(Appologies - I thought I posted this Friday but apparently saved the assignmment as a draft instead. The Blog is still due Wednesday 11/4 before class.)
Directions: Readthe articles below (each is less than one page in length.)
AIG is the New Enron
http://features.csmonitor.com/economyrebuild/2009/03/19/aig-is-the-new-enron/
Lessons of Enron
http://www.csmonitor.com/2002/0116/p1s1-usec.html
AND
A Whiter Shade of Enron (AIG)
http://www.nytimes.com/2005/04/03/business/yourmoney/03gret.html
A) Use these articles and any outside resources you chose to summarize the American International Group (AIG ) and ENRON scandals.
B) What happened in both cases that outraged so many Americans?
C) How did these events change the stock market and the American public’s view of corporations?
D) In your opinion, how should corporations be held accountable for “white collar crimes”? What can be done to prevent future scandals like these?
E) What questions do you have about these scandals and how they relate to the US economy?
Minimum 250 words, due Wednesday, November 4 before class.
1.) Summary:
ReplyDeleteAmerican International Group (AIG), traces its roots back 90 years when an American entrepreneur named C.V. Starr founded AIG’s earliest predecessor company in Shanghai. What began as a small insurance business grew to become one of the world’s largest companies. According to AIG's official website, by the end of 2007, AIG had assets of approximately $1 trillion, $110 billion in annual revenues, 74 million customers and 116,000 employees in 130 countries and jurisdictions. Yet, less than a year later, AIG found itself on the brink of failure and in need of emergency government assistance. According to the New York Times article, “A.I.G.: Whiter Shade of Enron,” A.I.G., is a real company with global operations, generating genuine profits from a variety of financial enterprises. As companies go, Enron was all smoke and mirrors; A.I.G. is substance.
The Enron scandals, revealed in October 2001, involved the energy company Enron, and the accounting, auditing, and consultancy partnership of Arthur Andersen. The corporate scandal eventually led to Enron's downfall, resulting in the largest bankruptcy in American history at the time. Arthur Andersen, which was one of the five largest accounting firms in the world, was dissolved. According to the New York Times article, “A.I.G.: Whiter Shade of Enron,” there are, however, some similarities between A.I.G. and Enron: Asleep-at-the-switch auditors. Secretive off-balance-sheet entities that should have been included on the company's financial statements but weren't. A management team willing to try any number of accounting tricks to make the company's results appear better than they actually were.
2.) AIG infuriated so many people, because it found itself on the brink of failure and in need of emergency government assistance. What began as an investigation into two reinsurance transactions, has mushroomed into a growing scandal that has tarnished the reputation of one of America's premier corporations. On March 30, AIG acknowledged that it had improperly accounted for the reinsurance transaction to bolster reserves, and detailed numerous other examples of problematic accounting. It also announced the delay of its annual 10-K filing, and said the moves may have inflated its net worth by up to $1.7 billion. According to businessweek.com, while AIG says it does not yet know if the review will force a restatement of prior results, its stock dropped 2.1% on the news; all together, AIG shares have dropped 22%, to $57 apiece, since the company was served with subpoenas by state and federal regulators six weeks ago.
The Enron scandal outraged many American people, because the corporate scandal eventually led to Enron's downfall, resulting in the largest bankruptcy in American history at the time. At the end of 2001, it was revealed that its reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud. Enron has since become a popular symbol of willful corporate fraud and corruption. The scandal also brought into question the accounting practices of many corporations throughout the United States, resulted in the creation of the Sarbanes-Oxley Act of 2002.
3.) These scandals both changed the stock market and American views of cooperations, because they both dealt with fraud and bankruptcy. The stock market is there to help the American economy. The stock market was changed with the AIG scandal, because while AIG says it does not yet know if the review will force a restatement of prior results, its stock dropped 2.1% on the news; all together, AIG shares have dropped 22%, to $57 apiece, since the company was served with subpoenas by state and federal regulators six weeks ago. The stock market changed during the Enron scandal, because it brought into question the accounting practices of many corporations throughout the United States, resulted in the creation of the Sarbanes-Oxley Act of 2002. How were/ are the American people to trust these cooperations/ businesses after fraud?
ReplyDelete4.) Companies should be held accountable for “white collar crimes,” because these crimes are crimes committed by a person of respectability and high social status in the course of his/ her occupation. Among other measures, the 2002 Sarbanes-Oxley Act, motivated by the Enron collapse and other scandals, required companies to set up comprehensive internal controls and established a new federal board to oversee auditors. It also demanded that top executives sign off on their companies’ financial statements, holding them personally liable if it was later found that someone else had “cooked the books.” To prevent crimes like these, the government canno't solely sentence criminals to prison. You may ask any prison inmate and recently convicted corporate criminal if they ever planned on going to jail. While I support strong prison sentences for white collar crimes, such a policy should be used as society's means of imposing responsibility on such criminals and not be considered a primary means of fraud prevention. According to whitecollarfraud.com, others have said that there will be more frauds to come despite the recent reforms under Sarbanes Oxley and other changes. However, to prevent such frauds, as enumerated on this web site, effectiveness of Sarbanes Oxley should be improved.
5.) Questions:
What other kind of scandals have recently happened concerning the stock market?
Are these two scandals still being brought about in courts today?
Are they effecting the U.S economy still?
Marissa Mule
C- Block
A. The American International Group (AIG) is one of the world's largest insurers. Most of its business is general life, auto, home, and travel insurance. It started out as an insurance company, very small with few customers. Now, AIG is seeing failure and looking for the government to help them out.
ReplyDeleteAccording to BBC News, after about 15 years in 2001, Enron grew from being nothing to America's seventh largest company, with-holding a large staff in many different countries. But the company's huge success turned out to be a big scam. The owner, Enron, lied about its profits and stands accused of a range of sneaky dealings, including holding debts so they didn't show up in the company's accounts.
B. Americans are upset with AIG paying bonuses to some people who put the economy into a recession. Many Americans are outraged at the governemnt which owns 80% of AIG and agreed to the bill that granted people their bonuses. Instead, contracts were signed to bail AIG out.
