round the globe, waiting. Before they sold a single thing, Fortune magazine described Boo.com as Europe’s coolest company. Its reputation turned out to be its epitaph.

Within six months, the dotcom boom was over as venture capitalists realized technology had outstripped consumers’ awareness of, and familiarity with it. Buying online was too new, and too slow. The banks were closed, even for high fliers like Lastminute.com. Boo’s ‘passion’ built a brilliant internet edifice which very few customers understood how to use properly. The company did too much too soon – and did it with such champagne-fueled gusto that nobody noticed the achievement behind the hangover. If go you must, then what a way to go.

When: May 18 2000

Where: London, UK

Toll: Boo.com’s high-profile bankruptcy attracted unfair censure during the tech-stock crash of 2000. The other dotcom ventures would have failed anyway. However, it did real damage to perceptions of European internet start-ups, and US internet giants colonized the resulting vacuum – just in time to take full advantage of the huge increase in domestic broadband availability that would have given wings to Boo.com’s original plans.

You should know: when the BBC referred to Boo.com’s ‘all-singing, all-dancing website’, it surely included one of its most delightful features. The site had an online hostess and personal shopper called ‘Miss Boo’, a compelling character who very much resembled a pixelated version of Boo’s co-founder, the former vogue model Kajsa Leander. It is said that ‘Miss Boo’ was responsible for much of the euphoria with which users responded to the internet site.


Dorling-Kindersley-2000

Dorling Kindersley – 2000

From the outset in 1974 (Christopher) Dorling and (Peter) Kindersley were successful hook packagers (they created finished books for other companies to publish). They specialized in large-format, heavily illustrated books on almost any subject. By 1982 they themselves had become publishers, internationally famous for ‘visual guides’ which made complex non-fiction subjects readily accessible. Typical of their many successes are titles like Universe, Earthy History, Animal, and Human; the Eyewitnes series and a host of others usually created by their own teams of writers and editors. Margins are wafer thin, but Dorling Kinders bulldozed its way to the top of its field by sticking to its unmistakable formula. Peter Kindersley – nothing if not passionate about his product – made sure of that.

In 1999 Dorling Kindersley won the right to publish the lavishly illustrated book to accompany the first ‘prequel’ to George Lucas’s Star Wars. Called Star Wars: Episode I – The Phantom Menace, it was the most-hyped film in history. As part of the collateral merchandising, Dorling Kindersley printed 13 million books, expecting a Christmas sales surge. ‘Only’ three million were sold (enough to put it on The New York Times bestseller list) but Dorling Kindersley was forced to announce a £25 million pre-tax loss, of which some £18 million related to Star Wars. Peter Kindersley, the executive chairman, revealed the immediate departure of the chief executive. By giving no details, he appeared to blame him for the loss; but Peter Kindersley was famous for his hands-on approach to major projects, and nobody can name one in which he has not been intimately involved. He stayed, proudly proprietorial.

It was no use. Dorling Kindersley had to go and the Pearson Group (owners of Penguin) bought it. The packager was ultimately clobbered by the ambition that had deterred his earlier partners.

When: January 2000

Where: London, UK

Toll: DK could not have survived the Star Wars fiasco without Pearson – and Peter Kindersley valued his independence above everything. The affair caused what one well-known media analyst called a ‘sea change’ in subsequent film merchandising deals.

You should know: Christopher Davis, a Dorling Kindersley board member for 25 years, wrote: ‘It would be intriguing to hear Peter Kindersley… give an insight into those conflicts that arise from Founder’s Syndrome… is there ever a satisfactory exit point for the founder and chief architect of a creative business forged largely in his own image? How does he resolve the Faustian pact which decrees that the price for personal wealth is to lose control of your creation? I can only guess …’


Kevin-Costner’s-The-Postman-1997

Kevin Costner’s The Postman – 1997

Let’s be clear: this movie is not to be confused with the Oscar-nominated II Postino (released in the US as The Postman) one of the most profound and beautiful films ever to come out of Italy. By complete contrast, Kevin Costner’s The Postman heads several ‘Top Ten Career- Killing Movies’ lists, which is a surprise only because most people have never heard of it, having lost interest after Waterworld.

The Postman is another post-apocalyptic wham-bam, spliced with an extra 45 minutes of dithering morality. James Berardinelli’s Reelviews website kindly suggested that ‘with all its rampant jingoism, cliched melodrama and shameless attempts at emotional manipulation, [it] could easily be viewed as a clever satire of epic adventures’, but admitted that although its ‘cloying dose of patriotism’ enabled the rest of the world to enjoy its comedy, it wasn’t meant to be a joke. It was, said The New York Times, ‘a bald-faced exercise in cinematic self-deification’.

Costner plays another loner, a wandering minstrel doing one-man Shakespeare shows for bread and alms. Fleeing conscription into the racist, psychopathic army of thugs that runs America (the year is 2013), he finds a dead postman in the Utah Salt Flats and takes both uniform and full mailbag off the skeleton. Siddartha in a US Postal Service jacket, he sets out to deliver mail, wisdom and nobility of purpose. Will he? Won’t he? Can he? Can’t he? inspire the shattered outposts of decency to a common weal, aided by the usual ‘crazy’, called Ford Lincoln Mercury, and the usual girl, Abby, whose big line is ‘you give out hope like it was candy in your pocket’.

Heaven only knows what Costner was thinking. Apart from losing $63 million, The Postman stripped him of any credibility remaining from the excellence of Dancing With Wolves. It was a disaster for the actor, the director, and intelligence itself.

