The Washington Post once referred to Kuwait as an "oil company with a flag." Perhaps this is what the Bush White House once thought the USA should be. This administration was intimate with the Enron Corporation, now in ruins of potential scandal and alleged fraud. This slowly emerging scandal leaves us with questions, but one thing's for certain: L'Affaire Enron will build, and haunt the White House for years to come. The Senate's newly announced investigation has a lot of work ahead of it. Will the White House survive intact? Will it sacrifice key officials to appease a Special Prosecutor?
Welcome to Enron, the biggest corporate disaster of recorded history.
When Enron filed for Chapter 11 on December 2, 2001, practically all of its 21,000 employees were unceremoniously relieved. At its peak, Enron stock's total value was $70 billion, capital many people relied on in their retirement plan investments. Today, the total loss in equity value is hard to gauge, because before throwing in the towel, Enron was forced in November to restate its real earnings for years 1997, 1998 and 1999. Enron had hidden a lot of debt in "special purpose vehicles," i.e. front companies it created to hide losses off the books, so its previous earnings reports were meaningless.
Like the dot-coms, a lot of Enron's value as a business was based on the "trust" that people placed in it, as it traded intangible bits of risk in its myriad of speculative trades in energy. When that trust was lost, a lot of people got burned. Today, Enron faces two Congressional investigations, a high profile Senate inquiry, a class action lawsuit from angry shareholders, and the threat of a suit from the General Accounting Office. The union bank Amalgamated is already on the warpath. They are suing on behalf of the pension funds damaged by Enron's $70billion implosion.
The fiasco's intimacy with Bush may bode badly for the President's future. The White House and Enron have at times seemed interchangeable, both financially and politically. Vice President Cheney and Bush's ruthless campaign advisor Karl Rove have consulted Enron Chair Ken Lay on energy policy. Lay's suggestions to Rove on government appointments were followed. Enron and the White House have shared a revolving door of personnel: five former Enronians work in the White House and Cabinet. (Secretary of the Army Thomas E. White was a Vice Chairman, Economic Adviser Lawrence Lindsey , U.S. Trade Representative Robert Zoellick, were both advisors, and Senior Staffers Karl Rove and Lewis "Scooter'' Libbey, owned serious amounts of Enron stock.) And of course, the flow of money since the Reagan years has been colossal and reciprocated. Enron donated almost $2.4 million to federal candidates, and $2 million to Bush alone. They were in turn rewarded with legislation that allowed them to profit off the deregulation of state-run power industries. Enron has made contributions to 71 of 100 U.S. Senators and about half of congress. Enron is the #1 career contributor to President George W. Bush.
On Thursday, January, 3, the Senate Government Affairs Committee, headed by possible Presidential hopeful Joe Lieberman announced it would launch a serious investigation into just how much Enron was affecting decisions in the executive branch. It was high time. Congressman Henry Waxman (D-CA) has been asking Vice President Dick Cheney and advisor Karl Rove for these answers for six months and he has been treated like an unwanted guest at a wedding. On January 8, the White House announced that the meetings with Enron had indeed been extensive. As Part of Vice President's Cheney's Energy Task Force, the White House admitted Enron executives had visited "six times." But with the stubbornness of a Richard Nixon, the Vice President still refused to release the complete attendance lists for all meetings of his Energy Task Force.
Comparisons to Teapot Dome and Watergate are not untoward. The media is beginning to feel the symbolic importance of Bush's Enron scandal. The Nation and UK's Indpendent on Sunday both recently suggested we are seeing Enron becoming Bush's albatross. Both called it a "cancer on the presidency," a phrase that recalls John Dean's early warning to President Nixon.
Bush is still strong in the polls, with approval ratings in the low 90s. But analysts have been pointing out that not capturing Osama bin Laden might come back to haunt the administration, just as the sparing of Sadam Hussein was partly responsible for Bush Sr.'s defeat following the Gulf War. Poll experts point out that wartime presidents usually experience a return to pre-war approval ratings eight months after a war's peak. Just as the May 2002 midterm elections heat up in congress, Bush might not be able to help fellow Republicans keep the House.