Also, Americans were outraged by the Erdon Scandal. This scandal led to a flop on his company, which the largest compny in America. This encounteered to depecting fraud and corruption.
C. The stock market was affected by these two companies. Many people at the time had shares and stocks from AIG and Enron because they were both popular and very successful. Since a lot of people were also employed by these companies, more people would be buying stocks from it. Ever since they both failed, many people tried to sell their stocks, which led to a crash and/or recession.
D. People who commit "white-collar crimes" should be held accountable for what they did. There are many consequences, I feel, that a criminal should be held up to. There should be strong prison sentences and managers of the corporation should take full responibility of the action. To prevent future scandals, the government should be more aware of the new company owners opening on the market.
E. How are the scandals still affecting us today?
Why are these so serious and affected such a large amount of people?
Could these two scandals have been the result of the recession we are in today?
Dana Pistilli
C-Block
AIG was founded in by Cornelius Starr in Shanghai,China.Its the world's leading international insurance and financial services organization,with operations in more than 130 countries. What is shocking about the rest AIG fallout and the Enron case is that so much of what that company did was legal. The AIG debacle involves hubris and risk-taking so breathtaking that it helped burst the real estate bubble and nearly brought the world financial system to its knees.Enron’s bankruptcy cost shareholders more than $60billion and collapsed the retirement savings of 20,000 employees and retirees. In 2005, after an AIG scandal on insurance and mutual funds the year before, AIG is under investigation for accounting fraud. The company already lost over $58 billion worth of market compensation because of the AIG scandal. AIG has the fastest decrease in market value since the Enron scandals.Investigations also discovered over a billion US dollars worth of errors in accounting transactions. One such error involves a supposedly $500 million transaction with Berkshire Hathaway that drastically inflated AIGs revenues.This error involved reinsurance transactions. There’s plenty of blame to spread around to other bailout recipients, bankers, ratings agencies, federal regulators, and perhaps even elected officials.Congressional fury over AIG bonuses is leading to larger questions about who authorized those bonuses and who was hiding losses. Enron’s bankruptcy cost shareholders more than $60 billion and collapsed the retirement savings of 20,000 employees and retirees. If nothing else,Enron's collapse will prompt a hard look at accounting practices, retirement plans, and other key aspects of US capitalism.The scandal eventually led to Enron's downfall, resulting in the largest bankruptcy in American history.At the end of 2001,the Enron scandal was revealed that its reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud.The scandal later on led to Enron's downfall,which resulted in the largest bankruptcy in American history. The scandal did much to unsettle investor confidence in American business since internal and external controls failed to discover financial losses concealed as profits for many years.As a result,Enron shares dropped from over $90 to less than a dollar.The collapse of one of the biggest and supposedly best-managed companies brought about severe government and media attention. Thousands of Enron employees were not so lucky; aside from losing their jobs,they saw their savings and retirement funds,a major portion of which were linked up in Enron stock,pretty much decimated. In total, investors lost more than $60 billion.AIG infuriated so many people, because it found itself in failure and in need of emergency government assistance. What started as an investigation into two reinsurance transactions,had grown into a growing scandal that has damaged the reputation of one of America's premier corporations.The stock market changed during the Enron scandal,being that it brought questioning about the accounting practices of many corporations throughout the US which resulted in the creation of the Sarbanes-Oxley Act of 2002. The stock market was changed with the AIG scandal because AIG stocks dropped 2.1%on the new which all in all,AIG shares have dropped 22%,to $57 apiece, since the company was served with subpoenas by state and federal regulators.Both scandals were similar in that it involved bankruptcy and fraud.For people who commit white collar crimes,penaltys should be highly enforced.They should be authorized a monetary fine or prison sentence or a combination of the two.People who comit white collars could prevent a person from obtaining a professional license or because for losing such a license and also because so many white collar crimes involve deceit or dishonesty.Questions: 1. How often are white collar crimes comitted? Are we going to study more about this topic in class?
ReplyDeleteAshley Suechee
Block: F
AIG is a more professional version of Enron, but both of these companies had the same terrible ethics which brought them to the bankrupted endings. Enron had invested its money in risky businesses, but the real problem that Enron had was the fact that it tried to conceal its debt by editing how much they owed. Were as AIG had gone into debt due to its risky investments, and received a multi billion dollar bail out from congress. The bail out was supposed to go to stimulating and recovering AIG from its debt and getting it back on track, but instead AIG gave the bailout out to employees as million dollar bonuses. Americans were outraged by the Enron and AIG cases because they were lied to, both in the 1970's and in present day the economic is struggling and these companies have not changed their ways from what made them bankrupt in the first place and almost ruined the economic. People are angry because they do not know if they will be able to retire or not due to these companies but in the case of AIG they are still receiving their million dollar bonus instead of uses that money to save other peoples jobs. Also these companies risked other Americans money, this invested money cause people to lose thousands of dollars worth of saving. These events had a completely negative effect on the stock exchange because people do not want to lose all their money due to companies greed, people stopped investing out of fear of loosing their money and this lost of investment had a negative effect on the economic. I believe that these crimes should have at least five years in prison because these cooperations ruined peoples lifes cost them their savings, jobs, and more. There should be inspections of cooperations that are in debt to make sure they are using their money ,epically if they were part of the stimulus package, to make sure the company succeeds and not their own bank accounts. My question is how long will it take American tax payers to pay back the debt that the stimulus package covered?
