Republicans to Blame For Corporate Accounting Fraud
In 1995 Newt Gingrich and the newly elected Republican Congress--having vowed to restrict lawsuits in the Contract with America--pushed through a bill making it much harder to sue companies for misleading their investors. And that same year the House and Senate froze the budget of the Securities and Exchange Commission (SEC), even though the agency (as the General Accounting Office would later find) already lacked the staff to adequately monitor corporate balance sheets. As David Ruder, a former Republican head of the SEC, told The New York Times in 1995, "The Republican Congress is dealing with the SEC as though it is the enemy, instead of the policeman on the beat." And, as conservatives often remind liberals, when you undermine the policeman on the beat, crime goes up.
The original versions of the PSLRA were introduced in the Senate by Senator Pete V. Domenici (R-NM) on January 18, 1995 (S. 240) and in the House by Representative Thomas J. Bliley (R-VA) on February 27, 1995 (H.R.1058).
On December 19, 1995, President Clinton vetoed the PSLRA. On December 20, 1995, the House voted overwhelmingly (319 to 100) to override the President's veto. The Senate voted to override on December 22, 1995 by a vote of 68 to 30 and the PSLRA became law (P.L. 104-67) over the objections of the President.
In the House, 89 Democrats joined 230 Republicans to override the President's veto. In the Senate, 20 Democratic Senators voted with 48 Republicans to override.
Which brings us back to Bill Clinton. If conservatives are serious about blaming him for Enron and WorldCom, they should focus not on Monica Lewinsky but on the decline in white-collar law enforcement that occurred on his watch.But, if they do, they'll notice that Clinton vetoed the 1995 bill that shielded corporate executives from shareholder lawsuits, and his SEC chief, Arthur Levitt, proposed barring accounting firms from consulting for firms they were simultaneously auditing. Unfortunately, Clinton's veto was overridden-a slight majority of Democrats voted to uphold it, but virtually every congressional Republican voted to override. Levitt's proposal was torpedoed as well. By my count, 33 of the 37 members of Congress who signed public letters protesting his reform were Republicans. And the lobbyist who spearheaded the accounting industry's campaign against the Levitt proposal was none other than Harvey Pitt, President Bush's pick to head the SEC. In other words, the '90s moral tone that made Enron and WorldCom possible wasn't Clintonism; it was Gingrichism. And that's one moral tone George W. Bush hasn't changed at all.
Even by the simple measure of money, the distance between the two parties remains enormous. The funding contributed by business to Democrats is a fraction of what those same interests regularly give to Republicans, for one obvious reason: Republican policy is utterly reliable in its deference to their demands. This week's news of revenue "enhancement" by Merck & Co. offered an indirect reminder of those basic facts. Merck's political contributions are heavily Republican, and its C.E.O. was selected by President Bush to chair the administration's transition panel on health care.
The enduring partisan difference, which dates back to the founding of the Securities and Exchange Commission by F.D.R., can be seen today in the Democratic proposals to reform corporate practices, and the resistance to those reforms by the Republican leadership. Paul Sarbanes of Maryland, the tough, honest Democrat who chairs the Senate Banking Committee, is pushing through stringent new restrictions on the wayward accounting giants.
Sniping opposition to the Sarbanes bill is being led by Phil Gramm, the Texas Republican and Enron spouse. Mr. Gramm was responsible for blocking reforms sought by the Clinton administration that might have prevented some of the nation's current distress. Behind Mr. Gramm stands Trent Lott, the Senate Minority Leader, one of whose most generous Mississippi constituents is WorldCom.
If Mr. Bush now poses as the scourge of corporate crooks, his sudden conversion is attributable to pressure from the other side of the aisle. He now proposes to send a few more white-collar thieves to prison, assuming that prosecutors and juries can sort out black and white from gray better than the President was able to do during his curious business career. He also proclaims his support for a stronger, better-funded S.E.C., as if he and his aides had not been trying to gut that essential agency since the day they took office.
These positions are a reversal for Mr. Bush. For two years, he pursued the program that those benefactors desired, deregulating industry, repealing corporate taxes, ignoring business abuses and generally trusting their "better nature" rather than policing their baser impulses. Why not? They were always nice to him.
How the Clinton Administration and the Democrats Tried to Prevent the Enron Disaster and other corporations from Happening
1) Stopping Auditor-Consulting Conflicts by Accountants
In 2000, Clinton Securities and Exchange Commission Chair Arthur Levitt, Jr. proposed regulations to prohibit accounting firms from simultaneously serving as consultants and auditors. Arthur Andersen and other accounting firms mounted a massive lobbying campaign against the Clinton-Levitt regulations, killing them. The lead lobbyist for the accounting firms was Harvey Pitt. After being sworn in as President, George W. Bush named Pitt chair of the Securities and Exchange Commission.
2) Greater Disclosure of Energy Derivatives
In 1997, Bill Clintons Commodities Futures Trading Commission Chair Brooksley Born proposed greater regulation (by way of more stringent disclosure) of energy derivatives, the key financial instrument in Enron's Ponzi-scheme empire. Her proposal was beaten back by House Republicans, including then-House Banking Committee Chair Jim Leach (R-IA) who scolded her for two hours at a hearing.
3) Oversight of Energy Traders
In 2000, William Rainier, Born's successor as chairman of the Commodity Futures Trading Commission, told Congress that he was "deeply concerned" about a bill to exempt energy trading from CFTC review, noting that those who trade energy derivatives were not subject to any other oversight. Rainer's objections were largely ignored by the Republican-controlled Congress, and the exemption, heavily backed by Enron, became law.
4) Cracking Down on Tax Havens
In 2000, Clinton Treasury Secretary Larry Summers proposed a crackdown on tax havens such as those used by Enron. With the US co-chairing the OECD's Forum on Harmful Tax Practices, Summers crusaded for a crackdown on money-laundering and tax havens. His proposal was opposed by the GOP Congress. When the Bush Administration took office, Treasury Secretary Paul O'Neill abandoned Summers' crusade, telling the Wall Street Journal, "The government has not been respectful of the cost it imposes on society." The New York Times reported that Bush's top economic adviser, Lawrence Lindsey (a former economic adviser to Enron) also opposed efforts to crack down on tax havens.
5) Protecting 401(k)s
In 1997: Sen. Barbara Boxer (D-CA) proposed banning investment of more than 10 percent of the total 401(k) plan in the employer's stock--the maximum that investment experts recommend a person sink into any company. The GOP Senate watered down her bill so much it no longer applied to any corporation in America;
6) Protecting Investors and Shareholders
On December 20, 1995, President Clinton vetoed the Public Securities Litigation Reform Act, which would have restricted lawsuits against corporation accused of securities fraud. In his veto message, Clinton presciently noted that while he supported the notion of reducing frivolous lawsuits: "I am not, however, willing to sign legislation that will have the effect of closing the courthouse door on investors who have legitimate claims. Those who are the victims of fraud should have recourse in our courts. Our markets are as strong and effective as they are because they operate -- and are seen to operate -- with integrity. I believe that this bill, as modified in conference, could erode this crucial basis of our markets' strength." The GOP Congress overrode Clinton's veto.
Wendy Gramm, wife of Texas Republican Senator Phil Gramm also aided Enron’s rise to power. As the lame-duck chairwoman of the Commodity Futures Trading Commission, she pushed through a key regulatory exemption on Jan. 14, 1993, six days before Clinton took office. Five weeks later, she joined Enron’s board of directors.
"The exemption was passed over the objection of the Clinton administration."
What's that you say, WSJ? MSNBC? FOX? CNN? Clinton was to blame?