It's not enough to hang Enron and its executives, great sport though that promises. The real scandal is what Enron got away with that was legal. You're never going to get rid of the alligators until you drain the swamp where they breed.
Enron and CEO Ken Lay helped put George W. Bush in the White House. They gave money to nearly three-quarters of the senators and nearly half of the members of the House. And before his abrupt fall from grace Lay got nearly everything he wanted from Washington. "Kenny Boy" as Dubya called him in better times, was known to have entree in the highest circles of government. White House economic advisor Lawrence Lindsey had been an Enron consultant. Political strategist Karl Rove was one of 35 Bush administration officials who held stock in Enron. New Republican National Chairman Mark Racicot was an Enron lobbyist. Only one year into the Bush II administration Enron was earning a handsome return on the $5.8 million it had invested in federal political candidates since 1989.
Enron got legislation passed in December 2000 that exempted much of its energy trading business from federal oversight. Sen. Phil Gramm, R-Enron, got that measure wrapped quietly into the appropriations bill. Gramm's wife, Wendy, as chair of the Commodity Futures Trading Commission in January 1993, had exempted energy futures contracts from regulatory oversight just six days before the Clinton administration took office. Then she joined Enron's board of directors, where she got $1 million in payments and stock benefits over the next nine years. Wendy served on Enron's audit committee, which supervised Arthur "Easy" Andersen's bookkeeping. She continued to promote deregulation as director of the regulatory studies program at the Mercatus Center of George Mason University in Arlington, Va.
After months of stonewalling, the vice president's office finally admitted in January that in 2001 Dick Cheney had met with Enron executives and members of Lay's staff at least six times to discuss energy policy. Rep. Henry Waxman, D-Calif., identified 17 areas of the administration's energy plan, drafted in secret by Cheney's task force, that Enron had advocated. There is little in the energy plan that would displease Lay .
Among other things, the energy bill passed by the Republican House contained a $3.5-billion tax break for natural-gas extraction and distribution, plus an exemption from taxes on revenue from buying, selling or operating a power grid.
Lay felt strong enough to threaten Curtis Hebert Jr., chairman of the Federal Energy Regulatory Commission, in an effort to get him to bring his views on energy regulation in line with Enron. When Hebert balked, sure enough, he was replaced with Pat Wood, the former head of the Texas Public Utility Commission, who then refused to interfere for six months as Enron profited from the market gaming that led to an "energy crisis" that cost Californians $50 billion. The crisis disappeared only after price controls finally were enacted and California negotiated long-term contracts with other energy producers.
Bush and Cheney continue to support tax breaks for corporations in the "economic stimulus" bill that would give Enron an estimated $254 million in rebates, even after Enron used hundreds of offshore subsidiaries to avoid paying taxes in four of the last five years. Lay and White House budget director Mitch Daniels discussed the economic package in October.
Shortly after taking office, the Bush administration announced it was going to "review" a Clinton administration move to crack down on countries whose lax banking regulations permit US companies to hide money in offshore tax havens. With the crackdown delayed, Enron and others could continue to hide profits in the Cayman Islands and other offshore accounts. Enron has 874 subsidiaries registered in the Cayman Islands and other nations with weak bank disclosure laws.
As the house of cards began to fall, Kenny Boy called secretaries of Commerce and the Treasury seeking help. Enron's president spoke with a Treasury undersecretary. Former Clinton Treasury Secretary Robert Rubin, now employed by Citigroup, Enron's largest creditor, also called Treasury on behalf of Enron. White House Chief of Staff Andy Card was informed, and Larry Lindsey studied the potential economic impact. The spin is that since Bush was not informed of the calls, everything was fine. But Dubya has never been known as a details person. His aides didn't need to clear it with him to help Enron if they could.
Then Enron became radioactive and politicians stumbled over each other to get away from its twitching body. Bush got caught in a clumsy lie when he inexplicably tried to spin "Mr. Lay" as a supporter of Ann Richards when Dubya first ran for governor. Enron gave Richards money in 1994, but it was merely hedging its bets; its executives and PACs gave more than 10 times as much money to Bush that year. Lay had known Bush since at least 1992, when Lay was a leading supporter of then-President George H.W. Bush's re-election campaign. In any event, Bush denied his long friendship with "Kenny Boy" and was reduced to saying he did not have financial relations with that man; every White House reporter knew otherwise. For someone who said he had nothing to apologize for, he sure was doing a pretty good imitation of Bill Clinton.
Now, at least seven congressional committees are looking into the scandal and thousands of former Enron employees and shareholders have watched their jobs and the worth of their Enron stock vanish, and with it their plans for a comfortable retirement. Republicans are pinning their hopes for continued ascendancy on the fact that Democrats took money from Enron, too. That is true, even if the Republicans got 74% of Enron's largess. Those Democrats who cashed Enron checks had better show now that they can prosecute Enron and other corporate malefactors with even more devotion than they sucked up to the corporate benefactors in the salad days. (For information on how much politicians got from Enron, see the Center for Responsive Politics' excellent website at www.opensecrets.org.)
But Congress must not let the scandal die with Enron. There are many more Enrons left rotting in the system, William Greider said in his typically trenchant analysis in the Feb. 4 The Nation. Enron is merely a symptom of what deregulation and laissez-faire free-market ideology has wrought.
The scandal at least should remind Americans why the Securities and Exchange Commission was set up in 1933 and why gambling Social Security on the stock market was a bad idea last year and a worse idea this year.
The SEC should crack down on conflicts of interests of accountants who sell their services as consultants to the same corporations they are auditing. Clinton's SEC chairman, Arthur Levitt, unsuccessfully tried to ban such conflicts in the go-go days. New SEC chairman Harvey Pitt came from a law firm that represented Andersen and the other Big Five accounting firms.
Another area for reform is in retirement plans, where Congress should limit the amount of assets that can be in company stock. Employees also should have a role in supervising their pension funds as well as 401(k) retirement plans. Greider noted that the only Enron employees who were not wiped out were sheet-metal workers at subsidiaries acquired by Enron whose union locals insisted on keeping their own pension funds.
Congress should take another look at the 1999 repeal of the Glass-Steagall Act, the New Deal law that separated government-insured commercial banks from speculative investment banks. The resulting mega-banks such as JP Morgan Chase and Citigroup that lent billions to Enron may seek another bailout from taxpayers if they are dragged down by the failure of Enron or other corporate buccaneers yet to be exposed.
Ultimately, cleaning up the system will require taking corporate money out of politics. The short-term solution is the McCain-Feingold bill, which at press time was two signatures short of the number needed to force a House vote to restrict "soft money" contributions to political parties (see www.commoncause.org). [Editor's Update: House supporters have collected enough signatures to force the Republican leadership to bring the bill up for a vote.] But the soft-money control bill is only the first step toward a swamp-draining "Clean Money" bill that would provide public funding for candidates who voluntarily refuse special interest money and limit their spending (see www.publicampaign.org). -- JMC