ENRON'S END RUN
The Bush White House's Brewing Scandal
By Sander Hicks

The Washington Post once referred to Kuwait as an "oil company with a flag." Perhaps this is what the Bush White House once thought the USA should be. This administration was intimate with the Enron Corporation, now in ruins of potential scandal and alleged fraud. This slowly emerging scandal leaves us with questions, but one thing's for certain: L'Affaire Enron will build and haunt the White House for years to come. The Senate's newly announced investigation has a lot of work ahead of it. Will the White House survive intact? Will it sacrifice key officials to appease a Special Prosecutor?

Welcome to Enron, the biggest corporate disaster of recorded history.

When Enron filed for Chapter 11 on 2 December 2001, 4,500 of its employees were unceremoniously relieved. At its peak, Enron stock's total value was $70 billion, capital many people relied on in their retirement plan investments. Today, the total loss in equity value is hard to gauge, because before throwing in the towel, Enron was forced in November to restate its real earnings for years 1997, 1998, and 1999. Enron had hidden a lot of debt in "special purpose vehicles," that is, front companies it created to hide losses off the books, so its previous earnings reports were meaningless.

Like the dot-coms, a lot of Enron's value as a business was based on the "trust" that people placed in it, as it traded intangible bits of risk in its myriad of speculative trades in energy. When that trust was lost, a lot of people got burned. Today, Enron faces two Congressional investigations, a high profile Senate inquiry, a class action lawsuit from angry shareholders, and the threat of a suit from the General Accounting Office. The union bank Amalgamated is already on the warpath. They are suing on behalf of the pension funds damaged by Enron's $70 billion implosion.

The fiasco's intimacy with Bush may bode badly for the President's future. The White House and Enron have at times seemed interchangeable, both financially and politically. Vice President Dick Cheney and Bush's ruthless campaign advisor Karl Rove have consulted Enron Chair Ken Lay on energy policy. Lay's suggestions to Rove on government appointments were followed. Enron and the White House have shared a revolving door of personnel: five former Enronians work in the White House and Cabinet. (Secretary of the Army Thomas E. White was a Vice Chairman; Economic Adviser Lawrence Lindsey and U.S. Trade Representative Robert Zoellick were both advisors; and Senior Staffers Karl Rove and Lewis "Scooter'' Libbey owned a serious amount of Enron stock.)

And of course, the flow of money since the Reagan years has been colossal and reciprocated. Enron donated almost $2.4 million to federal candidates, and $2 million to Bush alone. They were in turn rewarded with legislation that allowed them to profit off the deregulation of state-run power industries. Enron has made contributions to 71 of 100 U.S. Senators and about half of congress. Enron is the number one career contributor to President George W. Bush.

On Thursday, 3 January 2002, the Senate Government Affairs Committee, headed by possible Presidential hopeful Joe Lieberman, announced it would launch a serious investigation into just how much Enron was affecting decisions in the executive branch. It was high time. Congressman Henry Waxman (D-CA) has been asking Cheney and advisor Karl Rove for these answers for six months and he has been treated like an unwanted guest at a wedding. On 8 January, the White House announced that the meetings with Enron had indeed been extensive. As part of Cheney's Energy Task Force, the White House admitted Enron executives had visited "six times." But with the stubbornness of a Richard Nixon, Cheney still refused to release the complete attendance lists for all meetings of his Energy Task Force.

Comparisons to Teapot Dome and Watergate are not untoward. The media is beginning to feel the symbolic importance of Bush's Enron scandal. The Nation and the United Kingdom's Indpendent on Sunday both recently suggested we are seeing Enron becoming Bush's albatross. Both called it a "cancer on the presidency," a phrase that recalls John Dean's early warning to President Nixon.

Bush is already suffering at the polls, the approval ratings that used to enjoy the low 90s sank to 80%, according to CNBC on January 18th. Is the loss of over 10 points of approval the beginning of a slide? Analysts have been pointing out that not capturing Osama bin Laden might come back to haunt the administration, just as the deliberate sparing of Saddam Hussein was partly responsible for Bush Sr.'s defeat following the Gulf War. Poll experts point out that wartime presidents usually experience a return to pre-war approval ratings eight months after a war's peak. Just as the May 2002 midterm elections heat up in congress, Bush might not be able to help fellow Republicans keep the House.

