Bush and Ken Lay: Slip Slidin' Away
By Sam Parry
February 6, 2002
George W. Bush is trying to rewrite the history of his and his familys relationship with Enron Corp.s disgraced former Chairman Kenneth Lay. So far, Bush has enjoyed fairly good success as the U.S. news media has largely accepted the White House spin.
But the reality, as established by a wealth of historical record and recent disclosures, is that Lay and Enron were instrumental in Bushs rise to power and Bush played an important behind-the-scenes role in advancing Enrons aggressive deregulation agenda, which helped the energy trader ascend to its lofty perch as the seventh-biggest U.S. company.
The Bush-Lay coziness earned the Enron chief a nickname from Bush as "Kenny Boy." But more importantly for Enron, Bush pitched in as governor and president whenever the energy trader wanted easier regulations within the U.S. or to have U.S. taxpayers foot the bill for loan guarantees or risk insurance for Enron's overseas ventures.
The Bush-Lay relationship helped Enron extend its reach across the globe, with the appearance of a successful company, as it pulled in billions of dollars in investment money from tens of thousands of unwary investors.
Now, in trying to insulate Bush from the spreading Enron scandal, White House aides have emphasized that administration officials rebuffed Lay and other Enron executives who sought a federal bailout to save their corporate skin. But the documentary record paints a different picture, showing that the administration did what it could last year to help Enron, until the Houston energy trader's collapse was so far advanced that its deceptive bookkeeping could no longer be kept out of public view.
Last year, Vice President Dick Cheney and his energy task force held six secret meetings with Lay and other Enron officials while developing an administration program that contained special favors for Enron. Bush named Lays allies to key regulatory positions, such as the Federal Energy Regulatory Commission, which pushed for other pet Enron projects.
Under the direction of Bushs National Security Council staff, the U.S. government also strong-armed India to acquiesce to Enrons demands over its troubled Dabhol power plant, which Enron was hoping to sell for $2.3 billion. The NSCs extraordinary pressure on India continued even after Sept. 11 when Washington needed New Delhis support in the war on terrorism and wanted the Indians to quiet their border dispute with neighboring Pakistan.
Internal administration documents suggest that Bush and his NSC staff put Enron's interests on par with or ahead of U.S. national security interests. The extraordinary NSC-led campaign around the Dabhol plant ended only on Nov. 8, the day the Securities and Exchange Commission delivered subpoenas to Enron about its questionable accounting. The same day, the company admitted that it had overstated its profits by $586 million since 1997, by improperly shifting debt into affiliated partnerships. [Washington Post, Jan. 19 & 25, 2002; Bloomberg News, Jan. 18, 2002]
Kenny Boy Who?
With Enrons ignominious collapse over deceptive accounting, Bush began to act as if he barely knew Lay. On Jan. 11, Bush told reporters that Lay "was a supporter of Ann Richards in my run in 1994." Bush implied that he had gotten to know Lay as a Richards holdover appointee to a Texas business council. The impression Bush sought to create was untrue.
The Bush-Lay relationship can be traced back at least a half decade before the 1994 race. It grew out of the Houston social circle where oil tycoons have long rubbed shoulders with political players and where Ken and Linda Lay had grown close to George H.W. and Barbara Bush in the 1980s. Since 1988, when Lay backed the elder George Bush in his run for the White House, Enron and its executives have written big checks for one Bush initiative after another.
Besides the political financing, Lay has supported private and charitable activities of the Bush family. Lay joined one of Barbara Bush's charities to promote literacy as he served as the honorary chairman of the Celebration of Reading at Houston Wortham Theatre Center. [The Guardian, Jan. 30, 2002]
A trustee of the George Bush Presidential Library Foundation, Lay has donated $50,000 as a patron as well, the New York Daily News reported. In 1999, the Lays chipped in $100,000 for the Andersen Cancer Center at Texas A&M University in a fundraising drive led by then-Gov. George W. Bush and his wife, Laura.
During the Republican presidential primaries in 2000, Enron corporate jets were made available eight times to Bush's campaign staff and his parents, with the future president sometimes personally arranging the flights. [New York Daily News, Feb. 3, 2002]
Yet, when Enron collapsed, George W. Bush distanced himself from Lay. As Enron slid toward bankruptcy, its stock lost $26 billion in market value, devastating retirement plans for Enron employees and other Americans. About 5,000 people lost their jobs, including about 4,000 at Enron's Houston headquarters.
