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March 11, 2009

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"You know what else? I don't feel sorry for people that lost money on Enron stock...." Open Choke, March 12, 2009

Choke, perhaps you should reconsider this statement. Many people who lost money on Enron stock were hard working school teachers. They did not invest directly, but indirectly through their pension funds. Projecting blame on them is "curious" to me. Most oil companies depend on some type of public funding. The oil/energy business is complex, and almost impossible for the layman to understand in detail. The school teachers are not the villains. They are the good guys. To feel no empathy for them is something I do not understand. Perhaps you should reconsider this position.

Not that I care whether they are school teachers or rocket scientists, but, unless they did not have any investment choice for their pensions, then I really don't have much sympathy. If it was a big black bag that was the prescribed pension and you had no idea what was in it and it was your only choice... great. My sympathies.

Why do people want to invest in stuff they know nothing about? Is an investor who invests unwisely in stuff that they know nothing about worthy of pity when they lose their investment?

I do business with other oilmen. Others I know do business with the general public. I wouldn't touch that with a 10-foot pole because you will get sued for taking advantage of a poor unknowing accredited investor if you drill a dry hole. No thank you.

I don't understand everything about major oil, but I know enough to invest. Investment advisors are supposed to know enough not to be fleeced. However, the promise of big returns trumps all common sense. Thenwe cry when it turned out to be a charade.

There is no such thing as no-risk investment, period. When you do business with crooks, your risk just gets much worse.

Social Security and Medicare/medicaide are Ponzi schemes as well. The only difference between them and Madoff is that they provide only a 1.5% return on my investment before they collapse and the Federal Government makes me buy it.

What are the innocent school teachers do about that? Oh, I forgot. They don't generally participate in that scam. They have their government pensions in lieu of.

So I have reconsidered it a bit. Hope that is enough, but I am frankly tired of whiners and victims. The scam artists are bad guys. The people who invest with them are NOT without culpability. Isn't that where "Fool me once, shame on you, fool me twice, shame on me"?

Of course, as a freind of mine said to me at lunch today, "I got no problem with Ponzi Schemes, I just want to be one of the first ones in"...

Choke, you seem do be advocating a "buyer beware" securities market? So in the wake of the 60 to 1 leverage schemes you want less regulation?
Enron screwed some of the best with false disclosures. They lied and deceived in very sophisticated ways, sometimes. Capitalists have again denomstrated there is no honor before $. They must be regulated, and they are about to be roped, tied and ***** by Obama etal. Oh happy day!!!

The best regulation, Scott, is to not buy crap you don't understand. I guess it was the way I was brought up. When I came home trying to play the victim with my dad over some bit of trouble I found myself in, he would respond that I needed to look at what MY actions were that led to me being there when that bad thing happened, because THAT is what I could reasonably expect to control. It doesn't feel as good as being the poor exploited victim, all us humans love that feeling, but it is a lot more productive for us to figure out the bead decisions on our part that led us there, even if they are "I trusted that guy or that pension fund to make me a huge amount of money".

I will grant that good rules and penalties governing transparency will make a market more valuable, ie you don't have to risk discount it as much.

I think politicians have demonstrated that THEIR constituencies obscure what the rules are meant to be and how they are carried out much more than the failures of capitalists. Capitalism largely works, dependable politically controlled entities largely don't.

http://www.robertbryce.com/node/223

an excerpt:

In 2002, the world's smartest investor (and my pick for president this year), Omaha billionaire Warren Buffett, issued his annual letter to the shareholders of Berkshire Hathaway. In it, he called derivatives "financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."

Few people heeded Buffett's warning. In fact, some of America's most important financial players dismissed him out of hand. In September 2002, Federal Reserve Chairman Alan Greenspan, Treasury Secretary Paul O'Neill, Securities and Exchange Commission Chairman Harvey Pitt, and James Newsome, chairman of the Commodity Futures Trading Commission, sent a letter to a pair of U.S. senators in which they declared that financial derivatives were not a danger. Instead, they said that derivatives "have been a major contributor to our economy's ability to respond to the stresses and challenges of the last two years." Further, they declared that a then pending Senate proposal to regulate derivatives could increase "the vulnerability of our economy to potential future stresses."

In June 2003, Greenspan again defended derivatives. In another letter to members of the Senate, Greenspan—this time bolstered by Treasury Secretary John Snow and Securities and Exchange Commission Chairman William Donaldson as well as Newsome—declared:

Businesses, financial institutions, a nd investors throughout the economy rely upon derivatives to protect themselves from market volatility triggered by unexpected economic events. This ability to manage risks makes the economy more resilient, and its importance cannot be underestimated. In our judgment, the ability of private counterparty surveillance to effectively regulate these markets can be undermined by inappropriate extensions of government regulation.

Back in 2002, in Pipe Dreams, my book on the Enron disaster, I wrote that reforms were needed to deal with derivatives. I quoted one financial analyst who called derivatives "Wall Street's dirty secret." I recommended that "derivatives dealers should be required to post agreed-upon amounts of capital to collateralize their trading positions" and that "the derivatives marketplace must be made more uniform, with policing by regulators who can establish price limits, listing requirements, and other trading parameters."

I don't repeat that to brag about any foresight on my part. Many other people were arguing for the same types of reforms. The point is that the warning signs left by the Enron mess could not have been more clear. The derivatives mess created by Bear Stearns, Lehman Brothers, and the others occurred because of a regulatory vacuum where none of the players were required to post collateral to back up their positions or to disclose to investors the size of their huge derivatives positions. That lack of oversight has spawned a financial crisis that will reverberate through the global economy for years to come.

Thousands of people are losing their homes. Thousands more are losing their jobs. Taxpayer money is being used to bail out private companies that were headed by corporate bosses who routinely helped themselves to multimillion-dollar pay packages. And all of it is happening because the Bush administration and Congress refused to heed the lessons of Enron.

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