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Bush Sr. and others open doors for the Carlyle Group.

Did George W. Bush once have a financial relationship with Enron? In 1986, according to a publicly available record, the two drilled for oil together--at a time when Bush was a none-too-successful oil man in Texas, and his oil venture was in dire need of help. (In early March The Nation broke the story on its website; two days later the New York Times covered this Bush-Enron deal.)

In 1986 Spectrum 7, a privately owned oil company chaired by Bush, faced serious trouble. Two years earlier Bush had merged his failing Bush Exploration Company with the profitable Spectrum 7, where he was named the company's chief executive and director. Bush was paid $75,000 a year and handed 1.1 million shares, according to First Son, Bill Minutaglio's biography of Bush. Bush ended up owning about 15 percent of Spectrum 7. By the end of 1985 Spectrum's fortunes had reversed. With oil prices falling, the company was losing money and on the verge of collapse. To save the firm, Bush began negotiations to sell Spectrum 7 to Harken Energy, a large Dallas-based energy company mostly owned by billionaire George Soros, Saudi businessman Abdullah Taha Baksh and the Harvard Management Corporation.

In September 1986 Spectrum 7 and Harken announced a plan under which Spectrum 7 shareholders would receive Harken stock. Bush said publicly that Spectrum 7 would continue to operate in Midland, Texas, as a wholly owned subsidiary of Harken and that he would become an active member of Harken's board of directors. As Minutaglio reports, the deal would give Bush about $600,000 in Harken shares and $50,000 to $120,000 a year in consultant's fees. It also would provide $2.25 million in Harken stock for a company with a net value of close to $1.8 million.

As the details of the Spectrum-Harken acquisition--which Bush badly needed--were being finalized, Enron Oil and Gas Company, a subsidiary of Enron Corporation, announced on October 16, 1986, a new well producing both oil and natural gas. A press release reported that the well was producing 24,000 cubic feet of natural gas and 411 barrels of oil per day in the Belspec Fusselman Field, fifteen miles northeast of Midland. Enron held a 52 percent interest in the well. According to the announcement, 10 percent belonged to Spectrum 7. At that point, Spectrum 7 was still Bush's company. Harken's completion of the Spectrum 7 acquisition was announced in early November.

To spell it out: George W. Bush and Enron Oil and Gas were in business together in 1986--when Ken Lay was head of Enron. (Lay was named Enron chairman in February of that year.) How did this deal come about? Was this the only project in which Bush and Enron were partners? The White House did not respond to a request for information but later was quoted as saying there had been nothing unusual about the arrangement. Spokeswomen for Enron and EOG Resources (formerly Enron Oil and Gas) said they could not provide information on the well or on other possible Bush-Enron ventures.

Does the relationship between the younger Bush and Lay go back further than heretofore reported--to the mid-1980s? The deal could have happened with no contact between Lay and Bush. But most company heads would be quite interested to know that the son of a sitting Vice President had invested in one of their enterprises. Is it possible that Bush and Spectrum 7 received undue consideration from Enron? Given Enron's penchant for using political ties to win and protect business opportunities, it's tough not to wonder whether this Bush-Enron venture involved special arrangements. This is one more Enron partnership that deserves scrutiny--especially since George W. Bush failed to acknowledge it before the details became public. The Spectrum-Enron deal is either an odd historical coincidence or an indication that there's more to learn about the Bush-Enron association.

An awakened sense of outrage has reporters and members of Congress playing a fierce game of hounds and hares with Enron executives and other bandits, which is most fortunate for Alan Greenspan. If the Federal Reserve were not treated with such deferential sanctimony, its chairman would also face browbeating questions concerning his role in unhinging the lately departed prosperity. Newly available evidence supports an accusation of gross duplicity and monumental error in the ways that Greenspan first permitted the stock market's illusions to develop into an out-of-control price bubble and then clumsily covered his mistake by whacking the entire economy. These offenses are not as sexy as criminal fraud but had more devastating consequences for the country.

The supporting evidence is found in newly released transcripts of the private policy deliberations of the Federal Open Market Committee (FOMC) back in 1996--the fateful season when the froth of asset-price inflation was already visible in the stock market. In a series of exchanges, one Fed governor, Lawrence Lindsey (now the President's chief economic adviser), described with prescient accuracy a dangerous condition that was developing and urged Greenspan to act. Greenspan agreed with his diagnosis, but demurred. If Greenspan had acted on Lindsey's observations, the last half of the nineties might have been different--a less giddy explosion of stock market prices without the horrendous financial losses and economic dislocations that are still unwinding.

