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CNN Saturday Morning News

Reporter's Notebook: Enron and Power Politics

Aired February 16, 2002 - 08:18   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MILES O'BRIEN, CNN ANCHOR: We need to light up some phone lines, folks. The number is 404-221-1855. Please send us your telephonic queries.

Jonathan Karl and Gail Chaddock are standing by. They've been waiting for hours for this opportunity. Actually, Jonathan Karl just sat down. But that's OK, he's still ready to take your questions. We invite you to call now, 404-221-1855. Operators are standing by.

JEANNE MESERVE, CNN ANCHOR: And now to bring you the very latest on the Enron collapse, the focus is on former CEO Ken Lay and his hefty stock sales. Lay reportedly sold $100 million worth of Enron stock last year. The "New York Times" says more than $16 million was sold after he was warned the firm might collapse.

That warning came, of course, from Enron's Sherron Watkins. The paper says Lay sold his Enron shares even as he encouraged other employees to buy. It is unclear at this point how much profit Lay actually made on those sales.

O'BRIEN: Ouch. And they talk about a liquidity problem that they have.

MESERVE: Yes.

O'BRIEN: I don't know.

MESERVE: As he sells all the real estate.

O'BRIEN: Those are the kinds of liquidity problems I'd like to have, if you know what I mean.

MESERVE: And, of course, that Enron report comes as the personal relationship between Lay and President Bush is under renewed scrutiny.

O'BRIEN: We're going to take a look now at Enron and power politics in our "Reporters' Notebook."

And joining us as promised, CNN congressional correspondent Jonathan Karl and Gail Chaddock with the "Christian Science Monitor." They're both in Washington this morning.

Good to have you both with us.

GAIL CHADDOCK, "CHRISTIAN SCIENCE MONITOR": Thank you.

JONATHAN KARL, CNN CORRESPONDENT: Good morning, Miles.

CHADDOCK: Good to be here.

O'BRIEN: All right, let's get to the e-mail while we wait for some phone calls to come in. This one isn't so much a question, I just enjoyed it and we'll just, you don't necessarily have to comment on it if you don't want to.

Dave Fritz from Fort Collins, Colorado writes this: "Watching Enron execs bob and weave in the press and before Congress reminds me of a twist on the old saying which, by the way, seems endemic among managers, 'to err is human, to blame it on someone else shows management potential.'"

Anyway, I'm going to push -- there's no need to go any further and get ourselves in trouble with our bosses, so let's go to the next one. "As a result of the Enron controversy, many large corporations are now researching their accounting records and practices to ensure they are accurate. Will the U.S. government implement any new checks and balances for the supervision of such corporations? Also, is the government investigating the records of any other corporations for which Arthur Andersen consults?" That comes from Kevin Porter in Capitol Heights, Maryland. Good question, Kevin.

I'll tell you what, Gail, ladies first.

CHADDOCK: I think you should keep a close eye on the Securities and Exchange Commission, the SEC. They have periodically gone over the accounts of big corporations, but curiously did not look at Enron in the year 2000, which is when it typically would have come up. They're going to be under a lot of pressure to step up their operation.

And I think the other thing to look at closely is what they're paid. Congress has passed pay equity for the SEC. These folks are vastly underpaid, and, I think you could argue, overworked, especially now. But it's not in President Bush's budget. So there'll be an interesting fight to see how serious we are about reform, to see if that gets funded.

KARL: Yes, and Miles, let me jump in.

O'BRIEN: Could be.

One of the big criticisms of the SEC was it didn't look at the current laws on the books. And one of the reasons for that was the agency, it is said by its, people, allies of the SEC, people there, Arthur Leavitt, didn't have enough resources to do what they needed to do to enforce the laws that were on the books. Well, there are no substantial new resources in the president's new budgets. Priorities are obviously elsewhere, era of budget deficits, war, recession. Money for the SEC is not a big priority in this budget.

So you can pass all the new laws you want, but if the SEC is still working at a level where it simply doesn't have the resources to look into these corporations, it's hard to see how much change there will be.

O'BRIEN: Good point.

MESERVE: Miles, I want you to know your endless repetition of that phone number has paid off.

O'BRIEN: Oh, good. I'm so glad.

MESERVE: We do have a phone call coming in from Detroit about the Watkins testimony. Chantel (ph), go right ahead with your question.

CALLER: Hi. Good morning. I have a question for the panel. I mean I was watching the C-SPAN about Sherron Watkins' testimony and there she said Jeffrey Skilling and Fastow duped Mr. Ken Lay. And I was wondering after why she should say that because as the head of the organization, your own responsibility and you're very knowledgeable about what is going on under you. So I'm wondering is it a part on the government trying to save Ken Lay as a last attempt.

MESERVE: Who wants to take that one?

KARL: Well, I will say one of the most striking aspects of Sherron Watkins' very dramatic testimony before the House was that she really came to Ken Lay's defense. I mean she came out there, called him a man of integrity, said that she still believes that Ken Lay is a man of integrity, said that she believes that Ken Lay simply didn't know, didn't understand the gravity of the problems facing his company, didn't understand what she was saying.

So she largely gave Ken Lay a pass. I don't think it can be said about, the same can be said about other members of Congress, though.

O'BRIEN: Well, were you a little bit surprised at that, Gail, that she let him off the hook?

CHADDOCK: Well, you...

O'BRIEN: I had heard, you know, some Enron insider saying sort of similar things, that Ken Lay is a good guy who was duped. I still find that a little hard to believe.

CHADDOCK: Well, she is a loyal team player, is how she's representing herself. She came under subpoena to testify and she's not a whistle-blower in the classic sense. That is, she didn't quit her job. She, in fact, consistently through her testimony said that there were points where she didn't speak out because she was afraid that she would lose her job.