ReplyDeleteKatie McSherry
Block: C
The American International Group and Enron both fell because of their scandals. Enron decided to ignore the issues that they were facing, which led to the fall of their corporation. Enron ignored problems they had, yet still let people invest in their corporation. This is why the people that invested in their corporation lost all of their money. Some people lost their whole life savings, which angered them severely. Although, who wouldn’t this get mad people let these people deal with all of their money and they lost it. If people put their retirement funds into this corporation they lost it. People also lost their money with AIG. AIG had a liquidating crisis and was lent money by the bank, and yet still continued to take peoples investments. Not only did they take peoples investments but they used them to pay back their debt. Some people say that AIG did not do things as bad as Enron though, but that’s for the courts to decide. After these to incidents many people lost their faith in the stock markets. Both of these corporations tricked people, and took all of their money for their own personal gain. People are hesitant to invest their money after seeing how they can loose it all. The people whose fault it was that these corporations fell should suffer harsh consequences. They took money from people so they should have everything taken from them. Bernard Madoff took a lot of people’s money and now he is in jail, so these people should to. They aren’t though because they are more powerful people, who have major groups backing them. Why exactly did these corporations commit these scandals? How did it affect the US economy in a whole besides the loss of invertors?
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteThe AIG bonus controversy became public when AIG had to pay $218 million dollars in bonus payments to their staff. It was acclaimed that AIG had received $170 billion dollars of the taxpayers bailout and that bonuses for the entire company could reach $1.2 billion dollars. This outraged Americans.
ReplyDeleteThe collapse of Enron, in 2001, resulted in the one of the biggest bankruptcies in American history. When Jeffret Skilling was hired, he expanded the company by hiring executives. Through the use of poor financial reporting and other methods, they were able to hide billions of dollars of debt from failed deals and projects . Unfortunately these executives who were hired were also able to mislead Enron's board of directors. Following this, stock prices began to rise. Enron's stock hit a high of $90 dollars per share. This led to share holders to loose $11 billion dollars all together. Enron eventually filed for bankruptcy when SEC began an investigation. The firm had lost most of its customers and shut down.
The publics views of corporations due to these scandals, might be that they can not be trusted. If they don't take their jobs seriously and fairly, it could very well lead to to serious economic recession. If every company seeks loopholes and ignored problems that the company is facing then it could be bad for the economy and for american in general. Situations like these can be very well prevented. One way is making sure you have the right people representing these major companies. Corporations should be help accountable for white collar crimes because they hire the wrong people to stand for them. The people who are in charge of these big corporations should be be more involved with what is going on with their company. If they cant do that that they should be held accountable for Americans losing their money.
A) About a decade ago, the Enron corporation was supposedly running well until its sudden, unexpected collapse. Within the corporation, executives were hiding the fact that they were digging themselves deeper into debt as they prepared themselves for the collapse. The collapse then left a terrible impact on the US financial system, as well as the corporation's employees whose retirement savings were diminished, but the executives still made a profit from the collapse. Today, it is believed that history has repeated itself with the crash in AIG because both crises have greedy executives, broke investors (employees), and subsidiaries, which contributed in creating each crisis. The only big difference between the Enron crisis and AIG crisis is that the financial crisis within AIG would cost shareholders/employees and subsidiaries much more in debt.
ReplyDeleteB) In both cases, corporate executives took advantage of their knowledge concerning the coming of each crisis and braced themselves for impact while the unaware employees took the blows. These, in fact, can be considered not only cases concerning corporate corruption but also cases concerning the unjust use of corporate insider trading which damages the US economy and hurts many people in the stock market.
C) After the Enron and AIG crises, it wouldn't be a surprise if people put less trust in corporations. After these two heartbreaking dilemmas filled with greed, arrogance, and fraud, the stock market is now like a ship dock while the corporations are the ships. If you're not too cautious, you might find yourself on the ship that sinks as the captain and his crew sail away with all the profit earned on the only life boat.
D) To prevent these "white-collar crimes" from occurring again, debt collectors should investigate different corporations when there haven't been recorded debt payments. Additionally, an insider trading committee should be formed to prevent unfair advantage of the sharing of nonpublic corporate information/knowledge by checking on stock market activity from corporate executives and on investigations made by debt collectors.
E. Will we be discussing the connection between white-collar crimes and our debate on insider trading in class?
Michael Appelgate
F block
A) AIG and Enron scadels are two similar scandels dealing basically with the companies robbing those people who put money into it blind. Enron went bankrupt in a matter of 24 days which put them into a $60 billion shareholders bankrupcy. This also cause over 20,000 empolyees and retirees to have a collapse in their retirement savings. Both Companies found loop holes to try to make it past getting in trouble.
ReplyDeleteB) In the case of both AIG and Enron the American people are upset with the fact that they are crocked out of money that they worked for. The companies took advantage of the employees by allowing them to take the fall for this while they were the ones scandeling the empolyees. Also Amereicans are mad at the fact the government allowed AIG to get away with it.
C) The stock market could have had alot of problems due to the fact Americans are going to lose trust in the companies. The scandels cause a 22% drop in the stock market which is something that is suppose to help the economy.
D) I thinks if people want to prevent these "white collar crimes" from happening again the government should keep better track of the money coming into these companies. On top of that they should check records everyday and who touches the money. And the poeple who are caught should deffinatly be punished for their actions not just a slap on the wrist.
E) How many people get away with corprate scandels?
AIG, which stands for The American International Group is the world's largest property casualty insurer and the 18th largest public company in the world with an investment of approximately 712 billion dollars, they also have about 74 million customers world wide and operate in 134 countries, while ENRON cooperation is is an energy trading, natural gas, and electric utilities company that had a vast amount of employees of about twenty-one thousand; ENRON cooperation suddenly had a historic loss of more than half of it's six hundred and eighteen million dollars net worth in as little as twenty-four days, later filing for bankruptcy. AIG like many other American company began to decline in late 2008, due to the economic stress and developing recession, which led government to grant 170 billion dollars as bail out money, hoping to prevent further damage. Although AIG was faced with fiscal difficulties, the company issued a mind-blowing bonus of one hundred sixty-five million dollars to its top executives and some seventy-six AIG employees received a million dollars each or more as bonuses, while seven among them obtained over three point five million dollars each, creating a huge uproar from every corner of the country, accusing AIG of wasting tax payer's money for selfish reasons, instead of rehabilitating the company.The company also got lashed on by the government, who demanded every cent of the bail-out sum used as bonus. On the other hand, ENRON cooperation's scheme began to unravel, after IRS findings of huge accounting scheme to reduce tax payments, increase profits, stock price and credit rating, while secretly paying families and friends money from the companies profit illegitimately. These schemes led to stricter regulations of the stock market and diminished the American view of a Laissez-faire policy, pertaining to cooperations, ultimately there is a huge sense of distrust in American coopreations . A great way to prevent white-collar crimes is by increasing government regulation in businesses.
