FTN - 1/13/02

BOB SCHIEFFER: Today on Face the Nation, the collapse of Enron.

How did it happen? Was there criminal wrongdoing? How did the seventh-largest company in the United States fail? And how could executives sell their stocks and employees not be allowed to?

What needs to be investigated? Were any contacts with the administration inappropriate?

We'll talk to two of the men in Congress who will be looking into this: Democratic Senator Joe Lieberman, chairman of the Governmental Affairs Committee, and Republican John McCain, ranking member on the Commerce Committee.

Gloria Borger will be here, and I'll have a final word on Washington scandals. But first, Senators Lieberman and McCain on Face the Nation.

And joining us now from Phoenix, Arizona, Senator John McCain; here in our studio, Senator Joseph Lieberman.

Senator Lieberman, your committee begins an investigation into Enron later this month.

We've all seen the headlines. We know that Enron went broke. What needs to be investigated here? What do you want to know?

SEN. JOSEPH LIEBERMAN, D-CT: We've begun the investigation. We're serious about it, because this is a very serious matter in which thousands of people lost their life savings. We've issued already more than 50 subpoenas.

The facts we know are that the seventh-largest corporation in America went into bankruptcy, taking the savings of a lot of average people down the drain, while the executives of that company continued to sell their stock for over a billion dollars.

We know that Arthur Andersen, the supposedly independent auditor, covered up facts very relevant to the condition of Enron.

And therefore, the question that we have to ask is: How did this happen? And where were the people who are supposed to be protecting us--the federal government regulatory agencies, the board of directors of Enron, the independent auditors who were not protecting us?

And what's the goal here? To the best of our ability, to make sure that we act in a way that something like this never happens again.

SCHIEFFER: Clearly, many of the people in Enron were supporters and political contributors to the Bush administration. The Bush administration says it did nothing out of the ordinary in connection from this.

What do you need to know from the White House?

LIEBERMAN: Well, Bob, let me stress that the focus of our investigation is going to be the corporate scandal, what happened at Enron. But since we're the Governmental Affairs Committee, and we're a government oversight and investigative committee, we've also got to ask, what could the federal government have done?

And in asking that, we've got to ask, where was the federal government and its agencies? Not only back to January 20, when the Bush administration, with all its contacts with Enron, took over, but before that. And not only about the executive branch, but about Congress itself.

There--we don't know--lok, it's obvious and a fact that the Enron executives were major contributors to the Bush campaign. We know that Mr. Lay and other executives of Enron were right in the middle of the formulation of the Bush administration energy policy and energy appointments that were made.

But we don't know enough to know whether any of that influence in any way stopped the administration or agencies of our federal government from protecting average shareholders who lost their life savings when Enron collapsed. And that's the question we're going to ask.

GLORIA BORGER, U.S. News & World Report: Senator McCain, do you believe that the White House ought to be conducting its own internal investigation right now?

SEN. JOHN MCCAIN, R-AZ: Oh, I'm sure they are. I would imagine that they would have to do that, and also the Justice Department, the professionals within the Justice Department, are conducting an investigation as well. I'm sure that there's a lot of record-checking going on.

BORGER: Well, should the White House release records of all contacts with Enron executives, including, say, e-mails and telephone calls?

MCCAIN: Oh, I think they should. I think that this whole situation is such a compelling issue now, and I want to get back to a little bit what Joe said. It was tens of thousands of employees and retirees that have lost literally their life savings and find themselves destitute.

When you have a human tragedy--we're a capitalist society, but we're also a democracy. We're also a nation that cares about our citizens. And if all this happened was an act of God, a natural calamity like a hurricane, then, fine. But if there's people who didn't fulfill their responsibilities, then they have to be held accountable.

And there is no evidence yet that the White House in any way acted improperly.

SCHIEFFER: Well, Senator McCain, along that line, let me read to you, to both of you, what the secretary of the treasury, Mr. O'Neill, said this morning on Fox News.

He said--and I'm going to quote here: "Companies come and go. It's part of the genius of capitalism. People get to make good decisions or bad decisions, and they get to pay the consequences or enjoy the fruits of those decisions."

Later on he says, "The company has a duty to inform its shareholders and its employees about things that were going on inside the company. That is not a federal-government responsibility."

Senator McCain?

MCCAIN: Well, Theodore Roosevelt would not agree with at least that rhetoric. I understand what Mr. O'Neill is saying, that, you know, this is a--capitalism is a risk business. But there are legitimate questions as to whether the employees and the stockholders, the ordinary stockholders were informed or not of the true condition of the company.

We have had regulatory agencies always to curb the abuses or potential abuses of the capitalist system. This is not a totally laissez-faire country We care about our citizens, and the regulatory agencies and oversight agencies must be held accountable.

