IP: Salon: If Enron isn't a political scandal, nothing is

[David Farber <dave () farber net>]

> Date: Fri, 18 Jan 2002 16:20:54 -0800
> Subject: Salon: If Enron isn't a political scandal, nothing is
> From: Paul Saffo <psaffo () iftf org>
>
> The latest from Scott Rosenberg. Another good reason to subscribe to
> Salon...
> -----------
> http://www.salon.com/news/feature/2002/01/18/enron_scandal/index.html
>
> If Enron isn't a political scandal, nothing is
> So what if Bush and company didn't bail out Enron? The outrage lies in what
> politicians did for the company on its way up, not the way down.
>
> - - - - - - - - - - - -
> By Scott Rosenberg
>
> Jan. 18, 2002 | The collapse of Enron, we now hear, is not a "political
> scandal" -- it's a business story. A fine distinction! So far, no one
> possesses evidence that government officials lied, goofed around with
> interns, ran guns from the White House basement, burglarized opponents'
> campaign offices or accepted bags of unmarked bills. And so a growing chorus
> in the media now chants that the Enron affair should not be considered in
> the same class as Whitewater, Watergate, Iran/Contra or any of the other
> previous brouhahas that have consumed Washington and brought presidencies to
> their knees.
>
> "I don't think it's a political [scandal] story yet. I think it's a business
> scandal" -- that's how the National Journal's Charlie Cook put it during a
> journalism panel covered in the Hotline. "Reporters try to put everything
> into a  Whitewater/Watergate prism."
>
> This tells us that the scandal yardstick our political and media culture
> currently uses is bent like a pretzel. You say your president may have
> finagled a real estate deal many years ago? Time to name a special
> prosecutor! He lied  about his sex life? Draw up the articles of
> impeachment! But tell us that a high-profile corporation donated millions
>  of dollars to legions of politicians, including the president; bent the
> government to its will; lined the pockets of its executives while dodging
> all taxes; then went bankrupt, vaporizing thousands of employees' retirement
> accounts?  Nah, that's no "political scandal." Come on -- where're the
> bimbos?
>
> Enron's dismal story simply doesn't meet the high bar of triviality the
> press today demands. The sums of money involved are too great; the flaws in
> our political system that it exposes are too vast. It's just too real to
> qualify.
>
> The Enron affair seems to have earned its "get out of jail free" card from
> the  pundits because, so far, it seems that no one in the Bush
> administration was stupid enough to try to help the corporation last autumn
> as its fortunes circled  the drain. And since Enron's campaign-donation
> tentacles and friends-in-high-places influence appears to have extended to
> both parties -- lopsided a good ways toward the Republicans but also
> boasting some serious Democratic names (including former Treasury Secretary
> Robert Rubin and  New York Sen. Charles Schumer) -- the Enron saga does not
> perfectly fit the  capital's partisan templates.
>
> To which the conscientious citizen should respond, so what? If Enron isn't a
> political scandal then we might as well retire the phrase from our
> vocabularies. Of course no one in the Bush administration lifted a finger to
> help Enron while it was on the way down; they all understood that the
> spotlight on them was too glaring. It was while Enron was on its merry way
> up the stock price charts, conjuring markets out of thin air and billions in
> revenue through accounting tricks, that the company cashed in its chits with
> our politicians. Enron's campaign contributions may not have purchased it a
> reprieve from bankruptcy, but its gifts had already been paid back with
> interest by both the legislative and the executive branches of our
> government.
>
>  What did Enron get for its money? We're only beginning to unravel the full
> list, but from what's already known, the answer is: plenty. Enron's
> political contributions weren't made out of charity or friendship; they were
> quid pro  quos. The "quids" are on public record because campaign finance
> laws require their disclosure. Here are some of the  "quos."
>
> We know that Enron essentially shaped the Bush administration's energy
> policy, with its pro-drilling slant, bias against conservation and
> reluctance to intervene in California's electricity crisis. Enron officials
> met six times with vice president Dick Cheney's energy policy task force
> last year -- and Cheney is still stonewalling the release of records of
> those meetings from congressional inquiry.
>
> We know that Enron essentially engineered the removal of a chairman of the
> Federal Energy Regulatory Commission whose policies it disliked and had him
> replaced with a long-time Texas ally who could be expected to be more
> friendly to its interests.
>
>  We know that Enron would have benefited profusely from the corporate
> alternative minimum tax repeal that President Bush and his party have pushed
> so avidly. Not paying any income tax (through "the creation of 881
> subsidiaries abroad, including 692 in the Cayman Islands, 119 in the Turks
> and Caicos, 43 in Mauritius and eight in Bermuda"!) wasn't enough for Enron;
> it wanted -- and would have won, if this provision became law -- a gigantic
> tax rebate from the public trough.
>
>  We know, thanks to the Wall Street Journal, that Enron used its political
> clout to ward off government oversight of its trading in derivatives. Many
> financial experts and public officials foresaw trouble in Enron's growing
> role as both "market maker" for the trading in these complex financial
> instruments and a participant in the same markets it oversaw. Enron turned
