Lessons in right-wing law and order

Everyone remembers Enron, the Houston-based mega-corporation heralded in the late 1990s as the future of American capitalism. When George W. Bush was nominated as the Republican presidential candidate executives speculated CEO Ken Lay would end up as Secretary of Energy. And why not? Lay had helped sponsor Bush's political rise.

Everyone remembers the unhappy ending. Lay defrauded investors and working-class pensioners for tens of billions of dollars; hard-working middle-class Americans became paupers overnight. Enron execs were caught on tape [1] saying things like, "He just fucks California. He steals money from California to the tune of about a million." Thirty-four pleaded guilty of crimes. Now the malefactors have been punished; Enron's accounting firm, Arthur Anderson, has dissolved; finance chief Andy Fastow rots in jail. Blares the cover of the latest Fortune [2]: "Business Is Back! Profits Are Boffo. Stocks Are On Fire...And the Rogues Are Behind Bars." The system is working, right?

Not so fast.

The heart of Enron's crimes—sham transactions that kept billions of dollars of debt off the books—was engineered by banks. What do the internal documents show? Things like investment bank Merrill Lynch’s "purchase" of some Nigerian barges from Enron on December 31, 1999. Enron bought them back six months later. That way, the debt Enron incurred by buying them in the first place never showed up on the year's books. What was in it for the investment bank? A 20 percent profit—free money.

Barclays, another investment bank, created a shell company specifically to hide Enron debt. Credit Suisse First Boston let Enron make up "commodities deals" that never happened. All and sundry such deals made Enron look healthy to the investors they suckered, even as the company actually was earning no profit at all.

While their accomplice Fastow is off breaking rocks in the hot son, what happened to banks like these? Some have settled with victims in a lawsuit led by the Regents of the University of California (whose pension fund lost $150 million). Other banks, however, have held out—a wise decision, it turns out. Just weeks before the opening gavel, Fifth Circuit crapped on their victims. The banks' actions were "hardly praiseworthy," the two-to-one majority decided. But the banks were simply not liable, they concluded, because the banks themselves made no false statements to the public—only Enron did.

Imagine if this standard became general in our criminal law. As the lawyers who sued the banks put it, "The mastermind of the bank robbery who planned the heist, recruited the other robbers, provided the weapons, drove the get-away car, and went back to the hideout to split up the loot is not legally responsible just because he did not show his face inside the bank."

Or here's the bottom line in lawyer language from Judge James Dennis's angry dissent: In direct contravention of federal law that makes it illegal for "any person" "directly or indirectly" "to employ any device, scheme, or artifice to defraud," the ruling "immunizes a broad away of undeniably fraudulent conduct from civil liability....effectively giving secondary actors license to scheme with impunity, as long as they keep quiet."

What fools these lesser banks were who paid the victims restitution. They simply don't understand that in the Age of Bush, when it comes to denying your mistakes, you never give up—never, never, never, never, as Winston Churchill, of whom George Bush affects to be the reincarnation, would say.

Both the judges in the majority are Reagan appointees, solid "conservatives."

E. Grady Jolly, a 1962 graduate of the University of Mississippi law School, made tightly controlling such class action suits a major argument of his confirmation hearings. One of his noteworthy rulings let law enforcement take as much of a drug offender's property as it likes without it being considered "punishment"; in another, he struck down background checks for handgun purchases; and, in another, he concluded that whistleblowers could be fired for revealing discriminatory practices by their employers.

Judge Jerry E. Smith is a former chairman of the Harris County Republican Party in Houston. His rulings kept asbestos on the market, banned race-based affirmative action in law schools, decertified a class of nicotine addicts seeking to sue the tobacco companies and made it harder to hold individuals responsible for violations of the Clean Water Act. Here are some things lawyers said about him for a directory of federal judges: "He is very conservative." "He is conservative." "He is very conservative." "He is very conservative." "He is very conservative."

Well, that's conservatism for you: When banks steal billions from pensions, it's perfectly fine by them.

Enron is dead. Long live Enron.