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COMMENTARY I BY ANDREW WHEAT Wall Street’s Pound of Bush Flesh Much as Enron Corp. once used the likes of George W. Bush to deregulate energy markets, Wall Street is leveraging chits amassed as the premier financier of Bush’s re-election campaign to try to roll back post-Enron market reforms. Leading the charge is new Treasury Secretary Henry Paulson. As head of New York-based investment bank Goldman Sachs in 2004, Paulson served as an elite Bush fundraiser along with George Herbert Walker IVthe presidential cousin then running Goldman’s hedge fund division. Media reports about Paulson’s nomination last June made much of how hard White House Chief of Staff Josh BoltenGoldman’s ex-director of legal and government affairshad to woo a “reluctant” Paulson to the post. To land this fish, the Wall Street Journal reported, Bolten “promised him more clout in domestic and international economic policy” than his predecessors wielded. Clues to what Paulson intended to do with this influence soon surfaced. In a Columbia University speech last August, the new cabinet member aired his view that parts of a key post-Enron reform should be repealed. When Congress passed the so-called Sarbanes-Oxley, or “Sarbox,” reform in 2002 as its response to scandals. involving Enron, WorldCom Inc., and Tyco International Ltd., just three members opposed it. The nays included “Dr. No,” lonely Lone Star Rep. Ron Paul. The month after Paulson advocated eviscerating some Sarbox reforms, an elite group of corporate and financial leaders announced it was forming the Committee on Capital Markets Regulation to recommend ways to improve U.S. capital markets. What set this newborn group apart was that it came into the world with the explicit blessing of a sitting U.S. Treasury sec retary. “This issue is important to the future of the American economy and a priority for me,” the press release announcing the group’s formation quoted the secretary as saying. “I look forward to reviewing their findings and ideas.” Soon after a Thanksgiving celebration of what was turning out to be a bullish year on Wall Street, the committee published an “Interim Report” that fleshed out Secretary Paulson’s agenda. Despite the stock market’s banner year, the report warned that U.S. capital markets are failing to cope with unprecedented global competition. It blamed this dire situation on the “excessive regulation” and “unwarranted litigation” that followed “several high-profile corporate scandals and abuses.” It identified Sarbox as a major culprit. The Wall Street elite’s report fixated on provisions requiring corporate managers and auditors to formally vouch for a company’s lawfulness and financial reports. The report said these honesty pledges are too costly and make auditing firms “virtually uninsurable.” Alluding to Enron’s late auditing firm Arthur Andersen LLP, the report groused that “improper criminalization of entire companies has sometimes forced them out of business, eliminating thousands of innocent employees’ jobs.” The report neglected to mention that the number of companies and jobs that prosecutors have destroyed is negligible when compared with the wreckage inflicted by corporate fraud. Indeed, much of the report is imbued with a narcotic nostalgia for the go-go Enron days, when corporate fraud basked in regulatory indulgence. At that time investor class-action lawsuits were one of the only checks on corporate fraud. Yet the report also concludes that investor class actions must be sharply curtailed to save America’s endangered capital markets. One of the report’s most innocuous-sounding findings may be the most telling. “Insufficiently coordinated state and federal enforcement laws and activities have led to state authorities driving matters that are more national in scope,” the report found. The state authority that inflicted the most misery on Wall Street was Eliot Spitzer, the New York attorney general whom New Yorkers elected governor in a landslide three weeks before the report’s publication. Although Enron was a huge embarrassment for Wall Street, the Street’s real problems began when Spitzer decided to go beyond Enron in pursuing the industry’s many conflicts. In 2002, 10 top investment banks agreed to pay a record $1.4 billion to settle Spitzer’s charges that they had won lucrative stock-underwriting contracts by pressuring their analysts to publicly hype stocks that they privately scorned. Spitzer next ripped into conflicts at mutual funds and insurance companiestaking on some of the most powerful financial wizards in the world. Spitzer’s jihad came at a pivotal moment. The aftershocks of Enron’s 2001 implosion temporarily decimated the Houston-based energy industry that did so much to bankroll Bush’s first presidential race. Bush moneymen who had foundered in Houston swamps by 2004 included Enron’s Ken Lay, Dynegy Inc.’s Chuck Watson, Reliant Energy Inc.’s Steve Letbetter, El Paso Corp.’s William Wise, and Arthur Andersen’s Stephen Goddard. To eke out a second term, Bush needed another flush-yetneedy industry to fill his war chest. As the Observer reported three years ago \(“Bush’s Bounty Hunters,” February 13, this call. While the New York-based finance industry has keen interests in such perennial Bush issues as tax cuts and privatizing Social Security, it had provided limited financial aid for Bush’s first White House run. By 16 THE TEXAS OBSERVER JANUARY 26, 2007