And that's one of the things we're going to find out as to whether were or not. So the government does have a role to protect innocent people.

SCHIEFFER: Senator Lieberman?

LIEBERMAN: Bob, John's absolutely right.

With all respect to Secretary O'Neill, those statements are outrageous. I hope that they're--they sound more cold-blooded than he means them to be. Those are statements that might have been made by the secretary of the treasury in the 18th century, but not in the 21st century.

The death that Enron experienced was not a natural death. We know enough to know that now. We know that they were trading fast and loose with offshore corporate entities that were hiding their debt from the public. We know that they were saying things to the public, the shareholders, the retirees that John talked about, about how the stock was going to go up and at the same time they were selling their stock right then.

This was not a natural death. Somebody once said to me that as great as capitalism is and the free market is, and they are, they have no conscience inherently. And that's why we have boards of directors, why we have independent auditors and we have federal regulatory agencies like the SEC, the Federal Energy Regulatory Commission, et cetera, et cetera.

So I hope that that was a misstatement and does not reflect policy. This was not capitalism as we want it to be.

BORGER: Senator McCain, you're obviously very involved in the issue of campaign finance reform. If O'Neill, Secretary O'Neill had done something to intervene and been more proactive, as Senator Lieberman seems to think he should have been, wouldn't the question then have been raised that he was doing it because Enron was a big contributor to Republican candidates and to, you know, the Bush administration?

MCCAIN: Well, first of all, I don't know if Secretary O'Neill should have intervened to try to save the corporation when he was told at the time that they were in trouble and it's really when it was on its last legs.

What I think I'm trying to say is there are oversight agencies such as the SEC and all these other alphabet-soup oversight agencies that, at least in the view of some so far, should have been exercising that oversight.

Clearly some of the--on the face of it, some of the activities carried out by the corporate executives were not legal and in violation of rules and regulations, if not laws.

So, I don't know if--I'll leave that judgment to others as whether Enron should have been, quote, "saved" or not, which I don't think it should have been. The question is, how did they get themselves in the position where the executives of Enron had to call the secretary and either inform him or request help?

This whole thing is tainted by the huge amounts of soft money that was washing around political camaigns, both Republicans and Democrats. It taints all of us. It creates the impression that improprieties are being carried out because the influence of these huge amounts of money, and it's another compelling argument for campaign finance reform.

SCHIEFFER: Well, this raises question--both of you received contributions from Enron. Can Congress really investigate this in an objective way, or does there need to be an independent counsel to look into this?

Senator Lieberman?

LIEBERMAN: Well, I think you got to watch us and see. I mean, I checked back. I got $2,000 from the Enron PAC in 1994. I don't feel at all compromised by it.

And I guess I'd say to folks, watch the investigation we conduct. I intend it to be very aggressive, very comprehensive and very fair. And it's going to be nonpartisan, as much as I can.

On the question of a special counsel, I think it's premature to raise that question now.

As you know, unfortunately, the special counsel law expired, so it's totally up to the Justice Department.

I think Attorney General Ashcroft did the right thing in recusing himself.

If there becomes more than suspicion, but any evidence that anybody in the Bush administration was somehow involved in wrongdoing in the collapse of Enron, then that might be occasion for a special counsel, but we haven't come anywhere close to that point yet. And I do think, in that regard, we ought to not rush to conclusions before the facts lead us there.

SCHIEFFER: Senator McCain?

MCCAIN: Well, I would emphasize again, there's absolutely no evidence that the Bush administration in any way did anything improper. In fact, the opposite seems to be the case, at least in the last days of Enron.

But I think that the professionals at the Justice Department are competent, and I have confidence in them.

I also have confidence that the media is going to carry this investigation a long, long way. And nobody's going to get away with showing any favoritism or bias toward them.

But again, I want to emphasize. I received, over two Senate campaigns, I think $9,500, which were in keeping with McCain-Feingold. They're hard-money contributions.

But the fact is, we're all tainted because of the millions and millions of dollars that were contributed by Enron executives, which, again, creates the appearance of impropriety. And that's why I feel so strongly that, unless we rein in this system, there will be again, as I predicted before, more and more scandals.

BORGER: Senator Lieberman, Time magazine reports today that Arthur Andersen, the accounting firm that was employed by Enron, sent an October 12 memo directed to its workers to destroy all audit material on Enron except for the most basic, quote, "work papers."

Is that a criminal offense?

LIEBERMAN: It may well be. This is one of those stories that's going to begin--already has brought down some of the great institutions of our fre economy, and it's a painful thing to watch.

Arthur Andersen is a great company with a great name. That name is being sullied, and ultimately this Enron episode may end this company's history.

