The scandal that has left the credibility of American
politics in shreds
Independent.com. uk
By Andrew Gumbel
25 January 2002
When you think of Texas and
melodrama, you tend to think of
Dallas. But the Texan city that's
currently providing all the
prime-time intrigue,
back-stabbing and sudden
reversals of fortune - on a
colossal, improbably scale - is
Houston. And, in contrast to the
adventures of JR, Sue Ellen and
friends, this is for real. Houston
today is a city living on its nerves. The lawyers, accountants
and political lobbyists who used to enjoy long lunches and fat
cigars together are at each other's throats. Thousands of
well-to-do families with appearances to keep up and
mortgages to pay off have been thrown into destitution. The
golf courses are deserted, the country clubs sombre as a
funeral party.
The very emblems of the city are at risk, from the ball park to
the ballet, because the corporation that bankrolled them all
and made Houston proud has sunk into a vortex of bad debts,
lawsuits, rip-offs extraordinaire, and scandal reaching into the
furthest corners of national politics.
It has been just over a month since the energy trading
company Enron - once America's seventh largest corporation
and the emblem of the new economy, George Bush style -
filed for bankruptcy following revelations of major accounting
irregularities and the overnight collapse of investor confidence.
But the fall-out is just beginning.
In the past 48 hours, the man who symbolised Enron's
meteoric rise by hobnobbing with presidents and
steamrollering every conceivable government regulation out of
his way, company chairman Kenneth Lay has been forced to
resign. The FBI has been all over Enron's corporate
headquarters because of allegations of wholesale shredding of
incriminating documents, even after the company was ordered
to stop doing it.
Suddenly, the Enron name has been transformed from a
badge of pride into a cancer eating away at everything it
touches. Flagrant conflicts of interest and the whiff of legalised
bribery abound at every turn. Most recently, the man who
succeeded Mr Bush as Texas governor, Rick Perry, has been
flailing around for days over the question of how he came to
name the outgoing head of Enron's Mexico operations to the
main state energy regulation body in apparent violation of even
Texas's notoriously lax guidelines on public appointments.
(The commissioner has now stepped down.)
The chief justice of Texas's state Supreme Court, meanwhile,
has gone through verbal hoops to explain how he and seven of
his fellow judges accepted almost $100,000 in electoral
campaign money from Enron over the past eight years, even
as they presided over cases in which Enron had a direct
interest in the outcome. Intriguingly, Chief Justice Tom
Phillips argues that the real impropriety would be to return the
money. "To return contributions now from one group years
after they were made," he said in a formal statement that
must rank as one of the great classics of weaselly
self-justification, "could signal that the justices had prejudged
any dispute against Enron that might come before us."
Enron's spectacular collapse has now begun to shake the
very foundations of American politics. We are not, after all,
just talking about some relatively obscure financial transaction
that may or may not have involved the man currently
occupying the Oval Office. We are talking about the one-time
darling of the stock market, the symbol of everything bright
and hopeful in corporate America, being revealed as the
perpetrator of a grand accounting hoax, in which a handful of
senior executives made themselves inordinately rich while
sticking it to their rank-and-file employees and, in effect,
paying the politicians and regulators to look the other way.
We are talking about a company that managed to insinuate
itself into every level of public life, from the sponsorship of
local political races in Texas to the hiring of corporate
consultants who went on to take prominent roles in the Bush
White House. We are talking - perhaps most significantly -
about a generalised system of corporate influence-peddling
and back-scratching spreading far beyond Enron, a system
that has reached epidemic proportions in American public life
and which, with Enron's fall, is now being widely exposed as a
public outrage and a gigantic scam. Anybody who doubts this
- anybody who thinks that the scandal is just an ordinary
political one that will leave as little mark on George Bush's
presidency as the dodgy Whitewater land deal ultimately did
on Bill Clinton's - need look no further than the extraordinary
list of people who have already been tainted, embarrassed or
otherwise caught with their pants down, even at this relatively
early stage.
