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1Deregulation Deregulation of the US energy industry made possible Enrons emergence as a major corporation but also ultimately may have contributed to its collapse The company successfully seized the opportunity created by deregulation to create a new business as a market maker in natural gas and other commodities Enron successfully influenced policymakers to exempt the company from various regulatory rules for example in the field of energy derivatives This allowed Enron to enter various trading markets with virtually no government oversight Arguably regulation might have prevented Enron from taking some of the risks and making some of the mistakes which it did While deregulation may initially have helped Enron by allowing it to create and enter new markets it later hurt the company by removing the very restraints that might have kept it from becoming fatally overextended 2Lax regulatory enforcement Arguably government regulatory agencies failed to exercise sufficient oversight or to enforce the rules that were on the books Regulatory bodies that failed to enforce the rules governing Enrons actions included the Securities and Exchange Commission SEC the Federal Energy Regulatory Commission FERC and the Commodities Futures Trading Commission CFEC 3Weak and ambiguous accounting standards Hindsight makes it fairly clear that the accounting standards promulgated by the Financial Accounting Standards Board FASB were too weak and too ambiguous with respect to the complex trading transactions and financial structures that Enron established and operated Two areas stand out as ones of particular concern First the rules apparently permitted the widespread use of market-to-market MTM accounting in areas for which it was not originally intended Second the 3 percent rule for outside ownership of SPEs was arguably too low to maintain genuine independence An underlying issue was that corporate practice eg sophisticated online trading of complex financial derivatives had outpaced the work of the rules makers leading to the application of rules in situations for which they were not originally designed
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