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'It Would Help Enron If You Made That Call'
Bush Was Told
By Ed Vulliamy
The Observer - London
As he approaches the first anniversary of his inauguration, George W
Bush is under siege. He has won the war in Afghanistan, but finds
himself engaged in a new battle against a scandal that is threatening
to dog his administration and tarnish his reputation.
Bush and his administration have been revealed as entwined in a story
of corporate greed and political manipulation by an energy firm
called Enron, now under double criminal investigation.
The scandal - in which the life savings and retirement funds of tens
of thousands of employees vanished while a number of executive
directors lined their pockets - reaches so high that John Ashcroft,
the Attorney-General, has had to withdraw from the investigation
because he received Enron money, and lawsuits are the pipeline to
force Vice-President Dick Cheney for details of his contacts with the
The day Bush took office - a year ago next Saturday - was as cold and
comfortless as his victory; his motorcade braved driving rain and a
gauntlet of demonstrations marking the most contested and ugliest
election result in US history. After 11 September, the world changed
and so did America's view of Bush. He became the only President since
Franklin Roosevelt to maintain the support of over 80 per cent of
Americans for weeks on end.
But now the White House is laid bare by what rivals
call 'Enronomics' - the political fable of the Enron corporation.
It has long been reported how the Bush administration and family is
beholden to the energy industry. Before the Afghan war, an 'Energy
Task Force' favourable to the industry was the main concern for
Cheney, who himself came to office from the biggest oil equipment
firm in the world.
Enron was just the kind of scandal a war would hide. The company
plunged from a stock rating worth $60 billion - seventh on the
Fortune list of US companies - into the biggest bankruptcy filing in
US history, registered on 2 December.
The ethical - maybe criminal - core of the scandal is that Enron
trapped its employees into a 'stock-lock', whereby they were not
allowed to sell share options bought by way of savings. When the
company collapsed, they lost everything. Meanwhile, Enron's
executives - blessed by inside information and foresight - made a
killing by scrambling to sell shares before the price collapsed.
The victims of Enron's rise and fall were regular employees who opted
to join a savings plan by investing in their employer - and why not?
With soaring energy prices and giddy profits, the share value
quadrupled between 1997 and January last year. The catch was they
were not allowed to sell.
They were people like Pat Betteridge, of the subsidiary Portland
General Electric company in Oregon, who remembers grand claims by
Enron chief executive Kenneth Lay on a visit north: 'We like to think
of ourselves,' he bragged, 'as the Microsoft of the energy world.'
Betteridge used his $300,000 retirement savings to buy 3,500 shares -
now worth not a cent. 'If I was hired to do electrical work and I
botched it as bad as them,' he says, 'I'd either be doing time or get
my licence yanked.'
The beneficiaries of the company's surge to power were those who
boarded the wheel of perpetual motion that binds the Bush
administration to the energy industry. Then the company's brass even
tried to make their fortune out of its fall as well.
The Observer has dug into Enron's past to find that intimate
connections with Bush and his Texan Republicans started long before
the campaigns that brought them to Washington
Enron is a Houston-based utility trading company that sells energy to
consumers, industrial and domestic. It is one of the biggest of its
kind in the world - a standing it owes in no small part to Bush's
governorship in Texas.
Texas's 1992 Energy Policy Act opened a regulatory black hole into
which Enron moved and thrived, forcing established utility companies
to buy energy from it. Meanwhile, in Washington, the Commodity
Futures Trading Commission, under the presidency of Bush's father,
allowed for an exemption in trading energy subsidiaries. The practice
would be Enron's downfall.
The 1992 trading commission was chaired by Wendy Gramm, wife of Texas
Senator Phil Gramm, close friend of the Bush family and recipient of
$97,350 in political donations from Enron.
Once the exemption was accomplished, Mrs Gramm resigned to join the
Enron board. As a member of its current audit committee, she is
expected to play a key role in the forthcoming lawsuits and criminal
investigation into bankruptcy and document destruction.
In 1997, Enron was anxious to break into Pennsylvania, one of
America's biggest energy markets, with its huge consumers in
Philadelphia and Pittsburgh. The company was having difficulty, and
Lay asked Bush (who liked to call him 'Kenny boy') to help.
Bush duly called the then state governor, Tom Ridge, to pitch for
Enron, whose bid duly succeeded. 'I called George W to kind of tell
him what was going on,' said Lay at the time, 'and I said it would be
very helpful to Enron if he could just call the governor and tell him
Enron is a serious company'. Ridge was made Secretary of Homeland
Security - Bush's new White House office - after 11 September.
Lay and Enron have been bountiful contributors to George Bush Jnr.
Since 1993, company executives have donated nearly $2 million to him
personally. Lay also donated $326,000 in soft money to the Republican
Party over the three years prior to Bush's presidential bid and his
wife added $100,000 for the inauguration festivities.
The administration is splattered with senior officials owning stock
in Enron. Economic adviser Larry Lindsay and Trade Representative
Robert Zoellick went straight from Enron's payroll into office.
