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Economic Collapse, Political Fallout
Critics Zero In on Administration Silence on Contacts

Glenn Kessler and Mike Allen . NY Times . 21 january 2002

On Oct. 29, as the Bush administration's economic brain trust gathered for its weekly luncheon, Commerce Secretary Donald L. Evans pulled Treasury Secretary Paul H. O'Neill aside. Evans related a phone call he had received that day from Kenneth L. Lay, chairman of Enron Corp., the once highflying Texas energy firm that was suddenly in deep financial trouble.

Lay and other executives had been among President Bush's biggest financial backers over his political career, and Evans was chairman of Bush's presidential campaign. Lay wanted help, Evans said. It turned out that O'Neill had received a similar call the day before. In a brief conversation, O'Neill and Evans decided there was "no way" they were going to do anything to help Enron.

Then they sat down for lunch, not saying a word to the other attendees, even though one -- Lawrence B. Lindsey, head of the National Economic Council -- had been a $50,000-a-year consultant to Enron. And they waited 73 days to tell Bush about the calls.

That was the chronology presented by the administration last week as part of a cascade of disclosures about the extent of the administration's contact with Enron executives in the weeks before the energy giant filed for bankruptcy court protection on Dec. 2. As the revelations of contacts between Bush Cabinet officials and Enron executives reverberated in the nation's capital, the country's largest corporate bankruptcy spread from a major economic debacle to a full-fledged political skirmish between the White House and Capitol Hill.

In the coming months, as Justice Department and congressional investigators swarm over Enron's corporate wreckage, the credibility of the administration's account will come under scrutiny. Investigators also will press Enron executives for their version of events, sometimes under oath and the threat of criminal prosecution.

Congressional investigators said the speed of the collapse is one reason they are so interested in exactly what Enron executives said to administration officials. Lay "does not believe he asked for anything -- he wanted to provide information," Enron spokeswoman Karen Denne said.

Robert Bennett, a prominent lawyer hired by Enron, said Lay believed he had an obligation to tell government officials about Enron's plummeting financial condition. But, according to Bennett, Lay added, "If they concluded they wanted to give help to me and my company, I was not going to turn them down."

Was Enron -- a brash, aggressive company that nearly rewrote the nation's rules on energy distribution -- really so reserved when it came to seeking help from the White House? Did O'Neill and Evans really give no sign to their luncheon colleagues, let alone the president, about the phone calls from a politically active company headed for a spectacular implosion?

Some Democratic lawmakers believe they can attack the White House coming and going: If anything was done to help a political intimate, Bush can be filleted for breaking his promise to restore honor and integrity to the White House. If nothing was done in response to the calls, some Democrats plan to argue the administration should have done something to protect shareholders and employees.

One of the most sensitive questions for the administration is the role Enron played in developing the administration's energy policy. After refusing last year to reveal whom Vice President Cheney and his energy task force had met with in developing the policy, the administration disclosed in a Jan. 3 letter to Congress that Cheney had met with Lay and that his staff had met with Enron representatives five times.

"It is now clear the White House had knowledge that Enron was likely to collapse but did nothing to protect innocent employees and shareholders who ultimately lost their life savings," said Rep. Henry A. Waxman (D-Calif.), ranking minority member of the House Committee on Government Reform. "I am deeply troubled that the White House stood by and let this happen to thousands of families."

In response, the White House pointed to a Dec. 5 news release from the Labor Department, announcing "an investigation into questions raised by Enron's handling of its workers' retirement benefit plans." Labor Secretary Elaine L. Chao said Enron's employees "have gotten the short end of the stick in the sudden collapse of this company, and we are committed to doing everything we can to help them."

On Friday, Waxman sent a five-page letter to Evans and O'Neill asking each to respond to 10 questions, including, "Why did it take so long for the public to learn about your contacts with Enron prior to its bankruptcy filing?"

Waxman also has asked the White House to "immediately make a full disclosure of all contacts administration officials have had with Enron representatives."

A senior administration official said the White House "will fully cooperate with all requests that are relevant and specific," but added, "If people are asking for every contact that anyone may have had with anyone for any reason, that's a fishing expedition."

The revelation Friday that former Clinton treasury secretary Robert E. Rubin -- now an executive at Citigroup, one of Enron's main creditors -- also sought to interest the Bush administration in intervening may broaden the spotlight from the links between Bush and Enron. Rubin, according to a source, contacted the Treasury Department on Nov. 8 because he thought "an Enron bankruptcy was an economic event of national importance." Bush officials say they saw few national ramifications.

"In no other country in the world would you have the seventh-largest company fail, one with these alleged political connections, and the government would simply let it happen," Lindsey said last week on "Fox News Sunday." "This is a tribute to American capitalism."

The Bush administration has rebuffed some bailout requests but in one case rushed to aid key businesses. Immediately after the Sept. 11 attacks, Lindsey received a call from the chief executive of a major airline that was in danger of losing its line of credit, according to administration officials. Lindsey called a major bank and suggested it not take any drastic steps, noting that Congress would likely come to the aid of the airline industry. The officials would not name the airline.

But the administration has treated Enron -- which, along with its executives, contributed more than $220,000 to Bush's campaign -- as radioactive since the firm disclosed in October that it had overstated profits by $586 million over the past four years because of what it called accounting errors. Lay was one of the Bush "pioneers" who raised at least $100,000 for the presidential campaign, but the president and his aides have played down any close friendship.

From 1999 to 2001, Enron made $1.9 million in unregulated "soft money" contributions to Democrats and Republicans, but nearly three-quarters of its political giving went to GOP candidates, according to the Center for Public Integrity, a watchdog group.

Enron's bankruptcy filing not only led to layoffs but also eviscerated the retirement nest eggs of thousands of employees and cost shareholders millions of dollars in stock losses. Plaintiffs in civil suits contend that senior Enron executives and directors took advantage of the company's high stock price a year ago to sell hundreds of millions of dollars in stock before share prices began to slide.

Administration officials and Enron executives have been increasingly at odds over the substance of their conversations in October and November. According to the administration, Lay told O'Neill on Oct. 28 that Enron's problems were similar to the near-collapse in 1998 of the Long-Term Capital Management hedge fund, which required a private-sector rescue organized by the Federal Reserve Bank of New York.

In the conversation with Evans, the administration says, Lay asked Evans if he could do anything to influence a decision by Moody's Investors Service to downgrade Enron's credit rating. Evans, according to the Commerce Department, rejected the idea as "a no-brainer," and then confirmed his decision with the general counsel and deputy commerce secretary before mentioning it to O'Neill at lunch.

White House officials said Bush was in the dark about the conversations for more than two months, until Evans and O'Neill mentioned them about 9:30 a.m. Thursday, toward the end of an Oval Office meeting with his economic team.

Reporters were about to be ushered in for a photo opportunity. Before such sessions, White House press secretary Ari Fleischer tells Bush what he is likely to be asked. "They're going to ask you about meetings you had with Ken Lay," Fleischer said, according to two sources.

Evans and O'Neill then volunteered that they each had received a call from Lay, and said they had not taken any action in response.

"You did the right thing," Bush replied, according to the sources.