A Brief History of Enron

The pas de deux between Enron and the Bushes goes a long way back (almost as far as the relationship between the Bush and bin Laden families). Under Ronald Reagan, Vice President Bush led a task force to deregulate finance and energy. In February 1993, the Bush White House announced that two former Cabinet members, Secretary of State Baker and Secretary of Commerce Robert Mosbacher, had agreed to help what later became Enron secure natural gas projects overseas.

In 1995, Enron was officially created out of two regional natural gas companies by Ken Lay. In seven short years, Enron became the seventh-richest company in the US, ranked by revenue (although real revenue accounted for properly places them 280 notches lower, at 287th). Chairman Lay soon became intimate with both Bush Presidents, the younger granting him the pet name "Kenny Boy." In an increasingly deregulated market, Enron made a transition from selling natural gas to speculating on aspects of the power industry, issuing glorified lottery tickets in the form of derivatives. Derivatives are chances, or "financial instruments," to take bets on the future value of a share price or commodity based on its current value and external market forces. At its peak, 80% of Enron's business was from trading.

Enron began acting less like an energy company and more like an investment bank. Eventually, they even sold derivatives that bet on changes in the weather, or the price of broadband internet. CFO Andrew Fastow mysteriously told Business 2.0 that "Enron has 1,217 trading 'books' for different commodities. We don't want anyone to know what's on those books. We don't want to tell anyone where we're making money." Another Enron executive told The New York Times the company's goal was to create "a regulatory black hole" in order to be "to be the first mover into a market and to make money in the initial chaos and lack of transparency."

As the night began to permanently close in on Enron, there was a brief glimmer of hope against hope that the "smaller, scrappier" Dynegy company would acquire the ailing giant. Perhaps the lesser competitor wasn't Enron's size, but it wasn't so small to hand Enron $1.5 billion cash as a calling card, as merger talks opened in November. But by the end of the month, the deal was practically dead. In Dynegy CEO Chuck Watson's conference call with Enron management on 3 December 2001, he asked why cash-on-hand in the recent 10-Q was $1.2 billion. Where was the $3 billion he had been expecting? Well, that nice $1.5 billion present had been burnt through. What's worse, Enron couldn't account for it. "Neither the treasurer nor the CFO could explain where the cash went. The 10-Q destroyed any remaining confidence and credibility."

[For a brief tangent, both humorous and sad, let's go take a look at Enron's interior at this time. This was a corporate culture that praised arrogance as a virtue. A lot of top management at the time didn't really believe the smaller Dynegy would actually be able to acquire their mighty Enron, and even as they issued news of the merger, they claimed that this was really just "buying us some time until we can come up with some other, better alternative" according to direct reports to me from a Senior Director. My source went on to describe this meeting of the trading floor, "This young woman raises her hand to state that she is an analyst and of all the offers she had coming out of school, she came to Enron, because she is smart, she is one of the best and the brightest, she is arrogant [she said this, in fact she said it several times] and she wants to work for the best company out there. she wants to work for Enron, she wants to be arrogant, she wants to be the best, she DID NOT come here to end up working for Dynegy. She said this in front of the entire trading floor. It was unbelievable to me, especially since i knew that we would most likely be going under, and she would most likely be out of a job."]

Dynegy might have realized it was buying a big mess, and then purposely released language in a 21 November 2001 release that sent a "lukewarm" signal. This scared the institutional investors even more. Simultaneous with this, Enron's credit rating was downgraded, and they were thus bound to pay out $690 million to a creditor. Whoops, there goes another half of cash-on-hand. Now Enron was down to $510 million. The investment banks downgraded Enron's stock even lower, giving Dynegy an excuse to scuttle the deal. Their gentleman caller leaving town, Enron sued Dynegy for backing out of the marriage.

With no one left to screw over, Enron ate their own flesh. After they were abandoned by Dynegy there was no way Enron could recover, so management decided to do the most professional thing possible: they stuck their own workers with the tab. They had already planned for this a month-and-a-half in advance: on 17 October 2001, when the S.E.C. announced it was investigating Enron, top brass deliberately switched 401(k) administrators. This move locked their employee's pensions into this stock as it began to nosedive. Enron executives unloaded their own equity on the market, and ran for the door stuffing their pockets with $1 billion in cash. Enron robbed their common employees of their life savings. Sick employees were left without health insurance; the transitional health care system COBRA was a mess of unfinished paperwork. Overseas employees in the UK were told "find your own way back," in violation of British Law. An ex-employee who until recently helped run the generators stated "none of Enron's laid-off H1B's [temporary overseas employees] have been given their expense funds to return home." In Houston, he states, "Rich White Republicans remain above the law."