The pas-de-deux between Enron and the Bushes goes a long way back (almost as far as the relationship between the Bush and bin Laden families.) Under Ronald Reagan, Vice President Bush led a task force to deregulate finance and energy. In February 1993, the Bush White House announced that two former Cabinet members, Secretary of State Baker and Secretary of Commerce Robert Mosbacher, had agreed to help what later became Enron secure natural gas projects overseas.
In 1995, Enron was officially created out of two regional natural gas companies by Ken Lay. In seven short years, Enron become the 7th richest company in the US, ranked by revenue. Chairman Lay soon became intimate with both Bush Presidents, the younger granting him the pet name "Kenny Boy." In an increasingly deregulated market, Enron made a transition from selling natural gas to speculating on aspects of the power industry, issuing glorified lottery tickets in the form of derivatives. Derivatives are chances, or "financial instruments" to take bets on the future value of a share price or commodity based on its current value and external market forces. At its peak, 80% of Enron's business was from trading.
Enron began acting less like an energy company and more like an investment bank. Eventually, they even sold derivatives that bet on changes in the weather. Among other things. CFO Andrew Fastow mysteriously told Business 2.0 that "Enron has 1,217 trading 'books' for different commodities. We don't want anyone to know what's on those books. We don't want to tell anyone where we're making money." Another Enron executive told The New York Times the company's goal was to create "a regulatory black hole" in order to be "to be the first mover into a market and to make money in the initial chaos and lack of transparency."
As the night began to permanently close in on Enron, there was a brief glimmer of hope against hope that the "smaller, scrappier" Dynegy company would acquire the ailing giant. Perhaps the lesser competitor wasn't Enron's size, but it wasn't so small to hand Enron $1.5 billion cash as a calling card, as merger talks opened in November. But by the end of the month, the deal was practically dead. In Dynegy CEO Chuck Watson's conference call with Enron management on December 3, he asked why cash-on-hand in the recent 10Q was $1.2 billion? Where was the $3 billion he had been expecting? Well, that nice $1.5 billion present had been burnt through. What's worse, Enron couldn't account for it. "Neither the treasurer nor the CFO could explain where the cash went. The 10-Q destroyed any remaining confidence and credibility."
Dynegy might have realized it was buying a big mess, and then purposely released language in a Nov. 21 release that sent a "lukewarm" signal. This scared the institutional investors even more. Simultaneous with this, Enron's credit rating was downgraded, and they were thus bound to pay out $690 million to a creditor. Whoops, there goes another half of cash-on-hand. Now Enron was down to $510 million. The investment banks downgraded Enron's stock even lower, giving Dynegy an excuse to scuttle the deal. Their gentleman caller leaving town, Enron sued Dynegy for backing out of the marriage.
With no one left to screw over, Enron ate their own flesh. After they were abandoned by Dynegy there was no way Enron could recover, so management decided to do the most professional thing possible: they stuck their own workers with the tab. They had already planned for this a month and a half in advance: on October 17, when the S.E.C. announced it was investigating Enron, top brass deliberately switched 401(k) administrators. Their employees' retirement funds were already dedicated to holding only Enron stock. This move locked their employee's pensions into this stock as it began to nosedive. Enron executives unloaded their own equity on the market, and ran for the door stuffing their pockets with $600 million in cash. Enron robbed their common employees of their life savings. Sick employees were left without health insurance; the transitional health care system COBRA was a mess of unfinished paperwork. Overseas employees in Moscow and the UK were told "find your own way back." An anonymous ex-employee who until recently helped run generators in the Generation Control Unit stated "none of Enron's laid-off H1B's [temporary overseas employees] have been given their expense funds to return home, something Enron is required to do by law." In Houston, he states, "Rich White Republicans remain above the law."
A close association with Enron may spell the end of Bush's honeymoon at the polls. In the first week of the New Year, a poll from Time/CNN showed that Americans have become more concerned about the economy than terrorism. Even when Bush's pre-war approval ratings were middling around 55%, issues of corporate partisanship were haunting him. In April 2001, an ABC News poll found that only 28% of Americans believed Bush "cares more about protecting the interests of ordinary working people" more than the "interests of large business corporations" The American people are not blind. 60% said they felt Bush cared more for big business.
