GE Misled Public -- Pays $50 Million Fine

(c) 2009 F. Bruce Abel



Topic: GE "Misled" public pays $50mil fine? Posted: Yesterday at 9:01pm
Did you catch the news story that General Electric agreed to pay a $50 million dollar fine for "misleading" the public? I missed it too since it generally wasn't covered in the main media outlets. According to the Director over the Division of Enforcement with the SEC, "GE bent the accounting rules beyond the breaking point."

This is what Enron was doing. Essentially GE gets a pass on this. Why hasn't anyone been arrested yet? If no arrests, how about their credentials questioned? Anyone associated with the oversight, accounting, or reporting of GE's financial statement should have their credentials reviewed. Anyone who failed to recognize and report this type of fraudulent activity is certainly undeserving of such an honorable certification.


Click on my label "GE." That will get you a collection of my comments on GE Capital's misdeeds going back a couple of years, mainly reprising public articles in the New York Times talking about the dangerous derivatives that have not yet been written down on GE's books.

I've been writing about my suspicions re GE Capital and derivatives -- when GE was selling for 55 per share too, let alone lately when their shares are in the tank -- for a long time, back to 1997 or before, when I took time off to go up to Connecticut to visit my friend, a trader, in Grenwich, and to attend the accounting board's rulemaking discussion on amending Rule 157 dealing with "mark-to-market."

1/2 the circular room (looking down at the board who sat in the "pit") was filled with GE Capital (now GE Money) guys.

Couple that with the fact that GE's 10k's were a black box on what the heck GE Capital was doing to make all that money. (Same with Enron).

It's now coming out what was obvious on another score -- that GE managed their earnings every quarter by outright juggling and falsification in GE Capital and other divisions very similar to Enron.

Change the Standard to Negligence -- Enron Redux

Op-Ed Contributor
The Crisis Last Time
new_york_times:http://www.nytimes.com/2008/09/25/opinion/25suskind.html

