Man Without Qualities

Saturday, February 16, 2002

What's $500,000 Worth?

It should be clear that an offer of a $500,000 bribe to Bill Gates is highly unlikely to induce him to breach his fiduciary duties as a director of MicroSoft. This is not because $500,000 doesn't have at least as much gross value to Mr. Gates as it has to you and me, despite his immense wealth. There is no observable "diminishing marginal utitlity" to money. A person's acquisition of a huge fortune rather suggests that he (or she) obtains rather MORE utility than others from the acquisition of a huge fortune.

Mr. Gates is unlikely to be affected by such an offer because the net value of the $500,000 offer is actually negative, and that is a function of his great wealth. This is not hard to see. Suppose a breach of his fiduciary duty would expose him to, say, $10,000,000 in liability if he is discovered. If the chances that he will be discovered are greater than 5%, then the before-the-fact cost to him of the taking the bribe is more than the $500,000 offer - so the net "benefit" of the offer to Mr. Gates is less than zero. Further, since Mr. Gates has more than enough assets to pay even a huge liability, he has no chance of escaping his obligation through his own bankruptcy. So he probably won't take the bribe on economic grounds alone.

In this sense Mr. Gates differs seriously from a director without substantial assets. Such a director never needs to be concerned that the net value of the bribe will be less than zero - since he cannot pay more than the $500,000 bribe he receives in any event. Indeed, if he spends the bribe quickly, he may have no economic downside at all. Monetizable economics are not everything in life. But, on the other hand, one does not normally expect a person who is not affected by money to join the board of a public company.

It is worth keeping the above considerations in mind in considering whether the reported $500,000 compensation paid to the Enron board members was enough to induce them to breach their fiduciary duty to the extent asserted by Enron's critics. These members were for the most part already wealthy. The breaches they have been accused of were of a nature very likely to be exposed. They must have known that the liability to them from such a breach would be huge. And because of their wealth, they would have to pay quite a lot before being entitled to seek protection under the bankruptcy laws. Also, the Enron board was and is of unusually high quality - so they could have gone elsewhere, made perhaps somewhat less money, but been exposed to vastly less risk.

So, although $500,000 is a lot as a gross amount no matter how wealthy you are, it is very hard to imagine that such an amount was enough to induce EVERY SINGLE ONE of the Enron board members to breach his and her duties in the manner suggested by Enron's harsher critics.

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Friday, February 15, 2002

On The Shape of Things That Were and Might Have Been

Especially in a complex matter such as Enron, it is worth reviewing the bids. The Man Without Qualities continues to believe that it is unlikely that Enron's financial statements were deliberately, intentionally or obviously fraudulent. Of course, that is far from equivalent to asserting that those financial statements (in any form or as of any date) fairly reflect Enron's financial condition. But financial statements may fail to fairly reflect a company's financial condition out of mere negligence or inadvertent error or even good faith disagreement brought on by later experience and re-evaluation.

Nor does a company's restatement of its prior financial statements even begin to address whether those statements were deliberately, intentionally or obviously fraudulent. Standards and beliefs also change. To choose but a single example, AOL-Time Warner will be erasing much of its total shareholders equity with an expected $60 Billion charge. That charge would not have been required under prior accounting standards, but those standards and the beliefs supporting them have changed. So with one change of the accounting profession's opinions, there will be $60 Billion "less" of AOL-Time Warner than was reported in the quarter immediately preceeding the charge. Does the $60 Billion reduction in a single calendar quarter indicate fraud at AOL-Time Warner? Of course not - nothing will "really" change about that company despite the eye-popping number. While such a change of industry-wide standards and opinions did not compel the Enron earnings restatements, a change in Arthur Andersen's opinion related to the then-ongoing rapid decline in Enron's stock price is reportedly exactly what caused Arthur Andersen to demand that Enron put its restatements into effect, and it is by no means necessary to impute fraud or deliberate deceit to account for them.

