Posted on 01/15/2002 4:03:05 AM PST by NativeNewYorker
New York, Jan. 15 (Bloomberg) -- Enron appeared to be a dream
come true for Democrats, a scandal that fell in their laps when
they needed to damage a popular Republican president.
They wanted to make it their Whitewater. The close ties
between President George W. Bush and Enron Corp.'s CEO Kenneth Lay
(Lay is the biggest individual contributor to Bush's presidential
and Texas gubernatorial campaigns); the apparent conflict of
interest, with Enron standing to benefit from government
regulatory decisions; the destruction of documents by auditor
Arthur Andersen; the calls from Enron executives to the Treasury
and Commerce Departments as the energy-trading powerhouse was
coming apart; the huge profits made by corporate insiders on the
sale of their Enron shares compared with the catastrophic losses
suffered by ordinary employees in their 401k accounts: Enron had
it all.
Too bad for the Democrats one of their own got in the way.
Squeaky Clean Bob Rubin, the former Clinton Administration
treasury secretary and Citigroup executive committee chairman,
tried to use his standing in Washington to help his company on
Wall Street.
Not in the same way Ken Lay did, mind you. Ken Lay did what
any CEO would do: He acted in the best interests of his
shareholders.
Questionable Ethics
Rubin did him one better. On Nov. 8, he called Treasury
undersecretary for domestic finance Peter Fisher, an old bailout
hand, having orchestrated Wall Street's rescue of Long-Term
Capital Management in 1998, and asked him what he thought of the
idea of calling the rating agencies to try and avert a downgrade.
At the time, Enron was rated ``Baa3,'' the lowest investment
grade rating, by Moody's Investors Service and was on review for a
possible downgrade.
Rubin's call ``was a soft-sell,'' said Michele Davis, a
Treasury spokesperson. ``He asked Fisher what he thought of the
idea of Fisher placing a call to rating agencies to encourage them
to work with Enron bankers to see if there was an alternative to
an immediate downgrade.''
A downgrade to junk status would have scotched the proposed
takeover of Enron by Dynegy, Inc. A junk rating would have made it
almost impossible for Enron to act as a counter-party on energy
trades, the most lucrative part of its business.
A Lot to Lose
Citigroup, which was advising Enron on the takeover by
Dynegy, stood to lose hefty fees if the deal fell through.
Moody's downgraded Enron on Nov. 28. The Dynegy merger
collapsed that day. Enron declared bankruptcy on Dec. 2.
It's one thing for Ken Lay to make calls to the Treasury, to
the Commerce Department, to the Federal Reserve, hoping to invoke
the too-big-to-fail doctrine. It is incumbent on a CEO to act in
the interest of his shareholders.
It's quite another thing for Rubin to use his government
contacts to attempt to compromise a private rating agency, whose
function is to provide an independent evaluation of credit risk,
to avoid a decision that would hurt his bank. Investors large and
small make decisions based on a company's credit rating. If
ratings can be manipulated, what purpose do they serve?
While Citicorp has refused to quantify its loan exposure to
Enron, the bank was the largest arranger of syndicated loans to
the company and is believed to have the largest exposure to Enron
along with J.P. Morgan Chase. Citigroup will release fourth-
quarter earnings on Thursday.
Separation of Powers
Yesterday, on ABC's ``This Week,'' Sam Donaldson asked
Treasury Secretary Paul O'Neill about the Rubin phone call.
``I never would have made such a call,'' O'Neill said.
The secretary went on to explain that when he left Washington
after his stint at the Office of Management and Budget in the
1970s, ``I made a deliberate decision that I was not going to
trade on what I knew about the government and people that I knew
in the government.''
Each phone call by Enron to the Bush administration for the
purpose of providing information or asking, directly or
indirectly, for help, was met with a firm ``no.'' There is no
impropriety there unless the facts change.
Meanwhile, the Enron story has provided enough juicy material
for a half-dozen Congressional hearings. The Democrats would love
to use them to chip away at Bush's strong popularity ratings and
deflect attention from his acknowledged success as a war
president.
