| | | With the unprecedented challenges to civil liberties presented by the war on terrorism, the failure of the Bush economic policy, and the largely unnoticed crumbling of the quality of American life, the time is ripe for IvinsU no-holds-barred look at the first years of the George W. Bush presidency.
| | Read A Chapter | Chapter One 1.
Aloha, Harken
In the long run, there is no capitalism without conscience; there is no wealth without character.
—George W. Bush on Wall Street, July 9, 2001
In the long run, we are all dead.
—John Maynard Keynes on the long run, 1924
There he was. On the Tuesday after a long Fourth of July weekend. In the ballroom of an ornate Wall Street hotel that once housed the New York Merchants Exchange. Standing in front of a blue-and-white backdrop with the words corporate responsibility printed over and over on it, in case you should miss the point. Promising us “a new ethic” for American business. Our president, Scourge of Corporate Misbehavior.
It was like watching a whore pretend to be dean of Southern Methodist University’s School of Theology. But as Luther said, hypocrisy has ample wages.
“Harken,” said the Bush camp over and over, “was nothing l Click to read more... Chapter One 1.
Aloha, Harken
In the long run, there is no capitalism without conscience; there is no wealth without character.
—George W. Bush on Wall Street, July 9, 2001
In the long run, we are all dead.
—John Maynard Keynes on the long run, 1924
There he was. On the Tuesday after a long Fourth of July weekend. In the ballroom of an ornate Wall Street hotel that once housed the New York Merchants Exchange. Standing in front of a blue-and-white backdrop with the words corporate responsibility printed over and over on it, in case you should miss the point. Promising us “a new ethic” for American business. Our president, Scourge of Corporate Misbehavior.
It was like watching a whore pretend to be dean of Southern Methodist University’s School of Theology. But as Luther said, hypocrisy has ample wages.
“Harken,” said the Bush camp over and over, “was nothing like Enron.” Interestingly enough, it was exactly like Enron in each and every feature of corporate misbehavior, except a lot smaller. A perfect miniature Enron.
By the summer of 2002, it had long been known that twelve years earlier Bush made a pile by selling his stock in Harken Energy Corporation just before it tanked. At the time, he was serving both on Harken’s board and on a special audit committee looking at the company’s financial health. As he spoke on Wall Street, stories were surfacing about Harken’s sham sale of a subsidiary to a group of company insiders. The acquisition was financed by an $11 million loan guaranteed by the seller, Harken Energy. In other words, a fake asset swap to punch up Harken’s annual profit-and-loss statement.
The “sale” of Aloha Petroleum, from Harken to Harken, was again Enron writ small and so outrageous that the SEC stepped in, declared the accounting unacceptable, and forced the company to restate its earnings. Bush unquestionably knew about the deal.
Even if he had convinced the public that earlier stories about his $848,560 insider trade, his failure to report it to the SEC, his low-interest loans from Harken to buy company stock (a practice he particularly denounced in his Wall Street speech, as though he had never heard of such an unseemly scam before), and the Enron-esque sale of Aloha Petroleum were all what he described as “recycled stuff,” he was still surrounded by bad stories about to break. Enron was ripe for federal prosecution; Bush and Enron’s CEO, Ken Lay, his single largest campaign contributor, had been tight for years. Halliburton was being investigated by the feds for fraudulent accounting practices put in place when Dick Cheney was CEO. Congress was investigating the secretary of the Army for his role in the collapse of Enron, in the fleecing of electricity customers in California, and for his failure to divest himself of Enron stock in a timely manner.
SEC chief Harvey Pitt had so many previous business connections with the firms he was now regulating, he had already had to recuse himself in twenty-nine cases being pursued by the SEC. Bush’s hard-nosed, hard-assed political adviser, Karl Rove, had owned $108,000 in Enron stock and, more important, knew the Enron CEO because he was Bush’s biggest funder. Two of Bush’s economic advisers had worked as consultants for Enron. And the newly disgraced Ken Lay had convinced Bush to dump the chairman of the Federal Energy Regulatory Commission, Curtis Hebert, and to replace him with the candidate of Lay’s choice, a Port Arthur, Texas, homeboy. Before giving Bush the word to dump Hebert, Lay had a come-to-Jesus session with Hebert himself, telling him to embrace free markets and deregulation or, Lay said, things would end badly for Hebert. They did.
Considering the circumstances, heckfire and brimpebbles were the best GeeDubya could manage as he wagged his fingers at Wall Street’s corporate criminals. What could he say about Lay: “I never had sexual relations with that man”? What he actually said, as the cock crowed, was, “He was an Ann Richards supporter.” Kenny Boy, I hardly knew ye.
