The collapse of Enron is the leading business story of the day. Those most affected are the employees of Enron, the employees of its outside auditing firm, Arthur Andersen, and investors in Enron stock. Also adversely affected, however, are insurance companies that issued surety bonds guaranteeing Enron’s bond and the large, money-center banks that lent to Enron, its many limited partnerships and other entities with which it had asset sales and asset swaps allegedly at inflated prices.
To a surprising extent, these sophisticated banks and insurance companies relied on independent accountants and rating agencies (which also relied on the accountants) to verify financial reports rather than conducting their own thorough due diligence before committing hundreds of millions of dollars in loans and guarantees to Enron.
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