what happened to the money?

Question

enron's investors lost billions of dollars. kenneth lay has equity of 8 million. what logical answer explains where the 992+ million dollars went? i am not an accountant but simple math doesn't add up. how was that much money spent? (accountants and professors only)

Answer 1

Lay's equity of 8 million was just like my equity of $800. He had stock in Enron that became worthless just like mine (he just had a lot more of it)...

All of the money went to expenses and bad investments that Enron made. Enron made tons of bad investments - but kept them on the balance sheet at overstated values.

Read:

Conspiracy of Fools : A True Story -- by Kurt Eichenwald
if you want a detailed explanation of the Enron mess.

Answer 2

Think of it this way:

There is a chest that everyone believes is full of treasure. This chest has traded hands many times, as a lot of people buy this chest and then sell it to someone else.

You buy the chest from someone for $1,000 because you believe that the stuff inside is worth as much or more than what you paid. Then someone comes around and says "Hey, the box is empty." You open it and what's inside? Absolutely nothing! You try selling the chest but the most anyone will pay for it is $5.

So you've essentially lost $995. Where did that money go? Well, that money went to the guy who sold it to you.

This is a pretty dumb analogy, but it applies to what happened to the investors in Enron. They had paid big bucks for a company that they thought was worth a lot. When it turned out the company was actually broke, they couldn't get anyone to buy their shares at the price that they had bought it, hence the "lost" money. The money didn't actually disappear, it just got redistributed.

Answer 3

That is a good question. And besides... where ever it went it ended up in someones account legitimately or illegitimately. Its not like the money vanished. It is after all somewhere!