After researching the Bush/Karl Rove/Enron connection since June, I don't believe there has ever been a complete list of exactly what favors the Bush White House did for Enron. 60% of ordinary Americans already have a hunch that Bush's priority is to help out big business; they won't be shocked. But to get us all on the same page, here are some of the paths the Senate should pursue in its upcoming investigation:
1. Nora Brownell: Hand-Picked by Enron, Nominated by Bush
Bush's Karl Rove took the advice of Enron's Ken Lay about a prospective appointee to the Federal Energy Regulatory Commission (FERC). Nora Mead Brownell, (also known to her detractors as "Nora Mead Brownout,") was appointed by Bush and confirmed by the Senate. A childhood friend of Director of Homeland Security Tom Ridge, at the Pennsylvania Public Utilities Commission Brownell had helped Enron enter Pennsylvania's newly deregulated energy markets.
The law was most likely snapped in two. When Rove consulted with Lay over Brownell, Rove owned $68,000 worth of Enron stock at the time. Normally, a White House official needs to apply for and receive a waiver to clear this kind of conflict of interest. When Congressman Henry Waxman asked why Rove had not sought the proper waiver, The White House curtly replied that Rove was not within the jurisdiction of that law.
Before her appointment to the Pennsylvania Public Utility Commission, Brownell had no experience in public utility management. She was a banker. Senior Vice President for Corporate Affairs at Meridian Bancorp in Philadelphia, she did receive high marks for opening up housing loans to minorities. But her first decision in Pennsylvania, on wholesale phone rates, was criticized as "anti-consumer." The opening stanzas of her testimony to the Senate opens with this breathy libertarian posturing, "In the interest of full disclosure, I believe in free markets."
On May 25, 2001, the Senate confirmed Ms. Brownell. Simultaneously that day, in a move that can't be coincidental, U.S. Senator Dianne Feinstein (D-CA), a leading member of the committee that confirmed Brownell, called for hearings into the possibility of an improper relationship between the Federal Energy Regulatory Commission and the energy industry. In her Press release, Feinstein cited the day's New York Times report that FERC Chairman Bob Herbert had been contacted by Ken Lay, and offered "support" if he would change his policies to be favorable to Enron. Senator Feinstein noted "FERC is a $175 million a year agency charged with regulating the energy industry, and it would be unconscionable if any of the nation's electricity traders or generators were in a position to be able to determine who chairs or becomes a member of the commission."
Today, Nora Mead Brownell remains a defender of Enron's integrity. To her, Enron's spectacular crash was not the product of deceit or hubris, as many Wall Street analysts find. The government's "regulator" is far more forgiving than even the most bullish critics in the marketplace. To Nora Brownell, Enron's fatal flaw was simply a lack of restraint. She told the Washington Post, "In my mind, it is a classic case of a company growing very fast and not putting in place the financial controls and management depth that was needed." Unregulated markets were not at fault, of course, no, "In fact, the market has worked pretty efficiently." She dismisses the accusations of criminal fraud and chalks it up to the wild west nature of the "free market." In a forgiving voice, she recently told PBS, "When you don't have a Ten Commandments, it's very hard to have a sinner." Enron should hope to find the Senate so understanding. Does the killing of over 20,000 jobs not prick Brownell's conscience? Does the vaporizing of $70 billion in value not strike her as bad for the pensions and economy of average, hard-working Americans?
2. Enron in the California Energy Crisis: How Could Ken Lay Learn Nothing?
In 2000, Enron's annual revenues surpassed the $100 billion mark, more than doubling its revenue of $40 billion in 1999. Critics on the West Coast charged that Enron earned such grosses partly by exploiting the hungry, under-supplied, deregulated California market.
Enron's Ken Lay would later blame his lack of willingness to supply new plants on a lack of full deregulation: "When the governor put on price caps back in October, we, along with another company, cancelled the construction of a couple of big power plant peaking plants, which would have been available for this summer, because we couldn't justify making those big investments in peaking plants, which will just run a few days during the year. Price caps do not solve the problem, but price caps just require the politicians to decide who's going to be curtailed."
