Ever since there have been Commerce secretaries (nearly a century), they’ve made such phone calls: strands in a global web of American dealmaking. But what makes this one noteworthy–and worthy of suspicion to Bush’s enemies–is the date on which it took place, Oct. 15, for Lay knew that his world was about to fall apart. In a conference call with Wall Street analysts the next day, he would have to disclose that Enron had lost an astounding $618 million in the third quarter. More important, it would soon become clear that Enron had lost $1.2 billion in a labyrinth of partnerships that probably should have been–but weren’t–counted on the company’s books. Enron, one of the most innovative and admired companies in the world, was near collapse. Didn’t Lay and Evans, an old friend in the Texas energy bidness, discuss the impending crisis? They both say no. But investigators–at least on Capitol Hill–will want to ask, preferably in a hearing on TV.
As Enron’s beleaguered employees and investors know all too well, the company imploded last Dec. 2, producing the largest bankruptcy in American history. But now the shock waves have moved from Houston and Wall Street to Washington, rattling a White House that had been focused on the popular enterprise of fighting the war on terrorism. The Lay-Evans call, it turns out, was the prelude to a flurry of others (all initiated by Lay) in which the Enron chief executive emitted increasingly urgent distress signals–and barely disguised pleas for help–to Evans, Treasury Secretary Paul O’Neill and Federal Reserve chairman Alan Greenspan.
Despite his munificence as a contributor–perhaps, ironically, because of it–Lay apparently got no help. White House officials insist that he never contacted them, and they never contacted him, though he was running (into the ground) the seventh largest corporation in the country and the second largest (after Exxon-Mobil) in Texas. They flatly deny that Bush or Vice President Dick Cheney (or any aides) had had direct knowledge of Enron’s predicament. No evidence surfaced last week to contradict their story and, as they say in the law, the thing speaks for itself: Enron did collapse. Bushies pointed out with relief that someone else had called O’Neill on Enron’s behalf: Robert Rubin, respected Treasury chief under Bill Clinton and now a leader of Citigroup, one of Enron’s largest creditors. Lay, who, with Enron, gave $500,000 to Bush in 2000, had become a mere acquaintance. At a press “avail,” Bush referred to him stiffly as “Mr. Lay.” Over at Commerce, a top aide laughingly called him “Ken Who?”
Still, the collapse of Enron was no laughing matter. In Houston there was growing and justifiable outrage. Earlier in 2001, Enron’s brass had feverishly unloaded company stock. But at the very time Lay was sounding his alarms, the rank and file were barred from touching their modest, but Enron-heavy, 401(k) portfolios. Inside the Beltway, the scandal-making machinery–idled since stripping a gear on the Gary Condit saga last year–sputtered to life. Though Lay and Enron had papered Congress with donations to Republicans and Democrats alike, six committees were planning to investigate. (The first hearing, later this month, will be led in the Senate by presidential hopeful Joe Lieberman, who got a paltry $2,000.)
The Democrats were aware of the risks. Bush remains genuinely popular. Lay built his business by getting regulatory relief from Congress–from Republicans, to be sure, but from the Democrats as well. There were silent partners in the myriad Enron off-the-books secret partnerships. They might include, inconveniently, a fair number of the Democrats’ top donors. The public, the handlers know, is likely to be disgusted by another partisan auto-da-fe.
Even so, the Dems couldn’t resist plunging in. Average workers had been screwed. Wasn’t there something the administration should have done to prevent it? The Enron issue seemed aimed straight at the GOP’s–and Bush’s–chief vulnerability: their profile as the party of Texas-based Big Energy and the moneyed class in general. And, arithmetic favored the Democrats: Enron/Lay had given nearly three quarters of its largesse to Republicans over the years. “We don’t have to say much,” said one top Democratic strategist. “This story will carry itself for quite a while.”
At the White House, aides projected an attitude of studied calm. Bush’s first mention of the Enron inferno was after Nov. 30, according to counselor Karen Hughes, when he allowed that the seeming callousness toward company employees “really stinks.” Aides claimed that neither Bush nor Cheney knew of Lay’s distress calls until Evans and O’Neill mentioned them to the president last Thursday morning. “I know you think it strains credulity, but it’s the truth,” said White House aide Mary Matalin. “Every tentacle of this leads away from the White House.”
That will be for investigators–not spin doctors–to decide. Numerous officials in and around the White House have or had extensive financial ties to Lay and Enron. They include political adviser Karl Rove, economic adviser Larry Lindsey and GOP Chairman Marc Racicot, who last week declared that he would stop all lobbying work. Investigators will have numerous contacts to examine. Lay called Evans last Oct. 29 and discussed the impending drop in Enron’s credit rating with him. Lay talked with O’Neill twice, and Enron’s president, Greg Whalley, had several chats with Under Secretary Peter R. Fisher. Enron’s attorney, Robert Bennett, told NEWSWEEK his client was merely “doing the responsible thing” by informing officials of “the possibility of bankruptcy” at Enron.
As Bennett knows (he represented Bill Clinton), a Washington scandal is half circus, half court of law. The powerful presence in the latter is the Justice Department where, as usual, there were Enron ties to untangle. Last week the department made the rare decision to run its probe from Washington headquarters. Why? Because the U.S. Attorney’s Office in Houston had too many personal ties to Enron employees. Attorney General John Ashcroft had to recuse himself, having taken $58,000 in Enron-related cash for his own failed 2000 presidential campaign. That left the probe to Deputy A.G. Larry Thompson, formerly a partner in an Atlanta law firm that has done extensive work for–you guessed it–Enron. (Since he didn’t personally represent the company, officials said, he didn’t need to bow out.)
The pivotal question is not likely to be about administration actions in the first instance, but its candor about them now. Bush’s aides say they have nothing to hide. But they and their boss strained nevertheless to distance themselves from Lay. Just last spring he met privately with Cheney to discuss energy policy and influenced nominations to the Federal Energy Regulatory Commission.
Now, in the White House telling, he was some guy they hardly knew until 1995. In the Texas gubernatorial race of 1994, the president told the press, Lay “was a supporter” of his Democratic foe, Ann Richards. True, but only in the Clintonian sense. In fact, Lay supported Bush the First in 1988 and 1992, organized the GOP Houston convention for him and raised money for the Bush library. Lay gave money to Richards in 1994, but he and Enron gave much more to Bush: $146,000. Much of that money came in after Election Day, a Bush ally recalled contemptuously. So “Ken Who” was never really a friend of George’s–and certainly isn’t considered one now.
“Enron’s ability to deliver is the one constant in an increasingly complex and competitive world.”
–A promise to customers in such volatile markets as energy and broadband