Lindsey described back in 1996 a "gambler's curse" of excessive optimism that was already displacing rational valuations on Wall Street. The investment boom in high-tech companies and the rising stock prices were feeding off each other's inflated expectations, he explained, and investors embraced the improbable notion that earnings growth of 11.5 percent per year would continue indefinitely. "Readers of this transcript five years from now can check this fearless prediction: profits will fall short of this expectation," Lindsey said. Boy, was he right. The Federal Reserve has the power to cool off such a price inflation by imposing higher margin requirements on stock investors, who borrow from their brokers to buy more shares. That is what Lindsey recommended.

"As in the United States in the late 1920s and Japan in the late 1980s, the case for a central bank ultimately to burst the bubble becomes overwhelming," he told his Fed colleagues. Acting pre-emptively is crucial; if the regulators wait too long, any remedial measure may be destabilizing. "I think it is far better to do so while the bubble still resembles surface froth and before the bubble carries the economy to stratospheric heights," Lindsey warned.

Greenspan lacked the nerve (or the wisdom) to follow this advice. The chairman did make a celebrated speech in December 1996 observing the danger of "irrational exuberance" in the stock market, but he did nothing to interfere with it. In the privacy of the FOMC, the chairman agreed with Lindsey's diagnosis. "I recognize that there is a stock-market bubble problem at this point [the fall of 1996], and I agree with Governor Lindsey that this is a problem we should keep an eye on," Greenspan said. Raising the margin requirements on stock market lending would correct it, he agreed, but he worried about the impact on financial markets. "I guarantee that if you want to get rid of the bubble, whatever it is, that will do it," Greenspan said. "My concern is that I am not sure what else it will do."

In hindsight it's clear the Federal Reserve chairman got it wrong. But his private remarks in 1996 also reveal flagrant duplicity. As the market bubble grew more extreme and many called for action by the Fed, Greenspan repeatedly dismissed criticism by explaining that raising the margin requirements would have no effect. In testimony before the Senate Banking Committee in January 2000, Greenspan said that "the reason over the years that we have been reluctant to use the margin authorities which we currently have is that all of the studies have suggested that the level of stock prices have nothing to do with margin requirements."

By 1999 the stock market was in the full flush of the gambler's curse--remember Dow 36,000?--and at that point Greenspan finally did act. But instead of tightening credit for stock investors, Greenspan proceeded to tighten credit for the entire economy, steadily raising interest rates in 1999 and 2000 until the long-running expansion expired. So did the stock market bubble (although stock prices remain very high by historical standards). Greenspan has always denied that this action was designed to target the bubble, but Bob Woodward, who wrote an admiring account of Greenspan's years at the Fed, reported that the "Maestro" was stealthily deflating the bubble by slowing the economy. Greenspan got that wrong too, since a recession resulted.

Millions of Americans are now paying the price, either as hapless investors or unemployed workers. The democratic scandal is that public officials are supposed to be held accountable for their actions, including human error. Accountability is impossible when the Fed chairman is allowed to make policy decisions in closed meetings and keep his true opinions secret for five years. The FOMC's verbatim meeting minutes should be shared with the citizens who will be affected and made available for timely political debate. When reformers get finished with the funny-money accounting at Enron, they might turn their attention to some holy illusions surrounding the Federal Reserve.

Thomas White, the former Enron vice chairman appointed by George W. Bush to be Secretary of the Army, should resign immediately. The case against White is self-evident. Touted as "one of the most outstanding managers in corporate America" by Enron's favorite senator, Phil Gramm, he was named Army Secretary, promising to bring "sound business practices" to the Pentagon. But White's entire business experience was at Enron, where he participated directly in the lies and mismanagement that resulted in its bankruptcy and the betrayal of investors and employees. Enron's business practices generally, and White's in particular, are the last thing that should be inflicted upon the Department of the Army.

Before being named Army Secretary, White was vice chairman of a venture called Enron Energy Services from 1998 through May 2001. He was paid $5.5 million in salary and bonuses in his last year alone and walked off with stock and options valued at about $50 million and homes in Naples, Florida, and Aspen, Colorado, worth more than $5 million apiece.

Touted as a burgeoning profit center, Enron Energy Services reported a pretax operating profit of $103 million on revenues of $4.6 billion in 2000. But EES was a fraud, hemorrhaging money while covering up its losses with accounting maneuvers. Its profit in 2000, according to Enron vice president Sherron Watkins, was created by counting ersatz financial trading gains from one of the infamous off-budget Raptor partnerships. The recently released special investigation of Enron's board of directors concluded that those transactions violated accounting rules. White and EES chairman Lou Pai made millions, but the venture they ran was so mismanaged that in February 2001 Enron executives brought in another leadership team to clean up the mess.