But its ironic that Enron complains about public policy in California. The company played a role in the writing of the California deregulation law that eventually stuck consumers with a $40 billion bill. In 1996, former B movie actor and CA State Senator legislator Steve Peace lead the legislature on a 18-day "death march" that often worked past midnight to cobble together incomprehensible legislation. At the time, Enron was eager to enter the California market, and was influential through lobbyists like D.J. Smith of the California Large Energy Consumers Association. Eventually, Peace's energy deregulation law was passed in Sacramento without a dissenting vote. "There was a blind adherence to free-market ideology that couldn't possibly work," former utility securities analyst Eugene Coyle later told the SF Chronicle "There were poorly thought-out specifics."
And today in the Bush White House, the lesson of California has been lost. As recently as this Spring, Karl Rove and the Bush White House rejected California Gov. Gray Davis' plea to impose price caps on electricity, which, among other things, would have been costly to Enron. (And remember, at this time, Rove was still a shareholder in Enron.)
As reported in a May 17, 2001energy industry newsletter, Governor Davis is currently so frustrated with deregulation Texas-style, that he threatened to use the laws of eminent domain to seize the power plants of Houston-based Reliant Energy. "He warned that actions taken by Reliant and other independent generators this summer will determine whether he signs a windfall profits tax bill or, in the extreme, commandeers the electricity produced by a plant or seizes the facility itself." Later, the Governor addressed President Bush directly, "Mr. President, runaway energy prices are not just a California problem. With all due respect, I once again urge you to stand up to your friends in the energy business and exercise the federal government's responsibility to ensure energy prices are just and reasonable."
Today, the California Legislature is recanting its death march toward deregulation. In June, it was seeking to discover whether power-generating companies willfully manipulated electricity supply in order to drive up prices last year. After being subpoenaed, Enron refused to appear or provide information. The Legislature found them in contempt.
This is similar to the way that Chairman Ken Lay declined to show up at the first Congressional investigation of Enron. On December 11 and 12, the House Financial Services Committee held a Joint Hearing on "The Enron Collapse: Impact on Investors and Financial Markets."
However, the CEO of accountant Arthur Andersen, Joseph Bernadino, did testify on behalf of Enron, a company Andersen both consulted for and audited. His testimony was followed by the AFL-CIO's Richard Trumka, who accused Arthur Andersen, Wall Street, and Enron's management of defrauding consumers, workers and shareholders. In clear, angry language, Trumpka described, "a story of people so shameless and greedy that literally as the bankruptcy papers were being drawn up they were still passing what remained of the firm's cash out to themselves-$55 million on the last working day before they filed for Chapter 11."
According to Trumpka, Arthur Andersen was giving important business advice "including, many believe, advising Enron on the structure of the special purpose vehicles" that were used to hide debt. "The financial statements themselves contain proof that the auditors were aware of each of the transactions that led this company to grief-the self-dealing with the CFO, creating partnerships to trade in the company's own stock, other partnerships whose purpose seemed to be to generate dubious revenues, hide liabilities and otherwise bookable derivatives positions from the investing public."
Part of the problem was Enron's Board of Directors, a body commanded by SEC law to be independent of the company. But according to Trumpka, this board was actually dependent on Enron management through political and investment relationships. "Is it any wonder that when the crisis began and shareholders needed desperately to hear from outside directors, all they got was silence?"
It should be noted that Trumpka is by no means an angel himself, and is not unsullied by a scandal of his own. Accused of laundering cash to aid the reelection campaign of Teamsters President Ron Cary in 1996, Trumpka is a lifelong union bureaucrat and attorney. A brief was filed on September 15, 2000 by the union-watchdog National Legal and Policy Center to have Trumpka disbarred in the State of Pennsylvania.
4 A Free Market in Derivatives, Thanks to the Paid Services of Congress
Enron's investments in Capitol Hill have paid off. In a 2000, Congress passed a law that exempted its energy derivatives business from regulation. Today, in 20/20 hindsight, many analysts state that Enron's reliance on unregulated derivatives business is reminiscent of Long Term Capital Management, the high risk megacapital hedge fund that also almost took the entire economy with it when it went under in 1998.
