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Up to their Necks in Scandal

By: 
Vijay Prashad
Date Published: 
October 10, 2002
    The following are a series of excerpts from Vijay Prashad’s upcoming book on Enron, Fats Cat and Running Dogs: The Enron Stage of Capitalism, which will be published by Common Courage Press in September 2002.

1. United States of Enron

Regardless of what improprieties the Bush Presidency may have committed on Enron’s behalf once the Supreme Court installed it, we do know that the DNA of the Bush clan is all over the crime scene at the House of Enron.

The story begins with the patriarch, the senior George Bush (GHB), whose Tanglewood home in Houston is just down the road from Lay’s River Oaks home. Just before he left office, GHB signed the 1992 Energy Policy Act, a law that weakened the power of regional utility firms and local government to the benefit of energy traders like Enron. An aspect of the 1992 law that has not been given much attention is that it resulted in a spate of mergers among what are known as investor-owned utilities (IOUs): twenty-six mergers in the 1990s, with sixteen also in the works. More mergers have meant that mega-firms like Enron have dominated parts of the market that, despite unbundling, give them power over the entire industry—areas such as wholesale distribution.

The 1992 law was the first salvo against regulation of the energy sector on behalf of Enron. Of course, GHB helped secure Enron deals in Kuwait (via James Baker and the sons of Bush, Neil and Marvin) and in Argentina (via Neil, after GHB’s friend Carlos Menem came to power in 1990). The patriarch is not outside this relationship, even as it was left to the sons to make the most of it.

Could all this presidential help with regulations on mergers, Kuwait and Argentina, have any bearing on what Enron did for son George W. Bush (GWB)? By most counts, Enron gave close to $2 million for GWB’s political career, as he moved from governor to president. His Texas campaigns in 1994 and 1998 earned him $312,500, while his presidential run got him $113,800.

Proving that Enron was a company you can count on, it helped Bush swing the election through $10,500 to the Bush-Cheney Recount Fund. Enron then followed that with $300,000 for the gala celebration of democracy embodied in presidential inauguration festivities. About $1.2-$1.8 million entered the coffers of the Republican Party from Enron, a sum that dwarfs the amount taken by the Democrats from the energy firm. Nevertheless, 259 members of Congress, more than half the elected representatives of the people, are beholden to Enron’s brand of generosity.

It would be tempting but misleading to argue that GWB and Cheney changed their views because of the money. Rather, that money went toward propelling proponents of the free market to seize power. Once that was accomplished, GWB-Cheney hired the best “free market” proponents they could find—from Enron.

Among them: Lawrence Lindsey, a former Enron consultant, is the White House’s economics advisor (he took a policy proposal from Enron and imbedded it into the campaign platform); Robert Zoellick, who served on Enron’s advisory council, is the US Trade Representative; Lewis Libby, a major Enron stockholder, is Cheney’s Chief of Staff; Thomas White, an Enron executive for a decade, is Secretary of Army (and disposed to deregulation of the power sector owned by the Army); Marc Racicot, Enron’s Washington lobbyist, is Republican Party National Chairman; Karl Rove, Senior Adviser to the President, who owned up to $250,000 in Enron stock, met frequently with Ken Lay to talk about regulation issues.

These positions of authority do not exhaust the power wielded by Enron in the administration. Ken Lay was GWB’s chief energy advisor during the California energy crisis, and Lay turns out to be one of the eighteen energy executives who formed GWB’s National Energy Task Force in 2001. These meetings helped the ultra-secretive Cheney fashion the energy policy of the White House. When challenged about the impropriety of these meetings (especially given that the eighteen firms are part of the top twenty-five contributors to the Republican Party), Frederick Palmer of Peabody Energy (the world’s largest coal mining firm owned by Lehman Brothers) moved to defuse the bad publicity.

He told the media, “We’re all on the supply side—the electric utilities, the coal companies—and the energy plan is basically a supply side plan, but that’s not the result of back room deals or lobbying the vice president of the United States. People running the United States government now are from the energy industry, and they understand it and believe in increasing the energy supply, and contribution money has nothing to do with it.” You couldn’t wish for a more naked display of power and privilege.