The stock markets responded to Bush in July as they had to bin Laden in September. Three days after Bush’s Sermon on Wall Street, the Dow Jones had lost 7.4 percent of its value and Standard & Poor’s 500 was down 6.8 percent. Three weeks after the speech, with more Harken stuff breaking, the market fell 390 points in one day. It took a corporate-responsibility bill—written entirely by Democratic senator Paul Sarbanes and vigorously opposed by Bush almost until the day it was passed unanimously by the House—to save the president and staunch the stock market’s hemorrhaging.
The Bushies naturally would have preferred to put all this “recycled stuff” behind them and return to their agenda—including shifting Social Security funds into the stock market. But before we leave the subject, consider some wisdom from Jerry Jeff Walker, the Texas singer-songwriter. Walker met the man who inspired his first hit, “Mr. Bojangles,” when they were both in jail in New Orleans. Years later, a reporter for National Public Radio asked Walker if he had worried about winding up in a drunk tank when he was in his early twenties. “No,” Walker said. “It was just one time. You start worryin’ when there’s a pattern.”
With GeeDubya Bush, M.B.A., there was a pattern. The pattern was: after he fouled up, a friend of Daddy’s always showed up to bail him out. Either because Bush managed to seduce the press corps in 2000 or because Al Gore failed to raise the issue, the press started to notice Bush’s business pattern only in the wake of the wrecks of Enron, Tyco, WorldCom, Adelphia, etc. As the economy contracted and stock values plummeted in mid-2002, reporters began to focus on Bush’s M.O.
Bush walked away from the Texas “awl bidness” in 1990 with almost a million in cash—after a career during which he lost more than $3 million of other people’s money. Here he was advocating “a new ethic” on Wall Street despite his own business dealings, which couldn’t even pass the “old ethic” test. The earlier dealings had been the subject of a pro forma investigation directed by the man President Bush the Elder appointed head of the SEC, and the investigation itself was conducted by a man who had worked as GeeDubya’s personal lawyer before joining the SEC. A few of GeeDubya’s deals, particularly a series of critical bailouts of his ever-sinking oil-field ventures, are truly astonishing—not just because of the volume of dollars flowing out of Northeastern banks and disappearing in Texas but because the transactions made little or no economic sense.
A company balance sheet can be misleading. There was leaseholds, there was momentum.
—candidate george w. bush on philip uzielli’s $1 million bailout of arbusto
One of Bush’s white knights, a friend of the Bush family consigliere* James Baker III, is so interesting that to leave him out is the journalistic equivalent of a breach of fiduciary responsibility. Philip Uzielli’s $1 million cash-for-trash deal in 1982 allowed GeeDubya to keep his company alive long enough to sell it to Spectrum 7, then to sell the again-sinking Spectrum 7 to Harken and then to unload his sinking Harken stock—just before the bad news became public—for a large enough profit to buy 2 percent of the ownership of a baseball franchise that made him $15 million in less than nine years. Philip Uzielli (“Uzi” to GeeDubya) is a Panamanian businessman and Princeton classmate of James Baker. In 1982 he was listed as CEO of Panama’s Executive Resources and as a director of Harrow Corporation and Leigh Products. As we reported in Shrub, when GeeDubya’s company, Arbusto, was in a terminal cash crunch, Uzi showed up and paid $1 million for 10 percent of a failing company valued at $382,376, according to the company’s financial statements. In other words, Uzielli paid $1 million for $38,200 in equity. Bush had changed the name of Arbusto to Bush Exploration after his father became vice president. (GeeDubya says arbusto is the Spanish word for “bush,” although Cassell’s Spanish/English Dictionary translates it as “shrub,” the source of one of GeeDubya’s nicknames.) By the time of the corporate name change, Arbusto had drilled so many dry holes that West Texas oilmen called it “are-busted.” Mr. Uzielli lost his entire $1 million investment but later told reporters he didn’t regret it. He described his investment with Bush as “a losing wicket” but said “it was great fun.” What a sport.
Arbusto was not an oil company so much as it was a tax write-off company, taking advantage of the IRS tax-code provision that allowed investors to deduct up to 75 percent of their losses in the
*Maureen Dowd, columnist for The New York Times, was apparently the first journalist to use the word consigliere to describe Baker’s role in the Bush family.
oil business. Bush didn’t strike oil, he struck money from friends of his daddy. After the Uzielli bailout Bush Exploration was acquired by Spectrum 7. Spectrum 7 was owned by William DeWitt, Jr., son of the owner of the Cincinnati Reds. DeWitt couldn’t pay Bush for what remained of Bush Exploration, so he sort of took him in, made him CEO and a director, paid him $75,000 a year and $120,000 in consulting fees, and gave him 1.1 million shares of Spectrum 7 stock.
