Three Little Horrors Behind Enron Economics

by Molly Ivins

This bill, which would never have seen the light of day had the stock market not tanked, fixes one of the Three Little Horrors that set up Enron Economics. Good on Sen. Sarbanes and all who toiled with him to pass it. Lord knows, many years at the Texas Legislature have taught me how hard it is to pass a bill supported by no special interest, but only in the public interest. Practically a miracle. Righteous hosannas to all.

But it still fixes only one of the Little Horrors and touches neither of the two Big Ones. Hearing Bush claim, "The era of low standards and false profits is over," was painful. No, it's not. (I guess that makes Bush a false prophet himself.) The Little Horrors were small only in the amount of attention they got, not in the effects they have had. Starting sequentially, they were:

• 1994, the Senate, at the urging heavy contributors in the securities, high-tech and accounting industries, persuades the Financial Accounting Standards Board NOT to rule that stock options must be treated as a company expense. This leads directly to the explosion in executive compensation and gives executives a big incentive to inflate their stock prices.

• 1995, the Private Securities Litigation Reform Act, part of Newt Gingrich's Contract On America, is passed over Clinton's veto. It limits the right of investors to sue, exempts accounting firms from charges of aiding and abetting in cases of fraud, and allows CEOs to make ridiculous earnings claims.

• 1999 and 2000, the defeat of Arthur Leavitt's proposal to separate the auditing and consulting functions of accounting firms, which goes down disgracefully after the financial industry spends millions.

Sarbanes tried to fix the First Horror with an amendment to expense stock options. And who should pop up to defeat him but our very own, very special, Sen. Phil Gramm. The gentleman from Odessa (that's an old Texas expression that means something else) blocked the attempt to expense stock options. Why anyone in Congress would listen to Gramm at this point is beyond me.

Now let's go back to Little Horror Numero Two: aiding and abetting. Those of you who can stand to read the financial pages are still finding daily reports of just how pervasive the corruption has become. Both bankers and brokers were in bed with Enron in the most questionable set of dealings imaginable. Been wondering who was in on all those secret offshore, off-balance-sheet partnerships of Enron's? Try 96 executives of Merrill Lynch, which was one of Enron's investment bankers. And when the investigators turn over a few more rocks, they're going to find more bankers.

Now let's move on to the Two Big Horrors: telecommunications deregulation in 1996 and banking deregulation in 1999 -- the latter a bill sponsored and passed by Gramm. The reason these two are of special interest is because they have not yet done all the damage they will do. There is still time to correct them. There is still time to prevent greater disasters.

The 1996 Telecommunications Act may actually be the single worst piece of legislation passed during the entire Newt Gingrich era. It was written by lobbyists for telecom, and lobbyists for telecom bought it through Congress.

Sen. John McCain, who to his eternal credit voted against the bill, tried to salvage one good thing out of the whole deal -- a pledge from the industry to wire schools and libraries for computers, gratis. One of the people who pushed hard for that little saving grace was then-Vice President Al Gore.

Lo and behold, less than three years later, the telecom industry reneged on wiring schools, listing the expense -- which it had promised to underwrite -- on its bills and calling it "the Gore tax." I have never met McCain in my whole life, but he called me one day in 1999 -- after I had written an angry column about the industry's "Gore tax" ploy -- and said: "This is John McCain. You were right. I was wrong." And then he hung up.

Ah, but worse, far worse, is Gramm's 1999 banking deregulation act. After reporting on a financial-news channel this week that both Citigroup and J.P. Morgan Chase are up to their ears in the Enron debacle, some cheerful blonde piped up, "But of course, Citigroup will never be allowed to fail, because Citigroup is Too Big to Fail."

As we often say in Texas when confronted with the improbable, "No doo-doo?"