The rot is spread deep and wide: to the federal judge who,
until a sudden change of heart this week, saw no reason to
recuse herself from 46 Enron-related cases even though she
has disclosed "long-standing friendships" with two of the
lawyers representing Enron, including one who was best man
at her wedding; to the Republican Senator from Texas, Phil
Gramm, who happily worked to lift federal regulations on
energy trading even as his wife Wendy served on Enron's
board of directors; to the hundreds of congressmen on both
sides of the aisle who have been taking Enron money (three
quarters of the Senate and almost half of the House) and who
now have to try to launch congressional investigations into the
debacle even as they seek to avoid any taint of personal
wrong-doing.
That is not to mention the White House itself, where no fewer
than 35 administration officials have declared that they owned
Enron stock at some point, in some cases running into the
hundreds of thousands of dollars, and several senior figures,
including the US Trade Representative, Robert Zoellick, and
the White House economic adviser, Larry Lindsey, who served
as paid Enron consultants before entering government. Mr
Lindsey has been particularly active in blending his political
and his commercial interests. For much of 2000 he remained
on the Enron payroll, even as he was in charge of the
economic platform on which Mr Bush was running for
president. And late last year, before the catastrophic nature of
Enron's problems became public, he took it upon himself to
conduct an investigation into the possible wider economic
fallout of a major energy company - he insists he had no
particular one in mind - going bankrupt overnight.
At least until recently, it was never much of a secret that
Enron would be a major policy player in the Bush
administration. The new president was on first-name terms
with Enron's chief executive, Kenneth Lay (he called him
Kenny Boy), and was widely known to share his
deregulation-happy philosophy. Indeed, part of the reason Mr
Bush had some trouble filling the post of Energy Secretary
was that Washington insiders believed Mr Lay would be the
de facto holder of that office.
The precise extent of Enron's influence over the past year is
now a matter for congressional investigation. The White
House has disclosed that there were at least six meetings
between Enron and administration officials ahead of the
energy plan unveiled by Vice President Dick Cheney last
May. And Mr Cheney made efforts to help Enron collect a
$64m debt on an energy project in India on a recent state
visit.
Perhaps more significantly, just about every energy-related
decision to come out of the administration has reflected
Enron's priorities: the push to open up the Arctic National
Wildlife Refuge to oil exploration; the encouragement of
mining and logging on public lands; the determination to resist
conservation policies; and the unilateral decision to withdraw
from the Kyoto Protocol on curbing global warming. The
energy plan echoed Enron's line on 17 key points, including a
favourable assessment of electricity deregulation - a policy
that has earned Enron billions of dollars but which has played
havoc with consumer markets, notably in California. Even the
economic stimulus package now under consideration in
Congress, a package supposed to pull the country out of
recession and lift the grim post-11 September mood, offers
Enron tax breaks and other concessions worth $254m - more
than any other company.
The scandal would be bad enough if it was just about Enron,
but it goes deeper than that, to a whole nexus of political and
economic interests which, in common with Mr Bush and to
some degree in concert with him, used Texas as a
springboard to broaden their influence on the national and
international stage. The recent revelations about Enron - the
hidden debts and offshore subsidiaries, the years of unpaid
taxes and the brutal manner in which employees were barred
from selling company stock at the crucial moment of
meltdown, leaving their retirement packages virtually worthless
- have sucked in at least two other major institutions.
The first is Arthur Andersen, the Big Five accounting firm
responsible for auditing Enron, which knew of its client's
troubles at least as far back as last February but kept
defending Enron's erroneous financial statements and even
took the extraordinary decision to shred hundreds of Enron
documents when it became clear the jig was up. Yesterday,
David Duncan, the former Andersen partner who has been
blamed for the shredding, refused to testify before Congress,
citing the Fifth Amendment. Jim Greenwood, chairman of the
House Energy and Commerce subcommittee on oversight and
investigations, told him: "Enron robbed the bank, Arthur
Andersen provided the getaway car, and they say you were at
the wheel."
The second, less well known institution is the Houston-based
law firm Vinson & Elkins, which did $455 million in legal work
for Enron last year and is a familiar player in corporate
lobbying circles in Austin, the Texas state capital. V&E has
not been accused of any ethical lapses to date, but it has
been shown up for its spectacularly bad judgement. In
October it conducted an investigation into Enron's finances
following a warning letter written to Mr Lay by a company vice
president, Sharron Watkins, expressing fears that the
company was on extremely shaky ground. V&E, who were
consulted by Mr Lay against Ms Watkins' advice, approvingly
described Enron's network of affiliates and secret partnerships
as "creative and aggressive". "No one has reason to believe
that it is inappropriate from a technical standpoint," the V&E
report added, neglecting to notice that the creative accounting
had kept some $600 million of debt off the company balance
sheet (a "false and misleading" practice, according to the
Securities and Exchange Commission, which is also
investigating).
