David Rosenthal: belief

Transcript context

…You got to think about the enterprise value of the combined company. I don't have it in front of me, but you had a $5-ish billion company buy a $2½-ish billion dollar company. The whole enterprise value of the firm can't be more than $10 billion. These two bozos just racked up a billion dollars in trading losses. This time, Lay does fire them. Fortunately, for young Enron and for Lay, but unfortunately for the rest of the world, this happens early enough in the quarter that the trading floor is able to dig out enough of these losses, that they don't have to report the whole billion dollar loss come earnings time, and only end up reporting I think less than $100 million of losses. The company miraculously survives. You would think that Lay would learn his lesson here, but no. This is what we're dealing with. Let's for a moment say, why are there traders? That's an interesting thing that's happening here. I thought this was a pipeline company. I thought this was a logistics company that moves natural gas from one place to another and charges customers for the services associated with that. The traders originally are there, to your point, to help match supply to the demand. It's not like everybody just got a computer in front of them where they can automatically be buying the right products to fit their needs at the right price at this moment in time. You need to interface with people. Those people can quote spreads wherever they want. They can say, ahh, I got a seller for this price, and you're the buyer and I'm sensing that you'll buy for that price. Okay, I'll match, make supply to demand. I'll quote a spread where I think I can make the most possible money on this trade, and we'll go with that. This is the beginning of them being both a logistics energy transportation company and also a financial organization of sorts, a trading desk.…

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