Fears of Conflict May Have Led to Officials' Hands-Off Enron Approach

Enron management's pleas for government intervention fell on deaf ears in the Bush administration despite comparisons to a 1998 government bailout of a collapsing hedge fund for wealthy investors.

As energy giant Enron struggled to maintain its credit rating last fall, Chairman Kenneth Lay phoned Treasury Secretary Paul O'Neill and raised the example of government intervention in the case of hedge fund Long-Term Capital Management, O'Neill said.

LTCM, a fund by U.S. and European banks and brokerage houses, was pulled out of dire straits when the Federal Reserve stepped in and orchestrated a $3.6 billion rescue in 1998, the same time that Asia was teetering on its own financial crisis.

Fed Chairman Alan Greenspan has said the central bank acted on LTCM to avert potential damage to the U.S. and world economies. The banks and brokerage firms lending to the fund could have faced huge losses, and there could have been panic selling and losses for other investors.

Analysts argued that the same is not true of Enron, whose Dec. 2 bankruptcy is the nation's largest. Thousands of investors lost their retirement savings and entire stock portfolios but O'Neill and Commerce Secretary Don Evans decided not to intervene — or even place a call to President Bush because there would be no strong ripples through the overall U.S. economy, they have said.

Lay also contacted Greenspan about Enron's troubles. In this case, the Fed chairman decided to do nothing.

But the disclosures of Lay's requests for intervention have left the Bush administration in a damned-if-they-do, damned-if-they-don't situation

Since Bush has been the biggest recipient of campaign donations from Lay, some analysts have said fears of a conflict of interest involving a big Bush donor may have led to the inaction. Others argue that intervening to help Enron creates "an appearance problem that would make any action — legitimate or not — questionable."

Given the magnitude of the troubles at Enron, "I think they [administration officials] had an obligation to be public about the controversy," said Paul Light, director of government studies at the Brookings Institution, a think tank.

The White House should have disclosed the Enron phone contacts to the press immediately, Light suggested.

"The appearance would have looked terrible," said Bill Allison, an official at the Center for Public Integrity. "They felt that they couldn't act on behalf of Enron because of the political fallout."

But David Ruder, chairman of the Securities and Exchange Commission between 1987 and 1989, said administration officials did the right thing by not acting.

"It seems to me that they made the right call," Ruder said.

In either case, White House spokesman Ari Fleischer said the White House would no longer discuss every conversation between Enron officials and White House staff unless there are "real and specific questions."

"If people want to know every contact with anybody about anything, that is a fishing expedition," Fleischer said.

Evans said Sunday he had discussed calls from Enron's chairman with O'Neill, who also had been contacted, and later told Andrew Card, White House chief of staff, but that Card never informed the president.

Enron was the nation's seventh-biggest company in revenue, and its collapse has hurt both individual investors and big pension funds around the country. Florida's fund, for example, has lost more than $300 million. Also roiling the financial system was the impact on major banks, which had loaned billions to the high-flying company that had been a darling of Wall Street and viewed as a technological innovator.

The Associated Press contributed to this report.