If I knew, I’d be preparing to get rich instead writing a comment at Dinocrat, but…

In an article that is worth reading in its own right, Malcolm Gladwell describes Jonathan Weil’s investigative reporting on Enron:

…Weil spoke to Thomas Linsmeier, then an accounting professor at Michigan State, and they talked about how some finance companies in the nineteen-nineties had used mark-to-market accounting on subprime loans—that is, loans made to higher-credit-risk consumers—and when the economy declined and consumers defaulted or paid off their loans more quickly than expected, the lenders suddenly realized that their estimates of how much money they were going to make were far too generous.

…

…The Enron officials acknowledged that the money they said they earned was virtually all money that they hoped to earn. Weil and the Enron officials then had a long conversation about how certain Enron was about its estimates of future earnings. “They were telling me how brilliant the people who put together their mathematical models were,” Weil says. “These were M.I.T. Ph.D.s. I said, ‘Were your mathematical models last year telling you that the California electricity markets would be going berserk this year? No? Why not?’ They said, ‘Well, this is one of those crazy events.’

Subprime loans. Highly leveraged, highly complex derivatives. Complex credit interdependencies. Far too generous estimates. Enron.