But from what I've seen of the Time magazine story, the memo about destroying the documents of Enron was not just a routine clear-your-files memo. It was specifically about Enron. And it came at a time when people inside, including the executives of Arthur Andersen and Enron, knew that Enron was in real trouble and that the roof was about to collapse on them, and it was about to be a corporate scandal.

So that this kind of memo, to destroy documents, raises very serious questions about whether obstruction of justice occurred here. That's not for me to make a judgment on now. Obviously, I don't know enough about it.

But you've got lawsuits being filed on behalf of stockholders and pension funds that had billions of dollars taken from their life savings. You've got criminal investigations going on.

If this memo was what it looks like, I'm afraid that the folks at Arthur Andersen could be on the other end of an indictment before this is over.

SCHIEFFER: Why don't we take a break here? We'll come back and talk about all of this, and of course you two have just come back from Afghanistan. We want to touch a bit on that, too, in a minute.

(COMMERCIAL BREAK)

SCHIEFFER: Back again with Joe Lieberman, who is opening an investigation into the Enron affair later this month; John McCain, the ranking Republican on the Commerce Committee, which is already conducting an investigation.

Senator McCain, it's my understanding that Ken Lay at one point--he, of course, is the chairman of the board of Enron--had agreed to come and testify before your committee. Then that got put off.

Did I understand that he has said he will come next month, and do you expect him to be there?

MCCAIN: Well, he assured the committee that he would be coming on February 4 to a hearing for the Commerce Committee. I hope he will keep that commitment.

I'd like to go back to Arthur Andersen one second. Again, this appearance problem. They were receiving some $50-some million dollars a year for, quote, "consulting" as well as the $50 million a year they were receiving for auditing. That's hard to understand how you can audit objectively while you're getting huge sums of money for, quote, "consulting" to an energy firm.

And so, again, this is a question of, why wasn't a line drawn there, or should lines be drawn there between auditing and consulting for huge amounts of money?

SCHIEFFER: Let me just go back to one thing because when you say that Mr. Lay had agreed to come before your committee, I would note that was before he hired the noted criminal defense attorney Bob Bennett, who of course we all know represented President Clinton during the impeachment. It will be an interesting event to see if Mr. Bennett advses him to go ahead with that appearance or whether he advises him not to.

LIEBERMAN: It will. Bob Bennett is one of the truly nonpartisan people in Washington, isn't he?

(LAUGHTER)

MCCAIN: Well, I hope that he does, because I've been involved and I know that the best way to handle one of these issues is to get all the information out as quickly as possible and let the chips fall where they may. Every time there's been a reluctance or a withholding of information, it has made the situation far worse. That's one of the lessons about scandals in Washington.

BORGER: Senator Lieberman, as you know, top company insiders like Mr. Lay apparently received $1.1 billion by selling their shares in Enron from 1999 through mid-2001, and a dozen Enron executives made $30 million or more each.

A federal judge in Houston said she could actually decide to freeze these assets, that that would be legal for her to do so. Do you think that's advisable?

LIEBERMAN: Well, again, although I was once an attorney general in Connecticut, I'm not in a position to make a legal judgment.

But I got to tell you this. The facts here are so infuriating. When you talk to people who lost their life savings as a result of the negligence and perhaps the malfeasance and perhaps the criminal behavior of the executives of Enron.

BORGER: Because employees could not sell their...

LIEBERMAN: Employees could not sell their stock while the executives were selling their stock and making millions as the stock went down, and of course the executives kept touting the stock even as they knew they were essentially on top of a house of cards.

And so, I hope personally, if I were attorney general, I would be in there arguing that that judge freeze the assets of these Enron executives so that if the shareholders and the pension funds for average people win the lawsuits, they're going to have something that they can collect. I think that's only fair.

SCHIEFFER: Do you agree with that, Senator McCain?

MCCAIN: Oh, yes. And I also want to point out that not only were the executives of Enron touting the corporation when it was in trouble but the, quote, "Wall Street analysts," these guys we see on various financial news programs, had nothing but the most glowing and optimistic predictions about the future of the corporation. Either they were being deceived or they themselves were not being frank with the American people. I'd like to, I'd like to ask a little bit about that as well.

We had a hearing on the Commerce Committee, and a number of the people, both retirees and stockholders, were represented. I'll tell you when you see the face of devastation that has been inflicted on these people, it's very compelling and motivates one to at least try to do what's necessary to see that this never happens again. And this isn't capitalism when that happens.

SCHIEFFER: I want to save a litte time to talk about the war. I know you all are both back from Afghanistan. But I do want to ask one question about Bob Rubin, the former secretary of the treasury in the Clinton administration who, it turns out, apparently was one of those who made a call to the Treasury Department.

Do you think that was proper, Senator McCain, for him to do that?

MCCAIN: I don't know what he said, so it's hard for me to make a judgment there.

