The scandal that has left the credibility
of American politics in shreds
"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."
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
insinuateitself 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 withdrawfrom 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.
independent.co.uk |
