Friday, February 15, 2002

At the risk of becoming the Enronblogger (I've been trying to avoid that), a few more words about the proceeds of payoffs and the power of positive denial.

First, the question of what Enron was getting for its campaign contributions. I've already discussed Enron's unusual access and immense influence over Dubya's energy policy, but Enron benefitted from Bush administration policies in other areas as well. Enron was playing a lot of games with offshore subsidiaries --- they had 800 separate subsidiaries in tax havens like the Caymans. This tax haven hanky-panky would have had much stricter scrutiny under regulatory deals reached by the outgoing Clinton administration (in some cases, including the Caymans, under threat of economic sanctions). Bush, coming in, backed off on the deals within a month. Enron also led the lobbying effort towards retroactive repeal of the corporate alternative minimum tax in the House "stimulus" proposal, which would have given Enron a quick quarter billion dollar refund. There's more, but that will do for now.

As to denial, Robert Musil is still at it:

The Times article reels off a long list of prominent companies and investment banks involved in these "shady practices".... Further, although McGeehan never seems to make the connection, it is fairly clear that many major accounting firms other than the hapless Arthur Andersen must have signed off on these transactions. IT IS SURELY A CONSPIRACY SO VAST...!

What the Times and much of the media seem to be having a lot of trouble understanding is that every time the Enron practices are shown to be more widespread, those very practices are more likely to actually NOT have been inconsistent (or at least deliberately inconsistent) with generally accepted accounting principles, applicable disclosure laws and Securities and Exchange Commission regulations and the good faith custom and practice of the accounting profession. What the Times recounts is strong evidence in this direction.

Musil is still trying to infer whether the Enron financial statements, as originally published, properly reflected the financial state of the firm, according to generally accepted accounting principles, based on the behavior of banks and other such straws in the wind.

To most of us, this question was definitively settled by Enron's "restatement" of its financial reports going back several years, which reduced profits by roughly $600 million, added about $700 million to the company's debt, took a cool $1.2 billion off shareholder's equity, and sent the company into its death spiral --- not to mention the ensuing two-week shredding party at their accounting firm and their subsequent dismissal of the partner responsible for the audit and shredding (who proceeded to take the fifth before Congress), and finally, Enron's dismissal of the accountants. Enron itself now claims the accountants didn't do a proper job --- but to Musil, the jury is still out.


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