They have one of their own, Bob Rubin, to thank for ruining
their fun.
While Citicorp has refused to quantify its loan exposure to Enron, the bank was the largest arranger of syndicated loans to the company and is believed to have the largest exposure to Enron along with J.P. Morgan Chase.
According to Enron court filings, Citigroup -- previously the bankrupt company's largest creditor -- is holding $3 billion in Enron debt.
CNN- Enron employees could have sold their ENE stock at almost any time in 2001:
The Bush DOJ a has decision to make. It appears they are going to let this go with "account reporting guidelines" as the problem, and if they do they better get ready for the heat, that dog won't hunt.
Do you read her bond market/economy columns regularly?
Rubin's call speaks of something different-an attempt to use government contacts to change a ratings notice by a respected company. But then...you expect nothing less from clinton holdovers....none of them have ever met with an ounce of integrity (or they would never have associated themselves with the clintons in the first place).
She's in my 'must-read' category. She's got gobs of street sense -- and she's a great financial analyst, to boot.
That's the long and short of it, my friend. From Citigroup, Lieberman has received $112,546 in campaign largess.
Exactly right.
Little wonder Dems why are succumbing to cold feet.
I think you really meant to say fish wrap, right? hehe.
Until it comes out that Davis & Co. conspired to bring down Enron. Not a difficult thing to do to a leveraged company, if you have the will and the way.
Wasn't it the head of the California PUC who said he'd like to see Ken Lay die in the penitentiary?
If all Rubin did was to ask Fisher about the idea of placing a call to rating agencies, Rubin is in the clear. If Fisher agreed with his idea, Rubin would have been cleared because Fisher approved the ethics and practicality of Rubin's idea. When Fisher actually disagreed with Rubin's idea, Rubin was cleared because nothing happened.
It's one thing for Ken Lay to make calls to the Treasury, to the Commerce Department, to the Federal Reserve, hoping to invoke the too-big-to-fail doctrine. It is incumbent on a CEO to act in the interest of his shareholders. It's quite another thing for Rubin to use his government contacts to attempt to compromise a private rating agency, whose function is to provide an independent evaluation of credit risk, to avoid a decision that would hurt his bank. Investors large and small make decisions based on a company's credit rating. If ratings can be manipulated, what purpose do they serve?
Caroline Baum's attempt to make a scandal about Rubin's discussions with Fisher are hopelessly naive. ENE was already manipulating its credit ratings by feeding inaccurate and incomplete information about its partnerships' profits/losses to shareholders and employees. Rubin was probably also misled, just like all the rest of us who lacked access to ENE's partnership info. ENE's shareholders and most of its employees got Layed. Rubin's actions were irrelevant to the ENE's lost billions.
And the same people who gave heavily to Lieberman tried to coerce an existing government official to improperly influence ratings agencies. The effect would have been a fradulent rating on Enron, which would have facilitated the takeover by Dynegy, Inc., which would have bailed out Citigroup from massive loan losses and actually put money in their pockets in the form of hefty consultation fees from the merger itself. Citigroup is Lieberman's largest contributor.
Enron, and all it's past daliances with the Clinton/Gore/Lieberman administration, would have ceased to exist. Eventually Dynegy,Inc. would have figured it out but the criminal trails would have been completely obscured by then and it would just be a civil matter involving big money. The rats would have escaped and the share holders would have been left with, what we know now is, worthless stock. THAT would have happened if the Democrats had had their way.
Thanks to right thinking Bush Treasury Dept. personel, nobody took the bait and Enron is left to answer for it's own actions. Dynegy's shareholders should be pretty damn upset with Rubin and Citigroup and anybody who is associated with them.
Caroline Baum, who I know, has forgotten more about how the capital markets work, than you likely know.
Attempting to corrupt both the US Treasury Department AND the independent ratings agencies is is a double smack at the integrity of the markets. Coming from Mr. Clean Rubin, this makes the attempt all the worse.