Enron Energy Services was set up to compete with public utilities in selling energy to large enterprises like JC Penney, the Catholic Archdiocese of Chicago and the US Army. Enron would sign long-term contracts to provide energy at a sharply reduced fixed price. It would then install energy-saving devices to lower its clients' energy needs and use its trading savvy to supply that energy at bargain prices.

From the beginning, though, Enron's follow-through was something of a joke. "They knew how to get a product out there, but they didn't know how to run a business," former EES employee Tony Dorazio told the New York Times. Glenn Dickson, an EES director laid off in December, charged that White and Pai "are definitely responsible for the fact that we sold huge contracts with little thought as to how we were going to manage the risk or deliver the service."

Perhaps Pai and White were more concerned about selling than fulfilling contracts because they were making their money on the front end, benefiting from Enron's aggressive accounting practices. When Enron signed a ten-year contract with a customer, it would project its revenues and profits over the ten years and book all of them as received in the first year of the sale. This "mark to market" accounting is a generally accepted accounting practice--but only when the revenues and costs can be reliably projected. EES had to predict future energy prices, the pace of energy deregulation in different states and the conservation savings of its customers over many years. It then paid its managers and sales personnel bonuses based on those projections. This was an irresistible invitation to what former EES employee Jeff Gray called "illusory earnings."

And illusion there was. "It became obvious that EES has been doing deals for two years and was losing money on almost all the deals they had booked," wrote former employee Margaret Ceconi in an e-mail to Enron's board in August, warning that more than $500 million in losses were being hidden in Enron's wholesale energy division. Enron used its bankruptcy to walk away from EES's losing deals and dismissed most of its 1,000 employees.

Where was White during all this? His emerging defense is that he was out of the loop. He didn't do numbers. He provided a dashing can-do military figure for the customers, a rainmaker who helped land the deals. And EES was tasked to show growth. Bidding for a fifteen-year, $1.3 billion contract with Eli Lilly, it paid Lilly $50 million up front to seal the deal. The contracts could be projected as profitable, even if they were to bleed money in the succeeding years. So long as EES kept expanding fast enough and the contracts kept rolling in, no one need know. Under White's leadership, Enron Energy Services turned into a classic Ponzi scheme.

White still maintains that EES was "a great business...there were no accounting irregularities that I was aware of." It is hard to imagine a clearer self-indictment. Either he knew that EES was a lie and is potentially guilty of fraud, or he was oblivious to the lie and thus is utterly incompetent to manage the Department of the Army with its annual budget of $91 billion.

Tyson Slocum of Public Citizen argues that White is a walking conflict of interest. He came to the Army pledging to get it out of the energy business, even as Enron was bidding to supply the military with energy. He pledged to sever all financial ties with Enron but elected privately to receive an annuity payment, part of which came from the company. Enron's bankruptcy ended this conflict, but it doesn't put an end to White's complicity in a scheme from which he pocketed millions while running his venture into the ground, betraying the trust of investors and employees alike.

Ultimately Enron is about values, about integrity and responsibility. It is a story of executives who cashed out more than $1.1 billion in stock while misleading employees and investors. Thomas White is one of those executives. Personal responsibility should apply to the powerful as well as the weak. If it means more than election-year campaign rhetoric for this Administration, then it is time for Thomas White to go.

A report from Porto Alegre on the "antiglobalization" movement.

You have to hand it to George Bush the senior for hustle. Back in 1998, he took at least $80,000 in stock from Global Crossing in return for speaking for the company in Tokyo.

As the House of Representatives was about to begin debating a modest campaign finance reform bill, former Enron CEO Kenneth Lay was taking the Fifth before the Senate commerce committee. As the disgraced exec sat grim-faced at the witness table, Democratic Senator Fritz Hollings, chairman of the committee, used the nickname George W. Bush once conferred upon Lay, noting that there is "no better example than Kenny Boy of cash-and-carry government." Lay and Enron dumped millions of dollars into the political system--in hard-money contributions to candidates and soft-money donations to political parties--and spent millions more to hire politically wired lobbyists (including Republican Party chairman Marc Racicot) and to snag high-profile opinion leaders (like Bush economic adviser Lawrence Lindsey) as consultants. Executives were coerced to cut campaign checks to Bush and other politicians, Republican and Democrat. The goal was to game the system in Enron's favor--in regulatory agencies, in Congress, in state capitals, in the White House.