I know that Mr. Rubin is one of the most respected men in America. He did a great job as secretary of the treasury. I also know now he represents for big money a lot of Wall Street firms. So I think it depends on what he said and how he said it.

SCHIEFFER: Senator Lieberman?

LIEBERMAN: Well, look, in the best of all worlds Bob Rubin wouldn't have made that call, but it doesn't sound like he did anything improper.

He works for a company that was in the hole as I read the papers almost a billion dollars to Enron. So if Enron went down, they were going to lose a billion dollars, as I understand it.

It sounded to me from Bob Rubin's telling of the conversation and Mr. Fisher at the Treasury Department told about it that Bob was almost a reluctant caller.

In any case, hats off to Mr. Fisher and, incidentally, Secretary O'Neill and Don Evans at Commerce for refusing, apparently, the pleas from Enron to take action as they were going down the drain to save them from that. It was too late.

That's different from the question of whether something could have been done by the agencies of our federal government this year or last year to stop the fraud that took so many millions of dollars from American shareholders.

SCHIEFFER: Let's talk a little bit about the trip that you've just returned from.

Senator McCain, I'm told that the president this morning has called both the leaders of India and Pakistan and asked them to work on reducing tensions along the India-Pakistan border. You were just there. How serious is that situation?

MCCAIN: I think it's very serious. If you saw the reports of the Indian general yesterday, very belligerent, very bellicose. I think that we've got a million troops on the border. Both nations are nuclear capable. I think it's very serious.

I am pleased that the president of Pakistan's statements. Now he is going to have to back it up by cracking down on these terrorist organizations, which at least in the past, if not presently, were sustained and supported by the Pakistani government.

The Indians have to show a little patience here now. They know they can win militarily, but I would hope that both sides would bow to good sense and reason rather than to domestic political pressures, which both sides are having dictate some of their actions.

And I think it's very serious. I think President Musharraf's speech improved the situation, but it's still an incredibly dangerous situation.

BORGER: Senator Lieberman if could I turn quickly to Iraq. Both you and Senator McCain have talked about Iraq as the next target in the war on terrorism, particularly Saddam Hussein. Coming back from the region now, do you still believe that should be the case?

LIEBERMAN: The question of whether it's the next target or not is up to the president as commander in chief.

But there is no question in my mind that what we saw in the region is what you might call a civil war within the Islamic world between a small fanatical group of terrorists and the majority of people of the Muslim faith who are peace-loving and want to be moderate.

And I think President Musharraf's statement today is a critically important statement, one in which he puts himself on the side of moderation and modernity and specifically says his government is going to make sure that the mosques and the madrassas, the schools, are not breeding grounds for extremism. And I hope the Indians respond to this.

In fact, I hope President Bush will send a high-level emissary to Central Asia right away to seize this moment of opportunity.

You've got a million troops facing each other on that India-Pakistan border. That is literally explosive. And I hope in response to Musharraf's speech, both sides will pull back.

The war against terrorism is not going to be over until Saddam Hussein is no longer in power in Iraq. He is the world's most powerful terrorist. And I hope the administration is beginning to make plans about exactly how and when to do that.

SCHIEFFER: Gentlemen, I want to thank both of you. We're simply out of time.

I'll be back with a final word in just a minute.

Thanks to you both.

LIEBERMAN: Thank you, Bob.

(COMMERCIAL BREAK)

SCHIEFFER: Finally today, when Wilbur Mills, the chairman of the House Ways and Means Committee, got drunk and drove his car into the Washington Tidal Basin while in the company of Ms. Fanny Fox, a local striptease dancer known as the "Argentine Firecracker," well, it caused a real scandal.

Roger Mudd, who used to work here, said of it, "The best thing about this story is, it can only get worse."

Well, the bad thing about the Enron story is, it's bound to get worse, too. All the signs are there: Tycoons, looking for government help, destroy documents. We have seen this movie.

Wilbur Mills was a crabby old coot, and it was amusing to watch him make a fool of himself. But there is nothing funny about watching people lose their pensions.

And since Enron had tried to buy off half of Washington with campaign contributions, people here were standing in line last week to say they had no Enron connections.

The White House spokesman, Ari Fleischer, who is from New York, got so wound up, he was spouting Texas talk. "That dog won't hunt," he said, when asked if Enron could become a political issue.

Well, a little Texas talk never hurts; it's helped me make a good living. But if Ari is worred that it makes the White House look bad because all those Enron people who gave so much during the campaign are now calling to see if the White House can help them a little, well, here's another thought: Outlaw the big corporate contributions. That way it won't look like the companies are calling in a chip every time they call the White House.

Democrats who took some of those Enron contributions seem a little uncomfortable too.

Maybe they can help in the project.

Well, that's it for us. We'll see you next week, right here on Face the Nation.

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