It is sometimes said that a foolish consistency is the hobgoblin of little minds. That is true. And the ready imputation of fraud or conspiracy is perhaps the most foolish consistency of all. The Man Without Qualities believes that the world is just not that small.

Astonishingly, there are Americans who would read a great deal into the assertion of Fifth Amendment rights by various Enron and Arthur Andersen operatives. Wiser minds, including those that penned the Fifth Amendment itself, understand that culpability is simply not supported by assertions of such fundamental Rights. Indeed, given the hostile posturing of many members of the Congressional committees, it is amazing that ANY Enron or Arthur Andersen operative provided testimony. Courts refuse to admit assertions of Fifth Amendment rights as evidence of culpability in either criminal or civil trials for many reasons - one of the most significant reasons being that such "evidence" offers little probative value but stimulates much bias. There is no force that requires an individual to accept the evidentiary policies of the courts, but one must seriously question the intelligence or agenda of anyone who insists on reading much into an assertion of Fifth Amendment rights.

Nor should anyone consider Enron's termination of Arthur Andersen following Enron's bankruptcy to be significant evidence of malfeasance by either Enron or Arthur Andersen. It is neither sinister nor at all unusual for a bankrupt company to terminate its pre-bankruptcy accountants, if only to assure creditors and investors that a new boom has been brought in.

That Arthur Andersen and Enron engaged in document destruction has some probative value - and certainly warranted Arthur Andersen's discharge of its partner who oversaw that effort. But little can be made of these activities until more is known of the nature of the documents destroyed. Many of these documents were e-mails and other electronic documents "deleted" from the Arthur Andersen computer system. "Deleting" a document does not destroy it, but rather decouples it from the computer operating system. Data recovery techniques exist to reclaim most such "deletions." So the Arthur Andersen and Enron operatives who engaged in this "deletion" process were either very ignorant of computers (not very common these days) or were simply not intending anything very sinister.

There was also some physical document "shredding," which might be more serious. But, again, until the nature of the documents is known, this doesn't amount to much. I also have rather serious reservations about easily reading too much meaning into such post hoc actions, such as the shredding itself, as evidence of earlier states of mind. I prefer to give rather more weight to earlier, contemporaneous actions of unrelated bankers, accountants and attorneys to determine whether Enron and Arthur Andersen were objectively acting outside custom, practice and legal and ethical expectations.

As discussed in a prior post, Sherron S. Watkins, previously celebrated as a brave, stout-hearted whistleblower by Enron's most rock-ribbed critics, appeared before Congress yesterday and all but exonerated the long-demonized Ken Lay as a mere "dupe". Odd what a little actual evidence can do. One wonders what those who have foamed at the mouth these past weeks with assertions of his obvious guilt thought about that. But these matters are far from settled one way or the other.

Those other than I may choose to consider the culpability of Enron and its accountants to be settled. But such others will, I hope, forgive me as I view their decisions to be premature, a bad case of the "Execution now, trial later!" logic of the looking glass world. One must admit that their approach has the accidents of a simple consistency - although I, personally, do not take Alice's mad queen as a role model. Others dissent.

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Occam's Update

As noted in a prior post, Sherron S. Watkins now says that at the same time she believed that Enron was withholding invaluable information from the market (information which she, as an insider, possessed) she unloaded tens of thousands of dollars of her Enron stock, thereby risking both criminal and civil liability under various fraud statutes. She says that she did not take her concerns to the Securities and Exchange Commission because she feared that such a move would have only hastened Enron's demise. She has also characterized Mr. Lay as a "dupe."

Ms. Watkins' explanations seem complex, to say the least.

If, contrary to what she has now told Congress, Ms. Watkins did not believe that Enron was withholding material information from the market, then there is no difficulty in understanding her stock sales or her failure to apprise the SEC or her desire to let Mr. Lay off the hook. In that case, her stock sales would not have been tainted by inside information, there would have been nothing to tell the SEC, and she cannot in good conscience impale Mr. Lay.