The once-high-flying Enron became synonymous with corporate corruption.
The origins of the Bush-Lay relationship can be found in the intertwining connections among oil companies, Texas politicians and international commerce. [More on the Bush family 'Oiligarchy']
In 1985, Lay created Enron by merging his company, Houston Natural Gas, with one of the largest pipeline companies in the world, Nebraska-based InterNorth. Lay named the new company, Enron, and set its sights high. Political allies would be critical to Enrons growth.
In his first major venture into politics, Lay went to work raising money and organizing support for then-Vice President George H.W. Bushs campaign for the Presidency. Bush, who built his own fortune in the Texas oil fields, was appreciative as he battled through a tough Republican primary and then defeated Democratic nominee Michael Dukakis.
In the weeks after the 1988 election, Lay may have gotten his first dividend on his investment in the Bush family. Enron had joined the bidding for a contract to build a $300 million pipeline in Argentina. The government appeared close to choosing between two other companies -- one from Italy, Ente Nazionale Idrocarburi, and the other a partnership between Argentine firm Pérez and Americas Dow Chemical.
Argentinas Minister of Public Works, Rodolfo Terragno, later told Mother Jones that he considered Enrons one-page project outline "laughable." He also noted that Enron "wasn't well established in Argentina." [Mother Jones, March/April 2000]
But Enron apparently was getting well established in the power corridors of the U.S. A few weeks after the 1988 elections, Terragno said the president-elects eldest son, George W. Bush, called to check up on "the slow pace of the Enron project."
Terragno recalled that the younger George Bush said that giving Enron the project "would be very favorable for Argentina and its relations with the United States." Terragno didnt know whether this message was from the White House or whether Bush was working a business deal on his own.
But the public works minister, who was forced to flee Argentina after the 1976 military coup, didnt succumb to what he viewed as political pressure. He said he told Bush that the deal would be awarded based on Argentine law.
Terragno, however, would not have the chance to make the decision. National elections in Argentina tossed his left-of-center party out of office and ushered in the administration of right-wing Peronist Carlos Menem.
Bush has denied the conversation took place. While Terragno says he still believes it was the younger George Bush who called, he has acknowledged the possibility that the call could have come from another Bush brother. Still, other news accounts have traced Lay's ties to George W. Bush back to about that time. An investigation by the New York Daily News concluded that "Lay began to cultivate their friendship in 1989." [Feb. 3, 2002]
Falling gas prices caused Enron to back away from the pipeline contract in Argentina. But in 1990, President George H.W. Bush traveled to the South American country to plant seeds for U.S. business interests. One of those seeds was for Enron.
According to Mother Jones, several days after Bushs visit, the U.S. Ambassador to Argentina, Terence Todman, wrote Menem a letter saying Enron and seven other U.S. companies were prepared to pull the plug on investments in Argentina if the Menem administration didnt stop favoring Argentine businesses in awarding contracts.
Todmans letter said Enron was "poised to invest $250 million" if Argentina would lower tariffs and value-added taxes that punished U.S. businesses. Menem accepted the Bush administrations entreaties and signed a presidential decree that waived these duties on Enron investments. [Mother Jones, March/April 2000]
Menems decision caused a political furor in Argentina, but the deal was done. In the years since, Enron has emerged as a fixture in the Argentine business landscape.
Back in the United States, Lay was one of 273 people invited by Bush to spend a night at the White House during his four-year term. [Houston Chronicle, Feb. 27, 1997]
In 1990, Bush picked Lay to co-chair the Houston Economic Summit of the G-8 Industrial Nations, a prestigious forum that gave the Enron chairman access to the leaders of the worlds wealthiest countries. Lay also enjoyed Bushs backing to deregulate the nations energy market to open public utilities to private competition, Enrons core business.
