- 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 company.
- 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
- 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
- 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') tohelp.
- 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
- 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
- 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 Enron backing.
- 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 industries.
- 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 governorships.
- 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.