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Jewish World Review July 29, 2002 / 20 Menachem-Av, 5762

John H. Fund

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GOP: Get Over Panic --- Dems are vulnerable on corporate scandals, too | Panic is a sure sign of political weakness, and Republicans on Capitol Hill have shown enough of it in responding to the corporate scandals to make one wonder how coherent their campaign for Congress will be.

At the Republican National Committee meeting in San Francisco, many attendees were concerned that battered investors who normally vote Republican might stay home out of disillusionment with the economy. But there was no panic, with some delegates even expressing concerns at the White House's willingness to sign any legislation with an anticorporate label on it. But a White House representative made it clear that the administration wasn't about to have an argument on the merits of the legislation. "Politically, I would rather have pictures of a CEO wearing an orange jumpsuit and shackles than pictures of Osama bin Laden being captured right now," he told a closed-door meeting of RNC members.

The attitude on Capitol Hill is similar. Many Republican House members pleaded with their leaders to rubber-stamp the Senate bill cracking down on corporate wrongdoing, without even convening the traditional conference committee to resolve differences between the two houses. Even veterans were sounding retreat; Rep. Billy Tauzin of Louisiana, chairman of the Energy and Commerce Committee, said, "There are not enough differences [of opinion] that we ought to risk a conference on this bill in this environment." In the end, Speaker Dennis Hastert was able to insist on a conference, but only over the strenuous objections of much of his rattled caucus. Some members openly said that all they cared about was being able to fly home for the August recess clutching a piece of paper they could wave in front of constituents and thus claim they did something.

Yesterday the House and Senate agreed on a compromise bill to crack down on corporate wrongdoing. No one argues with the need to restore confidence among investors by curbing the self-dealing practices that developed in some boardrooms during the 1990s. But the bill is clearly overkill, fashioned in a political frenzy that was fueled by angry investors looking for a scapegoat to blame for their shrinking portfolios. A study by economists Kevin Hassett of the American Enterprise Institute and Robert Shapiro, formerly of the Democratic Leadership Council, found that the bill will "likely impose significant new costs on American firms with little likely benefit" while opening up companies and their managers to more litigation from trial lawyers.

Pollsters fueled the panic among House Republicans. A survey by Public Opinion Strategies warned that "the bottom has fallen out on the mood of the country. . . . WorldCom's announcement may have been the straw that broke the camel's back." The Republican firm's recommendation was clear: "Voters' attitudes toward corporate offenders are hostile. Legislation punishing wrongdoers can't be too tough. Get out in front on this issue now."

Other analysts were calmer. Charlie Cook, a veteran political handicapper, says that "there is absolutely no evidence that the plunging stock market, the widening array of corporate scandals and other negative news stories souring the public mood recently have had a negative impact on a single Republican candidate in the country." At the same time he warns that the conditions "that could lead to a bad election year for Republicans seem to exist for the first time."

Some Republicans are distressed their party broke and ran as quickly as it did, given that the groundwork for many of the corporate scandals was laid during the Clinton years. They blame the Bush administration for refusing to point out a share of the blame belongs to its predecessor. Polls suggest the public would be receptive to the message; a July 18-19 Newsweek survey found that while 47% of the public blames President Bush either "a lot" or "some" for the corporate scandals, 54% blame Bill Clinton. And while 25% say Mr. Bush bears no blame for the scandals, only 20% say the same for Mr. Clinton.

Despite the public's attitude, key Democratic figures have largely gotten a pass from both the media and Republicans on their involvement in the corporate scandals. Global Crossing, a company whose spectacular collapse rivals that of Enron, used cozy relationships with the Clinton administration and a lack of government oversight to send its stock price soaring to $64.25. Much of the company's value turned out to be built on phony accounting. Terry McAuliffe, the 1996 Clinton-Gore finance chairman, who is now head of the Democratic National Committee, rode Global Crossing's rise and turned his $100,000 investment into $18 million.

Rep. Mark Foley, a Florida Republican who sits on the Ways and Means Committee, says that if President Bush and Vice President Dick Cheney are to answer every conceivable question about their business dealings, it's high time that someone ask some questions about the Clinton years. Yesterday, he took to the House floor to ask that subpoenas be issued for the testimony of Sen. Jon Corzine, a New Jersey Democrat, and Robert Rubin, who served as Treasury secretary during the Clinton administration. Mr. Corzine was chairman of Goldman Sachs when it was touting Enron stock. After he retired in 1999, he spent $60 million of his fortune to win his Senate seat the following year.

Mr. Rubin had an even more direct connection. Citigroup, which he has headed since 1999, played a central role in concealing Enron's growing debts from investors and regulators. Last November Mr. Rubin phoned Peter Fisher, a Treasury undersecretary, and asked him to intervene with credit-rating agencies that were about to downgrade Enron's status. John Diaz, a managing director of Moody's Investors Service, says Mr. Rubin also contacted him about getting a higher credit rating for Enron. Both men rebuffed Mr. Rubin's requests, which struck them as highly unusual.

With Congress about to leave town on its summer recess and an election fast approaching, the next three months will see the corporate scandals played out on the political instead of the policy arena. Right now, Democrats are dominating the field with effective sound bites and vivid anecdotes. If Republicans are to avoid the political shellacking they fear so much, they'd better find a way to fight back. Step 1: Don't panic.

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©2001, John H. Fund