In 1992, Lay served as chairman of the host committee for the Republican National Convention in Houston. That year, however, Bush lost the White House to Bill Clinton. Cushioning the fall for some of Bush's top aides, Enron hired as consultants Bush's Secretary of State James Baker and Commerce Secretary Robert Mosbacher. [Business Week, Feb. 12, 2001]
The Governor's Race
In 1994, the Bush-Lay relationship entered a new phase when the younger George Bush entered the race for the Texas governor's mansion. Bush faced an uphill battle against then-Gov. Ann Richards. A popular incumbent, Richards had earned national attention for her sharp wit and irreverent style, which suited her Texas constituents. Early polls gave Richards 65 to 75 percent approval ratings.
Bush was little more than the oldest son of a former president. Despite helpful family connections in both business and political circles, Bush had flopped in the oil business, though he was able to land a position as part owner of the Texas Rangers. Still, in early 1994, national political observers gave his younger brother Jeb Bush, who was challenging another popular incumbent, Lawton Chiles in Florida, a better chance for victory. (Jeb would lose in 1994 only to come back and win in 1998).
George Bush ran a hard-hitting campaign, suggesting that Richards was soft on crime. Critical to the campaign was getting his message out, and critical to that effort was money. Bush turned to his fathers old political benefactor, Ken Lay. Enron and Lay contributed $146,500 to the Bush campaign, seven and a half times more than they contributed to the Richards campaign. Lay also publicly endorsed Bush. [Texans for Public Justice]
On Election Day, Bush won the governors mansion by a margin of 53.5 percent to 46 percent. Bush didn't forget his debt to Ken Lay.
Bush appointed Patrick Wood III, a supporter of energy deregulation, to be chairman of the Texas Public Utility Commission in February 1995. Wood's bio included a stint as an engineer for Arco Indonesia and a position as an attorney with the Baker & Botts law firm, run by former Secretary of State James Baker. Lay endorsed Wood and his appointment was a major boost to Enron's efforts to deregulate the Texas energy market. (http://www.puc.state.tx.us/about/pastcomm.cfm)
By September 1995, the Texas Senate passed SB 373, which called for the restructuring of the states wholesale electricity market. Throughout the political battle, Bush was deregulations top cheerleader in Texas, putting the state ahead of others in the region. "Texas is the only southern state to adopt retail deregulation," the Washington Post reported. [Aug. 21, 2001]
Bushs support of Enron was not limited to deregulation. He also served as an advocate for Enrons interest in getting the U.S. taxpayer to back its overseas investments.
In March 1997, Lay wrote Bush a letter asking that the governor contact every member of the Texas congressional delegation and urge support for federal agencies that gave export credits and loan guarantees to U.S. companies operating abroad. "Export credit agencies of the United States are critical to U.S. developers like Enron, who are pursuing international projects in developing countries," Bush's letter said. [NYT, June 30, 2000]
Congress voted a four-year reauthorization to fund the work of the Export-Import Bank through 2001. Though these federal programs are unpopular with many free-market advocates, only two out of 32 members of the conservative Texas congressional delegation voted against reauthorization.
Over the years, Enron has emerged as a leading beneficiary of these federal programs, receiving a total of $1.6 billion in loans and other backing from the Export-Import Bank and the taxpayer-funded Overseas Private Investment Corp.
In 1997, Bush also intervened on Enron's behalf with a call to Gov. Tom Ridge of Pennsylvania. At the time, Enron was vying to sell electricity in Pennsylvania, which was deregulating its energy market.
Bush placed the call at the personal request of Lay, who later told the New York Times, "I called George W. to kind of tell him what was going on. And I said that it would be very helpful to Enron if he could just call the governor and tell him this is a serious company, this is a professional company, a good company."
During the bidding process, Enrons main rival, PECO Energy Co., accused Enron of attempting to rig Pennsylvanias energy market. PECOs vice president, Thomas P. Hill, described Enrons scheme as a way to "simply take the money from the pockets of Pennsylvanians and drop it" into the coffers of Texans. [Foster Electric Report, Oct. 15, 1997]
Bush aides deny that Bush called Ridge as a favor to Lay. They portray the intervention as a governor lending his name to benefit a Texas company. During the 2000 presidential campaign, however, Bush spokesman Dan Bartlett acknowledged the importance of the friendship between Bush and Lay in Bushs decision to call Ridge. "The fact that [Lay] heads this company is secondary to their personal relationship," Bartlett said. [NYT, June 30, 2000]
Whatever the motivation, Bushs phone call appears to have worked. Enron cracked into the Pennsylvania energy market and used it as a regional foothold. In the late 1990s, Enron competed for contracts throughout the Northeast and rode the wave of deregulation to win contracts from Maine to California.
