Where was he going to get that kind of scratch? He was not a rich man (at least not by Texan standards). Nor was he “liquid,” as they say on Wall Street. Bush’s chief asset–317,00 shares of Harken Energy stock–was tied up as collateral on existing loans. But Bush was able to quickly free up some of the stock without, apparently, immediately doing the required paperwork. In that way, he could use it to get a $500,000 loan from the United Bank of Midland, where Bush had served on the board, and where he still was an “advisory director.”
It was all conducted in the old-fashioned west Texas way: honorable enough (Bush seems to have done the paperwork some six months later), but with friendly terms for an inside player and a laissez-faire attitude toward regulatory detail. Or, as Joe O’Neill, another Midland buddy, puts it: “We don’t call in lawyers till we wrap up a deal. They’ll just screw it up. You don’t call a lawyer until you have to.”
Well, we aren’t in Midland anymore, and everybody in Washington is busy calling the lawyers. Cozy is OK in west Texas, where you can judge a man by his handshake and his daddy’s name. And it worked when share prices were rising like rockets at Cape Canaveral. But not now, not in Washington. Eighty million Americans are invested in the stock market. A two-year price decline and a year of boardroom scandal changed everything. Suddenly, everyone–including President Bush–is demanding strict compliance with the letter of the laws. Many leaders–though not primarily Bush–are rushing to propose sweeping new statutes and regulatory agencies. The goal: to restore faith in corporate America–and protect Congress from the voters’ wrath this fall.
Now Bush and others on his team have to reconfigure an old Republican adage. The new version: do what we say now, not what we did then. In the case of Bush’s 18-year career in business, no one has found any evidence of unethical conduct, let alone what he calls “malfee-ance.” Yet some of the rules he now propounds he ignored when they applied to him, and some of the reforms he now proposes would eliminate perks he once enjoyed. White House aides don’t think his history limits his ability to be a reformer. “That’s like saying you couldn’t be for campaign-finance reform if you took contributions,” says White House communications director Dan Bartlett. “People learn from experience.”
Can the first M.B.A. president crack down on the world he comes from? He filled his team with an unprecedented number of CEOs, executives and lobbyists. When the markets were up, it made sense enough to bring a profit-margin mind-set to the capital. Even now, his aides argue, Bush’s business background enables him to suture the market’s ethics wounds without killing the patient. But voters may wonder if this CEO White House has the interests of average investors, employees and retirees in mind. The president’s widely panned Wall Street speech–tough in tone but containing few legislative specifics–was kept cautious on the advice of business-world alumni, among them Vice President Dick Cheney (late of Halliburton) and domestic-policy chief Joshua Bolten (of Goldman Sachs).
For Bush, there’s a profound family question lurking in the market numbers: is he destined to repeat the pattern of his father’s presidency? Like “41,” this Bush is adept as commander in chief. But he has yet to prove he’s more attuned than his dad to the emotional politics of the economy. He and his team, consumed by the Middle East and other matters, were slow to adopt a sense of urgency about corporate reform. Now, just like Dad’s team a decade ago, they think each new speech (there’s one this week) or photo op (there was one last Friday) will finally vault them “ahead” of the issue. In fact, they’re on the defensive, reacting to events. That’s evidently the view on Wall Street, where traders fear a worst-case scenario: more regulation, less inspiration.
Even Republicans think that the president could inspire the country by getting rid of Army Secretary Thomas White, who cashed out as an Enron executive with $31 million just before the company collapsed. Federal investigators are combing through the wreckage of Enron, including trading strategies used by White’s Enron unit to hike electricity prices in California in 2000 and 2001. He is scheduled to testify this week before a Senate committee. The White House has continued to back White, but Republicans on the Hill, NEWSWEEK has learned, are quietly passing the word that they’d prefer White to resign. If he testifies, they say, he will be forced to invoke his constitutional right not to respond. “How is it going to look when one of the guys leading the war on terrorism takes the Fifth?” said a leading GOP source on the Hill. “We’re betting that he’ll quit.” (White did not respond to a request for comment.)