Actually, that is just in the most recent year. Go here for the total since 1998. (It is $226,192 and Citigroup has been Lieberman's biggest contributor since that time.)
All of which casts a pall on any "investigation" spearheaded by Citigroups' veritable man-in-Washington, Sen. Joseph Lieberman.
The notoriously hard-nosed firm papered both political parties with contributions, and received the access one would expect from such a large donor.
But when the fraudulent nature of the enterprise was exposed, it became a tar baby whose influence evaporated.
The DOJ investigation into ENRON will have to look at the history of the company and it's practices in order to find out what could cause such a collapse. This probe will expose lots of improper influence by many high level Government officials. It will call into question why ENRON officials were attending international trade missions involving the U.S. Government. It will look into who financed ENRON, Who did the accounting for ENRON and who profited from the collapse of ENRON.
Here is where the dog bites the democrats, it was democrats from the Clinton Administration who were involved in all the inapropriate and unethical influence involving ENRON contracts and Government officials. These names will be back in the headlines, Ron Brown, Mack McLarty, Mickey Kantor, John Huang, Bill lam Lee, Janet Reno, Robert Rubin, Al Gore and of coarse Bill Clinton.
The democrats will learn, that the first time Kenneth Lay and Robert Rubin were denied a "Quid Pro Quo" from the White House was when they asked for one from the Bush Administration. So I look forward to the determination of the DOJ investigation, it might just produce something Ken Starr never could, A CONVICTION
I am glad this is starting to get around. My first post pointing this out was last Friday.
1. Someone should notify Rush - if not done already - about this article.
2. Thank you both for your contributions to FR's ongoing airing of the truth about Enron. This effort must be translated into a caseload of information for those trying to slam President Bush with this Enron collapse.
They are not going to succeed, period.
Somebody correct me if I'm wrong,but isn't "Citigroup" the NY bank that the Saudi Crown Price holds a controlling stock interest in? Or is it another one? I know I read here on FR that he is the majority stockholder in one of the big NY banks.
So, what you're saying is that if I ask you to do something we both know is unethical, and you refuse to do it, then its OK.
Suppose we replace unethical with illegal. I ask you to murder someone and you refuse, so I'm in the clear. Right?
Hmmmmm....
Good job, my friend.
He's actually trimmed his holdings, and was only allowed to buy and hold what he has as a "passive" investor.
There has been no indication he has ever used his stake to influence bank management.
My sentiments exactly, friend. It's slowly dawning even on our enemies that Enron is a dead-end for them, politically.
The press will simply endlessly print Enron/Bush headlines til the cows come home, but I doubt it'll do more than keep the homies happy and idiot donors generous.
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If Rubin's actions were irrelevant, why did the man whom we were told for years was beloved of Wall Street even attempt to make that call? Did Rubin get Layed, also? How could a man of Rubin's stature/connections NOT know about the partnerships? The fact that Rubin called before the average investor was aware of a looming downgrade speaks to Rubin knowing all there was to know.
Are you an investor? Did the market's actions (huge sharp downturns quickly followed by stronger than warranted rallies) in the 90's surprise, confuse or worry you? Have you ever done a search on the phrase "Plunge Protection Team"? Have you noticed that Rubin was called in by the White House immediately after 9-11 to advise them on how to prevent a market free fall? Do you make a distinction between illegal and highly unethical based upon party affiliation? Or are you only biased by ideology, regardless of party? What is your opinion on Zell Miller?
While I don't subscribe to Bloomberg online, I just signed up for DirecTV and have begun watching Bloomberg. They are very credible, even-handed and I now prefer them to CNBC.The financial management professionals I know also find Bloomberg credible.
I have been in the markets since 1974. Daum is right on.
Thanks for clearing this up.
There has been no indication he has ever used his stake to influence bank management.
There may not be any indications,but we both know major shareholders get listened to when they get pushy.
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