Information Overload

An intriguing article about the collapse of Enron. The commonly held perception is that Enron executives hid information about the financial state of the company. However, it is argued here is that everything that was needed to correctly diagnose the state of the corporation was in public documents revealed by the company.

Analysts were unable to get to the truth because there was just too much documentation out there.
all Enron proves is that in an age of increasing financial complexity the “disclosure paradigm”—the idea that the more a company tells us about its business, the better off we are—has become an anachronism.


So what is the answer? The article looks back at World War II and at individuals who analyzed Nazi propaganda as a way of figuring out what the Nazi leadership was really thinking. It argues that there is a dispenser and a consumer for information. Both have to be sufficiently sophisticated in order for the information exchange to be successful.
as Enron’s business practices grew more com-plicated, it was Wall Street’s responsibility to keep pace


In other words, Wall Street analysts as much as Enron executives, are equally responsible for Enron's troubles not being spotted for so long. They need to develop more sophisticated methods to spot trouble.

Comments

Stimit said…
But doesn't it come down to liability? Can the analysts be thrown into jail for screwing up? Do we know what happened to those that covered Enron? What about those that pumped up the tech stocks? And then, it's a question of vested interest..most ppl. covering these stocks are sell side analysts who make money (themselves or their firms) when ppl. park more of their $$ with them.
12:14 PM
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