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February 2002

Catastrophic Collapse Of Enron

By Jim Scanlon

Getting to New York was easy this time, a real pleasure. For reasons which I do not understand I got to SFO, checked my X-rayed baggage and passed through the heightened security procedures in fifteen minutes flat. I then killed the two hours until boarding time reading the New York Times. On the almost empty flight, I read the Los Angeles Times and then the Financial Times. All three papers were full of the collapse of Enron, supposedly the seventh largest corporation in the United States.

Everyone seemed to have forgotten that just a year ago, Kenneth Lay, the CEO or the bankrupt corporation was head of the Bush transition team, a group of businessmen appointed by the president-elect to screen applicants for important political appointments in the federal bureaucracy. It seems reasonable to assume that Mr. Lay, and other members of his team, chose people who shared their views of how the government should not regulate the corporations they came from.

No one seemed to remember that when the price of electricity skyrocketed in the deregulated California energy market and Enron, and other energy trading companies, were recording skyrocketing profits at the expense of Californians, there was extreme pressure on the Bush Administration and the Federal Energy Regulatory Commission (FERC) to regulate the free market runaway price of electricity. At that time Mr. Lay was accused of threatening the Chairman of the FERC to be more "cooperative" or he would be replaced. The chairman, not cooperative, was replaced with a Texan. Coincidence? I think not!

Most commentators, looking for a "smoking gun," seemed to have forgotten that just a few years ago Arthur Levitt, a former chairman of the Securities Exchange Commission (SEC) attempted to reform the way accounting firms did corporate accounting,-a move which was resisted and defeated in congress by those firms. One of the biggest, Arthur Anderson Inc. which certified the fraudulent accounts of Enron, also certified the fraudulent financial reports of the Cendant Corporation, the Sunbeam Corporation and Waste Management (A huge corporation which handles trash disposal for New York city and also West Marin)

It seems perfectly understandable that, in choosing the chairman of the SEC, the Bush administration's "Enron" transition team chose Harvey Pitt, a lawyer who represented Arthur Anderson and other accounting corporations- someone who might just be sympathetic to Enron's accountant and apparent partner in crime. President Bush appointed two other SEC commissioners, both of whom come directly from the top five corporate accounting firms. Since there are only three members on the commission, there seems to be little reason for confidence that these three commissioners will approve remedial change.

Our president, not known for his linguistic precision, tried to distance himself from the disgraced Mr. Lay and his pathetic attempts to "get the government back on Enron's back" claimed that Lay supported his Democratic opponent in the race for governor of Texas. Everyone was on to that little lie about Lay who was closely connected with Bush the Elder's administration and Republican party affairs since the late 1980s. Not that Democratic administrations are that much different from Republican when it come to granting corporate tax breaks, favors, influence and flat out welfare.

Enron got approval from the elder Bush's administration to begin trading in the derivatives, which no one seems to really understand, and which have gotten Enron into so much trouble. Wendy Gramm was a Bush the Elder administrator involved in this, and other helpful decisions, and her husband, senator Phil Gramm, another Republican from Texas on the House Banking Committee, helped pass legislation weakening governmental rules on corporations like Enron. Is it a surprise that Mrs. Gramm was appointed to the Enron's Board of Directors just a few weeks after leaving her government job? Did she do a good job checking the books on Enron's audit committee? Apparently not.

Mr. Lay said he didn't do anything wrong and that some details were "way over my head..." The Secretary of the Treasury didn't do anything wrong nor did the Secretary of Commerce. The Chief Financial officer of Enron said he didn't do anything wrong and that he didn't know anything about those mysterious partnerships. There were at least 3,000 partnerships with names like "Condor", "Raptor", "Chewco" and "JEDI", 900 of which were "offshore" in the Bahamas, Panama and the Channel Islands and who knows where else. They were special purpose secret corporations that hid Enron's massive debt from ignorant investors and shielded it from taxes. A representative for Arthur Anderson did admit though, that the firm had made some mistakes. So far, about $2 billion in hidden debt and $60 billion in investor losses-really-some mistakes !

Enron, the shining star of free market, unrestrained American Capitalism paid zero taxes during four of the last five years and got hundreds of millions of dollars in tax refunds!

The President of the United States said we should wait until all the investigations are complete (John Walker take note!). There are at least six separate investigations underway and a trickle of what will surely be a flood of civil law suits have been filed. John Ashcroft, the Attorney General has recused himself from the Enron/Anderson matter as has his deputy. The entire Houston office of the Department of Justice has been removed so as to avoid the appearance of a conflict of interest.

The US Attorney heading the investigation is an African American from Georgia who handled the legal side of Clarence Thomas's successful appointment to the Supreme Court. Although, the private law firm that he previously worked for represented Enron, he, personally, did not. It is hard to have any confidence that any governmental bloodhound will sniff at, or follow a money trail, that might lead to the Gramms or a smelly Bush.

The President's Economics Advisor was a paid consultant for Enron. Robert Zoellick, his Trade Representative was on the Enron advisory board. The recently appointed head of the Republican National Committee, Marc Racicot was an Enron Lobbyist, and his closest, most important advisor Karl Rove, the history buff, held 1000 shares of Enron stock which he sold two months before that stock went from the roof to the sub basement-lucky guy!

One suspects there is no prominent Republican not connected in some way or other with Enron, Arthur Anderson or the banks and insurers mixed up in this Ground Zero wreckage of deceit, fraud and broken, bent and twisted rules.

Why do we trust millionaires to run our country?

 

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