By RON SUSKIND
Published: September 24, 2008
Washington
THE Federal Reserve chairman and senior economic officials of the Bush administration solemnly filed into the large conference room of the Treasury Department. There was a sense of urgency, an understanding that drastic action — restructuring the financial landscape of corporate America — was desperately needed.
Last week? Last night, as the president and his advisers prepared for his address to the nation? Hardly. It was Feb. 22, 2002. The officials were President Bush’s original economic team, including the Securities and Exchange Commission’s chairman, Harvey Pitt; Glenn Hubbard, the chairman of the Council of Economic Advisers; and the senior White House economic adviser, Lawrence Lindsey. The Federal Reserve chairman, of course, was Alan Greenspan.
The crisis of that moment was the implosion of Enron, Global Crossing and other companies. Along with conflicts of interest and criminally creative bookkeeping, the culprit was often a combination of financial complexity and insanely expensive compensation packages.
Enron is long gone, but this episode — as much a warning for our financial security as the 1993 World Trade Center bombing was to the threat of wider terrorism — carries some telling lessons as our best minds struggle now to save the economy.
The meeting, recounted to me by Paul O’Neill, Mr. Bush’s first Treasury secretary, and several other participants, was something of a showdown. Everyone came armed for battle, none more than Mr. Greenspan and Mr. O’Neill, who railed that day like a pair of blue-suited Jeremiahs. Their colloquy on economic policy and corporate practice, which began when they were senior officials in the Ford administration, had evolved over three decades.
To the surprise of many younger men in the room, the duo opened by reminiscing about a bygone era when the value of a company’s stock was assessed by how strong a dividend was paid. It was a standard that demanded tough, tangible choices. Everything, of course, came out of the same pot of cash, from executive compensation and capital improvements to the dividend — which could be spent by a shareholder or reinvested in more company stock as a show of support.
In contrast to dividends, Mr. Greenspan intoned, “Earnings are a very dubious measure” of corporate health. “Asset values are, after all, just based on a forecast,” he said, and a chief executive can “craft” an earnings statement in misleading ways.
Speaking with a hard-edged frankness rarely heard in public — and seeing that those assembled were not sharing his outrage — Mr. Greenspan slapped the table. “There’s been too much gaming of the system,” he thundered. “Capitalism is not working! There’s been a corrupting of the system of capitalism.”
Mr. O’Neill, for his part, pushed to alter the threshold for action against chief executives from “recklessness” — where a difficult finding of willful malfeasance would be necessary for action against a corporate chief — to negligence. That is, if a company went south, the boss could face a hard-eyed appraisal from government auditors and be subject to heavy fines and other penalties. By matching upside rewards with downside consequences — a bracing idea for the corner office — Messrs. O’Neill and Greenspan hoped fear would compel the titans of business to enforce financial discipline, full public disclosure and probity down the corporate ranks.
But they were in the minority. Mr. Pitt, the S.E.C. chairman, voiced concern that creation of a new entity to assess negligence by corporate honchos might draw power away from his agency. Lawrence Lindsey said, “There’s always the option of doing nothing,” that the markets are “already discounting the stocks in companies that show accounting irregularities.”
An article about the meeting appeared a few days later in The Wall Street Journal. The next day, Mr. O’Neill was in Florida addressing chief executives of America’s top 20 financial services companies. They piled on. One told the Treasury secretary that he’d “rather resign” than be held accountable for “what’s going on in my company.” A phalanx of outraged financial industry chiefs, many of them large Republican contributors, called the White House. Real reform was a political dead letter.
A presidential speech that followed was toothless, mostly recommending that chief executives personally certify their companies’ financial statements. Earnings per share remained the gold standard. The Sarbanes-Oxley bill, signed into law a few months later, largely focused on the auditors, and actually increased the complexity of reporting practices. As for lawsuits? Not to worry. No significant rise.
At issue, of course, were those twins, transparency and accountability. The years since have shown that the first one is meaningless without the second. With a world financial crisis upon us, the president and his economic team are forced again to talk about accountability. Let’s hope this time they mean it.
Ron Suskind is the author of “The Price of Loyalty: George W. Bush, the White House and the Education of Paul O’Neill” and “The Way of the World: A Story of Truth and Hope in an Age of Extremism.”

Ah Enron! This Time Graham of Texas and Commodities Speculation

New York Times Blog:

June 25, 2008, 6:43 pm
The Petro-Manipulators
Anyone who lived on the West Coast during the phony energy crisis of 2000 and 2001 cannot help thinking of Texas and two of its worst products — Enron and a politician not named George Bush — as gas creeps up toward $5 a gallon this summer.
What happened during the great energy heist at the start of the new century was like an extended bad dream, part “Twilight Zone” and part “Chinatown,” the extraordinary 1974 film about water manipulation and long-buried secrets.
The price of energy spiked — tenfold, a hundredfold — despite low demand. Californians became the most efficient users of power in the nation, and still suffered through dozens of rolling blackouts. None of it added up.
And into the worst energy crisis since the Arab oil embargo of 1973 came Vice President Dick Cheney, blasting conservation as a sissy virtue and saying the nation needed to build a new power plant every week for the next 20 years.
The administration’s neglect was breathtaking, a harbinger of what was to come when a natural disaster, Hurricane Katrina, would do to Louisiana what a man-made disaster had done to California. We now know, of course, that the problem eight years ago was caused by manipulation by Enron and other speculators who gamed a faulty system, sticking it to Grandma Millie while laughing at how easy it was to rob 40 million people.
Now consider the present dilemma: oil doubling over the last year, gas at $4.50 a gallon in places and the oversized influence of speculators in a market where few used to tread. Big investors are free to run up oil futures contracts thanks in part to former Senator Phil Gramm. He is the Texas Republican who co-sponsored the so-called Enron loophole in 2000 at the behest of what was later found to be one of the nation’s biggest criminal enterprises.
Enron may be gone, but its legacy lingers in the work done by politicians who did its bidding. And Gramm, who once told corporate contributors, “I have the most reliable friend you can have in American politics, and that’s ready money,” is now the chief economic adviser to Senator John McCain.
Gramm’s role in helping to unleash energy speculators has been well-documented in recent months, and Senator Barack Obama has made an issue of it. Both Obama and McCain have called for closing the loophole. But just how big a role that kind of global gambling plays in the overheated commodities market is only now coming to light.
Testifying before the Senate on Wednesday, the ever-knowledgeable Daniel Yergin blamed speculation for part of the run-up. Yergin, an author and the chairman of Cambridge Energy Research Associates, and pointed to numerous other causes, as have other experts.
But he also noted that 2007 may have been the peak year for oil demand in the United States. In other words, the world’s largest energy consumer has reached the height of its gluttony, and will be using less oil from here on out.
Keep that in mind when thinking of the parallel to California. Less demand from the biggest consumer, yet record high prices. Why? Yes, tight supply during the end stages of the 200-year reign of fossil fuels, higher use by China and India, and global troubles all contribute to the bloat of oil prices.
But market manipulation seems obvious.
Over the last five years, investment in index funds tied to commodities like energy and food has gone from $13 billion to $260 billion. At the same time, the prices of those commodities have risen 200 percent.
Take away the excess speculators who are in the market purely for the ride, and oil prices could drop by half. That’s the view of Michael W. Masters, a hedge fund manager who’s been advising Congress this year.
“There are no lines at the gas pumps and there is plenty of food on the shelves,” said Masters, whose testimony has been widely discussed in financial circles but rarely in the political realm. What has changed, he said, is the presence of big speculators making futures bets.
“If Wall Street concocted a scheme whereby investors bought large amounts of pharmaceutical drugs and medical devices in order to profit from the resulting increase in price, making these essential items unaffordable to sick and dying people, society would be justly outraged,” he said.
This testimony came before a committee chaired by Senator Joseph Lieberman, the former Democratic vice presidential candidate who is now one of John McCain’s biggest boosters. If you want to see the effects of McCain’s top financial adviser, look no further than the hearing run by McCain’s top ally in the Senate.
With five months to go, it looks like energy will dominate the presidential campaign. Nutty ideas will abound, from the gas tax holiday to $300 million prizes for wonder batteries.
And just as in California eight years ago, the oil industry’s most devoted politicians will use this troubled time to advance a tired agenda – more drilling for the last of the nation’s oil, in distant, fragile corners of the earth.
If nothing else, we should remember the lesson from that debacle: When something smells this bad, look for rotten fish as well.
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1.June 25th,
2008
10:01 pm I agree with the conclusion of this article, but disagree with how it gets there. I have been following fellow NY times columnist Paul Krugman’s ideas on speculation and have to say that I am not buying into the speculation theory of rising gas prices. It just doesn’t logically make sense when looking at the math. Read Krugman’s blog, he has a lot of entries on this topic and they are backed up by multiple sources.
However, I think there are some rotten fish out there that need to be sussed out. Maybe we should stop subsidizing the oil companies quite so much. Maybe we should stop burning gas quite so much.

I currently live in thailand where gas costs around $5.25 a gallon and where the average college graduate makes around $300 a month. People here are living just fine. They drive motorcycles instead of cars, and when they do drive cars, they make sure they are filled up with people (sometimes too many- I’ve seen pick up trucks with 30 people in the back). America will just need to adjust to what the rest of the world already knows: Energy is expensive. Use it wisely.

