How Can This Be Legal?
Stay up to date with the latest headlines via email.
Responding to the bombshell revelation that senior bankers at Citigroup actively helped Enron hide billions in debt, Enron Lawyer of Last Resort Robert Bennett deftly summed up the real reasons for the current economic crisis: "Most of the problems -- not all of them -- are things that have been legal and acceptable".
And while honest lawyers are about as common as undercompensated CEOs, in this case, Bennett is actually telling the truth.
In a world where the "generally accepted accounting principles" are so generally and deliberately Byzantine -- and over 100,000 pages long -- the problem isn't what is illegal but rather what is legal. How can any right-thinking person consider legal, for example, a stock that counts as debt on the company's tax return but as equity on its balance sheet?
And yet that's exactly what the white-coated geniuses at the Goldman Sachs loophole lab created when they invented Monthly Income Preferred Shares -- given the cute and cuddly nickname Mips. The shape-shifting security was hailed as "a breakthrough" by Goldman and "a coup" by the starry-eyed cheerleaders in the business press.
It is emblematic of the kind of corporate culture we live in that a practice that the man on the street would consider blatantly illegal is not only legal but touted as a breakthrough and a coup. And it is a breakthrough, of a sort. After all, it's not easy to take something so unequivocally wrong and make it legal.
Indeed, back in 1997, when the Treasury Department was trying to curtail the use of Mips, Jon Corzine -- now a member of the Senate Banking Committee, then Goldman Sach's CEO -- signed an overheated letter to Congress that decried government efforts to "impose completely arbitrary" distinctions between assets and liabilities.
Which is tantamount to saying that people should stop making "completely arbitrary" distinctions between right and left or black and white. Or, perhaps more to the point, right and wrong. Yet it is precisely this inconvenient distinction between what is debt and what is not that Citigroup helped Enron eradicate. It's as if I went out to dinner and, when the check came, offered my phone bill as payment.
To this day, Corzine, even as he stands amidst a business landscape strewn with the body parts of exploded companies and blown up retirement plans, continues to defend what he calls his former company's "aggressive tax policy". "Lawyers said it was right. Accountants said it was right. And the courts said it was right." In other words: everyone had drunk the New Economy Kool-Aid.
There seems to be nobody out there who is willing to come clean and admit wrongdoing. And unless this happens, we will not be able to turn the page on the ugliness that currently threatens our economic stability.
The change has to start at the top. And that means more than just holding CEOs accountable for what's in their corporate reports. It also means holding Dick Cheney accountable for what went on during his time at the helm of Halliburton, holding Jon Corzine accountable for the "breakthrough" business practices at Goldman Sachs, and holding Robert Rubin accountable for what went on under his watch -- both at the Treasury and at Citigroup.
The time has come for Rubin to come out of his Park Avenue office and make an appearance in front of one of the many Congressional committees investigating corporate chicanery. Especially since, as part of his $40 million a year gig at Citigroup, he phoned both Bush's Treasury Department and a top credit-rating agency in an effort to delay the downgrading of Enron's credit rating -- and, thus, allow the company to continue defrauding the public.
What is stunning is that even after all the suffering caused by Enron's deception, when questioned about the ill-advised phone call to Treasury Rubin still maintains: "I would do it again."
So, I suspect, would many, many others. This defiant arrogance is still the order of the day in Washington. Witness the shameless attempt by House Republicans to turn the public outrage over corporations that avoid paying taxes by getting a PO Box in Bermuda into a massive windfall for corporate America. Cloaking themselves in the mantle of reformers, they have brazenly crafted a bill that temporarily closes the $6.3 billion Bermuda-loophole while creating two much larger -- and permanent -- loopholes that will net American multinationals a combined $60.8 billion. The new bill would also create incentives for companies to invest and create jobs overseas rather than here at home.
It's hard to imagine, but even with the public screaming for reform, behind the scenes on Capitol Hill, the high-level -- and perfectly legal -- gaming of the system continues unabated.