When: 1997

Where: USA

Toll: It’s all been downhill for Kevin Costner. The steady stream of work confirms Hollywood’s belief in his core talent, but his choices have done little or nothing to redeem his reputation. Even the political comedy Swing vote (2008) lost millions on a meagre budget of $21 million. Happily, however flawed, there’s still something very likeable about the man.

You should know: Since 2007, Costner has been touring extensively with his country music band ‘Kevin Costner and the Modern West’. Though it’s usual to dump on middle-aged men fulfilling boyhood dreams of rock stardom, and plenty have – one review called the band ‘so unbelievably cornball it becomes laugh-out-loud funny’ – he’s actually pretty good, in any case, all his films are about fulfilling impossible dreams, so why should his band be any different?


Nick-Leeson-and-the-Collapse-of-Barings-Bank-1995

Nick Leeson and the Collapse of Barings Bank – 1995

Baring Brothers was Britain’s oldest merchant bank, founded in 1762. It collapsed when a single employee committed the bank to losses of roughly £830 million, which it could not cover. Embarrassingly, Barings had only itself to blame. Its culture had evolved from the collision between its own illustrious history and the contemporary, ruthless avarice typified by its rival, Morgan Stanley (whose president, on discovering that big names were hemorrhaging losses from trading derivatives, told his team ‘There’s blood in the water. Let’s go kill someone.’).

Snobbery flourished: as long as the profits rolled in, Barings’ old-money merchant bankers tolerated the new breed of securities traders… but not enough to actually talk to them or try to understand what they did. Barings’ culture meant that 28-year-old Nick Leeson in the Singapore office could trade securities without direct supervision. Staggeringly, he was in charge of both buying and selling (‘trading’ and ‘settlement’). The temptation was biblical. Leeson was uniquely placed to commandeer huge sums of cash from London; to gamble them; and to report the results to his best advantage.

In 1993 (the year known by Barings’ staff as ‘The Turbulence’), what was effectively an internal takeover created the unworkable situation of investment bankers supposedly overseeing investment traders. Leeson began trading between Singapore’s Simex and Japan’s Nikkei, feeding a steady stream of profits to London, and hiding losses in what became the notorious account 88888. By December 1994 the file hid losses of SS373.9 million. Leeson kept doubling his bets on the Nikkei staying above 19,000 points during January 1995 – but on January 17, the Kobe earthquake sent the Nikkei crashing. Desperate, Leeson doubled and redoubled until on February 23 he fled Singapore leaving losses of S$2.2 billion to be revealed by the auditors in his wake. Three days later Barings went into administration.

When: February 27 1995

Where: London, UK; Singapore; and Osaka, Japan – then globally

Toll: Nick Leeson surrendered voluntarily. In December 1995 he was sentenced to six-and-a-half years in prison, and was released on July 3 1999. Barings was sold to the Dutch company ING for a token £1. Immediate steps were taken to toughen both internal and international company law – but as history shows, fraud was already endemic at every level of the financial services industries. More than a decade after Leeson’s release, fresh reforms continue to be framed at national and international levels.

You should know: In The Army, if one soldier steals from another man’s locker, it used to be not the thief, but the victim who was punished – for leaving temptation in the other man’s path. Barings may have saved Britain by financing the Napoleonic Wars, and much else, but they also brought disaster on themselves in 1995. It’s all in Leeson’s book, now filmed, called Rogue Trader.


BBC-TV’s-Eldorado-1993

BBC TV’s Eldorado – 1993

A legendary lemon, Eldorado was BBC TV’s new soap opera for the 1990s. Conceived as Spain became second home to many Britons, it was supposed to replace the gritty realism of no-frills urban drama like EastEnders and Coronation Street with the sun-kissed bounty of sea, golden beach and sizzling paella.

The set was purpose-built at Coin on the Costa del Sol. With a fountain at its heart, and multi-level nooks and crannies to provide an infinity of camera angles, it was an urbanization of arches, steps and white stucco so typical of Spanish developments of the era. Its drawback was the ex-pats who ‘lived’ there: how could they be constantly complaining when they had already achieved the nirvana of living it up in lotus land? Even in Australian soaps like Neighbours and Home and Away, the beach and the glorious weather were mere extras. The action should have been head-to-head in the kitchen or garage. The psychology of an intimate, daily, domestic drama didn’t work in what looked like an open-air holiday haven.

Mismatch apart, the early scripts were nearly as awful as the amateur acting – but those were faults that could be and were (nearly) set right. Far away at Television Centre, the greater threat to Eldorado was a new Controller, temperamentally committed to restoring the BBC’s high moral purpose. Populism was fine, as long as it wasn’t just a rehash of something already covered by independent TV. Big-budget populism that swallowed funds which could have paid for more edifying drama drew scowls and pursed lips. Despite a regular audience of five to six million towards the end of its run, Eldorado closed. At a cost of £10 million, it was a disaster for the BBC’s managers – but quite good value for a national joke.

When: July 1993

Where: Coin, Costa del Sol, Spain, and London, UK

Toll: The BBC effectively abandoned Eldorado long before it was finally cancelled; and the nature of its demise explains why, ever since, the BBC has avoided launching any new soaps in favor of financing drama series like Casualty, allowing them to be developed in a soap-like fashion once their ‘brand’ has been established. As for the series itself, memory plays strange tricks, and in retrospect it has never been more popular – as it showed every sign of becoming had the BBC not had John Birt as Director General, whose unfavorable opinion nobody dared disagree with.

You should know: One of the best-ever ‘episodes’ of Eldorado was the satirical sketch on The Ruby Wax Show, starring Ruby as an ‘extra’ in mantilla and castanets. She exactly captured the so-bad-it’s-really-good response that kept millions watching the soap while it slowly improved.