Enron is a complex matter. Experience teaches that in such cases the simplest answers are usually the right answers.

Fraud and conspiracy theories pose as simple answers, but in reality are the most complex.

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Be Mine

For weeks the only picture of Sherron S. Watkins appearing in the media seemed to be that curious, blurred photograph which brought to mind a description of Anna Louise Strong, a particularly foolish Stalin apologist: “an enormous woman with a very red face, a lot of white hair, and an expression of stupidity so overwhelming that it amounted to a kind of strange beauty.” How misleading. Ms. Watkins is a putative blond, but there is more to the difference than that.

One hopes that former Enron chief executive, Jeffrey K. Skilling, and its former chairman, Kenneth L. Lay, found time in their undoubtedly busy schedules yesterday to have a nice big box of chocolates delivered by special courier to Ms. Watkins, known as the author of the August 15, 2001 memo to Mr. Lay warning that Enron might "implode in a wave of accounting scandals." Ms. Watkins testified before a subcommittee of the House Energy and Commerce Committee, which can now be credited with a wry and delicious sense of humor for having her appear on Valentine’s Day! Who knew?

Ms. Watkins, fresh from her recent beatification by the media as a sacred “whistleblower,” gave Mr. Lay a “pass” in regard to the most peculiar goings-on at Enron. Ken Lay? The Chairman who had wowed the most sophisticated heads of Wall Street for those many years? A mere dupe, according to Ms. Watkins, he just never really understood, he was largely unaware of the severity of the company's troubles, he just "didn't get it." (This last echo from the Clarence Thomas hearings is a particularly droll touch on Ms. Watkins’ part.) Well, if she is right we now can just put this whole thing behind us as far as Mr. Lay is concerned. While another public company is unlikely to engage Mr. Lay as its chairman in the foreseeable future, although he has recently come on the market, Congress has not yet criminalized - or even made civilly actionable - the status of “dupe,” perhaps evidence of a robust instinct for self preservation. That certainly earns Ms. Watkins a chocolate kiss from Mr. Lay.

But what of Ms. Watkins much harsher words for Mr. Skilling? Ms. Watkins accused him of being “well aware of partnership deals that led to the company's collapse,” in the bizarre phrasing of Richard A. Oppel in his New York Times report . Of course, every company’s chief executive is expected, even required, to be “well aware of partnership deals” that the company enters into, the Times’ suggestion to the contrary notwithstanding. Does the chief executive of the Times make a virtue of NOT being well aware of his company’s partnerships?

But this is a mere quibble compared to Ms. Watkins’ stated reason for “accusing” (if that’s the right word) Mr. Skilling as she did. It seems that in Ms. Watkins’ view Mr. Skilling was a very “hands on” executive, and Ms. Watkins therefore just felt it was very hard for her to believe that he wasn’t “well aware of partnership deals.” She didn’t actually have knowledge, but she was sure of it. Bruce Hiler, a lawyer for Mr. Skilling, was required by the kabuki rules of his profession to suggest that she was an uninformed opportunist, a characterization Mr. Hiler offered while no doubt rushing out to attend the all-night celebration at Mr. Skilling’s residence. "Everything Ms. Watkins has said about my client's involvement with these issues has been hearsay, rumor or her opinion," Mr. Hiler said. "She does not have a factual basis for these statements. Ms. Watkins is entitled to her opinions; she is not entitled to her own facts." And everyone in that subcommittee room knows that Mr. Hiler has quite a point.

