The Gang That Couldn't Shoot Straight
If our President's national security team is so good, why is his economic team so bad?
FORTUNE
Monday, September 2, 2002
By Jeffrey H. Birnbaum
fortune.com
As you read these words, CEOs of the nation's largest companies are struggling with one of the most sweeping orders ever issued by the Securities and Exchange Commission. The agency has demanded that they attest in writing to their firms' financial results for the past year or restate them for the entire world to see. The undertaking (with a deadline of Aug. 14 for most companies) is as perilous as it is massive. So you'd expect that regulators thought long and hard before approving it. 'Fraid not. This is, after all, economic policy under George W. Bush.
The SEC chose its course during a hastily convened conference call in the middle of the night on the very day in late June that WorldCom shocked the markets with its $3.9 billion accounting scandal. SEC chairman Harvey Pitt began the emergency meeting at 10 p.m. and ended it at midnight with only one other commissioner and a handful of staffers on the line. But besides getting a formal sign-off from a few other SEC officials, Pitt told FORTUNE, he didn't need to consult anyone else, including the White House. He also said he wasn't worried about the consequences. In that, he's virtually alone. Though the idea of having CEOs attest to their companies' financials may well be a good one, it is also fraught with short-term political peril. If more than a handful of companies dramatically restate their earnings as a result of the directive, the market could tumble--and so could the Republican Party's prospects in the next election. Says one GOP lawmaker: "This could become the administration's largest self-inflicted wound."
With the economy wobbling and the stock market roiling, the President badly needs the A-team of economic advisors. Unfortunately, as Pitt's risky decision makes clear, he doesn't have one. He barely has a C-team, when it's functioning at all. Its members are tone-deaf to Main Street, Wall Street, and Capitol Hill--in some cases defiantly so. (Pitt says he's proud of his "tin ear": "I don't want to be viewed as politically savvy.") Democrats are gleeful at the team's antics, and some respected lawmakers in the President's own party are happier when they aren't around. "I haven't seen Secretary O'Neill lately," says Senator Chuck Hagel (R-Nebraska). "That's probably a good thing."
Well, it shouldn't be. Now is the moment Paul O'Neill, Pitt, Commerce Secretary Don Evans, White House economic aide Larry Lindsey, and Bush's other top moneymen need to prove that they aren't the Keystone Kops of federal finance. The economy, and Bush's presidency, may depend on it. But so far they've failed. By allowing Bush to move too late and too timidly against corporate villainy--it wasn't until the end of July that the Justice Department began parading corporate executives in handcuffs--they increased the volatility of the capital markets, taking a toll on already shaky consumer and investor confidence. Economic growth is suffering. And the blunders have become a political catastrophe, a misreading of the American electorate so profound that it could cost Republicans control of the House of Representatives.
The C-team has often made problems worse, once at a critical juncture. Back in January, when public fears about corporate misconduct had eased, the President was relaxed enough to talk casually about Enron and his supposed friendship with its CEO, Kenneth Lay. "I haven't talked to Ken Lay or seen him," Bush told his aides as they waited for news cameras to enter the Oval Office. Then O'Neill dropped a bombshell. From one of the couches, O'Neill said that Lay had telephoned him before Enron's bankruptcy in December. Evans, also sitting on a couch, said that Lay had called him too. The revelations left the President shaken. Why hadn't he heard that before? He wasn't able to plumb the subject much because the cameras came in. But quickly thereafter the White House had no choice but to disclose that Lay, a major Bush donor, had contacted the cabinet officers. The uproar that followed helped make corporate wrongdoing the obsession it is today.
The problem starts near the top--with Dick Cheney. Tout le Washington was thrilled that the Vice President knew so much about business; after all, he was CEO of Halliburton from 1995 to 2000. But his experience is now coming back to haunt the administration. As we now know, in 1998, with Cheney at the helm, the Dallas-based oil-services giant began to record payments that it expected to receive but hadn't yet collected as revenue. While that certainly doesn't make Halliburton as bad as, say, Enron--and the company insists that its accounting was kosher--some D.C. insiders fear that the company may have crossed the line. If the SEC, which is investigating the questionable accounting, even slaps Halliburton's wrist, the administration will be badly bruised.
Cheney has already hurt Bush more than is widely known. The Vice President's deeply conservative opinions, which served him well in the War on Terror, have hindered the War on Corporate Misconduct. As Bush's most trusted counselor, Cheney was instrumental in preventing the President from coming down more harshly on financial miscreants. For months after Enron's bankruptcy, Bush railed in private (once slamming his fist on a table) about greedy executives who ruined their workers' lives. But advisors, led by Cheney and Lindsey, urged Bush to restrain himself in public. They feared that "overreaction" could tank the markets and lead to too much regulation. Karl Rove, Bush's chief political strategist, and Josh Bolton, his deputy chief of staff, pressed for a tougher response--a broad attack on corporate behavior and strict new laws against fraud--but they were talked out of it. That turned out to be a terrible mistake, as the market's reaction to Bush's mild prescriptions showed.
Administration officials make all sorts of excuses for their misjudgment. They say they were focused on fighting terrorism, which was a higher priority. They say they'd offered reams of corporate-reform proposals only to have the press ignore them. They say they were wise not to speak out too much in public for fear of further spooking the market. Still, Team Bush clearly could have done more. |
