- The Washington Times - Friday, May 24, 2002

The White House's top economic advisers discussed extensively last fall whether the collapse of energy giant Enron would create turmoil in financial markets and warrant intervention by the Treasury Department.

But after a governmentwide review of the possible consequences of the largest corporate failure in history, Bush officials decided not to act, say document summaries released by the White House late Wednesday.

The review was prompted by previously disclosed calls to Cabinet officers by former Enron Chairman Kenneth Lay, President Bush's top campaign contributor.

Enron's collapse in November did briefly roil the markets, helping to send the Dow Jones Industrial Average down 161 points Nov. 28, but the markets rebounded shortly after.

The White House's refusal to try to prevent the credit-rating downgrades that precipitated the collapse was one of three major defeats it dealt Enron last year in the months before the company's Dec. 2 Chapter 11 bankruptcy filing.

The White House also spurned Mr. Lay's plea to support the Kyoto global warming treaty, a pact negotiated by former President Bill Clinton that would have benefited Enron substantially because of its huge natural gas and wind-power projects worldwide.

The treaty rewards companies selling energy from such low-emissions projects with credits potentially worth billions of dollars, which Enron could have sold. But Mr. Bush rejected the pact in March 2001, saying the stringent restraints on emissions would hurt the economy.

As an alternative to the treaty, Enron officials met frequently with White House staff to lobby for the regulation of carbon dioxide, the main gas thought to cause global warming. This also would have benefited Enron, but it was rejected by Mr. Bush.

Mr. Lay had more luck getting the White House to look favorably on nominees he supported for the Federal Energy Regulatory Commission, the principal regulator of Enron's natural gas pipelines and energy trading activities, the documents show.

Mr. Bush not only appointed Mr. Lay's top choice, Pat Wood, as chairman, but he also heeded the Enron founder's advice in appointing a second commissioner, Nora Brownell.

Mr. Lay lobbied for Miss Brownell in a call to Mr. Bush's senior political adviser, Karl Rove. He also provided a list of seven persons he supported for the commission to Clay Johnson, the presidential personnel director, during the transition.

Even so, within weeks of joining the commission, the Bush appointees voted to put caps on wholesale power prices in California, defying Enron's wishes and dealing the company a third major blow.

As with the other decisions that went against Enron, the company paid dearly with a big drop in its stock price. The precipitous decline of Enron's stock from its peak near $90 in August 2000 added fuel to the company's financial troubles, undermining the value of its assets and contributing to its death spiral.

The documents, released hours after the Senate Governmental Affairs Committee issued subpoenas for the information Wednesday, show the White House was aware of the damage that might come from the demise of the nation's biggest energy trader and seventh-largest corporation.

After Mr. Lay phoned Commerce Secretary Donald L. Evans and Treasury Secretary Paul H. O'Neill seeking help staving off the credit downgrades, the administration conducted an intensive review involving the Treasury, Commerce and Energy departments, the energy commission and the Commodity Futures Trading Commission.

White House Chief of Staff Joshua Bolten, economic adviser Lawrence Lindsey and deputy economic advisers Marcus Sumerlin, Philippa Malmgren, Robert McNally, Carlos Bonilla, Judson Jaffe and Randy Kroszner participated in the review, according to White House counsel Alberto Gonzales.

Mr. Bolten asked Sheila Barr, an assistant Treasury secretary, whether "a business failure by Enron would likely have systemic effects on the energy or financial markets."

That possibility had been raised earlier by Mr. Lay and former Treasury Secretary Robert E. Rubin, who suggested Enron's failure might seriously disrupt markets like the failure of the Long-Term Capital Management hedge fund did in 1998.

Mr. Rubin had worked with the Federal Reserve to arrange a creditor bailout for the hedge fund and suggested the same for Enron in a call to the Treasury on the company's behalf.

Mr. Rubin's call may have been discussed at a weekly luncheon of the economic team, Mr. Gonzales said. But there is no evidence that the economic discussions or Enron's pleas for help reached as high as Mr. Bush or Vice President Richard B. Cheney.

Mr. Evans told White House Chief of Staff Andrew Card several weeks after receiving Mr. Lay's call that he had declined to intervene. "Card advised him that he had done the right thing," Mr. Gonzales said.

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