Yes, Ms. Watkins is a woman of parts. Indeed, one must stand in blank admiration of a person who has achieved hagiographic status for writing an unsigned internal letter which includes not one hint of concern for the shareholders or employees of Enron, but does evidence a touching anxiety that in the wake of her predicted implosion “My eight years of Enron work history will be worth nothing on my résumé.” And while Mr. Watkins now indicates her belief that Enron was wickedly withholding much invaluable information from the market, that belief did not deter her from unloading tens of thousands of dollars of her Enron stock to unwitting public suckers, nor did her stock sales seem to dull her luster in the eyes of Congress and the media. And, when asked by the subcommittee why she had not taken her concerns to the Securities and Exchange Commission, Ms. Watkins engagingly explained that she had hoped for a quiet, inside repair job, where a call to the SEC would have hastened Enron's demise. So we are expected by Ms. Watkins to believe that she hoped that Enron could quietly repair accounting irregularities so serious that she believed "the business world will consider the past successes as nothing but an elaborate accounting hoax" (to quote from her August 15 letter) without ever attracting the attention and investigation of the SEC. Forgive me, I must demur, but without for a moment losing any of my admiration for the sheer technical daring of Ms. Watkins' execution.

Perhaps the blur in that much-reproduced photograph was evidence of Ms. Watkins’ then-ongoing mutation into a hybrid of Mother Theresa and Texas Good Ole Boy, a process now apparently complete. The Watkins coverage today shares front-page space in the Times with a report that Texas scientists have now successfully cloned an unspeakably adorable kitty cat. But Ms. Watkins is proof that kitty by no means marks the limits of Texas recombinant technology.

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Thursday, February 14, 2002

“A Conspiracy So Vast …!”

Oliver Stone’s movie, JFK, competes with Plan Nine From Outer Space to be considered the most incoherent and witless creation ever committed to celluloid – but a movie based on the New York Times coverage of the Enron matter would surely threaten both of those trash classics.

As the Stone movie swells to maculate giraffe, a mysterious and wholly-invented “Mr. X” – played with appealing spooky goofiness by Donald Sutherland – “explains” the Kennedy assassination by rattling off a series of unconnected activities that eventually appear to implicate all the United States armed forces, its intelligence services, most foreign governments, the ever-complacent media, Congress, the Vice President, perhaps every male in the Dallas white pages, The Man Who Could, the Woman Who Wouldn’t, Moses, Christopher Columbus …! It is a conspiracy so vast that it keeps its secrets by the simple expedient of leaving virtually no one outside the conspiracy to whom the conspirators could spill the beans!

Not to be outdone, Patrick McGeehan of the New York Times has today discovered in his breathless excitement that Enron's Deals Were Marketed to Companies by Wall Street!

Imagine that. Investment banks sell complex “off-balance-sheet products” to companies to dress up their balance sheets. Perhaps the Times will tomorrow discover that when the businessman knows the publisher, that Newspapers Sometimes Run Puff Pieces About Businessmen In Trouble! It would be a very economical article to produce. Much of the data would be available from unimpeachable sources sitting right down the hall.

The Times article reels off a long list of prominent companies and investment banks involved in these “shady practices” that truly outclasses in spooky tone and sheer silliness Mr. Sutherland’s efforts. Further, although McGeehan never seems to make the connection, it is fairly clear that many major accounting firms other than the hapless Arthur Andersen must have signed off on these transactions. IT IS SURELY A CONSPIRACY SO VAST...!

What the Times and much of the media seem to be having a lot of trouble understanding is that every time the Enron practices are shown to be more widespread, those very practices are more likely to actually NOT have been inconsistent (or at least deliberately inconsistent) with generally accepted accounting principles, applicable disclosure laws and Securities and Exchange Commission regulations and the good faith custom and practice of the accounting profession. What the Times recounts is strong evidence in this direction.

Since the Times and other media have demonized “off-balance-sheet” products, perhaps a simple example would be of some help to those struggling to understand:

1. Suppose the public company Yo-Yo-Dyne owns a Boeing 747, which Yo-Yo-Dyne bought with $100 Million in borrowed money. Yo-Yo-Dyne has mortgaged the aircraft to support that very loan.

