Thanks for the comment am glad you like the videos and are finding the explanations useful.

It is my opinion, and I know that I am probably in the minority here, that the Subprime crisis and Enron have very little in common. In my opinion there are two reasons why Enron keeps coming up in relation to the Subprime crisis which are:

1. Both these events sent tremors throughout the financial system.

2. Both involved the use of off balance sheet entities.

What I feel however that is not well understood when Subprime is compared to Enron however is:

1. Enron knowingly used off balance sheet entities to inflate earnings and hide debt which is outright fraud.

2. At least so far none of the high profile write downs by major banks have even been accused of fraud because, except for one possible exception which I will explain below, there was nothing illegal about what they were doing. This is unlike Enron where there were multiple flagrant violations of the law and how these entities can be used.

You see these banks were not using off balance sheet entities to hide debt like Enron was, quite to the contrary these entities were disclosed in the companies financial statements. Now while there may be an argument on how well the risks of these entities were understood by regulators and the public I don't think there is any argument that the banks were using these entities to hide debt as Enron was.

Here is an article to help better understand the legitimate and illegitimate uses of off balance sheet entities.

The one possible exception here is that as you can see from the article above, when an off balance sheet entity is used this is supposed to sheild the parent company from any liability resulting from the bankruptcy of the off balance sheet entity, thus the name off balance sheet. As you have seen however from all the high profile write downs by the parent companies of these off balance sheet entities this was really not the case here. The reason why is because the banks (parent companies of the off balance sheet entities) were acting as the lender of last resort to the off balance sheet entities. So what was happening is that while technically the parent company was not directly liable for the losses of the off balance sheet entity because they were a bank which had agreed to be a lender of last resort to the off balance sheet entity they in effect were liable. As I read somewhere in a blog post which I can find now "they were effectively transferring the risk off the balance sheet, to the market, and then back onto the balance sheet".

Unlike with Enron however this fact, while probably not well understood by the public and the regulators, was not hidden. While I am not saying this makes it right or will shelter the banks from lawsuit's related to this, in my opinion there is no where near the fraud if any here that existed with Enron.

Hope that helps. If there are any other questions or comments relating to this please feel free to post them below.

Best Regards,
Dave