January 03, 2002

The bad investments Enron made can be attributed to the failure to model the world correctly and to ignore the companys impact on the financial markets equilibrium process. They needed to incorporate the feedback effects of their action in the arbitrage process. This is especially important when they try to unwind a position. Their action will influence the market-clearing price, so in effect they will now be chasing a moving target. This type of logic suggests that traditional accounting for booking of profits, which assumes that the arbitrageur is a price taker, is no longer appropriate. In our opinion that is the common element in all these failures. (full article attached)

You must have an active account to view these reports. You may register for a trial here

Download Complete Report in PDF Format

Download Complete Report in Word Format