Back home in Texas, Enron also was enjoying favorable treatment on environmental policy. Enron, along with other companies, benefited from a loophole in the states 1971 Clean Air Act, which exempted 828 older facilities from cleaning up their emissions. At stake were hundreds of thousands of tons of toxic emissions per year and company profits.
Public pressure was mounting in Texas to do something about its status as a top polluting state, and the clean air loophole was becoming a major issue. Instead of endorsing a plan to close the loophole and require facilities to clean up their emissions, Bush created a panel of big polluters to devise a solution to the problem. The plan that the polluters designed averted mandatory actions, in favor of voluntary compliance.
Enron was one of the beneficiaries. In 1997, the grandfather loophole allowed Enron to release 3,299 tons of air pollution, most of it emitted from the Enron Methanol facility near Houston, according to information from the Texas Natural Resource Conservation Commission.
Two years later, in late September and early October of 1999, the Enron plant was partly responsible for air pollution that reached 251 parts of ozone (smog) per billion, twice the national standard. In 1999, the five highest recorded levels of smog in the U.S. were all measured in and around Houston. Residents, including school children, have reported severe breathing problems. [http://www.pirg.org/reports/enviro/smog and The Progressive, 9/1/00]
The Bush plan to close the grandfather loophole became nationally recognized for its shortcomings. "Only one permit has been issued resulting in 74 tons of pollution reduction," according to the Texas Campaign for the Environment. "This constitutes less than .01% of the 597,749 tons of grandfathered emissions." [Texas Campaign for the Environment]
Partly because of the plans futility, Texas became the nations most polluted state as measured by data collected by the Environmental Protection Agency.
Despite the failure of the voluntary strategy, the Bush campaign in 2000 touted it as Bush's greatest environmental achievement.
Taking the White House
In the 2000 campaign, Lay was a Pioneer for Bush, raising $100,000. Enron also gave the Republicans $250,000 for the convention in Philadelphia and contributed $1.1 million in soft money to the Republican Party, more than twice what it contributed to Democrats. [www.opensecrets.org]
Lay and his wife then donated $10,000 to Bushs Florida recount fund that paid for Republican lawyers and operatives to ensure that a full recount of Floridas ballots never occurred. To this day, Bush has refused to release an accounting of how that recount fund money was spent.
After Bush took the White House in January 2001, Enron Corp., Enrons President and Chief Operating Officer Jeffrey Skilling, and Ken Lay contributed $100,000 each for a total of $300,000 to the Bush-Cheney Inaugural Fund.
These contributions cemented Lays standing with the White House. From the beginning of the administration, Lay advised on policy and personnel. The Enron chief was on the short list for two Cabinet posts, Energy and Treasury, though he ultimately stayed in the private sector.
Starting in late February 2001, Lay and other Enron officials took part in at least a half dozen secret meetings to develop the Bush's energy plan. After one of the Enron meetings, Vice President Cheney's energy task force changed a draft energy proposal to include a provision to boost oil and natural gas production in India. The amendment was so narrow that it apparently was targeted only to help Enron's troubled Dabhol power plant in India. [Washington Post, Jan. 26, 2002]
Other parts of the Bush energy plan tracked closely to recommendations from Enron officials. Seventeen of the energy plans proposals were sought by and benefited Enron, according to Rep. Henry Waxman, D-Calif., ranking minority member on the House Government Reform Committee. One proposal called for repeal of the Public Utility Holding Company Act of 1935, which limits the activities of utilities and hindered Enrons potential for acquisitions.
Besides listening to Lay's advice, Bush put the corporation's allies inside the federal government. Two top administration officials, Lawrence Lindsey, the White Houses chief economic adviser, and Robert Zoellick, the U.S. Trade Representative, both worked for Enron, Lindsey as a consultant and Zoellick as a paid member of Enron's advisory board. [http://www.public-i.org/story_01_011102.htm]
Bush also named Thomas E. White Jr., an 11-year veteran of Enron's corporate suites, secretary of the Army. White had run a key subsidiary, Enron Energy Services, which is now the focus of allegations about accounting irregularities. After taking office in May, White vowed to apply his Enron experience to privatizing utility services at military bases. White's subsidiary had been responsible for selling energy services and Enron was eager for contracts with the U.S. military.
