AS, look at Kerry's voting record regarding why Enron had Carte Blanche.
The Enrons started way before the Bush administration. Since people like to pin something on one person for teh blame of everything bad that goes on, (Not true) then Kerry must be blamed for Enron.
The issue is corporate accountability, a regular staple of Kerry's campaign rhetoric. "From Enron to WorldCom to the mutual fund scandals that have shaken the trust and savings of Americans, a widespread creed of greed on Wall Street has been met by a look-the-other way attitude in the Bush White House," Kerry said in another recent speech. "It's time our government sent a different message." Back in February, 2002, when former Enron CEO Ken Lay appeared before members of the U.S. Senate, Kerry was even more harsh: "Americans everywhere are shocked that you have no answer to explain how Enron executives escaped this sinking ship with their fortunes intact while thousands of everyday working Americans were left holding the bag, robbed of their retirement savings."
But Kerry shouldn't be shocked at all. Back in 1995, he backed a controversial measure that severely limited the ability of investors to sue companies engaged in fraudulent accounting practices--a legal change widely believed to have contributed to the accounting scandals of the last few years. The law, which consumer groups opposed vociferously precisely because they feared it would lead to white-collar crime, was part of Newt Gingrich's Contract With America. Yet Kerry voted for it anyway, not once but twice--the second time overriding a veto by President Clinton.
The law in question is the Private Securities Litigation Reform Act of 1995. At the time it came up for debate, the bill's supporters said it would curb frivolous lawsuits against companies whose stock prices had fallen but who had engaged in no wrongdoing. According to company executives, these "strike suits" had cost them millions in litigation expenses while making it impossible to communicate freely with potential investors (because they feared every statement might be used against them later in court). Strike suits frequently ensnared accountants and financial firms, which helps explain why they, too, backed the law. Partly because the volatile high-tech economy of the 1990s created such ample opportunity for strike suits, even some of the bill's harshest critics deemed its basic goals worthwhile.
But the question in 1995 was no so much whether to reform securities litigation as how, and critics complained loudly that this proposed law went too far. Particularly worrisome was a proposal requiring plaintiffs to show firm proof of wrongdoing before a case could go forward. (The old law had a much lower threshold for evidence, on the theory that it was frequently impossible to get hard evidence without going through the pre-trial discovery process.) The U.S. Public Interest Group argued that the measure amounted to a "license to lie for white-collar crooks"--a sentiment Clinton would later echo in his veto message. The measure, he said, would "close the courthouse doors" to investors who'd lost money thanks to unscrupulous companies and their accountants.
During the initial debate over the bill on the Senate floor, Kerry, a member of the committee with jurisdiction over banking, acknowledged the legislation's shortcomings. "My preference also would have been to include stronger investor recovery provisions," he said, noting that he had supported failed Democratic amendments that would have softened the bill's impact. But unlike 26 of his Democratic colleagues and a handful of Republicans (Arlen Specter and John McCain among them) for whom such problems were cause enough to oppose the bill, Kerry embraced it anyway. "On balance," he said, "this legislation should lead to the creation of a more favorable climate for investors and businesses." After Clinton vetoed the bill, Kerry voted to override the president--a motion that passed the Senate by one vote. It was the first time a Clinton veto failed, leaving the White House to say merely that Clinton "hopes that the unintended consequences of the legislation actually do not occur."
As we all now know, the consequences did occur. The Enron case is just the most famous example of a company cooking its books while accountants looked the other way, costing investors hundreds of millions of dollars (not to mention throwing thousands of employees out of work). And while it would be grossly unfair to blame it all on the Securities Reform Litigation Act, many experts think the law played a critical role in the scandals--partly by insulating auditors and other would-be watchdogs from the threat of lawsuits. It "substantially reduced the liability of accountants and other corporate gatekeepers," says Columbia University law professor John Coffee, an expert on securities regulation who advised the Clinton White House on this issue in 1995. "It's reasonable to infer that ... [to] the extent that auditors no longer felt the pressure of litigation, it became easier to acquiesce at the margins to a fraud that they might not otherwise allow to happen."
James Cox, a securities expert at Duke Law School, is even more blunt when asked whether the 1995 law contributed to the Enron scandals: "You betcha," he says. And while the enormous publicity surrounding cases like Enron and WorldCom mean the guilty parties in those cases may eventually have to compensate investors, Cox wonders what will happen to less-publicized cases that don't generate congressional hearings or investigations by the Securities and Exchange Commission. "There's a wider number of fraudulent-reporting violations than the government has the personnel to prosecute, so we rely on private litigation to pick up the slack," says Cox. Indeed, according to a study he just published, government can pursue just 20 percent of the cases worth investigating.
Of course, the more pertinent question for the presidential campaign is why Kerry voted for the bill in the first place. He certainly wasn't the only Democrat to do so; Ted Kennedy supported it, too, as did some other high-profile liberals. And even to the extent that Kerry might have been doing a favor for the banking or high-tech industry, he had a plausible--if parochial--reason for doing so: Both are large employers in the Boston area.
Still, it's hard not to notice the apparent connections to Kerry's campaign money. Although Kerry often brags that he takes no money from political action committees, according to the Center for Responsive Politics he has long been among the top recipients of contributions by executives and employees of the financial services industry, whose Washington lobbying groups pushed hard for this legislation. (Kennedy and other liberals who supported the bill also benefit from substantial financial industry donations.) In addition, one of Kerry's closest advisors and top fundraisers is Robert Crowe, a Boston-based lobbyist whose website notes the work he's done with banks on securities legislation. (Neither a Kerry spokesman nor Crowe returned calls made yesterday seeking comment.)
Should any of this matter? It is just one vote, after all. Kerry's overall record on confronting other moneyed interests does appear to be strong. But given that the essence of Kerry's current campaign is his fight against special interests--and considering that he's frequently attacked his rivals over individual votes--it seems only fair to note that there's at least one rather conspicuous blemish on his record.
Jonathan Cohn is a senior editor at TNR and a Kaiser Family |
