Jan. 10, 2002, 10:52PM
Lay hinted bailout, White House reveals
By DAVID IVANOVICH
Copyright 2002 Houston Chronicle Washington Bureau
WASHINGTON -- Enron Chairman Ken Lay called two Bush Cabinet secretaries at critical junctures in the company's collapse, warning them about Enron's financial woes and raising the notion of a bailout, the White House revealed Thursday.
But Treasury Secretary Paul O'Neill and Commerce Secretary Donald Evans opted not to intervene -- and also chose not to tell President Bush about the calls, White House spokesman Ari Fleischer said.
These revelations helped fan what was already a major embarrassment for the Bush administration into a political firestorm. By the end of the day Thursday, the political pundits were beginning to brand the Enron probe "Bush's Whitewater."
For weeks, the administration has been scrambling to distance the president from Enron, sensing that the once influential energy and trading company was now politically radioactive.
As late as Wednesday, Fleischer was saying: "I'm not aware of anybody in the White House who discussed Enron's financial situation."
But by Thursday, the White House had to concede that the administration had had repeated contacts with Enron through the company's plunge into bankruptcy.
In fact, Lay called Evans on Friday, Oct. 26, a Commerce official said Thursday.
But Evans was out of the office that day. On Sunday, Oct. 28, Lay called O'Neill, a Treasury official said.
The following day, Moody's Investors Services downgraded the company's long-term debt rating, an event that sent the company's stock on a slide from which it would never recover.
In that conversation, Lay raised the example of Long Term Capital Management, the hedge fund bailed out to the tune of $3.5 billion by the private sector under the direction of the Federal Reserve.
"Lay expressed to O'Neill ... his concern about the experience that the company, Long Term Capital, had, that Long Term Capital was unable to meet its obligations and was headed to bankruptcy, and wanted the secretary just to be aware of that so that the Long Term Capital experience could serve as a guide," Fleischer said.
But Lay "didn't ask for anything," a Treasury official said.
On Monday, Evans returned Lay's call. During that conversation, Lay told Evans that "we would welcome any support you think is appropriate," a Commerce official said.
"Lay did call these government guys," Robert Bennett, a Washington-based attorney working for Enron, confirmed, but added: "He didn't ask for anything. He didn't ask for any relief."
"But he felt that, as a matter of personal and moral responsibility, that he had to tell these officials that bankruptcy could not be ruled out," Bennett said.
O'Neill and Evans called on Peter Fisher, Treasury's undersecretary for domestic finance, to watch for any effects on the credit market from Enron's fall.
Fisher "came to the conclusion that there would be no more impact on the overall economy as a result," Fleischer said.
As a result, O'Neill and Evans decided the administration should make no move to intercede in Enron's troubles.
Lay then called O'Neill again on Nov. 8, one day before the company announced it had reached an agreement to be acquired by crosstown rival Dynegy for $8.9 billion, a deal that was to be short-lived.
Lay also spoke with Evans a couple of other times about the company's long-troubled power project in India.
White House officials said the two Cabinet members never discussed these conversations with Bush.
There was no need, administration officials said, since O'Neill and Evans had decided not to interfere with Enron's situation.
Bush may have had more than a passing interest.
Lay, who Bush calls "Kenny Boy," has been a steadfast -- and highly generous -- supporter throughout Bush's political life.
Bush said Thursday he has not seen Lay since last spring, when both men attended former first lady Barbara Bush's literacy fund-raiser in Houston.
"I have never discussed, with Mr. Lay, the financial problems of the company," Bush told reporters.
On Thursday, Bush appointed O'Neill, Evans and Labor Secretary Elaine Chao to a special task force organized to examine current law and proposed legal changes to ensure that pensioners don't lose their life savings as a result of a bankruptcy.
Administration and Enron officials alike were at pains to argue that there was nothing improper about two Cabinet secretaries discussing the the company's financial troubles with Lay.
"I want to remind you that communication is not a wrongdoing," Fleischer told reporters during a feisty, highly confrontational White House briefing. "What took place here is, they received phone calls, and took no action. ... If you're going to go down this road, I think it's also fair to say who in the entire town had any contact with Enron -- or phone calls."
Bennett argued that it is "commonplace for leaders of major companies to talk with government officials. What are these people supposed to do, get their information from the Yellow Pages?"
The administration's critics have long complained that Enron and other energy companies enjoyed too much access to the Bush White House.
On Tuesday, Rep. Henry Waxman, D-Calif., released a letter from Vice President Dick Cheney's office, which detailed six meetings between Lay and other Enron officials and Cheney's staff over an eight-month period.
Cheney was the author of the Bush administration's national energy strategy.
Waxman argued that Lay's conversations with Bush administration officials "raise very serious concerns."
"It is now clear the White House had knowledge that Enron was likely to collapse but did nothing to try to protect innocent employees and shareholders who ultimately lost their life savings," Waxman said in a written statement. "I am deeply troubled that the White House stood by and let this happen to thousands of families."
Michigan's Rep. John Dingell, the ranking Democrat on the House Energy and Commerce Committee, said: "The list of problems and problem people involved in this entire, tawdry affair seems destined to grow. The seriousness of this matter cries out for further investigation."
The U.S. Justice Department already has launched a criminal investigation into the Enron collapse, while the Securities and Exchange Commission, the Labor Department and a growing number of congressional panels have launched their own probes |
