I saw
the good documentary, Enron: The Smartest Guys In The
Room
Tuesday night in Sydney and sitting there I had a number of
flashes; Macquarie Bank, Babcock and Brown, infrastructure deals, financial
black boxes.

It was
eerie. When the phrase, “the biggest new idea” was mentioned, I thought of, well
Macquarie Bank, Sydney Airport, infrastructure deals like toll roads, power
stations, radio stations, transmission towers: cash flow based investments with
a seemingly bottomless pit of earnings for their promoters, Macquarie, Babcock
and Brown, banks, and others.

Of
course, Enron is vastly different to Macquarie
in particular, it has billions in managed funds, broking and investment banking
operations, loan making operations on top of the magic pudding that are its
infrastructure investment funds in the many and growing
forms.

If
anything Babcock and Brown being newer and less developed than Macquarie, is more exposed to any doubt about its
businesses.

This
week’s shakeout has carved $2 billion off the capitalisation of Macquarie: that’s 5% of the $40 billion drop in market
value on Wednesday and Thursday. Babcock
and Brown has lost $1.2 billion, or more than 2.5% of
the overall loss in value.

That’s
a sign these financial engineers are highly speculative
stocks. Just
like Enron was back in the late 90s and 2000-2001.

Enron
did lots of clever things, like trying to invent new forms of markets (really
like re-inventing the wheel) in broadband, weather futures: its basic oil and
gas trading operations were supposed to be cash cows, but were poorly and
crookedly run.

Its
electricity trading operations held the US West Coast to ransom (and some
traders have been charged and convicted over their roles). New
power stations, other energy facilities – all new types of investment – were
supposed to provide future income streams.

Different companies, different times, but some of the
arguments used by Macquarie, Babcock and Brown
and their supporters to support their ‘new ways’ of doing business are scarily
similar to the talk coming from Enron’s bosses.

Enron:
The Smartest Guys In The Room
should be required viewing for the likes of
Macquarie and Babcock and Brown et al, just in case they believe their own sales
pitches a little too readily.

Hubris
can have a high price in finance: just look at Enron.

Peter Fray

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