Bush Did Try to Save Enron
By Sam Parry
May 29, 2002
consortiumnews.com
Since Enron Corp. plunged into bankruptcy six months ago,
George Bush's defenders have said the administration's refusal to
bail out the sinking energy trader is proof of Bush's integrity,
given that Enron's Chairman Kenneth Lay was one of Bush's top
financial backers.
The story line has been that all of Ken
Lay’s millions couldn’t buy George W.
Bush. For that reason, Enron has been
called a financial scandal, not a political
scandal.
Growing evidence, however, shows that this Bush-can’t-be-bought
story line isn’t true.
It is now clear that prior to Nov. 8, when the Securities and
Exchange Commission delivered subpoenas to Enron, the Bush
administration did what it could to help Enron replenish its coffers
with billions of dollars. Enron desperately needed that money to
prevent the exposure of mounting losses hidden in off-the-books
partnerships, a bookkeeping black hole that was sucking Enron
toward bankruptcy.
As Enron’s crisis worsened through the first nine months of the
Bush presidency, Ken Lay got Bush’s help in three principal ways:
--Bush personally joined the fight against imposing caps on the
soaring price of electricity in California at a time when Enron was
artificially driving up the price of electricity by manipulating
supply. Bush’s rear-guard action against price caps bought Enron
and other energy traders extra time to gouge hundreds of millions
of dollars from California’s consumers.
--Bush granted Lay broad influence over the administration’s
energy policies, including the choice of key regulators to oversee
Enron’s businesses. The chairman of the Federal Energy
Regulatory Commission was suddenly replaced in 2001 after he
began to delve into Enron’s complex derivative-financing schemes.
--Bush had his National Security Council staff organize an
administration-wide campaign to pressure the Indian government
to accommodate Enron, which wanted to sell its generating plant
in Dabhol, India, for $2.3 billion. Bush administration pressure on
India over the Dabhol plant continued even after Sept. 11, when
India’s support was needed for the war on terrorism. The
administration’s threats against India on Enron’s behalf didn’t stop
until Nov. 8.
On Nov. 8, Enron disclosed the formal SEC investigation and
admitted overstating earnings by $586 million with losses hidden
in off-the-books partnerships run by Enron’s Chief Financial
Officer Andrew Fastow. Over the next four weeks, Enron stumbled
toward its bankruptcy filing on Dec. 2.
Kenny Who?
When the corporate wreckage was complete, the toll was
devastating. Investors lost tens of billions of dollars; retirees were
left nearly penniless; and 5,000 Enron employees were laid off.
Beyond that, Enron’s accounting tricks discredited its accounting
firm, Arthur Andersen LLP, and sent shock waves through U.S.
securities markets.
As the accounting scandal provoked disgust across the country
and across party lines, the White House sought to minimize its
relationship with Enron. In spite of a personal acquaintance best
symbolized by Bush’s nickname for "Kenny Boy," Bush began to
act as if he barely knew Lay. On Jan. 11, Bush told reporters that
Lay "was a supporter of Ann Richards in my run in 1994,"
implying that he had gotten to know Lay as Gov. Richards’
holdover appointee to a Texas business council.
Striking a note in personal disapproval, Bush said his sympathies
rested with laid-off Enron employees and small Enron investors
who saw their life savings wiped out. Bush said his own
mother-in-law lost $8,000 when Enron collapsed.
The administration’s basic line of defense was that it did nothing
to bail out Enron. Exhibit One in this argument was the fact that
the administration took no substantial action to help Enron after
Lay sounded out senior Bush officials in late October by placing
calls to Commerce Secretary Donald Evans and Treasury Secretary
Paul O’Neill.
By late October, however, it could also be argued that Enron’s
troubles were too advanced – and the public spotlight too intense –
for the administration to launch a rescue mission. News of Enron’s
financial difficulties already was spreading through the business
press and the SEC had started to investigate.
