When it occurred, the collapse of the energy corporation Enron in 2001 was the largest corporate bankruptcy in history. The lessons we have learned from its downfall are priceless. Even though Enron's holdings were worth hundreds of billions of dollars, everyone can benefit from learning a little about its collapse. By learning what Enron did wrong, we can each manage our personal finances more responsibly.
Enron's downfall came as a shock to the world: right before its bankruptcy, Enron had been named most admired company six years in a row and was widely considered one of the best companies to work for. Suddenly, in the middle of the dot-com bubble of the early 00s, it came to light that Enron had been falsely claiming record profits for years to artificially inflate its value. In reality, however, they had been rapidly losing money.
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Since corporations stand to make money by having a more highly-valued stock, the leaders at Enron took elaborate measures to hide their debt. A company that returns a better profit is more desirable for investors, who fuel the company by buying partial ownership (stock). With more demand, the value of the company rapidly increases, putting more money in investors' pockets. Meanwhile, the company also worked to give the appearance of being very successful.
The lesson to be learned from this story is the importance of responsible, legal financial planning. Enron spent its money recklessly, lavishly spending money that did not exist. This is similar to how many citizens build up far more credit card debt than they can repay. Likewise, although lying on your tax return can save you money in the short term, it is likely to result in serious legal trouble sooner or later.
Unlike Enron, however, personal financial difficulty is often not the result of wrongdoing. It's easy to build up more credit card debt that you can manage, but the people at Enron were consciously lying to their investors, employees, and the world to make more money.
If you are struggling with debt, the Boca Raton bankruptcy lawyers of Eric N. Klein & Associates can help you form a plan to repair your finances. To get started, call them to discuss your case with a lawyer.
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