Price of power
He has won the Afghan war, but President Bush's
peace is threatened by the Enron scandal. Ed
Vulliamy reveals how far the White House is entwined
in the biggest bankruptcy in US history
The Bush files - Observer special
Sunday January 13, 2002
The Observer
As he approaches the first anniversary of his inauguration,
George W Bush is under siege. He has won the war in
Afghanistan, but finds himself engaged in a new battle against a
scandal that is threatening to dog his administration and tarnish
his reputation .
Bush and his administration have been revealed as entwined in a
story of corporate greed and political manipulation by an energy
firm called Enron , now under double criminal investigation.
The scandal - in which the life savings and retirement funds of
tens of thousands of employees vanished while a number of
executive directors lined their pockets - reaches so high that
JOHN ASHCROFT, the Attorney-General, has had to withdraw from
the investigation because he received Enron money, and
lawsuits are the pipeline to force Vice-President Dick CHENEY for
details of his contacts with the company.
The day Bush took office - a year ago next Saturday - was as
cold and comfortless as his victory; his motorcade braved driving
rain and a gauntlet of demonstrations marking the most
contested and ugliest election result in US history. After 11
September, the world changed and so did America's view of
Bush. He became the only President since Franklin Roosevelt
to maintain the support of over 80 per cent of Americans for
weeks on end.
But now the White House is laid bare by what rivals call
'Enronomics' - the political fable of the Enron corporation.
It has long been reported how the Bush administration and
family is beholden to the energy industry. Before the Afghan
war, an 'Energy Task Force' favourable to the industry was the
main concern for Cheney, who himself came to office from the
biggest oil equipment firm in the world.
Enron was just the kind of scandal a war would hide. The
company plunged from a stock rating worth $60 billion - seventh
on the Fortune list of US companies - into the biggest
bankruptcy filing in US history, registered on 2 December.
The ethical - maybe criminal - core of the scandal is that Enron
trapped its employees into a 'stock-lock', whereby they were not
allowed to sell share options bought by way of savings. When
the company collapsed, they lost everything. Meanwhile,
Enron's executives - blessed by inside information and foresight
- made a killing by scrambling to sell shares before the price
collapsed.
The victims of Enron's rise and fall were regular employees who
opted to join a savings plan by investing in their employer - and
why not? With soaring energy prices and giddy profits, the share
value quadrupled between 1997 and January last year. The
catch was they were not allowed to sell.
They were people like Pat Betteridge, of the subsidiary Portland
General Electric company in Oregon, who remembers grand
claims by Enron chief executive Kenneth Lay on a visit north:
'We like to think of ourselves,' he bragged, 'as the Microsoft of
the energy world.'
Betteridge used his $300,000 retirement savings to buy 3,500
shares - now worth not a cent. 'If I was hired to do electrical
work and I botched it as bad as them,' he says, 'I'd either be
doing time or get my licence yanked.'
The beneficiaries of the company's surge to power were those
who boarded the wheel of perpetual motion that binds the Bush
administration to the energy industry. Then the company's brass
even tried to make their fortune out of its fall as well.
The Observer has dug into Enron's past to find that intimate
connections with Bush and his Texan Republicans started long
before the campaigns that brought them to Washington
Enron is a Houston-based utility trading company that sells
energy to consumers, industrial and domestic. It is one of the
biggest of its kind in the world -<b? a standing it owes in no small
part to Bush's governorship in Texas.
Texas's 1992 Energy Policy Act opened a regulatory black hole
into which Enron moved and thrived, forcing established utility
companies to buy energy from it. Meanwhile, in Washington, the
Commodity Futures Trading Commission, under the presidency
of BUSH's FATHER, allowed for an exemption in trading energy
subsidiaries. The practice would be Enron's downfall.
The 1992 trading commission was chaired by Wendy Gramm,
wife of Texas Senator Phil Gramm, close friend of the Bush
family and recipient of $97,350 in political donations from Enron.
Once the exemption was accomplished, Mrs Gramm resigned
to join the Enron board. As a member of its current audit
committee, she is expected to play a key role in the forthcoming
lawsuits and criminal investigation into bankruptcy and
document destruction.
In 1997, Enron was anxious to break into Pennsylvania, one of
America's biggest energy markets, with its huge consumers in
Philadelphia and Pittsburgh. The company was having difficulty,
and Lay asked Bush (who liked to call him 'Kenny boy') to help.
Bush duly called the then state governor, Tom Ridge, to pitch for
Enron, whose bid duly succeeded. 'I called George W to kind of
tell him what was going on,' said Lay at the time, 'and I said it
would be very helpful to Enron if he could just call the governor
and tell him Enron is a serious company'. Ridge was made
Secretary of Homeland Security - Bush's new White House
office - after 11 September.
Lay and Enron have been bountiful contributors to George Bush
Jr. Since 1993, company executives have donated nearly $2
million to him personally. Lay also donated $326,000 in soft
money to the Republican Party over the three years prior to
Bush's presidential bid and HIS WIFE wife added $100,000 for the
inauguration festivities.
The administration is splattered with senior officials owning
stock in Enron. Economic adviser Larry Lindsay and Trade
Representative Robert Zoellick went straight from Enron's payroll
into office.
