But Enron wasn’t really hedging against a true economic loss; rather, it was using the Raptors to hedge against an accounting loss. It did this through a dizzyingly complex series of derivative transactions that essentially amounted to tapping, once again, the value of its own shares. As the underperforming assets placed in the Raptors continued to decline in value, the Raptors would have to pay Enron—therefore giving Enron a gain that would offset the loss. Voilà! The company had avoided having to report a decline on its income statement.