2. One day the Chief Financial Officer of Yo-Yo-Dyne tells the board that Wall Street thinks Yo-Yo-Dyne has too much debt on its balance sheet. What can be done? Well, the CFO says, Citigroup says that if Yo-Yo-Dyne sells its aircraft to Citigroup and leases it back for many years then, under generally accepted accounting principles, the $100 Million purchase money aircraft debt is TAKEN OFF THE YO-YO-DYNE BALANCE SHEET! But Yo-Yo-Dyne still gets to use the aircraft just as before.

3. A careful and highly ethical member of the Yo-Yo-Dyne board asks: “But isn’t that aggressive accounting? Wouldn’t we be misleading the market? After all, our principal purpose in doing this transaction is dressing up the balance sheet, even though there may be some other benefits from the transaction that we really don’t care about and are definitely not WHY we are doing it."

4. The CFO replies that the board should not worry because the lease will be a “true lease” (not a fiction or a secret "ownership" of the aircraft), and all accounting rules and practices will be followed. Those benefits that Yo-Yo-Dyne doesn’t care about are nevertheless real, and will justify the transaction under all applicable laws, regulations and practices. After the transaction is done, the structure will be described in the notes to Yo-Yo-Dyne’s financial statements. That is: AN OFF-BALANCE-SHEET TRANSACTION JUST MOVES THE OBLIGATION AND ASSET OFF THE BALANCE SHEET AND ONTO THE FOOTNOTE!

The purpose of the above example is definitely not to suggest that Enron’s transactions were so benign as this simple sale-leaseback. Actual accounting fraud may or may not be demonstrated in the Enron case - although media and political hysteria makes finding the truth difficult. For one thing, Enron’s transactions were far more complicated than what is described above. That complexity created a larger area in which deceptive games might have been played. But complexity also creates more opportunities for good faith and merely negligent errors – or just disagreement with those (such as the Enron executive committee) viewing these transactions with all the benefit of hindsight.

But this much is clear: The more widespread the Enron practices are shown to be, the more likely they were NOT malevolent.

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Wednesday, February 13, 2002

A Practical Use of the Self-Referential Paradox?

It has been noted here that Enron's banks, Citibank and JP Morgan/Chase, were likely fully apprised of Enron's accounting practices - and that this is evidence that Enron's accounting practices were not so obviously irregular as the media and some political figures are now asserting. Yet it has also been noted here that Citigroup, especially, laid off a great deal of Enron risk in a deeply suspicious manner. Others have noted that JP Morgan/Chase may also have laid off Enron risk in other, but still suspect, ways.

The Man Without Qualities does not view these observations are necessarilly inconsistent. However, they do create additional complications in an already complex situation.
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Indelicate Questions of an Aged Aunt

The Man Without Qualities values a polymath, including the rare one such as Robert Rubin who enjoys Congressional and media infatuation. But even infatuated ingenues deserve words from a hardened aunt willing to remind the family that the thrilling, romantic whirl does, in fact, share aspects with the process of selecting a prize animal for stud – all of which recommends that the squire in question be asked certain rather indelicate questions. To date, the romantic frenzy has perhaps reached a local peak in this pre-Valentine swoon by Joseph Kahn and Alessandra Stanley in the New York Times, an effort which almost immediately drew criticism from Mark Lewis in The Times prematurely declares that Mr. Rubin’s “call to Peter R. Fisher, under secretary of the Treasury for domestic financial markets, will probably be no more than a footnote in the Enron story.” But just as aged Auntie might impede the swelling emotions of the moment with her indelicate inquiries (Is there insanity in the family? Has the young man ever been - er – “detained” by the authorities? And so on.), I suggest that Mr. Rubin be required to answer some indelicate questions of his own, questions notably omitted in the Times interview.