ReplyDeleteQuestion
Are these these the reasons the country is gearing towards a mixed economy?
Ola Afolabi
F block
11-04-09
Though reporter Gretchen Morgenson states that the American International Group is a legitamate company and its business is not those of Enron, Morgenson doesn not deny, and even states, that some transactions were similarly questionable. The AIG tremor effects are likely to stay in effect. One event that infuriated share holders was the option of cutting off the parent company; this could eliminate many shares while selfishly increasing the share holding percent of AIG. The public view of Americans after the evens of AIG and Enron were outrage and maybe parenoia. The stakes that the companies took to make personal investments were questionable and were clear corruptions of the companies. Corporations involved in white collared crimes should at least take the first step of admitting their wrong doings, apologizing, and stopping the crime. Future white collared crimes within corporations can be prevented, I believe, by just looking at what happened to these previous corporations that were involved and their downfalls.
ReplyDeleteI would like to know how it's so hard to detect these major frauds even though it's probably more complicated than i know.
Francisko Kim
F Block
a.AIG which stands for American International Group INC. was a small insurance business company which grew into one of the worlds largest companies. "By the end of 2007 AIG had assets of approximately $1 trillion, $110 billion in annual revenues, 74 million customers and 116,000 employees in 130 countries and jurisdictions." stated by the AIG website. Yet about a year later AIG found itself on a breaking point of failure, expecting the government to bail them out.
ReplyDeleteEnron was a energy trading and communications company with a well thought out accounting fraud. As stated today in class it took many years to make billions of dollars, yet in a matter of 24 hours Enron was completely bankruptcy.
b. Many Americans were upset with the company AIG for the fact they were giving large bonuses to people who help the economy into a recession. Many people were surprised with Enron for its scandals that blind sighted so many people. This company was a sign of fraud and corruption. Both companies taking advantage of people, employees, and money.
c.The stock market changed because many people lose trust in companies. Many are careful when buying stocks now. For the mere face that these companies were doing good, and then went bankrupt. When this happened many people tried to sell their stocks setting it to crash or recessions.
D.In my opinion I think for a "white collar crimes" these companies should not walk away with a slap on their wrist. They should have a punishment but one suitable for them, depending on the amount of fraud and scandals. Way to prevent them could be having a government official in the company at all times or random dropping by to check on everything at all times.
E.Do all large companies contain fraud or preaching bankruptcy?
Vanessa Cucuzza
F:Block
Jacqueline King
ReplyDeleteC Block
A. The American International Group is one of the world’s largest insurance companies. It began as a very small insurance company and created an astonished worldwide market. The business ensures general life, home, travel and auto insurance. AIG is seeking a helping hand from the government to pull the establishment back together. ENRON is another worldwide business. The Enron scandals were revealed in October 2001 which involved the company Enron, and the auditing, accounting, and consultancy partnership of Arthur Andersen. Both corporate scandals led to the corruption and brink of bankruptcy for each scandal
B. In both scandals, the corporate world took advantage of their employees by allowing them to suffer while they knew the business was failing. This is known as corporate corruption and unlawful rights to employees. Both AIG and ENRON ran into fraud and corruption within their companies. Within each scandal people lost money and were hurt that the government seemed to allow this. The government basically did nothing to prevent this from happening.
C. As people began to realize the corruption in some companies, less people gave money into stocks. People began to put less trust in large corporations. As many people began to lose their stocks, others began to sell their stocks which most likely caused the recession we are in now. If people can’t trust corporations due to scandals why would someone ever give money to a greedy money consuming business that could fall at random?
D. White Collar Crimes are just as significant as any other unlawful thing. People should be imprisoned or at least suffer for doing what they did. If something is wrong, a person should defiantly be notified that it’s wrong and should not be done. The head of the corporation should take full responsibility for his actions. The government must take control and prevent people from committing fraud.
E. Are these 2 scandals the resulting in our recession? Why were these scandals made so public if it hurts the economy? How was the stock market directly affected?
A) AIG and Ecron are very similar in many ways. While AIG dealt with insurance and Ecron dealt with power, both were major companies in their competive fields. The two companies quickly rose to fame and fortune, and quickly obtained many investors willing to bet on their stability. For both, the American dream seemed to have evolved. Yet, both were accused of ill distribution of money. Scandels wrecked both of these companies, as their hushed debts and spendings were uncovered. Ultimately, both collapsed, ending their thriving years as postmark American companies.
ReplyDeleteB) The failure of a large company, like either Enron or AIG, affects more than simply the wokrers for that company. Society is affected because so many shareholders are affected. Large companies like AIG and Enron are partially owned by the people, who vote on decisons and risk their money based on the company's success. Enron enraged many people. It was notably the first scandal of its kind, with the amount of influence and impact its bankruptcy had on the overal American economic system. Pople were rightfully outraged at Enron's hidden debts and deteriorating financial situation. If company owners would have been honest, people would have been aware of the high stakes on which they were betting by buying stocks. People hate being lied to. They hate it especially when a large company withholds important financial information from investors who depend on the company's thrival. The failure of AIG was ill-received mainly becasue it brought back memories from the collapse of Enron. People instantly took the offensive side, accusiong the company of hiding debts and undergoing false audits. The company's continuation of the distribution of hefty holiday bonuses to executives did not help them appeal to the public's eye. Thye stock price dropped, people panicked, and our recession officially began. Was it because of the panic resultign from the collapse of AIG? Or was it AIG itself?
C) The uncovery of scandlas like those at AIG and Encron negatively affect the stock market and economy. This is not necessarily becasue of the companies' action; instead, natural panic sets in and encourage speople to sell their stocks in those companies. What may be for personal gain may, in fact, damage the economic system in its entirity. It's a bear/bull market system. When people lose their trust in a company, they sell their stocks. When they sell stocks, the company's worth goes down. And then we have a pretty dismal situation in the stock market, with people unwilling to buy. Honesty's the best policy; otherwise, people panic.
