[Congressional Record Volume 148, Number 91 (Tuesday, July 9, 2002)]
[House]
[Pages H4404-H4405]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




              PRESIDENT'S FORTUNE BUILT ON INSIDER TRADING

  The SPEAKER pro tempore (Mr. Shuster). Under a previous order of the 
House, the gentleman from Washington (Mr. McDermott) is recognized for 
5 minutes.
  Mr. McDERMOTT. Mr. Speaker, I include for the Record an article from 
yesterday's New York Times by Paul Krugman called ``Succeeding in 
Business.''
  The reason I do this, we have a lot of Members coming here and 
talking about what is happening with business and the President, and 
this article told us what was going to happen today. As we watch the 
news about what President Bush said, remember this: ``George 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 is not 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 
trading. It is true that Mr. Bush's story about that failure has 
suddenly changed 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 his 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.''
  Mr. Speaker, surprisingly, Arthur Andersen was the accountant. The 
ploy works this way. Corporate insiders create front corporations that 
seem independent but are 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 is 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 move saying $10 
million is not very much compared with recent scandals. Indeed, it is 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 Mr. Bush's 
personal wealth, this accounting trickery made all the difference. Mr. 
Bush was on the company's audit committee, as well as on the special 
restructuring committee.
  And 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 did not 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 
cannot 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 those 
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.
  Mr. Speaker, this is the man who went down there and said we are 
going to clean this thing up. We are going to have a task force on 
corporate fraud. The fox went down to the chicken house and said to the 
other foxes, hey, I know how to run this hen house, and I am going to 
show you.
  This guy, can we expect him really, really, after that story, and 
this is not me talking, this is a columnist for the New York Times.
  Mr. Speaker, most people who watch television tonight will see about 
19 seconds of the President saying, I am going to be tough on corporate 
fraud. They will think it is for real because they will not know the 
story behind the man, what he really did. That is why I took the time 
to come down and read this. I feel like an old-fashioned news reader on 
television. Now everything has to be snap, snap and Americans never 
learn what is really going on.
  This President is running a game on us, and the pensions and 
investments of people are at risk as long as he refuses to put people 
on the SEC to stop it.
  The article previously referred to is as follows:

                [From the New York Times, July 7, 2002]

                         Succeeding in Business

                           (By Paul Krugman)

       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

[[Page H4405]]

     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, the 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 the 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.

                          ____________________