Wall St. Scams and Born Again Populists

by Molly Ivins

The Wall Street Journal published this less-amusing account of the dealings of Enron's bankers: "About a decade ago, Chase Manhattan Bank (now merged with J.P. Morgan) set up a special-purpose entity named Mahonia. Its very special purpose was to reduce Enron's taxes. By trading preferred oil and gas contracts with Mahonia, Enron was able to transfer its tax liabilities from one period to another.

"As the years rolled by, the cash-up-front property of the contracts proved irresistible, and Enron increasingly tapped Mahonia as a source of financing. The money flowed back and forth, the size of the transactions grew bigger and bigger, and the repayment periods got longer and longer. Enron booked the money as cash from trading operations, thereby pumping up its cash flow and obscuring the size of its debt. Meanwhile, Morgan hedged its risk with credit derivatives and surety bonds from insurance companies.

"Citigroup's structured financing was similar. The bank set up schemes -- with names like Yosemite, Delta and Roosevelt -- designed to make the financing of Enron look like trading activity. Money was raised from investors through the sale of credit-linked notes. Then Citigroup shipped that money to offshore special-purpose entities which, in turn, sent the money back to Enron, allowing Enron to borrow money but record the loans as prepay contracts.

"The result of this daisy chain was that Enron got almost $9 billion that may have overstated its cash flow by 50 percent. The money also decreased Enron's debt by 40 percent, allowing it to avoid nasty credit downgrades. Meanwhile, ahem, the banks made hundreds of millions of dollars in fees and commissions."

Hard to tell which is the parody, isn't it?

And while we are on the subject of what is beyond parody, the aforementioned Wall Street Journal deserves a special salute for its editorial of May 16 encouraging American companies to move to Bermuda on the grounds that it is patriotic to avoid paying taxes.

I'm not making this up: "Why it's patriotic to avoid paying high tax rates" is the subhead of the touching essay on why American corporations, which are already paying less in taxes than the janitors who clean their floors, should flee off-shore. We've often heard that patriotism is the last refuge of a scoundrel, but don't you think that's carrying it a little far?

Hard to know whether to laugh, cry or throw up.

Meanwhile, we are now treated to the edifying sight of innumerable politicians scrambling to get right with Jesus, or at least with the voters. Witnessing this land-rush toward civic virtue requires a cast-iron stomach.

Such specimens as Rep. Billy Tauzin of Louisiana, who last cast a vote in the public interest sometime around 1981, are now attempting to emerge as born-again populists. The eternally pious Sen. Joe Lieberman of Connecticut is, as per usual, favoring us with Deep Thoughts on the need for moral rearmament. That would be the same Lieberman who in 1994, when the Financial Accounting Standards Board was fixing to rule that stock options had to be treated as a company expense, sponsored a non-binding Senate resolution urging the board to back down, which it did.

The ability of companies to dispense options without having to account for them led to the explosion in executive compensation and gave corporate officials a big incentive to artificially inflate their stock prices. As Public Campaign, a campaign finance reform group, points out in a recent bulletin, the industries that pushed so hard for the free stock options -- security, high tech and accounting -- have put $346 million into congressional campaign coffers since 1989 and Lieberman has gotten more than $750,000 from those three groups.

Speaking of edifying sights, how nice to see Larry Lindsey, President Bush's chief economic adviser, on the Sunday chats assuring us that all is well despite the Dow Jones. How can you have Larry Lindsay on and not mention the relevant information that before he went to the White House, he was a financial consultant and advisory board member for Enron?

I used to yearn for a sexier name than campaign finance reform. In fact, I once ran a contest to find a punchier way to describe it -- the readers favored "End Legalized Bribery." But it seems to me campaign finance reform is now peculiarly apposite, since we are looking at a political-financial scandal directly attributable to the way campaigns are financed. Political financing is the root of the rot.