In fact, the record shows that, in spite of the risk, the Treasury
Department did respond to Lay’s call for help. The New York Times
reported that Secretary O’Neill instructed Under Secretary for
Domestic Finance Peter Fisher to "look into the condition of
Enron." Fisher responded by following up with Enron President
Greg Whalley, speaking with him "six to eight times" over a few day
period in late October and early November. After the conversations,
perhaps recognizing the political peril, Treasury decided against
further support. [NYT, 1/13/02]
Treasury’s efforts on Enron’s behalf in late October were not
unusual for the Bush administration. Far from doing nothing to
help Enron, news accounts and newly released documentary
evidence show that that prior to Enron’s death spiral, the young
Bush administration did what it could to support Enron’s business
interests.
Enron’s Troubles
The Houston-based energy trader’s financial mess can be traced
back at least to 2000 when the long-running stock market boom
ended.
During the boom, Enron had soared through the list of Fortune
500 companies to a perch at No. 7. A leader of the so-called New
Economy, Enron expanded beyond its core business interests in
natural gas pipelines, branching out into complex commodity
trading, which included electricity, broadband capacity and other
ethereal items, such as weather futures. It had investments in
smaller companies that operated in areas where Enron traded.
The bursting of the dot-com bubble in March 2000 and the
collapse of the telecommunications sector put pressure on Enron
as it did many other companies. Even though Enron’s own stock
held strong, hitting an all-time high of $90 on Aug. 17, 2000, the
tumbling market, combined with some risky overseas energy
projects, left Enron with a host of poor-performing assets that were
a drag on the company’s growth.
To protect its image as a darling of Wall Street – and to prop up its
stock value – Enron began shifting more of its losing operations
into off-the-books partnerships given names like Raptor and
Chewco. Hedges were set up, supposedly to limit Enron’s potential
losses from equity investments, but some were themselves backed
by Enron stock, creating the possibility of a spiraling decline if
investors lost faith in Enron.
Their Man Bush
Still, Enron saw a silver lining in the darkening economic clouds of
2000. If George W. Bush could secure the presidency, Enron
would have a reliable ally for its deregulatory plans at the top of
the U.S. government. With Bush would come other allies who
could staff key positions in the federal bureaucracy.
Lay had reasons for optimism about his ties to Bush. Having
backed Bush’s father and the son’s gubernatorial run in 1994, Lay
was an insider’s insider. For the 2000 campaign, he was a Pioneer
for Bush, raising $100,000. Enron also gave the Republicans
$250,000 for the convention in Philadelphia and contributed $1.1
million in soft money to the Republican Party, more than twice
what it contributed to Democrats. [www.opensecrets.org]
The contributions dwarfed what was at stake for Enron. In its
energy trading in California alone, Enron stood to earn tens of
billions of dollars.
Around the start of the 2000 general election campaign, the first
signs of suspicions also arose that Enron was trying to gain
windfall profits by manipulating the California energy market. In
August 2000, an employee with Southern California Edison sent
the Federal Energy Regulatory Commission (FERC) a memo,
entitled "California Electricity Markets: Issues for Examination."
The memo expressed concerns that Enron and other electricity
providers to California’s deregulated energy market were gaming
the system by cutting off supply and creating phony congestion in
the electricity grid to run up energy prices. [Energy Daily, May 16,
2002]
By December 2000, even while FERC was piecing together a
strategy for dealing with the California crisis, recently released
documents now show that Enron lawyers were exchanging letters
about conducting just those kinds of schemes. With strategies
dubbed "Fat Boy," "Death Star," and "Get Shorty," Enron was
siphoning electricity away from areas that needed it most while
getting paid for phantom transfers of energy supposedly to relieve
transmission-line congestion. [See Washington Post, May 7, 2002]
That same month, Bush nailed down his presidential victory,
getting five Republicans on the U.S. Supreme Court to halt vote
counting in Florida. Lay and his wife lent a hand there, too,
donating $10,000 to Bush’s Florida recount fund that helped pay
the Republican lawyers and other operatives who ensured that a
full recount of Florida’s ballots never occurred.
