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Historical Views on Enron

February 26, 2002 at 12:00 AM EST
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GWEN IFILL: The big business scandal is not new in America’s political history, but how do previous ones compare to Enron? And what, if anything, has government taken from these past excesses?

For a few answers, we turn to NewsHour regulars: presidential historian Michael Beschloss; author-journalist Haynes Johnson; Richard Norton Smith, director of the Dole Institute at the University of Kansas; and Roger Wilkins, professor of history at George Mason University.

So Richard is this something that we have seen before? Does is it seem awfully familiar to you?

RICHARD NORTON SMITH: Wearily familiar I suspect, Gwen. Like so much about American politics it’s really cyclical.

In some ways you could almost say that modern government arose around the beginning of the 20th century in response to the growth of a modern industrial economy and the abuse is represented by so called robber barons like John D. Rockefeller and J.P. Morgan.

And it was 100 years ago in his first message to Congress that Theodore Roosevelt said that in a modern industrial democracy government had a right acting as a steward on behalf of all the people to have access to all corporate information to investigate corporate functions, something we’re talking about 100 years later.

JP Morgan known as “Jupiter” on Wall Street came to the White House after TR said he was going to do something that no other president had ever tried to do. He was going to sue in court to break up an economic monopoly, JP Morgan’s Morgan Securities Company, and Morgan came to see the president and he said, if we’ve done something wrong, why don’t you send your man to see my man and we can fix it. Note that priority your man to see my man. The attorney general said we’re not interested in fixing it; we want to stop it.

GWEN IFILL: Michael, we just heard Jeffrey Skilling testify he had made $66 million in the sale of stocks in about a year and a half perhaps.

Is it the scale that makes this different, or was the scale just as huge in past business scandals?

MICHAEL BESCHLOSS: Well, even huger. I mean the biggest example — Richard is absolutely right about the cycle.

And the cycle this began was that after there was an by government to clean up some of the abuses that Richard was talking about, we got to the 1920s — the roaring stock market — a lot of abuse — insider trading.

A lot of so-called at the time “little people” were taken to the cleaners. And then after 1929 and the time of the stock market crash, the public demanded change. They said government has to come in and clean out Wall Street. Herbert Hoover, the president, wasn’t willing to do that.

Franklin Roosevelt, when he ran in 1932, was, and Roosevelt campaigned in great measure on the argument that I’m going to have government assure that capitalism can survive by making sure that the practices are above board. He went on and said, you know, I am against the malefactors of great wealth and the economic royalists who said they are unanimous in their hatred for me, and I welcome their hatred.

It got a little bit over board but what it did bring us in the 1930′s was things like the Securities & Exchange Commission. That was Roosevelt’s way of institutionalizing a way of making sure that at least in the case of stock market you wouldn’t have this kind of thing again.

GWEN IFILL: Roger, do we have kind of a love/hate relationship with the capitalist free market?

ROGER WILKINS: Oh, I think Americans really trust business. And it takes a long time for there to form a political will that permits the president to move on these things.

You know, if you go farther back than Richard did to the Grant administration, he had a terrible series of scandals. And government could do nothing because people weren’t really prepared to challenge business. So the only happened that was that Grant didn’t get the third term he wanted.

A man who was described a third rate non-entity by Henry Adams became president of the United States — Rutherford B. Hays — in a very contested election in which he gave away the South to the Democrats, and the only result of that scandal was to slam blacks back into semi-slavery. But the arrogance that that engendered led to JP Morgan and all of the excesses that finally formed the Progressive movement that made it possible for Theodore Roosevelt.

GWEN IFILL: Haynes, we always react to these business scandals as if they are giant aberrations. Yet everyone here is saying that it’s basically a cycle.

HAYNES JOHNSON: It is a cycle. And it’s the oldest story in the American story. It’s been power.

How do you make it fair – the old cliché is that crust is the coin of the realm, and the system is supposed to be fair, that the little guy doesn’t get taken by the big guy, the malefactors of great wealth that Michael talked about, all the things we have talked about here.

You go through these periods of incredible roaring success and Jay Gould cornered the markets back after the Civil War and then they go through corruption and then we have a lead for reform, and the Progressive movement, the Populist movement.

Then you go through Theodore Roosevelt and the Woodrow Wilson and then you go through Michael’s Roaring 1920s, and let her rip. Then you go into the New Deal and you get the SEC, Securities & Exchange — and then you have relaxation again, and then you have the scandals of the Truman administration, which probably kept him from having a full other term in the White House.

And so this goes on, Savings and Loan in the 1980s, which cost us half a trillion dollars, and the public finally gets enough and they say we have got to have a reaction. So you have these hearings that we just saw.

JP Morgan — it was interesting — and had one of these congressional hearings — you remember the picture of a midget on his lap in the early 1930′s when they are having these hearings. So it’s part of a cycle of American democracy, and I think there’s no one lesson to it except that power will always draw a reaction to it.

GWEN IFILL: So Richard, these boom cycles we go through, that we’ve just been through, is the inevitable result of them that something like this happens, people just get too optimistic, they say we have the brand new thing and then it gets out of control?

