http://www.commondreams.org/views02/0322-05.htmPublished in the April 8, 2002 issue of The Nation
Enron Democrats
by William Greider
If left-labor-liberal progressives had the cohesion and muscle of their right-wing opposites, they would be articulating a simple-to-understand litmus test for the Democratic Party--no "Enron Democrats" on the presidential ticket in 2004. That precondition would eliminate a number of presidential wannabes now mentioned by the Washington media's Great Mentioner. Scratch Senator Joe Lieberman. Forget the happy talk about Senate majority leader Tom Daschle's running for the White House. And Senator Joe Biden can stop daydreaming. These men--and perhaps some other would-be candidates--do not pass the Enron smell test.
It is not that Enron Democrats got a lot of money themselves from the now-ruined energy company, but they are implicated in more significant ways. On various matters, they helped set the stage for the scandalous behavior of Enron and other highfliers now in disgrace. They defended the degraded accounting standards that hoodwinked investors. Or they promoted financial gimmicks and deregulatory measures that opened the way for grand malpractice. Or they formed thick alliances with the very banks, auditing firms and corporations that are now running for cover--sued, investigated or defrocked as New Economy marvels.
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Lieberman's Slippery Slope
Senator Joe Lieberman, as chairman of the Governmental Affairs Committee, presides over hearings into what-went-wrong with the air of sorrowful piety that is his specialty. "Gatekeepers weren't keeping the gate, watchdogs weren't watching," he lamented. He neglects to mention that he is one of the faulty watchdogs and also a leading gatekeeper who blocked the timely reform of corporate finance. The Senator has a hypocrisy problem. He frequently sermonizes on the moral failings of others, including other public figures. Meanwhile, he has shilled vigorously, sometimes venomously, for the very players who are new icons of corruption--major auditing firms, corporate executives who cashed stock options early while investors took a bath and, especially, those self-inflating high-tech companies in Silicon Valley that drove the stock-market bubble. As a New Democrat, Lieberman held the door for their escapades.
His most important crusade was protecting the loopy accounting for corporate stock options. Nervous regulators recognized early on that the profusion of stock options had the potential to deceive investors while cheating the tax system--illusions that could drive company stock prices to impossible heights. Tech startup firms, as well as established names like Microsoft, were issuing a growing volume of stock options as a substitute for wage compensation, especially for top executives. These companies did not have to report the billions in new options as an operating cost, thus making their earnings seem much greater than they were. Yet when employees eventually cashed in the options, the companies claimed them as tax deductions. This two-way mirror is symptomatic of the deceptive bookkeeping that permeated corporate affairs during the boom and the bubble.
Back in 1993, when the Financial Accounting Standards Board proposed to stop it, Lieberman went to war. "I believe that the global pre-eminence of America's vital technological industries could be damaged by the proposal," he warned. The FASB, he insinuated, was politically motivated or simply didn't grasp the bright promise of the New Economy. Lieberman organized a series of letters warning the accountants' board to stop its meddling. In the Senate, he mobilized a resolution urging the Securities and Exchange Commission to squelch the reform. It passed 88 to 9. The regulators backed off--and stock prices soared on the inflated earnings reports. Whenever FASB tried to reopen the issue, Lieberman jumped them again. He was well rewarded by Silicon Valley and auditing firms. He is the New Democrats' favorite candidate for 2004.
Lieberman's victory was extraordinarily costly for the economy, not to mention duped investors, unhinging valuations and fostering the overinvestments that now hang over the tech industry. Accounting professor Itzhak Sharav of the Columbia University Business School describes Lieberman's intervention as the first step on "the slippery slope that got us mired in the Enron swamp." Once auditors and corporate managers saw regulators defanged on stock options, Sharav explained, they were emboldened to explore further in the realm of gimmicky profit reports. "How much is two plus two? How much do you want it to be?" Sharav said. "Once you start playing games with the numbers, there's no limit to what you might do." Senators Carl Levin and John McCain have proposed a nifty solution--companies can no longer have it both ways. If they don't account for their stock options as a cost in earnings reports, then they cannot claim them later as tax deductions. Lieberman is opposed--still on the slippery slope.
(snip)
Citibank Democrats
Labor and consumer lobbyists felt a chill in early March when Senate majority leader Tom Daschle announced his intention to get "a strong bankruptcy bill out of conference and on the President's desk within four weeks, so the bill can be signed before we go home for the Easter recess." Bankruptcy "reform" is of a different order from Enron fraud or loophole bookkeeping by Arthur Andersen, but it emanates from the same political sources and is, likewise, hideously one-sided in its impact on ordinary citizens. The legislation was written by major banks and the credit-card industry, wishing to tighten the screws on debt-soaked families. No one doubts this measure will make life even more miserable for the people maxed out on their credit cards and on the brink of Chapter 7. Daschle's statement meant the Democratic leader thinks it is now safe to enact the bankers' bill. Last year, a record 1,492,000 Americans filed for bankruptcy protection, but now the recession is over, isn't it?
"It really is pretty much a creditors' wish list," explained Henry Sommer, vice president of the National Association of Consumer Bankruptcy Lawyers. "Some people won't be able to file at all
, and everyone will have to pay hundreds of dollars more in fees, which knocks a lot of them out of filing. Many who by filing now could save their homes from foreclosure or their cars from repossession won't be able to do so under this bill. And many will come out of bankruptcy owing as much as they owe now. Congress gave a lot to the credit-card companies, but this is really an equal-opportunity bill; they also gave a lot to the car lenders, the mortgage lenders, the residential landlords, the finance companies, even credit unions."
In Congressional circles, a bill like this one is known as a "money vote," because it's an opportunity for good fundraising from monied interests (or, if you vote wrong, you face the risk of those interests financing your next opponent). For six years, the financial industry has lobbied intensively for this measure and both parties have milked it like a veritable cash cow. Contributions from finance companies and credit-card firms more than doubled during the last election cycle, passing $9 million. Commercial banks are the dominant credit-card issuers--led by Citibank, with $99.5 billion in credit-card debt--and this remains their most profitable line of business. Commercial banking as a whole increased political spending in the last election by nearly 60 percent, to $26.1 million, though the bankers' money speaks on many issues beyond tapped-out borrowers.
When George W. Bush took office, a bankruptcy bill was the first major legislation passed by the new Congress. Bill Clinton had vetoed a milder version, but in the new circumstances many former opponents scrambled aboard. Only sixteen Democratic senators voted against the bill, led by Paul Wellstone (the measure would have become law long ago, if not for Wellstone's guerrilla resistance). The "yea" votes included a couple of new faces much celebrated as "people" politicians and presidential possibles--Hillary Clinton and John Edwards. Two other potential candidates--Russ Feingold and John Kerry--voted against it.
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