Tuesday, George W. Bush is scheduled to give
a speech intended to put him in front of the
growing national outrage over corporate malfeasance.
He will sternly lecture Wall Street executives
about ethics and will doubtless portray himself
as a believer in old-fashioned business probity.
this pose is surreal, given the way top officials
like Secretary of the Army Thomas White, Dick
Cheney and Mr. Bush himself acquired their wealth.
As Joshua Green says in The Washington Monthly,
in a must-read article written just before the
administration suddenly became such an exponent
of corporate ethics: "The 'new tone' that George
W. Bush brought to Washington isn't one of integrity,
but of permissiveness. . . . In this administration,
enriching oneself while one's business goes
bust isn't necessarily frowned upon."
the administration has so far gotten the press
to focus on the least important question about
Mr. Bush's business dealings: his failure to
obey the law by promptly reporting his insider
stock sales. It's true that Mr. Bush's story
about that failure has suddenly changed, from
"the dog ate my homework" to "my lawyer ate
my homework - four times." But the administration
hopes that a narrow focus on the reporting lapses
will divert attention from the larger point:
Mr. Bush profited personally from aggressive
accounting identical to the recent scams that
have shocked the nation.
1986, one would have had to consider Mr. Bush
a failed businessman. He had run through millions
of dollars of other people's money, with nothing
to show for it but a company losing money and
heavily burdened with debt. But he was rescued
from failure when Harken Energy bought his company
at an astonishingly high price. There is no
question that Harken was basically paying for
Mr. Bush's connections.
these connections, Harken did badly. But for
a time it concealed its failure - sustaining
its stock price, as it turned out, just long
enough for Mr. Bush to sell most of his stake
at a large profit - with an accounting trick
identical to one of the main ploys used by Enron
a decade later. (Yes, Arthur Andersen was the
accountant.) As I explained in my previous column,
the ploy works as follows: corporate insiders
create a front organization that seems independent
but is really under their control. This front
buys some of the firm's assets at unrealistically
high prices, creating a phantom profit that
inflates the stock price, allowing the executives
to cash in their stock.
exactly what happened at Harken. A group of
insiders, using money borrowed from Harken itself,
paid an exorbitant price for a Harken subsidiary,
Aloha Petroleum. That created a $10 million
phantom profit, which hid three-quarters of
the company's losses in 1989. White House aides
have played down the significance of this maneuver,
saying $10 million isn't much, compared with
recent scandals. Indeed, it's a small fraction
of the apparent profits Halliburton created
through a sudden change in accounting procedures
during Dick Cheney's tenure as chief executive.
But for Harken's stock price - and hence for
Mr. Bush's personal wealth - this accounting
trickery made all the difference.
and Harken's fake profits were several dozen
times as large as the Whitewater land deal -
though only about one-seventh the cost of the
Bush was on the company's audit committee, as
well as on a special restructuring committee;
back in 1994, another member of both committees,
E. Stuart Watson, assured reporters that he
and Mr. Bush were constantly made aware of the
company's finances. If Mr. Bush didn't know
about the Aloha maneuver, he was a very negligent
any case, Mr. Bush certainly found out what
his company had been up to when the Securities
and Exchange Commission ordered it to restate
its earnings. So he can't really be shocked
over recent corporate scams. His own company
pulled exactly the same tricks, to his considerable
benefit. Of course, what really made Mr. Bush
a rich man was the investment of his proceeds
from Harken in the Texas Rangers - a step that
is another, equally strange story.
point is the contrast between image and reality.
Mr. Bush portrays himself as a regular guy,
someone ordinary Americans can identify with.
But his personal fortune was built on privilege
and insider dealings - and after his Harken
sale, on large-scale corporate welfare. Some
people have it easy.