Analysts report that your proximity to Wall Street often determines whether you will be bailed out. A Goldman Sachs insider recently noted, "With Long Term Capital Management they were so integrated with the Wall Street dealer community and the Fed, that their bailout was quick and concerted. " Compare this to "The demise of Drexel Burnham. As a Street competitor, they were ripped apart. Alan Greenspan did not even return the calls for help of Fred Joseph, their CEO. Similarly with Enron, the Street has kept a distance, not least because of their involvement in funding and /or helping to set up Enron's offshore special purpose vehicles."
5 Enron Air Quality
In Texas, Enron influenced public policy time and again while Bush was Governor, including the infamous "grandfathered plants" deal, which allowed plants to "self-police" their emissions. As a result, Texas has some of the worst air quality in the Union.
As the late Bush biographer Jim Hatfield put it in his last press conference in Chicago, June 2, 2001, "We go to Houston, and my kid can't even breathe."
As the country saw after September 11, Americans have a great capacity to band together to weather common adversity. In Houston, this took the form of a website for displaced employees, www.enronx.com, which created a message board to air grievances and help Enron workers find a job. Created "in one day, December 5" by José Lazzo and former C.O.O. assistant Anthony LastNameTK, EnronX quickly had 5,200 members sign up and use the site. Today, it gets 11,000 page views a day.
On EnronX, I met the power generator worker mentioned earlier who preferred to remain anonymous. We'll call him "Clifford."
When Enron Management made $600m cash unloading their shares, who did they sell to? It couldn't have been the open market , which would have severely depressed the share price even more, in a time of scrutiny. Clifford has an explanation about how management pulled their liquidation scam, "Ever wonder who was buying Enron stock in November, as it was tanking and as anyone with a clue knew it was insolvent/worthless? Smart people were selling, of course, but we now know the buyers were the pension funds of government employees in Florida, New York and Texas, states with the Republican governors closest to George Bush. Florida lost $300 million, and Texas and New York $100 million. Can't you just hear the conversation at Fidelity, etc: 'Gotta dump this P.O.S.: find me someone we can screw with it- there's the government fund's managers over there- have the Boss give him a call. Florida, Texas and New York. What a f***ing coincidence!"
When Enron was still in business, Clifford had the honor of shaking hands and speaking briefly with the future GOP head Mark Racicot.
"He came by my office at Enron and we chatted a bit-what a whore he is."
Mark Racicot is the former Montana Governor who also deregulated his own state's energy. Later, in the Missoula Independent, George Ochenski protested: deregulating Montana's electricity had created, "Rather than the promised reduction in cost, electricity price spikes [that] have created a disposable work force of Montanans who may or may not have a job depending on the day-to-day cost of electricity." Marc Racicot, is an Enron lobbyist with Bracewell & Patterson. He vowed to keep lobbying for Enron and other clients even while working at the G.O.P. chair. Of course, to his credit, he announced he would forsake the G.O.P. chair's traditional paltry salary of $150K. What largesse. The real money for Racicot remains in lobbying.
Upon probing, Clifford related the full story on meeting Racicot. "Yes, what Enron wanted was the deregulation and (certainly not a bad idea) federal eminent domain for power lines from east to west (what he [Racicot] and I briefly chatted about). Of course, the Mountain-Mormon Republicans then killed that bill, once again begging the question just what the Republican Party ever did for any working man, even those here at Enron below the 50th floor....Anyway, the story is the Republican Party-nothing at Enron was ever about anything else. I mean, if Whitewater was a story, then what in the hell is this?"
Good question. Since June, fringe voices on technology and political websites have been saying as much. With the New Year, the Senate has taken up this burning question, first posed by plastic.com, "This event probably would have qualified as a scandal if Clinton's chief strategist had done such a thing, but is that sufficient reason to apply the same unreasonable standard to the Bush administration? Of course it is! Payback's a bitch, ain't it?"