> to recipients of its largesse like Texas Sen. Phil Gramm to keep the
> government's fingers out  of its hair. (Gramm's wife, Wendy, led a
> deregulatory push as head of the Commodity Futures Trading  Commission in
> the early '90s -- then resigned to become a member of Enron's board.) Even
> after the 1998 collapse of the Long Term Capital Management hedge fund
> spurred new congressional calls for reform, Enron pulled strings
> to make sure that it could do as it pleased in these markets, unrestrained
> by the kind of fair-rules enforcement  provided in more traditional
> commodities and securities markets.
>
> We know that Lawrence Lindsey, Bush's chief economic advisor, was put in
> charge of monitoring Enron's collapse, even though he was a paid advisor for
> Enron as recently as the year 2000. That's just at the federal level. In
> Texas we know that Enron's contributions to then-Gov. George W. Bush won it
> a  variety of perks and favors, including a Bush effort to lobby his friend
> Pennsylvania Gov. Tom Ridge on behalf of Enron. And in California, Enron was
> a key architect from the beginning of California's disastrously half-baked
>  energy deregulation plan, which last year drove the cost of energy in the
> nation's most populous state through the roof and cost the state treasury a
> fortune.
>
> No doubt there's more. Plainly, Enron got its money's worth. As we learn
> more about Enron's business from the growing stink of the Arthur Andersen
> coverup, it's increasingly clear why Enron needed to buy so many political
> favors: It was the most efficient means of providing cover for the company's
> smoke-and-mirrors financial strategy. Enron pumped up its stock price by
> jaw-droppingly "aggressive" accounting practices, like fobbing off its debt
> onto hidden partnerships, claiming hundreds of millions in revenue from
> phantom projects (like the broadband video pilot project the Wall Street
> Journal reports on today, where 1,000 test customers for a movie-on-demand
>  service somehow generated $110 million in profits -- that's $110,000 per
> couch potato!) and counting as revenue the entire cost of energy trades it
> brokered, rather than simply the commissions it earned -- a practice known,
> aptly, as "gross accounting."
>
> If Enron had fairly and accurately reported its numbers in terms laymen
> could understand from the beginning, it  would never have earned its
> stock-market darling status. And, once its stock price had been jimmied
> through the roof, if it suddenly switched to telling the truth, its house of
> cards would collapse -- that is the stark message of the anonymous
> whistle-blowing letter Enron official Sherron Watkins sent to chairman
> Kenneth Lay last August.
>
> Enron positioned itself as a "new economy" company as it divested itself of
> physical assets and proudly forged businesses built on the trading of
> intangible financial instruments. What we can now see is that the Enron
> collapse,too, is a true information-age scandal. If good information had
> been available to the government and the public from  the start, Enron could
> never have climbed to the heights from which it fell.
>
> Enron was the proud standard-bearer of the deregulation movement. But its
> executives and supporters conveniently conflated two different kinds of
> regulation as it boldly fought for freedom from government control. The
> public understands "deregulation" to mean an end to government-mandated
> pricing of goods like airline seats and electricity. And common sense
> supports the notion that markets set such prices better than government
> bureaucrats can.
>
> But there's another kind of regulation that's absolutely essential for those
> markets to work properly. It's the kind of regulation that publicly
> certified accountants and the SEC provide for the stock market --
> regulations that require companies to disclose information that partners,
> competitors and the public need to make rational business choices. Enron's
> success at remaining "deregulated" in this second meaning of the word paved
> its way toward its collapse.
>
> It doesn't take a doctorate in economics to see the fixes our political and
> economic system require in the wake of Enron. We need more effective
> oversight of new buccaneer markets, not to "regulate" the life out of them
> but to ensure that they operate fairly and don't get manipulated by
> Enron-style hucksters and shysters. And we need tough campaign finance
> reform -- stronger than the relatively mild constraints that the Republican
> House, led by friend-of-Enron Tom Delay, has so far successfully blocked --
> to make sure that participants in those markets don't buy exemption from
> such oversight.
>
> It may be that Enron and its officers did nothing in technical violation of
> the law. If so, the scandal lies precisely there: that what they did was
> legal when it plainly should have been outlawed; that they managed to buy
> the laws they needed to build the financial house of cards that earned them
> millions before crashing down on stockholders'  heads.
>
> The Bush administration is deep in denial mode because so much of what was
> wrong in the Enron story is simply business as usual for its cadre of former
> oil executives and commuters through the revolving door between industry
> and government. Clearly, we need some new, better laws. Either Congress will
> pass some, or we will see just how  thoroughly Enron managed to corrupt our
> system. And wouldn't that be a scandal.
>
>
>  salon.com
>
> - - - - - - - - - - - -
>
> About the writer
> Scott Rosenberg is Salon's managing editor. For
> more columns by Rosenberg, visit his column
> archive. He also maintains Wordyard.

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