But your caller raises what I think is the most interesting issue in this case, which is how far is it going to go? Can you contain the damage to five bad guys, their accountant and their lawyer, which is what Sherron Watkins' testimony was trying to do? Or will you push it much beyond that? And, of course, the fear of many is that public confidence in accounting and business practices writ large has been shaken and that there will be other Enrons to follow. So this is a much bigger question than just five people within Enron.

O'BRIEN: All right, Neal has a good question. I haven't heard much talk about this, but I suspect there are some people who are former Enron employees who are curious about this one. "The U.S. government can easily put Enron back into business today if it wants to. We can wait to find the criminals, but the Enron employees can't wait to pay their bills. What about a bailout?"

KARL: Don't expect that any time soon, Miles. I mean one of the major issues here is did the Bush administration do anything to help Enron out as Enron was about to go down the tubes? Obviously there have been contacts between senior Enron officials like Ken Lay and senior administration officials at the White House. And, you know, one of the Bush administration's arguments here is hey, all those campaign contributions, all those ties really didn't pay off. We didn't have any special treatment for Enron. And they wear it as kind of a badge of honor that they didn't do anything to help this company as it was going under.

So I don't think you're going to see much more.

O'BRIEN: Good point.

MESERVE: A phone call about possible jail time for Enron executives when we come back in just a moment.

O'BRIEN: Stay with us.

COMMERCIAL

MESERVE: The whole country is talking Enron and so are we.

O'BRIEN: The "Reporters' Notebook" rolls on. And our illustrious panel this morning, one Jonathan Karl, CNN correspondent extraordinaire, and Gail Chaddock, and she's a pretty extraordinary correspondent for...

MESERVE: Is that an official title?

CHADDOCK: Thank you. Thank you.

O'BRIEN: Extraordinaire? It is now.

MESERVE: That has a ring to it.

O'BRIEN: Yes. She's with the "Christian Science Monitor."

CHADDOCK: I'll take it.

O'BRIEN: We should get that in. Thank you both for being with us once again. And we have more phone calls.

MESERVE: We do. Sue from Georgia is on the line with a question about stock ownership. Go ahead, Sue.

SUE: Yes, my question is did the Bush and Cheney family own stock and if they did own stock, when did they sell? And I will hang up and listen. Thank you.

MESERVE: Jonathan?

KARL: Well, we know that Bush's mother-in-law owned stock. Bush talked about that. She had stock and she sold it while the stock had not, before the stock had fallen through the floor back in 1999. As for Mr. Cheney, I am not sure. Maybe Gail's got a line on that.

CHADDOCK: No, I don't know, either.

O'BRIEN: All right, this has been a question that's come up a couple weeks in a row. We've got to get to the bottom of this one.

MESERVE: Yes.

O'BRIEN: But this is a tough one because you're talking about blind trusts and even if they owned it they wouldn't have necessarily been controlling it because of their position.

All right, let's go to Sharon...

CHADDOCK: That's right.

KARL: We, of course, know, Miles, that the president's top political adviser, Karl Rove, had Enron stock and there was a controversy early last year over whether or not he should sell it. He was pressured to sell it by members of Congress who thought it would be a conflict of interest if he owned stock in a large energy company at the time the president was talking about energy policy. So he reluctantly sold that stock, which turned out to be the best thing that ever happened to Karl Rove financially. He sold the stock under pressure before it crashed.

O'BRIEN: There's an ironic twist in this story, isn't there?

MESERVE: Lucky dog.

O'BRIEN: Interesting.

All right, Sharon from Madison, Mississippi has this for us: "Would any of the regulations that the previous administration tried to put into place and the Republicans in Congress stopped have prevented any of this problem?" And I think Sharon's referring to some tax code issues. I don't know that tax code would have been, directly affected Enron, but take it away anyway. Gail, you want to go first?

CHADDOCK: Yes, I don't know, I'm not sure it's the tax code that's critical here. But certainly the question is right on target when you look at the whole sweep of the deregulation movement in the, you know, '80s and '90s. And this wasn't just a Republican issue, although it was largely there initially. It had bipartisan support. And when the economy was booming through a long period, a lot of apparent evidence to support it. Business doesn't need regulation, release the hands of government and life will get better for everyone.

It's that thesis, I think, that Enron has really challenged. And the interesting issue is going to see how far Congress takes it. Will they, for example, plunge into an area they haven't discussed much yet, which is regulating derivatives? Or are they going to stay at identifying a few bad apples, tightening up a few accounting regulations and moving on? It's a really interesting political question.

O'BRIEN: Jonathan, a final word.

KARL: Yes, well, although if you look at what Sherron Watkins said, I mean essentially she said that what was going on at Enron was illegal as far as the accounting goes. They were using their own stock to basically hedge against risk. They were using their own stock to hide their own debts and to inflate the value of that very stock.

In her view, it was simply illegal. It was something that under the current laws is simply not allowed. So if those laws had been enforced, theoretically, this wouldn't have happened.

O'BRIEN: Jonathan Karl with CNN, Gail Chaddock with the "Christian Science Monitor," thank you so much both of you for taking some good questions from our viewers this morning. And always thank you for participating in this with your phone calls and your e-mails. Hope you come back again, folks, and we'll try to keep the questions easy for them. Well, not too easy.

MESERVE: And don't forget that correspondent extraordinaire title.

O'BRIEN: Yes.

MESERVE: It's very important.

O'BRIEN: Jonathan, you can put that on your resume, if you like.

KARL: Absolutely.

O'BRIEN: All right. All right.

Later today, don't miss Jonathan Karl's interview with Senator Edward Kennedy. The senator will be a guest on a special edition of "Target Terrorism." That is coming up at 10:00 a.m. Eastern time, 7:00 a.m. Pacific.

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