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 Times in 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."
Now, as Bush threatens war on Iraq, he's working with a team of people who made their fortunes there, both as politicians and as private executives. Before serving as Halliburton's CEO, Cheney of course was secretary of defense during the elder Bush's Gulf War. Under his leadership, Halliburton used two foreign subsidiaries to do $23 million worth of business with Iraq, more than any other U.S. company. The UN sanctions made the first Bush administration appear to still be playing tough with Saddam, while in fact they seem to have worked as a kind of pipeline for Americans to do business with Iraq through foreign partnerships.
Since the setup has been working so well, it seems surprising that Bush now wants to do away with Saddam, a move that would surely ignite fundamentalist rage. At the same time, Bush is attacking Iran, which fires up the religious extremists there. They have been much in decline over the last few years as the moderate president has sought to restore a modicum of civil society. Suddenly Khatami finds himself cut off by Bush, and the religious wackos are again jumping into the limelight.
Bush also stands to lose favor with his big patrons, the oil barons who stand to lose not only trade with Iraq but progress in gaining access to Iran's ports and pipeline system.
Yet Bush is willing to risk all this, for reasons that aren't hard to understand. Three straight administrations have quietly tried to manipulate Saddam to their own advantage, while pulling for any improvement in dealings with Iran. After September 11, it became clear the U.S. didn't really have control over the region. So it projected power in Afghanistan, got a taste of military victory on the eve of an election season, and, not having caught bin Laden, decided to let the troops keep on rolling. And why not? War has been good for Bush's approval ratings, and if the U.S. can knock off Saddam and keep Iran in line, there's more business for Texas. You can chalk the politics up to Bush's handlers, but the underlying thrust comes from Cheney and big oil.
This Land Is Their Land
Poor Like Ken Lay
A survey of public records and private advocacy groups yields the following financial portrait of the American recession:
Number of millionaires: 2.5 million
Number of billionaires: 298
Richest family: the Waltons
Size of their Walmart fortune: $85 billion
Second richest: Bill Gates, $63 billion
Annual take for Enron's Ken Lay: $49.8 million
Percentage of Americans without pensions: 53
Average percentage lost by a 401(k) last year: 10
Number of people without health care: 43 million
Highest-paid CEO: Michael Dell
His total annual compensation: $235.9 million
Dollar ratio of CEO pay to that of minimum-wage workers: 728:1
People filing for unemployment: 390,000
Number of people who go hungry every day:31 million (including 12 million children)
People spending more than half their income for housing: 5.4 million
Percentage of people who own their own homes: 68
Number of properties owned by Ken Lay: 18, valued at $30 million
Rescue Mission Impossible
Despite all the talk about our ready response capabilities in the face of a Soviet nuclear strike during the Cold War, it turns out that today the United States operates one school with the goal of teaching 11 million "first responders" (police, fire, EMS) how to deal with a nuclear or bioterror attack. This school, headquartered in Anniston, Alabama, can turn out 10,000 students each year. At that rate, it would take the U.S. 1100 years to be prepared.
Additional reporting: Adrian Brune,
Michael Ridley, and Gabrielle Jackson
Get the This Week's Top Stories Newsletter
Every week we collect the latest news, music and arts stories — along with film and food reviews and the best things to do this week — so that you’ll never miss Village Voice's biggest stories.