Here is the assignment in published form. The author incorporated most—but not all—edits, and made some changes based on the edit queries. Author changes are in red.
Picture Alan Greenspan taking his morning stroll to the office, and stopping on the way to peer into that big old house on Wall Street. Don’t those three porridge bowls sitting on the table belong to the three bears: the World Trade Towers, Technology Meltdown, and Enron?
Greenspan may seem fairly calm, but the market and investors are responding with frayed nerves to three very negative events in rapid succession: the September 11 terrorist attacks, the most severe bear market for technology stocks ever, and now Enron’s spectacular implosion.
Obviously, the Enron situation has everyone concerned about the lack of financial controls in place at companies, and whether there will be other Enron-related accounting disasters. Certainly earnings quality is a concern for investors. The Enron fiasco has only heightened investor sensitivity at a time when the market was already struggling with valuation issues. TSI believes that over the short term, the market will indeed continue to decline. Eventually the market will snap back, though, because the market is overreacting to the Enron debacle.
No question—Enron was a horrible catastrophe that will affect the lives of many people for years to come. Yet it presented a unique situation, for two reasons. First, Enron was a concept company, not a product company, and not even really a service company—it simply made deals, and lacked tangible assets. Further, there are few, if any, other companies with an Enron type of balance sheet, with its undiscovered financing arrangements. Thus it is unlikely that other Enron-related companies will emerge that fit this rare profile.
Over time, TSI believes the market will repair the damages from these events, overcoming current short-term uneasiness. The recession will end, investors will return, and hopefully our world is becoming a safer place for our children as the United States and other countries focus on curtailing terrorism.