4) I've always believed in a more socialist approach to politics, economics, and social issues in America. Large corporations are powerful. They directly influence who gets services, who gets money, and who doens't. The government should be responsible to monitor all companies closely, set in when assistance is needed, and essentially control the company with a hands-off approach. Only a higher power can eliminate the temptation to take advantageof the power large corporations are already given.
5) -Would a more democratic (with Americans havig more control over the corporation) or a more socialist (with the governemnt having msot control over a large corporation) be most successful in dealing with corruption?
-How do other nations react to and prevent these things from occuring?
-Are laws going to be tweaked, taking into account the many loopholes that allowed Enron and AIG to negatively impact so many people?
Aleksandra Makowsk
A. The American International Group (AIG) and Enron were both companies in the US. AIG started out as a small insurance company growing into one of the largest companies. With over $1 trillion dollars in assets in 2007, AIG declared bankruptcy not much after expecting a government bail out. The AIG superior employees were given multi billion dollar bonuses while those who did the work were paid no more annually. The company blindly invested peoples money and had eventually failed from the amount of spending.
ReplyDeleteHowever, the Enron scandal was very similar. Starting as a private communications and energy trading company Enron went from the seventh largest company to bankrupt in 24 days. The company would use money from the olds retirement funds or pensions and invest in their company. They would move the money from Enron to smaller funds and soon became bankrupt.
B. Many Americans were outraged with these scandals because they had trusted both AIG which is partially owned by the government, and Enron to invest their money. When the people found out that there money had been used to benefit the CEO’s and other important peoples pockets they became outraged.
C. Stocks are ownership in a corporation. After these scandals many people began to lose trust in where the money would be going and stopped investing. These two scandals cause a major drop of 22% in stock sales. The stock market has been taken over by the corporate mind and nobody wants to buy stocks when there is no guarantee how the money will be used.
D. “White collar crimes” are not going to stop in the matter of a day. Companies that have a large number of assets should be checked more regularly. The payroll should be looked at more carefully and where money is being spent should also be monitiored. However people who commit these crimes should be punished. In the case of Bernard Madoff, he was sentenced to life in prison and also had to give everyone a certain amount of money. The punishment should fit the crime.
E. Why did it take so long for the government to catch onto these corporations fraud?
American International Group (AIG), one of the world’s formerly largest companies, has been a subject of a large scandal. Laurent Belsie, a reporter, wrote about AIG compared to the ENRON scandal. Belsie believes that AIG had become worse than ENRON a whole tenfold. Both scandals have had a huge negative impact on the nation and worldwide. And even though the ENRON issue was nearly a decade ago, it still affects the present.
ReplyDeleteAIG issues involved several problems involving money. For one, AIG employees were receiving bonuses. Question was, where the money was coming from. Many wonder who would authorize these frequent raises. Another buzzing question was if the government was even aware how AIG was using the bailout money they received was used for other reasons other than saving the company from bankruptcy.
Enron’s scandal occurred in October of 2001. This energy company went bankrupt and cost twenty thousand people their retirement funds. When Enron went bankrupt it cost shareholders sixty billion dollars. This corporation used to have their stocks peak at the price of ninety dollars per share to a mere sixty-seven cents by next year. Part of the scandal included the fact that an Enron partner, David B. Duncan, was ordered to destroy documents by means of shredding. The destroying of scandalous evidence did not stop for almost two weeks. Both scandals included “accounting problems” and affects the way Americans see large corporations and businessmen.
Because of these issues with these two corporations, Americans no longer trust others with their retirement savings and pensions. Additionally, Representative of New Hampshire, Paul Hodes, states, “AIG now stands for Arrogance, Incompetence, and Greed”. People may believe that corporations are now greedy, selfish and corrupt. Also, loss of trust in investors and the stock market are effects of these issues.
Corporations should be held accountable for their actions. If they plan to do something illegal and are aware of the consequences, they should fully accept that their choices lead them to more greed and corruption and be placed in jail. Obviously, the people involved should be able to have a trial testing their innocence and connection to the crime. To prevent future crimes such as Enron and AIG, government officials should check on major corporations regularly and thoroughly every couple of months.
Question: How did these corporations hide these issues for so long before they were caught? Would the economy be as bad or better than its recent state if these scandals did not happen at all?
Allison Lee
F Block
A) Trading and selling energy, a constantly needed supply, made Enron innovative and their stocks valuable. However, as the company attempted to expand beyond energy they started to fail and the money they placed into these new initiatives created a massive debt that would also hurt the investors financially. Since large amounts of debt would clearly lower stock prices, Enron cooperated with the auditing firm, Arthur Andersen, to somehow falsify the company’s financial statements by creating fake revenues and shredded evidence that disagreed with this falsification. Both Enron and the auditing firm would obviously benefit from these unethical changes in numbers, so their motives were no longer a secret once the scandal became public.
ReplyDeleteAIG was similarly hiding losses, and the company eventually admitted to improper accounting. Meanwhile, AIG’s executives, the ones that allowed for the improper accounting and made the decisions that created the company’s losses, surprisingly received holiday bonuses from bailout money. The AIG firm claimed these bonuses were paid only they were contracts that had to be fulfilled.
B) Besides being mad at a company that lied and stole money, illegally destroyed documents, and used accounting fraud for profits, Enron was also associated with the Bush campaign; the scandal angered Americans even more because now the president was also connected, along with both major political parties and congress. The government’s deregulation directly created for many of the loopholes that Enron used to hide its losses. The retirement savings of 20, 000 Enron employees, along with the loss of $60 billion of investor money also added to the frustration of many citizens.
Government involvement in the AIG scandal also was the source of discontent toward both large corporations and the U.S. economic policy. AIG received a large bailout that American citizens paid for, and later these same tax payers discovered their money was used to pay the executives that caused the failures. Americans now had a reason to accuse the federal government of not effectively regulating the bailout money, and question whether other bailouts are properly regulated.