— Posted by Marshall Balick
2.June 25th,
2008
10:04 pm Yes, Enron gamed the power market in California. It was pretty easy because the market was semi-controlled. There were not sufficient mechanisms for high prices to cause demand destruction. Oil, on the other hand, trades pretty much in a free market. And we should be thankful. Today’s high prices are a better reflection of the true cost and value of oil. I hope prices keep going up. Maybe then people will think twice before buying a two-ton land yacht they don’t need. Gasoline demand is down a little bit in the U.S. this year. Isn’t that a good thing? Or should our government try artificially lower oil prices to encourage increased demand and use? To do so would be papering over the fact that demand is exceeding supply. Here are some more facts. Speculative length in the oil market has been decreasing and prices are going up. That’s right. The speculators have been selling and price is rising. And, inventories of oil in the U.S. (as reported weekly by the Department of Energy) are falling. It’s not the speculators causing inventories to fall. So any clown in front of congress who says “remove speculation and the price of oil will fall to $75/barrel” is both wrong in the short run, and promoting bad policy. Does anyone remember how we beat the Russians? We went with a free-market economy, and it worked. Their government tried a price-controlled economy, and it collapsed under it’s own weight. Now, as a country, which direction do we want to go?

— Posted by MWB

Best Blog on Kerviel

This blog explains the simple controls over a trader, such as not allowing the computer terminal to "click" as fast.

Kerviel Update

From the Wall Street Journal:

http://online.wsj.com/article/SB120550895888636865.html?mod=googlenews_wsj

Ah Enron

Click on Link or cut and paste the following to get that special "Enron" feeling.

http://images.google.com/imgres?imgurl=http://www.ecotao.com/holism/add/enron/Enron_whole.jpg&imgrefurl=http://www.ecotao.com/holism/add/enron/Enron.html&h=468&w=743&sz=53&tbnid=DiuEpGmPwn4ifM:&tbnh=89&tbnw=141&prev=/images%3Fq%3Denron%26um%3D1&start=3&sa=X&oi=images&ct=image&cd=3

In Today's News

This is a big story. What a bunch of jerks run our money in this country.

Asian, Middle Eastern governments aid big banks
Merrill may be latest to fill holes left by write-downs with government cash
By Alistair Barr, MarketWatch
Last update: 1:48 p.m. EST Dec. 21, 2007
SAN FRANCISCO (MarketWatch) -- Some of the world's biggest banks, pinnacles of capitalist enterprise, are increasingly turning to governments in Asia and the Middle East for cash to fill gaping holes left by mortgage-related write-downs.
Several top Wall Street firms have reported heavy losses in recent weeks, confirming the effects of the subprime-fueled global credit crisis. As write-downs accumulated, more banks unveiled deals with foreign governments. See related story.
Merrill Lynch & Co. (MERMerrill Lynch & Co., Inc
MER) , the largest U.S. brokerage firm, may be the latest in search of government aid from Asia.
Temasek Holdings Pte. Ltd., an investment company owned by Singapore, is in advanced talks to inject up to $5 billion in Merrill, The Wall Street Journal reported on Friday. The report cited an unidentified person familiar with the situation.
Jessica Oppenheim, a spokeswoman for Merrill, declined to comment. Mark Lee, a spokesman for Temasek, didn't return a phone call and e-mail seeking comment on Friday.
Merrill, like several of its investment-banking rivals, has taken billions of dollars in write-downs this year as subprime mortgage-related assets, such as collateralized debt obligations, declined in value.
The firm may take another $8.6 billion in write-downs from the fourth quarter, Fox-Pitt Cochran Caronia analyst David Trone estimated on Thursday. See full story.
Earlier this week, Morgan Stanley (MSmorgan stanley com new
News, chart, profile, more MS) announced a $5 billion investment from China Investment Corp., a fund controlled by the Chinese government -- and also disclosed $5.7 billion in additional write-downs as it reported a fourth-quarter net loss of $5.8 billlion.
In similar recent deals aiding big banks in distress, Citigroup (CCitigroup, Inc C) recently sold a stake of nearly 5% to an Abu Dhabi fund for $7.5 billion and UBS (UBSUBS Ag

Richard D. Cudahy

As readers of this Blog know, Richard D. Cudahy is one of the great judges of our country. In the two fields of my changing practice he has written definitive articles which were ahead of their time and/or which changed the law exactly as needed -- in my Sixth Circuit. (Asmo case being the latter). Click on my label "Judge Cudahy" for the details.