What, exactly, did Mr. Rubin request of Mr. Fisher? Astonishingly, to judge from available reports, this most obvious question seems never to have been asked of Mr. Rubin directly. According to the Times article, Mr. Rubin called his former Treasury subordinate to request that "a Treasury official ask credit-rating agencies to give Enron — and its lenders — a break.” This is consistent with a New York Magazine article of intriguingly and irresponsibly unspecified sources. However, earlier reports of Mr. Rubin's activities suggested that he called Mr. Fisher to request a government guaranty – perhaps even loans – for Enron. The Times article somewhat inconsistently characterizes the call as an act that “inadvertently gave comfort to the White House and to some conservative commentators, who said it was evidence that it was a prominent Democrat, not Republicans, who backed a government rescue.” But a telephone call from Treasury to the credit rating agencies is hardly a “government rescue.” That seems more consistent with the earlier reports of a government loan or guaranty request. So what was it? Did Mr. Rubin request that the government lend its credit to support Enron (through loans or guarantees) or that the Treasury Department discourage the downgrade of Enron by the credit rating agencies? Or both? And was anything else discussed or requested?

Until the content of Mr. Rubin’s conversation is known, no determination of whether Mr. Rubin or his employer, Citigroup, committed an unethical or illegal act is possible. And it is important to know if the Chairman of the Citigroup Executive Committee committed an unethical or illegal act.

Did Mr. Rubin give any thought as to whether failure to make full disclosure to Mr. Fisher might be a violation of federal law? Citigroup is a bank holding company, and many activities of its corporate group are directly or indirectly regulated by the United States Department of the Treasury. The Federal government maintains a broad network of regulations and policies which prohibit officials of regulated entities from making false or misleading representations to their Federal regulatory agencies.

Did Mr. Rubin investigate what Citigroup and its subsidiaries knew about Enron, and whether his failure to reveal Enron’s failings to Mr. Fisher might violate any Federal regulations or policies? Under Federal law, Mr. Rubin’s call to the Treasury Department might or might not be held to the same standard of forthrightness which is applicable to a bank holding company officer providing information to the Federal Reserve Board (the main regulator of such companies). But the Federal Reserve also maintains a large set of “expectations” and “policies” which, while sometimes lacking the full force of law, can nevertheless cause great discomfort to a bank holding company which dares to transgress. Surely a man of Mr. Rubin’s legendary caution gave full consideration to all potentially applicable laws, regulations and policies.

Suppose Mr. Rubin had succeeded in his apparent venture of making Treasury cause the “credit-rating agencies to give Enron — and its lenders — a break” Is the fact that Enron’s debt would have received a downgrade but for pressure from the United States Treasury “material inside information,” in the dry but indelicate argot of the securities bar from which Mr. Rubin hails? One would think it is. In fact, one can scarcely think of a more valuable piece of information about a company’s debt than the fact that it would have been (and, in the near future, almost certainly will be) so downgraded, even as the other actors in the securities market proceed in complete ignorance of this fact. Indeed, given Citigroup's exposure to Enron, this information would probably have been “material inside information” with respect to both Enron and Citigroup. As former head of Goldman, Sachs’ arbitrage group, Mr. Rubin was intimately familiar with the value of such information.

In light of the material inside information a successful foray into what Mr. Rubin is apparently charmingly characterizing as “public policy” would have netted for Citigroup, was Mr. Rubin proposing a halt in all Citigroup trading and advising in Enron-related securities? Such activities are prohibited to holders of material inside information. Indeed, since the inside information would have arguably have been material to Citigroup’s securites also, was Mr. Rubin proposing a halt in all Citigroup trading and advising in Citigroup-related securities until the full story was revealed to the public?

Further, suppose Mr. Rubin had succeeded. In that event, his own former subordinate and the Bush administration in general would have been predictably (predictable that is to Mr. Rubin, but not to the unknowing Mr. Fisher) drawn into the scandal much more deeply and exposed to public criticism so violent as to make what has actually occurred seem like a summer breeze. Did Mr. Rubin consider the possibility that in such circumstances the Administration would perhaps have had an incentive to do what it could to extract revenge on Citigroup and its subsidiaries in whatever way possible – preferably through non-public regulatory action? Would that have been a development in the best interests of Citigroup, its shareholders and its other board members? And in light of the predictable and potentially serious consequences of his actions, did Mr. Rubin think it might, possibly, be required of him to consult the Citigroup board – or at least Citigroup Chief Executive Officer Sandy Weil - before acting so rashly?

