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Jewish World Review Jan. 23, 2002 / 10 Shevat, 5762

Michael Barone

Michael Barone
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Consumer Reports

Leaving well enough alone --
WASHINGTON has been all atwitter about the possibility that the Enron collapse will cause a political scandal for the Bush administration. We are reminded over and over that Enron generated more political contributions for George W. Bush than any other company, and the subtext of many of the news stories is that the Bush administration must have done Enron some favors in return. But there is no evidence that it did. By trying to fit Enron into the familiar scandal template, the media are missing larger, more important lessons.

There is no dispute that Enron officials contacted Treasury Secretary Paul O'Neill, Treasury Under Secretary Paul Fisher, and Commerce Secretary Donald Evans seeking help as Enron stock plunged. Former Clinton Treasury Secretary Robert Rubin, now a top executive of Citigroup, which loaned Enron $800 million, asked Fisher whether he should call the bond-rating companies to question their downgrade of Enron's credit.

The response in each case was the same: No. Nor did Enron get what it wanted in public policy. The biggest change Enron sought-limits on carbon emissions, so that it could make money running emissions-trading markets-was firmly opposed by the administration. Editorial writers are already busy clucking that the Enron case shows the need for campaign finance reform. It shows just the opposite: With this administration, at least, campaign contributions bought nothing-not even access: O'Neill, Fisher, and Evans would have taken the calls of top officials of the nation's No. 7 company even if it hadn't given hefty campaign contributions.

Broken laws? Democrats with presidential ambitions like Connecticut Sen. Joseph Lieberman are still talking about digging for evidence showing that the administration did something for Enron. Other Democrats, including California Rep. Henry Waxman, complain that the Bush administration didn't do enough for Enron shareholders. A more sensible approach is being taken by a Michigan Democrat, Sen. Carl Levin. His investigation is focusing on whether Enron and its auditors broke the law and whether laws or accounting standards should be changed to protect investors and make markets work properly.

The Bush administration's refusal to intervene on Enron's behalf, like its refusal to intervene massively in Argentina's economic crisis, is an example of how its policies differ from those of the Clinton administration. In 1995, Rubin put together a $52 billion loan guarantee package for Mexico, without support from Congress. In 1998, the Federal Reserve Bank of New York, supported by the Clinton Treasury Department, provided $3.6 billion to bail out Long-Term Capital Management, a hedge fund. Both bailouts seemed to work well: Mexico's economy and Long-Term Capital recovered. Creditors who might have gotten nothing did well.

But such bailouts create what economists call moral hazard: If creditors believe they're going to be bailed out, they will extend credit profligately, which will lead to more bankruptcies and financial crises. The Mexico bailout may have contributed to the 1997 East Asian financial crisis, and the Long-Term Capital bailout may have contributed to the Enron bankruptcy. The Bush administration's actions-or inactions-on Enron and Argentina will reduce moral hazard and make lenders and investors think twice about where they put their money.

Of course, the facts in Mexico and Argentina, Long-Term Capital and Enron are not precisely the same, and you can construct an intellectually defensible position for both administrations' actions. Even so, they seem to reflect a difference in temperament between the two parties. When a Democrat as intelligent as Henry Waxman suggests that the government somehow should have acted to protect the share price of a single company, one must suspect that his temperament, not his intellect, is speaking.

For Democrats are temperamentally inclined to believe that government should act to help people who are hurting, while Republicans are more inclined to let markets take their course. The Clinton administration actively promoted foreign investments by U.S. companies, including Enron, after it contributed to Democrats. The Bush administration seems less inclined to do so. The media are chortling that the Enron collapse will hurt Bush by showing how cozy he is with big business. But an administration disinclined to intervene in the marketplace is likely to be less popular among beleaguered CEOs and less affected by campaign contributions than one that is always eager to help.

Michael Baone Archives

JWR contributor Michael Barone is a columnist at U.S. News & World Report and the author of, most recently, "The New Americans." He also edits the biennial "Almanac of American Politics". Send your comments to him by clicking here.


©2001, Michael Barone