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

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  • McAfee R. Preston

    (Caltech)

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.

Suggested Citation

  • McAfee R. Preston, 2004. "The Real Lesson of Enron's Implosion: Market Makers Are In the Trust Business," The Economists' Voice, De Gruyter, vol. 1(2), pages 1-10, October.
  • Handle: RePEc:bpj:evoice:v:1:y:2004:i:2:n:4
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    Cited by:

    1. Frank A.G. den Butter, 2012. "Managing Transaction Costs in the Era of Globalization," Books, Edward Elgar Publishing, number 14748, April.
    2. repec:eee:reacre:v:22:y:2010:i:1:p:18-28 is not listed on IDEAS
    3. Bohnet, Iris & Greig, Fiona & Herrmann, Benedikt & Zeckhauser, 2006. "Betrayal Aversion on Four Continents," Working Paper Series rwp06-005, Harvard University, John F. Kennedy School of Government.
    4. Philip M. Fernbach & Steven A. Sloman & Robert St. Louis & Julia N. Shube, 2013. "Explanation Fiends and Foes: How Mechanistic Detail Determines Understanding and Preference," Journal of Consumer Research, Oxford University Press, vol. 39(5), pages 1115-1131.

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