Which Boot Will Drop Next?

From the stimulus fine print to Enron input on top Bush jobs, the story's only getting hotter.

By: Jonathan Alter

All of the trappings are there - the fall guy takes the Fifth; the tortured insider commits suicide (it took less than an hour for the Vince Foster-style conspiracy theories to circulate on the Internet); the committee members, on break from fund-raising, posture for the cameras; the President plays the family-values victim, sharing his mother-in-law's Enron portfolio embarrassment in the name of damage control.

But Enron is not just another juicy scandal. Enron is a cancer on capitalism, and the big question is how far it has already spread. Even if the new lead prosecutor, Leslie Caldwell, can cut out the tumor with aggressive law enforcement, the disease may be in the nodes of the marketplace, poisoning the rest of the financial system.

At least one man thinks so, and his Senate testimony last week, while less sexy than all the finger-pointing, ranks among the most important appearances before a congressional committee in modern memory. His name is Arthur Levitt, a prophet without honor in the Big Casino of the 1990's. Levitt, the former chairman of the Securities and Exchange Commission (SEC), says Enron is merely the symptom of a much larger problem. "What has failed is nothing less than the system for overseeing our capital markets", Levitt testified.

Enron is the September 11 of financial security - a wake-up call - but Levitt was sounding the alarm well beforehand. When he held the SEC job under President Clinton, he warned repeatedly that a "culture of gamesmanship" was rigging the system with phony numbers, hyped earnings and worthless stock analysis. His calls for reform were rebuffed by members of Congress legally bribed by Wall Street and the green-eyeshade lobby.

And reform might still be stifled. Enron may be bankrupt, but the underlying disease lives on, in the fig-leaf accountability proposals of the new SEC chief; the refusal of the White House to embrace real campaign-finance reform; the lame protestations that this is all some tragic aberration.

If only it were so. Does anyone seriously believe that those off-shore shelters and off-books partnerships are somehow unique to Enron? Might not Arthur Andersen have offered a few of its other clients the same tips for scamming the IRS, the SEC and the average investor just trying to make sense of quarterly earnings reports written in corporate Sanskrit? Maybe accountants at the other Big Five firms aren't dumb enough to hold shredding parties, but Andersen's basic recipes for cooking the books seem to be, in the argot of the trade, "generally accepted".

Then there are the analysts. In early December, Enron was trading at 75¢ a share and every joker with a subscription to the Wall Street Journal knew the company was a house of cards. But 12 of the 17 analysts who cover Enron rated it either a hold or buy. Isn't it wrong, as Levitt asks, that analysts' compensation is tied to their ability to sell the deals they're supposed to be analyzing? Can Enron be the only company and energy the only sector where the analysts on whom investors depend are - how to put this gently? - totally corrupted?

Much has been made of the fact that the Bush administration was not corrupted by Enron. No one tried to bail out the company. Of course, if anyone had intervened, a true political scandal would have detonated, and the Bush folks knew this. But the absence so far of high-level White House malfeasance hardly exhausts the political angles on either side of the aisle.

Why did Vice President Cheney refuse to see elected representatives of the people - like the state attorneys general - but open the door to corporate America in the secret formulation of the Bush energy plan? Why did 11 senators, including Democratic Sen. Joseph Lieberman, crudely strong-arm Levitt on behalf of the accounting firms? Why did Enron (with the help of Ed Gillespie, a key Bush operative and company lobbyist) get to help write Tom DeLay's stimulus bill?

The last of these really blows my gaskets. Remember, Enron reported huge profits while paying no taxes for four of the past five years. But Enron and other huge companies were earlier subjected to the awful indignity of an alternative minimum tax, a small effort by the government to make them pay at least something. So the House stuck in a retroactive provision giving the minimal taxes they did pay a decade ago back to them, which means yet more windfalls for big companies. Get this: if the stimulus bill that passed the House, backed by the White House, somehow survives intact, the government would write a rebate check for $254 million to... Enron.

Another angle that seems ripe for investigation involves the Bush transition team in late 2000 and early 2001. Curtis Hebert, the former chairman of the Federal Energy Regulatory Commission, confirmed for me last week that he was "interviewed" by Ken Lay for his job. I later learned that at least three other candidates for commissioner were also "interviewed" by the man they were supposed to be regulating, presumably at the direction of someone in the Bush personnel office. Who decided on that? And where else was this favor extended? Did the heads of big telecommunications companies get to vet candidates for the FCC? How about agribusiness executives handpicking USDA officials or drug companies staffing the FDA? Just asking.

On April 5, the Horatio Alger Association holds its annual awards dinner in Washington, designed to foster entrepreneurship. Alger's famous 19^th century stories all contained basically the same plot: humble boy meets mentor and through luck and pluck succeeds in the world. It's the 'American Dream' distilled. Few make the journey all the way up, but many have faith that they might. That faith in a system that isn't rigged remains indispensable. This year's awards chairman was supposed to be Ken Lay. Maybe someone should invite Arthur Levitt instead.