Flash Points


It was another intense week as lawmakers -- and one otherwise reliably pro-business editorial page -- criticized financial services firms for contributing to Enron's crash.

The Wall Street Journal's lead editorial Monday blared: "Citigroup and Morgan have some explaining to do." And then this dart: "From the evidence we've looked at, these banks deserve the beating they're now getting."

Much of that evidence has been uncovered by Sen. Carl Levin and the Permanent Subcommittee on Investigations. The panel held its second hearing Tuesday into whether bankers helped Enron appear stronger than it was.

For Citigroup and J.P. Morgan Chase, that question revolves around $8 billion of complex deals Enron did with special-purpose entities that had ties to the banks. The panel's chief investigator said these deals helped Enron understate its debt by 40%, overstate its income by 50%, and improve its debt-to-equity ratio by 30 percentage points.

Unsatisfied with testimony July 23 from Citi and Morgan middle managers, Sen. Levin asked both companies' chairmen to deliver signed affidavits by Monday answering nine questions. Sandy Weill and Bill Harrison met the Michigan Democrat's deadline, but Sen. Levin and the panel's ranking Republican, Sen. Susan Collins of Maine, rejected their claims that their companies did not control the SPEs.

Mr. Harrison's affidavit noted that Mahonia, the unit linked to Morgan Chase, had actually turned down a deal the bank had proposed. But when asked about this deal, a Morgan spokesman could not come up with details. He said it was more than a year old, so the documents would no longer be at the legal department's fingertips.

Asked if he would call Mr. Weill and Mr. Harrison to testify, Sen. Levin said: "I don't have any plans to do that at this point," but he did not rule it out. "I don't want to make any conclusions."

Momentum is growing among Republicans to hear testimony from Robert E. Rubin, who joined the chairman's office at Citi after a stint as Treasury Secretary.

As Enron was cratering last fall, Mr. Rubin placed a call, which he now likely regrets, to Treasury Under Secretary for Domestic Finance Peter Fisher -- the lone Democrat appointee in President Bush's Treasury. Mr. Rubin asked Mr. Fisher if he thought he should contact the credit rating agencies to prevent an Enron downgrade, a move that contributed to its bankruptcy and left Citi with more than $2 billion in unpaid debt. Mr. Fisher declined, and the call has haunted Mr. Rubin ever since.

This week, subcommittee member Peter Fitzgerald, R-Ill., sent a letter to Sen. Joseph Lieberman, asking the Connecticut Democrat to invite Mr. Rubin and Mr. Weill to tell the committee "about their knowledge of events surrounding the collapse of Enron Corp. and any attempts by Citigroup to influence the administration or credit agencies regarding Enron Corp." Sen. Lieberman chairs the Senate Governmental Affairs Committee, which oversees the investigations subcommittee.

Hauling Mr. Weill and Mr. Rubin before the committee is "a possibility," Sen. Lieberman told reporters. "We're going to now look at what we know about any involvement Bob Rubin had and whether calling him would be constructive. I wouldn't hesitate to call him if we can prove that there's anything to add to our investigation."

Sen. Levin still has Merrill Lynch in the crosshairs, and says Congress might need to consider legislation to fully separate equity analysts and investment bankers.

At a hearing Tuesday, Sen.

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Flash Points


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