For those who didn't do well on their pop quiz, here's a little background to study:
[And for more on Enron's largesse, e.g., $300,000 to the Bush Inauguration, see:]
Message 16723118
Doc
interactive.wsj.com
DECEMBER 10, 2001 - BARRONS
Mr. & Mrs. Enron
The company's "exclusion" from regulation
By Erin E. Arvedlund
<snip>
Should Phil and Wendy Gramm change their name to Mr. & Mrs. Enron? It seems all the trouble at bankrupt Enron may end up giving derivatives a bad name. Derivatives in and of themselves aren't dangerous. But Enron trading in energy derivatives was not -- repeat -- not regulated like listed derivatives, such as stock options, commodity and financial futures.
Wendy Gramm might know something about how that happened. Prior to joining the Enron board of directors in 1993, it was her job to regulate derivatives as chairman of the Commodity Futures Trading Commission. Along with Robert Jaedicke, a Stanford University accounting professor, and Lord John Wakeham, former U.K. Secretary of State for Energy, who previously managed a large chartered accounting practice, Wendy Gramm sat on the Enron audit committee. How could none of them have spotted or probed the mysterious Enron partnerships?
Perhaps they were too busy steering Enron through the various exemptions it won in the Commodity Futures Modernization Act of 2000, a law that drastically reduced the power of government regulatory agencies overseeing futures markets. Sen. Phil Gramm (R-Texas), husband of Wendy, and Senate Banking Committee chairman, was instrumental in this law's passage in December 2000. Ms. Gramm didn't respond to a request for comment.
Non-agricultural futures -- particularly electricity and other forms of energy -- represent about 85% of the total market, according to an interview Sen. Richard Lugar (R-Indiana) gave earlier this year. Energy futures were where Enron made its money.
If you read the Modernization Act of 2000 (www.cftc.gov/files/ogc/ogchr5660.pdf) or (www.mfainfo.org/washington/legislative/CFTC.html), there is no mention of Enron by name.
But in Section 101, 'Definitions,' the law provides a specific exemption for trading systems exactly like the one set up by EnronOnline. Without the exemption, the CFTC might have regulated EnronOnline as an "organized exchange."
EnronOnline also escaped regulation as a "trading facility," since the term excluded an "electronic facility or system that enables participants to negotiate ... bilateral transactions."
Simply put, because EnronOnline trafficked in bilateral trades, and didn't accept multiple bids and offers, "their pitch to the government was 'we're different'," says one exchange official involved in the law's drafting. "Everyone called it the 'Enron exclusion.'"
Essentially, says the official, since Enron was the only counter-party, they weren't considered a trading facility. It would be as if Enron bought the New York Stock Exchange, the official adds. "From then on, everyone who enters an order is dealing with a single counter-party, and the bid is always Enron's."
Enron created a trading network -- mostly computerized -- that looked pretty darn similar to what was taking place on the floors of the organized exchanges. But Mr. & Mrs. Enron, and other company fans in Congress, apparently didn't think the energy futures would flourish if they traded on exchanges -- just like lots of other derivatives.
-------
pbs.org
<snip>
After leaving the CFTC in early 1992, Wendy Gramm accepted lucrative directorships on the boards of several corporations she had regulated. Several of these corporations were also financial supporters of her husband's Presidential campaign. One of the boards on which Mrs. Gramm sits is Enron Corporation, a Texas natural gas company, which has given almost $35,000 to Phil Gramm over the years. She was named to the company's board, just five weeks after stepping down from the CFTC, which around the same time, exempted Enron and a group of other oil and gas companies from federal regulation on some of their commodities trading. The move was a big financial boon to Enron.
Enron pays Wendy Gramm $22,000 a year for her service on its board, plus $1,250 for every meeting she attends. The CEO of Enron, Kenneth Lay, is regional chair of the Gramm for President Campaign. When Senator Gramm kicked off his campaign last February with a record-setting fund raising dinner, Lay and his wife were present.
Another board Wendy Gramm sits on is that of Iowa Beef Processors (IBP), a large meat processing company. Based in Dakota City, Nebraska, IBP is a powerful corporation next door to a key election- year state, Iowa. Support for Senator Gramm at IBP came in handy last August at the Iowa straw poll in Ames. IBP sent a memo to its management level employees encouraging them to attend the straw poll, which is not restricted to Iowa residents, and informing them that $25 tickets and bus transportation would be provided by the Phil Gramm-for-President campaign. Gramm campaign buses picked up the IBP employees at eight separate locations in the states of Iowa, Nebraska, and Illinois and transported them to the straw poll, where their votes helped Gramm tie front-runner Bob Dole and gave the Gramm campaign an important boost. |