Enron, of course, was not unique in this regard. Why else would corporate executives invest millions in candidates and parties? If they're not receiving a return, shareholders should sue. (Enron may well have received favors from federal and state officials in the months and years before the company started collapsing and became too controversial to assist; the various Enron inquiries on Capitol Hill should be digging into this.) And the system seems to be working fine for most donors and the recipients, for the flow of money keeps increasing. In 2001 the two parties bagged $151 million in soft money--the large unlimited contributions given mainly by corporations, unions and millionaires--almost a 50 percent increase over 1999, the last nonelection year. The Republicans out-collected Democrats, $87.8 million to $63.1 million.

The Shays-Meehan bill, at the center of the latest House campaign finance debate, called for something of a ban on soft money for the national parties--a good move. But the legislation, similar to the McCain-Feingold bill in the Senate, still contained soft-money loopholes and, just as unfortunate, raised the limits on certain hard-money donations. If Shays-Meehan had been enacted years ago, it would have done little to slow down the Enron racketeers. That's why it's important for the debate to move beyond Shays-Meehan/McCain-Feingold. The long-term solution must be a system of public finance in which candidates can receive most of their campaign dollars in clean money, that is, funds that come from the no quid/no quo public till rather than the private pockets of the rent-a-politician crowd. The first run of clean-money systems in Maine and Arizona showed that such an alternative can work: There were more contested races, more women and minorities running and a more level playing field. The vast majority of both states' legislators and statewide officials will run "clean" this year, and it looks as though the Massachusetts Supreme Court will force the implementation of that state's clean election law for this year's election. Legislation is advancing in several other states.

In the past few years, the reform debate in Washington has been too modest. The authors of the reform bills deserve credit for pushing against a mighty tide of self-interest, but Enron shows how far special interests will go to rig the system. True reform has to go as far.

As January turned into February, the most important people in the world gathered themselves together in midtown Manhattan for the annual World Economic Forum. Normally held in Davos--the Swiss ski resort previously famous for being the site of Thomas Mann's The Magic Mountain--the meeting was shifted to New York this year as an act of solidarity with a city wounded on September 11.

Healing, though, wasn't much in evidence. To protect the 3,000 delegates--businesspeople, academics, journalists and random celebrities--the area around the Waldorf-Astoria was sealed off with metal fences, dump trucks filled with sand and 4,000 members of the NYPD. Of course, the intention was to keep out the thousands of activists who'd come to protest them, not to mention terrorists who might dream of taking out a good chunk of the global elite in one deadly action.

Thankfully, no mad bombers showed up. And though the protesters were kept well away from what was dubbed the Walled-Off-Astoria, their influence was nonetheless clearly felt. One attendee, Bill Gates, the richest person on earth, actually welcomed them, saying: "It's a healthy thing there are demonstrators in the streets. We need a discussion about whether the rich world is giving back what it should in the developing world. I think there is a legitimate question whether we are."

That Gates said something like that--leaving aside for a moment just what it means--is one sign of how the political environment has changed over the past few years. Another is the evolution of the WEF itself. The forum was founded in 1971 by Klaus Schwab, a Swiss professor of business, policy entrepreneur and social climber. At first it was a quiet and mostly European affair, with executives and a few intellectuals discussing the challenges of what was not yet called "globalization." But it grew over time, gaining visitors from North America and Asia, and by the 1990s had emerged as a de rigueur gathering of a global elite. In fact, it's been one of the ways by which that elite has constituted itself, learning to think, feel and act in common.

Corporate and financial bigwigs--who pay some $25,000 to come--dominate the guest list, but they also invite people who think for them, entertain them and publicize them, for whom the entrance fee is waived. Star academic economists were also on the list of invitees (bizarrely marked "confidential," so I had to swipe a copy), alongside some unexpected names: cultural theorist Homi Bhabha, columnist Arianna Huffington and model Naomi Campbell. And lots of religious figures, NGO officials and union leaders--who, to judge from their press conferences, didn't feel very well listened to. It seems not much communication goes on across the vocational lines; Berkeley economist Brad DeLong, a first-timer, theorized that "one reason that the princes of the corporate and political worlds are where they are is that they are very good at staying quiet when baited by intellectuals."

