Enron

Elizabeth was born in Washington, D.C., and she came from a wealthy, connected family.

Her father was the vice president at a subsidiary of Enron.

Her father was? Yes.

Oh, my God.

It was a subsidiary of Enron called Clean Energy Solutions Group.

So scams run in her family.

That's

So the whole thing was just a lie that had spiraled out of control that was like top down.

Those people still have jobs, if not doing better than ever before.

Lehman Brothers, Bear Stearns, Enron, all these people got jobs.

Two guys, three guys went to jail.

great, they're back already raising money.

And again, people would, there are people who hear this and they go, oh, these are the smartest and richest people in the world.

They wouldn't do this.

We have said this again and again, smartest guys in the room with Enron, literally with the great financial crisis.

We have information from the National Realtors Association, the Builders Association.

The force of government is the only thing that makes that stick.

The thing he's describing is actually an awful lot more like Arthur Anderson in the Enron scandal.

Oh, interesting comparison.

Yeah.

And how can they make good decisions about where to grow the business, where to direct the business if they don't have those financial reports? They can't.

That's what basically we learned from Enron and WorldCom.

And that's why we have the Sarbanes-Oxley Act to And sure, better internal controls, better top level oversight and board oversight over the financial reporting process.

But that doesn't apply to these startups, even if they're bigger.

But it just has not happened yet.

And this is after I already got my ass kicked in Enron.

The morning of 9-11, I would have blown out hard and would have had to fire about 60 or 70 people.

The market didn't open.

If you want to inflate your revenue on the income statement, you just book a massive theoretical future contract today.

This was the entire foundation of the Enron fraud.

They used something called mark-to-market accounting.

They would sign a 20-year contract to provide natural gas to a city, project how much profit they might make over the next two decades, and record all of that theoretical future profit as actual net income on their income statement today.

It just looks at the cold, hard cash.

It literally just looks at the corporate checking account and asks, did actual physical cash enter the building today or did it leave?

Enron was booking billions in fake revenue on their income statement, but their statement of cash flows was bleeding red because none of that projected money was actually hitting the bank.

Yep.

Governments aren't supposed to do this.

And more and more governments have been running kind of Enron economics.

Right.

So this is a way for the the the the federal reserve to like kind of slow down tamp all of this and again normally what would people do in a situation situation like this a major investor you would just go to the international markets right you would go and buy um Those loans, if those loans were too high in the United States, you would go to the Bank of Japan.

I think it will really depend on what they mean by a bubble.

So I think the most typical comparison is like the dot-com bubble, where during the dot-com bubble, there were companies which were like highly overvalued, right? Like something like a Cisco, for example, or like a Enron, right? And there are probably companies in the AI supply chain right now, which are at, you know, I wouldn't say similar values of overvaluation, but let's say it's trading above 100% above what their fair truth value should be.

And then you have cases where like, you know, it's a meta or like an Amazon or Google, where if you bought it at the top of the dot-com bubble and then held it for next 20 years, your compounded rate of returns would have been higher than like, you know, the index at, you know, like S&P at the bottom of the, you know, dot-com bubble buying the bottom, right? Like basically you would have had excess compounded returns anyways.

which suggests that like the stocks, you know, they were returning above the equity risk premium over the long run, which suggests it's like basically, I guess the question is like, is Google at the top of the dotcom bubble? Like was that was Google in a bubble considering if you bought it over the next 20 years, you would have had excess returns.

And over the last two decades, the profession has been rocked by catastrophic, highly publicized scandals.

The study cites the collapse of Royal Ahold in the Netherlands, the Enron and Lehman Brothers disasters in the U.S., and the massive Wirecard fraud in Germany.

In auditing, an error is not a typo on a blog post.

If an auditor makes a mistake, a multibillion dollar fraud might go completely undetected.