Friday, May 26, 2006

Enron Was Bush's Greatest Success

A couple of weeks ago, a German newspaper asked the President what was his best moment in office. His response was a fish tale --

"I would say the best moment of all was when I caught a 7.5-pound perch in my lake."
Of course, the world's record for fresh water perch is 4 pounds, 3 ounces, but we can chalk it up to fuzzy math.

But while Bush was content to blow off the question, I think it raises two others. First, why not answer it straight? Why not toot your own horn when you are always whining that the good news is not being reported? The snarky response is that there isn't a moment that could be considered great. The ideological answer is that by displaying a great moment, it would be showing that government can accomplish great things and this undermines the GOP strategy of sabotaging confidence in governmental solutions. The likely answer is that Bush just likes playing for the laugh. He prefers goofing to serious reflection.

But the question still remains. What was Bush's best moment? With Ken Lay and Jeff Skilling having both been convicted, I would honestly say that his handling of the collapses of Enron and WorldCom were probably his finest hours.

Now, it is true that Lay was one of his biggest campaign contributors and had Enron pay the $50,000 for Bush's second gubernatorial inauguration party -- an event designed by Karl rove to be the start of his Presidential run. For this, Lay was appointed to the Bush administration "Energy Department Transition Team," was influential in handpicking the members of the Federal Energy Regulation Commission which would oversee much of Enron's business, and was deeply involved in the Vice President's efforts to construct governmental energy policy. With this, they were able to make huge profits extorting and blacking out California amongst other altruistic actions.

When the house of cards collapsed, the shockwave toppled other dominoes. The culture of fraud and corruption that is American corporate governance was exposed and there were deep ties to the administration. This should have, for rational agents, shaken their confidence in the system -- and this should have been catastrophic.

Markets work largely on perception. Think about the first time you learned that banks don't have the money you put in to them. It is much like the time you first learned that ice cream in the cone doesn't go all the way down. For the bank to work, the customers have to have confidence that even though the money isn't there, it would be if they needed it. Of, course, it can't be there for everyone and when there is a lack of confidence in the institution and a run on the bank occurs, the whole thing goes kabluey. The economy at large is the same way. The markets are supported by the confidence of the investors. If the investors get spooked and start pulling their money out, then there is a crash. What Enron, WorldCom, and all the others showed us was that there was a deep ethical cancer in the market. This revelation should have had horrible effects. But it didn't.

The reason was that Bush's "a few bad apples" line was bought hook, line, and sinker. I don't know if it was that the press has been extremely reticent to push on any story that may throw a negative light on Bush because of fear of losing access and active retaliation. I don't know if the corporate ownership of the mass media conglomerates played into it. Maybe it was because we are dealing more than ever with large institutional investors who are less likely to spook and who could afford to wait and see. All I know is that he was able to comfort investors and that avoided what should have been a really, really, really bad thing.

The "few bad apples" line has been used in many places for many things by the Bush administration, many of them bogus and designed to cover up (I want to think about that in detail next week), but in this instance it was enough to keep confidence in the market and keep the balloon inflated. So, even though, he was a part of the problem that was Enron, I would have to say that his handling of the aftermath of the collapse of Enron -- or more accurately, his handling of the media in the aftermath of collapse of Enron -- was his greatest moment.

UPDATE: Mike, the Livid Life-scientist has a very good accounting of Enron's misaccounting.