Public Citizen, a liberal watchdog group, has demanded that White fully explain 29 meetings and phone calls with senior Enron officials after White became Army secretary. White says the conversations were with "personal friends" about "Enron's deteriorating financial conditions." [Washington Post, Jan. 27, 2002]
At least 14 administration officials owned stock in Enron, with Undersecretary of State Charlotte Beers and chief political adviser Karl Rove each reporting up to $250,000 worth of Enron stock when they joined the administration.
Lay exerted his influence, too, over government regulators already in place. Curtis Hebert Jr., a conservative Republican and a close political ally of Sen. Trent Lott of Mississippi, had been appointed to the Federal Energy Regulatory Commission during the Clinton administration. Like Bush and Lay, Hebert was a believer in free markets. Bush elevated Hebert to FERC chairman in January 2001.
While a strong believer in deregulation, Hebert broke ranks with Lay on two key points. Hebert was an advocate of state rights, an obstacle to Enron's desire for FERC to mandate consolidation of state utilities into four giant regional transmission organizations, or RTOs. By quickly pushing the states into RTOs, Enron and other big energy traders would have much larger markets for their energy sales.
Hebert also was worried about the complex derivative financing instruments that he saw among the leading energy traders, including Enron. After he became chairman, he started an investigation.
"One of our problems is that we do not have the expertise to truly unravel the complex arbitrage activities of a company like Enron," Hebert said. "We're trying to do it now, and we may have some results soon." [NYT, May 25, 2001]
By early 2001, Enron executives knew how complicated and how questionable their financial schemes had become. For several years, with greater and greater audacity, they had been creating affiliated partnerships where Enron hid debt and poor-performing assets outside the view of investors and government regulators.
The schemes enabled Enron to report robust earnings and keep its stock price high, as senior executives sold off more than $1 billion in stock and made millions of dollars from self-interested deals with the partnerships. Lay personally collected more than $112 million in cash from salary, bonuses and sale of Enron stock in the past three years. He owned three houses in Aspen, Colo., valued at more than $15 million. [Washington Post, Feb. 3, 2002]
Hebert said he got a call from Lay with a proposed deal. Lay wanted Hebert to support a faster transition to a national retailing structure for electricity. If he did, Enron would back him, so he could keep his job.
The FERC chairman later told the New York Times that he was "offended" by the veiled threat. He understood that Lay's political influence could put his job in jeopardy, since Bush held the power to appoint FERC chairmen and Lay had demonstrated sway over selection of administration appointees. Besides supplying Bush aides with a list of preferred candidates, Lay had personally interviewed one possible FERC nominee.
Lay offered a different account of the phone call. He said Hebert was the one "requesting" Enron's support at the White House, though Lay acknowledged that the pair "very possibly" discussed issues involving FERC's authority over the nation's electricity grids. [NYT, May 25, 2001]
While Cheney was hammering out his energy plan and Lay was discussing energy options with FERC, a full-scale energy crisis was sweeping California. In a partially deregulated market served by Enron and other energy traders, electricity prices soared 800 percent in one year. Rolling blackouts crisscrossed the state.
A recently released memo from Lay to Cheney advised the administration last April not to use price caps to spare Californians from soaring energy costs, according to the San Francisco Chronicle. "The administration should reject any attempt to re-regulate wholesale power markets by adopting price caps or returning to archaic methods of determining the cost-base of wholesale power," the memo said. [San Francisco Chronicle, 01/30/02]
The Bush administration adopted Enrons position in its political battle with California Gov. Gray Davis, a Democrat. Many California politicians and consumers came to suspect that the energy traders were manipulating the shortages to inflate prices and boost profits. Davis has suggested that Enron "gamed" the system.
Early last summer, the political showdown ended in a draw when the FERC accepted limited price caps. Aggressive conservation by consumers and a cool summer also brought the crisis under control.
