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Josh Marshall

Josh Marshall is editor and publisher of TalkingPointsMemo.com.

Articles by Josh

There's still more information on the investors in Enron's debt-concealing outside partnerships.

As we've noted before, all of Enron's outside partnerships were not created alike, and not everyone came in on the same terms. Some offered investors a windfall with no risks. Others promised conventional enough returns that potential investors had to be sold on the plans.

Despite his claims last week that he knew little or nothing about the outside partnerships, in December 1997 former Enron CEO Jeff Skilling appeared personally at a meeting of the board of directors of the California state-employee pension fund (CalPERS) to sell them on an investment in JEDI II.

It looks like we were on to something last week when we pointed out the importance of revealing who invested in Enron's outside partnerships. This article at SmartMoney.com publishes some of the first documentary evidence on the investors in LJM2.

(Hint: they're big Wall Street firms, though it's not immediately clear whose money they were investing.)

But on CNN's Capital Gang last night Senator Kent Conrad implied that the search for the partners might get more explosive still. Asked by Mark Shields whether Enron was a political scandal, the Senator replied...

CONRAD: I don't think we know yet. I think in fairness, what we know is this is corporate scandal of enormous dimension. It may become a full blown political scandal. Goodness knows there's tremendous amounts of money that Bush -- the administration got the greatest level of financial support from Enron people.

We see an involvement of Enron and the replacement of the FERC chairman. I think that's going to lead to a lot of serious questioning. But I'll tell you the real bottom line. The thing that I think is going to turn this into a scandal of even greater dimension is when the partners are revealed. Who was at the trough? Who had the advantage of these partnership agreements that enriched themselves at the expense, its shareholders and its creditors?

SHIELDS: Do we know any major figures you think were partners or?

CONRAD: Those names have not yet been revealed, but I've been told by those who are hot on the trail, that there's going to be some very, very embarrassed major figures in the days ahead.

So what's going on here? I think that what Conrad is saying is likely absolutely true. He doesn't know who the investors are. But he's hearing that the lists include some very high-profile names. Believe me, a lot of people are hearing that.

There are investigators on the Hill, ones working in private lawsuits against Enron, and presumably many in the Justice Department who are piecing together this information. And given that investments in one of Fastow's particularly lucrative sweetheart deals would likely be politically fatal and perhaps even worse, the rumor mill is bubbling with names. Names high up the political ladder. Really high up the political ladder.

A good bit of this is probably just wishful thinking on the part of Democratic politicos in Washington. But not all of it, I'd bet. In any case, we'll know soon enough.

Special thanks to TPM reader A. for the Kent Conrad catch.

Enron may not have been so hot at devising innovative mechanisms for allocating and trading energy and other commodities. But, as this article explains, they were fonts of innovation when it came to gaming Washington.

This included a specially-designed computer program which precisely calculated the costs various regulations would create for Enron. The numbers generated out of this influence-peddlotron were then used to determine when the big-money lobbying machine should be kicked into gear. It all amounted to what the management consultant types might call total quality corruption.

Then there was Ken Lay's idea of "gathering up pundits, journalists and politicians and placing them on lucrative retainers." At least one anonymous Enron exec says the pundits ended up being PFBNBs (see post below). But you wonder.

Then there are some choice gems like this...

"The ingrained philosophy was, me first, money counts and the government should eliminate my taxes," said another former manager. "That's all they cared about -- what impacted them personally."
The theme of the article is that the Enronians ended up being too clever by half. Their titanic arrogance did them in.

1998 was the year of Monica and Impeachment. 2002 is turning out to be the year of PFBNB.

What's that? Paid For But Not bought -- the excuse, explanation and defense of choice for politicians high and low.

Like the Bush administration. Yes, Enron gave us tons of money for access and favors. But when they came calling, we dropped 'em cold, left 'em in the lurch! We were paid for, but not bought.

Same with Billy Tauzin. Same with the other folks on the House committee. Same with the Senators. Paid for, they say, but not bought.

I was so busy yesterday that I forsook my normal routine of coffee at Starbucks poring over the daily papers. And I missed this fun, complimentary review of Talking Points Memo in the Washington Post. (Note to self: no criticisms of Post -- i.e., Bob Woodward -- for rest of February, if possible.)

P.S. Excitement for the TPM relaunch continues to build. Even George Argyros is apparently getting into the spirit.

