By Steve Weinstein
By Devon Maloney
By Tessa Stuart
By Alison Flowers
By Albert Samaha
By Jesse Jarnow
By Eric Tsetsi
By Raillan Brooks
The Myth of the 401(k)
Enron's Phantom Stock
Last week, Enron employees filed a class-action suit against their former employer, claiming the Houston energy firm had been paying its people with what amounted to phantom stock. Rather than handing out bonuses, say, the company offered what it described as a much better dealshares in the publicly traded corporation. Not only did Enron execs get out of paying real money, the employees say, but by putting so many shares in friendly handsand then barring those hands from trading themthey staved off aggressive competitors.
"With a large block of stock owned by employees, [Chairman Ken] Lay and others could use that stock to fight off any hostile takeovers," the suit charges.
That's a novel twist on the fiasco of 401(k) plans. Use your employees as the first line of defense, then make them party to your fraud. By the time of Enron's collapse, workers held what they believed to be $1.3 billion in company stock. Then the price fell to mere pennies a share.
As if in recognition of the gross abuse of the Enron fund, President Bush last week backed a "reform" of the private retirement system with an endorsement of legislation proposed by Ohio Republican Congressman John Boehner. That bill purports to smooth over the Enron mess by preventing a repeat of the more blatant rip-offs, like executives selling stock while employees are forced to hold the same securities until they hit rock bottom.
But in fact, the legislation would make the situation even worse. For starters, it would allow companies to advise the 401(k) administrators on which securities to buy. That means a firm could not only defend itself from hostile takeovers, but mount them by calling for the buying of a competitor's stock. Or executives could protect their investments elsewhere by selling their stock in a company while urging workers to buy. That is a straightforward conflict of interest.
The bottom line with Enron is that its plan, like every other 401(k), stinks. Depicted as modish new pensions, these schemes are a neat way for companies to increase profits by getting rid of standard pensions. One of every four Americans has a 401(k), with nearly a quarter of a million employers offering plans. Investment in them has grown, from $91 billion in 1984 to $2 trillion. Half of that money is stuck in mutual funds. None of it is insured. If the bottom drops out of the market, as with Enron, tough luck. The plans are virtually unregulated, yet the Bush administration wants to copy the 401(k) concept for Social Security.
For well-off workers, a 401(k) may be appealing because of its tax advantages. But for people who are just scraping by, it is just another drag on their limited funds. In one sense, the 401(k) is just another device to widen the gap between rich and poor. And anyhow, even when people choose 401(k)s, the plans don't add up to nearly enough for a retirement fund. One study found that half of all accounts were worth less than $10,000.
But the 401(k) is a boon to Wall Street, and if Bush has his way and throws Social Security into the mix, the investment community will make even more money. There's a new wrinkle to the business, because mutual funds are becoming more and more concentrated in the hands of a few big fund "families." What makes these groups grow is gobbling up the 401(k) business. So what's at work here is the creation of yet another arm of the finance industry, monopolized by big banks and insurance companies.
Why Bush Declared War on the World
It's the Oil, Stupid
George Bush's widening Holy War on Terror can be put to any number of uses. One of them works to benefit the petroleum industry. Ever since oil was discovered in Iraq in the 1920s, the Western powers have quarreled over who was to get what, meanwhile batting the Arabs back and forth to keep them in their place. After World War II, the U.S. used Iraq as a counterweight against Iran. The very last thing in the world politicians in Washington wanted was to get rid of Saddam Hussein and be confronted with something immeasurably worsea fundamentalist revolution of the sort that toppled the shah of Iran, and more recently gave birth to Osama bin Laden and Al Qaeda.
This history provides at least one good reason why the Western nations have not sought to dump the secular Saddam, even during the last decade as he developed and used weapons of mass destruction. The second reason is more simple: Iraq is the world's sixth largest oil producer, and for many years has been the U.S.'s second biggest supplier, after Saudi Arabia.
It was in this tit-for-tat atmosphere that Vice President Dick Cheney, then a Halliburton oil man, made good money providing Saddam equipment to fix up his rickety old pumps, which were nominally shut down by U.S. sanctions. It is well-known that following the Gulf War, U.S. oil companiesoperating through European affiliates (mostly French)slipped past the embargoes. "Though legal," reported the Financial Timesin 2000, "leading U.S. oil service companies such as Halliburton, Baker Hughes, Schlumberger, Flowserve, Fisher-Rosemount and others have used subsidiaries and joint venture companies for this lucrative business, so as to avoid straining relations with Washington and jeopardizing their ties with President Saddam Hussein's government in Baghdad."