The biggest holding is that of Army Secretary Thomas White,
who as a former Enron executive holds stock and options
totalling $50m to $100m. Rove himself holds as much as
$250,000 in stock, and other holders include Defence Secretary
Donald Rumsfeld, his assistant William Winkenwerder,
Assistant Treasury Secretary Mark Weinberger, Economic
Undersecretary Kathleen Cooper, Education Undersecretary
Eugene Hickock, the ambassadors to Russia, Ireland, the
Emirates and officials in the energy department, including its
chief financial officer Bruce Carnes. It is not known which - if any
- of these privileged stockholders sold their shares along with
the Enron bosses, or suffered the same loss as everyone else.
Such details will appear when they make this year's filings -
leaving any that did so open to ethical, if not criminal, inquiry.
Bush has pursued the aggressive deregulation policies preferred
by Enron and its kind, including legislation that exempts key
elements of Enron's energy business from oversight by the
federal government - pushed by none other than Senator Phil
Gramm.
Lay's hand can meanwhile be found behind such episodes as
the sudden replacement of Curtis Hebert as chairman of the
Federal Energy Regulatory Commission by Texan Pat Wood, a
friend of Lay. According to one source, the sacking after only
weeks in the job came after 'an unsettling telephone
conversation with Kenneth Lay' in which he was 'prodded to
back a faster pace in opening up access to the electricity
transmission grid'.
For all its troubles, Enron continued to benefit from Bush
policies - markedly a refusal to step in and help California during
the energy crisis last year, leaving consumers to pay the price...
to Enron.
Enron was so close to the bosom of the administration that Lay
and other executives were called to the White House for six
meetings with Cheney and his staff - the last one only a week
before the company made the staggering announcement that it
was slashing shareholder equity by $1.2bn.
For Enron was playing a double game. In the run-up to the
announcement, its president, Greg Whalley, was frantically
lobbying another wing of the administration for help in arranging
loans. His point man was Undersecretary Peter Fisher.
Lay discussed the upcoming bankruptcy twice with Commerce
Secretary Don Evans - one of the Texan 'Iron Triangle' that
propelled Bush to power. Later, he also twice pleaded Enron's
case to Treasury Secretary Paul O'Neill.
But the Republicans were not the only political heavyweights to
benefit from Enron's greed. The company has made donations to
many Democrats too - some 27 per cent of its political
contributions, according to the Centre for Responsive Politics in
Washington.
And among Enron's top point men in Washington during the
bankruptcy saga was Clinton's former Treasury Secretary Robert
Rubin, who was revealed by the Washington Post yesterday as
having made a representation last November to the current
Treasury on behalf of the company. Rubin is now chairman of
the executive committee of the Citigroup bank, one of Enron's
principal backers, trying, with the JP Morgan bank, to raise
$1.5bn in an effort to see the company through the bankruptcy
crisis.
These are matters for the six Congressional committees
preparing to investigate Enron. But they will have to wait for the
two criminal investigations launched this week: one into Enron's
bankruptcy, the other into the admission by the company's
auditor, Arthur Andersen, that it destroyed thousands of
documents about the bankruptcy.
Andersen had good reason to destroy the papers. The reasons
for Enron's destruction when all the winds seemed to blow
behind the company's fortunes are associated with the labyrinth
of subsidiaries built up by Chief Finance Officer Andrew Fastow,
fired on 24 October, and other executives.
FASTOW created partnerships with what were described as
outside, independently-run companies with names such as
'Chewco' or 'Jedi' - after characters in Star Wars - that were
owned by him or others with Enron backing.
As a result, hundreds of millions of dollars were slushing
overseas to tax havens as Fastow and other executives - so
they said - sought to shore up the company against a possible
fall in energy prices. What they were allegedly doing was
amassing personal fortunes.
The ensuing gaps in the balance sheet became a gaping abyss
which could not be hidden and down which the company finally
fell. Enron admitted that it had overstated profits by $400m in
reports issued since. However, Chewco alone enabled Enron to
be able to keep some $600m of debt off its books.
The crucial criminal issue is whether executives misled investors
by inflating revenues and minimising debts. The political issue is
how closely entwined is the Washington elite - and the
immediate circle around Bush.
Seven months of Bush's oil-friendly presidency was driven out of
the spotlight by 11 September. It had pleased the industry for its
isolationism and determination to withdraw from world affairs -
the Kyoto Accords on global warming or arms reduction with
Russia.
Domestically, Bush's cause was an articulate one: a tax cut
worth $1.3 trillion, of which nine-tenths went to the 1 per cent of
wealthiest Americans, and ambitions to drill for oil across the
Alaskan wilderness and deregulate controls over the oil and
energy industries.
By the afternoon of 11 September, Bush had become the
vanishing president during his people's hour of need, cowering
underground beneath an Air Force base in remote Nebraska.
But by the end of that week, Americans saw in Bush not a
spoiled brat, but the man they wanted to lead the nation to war.
Now the Enron scandal brings the presidency home, with Bush
as Winston Churchill preparing for the 1945 election in Britain.
The would-be Clement Attlee is Tom Daschle, leader of the
Senate Democrats, who last week left the unity of war behind to
unleash his congressional campaign for November 2002 with an
offensive over welfare, tax policy, health care, energy and the
environment.
The elections are critical to Bush and the Republicans: no US
president apart from Nixon and Reagan has not lost ground at
the mid-term polls, and the Democrats, even without making
substantial gains, can keep control of the Senate while taking
over the House and state governorships.
For the State of the Union address Bush will give on the
twenty-ninth of this month, White House staff are scrambling to
entwine the war in Afghanistan with the continuing domestic
agenda. But the minefield they must cross is named Enron.
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