The Real Lesson of Enron's Implosion: Market Makers Are In the Trust Business

Randolph McAfee

The Economists' Voice, 2004, vol. 1, issue 2, 10

Abstract: How did Enron, a firm worth $60 billion, collapse over the discovery of a billion or so in hidden debt and fraudulent accounting? It didn't. Or, at least, not directly. Market makers like Enron and Ebay are in the "trust" business, just as banks and insurance companies are. Once trust was lost, the rest of Enron's value quickly disappeared. The maintenance of customer trust is an important, and frequently mismanaged, aspect of business strategy. The legislative response of Sarbanes-Oxley may do some good, but cannot really ensure trust.

Keywords: Enron; signaling; trust; bank run; expectations; eBay (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (5)

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DOI: 10.2202/1553-3832.1008

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