The larger challenge for the president and the Congress is to end corporate abuse without turning every CEO and CFO into a ward of the state. Bush focused on using existing law to track down business malefactors, and proposed doubling the jail time for clear-cut crimes. The Senate, with rear-covering Republicans joining their Democratic colleagues, immediately went Bush one better, voting without dissent to make any “scheme to defraud” the public a crime. It would, in essence, apply the sweeping theory of racketeering law to top executives.
Bush remains popular, but bad Wall Street news, falling consumer confidence and perhaps word of a larger-than-expected federal deficit is chipping away at his standing. In the new NEWSWEEK Poll, his approval rating dipped to 68 percent, 20 points below its post-September 11 peak. Voters approve of his response to the business scandals, but by a relatively weak 51-32 margin. They think he is better able to clean up the mess than the Democrats–but by only a 38-31 percent margin.
White House strategists are convinced that there is no danger to Bush in questions about his business career, in which 50 percent of voters think he “behaved responsibly.” Still, Democrats seem determined to press the issue. And though most of the topics have been examined before–in his father’s 1992 campaign and in his own campaigns of 1994 and 2000–new details and questions keep surfacing, given added drama by the current scandals elsewhere.
Last week, for example, new details surfaced about the stock-option awards Bush and other directors got from Harken. The company twice loaned him money at cheap rates so that he could buy bunches of bargain-priced Harken stock. On Wall Street, Bush suggested that corporations should ban that very type of loan. In the Oval Office two weeks ago, the president and his aides debated–and rejected–carving out any exceptions. Bush’s personal experience didn’t come up.
Bush also called for a renewed commitment to vigilance on the part of all corporate directors, but he didn’t always have the time to be that way himself. He joined the Harken board in 1986, when he sold the interest in his oil-exploration company for 212,000 Harken shares. (He left the Harken board in 1993 when he launched his campaign for governor.) He was a diligent director, but wasn’t always engaged, especially when he was helping run his father’s 1988 presidential campaign and, later, the Rangers baseball team. “You can only put so many hours in a day,” said Harken founder Phil Kendrick, “and he was doing a lot of other stuff.”
When it came time to find the $500,000 he needed for the Rangers deal, Bush couldn’t turn to Harken for help. The optioned stock couldn’t be used as collateral. And, apparently for tax reasons, he’d chosen in 1986 to pledge the rest of his stock (his original 212,000 shares) as extra collateral on one of his Harken loans. So Bush did what he’d done in the past: he went back to Midland. Bush contacted leaders of United Bank, which came through on April 17, 1989, agreeing to give him a one-year personal loan of $500,000, secured by 159,105 shares of his Harken stock. Four days later, he helped announce the Rangers purchase.
According to McClesky and Bartlett, Bush was able to pledge stock he’d previously chosen to use as collateral elsewhere by electing in April to change the terms of his first stock-purchase loan from Harken. (He narrowed the first loan’s terms to free the stock for use as collateral on the second.) As evidence that the terms of the first loan had changed, McClesky points out that United Bank took custody of Bush’s Harken stock certificates. If the certificates had contained notations that they were being used for collateral elsewhere, McClesky argues, the bank would not have accepted them. Still, by last weekend, no documents had surfaced to prove directly that Bush had, in fact, changed the terms of the loan before pledging the stock a second time. Indeed, the only document known to exist, a letter from Harken’s general counsel, indicates that Bush did not change the terms officially until Oct. 5, 1989–five months late.
Bush wasn’t done wheeling and dealing. In March 1990 his buddies at United Bank agreed to renew the loan on even more favorable terms: a two-year note with no collateral at all. That freed the stock for sale. And none too soon: Bush, like other shareholders and directors, was receiving repeated warnings that spring about the company’s precarious finances. He sold in June, to a still unidentified investor. With the proceeds, he paid off the bank. But, typically, Bush filed the proper notification of the stock sale eight months late (Bartlett blames the lawyers at Harken). When Bush finally filed the form, he was investigated (but not charged) by the SEC for insider trading. At the time, the SEC’s general counsel was an attorney named James Doty, who earlier had helped him on the Rangers deal. Doty recused himself, and later said he took no part in the case. But even though he was the subject of the probe, Bush never was interviewed. As they say in Midland, you don’t call a lawyer until you have to–and they don’t call you until they have to.
