-Caveat Lector-
>From http://www.nytimes.com/2002/07/07/opinion/07KRUG.html
>>>Again, Hatfield discussed all of this in depth in *Fortunate Son* way back in
1999/2000. This was the book that St Martin's "decided" not to publish. <<<
}}}>Begin
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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