In a similar way, both armchair and professional political experts are speculating about how the President might extricate himself from this growing scandal. Is it possible that his colorful but controversial advisor, Karl Rove, might be turned into a sacrificial lamb? After all, it was Rove who most flagrantly broke the conflict of interest laws, working in the White House on policy that affected Enron while he was an Enron Shareholder. In fact, on June 4, 2001, when he finally agreed to sell the entirety of his shares in companies with interests that conflicted with the goal of good government, Rove became $5.6 million richer. In addition to Enron, for his first six months in office Rove held onto stock in Pfizer Inc., General Electric Co., Boeing Co., Cisco Systems Inc., American Express Co., Sallie Mae, Intel Corp., Wells Fargo & Co., and Johnson & Johnson. Rather than follow the law, Rove stated that he'd rather wait to sell as to avoid a capital gains tax. The White House at the time stated that there was no rush, after all, it's common knowledge that Bush owed Rove most of the credit for a (semi)-successful Presidential campaign.
Further pressed, Rove claimed that it was a paperwork issue, and that he had applied at the federal Office of Government Ethics for the "certificate of divestiture" needed to divest from his holdings. But when asked, an ethics office spokesman said Rove hadn't submitted the request for such a document, and that when he did it would only take only a few days to process. Just in case anyone smelled something here, the White House's Anne Womack was there to sweep the dust under the rug. As Bloomberg News dutifully reported Womack's specious claims, "In the meantime, Rove said he's been skipping discussions that could have a direct impact on his stocks. He told me, 'There have been conversations I just walked away from,'"
The bare falsity of this statement is proved by the White House's own statement 21 days later. On Friday, June 29, the White House admitted that Rove "participated in meetings on the administration's energy policy while he owned stock in energy companies such as Texas-based Enron Corp." according to a bulletin from ABCnews.
This time, White House lawyer Alberto Gonzales claimed that the meetings were general enough to prevent a crossing of the conflict-of-interest lines clearly spelled out in the Federal Code. Yet the White House still refuses to release the attendance lists of their Energy Task Force lists. What are they hiding?
With his trademark, smart-aleck irony, Jim commended Bush thusly, "He made a campaign promise 'to do for America what I have done for Texas.' And he sure as hell is trying his best to honor that pledge with tax breaks for the rich that will eventually consume the surplus, turn the country into a toxic waste dump, push a conservative agenda through the legislature, and screw the poor and middle class."
Some day, Enron executives and the entire ruling class will have to face justice. But that day is not today. We hope that the U.S. Senate will deliver justice, but 71% of this same Senate has received Enron money in the past. No, the only way we're going to see justice in this country is after we have a workers revolution. We need to use everything we have, our politics, our history, our art to rip the pigs from power and create a just world.
Who is Sander Hicks?
Founder of Soft Skull Press, see www.softskull.com
Here is an excerpt from the recent interview in www.ActionAttackHelicopiter.com:
"I think this country needs a revolution more than it needs a better president. The entire system has to be dismantled from top to bottom and a new political system needs to be put in its place. I'm a Marxist, so I believe that economics impact every aspect of society. The core values of society are based on economic values. So, to really dismantle the state, you have to create a whole new economic ethos or core principle. I voted for Nader, but I don't think Nader would even begin to be the solution that we need. It's a sad state of affair when reform doesn't even work. Even today at dinner with Aunt Phyllis I had a moment of clarity because she's a big admirer of McCain even though she's more of a Democrat and I talked to her about Karl Rove and how he spread the rumors of McCain's temper after McCain won New Hampshire. Rove was able to scuttle his campaign through outspending him and also spreading rumors about his supposed temper that comes from being locked up in Vietnam. ...I was telling Aunt Phyllis that it's a sad state of affairs when the system cannot reform itself. When you have a charismatic leader come out and say that we need campaign finance reform and this guy is not necessarily a left-wing political thinker....[but] he sees that the system is oligarchic and corrupt and not fair. It's not fair when someone can't run on the strength of their ideas, but they also need a huge chunk of capital. I said that if the system can't reform itself, then we need new methods. We need direct action, general strike and we need revolution. And that means militant revolution."
Who is White Collar Crime?
"Hicks jumped across tables and lassoed chairs with a microphone cord and sipped other people's beer while starring down nonbelievers. When he called for revolution-at the time he was spinning from a ceiling fan-the band clicked immediately into tight punk cabaret and a friend turned to me and said, 'this is the best band ever.'" -Brandon Stousy, Prose Acts Festival, Buffalo, NY, October 2001
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