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COLUMN
SEVENTY-FIVE, SEPTEMBER 1, 2002
(Copyright © 2002 The Blacklisted Journalist)
BY PAUL KRUGMAN
1. SO WHY DON'T THEY INVESTIGATE BUSH THE WAY THEY INVESTIGATED CLINTON?
Subject:
NYTimes.com Article: Succeeding in Business
Date: Sun,
7 Jul 2002 11:18:29 -0400 (EDT)
From: info@blacklistedjournalist.com
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July 7, 2002
Succeeding in Business
By PAUL KRUGMAN
On 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.
Yet 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."
Unfortunately, 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.
In 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.
Despite 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.
That's 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.
Oh, 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 Whitewater investigation.
Mr. 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 director.
In 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.
The 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.
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2. STEPS TO WEALTH
Subject:
NYTimes.com Article: Steps to Wealth
Date: Tue,
16 Jul 2002 11:18:29 -0400 (EDT)
From: info@blacklistedjournalist.com
To: info@blacklistedjournalist.com
This article from NYTimes.com has been sent to you by info@blacklistedjournalist.com
July 16, 2002
Steps to Wealth
By PAUL KRUGMAN
Why are George W. Bush's business dealings relevant? Given
that his aides tout his "character," the public deserves to know that
he became wealthy entirely through patronage and connections. But more
important, those dealings foreshadow many characteristics of his administration,
such as its obsession with secrecy and its intermingling of public policy with
private interest.
As the unanswered questions about Harken Energy pile
up?what's in those documents the White House won't release? Who was the
mystery buyer of Mr. Bush's stock??let me now turn to how Mr. Bush, who got by
with a lot of help from his friends in the 1980's, became wealthy in the 1990's.
He invested $606,000 as part of a syndicate that bought the Texas Rangers
baseball team in 1989?borrowing the money and repaying the loan with the
proceeds from his Harken stock sale'then saw that grow to $14.9 million over
the next nine years. What made his investment so successful?
First, the city of Arlington built the Rangers a new
stadium, on terms extraordinarily favorable to Mr. Bush's syndicate, eventually
subsidizing Mr. Bush and his partners with more than $150 million in taxpayer
money. The city was obliged to raise taxes substantially as a result. Soon after
the stadium was completed, Mr. Bush ran successfully for governor of Texas on
the theme of self-reliance rather than reliance on government.
Mr. Bush's syndicate eventually resold the Rangers, for
triple the original price. The price-is-no-object buyer was a deal maker named
Tom Hicks. And thereby hangs a tale.
The University of Texas, though a state institution, has a
large endowment. As governor, Mr. Bush changed the rules governing that
endowment, eliminating the requirements to disclose "all details concerning
the investments made and income realized," and to have "a
well-recognized performance measurement service" assess investment results.
That is, government officials no longer had to tell the public what they were
doing with public money, or allow an independent performance assessment. Then
Mr. Bush "privatized" (his term) $9 billion in university assets,
transferring them to a nonprofit corporation known as Utimco that could make
investment decisions behind closed doors.
In effect, the money was put under the control of Utimco's
chairman: Tom Hicks. Under his direction, at least $450 million was invested in
private funds managed by Mr. Hicks's business associates and major Republican
Party donors. The managers of such funds earn big fees. Due to Mr. Bush's change
in the rules, these investments were hidden from public view; an employee of
Utimco who alerted university auditors was summarily fired. Even now, it's hard
to find out how these investments turned out, though they seem to have done
quite badly.
Eventually Mr. Hicks's investment style created a public
furor, and he did not seek to retain his position at Utimco when his term
expired in 1999.
One last item: Mr. Bush, who put up 1.8 percent of the
Rangers syndicate's original capital, was entitled to about $2.3 million from
that sale. But his partners voluntarily gave up some of their share, and Mr.
Bush received 12 percent of the proceeds?$14.9 million. So a group of
businessmen, presumably with some interest in government decisions, gave a
sitting governor a $12 million gift. Shouldn't that have raised a few eyebrows?
All of this showed Mr. Bush's characteristic style. First
there's the penchant for secrecy, for denying the public information about
decisions taken in its name. So it's no surprise that the proposed Homeland
Security Department will be exempt from the Freedom of Information Act and from
whistle-blower protection.
Then there's the conversion of institutions traditionally
insulated from politics into tools for rewarding your friends and reinforcing
your political control. Yesterday the University of Texas endowment; today the
Federal Energy Regulatory Commission; tomorrow those Social Security
"personal accounts"?
Finally, there's the indifference to conflicts of interest.
In Austin, Governor Bush saw nothing wrong with profiting personally from a deal
with Tom Hicks; in Washington, he sees nothing wrong with having the Pentagon
sign what look like sweetheart deals with Dick Cheney's former employer
Halliburton.
So the style of a future Bush administration was easily
predictable, given Mr. Bush's career history.
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