C) Stock prices for Enron plummeted down after the scandal, and eventually they were worthless. The people at Wall Street were easily fooled and could not avoid this mess created by Enron, and later AIG. As Aleksandra said, people loose faith in companies when scandals like the ones involving Enron and AIG occur. Suddenly, there is no reason to own a stock in such a company because it is only covering up its failures and robbing shareholders. Moreover, these scandals were perhaps the source of a great of distrust toward the federal government, which due to white collar crimes appears to be allied with large corporations.
People have more reasons to fear purchasing stocks, and trusting even the successful businesses because it is challenging to predict whether a corporation will continue to maintain profit.
D) Even with our justice system, it is tough to punish corporations of many white collar crimes because the stolen money can easily be hidden, particularly in foreign nations where it will be a secret, so even if the corporate criminal might be caught, the stolen money will most unlikely remain unreturned.
Since white collar crimes are common, more government regulation might appear to be the solution, but does the nation have the money to expand its role in the economy. The Enron and AIG scandals are simply the outcomes of capitalism; the U.S. would have to become even more socialist to avoid such fraud. Deregulation would have to be limited or even removed to completely guarantee loopholes don’t exist.
E) Who checks if auditors perform their duties and accurately check corporate finances?
American International Group, or AIG has been subject to one of the largest scandals in stock market history. In a distorted and uncertain way AIG depicts the same fraudulent activity as ENRON; sending economies all over the world on a downwards rollercoaster. Most economists suggest that ENRON was the worst economic travesty of the century, however as the AIG scandal came more to the public spotlight, it became clear. Causing hundreds of billions of dollars in deficit aswell as crippling the economy to the extent that it is foretold that it will not stabalize in our lifetime. The amount of money lost rather then gained from this companies outlandish spending policies; Million dollar bonuses, etc. Ultimately lead to a decline in the amount of money made by the average person. When there's no cash flow in the economy and there's a "blockage" no money is in constant flucts. When money is not fluctuating through our economic system it is not losing value but becomming scarce making prices on common goods drop or rise depending on the situation. In terms of AIG's involvement in the complete market meltdown, they can fairly take 75% of the blame making the remaining 25% predicted economic cycles of flucts.
ReplyDeleteAlthough the economy took a devestating hit by the fraudulent activity of large corporations; AIG, ENRON. It is seen that the society as a whole takes the brunt of their deciet and greed. The "little people" are what makes the "Big People" in terms of finance. Mass amounts of people who want a shot at economic triumph invest in large corporations such as AIG. Everyone wants a piece of the pie, accumulating Billions of dollars off of 500k clients. These clients consist of the average joe working day by day to make ends meet. Then there are the "important clientel" which are self-made millionaires. These people don't know what to do with their money, so they invest. However no one wants to be fanagled with their money. When there's no trust in the economy and people are scared to invest due to mass amount of fraud the economy as we know it comes to a "stand-still". Therefore the people at AIG successfully discredited the faith of all their clientel cause millions to pull out of the market without hesitation; Devestating toll on the economy.
White collar crimes in the U.S as well as global cannot be properly combated in terms of a common end to these injustices. There will always be a select few who want more. The government has no business in the economy as a result of it being a free-market. Even if the nation wanted to have a federal crackdown on all people/personel involved in these types of scandals they would ultimately fail. The nation doesn't have a large enough fund to enforce the importance of white collar crimes that are comminted on a minutley basis. The only concern they should have is preventing large-scale injustices from occuring. Focusing on the big fish not the little ones. Fraud will never desist and resist, it's a temptation that every person ponders atleast once in their lives, but not everyone acts on these imense thoughts.
Why doesnt the federal government promote a new division to focus on fraud within the economy? -A new task force added to the FBI or CSI that deals with fraudulent investors/corporations.
Jonathan Ayoub
Block:F
Starting out as small insurance companies, The AIG and Enron both grew into large corporations over time. After giving a bailout, AIG fell into bankruptcy with 1 trillion dollars in assets. Many employees were given huge checks. They were known as superior employees. The enron scandal was not much different. It started out as a private communications and energy trading company. After increasing over many years, it went bankrupt in as little as 24 days. To keep it running, the company would use money from retirement funds. After receiving the news that these both companies had pulled off a huge scandal, people were furious with them because they had invested their money in them. Stocks are known as ownership in a company. After Enron and AIG pulled such a stunt, people were very skeptical about where they invest their money. Nobody is buying stocks because of this scandal. They caused a 22% drop in stocks. Those companies who have a much larger number of assets should be checked more often since white collar crimes aren’t going to stop themselves. Anyone who shall commit this crime, should be punished. Depending on the crime, the punishment should be sentenced according to the crime.
ReplyDeleteA)Use these articles and any outside resources you chose to summarize the American International Group (AIG ) and ENRON scandals.
ReplyDeleteThe AIG and ENRON scandals were crimes that caused billions of dollars for both the corporations, their companies, and the American public. Both corporations started off small and escaladed in becoming Americas top insurers.
According to Businessweek.com, AIG stock dropped 2.1% and their shares 22%, since of march. AIG became the corporation were most money that was ever funneled to a single company by a government since the dawn of capitalism.
ENRON made false transaction and tainted evidence of debt, which was later uncovered.
There are, however, some disturbing similarities between A.I.G. and Enron: Asleep-at-the-switch auditors. Secretive off-balance-sheet entities that should have been included on the company's financial statements but weren't. A management team willing to try any number of accounting tricks to make the company's results appear better than they actually were.
(http://www.nytimes.com/2005/04/03/business/yourmoney/03gret.html?_r=1)
B) What happened in both cases that outraged so many Americans?
Many American’s lost money as well as benefits. The insurance companies, and other companies under these corporations, lost stock and profits due to the outrageous outcome. These is evidence that has left many Americans lost and confused as to whom they should truth, whether it be with their money, or their lives. This scandal tricked thousands of people from their money and withered their prospects for a prosperous life.