With Bush’s victory secured, another $300,000 poured in from
Enron circles for the Bush-Cheney Inaugural Fund. The company,
then-Chief Operating Officer Jeffrey Skilling and Lay each kicked
in $100,000.
An Energy Plan
A grateful Bush gave Lay a major voice in shaping energy policy
and picking personnel. Starting in late February 2001, Lay and
other Enron officials took part in at least a half dozen secret
meetings to develop the Bush's energy plan.
After one of the Enron meetings, Vice President Dick Cheney's
energy task force changed a draft energy proposal to include a
provision to boost oil and natural gas production in India. The
amendment was so narrow that it apparently was targeted only to
help Enron's troubled Dabhol power plant in India. [Washington
Post, Jan. 26, 2002]
Other parts of the Bush energy plan tracked closely to
recommendations from Enron officials. Seventeen of the energy
plan’s proposals were sought by and benefited Enron, according to
Rep. Henry Waxman, D-Calif., ranking minority member on the
House Government Reform Committee. One proposal called for
repeal of the Public Utility Holding Company Act of 1935, which
limits the activities of utilities and hindered Enron’s potential for
acquisitions.
Besides listening to Lay's advice, Bush put the corporation's allies
inside the federal government. Two top administration officials,
Lawrence Lindsey, the White House’s chief economic adviser, and
Robert Zoellick, the U.S. Trade Representative, both worked for
Enron, Lindsey as a consultant and Zoellick as a paid member of
Enron's advisory board.
[http://www.public-i.org/story_01_011102.htm]
Bush also named Thomas E. White Jr., an 11-year veteran of
Enron's corporate suites, to be secretary of the Army. White had
run a key subsidiary, Enron Energy Services, which is now the
focus of allegations about accounting irregularities.
At least 14 administration officials owned stock in Enron, with
Undersecretary of State Charlotte Beers and chief political adviser
Karl Rove each reporting up to $250,000 worth of Enron stock
when they joined the administration.
FERC Concerns
Lay exerted his influence, too, over government regulators already
in place. Curtis Hebert Jr., a conservative Republican and a close
political ally of Sen. Trent Lott of Mississippi, had been appointed
to the Federal Energy Regulatory Commission during the Clinton
administration. Like Bush and Lay, Hebert was a promoter of "free
markets." Bush elevated Hebert to FERC chairman in January
2001.
While a strong believer in deregulation, Hebert broke ranks with
Lay on two key points. Hebert was an advocate of state rights, an
obstacle to Enron's desire for FERC to mandate consolidation of
state utilities into four giant regional transmission organizations,
or RTOs. By quickly pushing the states into RTOs, Enron and
other big energy traders would have much larger markets for their
energy sales.
Hebert told the New York Times that he got a call from Lay with a
proposed deal. Lay wanted Hebert to support a faster transition to
a national retailing structure for electricity. If he did, Enron would
back him, so he could keep his job.
The FERC chairman said he was "offended" by the veiled threat. He
understood that Lay's political influence could put his job in
jeopardy, since Bush held the power to appoint FERC chairmen
and Lay had demonstrated sway over selection of administration
appointees. Besides supplying Bush aides with a list of preferred
candidates, Lay had personally interviewed one possible FERC
nominee.
Lay offered a different account of the phone call. He said Hebert
was the one "requesting" Enron's support at the White House,
though Lay acknowledged that the pair "very possibly" discussed
issues involving FERC's authority over the nation's electricity grids.
Lay also had reason to be suspicious of Hebert’s interest in the
complex derivative financing instruments that he saw among the
leading energy traders, including Enron. After he became
chairman, Hebert started an investigation into how these deals
worked. "One of our problems is that we do not have the expertise
to truly unravel the complex arbitrage activities of a company like
Enron," Hebert said. "We're trying to do it now, and we may have
some results soon." [NYT, May 25, 2001]
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