RICHARD NORTON SMITH: Anyone who says the business cycle has been repealed might as well say that history has been repealed. But one thing that is interesting may be relevant to the situation we’re in now is the factor of war.

You know we’ve talked before about how war centralizes power. And if you want to find patterns in American history, take a look, in the 19th century most people, the only contact they had with their government was the post office until the Civil War, which among other things brought about the first income tax.

The centralization of power in that war — however noble the causes for which it was fought — led in many ways to a reaction after the war, the Gilded Age, the scandals we have talked about in World War I. Woodrow Wilson was empowered to set the price of baby carriages and dictate the size of bronze coffins.

The railroads were nationalized and run by the president’s son-in-law. Taxes grew by six-fold. Not surprisingly, there was a reaction which led to what Michael was talking about, the Roaring 1920s.

At the end of the 1920s, poor Herbert Hoover, who had been a progressive Republican and a supporter of TR and wanted a certain amount of reform in the economy was left holding the bag and he uttered the immortal words “the only trouble with capitalism is capitalists — they are too damn greedy.”

GWEN IFILL: What about the political response? Is it a response that is lasting that makes a difference?

MICHAEL BESCHLOSS: It can. But you know I think to talk about this as a cycle as it usually is suggests that the political system works better than I think it really does, and I think there are really two problems.

One is that Robert was talking about the public having the political will to make reforms; that usually only happens when there’s a big scandal like this. I don’t think six months ago –

ROGER WILKINS: Not every scandal moves people.

MICHAEL BESCHLOSS: Absolutely.

GWEN IFILL: It has to be a scandal where people feel personally affected.

MICHAEL BESCHLOSS: As they do with Enron. Six months ago, you know, as you were saying, I don’t think people on the street were desperately concerned with pension reform and transparency reform.

So that’s a problem, because oftentimes you have terrible things happening in our society that there isn’t a scandal to call people’s attention to but the other thing is political money. Corporations and people who are involved in them pay both parties, people who run for office in many cases essentially to lay off and don’t regulate and let practices like this occur.

That wasn’t true at the time of Franklin Roosevelt or at the time of TR.

GWEN IFILL: Haynes.

HAYNES JOHNSON: Really what you’re seeing right now is exactly what Michael says, that the system may not work as perfectly and all that, but this is a scandal people understand. If you ask people what was Whitewater, well, they don’t know what it was — if you ask all these other “gate” scandals over the last 10 years or so. They can understand this one complicated though it.

Skilling said it’s so complicated and complex and all these things — but the fact is they know if you had your money and your pensions and your life savings and you lost it because the big guys got it and they got it offshore and they got secret deals, that’s where you get the political response. That’s where the system begins to respond.

GWEN IFILL: People get it. Do they get what they want do about it? For instance, is there any broad regulation? Is there any history of that happening?

ROGER WILKINS: One of problems is that the public gets unfocused. You throw a few guys over the side you know — if they send a few people at the top of Enron to jail, the people who are pressing against regulation will say, oh, now we’ve got bad guys, we don’t need regulation.

And what has to happen for regulation really to occur is for there to be a counter populous movement that will counter the people who are always at work trying to loosen regular regulation and prevent it.

HAYNES JOHNSON: And that’s what I think is going to be the test — what comes out of this down the road.

You can put people in jail, whatever, uncover all the labyrinthian deals going on, but do you really make changes like the Securities & Exchange Commission was set up in the 1930′s to monitor Wall Street to stop fraud and do we have new regulations that work. That’s the test.

GWEN IFILL: Richard, when we just heard Jeffrey Skilling talk about a run on the bank, it seems to be a problem that happens without anyone to blame. Just somebody ran on the bank.

Is that also something that happens with these kinds of scandals in which there aren’t a few people to blame there, there aren’t faces to be attached to these? Or does it look the other way eventually?

RICHARD NORTON SMITH: No. Think we could all agree that when it comes to turning the table on his investigators, Jeff Skilling is no Oliver North, not a very sympathetic figure.

The system itself — I was going to agree with Haynes that if these things remain abstractions, then it is much less likely that any systemic change will come about, but there are examples.

Go back to TR again and a muckraking journalist called Upton Sinclair. He wrote a book called The Jungle which documented in horrified terms the abuses of the meat packing industry in Chicago. It led directly to the passage of the Pure Food And Drug Act of 1906.

It wasn’t against individuals or individual prosecutions; it was about a system that was fundamentally corrupt.

GWEN IFILL: Michael, you were going to say something?

MICHAEL BESCHLOSS: That’s exactly right and during most of the time the tragedy is when there’s not the flashy scandal and when there’s not this kind after tension, oftentimes you have people in business who are getting members of Congress to hold government at bay and prevent these kinds of things from happening.

We have to depend oddly enough, and I wish this weren’t true, on the scandal occurring or on that far-sighted leader saying that there’s something wrong here that the public may not see at the moment but I’m going appeal to you to get things changed.

GWEN IFILL: Everything old is new again. Thank you all for joining me.

MICHAEL BESCHLOSS: Our motto.