C) How did these events change the stock market and the American public’s view of corporations?
It weakened the stock market and showed the corruption and un-trustfulness in these corporations, which we have further come to realize in many other industries. It flourished the visual evidence of corruption in businesses and in the lives of many. With the stock market weakening because of thievery, it has been damaged and has lost the value of American money, as well as the value of Americans.
D) In your opinion, how should corporations be held accountable for “white collar crimes”? What can be done to prevent future scandals like these?
I feel that corporations, who commit “white collar crimes”, should be revoked to ever work in that field again and should receive jail time, as well as replenish the finances that others have lost because of their carelessness. To prevent scandal, there should be a monitor in each corporation in both finances and exchanges. Although to actually catch and find sufficient evidence to convicted someone of “white collar crimes” is extremely hard, in the sense that many transaction can be misleading and that these crimes can be handled in the matter of paper which can be easily erased.
E) What questions do you have about these scandals and how they relate to the US economy?
How were these scandals not noticed in time and why are there so many. How can the US economy thrive and go back to its plateau of being the richest country with the highest currency, when we have “Americans” stealing from one another and injuring our economic system. Also how will this affect the security of our money and profits? How will businesses ever boom and expand, when there is evidence that suggest corruption is inevitable?
Enron was one of the most prominent energy companies in the United States. In 2001, Enron filed for bankruptcy due to dishonest business practices. The company had numerous overseas bank accounts to hide their billions in debt. The top executives filed false financial reports that enabled stocks to trade at $90 a share. When stock prices were high, executives hastily sold their shares in the company while encouraging the general public and investors to buy shares. The scandal was revealed in late 2001 when stock prices dropped to 61 cents a share.
ReplyDeleteThe American International Group is one of the largest insurance companies in the United States. The company was founded in 1919 by Cornelius Vander Starr in Shanghai, China. AIG was the first company to sell insurance to the Chinese. The company remained based in China until 1949, when it moved to New York City after Mao Zedong came into power.
AIG was heavily impacted by the recent financial crisis. The company had too much capital invested into their subsidies to promote higher stock value. The subsidies were private companies funded by their treasury, so AIG didn't have to show their market values on financial reports. In September 2008, the company's credit rating was downgraded. AIG was required to post collateral when performing credit swaps. AIG was unable to finance the collateral, sending the company into a liquidity crisis. Stock prices drastically fell and the Federal Reserve began planning a bailout. AIG received $85 billion from the Federal Government. One month later, the company received an additional $37.8 billion. Both loans were paid with taxpayer money, unnerving countless Americans. AIG outraged taxpayers when they announced $165 million would go towards executive bonuses. AIG hid the fact they were in economic trouble and exploited the taxpayers of America to recover.
Both of these scandals changed the public’s view of the Stock Market and Corporations. Before the scandals, many Americans bought stock based on the prestige of the stock, not the company's day to day holdings. After the scandal, stock holders began to look at the company's activities before buying their stock. The general public has become wary of the Stock Market following these scandals. Many Americans are angry at the atrocities committed by the corporate world.
Corporations should be held accountable for White Collar Crime if their executives and employees are the ones committing the crimes. You don't have to work for a major corporation to commit a White Collar Crime. Stricter laws and regulations would require corporations to file legitimate business reports, but in this era, who knows what the truth is?
Why is the Stock Market still legal if stock prices can be manipulated to higher prices so executives can sell share of their failing company.
A) AIG has been quoted as "Arrogance, Incompetence, and Greed" since the scandal took place. AIG has become known to be like the Enron Scandal, bringing the financial world down. “AIG will be remembered as one of the worst corporate disasters in American history,” Rep. Carolyn Maloney had said of the AIG scandal. Enron has also been known as disaster. The collapse of Enron has prompted a hard look at the accounting practices,retirement plans, pensions, and life savings, as well as the enforcement powers of the Securities and Exchange Commission. Stock from Enron is pretty much worthless since the collapse.
ReplyDeleteB) Both AIG and Enron made people infuriated because they were both about to be failures and needed help from the government. Both had started out in investigations for two insurance transactions that grew into a large scandal that had ruined America's corporations reputations.
C) Both AIG and Enron changed the stock market because AIG and Enron both dealt with bankruptcy and fraud. The scandals caused a 22% drop in stocks, when the stock market was made to help out the economy.
D) In my opinion, I think "white collar crimes" involved companies should be held responsible for these crimes. People with high authority that cause these "white collar crimes" should go to jail for their actions and shouldn't get their job back in the field they had.
E) Do either of these scandals still affect our economy today?
How can we prevent future scandals from becoming like Enron and AIG?
Bethany Greenman
F-Block
A.) After growing into the large important businesses they are today AIG and Enron were given bailouts due to falling into bankruptcy. AIG had fallen 1 trillion dollars in debt with assets. Enron another successful company had also fallen in debt in 24 days! In an attempt to try and find a solution for this bankruptcy Enron started using money from its very own retirement funds.
ReplyDeleteB.) People became furious with the companies when they found out what AIG and Enron were doing with their money. People were very hesitant to remain with the company and still invest their money with a company that uses your money without you knowing.
C.) These events changed the peoples views on the country because they trusted these companies with their money and it has gone to waste. Many people stopped investing and caused a 22% drop in the stock market.
D.) In order to prevent white collar crimes the government should check up on the companies to make sure that there is nothing suspicious or wrong going on. If not then these companies would not have to fear any penalization for any wrong acts they commit because they are not being checked for it.
E.) If the economy is in such hard and struggling times, how can these large check still be given out to the workers when the company is in such a great debt?
Brian Lopez
1. The American International Group (AIG) and Enron were both successful America-based companies that rose to fame and quickly fell to embarrassing corruption. AIG began as a small insurance company. Though it had millions of assets in 2007, AIG declared bankruptcy and threatened the stability of the American stock market. The greatest scandal of the AIG development was the distribution of large Christmas bonuses even after nakruptcy was declared. Americans thought it was unfair for executives to have such a hefty paycheck when their actions bordered on illegal. To many, AIG was a repeat of the great Enron scandal of six years before. According to the Enron dcumentary, Enron went from one of the largest companies to bankrupt in twenty-four days. The company used borrowed money to invest in their personal stocks, giving teh impression that the company was doing well while it really wasn't. Their bankruptcy remained hidden, and evidence was shredded.