One of the recommendations of the Task Force was that the government dismantle the monopoly control of electricity transmission networks, a feint that would at the time give Enron virtual monopoly control over power at the middleman juncture.

GWB considered Lay for Commerce Secretary and Energy Secretary, but he bowed to political pressure on two scores. First, since Spencer Abraham lost his re-election bid in Michigan, he was a perfect candidate for the Energy post in the multi-racist Bush cabinet—being of Arab ancestry, Abraham enabled the oily Texan to strengthen his already deep ties with the oil sheikhs. Besides, Abraham is part of the Enron family. In his failed 2000 Senate race, Enron plied $10,500 into his campaign coffers.

Second, though Lay did not join the cabinet, he was part of the shadow government. Kenny Boy and others in Enron interviewed several candidates to fill empty spots on the Federal Energy Regulation Commission (FERC), the main regulatory body that oversees most of Enron’s business interests. Forget guarding: the fox became the henhouse. GWB took his backwards position on the Kyoto greenhouse gas treaty under pressure from Enron and five of its friends (Royal Dutch/Shell, BP, Cinergy, AEP and Entergy).

And, if this is not enough, Enron received an outright tax break from the government. Even as Enron has not paid taxes from 1996 to 2000, it received a net tax rebate of $381 million—$278 million in 2000 alone thanks to GWB’s tax cut. If the loopholes had not existed, Enron’s place in the thirty five percent bracket would have earned the treasury $625 million in this period. The media has played up the amount of campaign contributions. But stacked up against the hundreds of millions in tax breaks and hundreds of millions more in regulatory advantages these mere millions in contributions, or what might be more appropriately called users fees, are very, very low. U.S. democracy is a great value at these prices.

2. Dark Forces

GWB’s most enormous service to Enron came during California’s power crisis. In 1996, the California legislature removed all regulation over the purchase and sale of electricity in the state’s wholesale market. Enron moved in and began to manipulate the wholesale price now that it did not have to trade electricity in a regulated commodities exchange. Public Citizen notes that, “Despite the fact that Enron did not own a single power plant in the state, its control of the venue in which electricity was bought and sold placed Enron in almost total control of California’s energy supply.”

With Enron came two other Houston firms (Dynegy and Reliant Energy), one from North Carolina (Duke Energy), and the four of them quickly earned the name “the Confederate Cartel” from Dan Berman, co-founder of the Coalition for Local Power, based in Davis, California. To prove that shortages exist, Enron and its cartel (along with the utilities) produced blackouts, mainly to blackmail the legislature. Credit Suisse First Boston sent a memo to its clients in 2001 reassuring them that the blackouts did not mean a catastrophe in the energy markets, but they were “intended to soften up the legislature and the voters to the need for rate increases.”

The blackouts were notable after December 2000 when the federal law (pushed by Senator Phil Gramm) allowed Enron to trade electricity without any disclosure of its practices. Enron’s wholesale services posted an enormous increase in profits, from $12 billion the first quarter of 2000 to $48.4 billion in the first quarter of 2001, this entirely thanks to the Gramm law. Meanwhile, with each day that went by, Enron took California for $12 billion in excess charges, and in mid-2002, Governor Gray Davis noted, “About $30 billion was extorted from this state.”

Setting a new standard for the word “audacity,” the protector of Enron, Phil Gramm told the press, “As [Californians] suffer the consequences of their own feckless policies, political leaders in California blame power companies, deregulation and everyone but themselves, and the inevitable call is now being heard for a federal bail-out. I intend to do everything in my power to require those who valued environmental extremism and interstate protectionism more than common sense and market freedom to solve their electricity crisis without short-circuiting taxpayers in other states.”

Gramm evoked the specter of “environmental extremism” to explain the blackouts. But the problem was not supply. California had already built ample power plants during the 1990s to generate 1200MW of electricity. The problem was the distribution crisis created by Enron so that it might scalp California for the maximum profit.

In February 2001, GWB, following energy guru Ken Lay, refused to cap the electricity prices in California, preferring to let Enron feast. On 29 May 2001, Bush noted that price controls would lead to “more serious shortages and even higher prices,” a position backed by Enron but not even by neoclassical economists.

