Investor’s Business Daily, January 17, 2002
What Scandal? The Number Of Bush Favors For Enron: 0
by Sally Pipes
“This is a perfect storm,” a salivating Democratic congressional staffer told The New York Times, working off Democratic talking points on the Enron bankruptcy. “It’s the biggest bankruptcy in American corporate history, a bankruptcy where a small number of executives enriched themselves while thousands of employees were left with worthless stock.”
Salon.com columnist Arianna Huffington references a real energy scandal to make a similar point. Writes Huffington, “It’s Teapot Dome, the sequel.”
It’s more like a Tempest in a Teapot.
It’s not that there’s not real damage. When America’s seventh largest corporation crashes down with scant warning from its auditors or Wall Street analysts it hurts thousands. But the crash has precious little to do with Washington, although you wouldn’t know it from the columnists, commentators, and politicians.
Four main issues of concern and contention related to the collapse of Enron, including political influence and the employee 401(k) wipe out. As for the most pressing issue—fraud—there’s not yet enough information available to know if company executives or its auditors committed criminal acts. But what is known is often distorted beyond recognition.
Charges of political influence—that Enron executives made calls to Bush Administration cabinet secretaries and undersecretaries—provided the spark that exploded the news onto the front page late last week. “They ferociously exploited their guilt-edged political connections and harvested breathtaking amounts of cash for themselves,” writes New York Times columnist Bob Herbert, “even as the company was collapsing into the biggest bankruptcy in American history.”
Scandalous? Hardly. In late October and early November Enron executives and Clinton Treasury Secretary Robert Rubin, now a Citibank executive, called officials in the Bush Administration, including Treasury Secretary Paul O’Neill and Peter Fisher, Treasury’s undersecretary for domestic finance, a Democrat who’s job it is to liaise with the financial community. Commerce Secretary Donald Evans and Fed Chairman Alan Greenspan also received calls. Energy Secretary Spencer Abraham called Enron Chairman Kenneth Lay. It’s not clear that anyone directly asked for any favors. It is clear that nothing was done on Enron’s behalf.
In the Washington game of scandal politics and guilt by association, that doesn’t matter. In the Senate, Joseph Biden (D-Del.) told Meet the Press he was concerned that Enron got help because of its support for President Bush over the years. (Enron and its executives donate heavily to both parties and have been very generous to Bush.) In the House, Rep. Henry Waxman (D-CA) is incensed because the Bush Administration didn’t use its influence to meddle on Enron’s behalf. “The administration apparently did nothing to mitigate the harm of the Enron bankruptcy to thousands of its employees and shareholders,” scolds Waxman in a letter to O’Neill and Evans.
No issue has been more distorted than the Enron 401(k) meltdown, precisely because it fits the fairytale story line of evil, rich, greedy capitalists exploiting their workers. “Small investors were locked in steerage as the ship went down,” says Pat Buchanan, echoing the charge that executives sold stock for millions while they prevented employees from selling theirs. It’s insinuated that after Lay and other executives sold out at $90 a share, they didn’t let employees dump stock until it was $.67. This too is almost totally without truth. Outside of a 10 business-day period from October 29 to November 12 when 401(k) accounts were frozen in a pre-arranged and pre-announced deal to change plan administrators, employees were free to sell any Enron stock they purchased with their 401(k) contributions. The stock was selling at $13.81 at the start of the freeze and $9.98 when trading resumed. No executive sold any stock after September 17. Lay didn’t sell after July 31, 2001. Employees who lost all of their 401(k) accounts violated two fundamental rules of investing. They put all their eggs in one basket and then didn’t watch that basket.
There are significant unresolved issues of financial fraud. Did executives push stock while they knew they company was likely to fail? Did Arthur Andersen look the other way and then cover it up by destroying documents? But rest assured, no fewer than seven government investigations are underway, including the Securities and Exchange Commission and the Department of Justice, and four separate congressional committees. If there was any fraud, it’ll certainly be uncovered.
Until then, people should pay attention to the caveats in the otherwise distorting articles. “No one knows yet the extent of the illegality—if any—that went on at Enron,” allows The Times Bob Herbert.
Beltway Democrats looking to engulf President Bush in scandal should listen to one of their battle-scarred veterans. “I don’t think there’s any shred of evidence that the White House has any connection to what went wrong at Enron,” Clinton scandal specialist Lanny Davis told The Washington Post. “Democrats should not go down the road of focusing on innuendo.”
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