Two years later Spectrum 7 had lost $400,000 in six months and was $3 million in debt. So Harken stepped in. The Texas-based company bought Spectrum 7 for $2 million in Harken stock. Of the $2 million, $224,000 in shares went to Bush, along with options to purchase more.
There was no malfeeance [sic], nor attempt to hide anything. In the corporate world, sometimes things aren’t exactly black and white when it comes to accounting procedures.
—president george w. bush, july 8, 2002, on absence of “malfeeance” in the aloha sale
“His name was George Bush,” said Harken’s founder, Phil Kendrick. “That was worth the money they paid him.” Oil-field losses followed GeeDubya the way that cloud of dirt used to follow Pig Pen in “Peanuts.” By 1989 Harken was booking big losses but Daddy was president. In February 1990 the company’s CEO, Mikel Faulkner, warned board members that a failed deal the previous year left the company “with little cash flow flexibility.” In the months that followed, Harken’s memos and board minutes should have been written in red ink. So the management team devised a scheme to obscure these losses.
See if you can follow this bouncing ball. Harken masked its 1989 losses by selling 80 percent of a subsidiary, Aloha Petroleum, to a partnership of Harken insiders called International Marketing & Resources for $12 million. Of that sum, $11 million came from a note held by Harken. Aloha was a small chain of gas stations and convenience stores in Hawaii, originally started by J. Paul Getty and acquired by Harken in a package deal in 1986.
When Harken sold Aloha in 1989, here’s how it did the accounting. Since Harken carried an $11 million note on the $12 million sale, the only money it got up front was the first $1 million. But Harken booked $7.9 million, using the mark-to-market accounting that Enron made so fashionable in the late nineties. In January 1990, IMR in turn sold its stake in Aloha to a privately held company called Advance Petroleum Marketing, and the Harken loan was effectively transferred to Advance.
In brief, Harken insiders borrowed money from their own company to buy a subsidiary at an inflated price. Then they booked sales revenue that didn’t exist as profit. Then they got rid of the loan that had provided the revenue that never really existed. This is the kind of deal that made Enron famous. It allowed Harken to declare a modest loss of $3.3 million on its 1989 annual report, and as a result the company’s shareholders had no clue how bad things were. And we all thought the smart guys at Enron invented those clever transactions.
By 1990 Harken’s management realized that the accounting in their sale of Aloha wasn’t quite right. Their thinking on the subject had been clarified after what they described as “discussions” with the SEC. Actually, the SEC flatly declared the sale bogus. When Harken applied the standard “cost recovery” method of accounting required by the SEC, its 1988 losses suddenly became $12.57 million. It is remarkable what can be achieved by just a little attention from a federal regulatory agency. The same stan- dard accounting practices applied to 1989 showed the company had lost $3.3 million over the first three quarters, whereas the “aggressive accounting” originally applied by Harken gave them a $4.6 million profit for the period. Harken’s accounting firm was Arthur Andersen.
Any time an officer of a publicly held corporation sells stock, we ought to know within two days. We ought to know. We being shareholders and employees.
—george w. bush on wall street, july 9, 2002
Harken’s sham sale of Aloha was a shameful violation of shareholder trust, but it kept Harken’s share value up long enough to let Bush sell his stock before the corrected profit-and-loss statements were released in August. The press seemed to prefer the stock-sale story because it is easier to explain than the Aloha deal. As reporters began to press harder on the issue, even the un- flappable Ari Fleischer began to flap. “The SEC has been well aware of the issue and the SEC has concluded that this is not anything that’s actionable,” said Fleischer in early July. Bush too became testy, telling reporters that if they wanted more information they should get the minutes of Harken’s board of directors’ meetings. Harken refused to release the minutes. The story might have stalled there had it not been for the work of Charles Lewis and the Center for Public Integrity. The Washington, D.C.–based public-interest group obtained Harken board minutes and correspondence through a Freedom of Information Act request to the SEC. Then they did what both President Bush and his SEC chairman, Harvey Pitt, had refused to do: they made the documents public by putting them on the center’s website (www.publici.org).
You don’t need an accountant to interpret the Harken documents. The company was in desperate trouble. At a May 1990 meeting attended by Bush, board members discussed a stock offering they hoped would bring in enough money to keep the company solvent.
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Excerpted from Bushwhacked by Molly Ivins and Lou Dubose, read by Molly Ivins Excerpted by permission.
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