Here's another paper I came across this morning.

From Insull to Enron: Corporate (Re)Regulation After the Rise and Fall of Two Energy Icons

HON. RICHARD D. CUDAHY
U.S. Court of Appeals for the 7th Circuit
WILLIAM D. HENDERSON
Indiana University School of Law-Bloomington
--------------------------------------------------------------------------------

Energy Law Journal, Vol. 25, No. 1, pp. 35-110, 2005


Abstract:
For most Americans, the collapse of the Enron Corporation is without doubt the most memorable corporate event of their generation. Remarkably, few people are aware that the New Deal regulatory framework - which Congress recently reformed and toughened to in response to the Enron debacle - was itself erected in the wake of a strikingly similar corporate crash. In late 1931 and early 1932, the country looked on in horror as Samuel Insull's mighty and seemingly invulnerable electric utility holding company empire collapsed without warning, wiping out the holdings of over 1 million investors, most of whom believed that they had invested in a safe and secure electric utility enterprise. The newspapers of the day declared the event "the biggest business failure in the history of the world." President Franklin D. Roosevelt and the progressives in Congress subsequently used the Insull debacle as a rallying point from which to promote many of the most important laws of the New Deal, including the Securities Act of 1933, the Securities Exchange Act of 1934, the Public Utility Holding Company Act of 1935, the Federal Power Act of 1935, and the legislation creating the Tennessee Valley Authority and the Rural Electrification Administration.

This Article chronicles the striking similarities, and the ironic differences, between the respective failures of Insull and Enron. A careful examination of these historic events suggests that Insull and Enron were emblematic of rare moments in history when the birth of an infrastructure industry generates an enormous surge in economic activity, capturing the imagination of the investing public and weakening the commitment of the political class to serve, if needed, as vigilant, disinterested regulators.

The main lesson that emerges from our analysis is not so much that we need to strengthen laws against corporate wrongdoing. Rather, it is in recognizing that, during a financial bubble driven by rapid growth in network industries (e.g., electricity and the Internet), regulatory officials will almost inevitably buckle under political pressure and (a) fail to issue new rules that might interfere with the financial "hijinks" and (b) fail to enforce vigorously laws already on the books. This Article suggests that the laws adopted in response to Enron are destined to be watered down and ignored during the next boom, just as the New Deal laws, passed in response to the Insull debacle, were watered down and ignored during the 1990s. The authors reluctantly conclude that history will likely repeat itself in another generation or two, and there is little that can be done beyond vain entreaties to our own grandchildren to become more devoted students of history.


Keywords: Enron, Insull, electricity, deregulation, New Deal, securities, SEC, FERC, PUHCA, PURPA, Energy Policy Act of 1992

JEL Classifications: B15, B25, B31, G18, G38, K22, K23, L51, L94

Accepted Paper Series

--------------------------------------------------------------------------------

Suggested Citation
Cudahy, Hon. Richard D. and Henderson, William D. , "From Insull to Enron: Corporate (Re)Regulation After the Rise and Fall of Two Energy Icons" (March 2005). Energy Law Journal, Vol. 25, No. 1, pp. 35-110, 2005 Available at SSRN: http://ssrn.com/abstract=716321

