Bank sues 11 insurers over Enron

Houston Chronical ^ | July 1, 2002 | unk

[lewislynn]

July 1, 2002, 10:18PM

Bank sues 11 insurers over Enron

By DAVID IVANOVICH
Copyright 2002 Houston Chronicle Washington Bureau

WASHINGTON -- J.P. Morgan Chase Bank is accusing a group of insurance companies of fraud for refusing to pay nearly $1 billion in claims stemming from the Enron Corp. collapse.

J.P. Morgan has sued the 11 insurers -- including Travelers, Liberty Mutual and Federal Insurance -- in an effort to collect on $965 million in surety bonds purchased to guarantee transactions involving J.P. Morgan, Enron, and an offshore J.P. Morgan entity known as Mahonia Ltd.

Last month the insurers accused J.P. Morgan of engaging in sham oil and gas trades with Enron in a doomed effort to keep the energy company afloat.

The insurance companies argue the transactions, in which Enron would sell oil and gas contracts to Mahonia, which in turn would sell them back to Enron at a somewhat higher price, were really loans camouflaged as energy trades.

By keeping Enron alive, the insurers argued, J.P. Morgan hoped to enable Enron to continue making payments on huge loans already owed to the bank.

These deals have reportedly prompted federal investigators to launch criminal probes.

Now, J.P. Morgan is firing back.

In court papers filed in U.S. District Court on Friday and made public Monday, J.P. Morgan accused the companies of scheming to earn top dollar by selling surety bonds with no intention of ever paying up if called to do so.

"The insurance companies in this case have done what some insurance companies do all too often -- they collect premiums for years but when a claim is made they deny coverage, delay, litigate, and, if necessary, accuse policy holders of wrongdoing in order to avoid paying the claim," J.P. Morgan spokeswoman Kristin Lemkau said Monday.

J.P. Morgan officials contend the insurance companies were well capable of understanding the complex transactions conducted by Mahonia.

An attorney for the insurers could not be reached for comment Monday.

[lewislynn]

This is choice. Huge corporations, after trying to screw one another are now exposing each others crooked ways...Both are spelling out exactly how the other screws YOU....LOL!

[Libertarianize the GOP]

At least when Corporations are fighting with each other they have a hard time corroborating and covering up each others misdeeds as is normal procedure under a Socialist regimes.

[lewislynn]

At least when Corporations are fighting with each other they have a hard time corroborating and covering up each others misdeeds as is normal procedure under a Socialist regimes.

That being the case we must be under a socialist regime...they've been "corroborating and covering up each others misdeeds" for a long time and it wasn't anyone from government exposing them.

[kennyo]

This is big.It could be the unwinding of the last and greatest bubble of all,the off-balance sheet derivatives market.And J.P.Morgan Chase knows of what it speaks.It is far and away the largest issuer of such "insurance policies"!

http://www.gold-eagle.com/editorials_00/ci091500.html

[Libertarianize the GOP]

We have a partially socialist government true but in a fully socialist regime such as Hitler’s Germany or the former Soviet Union there is no dynamic for any outcome but to continue the cover-ups. In a Free market system corroboration that is detrimental to consumers can occur for a while but eventually something changes that moves the system towards efficiency and results in the breakdown of the corroboration and likely bankruptcy of companies involved.

[lewislynn]

In spite of what you think we do not have a "free market" system...nor are we headed toward Soviet or Nazi style systems.

I know you've been around the calpowercrisis threads so here's something you might find interesting. It might give you some idea of how/why Cal. "deregulation" was such a scam.

Powertrip: "With the exception of some aspects of the drug trade—there is no such thing as a free market."

A bill written in desperation by (R) Governor Pete Wilson and (then) Assembly Speaker (R) Jim Brulte. It was one of very few times the Republicans had a majority in either house so Wilson was desperate...His "deregulation" has been tagged the worst policy mistake in Cal. history or words to that effect more than once and it would be hard at this time to dispute it...All the problems energy suppliers are having can be traced directly back to the enactment of that bill.

Here are Pete Wilson's own words on it:

"I will not pretend to you that (the legislation) was a perfect, free-market mechanism. It wasn't. I knew that at the time. I signed it knowing that," said Wilson.

[lewislynn]

Thanks for the link. It sounds like things could get real interesting.

If you could help me understand "derivitaves" and what they are exactly I would appreciate it.

[Libertarianize the GOP]

I never implied that we have a truly free-market system any longer. Now take your two Senators and my two Senators and give them half a chance and they will quickly establish their vision of a Socialist Utopia. As for most Republicans such as Pete Wilson they have us headed for the same destination as the Democrats but only want to take us there half as fast.

My prior point was that a free-market and even a partially free-market system such as we currently operate under is self correcting in the long run, but the farther down the road to Socialism we descend the harder it will be to make the necessary corrections.

The drug trade even though it operates outside of the legal system is probably more controlled by Government interference than any other business.

[lewislynn]

The drug trade even though it operates outside of the legal system is probably more controlled by Government interference than any other business.

I'm not so sure.

[lewislynn]

The drug trade even though it operates outside of the legal system is probably more controlled by Government interference than any other business.

I'm not so sure....I posted before I finished

I'm not so sure....Have you ever tried to go into business?

[Libertarianize the GOP]

The last time I had a job working for someone else was 25 years ago while in college, since then I have been self-employed in a few different endeavors. In the illegal drug trade every action you take had better be taken in consideration of being detected and busted or you will quickly be out of business and in jail. In a legal business you have to jump through several hoops to get started and even afterward continue to do so, but not every action or decision I make is done with the Government in mind. Also my customers or clients can easily find my competition and check that my prices are fair and that my products or services are of quality; in an illegal business based on personal acquaintances finding competitors is not as easy.

[kennyo]

My understanding of derivatives is less than satisfactory.But I do know that 5 or 6 years ago,the FASB had a major fight with the bank regulators over the treatment of off-balance sheet items like derivatives.A balance sheet without such massive potential liablities(derivatives are financial insurance contracts)would mislead shareholders.And the FASB was worried that it would be the accountants who would be held responsible.Sound familiar?

The use of leverage also plays a significant part of the risk.And the growth of the "industry" has been unprecedented.I can't understand how something that didn't exist 15 years ago could now have an aggregate value that exceeds total world economic production by an order of magnitude.And now they're suing each other.The resulting fireworks could easily set off a general conflagration.There are many sites on the web,here is another:

http://www.finpipe.com/derivatives.htm