What could prove most damaging to Mr Bush is the fact that
all these companies were part of a close-knit corporate culture
whose dominance in Houston, Texas's business capital, went
unquestioned for years. Andersen successfully lobbied to lift
the ban on audit firms acting as consultants for their clients,
and promptly went to work for Enron. V&E, meanwhile,
serviced them both and joined in their various lobbying efforts
to lift all kinds of government regulations on business.
Crucially, all three companies were massive donors to Mr
Bush's various campaigns. Enron has given more than
$500,000 since Mr Bush's first run at Texas governor in 1994.
V&E gave $335,000, and Anderson another $230,000. No
fewer than five individuals from the three companies, including
Mr Lay and a managing partner from Andersen laid off last
week for his role in the document-shredding debacle, were
named as "Pioneers" by the 2000 presidential campaign team
because they each raised more than $100,000 for the Bush
coffers.
For a long time, it all seemed so cosy. The lawyers,
accountants, corporate lobbyists and political operatives all
lived in the same swanky Houston neighbourhoods. They all
played golf together, sat on the boards of the same charities,
went to the Enron-sponsored Houston opera, had their cancer
treated at the Enron Clinic and watched ball games at the
city's proudly named baseball stadium, Enron Field. They
enjoyed power lunches at Tony's (house speciality:
truffle-scented baby hen) and took frequent lobbying trips to
Austin and Washington. After all, the politicians seemed so
willing to do their bidding: for a few hundred thousand dollars
in campaign contributions, tax breaks and business
opportunities opened up like Ali Baba's cave of treasures in
the Arabian Nights. When Mr Bush took office a year ago,
their prospects only looked sweeter. After all, the whole
direction of the Republican Party had shifted markedly
towards the energy industry (both Bush and Cheney are
former oilmen) and towards Texas (thanks partly to the
president, but also to such influential Texan figures as
Senator Gramm, the House Majority Leader, Dick Armey, and
the House Chief Whip, Tom DeLay).
Clearly, the companies overreached, and the system they
exploited so effectively is now turning to bite them on the
backside. The Enron meltdown may be having a traumatic
effect on those who chose to get caught up in the headiness
in the first place, but it also feels like a long-anticipated
vindication to the few watchdogs brave enough to have kept an
eye on the orgy of political spending over the years and to
denounce the effective sale of American democracy to the
highest bidder.
"Their attitude was, they throw money like most others take a
piss, two or three times a day, wherever it lands they don't
care, it's going to do them some good somewhere," said a
characteristically colourful Jim Hightower, a former Texas
politician turned populist author and radio commentator.
"What's going on now has ripped the mask off the whole
corrupt system. These are delicious times, to see them
squirm like this."
There is almost certainly more to come, and one place to look
for signs of trouble could be Halliburton, the oil company that
Vice President Cheney ran for five years before jumping back
on to the election campaign trail. Like Enron, Halliburton's
shares have been in free fall since last summer, losing 75 per
cent of their value - the reason being the looming threat of an
astonishing 260,000 asbestos-related lawsuits. Like Enron,
Halliburton has been a generous political donor, funnelling
almost $500,000 to congressional candidates in the past four
years, much of it to support representatives who wanted to
limit the ability of workers to sue companies for asbestos
exposure. And of course it has close ties to the Bush
administration - aside from the Cheney connection, its board
includes Lawrence Eagleburger, who Secretary of State under
the first President Bush.
This scandal season will almost certainly not result in an easy
political "gotcha!" - a clear instance of illegality with the power
to bring down a senior politician. The Enron debacle is likely
to be too murky, too wrapped in swirls of obsfuscation, for any
realistic chance of that. In any case, the point is not what
political leaders may have done illegally. The point is how
much they are being seen to get away with perfectly legally
under the present set of campaign finance rules. It is the
shamelessness of the system that is likely to anger the public
most effectively. And that will be the biggest liability of all for
the man in the Oval Office.
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