Enron's Enablers

By: Harold Meyerson

Okay, let's take the Bush administration at its word, however mutable that word may be. Let's say only a handful of officials - the Commerce and Treasury secretaries, and (according to a subsequent clarification) several lesser officials at Treasury, and (oh, yes, we forgot) White House Chief of Staff Andy Card - knew about Ken Lay's phone calls imploring the administration to do something that would head off Enron's impending bankruptcy. Let's say that none of these presidential confidants thought to tell George W. Bush or Dick Cheney - or Karl Rove, for that matter - that the largest donor to the Bush family, the dominant corporation in W.'s hometown and home state, the seventh-largest company in the United States, was about to go belly-up and that Ken Lay was cold-calling half the federal registry looking for help.

Let's further concede, if only for the sake of argument, that the Bushies played it by the book, that their collective sentiment was "We could help Enron, but that would be wrong." (Translation: We're into them so deep that they're radioactive.) In other words, let's assume that there's no scandal involving the administration's trying to help Enron avert bankruptcy.

That still leaves the scandals of trying to help Enron do just about everything else. To begin with, there's the scandal of inviting Enron to formulate the administration's energy policy in closed-door meetings with Cheney, and of Ken Lay effectively selecting the regulators charged with overseeing Enron's conduct. And it wasn't just the administration that did Enron's bidding. The energy bill passed by the Republican House contained a cozy $3.5-billion tax break for natural-gas extraction and distribution, not to mention an exemption from taxes on revenue from selling, buying, or operating a power grid. Enron was hardly the only beneficiary of these provisions, but it certainly was a mega-beneficiary. What's more, the stimulus bill that passed the House (and, like the House energy bill, is stuck in the Senate) provided Enron with a $254-million rebate as part of the retroactive repeal of corporate taxes.

Now, far be it from me to suggest that the House Republican leadership - notably, Texas Republicans Dick Armey and Tom DeLay - had any interest in assisting the company that's the biggest star in the Texas GOP's financial firmament. And if they had, it would, of course, have been perfectly legal.

So, too, have been Congress's sins of omission - its stunning indifference to rudimentary regulations that could have kept Enron afloat and at least moderately more responsible to its employees and shareholders. Simply forbidding 401(k) plans from investing more than 10% of their funds in a single company's stock - as is the case with defined pension benefits - would have allowed thousands of Enron employees and retirees to hang on to their nest eggs. If there was ever any doubt, it should now be abundantly clear that 401(k) accounts were set up more to help employers than to help employees.

Also clear is that although the nation may have narrowly averted a financial meltdown during the collapse of Long-Term Capital Management in 1998, Congress did nothing to avert a similar catastrophic reoccurrence. LTCM, a trader of those exotic new financial derivatives, was subject to almost none of the regulations that apply to old-style brokerage houses (like, say, the requirement to keep a minimum financial balance for those days when the trades go sour).

Enron took the LTCM model and expanded it by what can only be described as a process of free association. Where LTCM set up a minute-by-minute bazaar for trading and speculating in financial matters, Enron tried to build a bazaar for trading and speculating in virtually anything that could take the form of a noun - gas, electricity, water, pollution, Internet bandwidth, advertising space - all the while, taking a nice-size cut for every such trade. And since Congress had drawn no lessons from the nosedive of LTCM, Enron wasn't required to have much cash in reserve if its deals went south. Indeed, most of Enron's operating capital came from the overnight loans of banks. So all it took to close down America's seventh-largest corporation was one gray morning of banker skepticism.

In the words of erstwhile Enron CEO Jeffrey Skilling, Enron was trying to move from the "big iron" of the old economy - gas, oil, and the like - to the "soft assets" (and higher profits) of deregulated trading. The lesson from both LTCM and Enron seems to be the softer the asset, the harder the landing.

Now, is Congress criminally negligent for failing to regulate companies engaged in this kind of shell game? Is the administration criminally liable for designing energy and regulatory policies to Enron's specifications? Absent a bombshell on the order of some politico having a piece of one of Enron's off-the-books partnerships, of course not. But whether or not the Bushes and DeLays actually held a smoking gun, they certainly cultivated one big-time breeding ground for corporate crime.