The level of arrogance matched the level of greed. On 14 June 2001, CEO Skilling was in a playful mood at the Strategic Directions 2001 Conference held by the Reuters Group and Tibco Software. “You know what the difference is between the State of California and the Titanic?” he asked. “This is being webcast, and I know I’m going to regret this, but at least the lights were on when the Titanic went down.” During a lecture just seven days later, as if in response to his heartless comment, the Biotic Baking Brigade tossed a pie in Skilling’s face.

4. Capitalism As Usual

“Corruption” derives its meaning from “rupture,” and means “to break entirely” or “to break up morally.” To many, corruption seems endemic to places of the [third world], where it appears everyday (in the form of bribes) and as periodic spectacle (in the form of scandals). Certainly, we, in the US do not experience corruption in its everyday form on a regular basis. Corruption does not come to us so crudely, so honestly. Ours is a more dishonest, codified type of theft: You can’t see an elected representative unless you fork over cash (campaign contributions), government bureaucrats don’t take you seriously unless you hire a lobbyist. Corruption is structural, visible, and yet underground. A bit like Cheney.

The extraordinary thing about the pay-to-play system is that, as hinted at earlier, it is so very cheap. Ken Silverstein tracked lobbyists for his 1998 book, Washington on $10 Million a Day: How Lobbyists Plunder the Nation. As he reported, “When you consider the enormous benefits bestowed on Corporate America by the White House and Congress, the big sums companies spend to win favors are revealed as chump change.” He offers as an example the behemoth Lockheed who paid a measly $5 million to lobby Congress in 1996, but “won approval for the creation of a new $15 billion government fund that will underwrite foreign weapons sales.”

Much froth and blather has been made over the passage of the Shays-Meehan/McCain-Feingold bill in the aftermath of Enron. But they do not address the problem of money in DC. As far as the US Public Interest Group analysis is concerned, the bill does not address the Enron issue. Almost two thirds of Enron’s and Arthur Andersen’s $11.2 million contributions since 1990 came as “hard money” and not the newly banned “soft money”; the Lays gave $882,580 in both types of money since 1990, and the new bills will allow them to increase this contribution to $975,000.

Enron employees gave $508,000 since the 1990 elections, $1000 per head, whereas now they can double their bids. The bill does not address lobbying, the main arena by which Enron ($7.5 million since 1997) and Andersen ($9.6 million) gave money to the parties. These amounts were far more than what Enron and Andersen gave via election contributions, $3.8 million and $2.8 million, respectively. Despite Shays-Meehan, Washington continues to be a cheap city: the lawmakers offer vast amounts of corporate welfare for a very small bribe.

The real corporate control over the government, however, is not in the campaign finance scandal. The real scandal is that the culture of corporations is the culture of politics, and the corporate fat cats have now become the running dogs. Cheney went from Secretary of Defense to CEO of Halliburton and now to the Vice Presidency; GWB went from scion of the Bush legacy to oil money to the Presidency; and the story of the rest of the cabinet is too well known to repeat here.

Whereas the Clinton team courted corporations, the Bush team is the corporation. Certainly Clinton had the Robert Rubins beside him, but his cabinet was mainly comprised of the civil servant and professional politician type figure that had to go out of their way to please corporations. Ron Brown’s world tours in the mid-1990s are an illustration of this attempt to stabilize the bridge between the White House and the Penthouse.

Even as there is something specifically oily about the Bush Men, it would be unfair to them not to point out that much of Enron’s dirty deals took place during the Clinton years. Both Clinton’s Secretaries of the Treasury, first the Texan Lloyd Bentsen and Goldman Sachs’ Robert Rubin had Enron connections, with Bentsen taking $14,000 for this first Senate campaign and Rubin being linked by the deals he did as an investment banker.

When Rubin joined the Treasury in 1994, he wrote to Enron to say that he “looked forward to continuing to work with you in my new capacity.” Startled by the collapse of LTCM in 1998, Rubin engineered the deal to save the integrity of the stock market. Years later, when Enron started to go under, it was Rubin who called the Bush administration to see if anything could be done to save it. There is no partisanship here, because both parties (with different inflections) worked to benefit Enron and US interests at the expense of the plight of the planet.