Credit Crisis Adds to Gloom in Norway

December 2, 2007
U.S. Credit Crisis Adds to Gloom in Norway
By MARK LANDLER
NARVIK, Norway, Nov. 30 — At this time of year, the sun does not rise at all this far north of the Arctic Circle. But Karen Margrethe Kuvaas says she has not been able to sleep well for days.
What is keeping her awake are the far-reaching ripple effects of the troubled housing market in sunny Florida, California and other parts of the United States.
Ms. Kuvaas is the mayor of Narvik, a remote seaport where the season’s perpetual gloom deepened even further in recent days after news that the town — along with three other Norwegian municipalities — had lost about $64 million, and potentially much more, in complex securities investments that went sour.
“I think about it every minute,” Ms. Kuvaas, 60, said in an interview, her manner polite but harried. “Because of this, we can’t focus on things that matter, like schools or care for the elderly.”
Norway’s unlucky towns are the latest victims — and perhaps the least likely ones so far — of the credit crisis that began last summer in the American subprime mortgage market and has spread to the farthest reaches of the world, causing untold losses and sowing fears about the global economy.
Where all the bad debt ended up remains something of a mystery, but to those hit by the collateral damage, it hardly matters.
Tiny specks on the map, these Norwegian towns are links in a chain of misery that stretches from insolvent homeowners in California to the state treasury of Maine, and from regional banks in Germany to the mightiest names on Wall Street. Citigroup, among the hardest hit, created the investments bought by the towns through a Norwegian broker.
For Ms. Kuvaas, being in such company is no comfort. People here are angry and scared, fearing that the losses will hurt local services like kindergartens, nursing homes and cultural institutions. With Christmas only weeks away, Narvik has already missed a payroll for municipal workers.
Above all, the residents want to know how their close-knit community of 18,000 could have mortgaged its future — built on the revenue from a hydroelectric plant on a nearby fjord — by dabbling in what many view as the black arts of investment bankers in distant places.
“The people in City Hall were naïve and they were manipulated,” said Paal Droenen, who was buying fish at a market across the street from the mayor’s office. “The fund guys were telling them tales, like, ‘This could happen to you.’ It’s a catastrophe for a small town like this.”
Now, the towns are considering legal action against the Norwegian brokerage company, Terra Securities, that sold them the investments. They allege that they were duped by Terra’s brokers, who did not warn them that these types of securities were risky and subject to being cashed out, at a loss, if their market price fell below a certain level.
“When you sell something that is not what you say it is, that is a lie,” Ms. Kuvaas said. She disputed the suggestion that people here lacked the sophistication to understand what they were buying. “We’re not especially stupid because we live so far in the north,” she said.
Norway’s financial regulator agreed that the brokers had misled the towns, and it revoked the license of Terra Securities, prompting the company to file for bankruptcy. But the company’s parent, Terra Group, which is in turn owned by 78 savings banks and remains in business, rejected calls for it to compensate the towns. A spokesman for the group said it too had taken a hit from the episode.
Norway’s finance minister, Kristin Halvorsen, has ruled out the possibility of a state bailout, and Citigroup, which announced Thursday that it would shut down one of the money-losing investments Narvik bought, said it had no legal obligation to step in.
At City Hall, the stark reality of the situation is starting to set in. Narvik’s chief administrator, Trond L. Hermansen, figures he may recoup half of the town’s $9.4 million investment in the defunct Citigroup product — a package of securities linked to municipal bonds in the United States. Those securities declined in value after the market for bonds dried up.
But Narvik has $34.5 million in a second Citigroup-devised investment, known as a collateralized debt obligation, which has also lost value as a result of the broader market turmoil. The town stands to lose at least some of that money, too.
Those investments represent a quarter of Narvik’s annual budget of $163 million, and covering the losses would necessitate taking out a long-term loan, which the town could only pay off by cutting back on services.
“You can calculate this in terms of places for schoolchildren or help for the elderly,” said Mr. Hermansen, a soft-spoken man who sat in his office in near-darkness, the lights switched off.