The biggest holding is that of Army Secretary Thomas White, who as a
former Enron executive holds stock and options totalling $50m to
$100m. Rove himself holds as much as $250,000 in stock, and other
holders include Defence Secretary Donald Rumsfeld, his assistant
William Winkenwerder, Assistant Treasury Secretary Mark Weinberger,
Economic Undersecretary Kathleen Cooper, Education Undersecretary
Eugene Hickock, the ambassadors to Russia, Ireland, the Emirates and
officials in the energy department, including its chief financial
officer Bruce Carnes. It is not known which - if any - of these
privileged stockholders sold their shares along with the Enron
bosses, or suffered the same loss as everyone else. Such details will
appear when they make this year's filings - leaving any that did so
open to ethical, if not criminal, inquiry.
Bush has pursued the aggressive deregulation policies preferred by
Enron and its kind, including legislation that exempts key elements
of Enron's energy business from oversight by the federal government -
pushed by none other than Senator Phil Gramm.
Lay's hand can meanwhile be found behind such episodes as the sudden
replacement of Curtis Hebert as chairman of the Federal Energy
Regulatory Commission by Texan Pat Wood, a friend of Lay. According
to one source, the sacking after only weeks in the job came after 'an
unsettling telephone conversation with Kenneth Lay' in which he
was 'prodded to back a faster pace in opening up access to the
electricity transmission grid'.
For all its troubles, Enron continued to benefit from Bush policies -
markedly a refusal to step in and help California during the energy
crisis last year, leaving consumers to pay the price... to Enron.
Enron was so close to the bosom of the administration that Lay and
other executives were called to the White House for six meetings with
Cheney and his staff - the last one only a week before the company
made the staggering announcement that it was slashing shareholder
equity by $1.2bn.
For Enron was playing a double game. In the run-up to the
announcement, its president, Greg Whalley, was frantically lobbying
another wing of the administration for help in arranging loans. His
point man was Undersecretary Peter Fisher.
Lay discussed the upcoming bankruptcy twice with Commerce Secretary
Don Evans - one of the Texan 'Iron Triangle' that propelled Bush to
power. Later, he also twice pleaded Enron's case to Treasury
Secretary Paul O'Neill.
But the Republicans were not the only political heavyweights to
benefit from Enron's greed. The company has made donations to many
Democrats too - some 27 per cent of its political contributions,
according to the Centre for Responsive Politics in Washington.
And among Enron's top point men in Washington during the bankruptcy
saga was Clinton's former Treasury Secretary Robert Rubin, who was
revealed by the Washington Post yesterday as having made a
representation last November to the current Treasury on behalf of the
company. Rubin is now chairman of the executive committee of the
Citigroup bank, one of Enron's principal backers, trying, with the JP
Morgan bank, to raise $1.5bn in an effort to see the company through
the bankruptcy crisis.
These are matters for the six Congressional committees preparing to
investigate Enron. But they will have to wait for the two criminal
investigations launched this week: one into Enron's bankruptcy, the
other into the admission by the company's auditor, Arthur Andersen,
that it destroyed thousands of documents about the bankruptcy.
Andersen had good reason to destroy the papers. The reasons for
Enron's destruction when all the winds seemed to blow behind the
company's fortunes are associated with the labyrinth of subsidiaries
built up by Chief Finance Officer Andrew Fastow, fired on 24 October,
and other executives.
Fastow created partnerships with what were described as outside,
independently-run companies with names such as 'Chewco' or 'Jedi' -
after characters in Star Wars - that were owned by him or others with
As a result, hundreds of millions of dollars were slushing overseas
to tax havens as Fastow and other executives - so they said - sought
to shore up the company against a possible fall in energy prices.
What they were allegedly doing was amassing personal fortunes.
The ensuing gaps in the balance sheet became a gaping abyss which
could not be hidden and down which the company finally fell. Enron
admitted that it had overstated profits by $400m in reports issued
since. However, Chewco alone enabled Enron to be able to keep some
$600m of debt off its books.
The crucial criminal issue is whether executives misled investors by
inflating revenues and minimising debts. The political issue is how
closely entwined is the Washington elite - and the immediate circle
Seven months of Bush's oil-friendly presidency was driven out of the
spotlight by 11 September. It had pleased the industry for its
isolationism and determination to withdraw from world affairs - the
Kyoto Accords on global warming or arms reduction with Russia.
Domestically, Bush's cause was an articulate one: a tax cut worth
$1.3 trillion, of which nine-tenths went to the 1 per cent of
wealthiest Americans, and ambitions to drill for oil across the
Alaskan wilderness and deregulate controls over the oil and energy
By the afternoon of 11 September, Bush had become the vanishing
president during his people's hour of need, cowering underground
beneath an Air Force base in remote Nebraska. But by the end of that
week, Americans saw in Bush not a spoiled brat, but the man they
wanted to lead the nation to war.
Now the Enron scandal brings the presidency home, with Bush as
Winston Churchill preparing for the 1945 election in Britain. The
would-be Clement Attlee is Tom Daschle, leader of the Senate
Democrats, who last week left the unity of war behind to unleash his
congressional campaign for November 2002 with an offensive over
welfare, tax policy, health care, energy and the environment.
The elections are critical to Bush and the Republicans: no US
president apart from Nixon and Reagan has not lost ground at the mid-
term polls, and the Democrats, even without making substantial gains,
can keep control of the Senate while taking over the House and state
For the State of the Union address Bush will give on the twenty-
ninth of this month, White House staff are scrambling to entwine the
war in Afghanistan with the continuing domestic agenda. But the
minefield they must cross is named Enron.
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