Actually, it's time for another Argyros update. Back on January 28th we noted that Argyros, US Ambassador to Spain, had used the Embassy website to post a list of comically self-promoting awards he had gotten, or bought, over the years. (You know, like his induction into the "Horatio Alger Association of Distinguished Americans, perhaps the single most coveted award given in American (sic) to non-military, non-show business individuals...") Then Tuesday we noted that our mockery had gotten picked up in Argyros' hometown paper and he'd had the good sense to take it down, or maybe Colin Powerll made him take it down. Then later Tuesday we revealed that he was still show-boating among the locals since he hadn't taken down the Spanish language version of the list. Now it's gone too.

Note to Ambassador Argyros: if you're visiting TPM so often, maybe it's time to support the site with an easy online contribution?

Yesterday's testimony from various current and former Enron executives confirms, I think, the importance of the questions we raised here a few days ago.

That is, who else got to sign on to one of Andy Fastow's outside partnerships, in which investors incurred no risk yet made windfall profits? We now know that many non-Enron employees got into these deals. Fastow apparently used them as chits on occasion when dealing with investment banks who did other business with Enron, though sometimes the Enron business was the plum he used to leverage folks into the partnerships.

One thing that's clear is that all the partnerships were not alike. Or at least not everyone came in on the same terms. Some were the uber-sweetheart deals that made millions. Others only got investors who had to be coaxed into the deal.

What is important to know, however, is just who all the partners were. Why? Because if there was financial or political corruption going on which reached outside of Enron, this almost has to be where you'd find it.

There's even apparently an example of a partnership deal being used in this fashion with an Enron employee. Soon after quasi-whistleblower Jeffrey McMahon got reassigned for questioning Fastow's partnership deals, his replacement got cut in on a piece of the action. Says today's Times ...

A short time later, Mr. McMahon was replaced as treasurer by Ben F. Glisan Jr. According to an investigation by Enron's board, Mr. Glisan put $5,800 in one of the partnerships organized by Mr. Fastow and two months later was given $1 million.
More to come later on conflicts of interest and ingenious ways to hedge your bets against business losses.

Today's Enron profile in the New York Times is of one-time Enron CEO Jeff Skilling, who testifies tomorrow on Capitol Hill. The title of the piece is "Darth Vader. Machiavelli. Skilling Set Intense Pace." But reading the piece you get a pretty clear sense that the author's working title was "Jeff Skilling: Big Jerk."

Here's one of the key passages ...

Mr. Skilling tried to incubate a culture of risk-taking at Enron that sometimes even went beyond the boundaries he set. At a worldwide meeting of the corporation's vice presidents in 2000, he singled out Louise Kitchen for praise. Ms. Kitchen had started the company's Internet-based trading operation, Enron Online, even though Mr. Skilling had repeatedly refused to allow her to do so. Instead, she pulled the new network together in secret, using funds allocated for other purposes.

A former vice president who attended that meeting was aghast: "The moral of this story is, `You can break the rules, you can cheat, you can lie, but as long as you make money, it's all right.' "

And you wonder why they got into trouble.

One of the most telling details of the Enron saga is the way that nearly everyone agrees that 'aggressive' (as in 'aggressive accounting') should serve as a synonym for 'deceptive.'

'Aggressive accounting' means massaging the numbers so they'll yield a deceptive impression of a company's financial health.

'Overly aggressive accounting' is bad because that's too deceptive.

But 'aggressive accounting' is okay because that's only deceptive, not too deceptive.

Is this the attitude that's at the root of the problem?

As we noted Tuesday evening, one key question now is who the 'investors' were in the debt-concealing outside partnerships overseen by Andrew Fastow.

This and other articles in Wednesday's Times seem to imply that the partners were all Enron employees. The Post, meanwhile, seems more agnostic on this question.

Yet the authors of the Powers Report (as I try to explain here) seem not to have been able to determine precisely who the investors were. Indeed, the authors of the Report say that they were not able to get access to the "the materials in the possession of the Fastow partnerships or their limited partners." These papers, I would imagine, are where you find out precisely who the partners were. Finally, the Times profile of Fastow notes the incentives that existed to recruit partners who were either not employees of Enron or employees who were of low enough rank not to need to show up in SEC filings.

By 1999, there were small fissures in Mr. Fastow's labyrinthine financing empire. As early as 1997, Enron had difficulty finding a partner to buy out Calpers's interest. So, apparently to skirt disclosure rules, Mr. Fastow proposed listing his wife's family as outside investors. When he was rebuffed, Michael Kopper, who worked under Mr. Fastow at Enron, was selected. Because he was a lower-level employee, Enron would not have to disclose his interest in S.E.C. filings. Mr. Kopper would eventually make at least $10 million in profit from the venture.
To recap, 'investors' in the partnerships reaped immense profits by investing little money and assuming no risk. If people outside the company were getting these sweetheart deals, who were they?

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