President's View (Public Citizen News - January/February 2002)


President's View (Public Citizen News - January/February 2002)

Investigators Must Dig Deep; Explore Enron's
Shady Deals, Political Links

Let's see, now. A Fortune 100 company successfully lobbies for broad regulatory changes that allow it to dominate its market and create a new business model. This company has deep personal and political ties to the president and many of his senior advisers, dating back to the days before the president got elected governor in the company's home state.

The company is at the epicenter of a roiling controversy over soaring electricity prices in California, where a phony energy "shortage" causes rates to triple as the state experiments with a "free market" electricity system.

Then suddenly, amid mysterious insider deals by executives and highly questionable accounting by one of the nation's leading number-crunching firms, the company collapses almost overnight and files the largest corporate bankruptcy in history. Investors and lenders lose billions of dollars. Thousands of employees are sent packing, and most of them see their retirement accounts vanish into thin air. And surprise! company executives walk away with hundreds of millions of dollars, some dumping their stock shortly before its value evaporated.

After the corporate meltdown, we discover the company created 874 subsidiaries in the Cayman Islands and other nations officially designated as tax and banking havens where funds can be stashed in secret accounts. And the Treasury secretary last spring abruptly shelved a previous administrations plan to crack down on these tax havens.

Sound a like a major Washington scandal brewing?

You bet it does. If you haven't been following this story, I'm talking about Enron Corp., the corporate juggernaut behind President Bush's political ascent. The company was one of the most aggressive proponents of natural gas and electricity deregulation and was the most influential player in developing Bush's energy policy. Sorting out this tangled web of political influence, greed, deceit and corporate hubris will take hundreds of lawyers, dozens of congressional committee hearings and multiple investigations by law enforcement agencies.

But this outcome shouldn't come as a surprise. Right-wing idealogues constantly tout deregulation, privatization and "free markets" as the solution to all of our problems. Usually, it means a few very, very wealthy people get even richer while taxpayers and consumers get shafted. Have we already forgotten the lessons of the savings-and-loan meltdown that was caused by Reagan-era deregulation just a little more than a decade ago?

Here's what we have learned so far about Enron: Once upon a time, the Houston-based company's main business was operating a natural gas pipeline. But chief executive Kenneth Lay had bigger plans. Energy deregulation allowed him to transform his company into the worlds largest energy middleman buying and selling billions of dollars worth of natural gas and electricity in the newly deregulated marketplace he lobbied to create. Along the way, he vigorously courted politicians and regulators, rewarding them handsomely for their help.

Lay was perhaps the most important figure in Bush's political career, having earlier supported the re-election campaign of his father, then hiring a number of former Bush Sr. officials. Over the years, he and Enron contributed $2 million to the younger Bush. He helped Bush win passage of energy deregulation and other initiatives in Texas. He also lent the use of his corporate jet for the Bush presidential campaign. Enron gave $300,000 to the Republican National Convention host committee and another $300,000 to the inaugural committee.

Lay made other powerful friends. He recruited Wendy Gramm, wife of U.S. Sen. Phil Gramm of Texas, to join Enron's board in 1993. She had served as the top commodities regulator in the Bush I administration, and five weeks before she joined Enron, she pushed a ruling through the Commodity Futures Trading Commission that exempted many energy contracts from regulation.

Then last year, Phil Gramm bypassed the Senate Banking Committee he chaired and pushed through the Commodity Futures Modernization Act, attaching it to a last-minute, must-pass appropriations bill. This allowed Enron to trade energy contracts free from government scrutiny, unlike the regulations that apply to brokers of other securities and commodities. This happened after the Treasury Departments top liaison with Congress, Linda Robertson, twice accepted paid trips to talk to Enron executives at the same time she was on the government payroll. She then became the head of Enrons Washington office.

Oh, but the political ties go even deeper. Enron hired both former Secretary of State James A. Baker III (one of the Bush familys most trusted confidants) and former Commerce Secretary Robert Mosbacher as consultants at the end of the Bush I administration. Current Army Secretary Thomas E. White served as vice president of an Enron subsidiary that seeks military contracts. Lawrence Lindsay, the presidents chief economic adviser, served on Enron's advisory board and reportedly received $50,000 from Enron last year. Karl Rove, the presidents political guru, owned between $100,000 and $250,000 worth of Enron stock as recently as May, until controversy over his holdings erupted. (Apparently, he got out just in the nick of time.)

Earlier this year, Vice President Dick Cheney met privately with Lay to discuss the formulation of the administration's energy plan, from which Lay stood to benefit enormously. The Bush administration has refused to release the records of the meeting and other deliberations of its energy task force, even in the face of congressional demands.

The odor emanating from this mess is most foul. Republicans spent years and millions of dollars of taxpayer money trying to nail former President Bill Clinton for personal financial dealings that happened before he became president, even though those deals had nothing to do with public policy. In this case, millions of California consumers paid vastly inflated electricity prices, the state of California racked up billions in debt over energy costs, and the Enron collapse will ripple through the entire economy. Livelihoods and retirements of innocent people have been smashed to bits. (See Blind Faith: How Deregulation and Enrons Influence Over Government Looted Billions from Americans.)

Just what did Bush administration officials know? When did they know it? And what role did they play in aiding and abetting Enron's shenanigans?

The burgeoning scandal also deserves a moniker. Shall we call it Enron-gate? Or perhaps Enron-Contra?

Joan Claybrook is president of Public Citizen.