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COLUMN SEVENTY-FIVE, SEPTEMBER 1, 2002
(Copyright 2002 The Blacklisted Journalist)

BY PAUL KRUGMAN

1. SO WHY DON'T THEY INVESTIGATE BUSH THE WAY THEY INVESTIGATED CLINTON?

Subject: NYTimes.com Article: Succeeding in Business
Date: Sun, 7 Jul 2002 11:18:29 -0400 (EDT)
From: info@blacklistedjournalist.com
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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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2. STEPS TO WEALTH

Subject: NYTimes.com Article: Steps to Wealth
Date: Tue, 16  Jul 2002 11:18:29 -0400 (EDT)
From: info@blacklistedjournalist.com
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July 16, 2002

Steps to Wealth

By PAUL KRUGMAN

Why are George W. Bush's business dealings relevant? Given that his aides tout his "character," the public deserves to know that he became wealthy entirely through patronage and connections. But more important, those dealings foreshadow many characteristics of his administration, such as its obsession with secrecy and its intermingling of public policy with private interest.

As the unanswered questions about Harken Energy pile up?what's in those documents the White House won't release? Who was the mystery buyer of Mr. Bush's stock??let me now turn to how Mr. Bush, who got by with a lot of help from his friends in the 1980's, became wealthy in the 1990's. He invested $606,000 as part of a syndicate that bought the Texas Rangers baseball team in 1989?borrowing the money and repaying the loan with the proceeds from his Harken stock sale'then saw that grow to $14.9 million over the next nine years. What made his investment so successful?

First, the city of Arlington built the Rangers a new stadium, on terms extraordinarily favorable to Mr. Bush's syndicate, eventually subsidizing Mr. Bush and his partners with more than $150 million in taxpayer money. The city was obliged to raise taxes substantially as a result. Soon after the stadium was completed, Mr. Bush ran successfully for governor of Texas on the theme of self-reliance rather than reliance on government.

Mr. Bush's syndicate eventually resold the Rangers, for triple the original price. The price-is-no-object buyer was a deal maker named Tom Hicks. And thereby hangs a tale.

The University of Texas, though a state institution, has a large endowment. As governor, Mr. Bush changed the rules governing that endowment, eliminating the requirements to disclose "all details concerning the investments made and income realized," and to have "a well-recognized performance measurement service" assess investment results. That is, government officials no longer had to tell the public what they were doing with public money, or allow an independent performance assessment. Then Mr. Bush "privatized" (his term) $9 billion in university assets, transferring them to a nonprofit corporation known as Utimco that could make investment decisions behind closed doors.

In effect, the money was put under the control of Utimco's chairman: Tom Hicks. Under his direction, at least $450 million was invested in private funds managed by Mr. Hicks's business associates and major Republican Party donors. The managers of such funds earn big fees. Due to Mr. Bush's change in the rules, these investments were hidden from public view; an employee of Utimco who alerted university auditors was summarily fired. Even now, it's hard to find out how these investments turned out, though they seem to have done quite badly.

Eventually Mr. Hicks's investment style created a public furor, and he did not seek to retain his position at Utimco when his term expired in 1999.

One last item: Mr. Bush, who put up 1.8 percent of the Rangers syndicate's original capital, was entitled to about $2.3 million from that sale. But his partners voluntarily gave up some of their share, and Mr. Bush received 12 percent of the proceeds?$14.9 million. So a group of businessmen, presumably with some interest in government decisions, gave a sitting governor a $12 million gift. Shouldn't that have raised a few eyebrows?

All of this showed Mr. Bush's characteristic style. First there's the penchant for secrecy, for denying the public information about decisions taken in its name. So it's no surprise that the proposed Homeland Security Department will be exempt from the Freedom of Information Act and from whistle-blower protection.

Then there's the conversion of institutions traditionally insulated from politics into tools for rewarding your friends and reinforcing your political control. Yesterday the University of Texas endowment; today the Federal Energy Regulatory Commission; tomorrow those Social Security "personal accounts"?

Finally, there's the indifference to conflicts of interest. In Austin, Governor Bush saw nothing wrong with profiting personally from a deal with Tom Hicks; in Washington, he sees nothing wrong with having the Pentagon sign what look like sweetheart deals with Dick Cheney's former employer Halliburton.

So the style of a future Bush administration was easily predictable, given Mr. Bush's career history.

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