As the losses begin to bite, the political finger-pointing has begun. Down the hall from Ms. Kuvaas, the town’s opposition leader, Torgeir Traeldal, is calling for an investigation of how and why Narvik could have made such an ill-advised investment.
“Heads are going to roll,” Mr. Traeldal said, repeating the phrase a few times to drive home his point.
From Mr. Traeldal’s window, cargo ships are visible in Narvik’s harbor, waiting to be loaded with iron ore. They testify to the town’s strategic location, more than 120 miles north of the Arctic Circle, not far from rich ore fields in Sweden. This has long made Narvik a target of opportunity for foreigners.
Hitler viewed the port as an important conquest because it could provide Nazi Germany with an ice-free harbor from which to ship iron ore to build his war machine. The British had similar ideas, and the stage was set for one of the first great naval battles of World War II.
In April 1940, German warships sailed to Narvik. They were met by Norwegian and British ships, and the ensuing clashes left hundreds of sailors dead and the wrecks of more than a dozen destroyers scattered in the fjords.
Narvik’s war history is chronicled in a little museum next to the fish market that attracts visitors from around the world. But it, too, may be a victim of the crisis. Ulf Eirik Torgersen, the director, said the town told him his budget would be cut by 40 percent, which could mean closing.
“That would be a shame,” he said, “because this whole town is based on naval history and war history.”
Nowadays, scuba divers prospect the World War II shipwrecks, part of the town’s busy tourist trade. Like many other Norwegian towns, Narvik also gets hefty tax payments and other revenue from the nearby hydropower plant. That wealth is what got it into trouble.
In 2004, Narvik and a number of other towns took out a large loan, using future energy revenue as collateral. They invested the money, through Terra Securities, in the Citigroup debt vehicle, which offered a better return than traditional investments. In June 2007, as the subprime problems were brewing, Narvik shifted some money from that investment into an even more complex one, again through Terra Securities.
Within weeks, as the market deteriorated, that investment declined in value, and Narvik got a letter from Terra Securities, demanding an additional payment of $2.8 million. Mr. Hermansen said Terra’s brokers never told him that he would be liable for such payments.
The chief investigator of Norway’s financial regulator, Eystein Kleven, said Terra Securities’ Norwegian-language prospectus did not mention such payments, or other risk factors. Citigroup’s term sheet did provide information on risks, but Narvik got a copy only after it had signed the agreement.
“This is the most serious matter we have dealt with in the stock market in the last 10 years,” Mr. Kleven said.
Even if the Norwegian prospectus had been complete, it is not certain that Narvik would have shunned the investment. Ms. Kuvaas, for one, said she did not read the prospectus before voting to authorize it — a decision that was made when she was in the government but not yet mayor. She said the town trusted Terra Securities, with which it had worked since the late 1990s.
To local residents, the bigger question is why Narvik would gamble its future energy revenue on exotic investments.
“We’re upset with our politicians because they should have known better,” said Eileen Jacobsen, 34, a kindergarten teacher. “If this was a private person who did this, people would say, ‘Hello?’”
Ms. Jacobsen, who has a son in kindergarten, said she worried that the town would cut back on resources. Fourteen adults look after 54 children at the kindergarten. But, even without the crisis, Narvik has 40 children on a waiting list for kindergarten, something that is considered almost a right in Norway.
With candles burning in the windows and lights strung on the streets, Narvik and its residents seem determined not to let the losses spoil the season. But late at night, in the Narvik Guten pub, the sadness is palpable. “I really love this town,” said Per Ellingsen, 45, a carpenter who recently returned home after years away. “I’m afraid this is going to set us back 10 years.”
Walter Gibbs contributed reporting from Oslo.

Remember this blast up and then down?

I just got this from:

http://images.google.com/imgres?imgurl=http://www.ecotao.com/holism/add/enron/Enron_whole.jpg&imgrefurl=http://www.ecotao.com/holism/add/enron/Enron.html&h=468&w=743&sz=53&tbnid=DiuEpGmPwn4ifM:&tbnh=89&tbnw=141&prev=/images%3Fq%3Denron%26um%3D1&start=3&sa=X&oi=images&ct=image&cd=3