In August, with three years left on his term, FERC Chairman Hebert abruptly resigned. He offered as a lame explanation a desire "to seek other opportunities." While it appears that Bush engineered Hebert's resignation, it remains unclear how much progress Hebert's inquiry made in penetrating the secrets of Enron's complex financial instruments.
With Hebert gone, Bush filled the commission with pro-Enron allies who pushed an agenda favoring faster deregulation of the nation's energy grids. Bush promoted former Texas Public Utilities commissioner Pat Wood III, whom Bush named to the FERC in March 2001, to be FERC chairman. With Wood in charge and another new Republican appointee, Nora Mead Brownell, on the commission, the consolidation of the nation's energy markets moved to the front burner.
Lay had included Wood and Brownell, a controversial member of the Pennsylvania Public Utility Commission, on his list of preferred FERC candidates. His support appears to have been critical to their selections. [AP, Jan. 31, 2002]
On Brownell's appointment, Lay called Rove to say that Brownell "was a strong force in getting the right outcome" in Pennsylvanias deregulation plan, according to a July, 17, 2001, letter that Waxman referred to the White House counsel, citing a Wall Street Journal report. [http://truthout.com/0452.Waxman.Rove.htm]
Since Enron's collapse, Lay has become a potential political liability for Bush, who has responded by putting as much space as possible between himself and the now-ousted Enron chairman. White House aides cited, for instance, the fact that Enron favored U.S. ratification of the Kyoto Treaty to reduce global-warming emissions, while Bush has repudiated the agreement in favor of so-called "market-based" solutions.
But the global warming difference may be less than meets the eye. Enron supported the Kyoto Treaty in hopes that it would create a market in pollution credits that could be traded through Enron and thus boost its business. The plan would allow polluting companies to keep polluting if they buy credits from cleaner companies.
While the Bush administration has yet to lay out a comprehensive global warming policy, the pollution credit scheme is a market-based approach that fits well within Bush's ideology of letting corporations decide how they choose to address social and environmental problems. Pollution credits similar to those favored by Enron would likely be a centerpiece of a Bush global warming plan. It is therefore unclear what specific policy differences exist between Bush and Lay on global warming.
The other talking point from the administration intended to put distance between the White House and Enron is the claim that administration officials did nothing to help save Enron from collapse. While acknowledging that Lay called both the Treasury Secretary Paul ONeill and the Secretary of Commerce Donald Evans in late October, the White House has drawn a clear line that no actions were taken by either official on Enrons behalf.
However, the New York Times reports in a chronology of Enrons downfall that Secretary ONeill did instruct Under Secretary for Domestic Finance Peter Fisher to "look into the condition of Enron." Fisher reportedly talked with Enron President Greg Whalley "six to eight times" over a few day period in late October and early November. The full substance of those conversations have not been made public, though Fisher claims Whalley sought help with Enrons creditors, help that Fisher says he did not grant. [NYT, 1/13/02]
Striking a more personal note in his attempt to demonstrate his disapproval of Enron, Bush told reporters that his sympathies really rested with laid-off Enron employees and small Enron investors who saw their life savings wiped out. Bush said his own mother-in-law lost $8,000 when Enron collapsed.
Bush's comments sounded like a pitch to the average American, who was supposed to believe that the Bush family felt the pain of the little guys who took a beating while the corporate bigwigs made off with fortunes.
The reality is starkly different. Based on the wealth of recent and historical news accounts, Bush has long worked hand-in-glove with Enron's fundamental business interests. On policy important to Enron's corporate strategies energy trading, deregulation, tort reform, tax rates for corporations, support for government agencies that promote overseas investments for U.S. companies there is no daylight between Bush and Lay.
The truth is that the Bush-Lay relationship is as close a public-private relationship as there has been in modern American history. It conjures images from the Frank Capra classic describing another political era, Mr. Smith Goes to Washington, in which the strings are pulled by a political machine run by party boss Jim Taylor.
The political plot of the Bush-Lay connection is unique in its own time, but critical to both men. It could even be said that Enron wouldn't have become the seventh-largest U.S. company in a position for its executives to make off with hundreds of millions of dollars while leaving small investors and low-level employees to take the fall without years of assistance from George W. Bush.
And Bush might not have succeeded in taking the White House without the help of Enron and Ken Lay.
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