Ben Bernanke’s supporters are warning that a Senate vote against the Fed chair will send financial markets tumbling. Tim Geithner recently chimed in by telling Politico that markets would find a no vote “very troubling,” before saying that he was confident Bernanke would be reconfirmed.
Geithner’s chief mentor, Robert Rubin, deployed the very same argument about Enron. Rubin, then a top executive at Citigroup, made an 11th hour call to the Treasury Department as part of a campaign by Enron and its creditors to stave off a looming ratings downgrade. The call was later criticized as an improper use of the former Treasury Secretary’s influence, but Rubin defended his actions, saying that he thought an Enron collapse would imperil world energy markets.
The financial apocalypse trick has been turned many times by Wall Street’s policy elites, but the Rubin example is especially apt today: the high-level campaign to avert Enron’s ratings downgrade in 2001 appears to have been coordinated by the same Federal Reserve official lobbying for Ben Bernanke’s reappointment.
As I wrote yesterday, chief Bernanke tout Linda Robertson lobbied for Enron from 2000 to 2001, where she was involved in some of the messiest aspects of the Enron debacle. She successfully pushed Enron-approved candidates for Bush appointments, authored a company memo that inspired substantial portions of the Cheney energy task force plan, and lobbied for further deregulation of California’s electricity markets in the midst of the state’s historic electricity crisis (caused, at least in part, by Enron’s fraudulent manipulations of the market). Robertson is now spearheading the Bernanke reconfirmation effort in the Senate, according to Politico.
Robertson arrived at Enron fresh off a long stint at the Clinton Treasury, where she had worked for Secretaries Robert Rubin and Larry Summers. She was close to both. Summers recommended her for her Enron job, telling executives that “Nobody I know has the determination she has to get objectives met” and “Far more capacity to grasp the details than anyone I’ve seen.” Shortly after Robertson joined Enron, Summers awarded her Treasury’s highest honor, the Alexander Hamilton award.
Robertson sat one row behind Rubin at his confirmation as Treasury Secretary (photo from Rubin’s memoir, In an Uncertain World):
These connections helped Robertson secure her post at Enron, and she leveraged them throughout her time there.
On November 7, 2001 — the day before Rubin placed his famous call to the Treasury Department with Enron on the verge of bankruptcy — Robertson emailed an “outreach plan” to Enron lobbyist Rick Shapiro. She recommended that top Enron executives contact many of Washington’s top power brokers. The exact reasons for the outreach efforts aren’t described in the email, though its timing makes its purpose clear. Here is the full email:
I would suggest that the following calls as part of a minimum outreach plan starting tomorrow at 10:30am CST:
Ken Lay (or someone in Office of Chair): Greenspan, O’Neill, Lindsey, DeLay, Armey, Bingaman, Schumer, Bill McDonough
Steve Kean: Peter Fisher, Pat Wood, Newsome, Barton, Steve Largent, Don Nickles,
Rick Shapiro: Brownell, Massey, Breathitt, Larcamp, Bob McNalley, Boucher,
Sarah Novosel: Scott Miller, Chris John, Kevin Cadden, other FERC staff
Linda Robertson: K. Bentsen, Sheila Jackson Lee, Gene Green, DeLay Staff, Joe Kelliher, Oxley, Sarbanes, Dingell staff, Tauzin staff, Leon Lowrey, Daschle staff, Stenholm, Steve Harris, Wayne Abernathy, Dodd staff, J. Glotfelty, Hagel, All other Houston MOCs, LaFalce, Allison Silverstein, Lott staff
The list of names reads like a who’s who of Washington power brokers at the time, particularly in the energy and economic policy realms. One year before, Enron had spent weeks scheduling a simple call from Ken Lay to Phil Gramm; here, Robertson was recommending that Lay call the chair of the Fed, the Treasury Secretary, the chair of the New York Fed, the House majority leader, and the director of the National Economic Council as part of a “minimum outreach plan” on one single day — November 8th. These were desperate times.
It is unclear if Enron executives made all of the calls prescribed by Robertson, though Ken Lay did place a call to Treasury Secretary Paul O’Neill on November 8th, according to the New York Times. O’Neill said that Lay had not asked for government assistance.
Peter Fisher, the Treasury Department official that Rubin called that day, appears on Robertson’s list, assigned to Steve Kean, Ken Lay’s chief of staff. According to the Senate investigation of the call (worth a read), Robertson did not ask Rubin to make the call. Rubin told Senate staffers that he and Robertson “maintained a friendship” during the period in question, but did not speak about Enron business. In any case, Rubin had his own reasons to stand up for Enron: Citigroup, where he was a top executive, was a major Enron creditor and partner.
In any case, the power broker outreach strategy actually worked: Moody’s downgraded Enron on November 9th, but it remained one notch above “junk,” and the company avoided bankruptcy.
Less than a month later, Enron collapsed. And despite Rubin’s dire predictions, world financial markets survived.
This is the kind of firepower that Robertson brings to the Bernanke reconfirmation effort. Strategic use of the rolodex coupled with frequent deployment of the self-serving financial apocalypse threat have helped her and the rest of the Rubin crew prolong plenty of frauds in the past. Bernanke is just the latest chapter in this sorry tale of crony capitalism.