Ben Gilbert: uncertainty

Transcript context

…Yes, a trading desk, a proto financial institution for the energy industry. Speaking of, back to Houston, and the promised McKinsey strategic engagement. It's happening. Jeff Skilling is lead hotshot partner to develop a strategic plan for this very thing, the new finance and trading operations of Enron. One day, Skilling has an absolutely brilliant idea. Brilliant by his own estimation and he proclaims it to everybody how brilliant it is. What if Enron goes one step further from Lay's original innovation of creating a spot market for energy? Rather than just being the facilitator of the market being the pipeline in the middle, what if Enron started acting even more like an investment bank in this industry? The phrase that he uses for this idea is Enron becoming a "bank for gas." The idea is that they can go to oil and gas producers to drillers, and they can buy up a lot of the future production that's going to come out of their wells. Kind of almost like the old companies used to do. But rather than Enron then being the customer for what's going to come out of those wells, they repackage—this is the securitization that you were talking about a minute ago, Ben—all of these future energy commodities. They slice it and dice it, and then they resell it to buyers, to consumers of energy, on whatever timeline and term length they want. We've gone now, the industry, from the pipelines, buy the assets from the producers, buy the energy commodities from the producers, and then sell them to customers. Lay's innovation is to create a market where you let the producers and the customers trade directly today. In real time, spot markets, where everyone is subject to, I don't know what tomorrow's price is going to be. I'll quote it to you tomorrow, so you have inherent risk that tomorrow's price could be higher. So sorry, but that is what it is. Skilling's innovation here is, let's turn this into a full-fledged financial derivatives market, and let buyers and sellers write contracts and buy contracts for any amount of this commodity in the future at a set price, so true futures contracts.…

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