The curious New York Magazine article noted above asserts that Mr. Rubin made his call “On his own, without consulting Weill or anyone else.” But can that possibly be true? It is here that we perhaps most closely approximate Auntie’s annoying but necessary question: “Is there insanity in the family?" But perhaps it is here where Mr. Rubin’s legenday judgment and steel trap mind intervened. Was Mr. Rubin counting on Mr. Fisher’s disincentive to reveal or act on the call once the trap (if there was one) had been sprung? The New York Magazine article suggests that Mr. Rubin’s entire career has been marked by just such calculations. How could Mr. Rubin have known that that Mr. Fisher would unexpectedly act as he did?

Did Mr. Rubin consult with counsel before making his call? Now, of course, such consultation may well be protected by the attorney-client privilege. But that privilege belongs to Citigroup – not Mr. Rubin – to waive. And given the circumstances, Citigroup’s board should have no hesitation to do so. Perhaps Mr. Rubin consulted the able attorneys at Citigroup’s long-time primary outside counsel, Shearman & Sterling, some of whose current partners - in their prior lives as employees of the Securities and Exchange Commission – were the very people responsible for granting Enron the waivers from the provisions of the Investment Company Act which reportedly allowed to Enron allegedly to run amok.

Mr. Rubin is not apologetic about his call. The New York Times article quotes him as saying that he would do it again. The New York Magazine article speculates that his request, if granted, would have yielded a splendid crop of benefits to the public. Really? Has the energy market been wracked in ways it would not have been had the government intervened? Would the markets have benefitted from further delay in the credit agencies doing their duty and exposing Enron for what it was, as Mr. Rubin desired? Most of the disruption in the securities markets arising from the Enron matter has been caused by market discontent with accounting practices. Was Mr. Rubin proposing to withhold information concerning Enron's alleged accounting chicanery from the public? In short, what were the "benefits" supposed to be - other than to Citigroup and the Democrats.

And about those credit rating agencies. Ordinary participants in the bond market believe that the credit agencies are actually hired to give their frank and honest evaluation of the credit risk inherent in rated bonds. Silly them! Sophisticated insiders like Mr. Rubin seem to understand that the Treasury Department can and does manipulate those very ratings. How many bond holders are aware that the Treasury Department manipulates the credit agencies evaluations of public company debt in the service of "public policy." In considering this question, one should also keep in mind that Enron was not even a marginal case. Mr. Rubin was requesting Treasury to cause a deliberate misevaluation of the public debt of a company now widely described as a "house of cards". Mr. Rubin should be asked if he did such things when he was Secretary of the Treasury? If so, did he do them at the behest of his old buddies from the Goldman, Sachs arbitrage department or elsewhere on Wall Street? And, while we're at it, the credit rating agencies and others at Mr. Rubin's Treasury (starting with Larry Summers) should be asked the same questions. Inquiring bondholders will certainly be interested in the answers. In fact, it is hard to imagine a development which might generally disrupt Mr. Rubin's cherished bond market more than a public perception that the credit rating agencies are manipulated by the government at the behest of well-placed insiders - which is just what he attempted. In fact, he seems to think it's no big deal.

There are many other questions that Auntie, in her indiscretion, wants to ask Mr. Rubin. But this will do for now.

Everyone involved in covering the Enron matter seems to dote on some cherished potential conflict-of-interest, so here’s a new one. As noted above, Mr. Rubin works for Citigroup, which is a bank holding company directly regulated by the Federal Reserve Board. So it would seem that the Federal Reserve Board has primary responsibility in investigating Mr. Rubin’s (and Citigroup’s) actions in some cases. But many media articles concerning the personable Mr. Rubin note his long term ”friendship” with Mr. Greenspan. Does that “friendship” create any conflict of interest for Mr. Greenspan?

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