ReplyDelete2. Americans were, essentially, cheated out of their money. They were not given the right infomration to make good decisions in tehs tocks they bought and owned. They were oblivious to the impending doom of Enron and lost a lot of money as a result. As for AIG, it was unfair for the American public to suffer, meanwhile executives received large bonuses.
3. People still buy and own stocks, and large corporations are capable of thriving. So the scandals did not greatly change American involvement in business; however, I think people have learned they need to be mroe cautious. There are loophole sin current laws and people know how to get by them. That is why the American public needs to be educated about these laws and their loopholes as well.
4. No matter what the government plans, company officials are still going to find loopholes in laws and try to cheat Americans of their money. Power makes people greedy. The only thing the government can do is educate Americans who are willing and want to buy stocks about the stock market. Pople should become as involved in a company as possible becasue onyl then will they know what is going on. Or mayeb they shoulodn't bother with the stock market. No matter what laws are passed, it'll always be a gamble.
5. Is it the government's responsibility to prevetns corporations from cheating their shareholders, or it the the shareholders' responsibility? Whose should it be?
By Raya Dyadkian, C
(I'm using Aleks' account cuz I forgot my own. And SORRY it's so late.)
The AIG bonus confliction became public when AIG had to pay $218 million dollars in bonus payments to their staff. It was acclaimed that AIG had received $170 billion dollars of the taxpayers bailout and that bonuses for the entire company could reach $1.2 billion dollars. This outraged Americans.In 2001,the buisness had a down fall resulted in the one of the biggest bankruptcies in American history.A worker was hired Jeffret Skilling,he expanded the company. Through the use of poor financial reporting and other methods, they were able to hide billions of dollars of debt from failed deals and projects.these executives who were hired were also able to mislead Enron's board of directors. Stock prices began to rise.Enron's stock hit a high of $90 dollars per share.This led to share holders to loose $11 billion dollars all together. Enron eventually filed for bankruptcy when SEC began an investigation. The firm had lost most of its customers and shut down.
ReplyDeleteThere were alot of public scandals, might be that they can not be trusted. If they don't take their jobs seriously and fairly, it could very well lead to to serious economic recession. If every company ignore problems that the company is facing then it could be bad for the economy and for american in general. Situations like these can be prevented. One way is making sure you have the right emplyoers representing major companies. Corporations should be help accountable for white collar crimes because they hire the wrong people to stand for them. The people who are in charge of these big corporations should be be more involved with what is going on with their company.
Block-C
A. AIG, American International Group is one of the worlds most largest companies. AIG has started out as a quite small company and has grown into a huge company which is ine of the largest ones. Over 1 trillion dollars in assets in the year 2007. AIG employees were gettin billion dollar bonuses while the people who did the work were paid no more annually. Enron and AIG were both companies that had started out very small. Both of these companies eventually collapsed ending there years as American companies.
ReplyDeleteB. Many Americans are quite mad about the AIG paying big bonuses to some people who put the economy into recession. A lot of Americans are very mad at the gov't about 80% of AIG agreed to the bill that everyone they will get their bonuses. Also contracts were signed to bail AIG out of it. The Enron scandal was another big argument this led to a big drop on his company.
C. After the AIG and Enron battle it wouldnt be a big deal if people were less trusted in corporations. The stock market is like a ship dock while the 2 corporations are the ships. You have to be careful when it comes down to business because you wouldnt want to be the business that gets shut down in the end.
D. I believe that larger corporations can be more powerful in many different ways. They can influence who does what and who doesn't. The gov't should definatly be in charge of watching all companies closely. The only way a big company can be taken over is by an even bigger company doing it.
E. The question I have about the scandals and how they relate to the U.S economy is why did it take such a long time for the gov't to see these fake corporations?
-Chris Gallo
C-Block
AIG, a worldwide insurance company recently declared bankruptcy. The company was worth well over a trillion dollar in stocks at its peak. Now they are struggling to survive in this rough economic downfall. AIG was one of America's biggest corporations until this current recession. The bailout put AIG back into the race, but they are not as strong as they were. AIG was borrowing money from different countries as well as Americans. Like the Enron scandal, they plummeted. When the Enron scandal happened the economy was stable, even though it took a big hit from the bankruptcy of Enron. in AIG's situation, its greatly affected the stock market, as well as the economy. Enron's Cook the Books method worked until they were audited. AIG and Enron both made some very unwise decisions that cost them their business To prevent future scandals like these, maybe auditing companies can investigate monthly or possibly even daily, to search for any unusual trades or deals.
ReplyDelete-Brandon DiMatteo
Economics Blog Post
ReplyDeleteA. AIG and Enron scandals have rocked the financial world. The two scandals had similarities that influenced their downfall. There had been a lot of “cooking the books” that had been going on. Their financial statements were incomplete because their off-balance sheet entities were secretively hidden from records. These major companies were majorly publicized as being booming companies but they suddenly appeared to be running in loss. This turned out to be a huge scandal that included phony book keeping and unsecure risk taking.
B. People are enraged that AIG had been giving out bonus to people who had actually brought the company down. Bonuses were given out to the top executives even though they failed a project. Their bonuses had been based on projected profits of the company.
C. Investors had been severely discouraged because of the Enron scandal. They were not sure whether to invest in stocks. A lot of people had investments in these two major companies and lost it all. Many people invested their 401k on their Stocks and when the company collapsed so did their future securities.
D. White-Collar crimes have to been taken seriously and punishments have to be enforced. “White Collared Crimes have affected the hard working Americans negatively. Their 401’s have been lost overnight and their future remains unpredictable. Their life saving have been lost.
E. Has the Government made laws to stop these kinds if crimes from reoccurring?
Will the Government be able to stop these crimes from occurring again or are crimes like these prone to happen again?