And DeLong was in the same room with them. Most journalists covering the event weren't so lucky. The WEF designated a handful of clubbable correspondents from places like the New York Times and CNBC as "participating press" and allowed them to mingle with the delegates at the Waldorf. But several hundred others, dubbed "the reporting press," were penned up in a couple of cramped "media centres" in a neighboring hotel. The terms are fascinating. Clearly the participating press participates in the inner workings of power and helps create its mystique. But the reporting press couldn't really report at all: We got to watch some of the sessions on closed-circuit TV (only the big, more formal ones--the intimate brainstorming sessions were strictly private), to read sanitized summaries distributed by the WEF staff and to view a few dignitaries at press conferences, which were generally too short to allow more than a few perfunctory questions.

Not only were we barred from newsworthy events--we weren't even told they were happening. In one of them, Treasury Secretary Paul O'Neill explained bluntly that the Bush Administration let Argentina sink into total crisis rather than engineer a bailout because "they just didn't reform," apparently forgetting that the country was once praised as a model of economic orthodoxy. In another, Colin Powell asserted the right of the United States to go after "evil regimes" as it sees fit--harsh language from the Administration's resident dove. Neither speech went down well with a good bit of the audience; anxiety at Washington's unilateralism was one of the recurrent themes among non-US delegates.

The gathering's mood was clearly troubled. Back in the 1990s, when the US economy was booming, trade barriers were falling and the New Economy was still new, the temper of the gatherings was reportedly pretty giddy. Now, the headlines are full of bad news--Enron, Argentina, recession, terrorism, protest. And the conference reflected it.

Businesspeople and academics mused on how to deal with new risks--you can't hedge against bioterrorism in the futures markets. Economists debated which letter would best describe the US economy--a V (sharp fall followed by a quick recovery), a U with a saggy right tail (long stagnation, weak recovery) or, most appropriate, a W (false recovery followed by a fresh downdraft). The consensus leaned away from the V toward the saggy U, with the W not to be ruled out.

But there were things more profound than the business cycle to worry about. As the Washington Post noted with apparent surprise, "The titles of workshops read like headlines in The Nation: 'Understanding Global Anger,' 'Bridging the Digital Divide' and 'The Politics of Apology.'" Most prominent among those concerned with poverty were the duo of Gates and his new friend Bono, the lead singer of U2. Bono--who identified himself on opening day as a "spoiled-rotten rock star" who loves cake, champagne and the world's poor--hammered at the need for debt relief. (It's easy to make fun of him, but activists are quick to point out that his influence is much to the good.) Gates kept reminding everyone that about 2 billion people live in miserable poverty. Of course, no one was rude enough to point out that Gates's personal fortune alone could retire the debts of about ten African countries.

It's hard to believe this is much more than talk, however. Addressing poverty and exclusion would require WEF attendees to surrender some of their wealth and power, and they're hardly prepared to do that. Stanley Fischer, formerly the second in command at the IMF and now a vice chairman of Citigroup, expressed "profound sympathy" for the people of Argentina but then worried about "political contagion"--the risk that other countries, seeing the crisis there, might reject economic orthodoxy.

Further insight into the WEF mindset was provided by Fischer's panelmate, South African Finance Minister Trevor Manuel. According to Manuel, during the (private) WEF discussions, "poverty was defined...as the absence of access to information," which would be news for anyone struggling to pay the rent. More urgently, he pointed out that "uprisings occur because ordinary people don't feel that they have voice and representation." To ward off that danger, policy-makers must worry about "equity"--which he carefully distinguished from "equality." When I asked him to expand on this distinction, Manuel said, "There are different conceptions of equality to start with. There's equality of opportunity and equality of outcome. But equity is about creating stakeholders. For example, both employers and employees have a stake in good labor practices." When I said that that sounded like it was more about changing perceptions rather than material reality, he said, "It's all those things. It's all those things." Manuel also revealed that the participants had "interesting, interesting debates on whether we should ask business, in the conduct of business, to act ethically or whether it's OK for business to be unethical in the conduct of business and then have some spare cash to do good with." No wonder people pay $25,000 to play this game.

And it's no wonder that on the closing day, a panel of union leaders--five out of some forty who were there, including AFL-CIO president John Sweeney--gave a very downbeat assessment of the forum's dedication to a real adjustment of policy. Sweeney, the most moderate of the group, said that the world economy doesn't have an image problem--its problems are structural. Others spoke of CEOs being "in denial," of hearing but not listening.

Unfortunately, though, there were very few union people--leaders or rank-and-filers--demonstrating in the streets that weekend. That would have made quite an impression on the great and good. But Gates's appreciation of the protesters points to what was doubtless the best thing about this year's forum: The 12,000 who marched through midtown Manhattan on February 2 proved that the so-called antiglobalization movement, a global movement if there ever was one, was not put out of business by September 11. It's alive and well--so alive and well that it set much of the WEF's agenda.

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