Monday was just a day like any other at our Department of Justice. Attorney General Alberto Gonzales said he wasn't paying close attention to the fact that 53 senators had in essence voted that they had no confidence in him as the nation's chief law enforcer. At the same time, Solicitor General Paul Clement declined to file a friend-of-the-court brief on the side of the plaintiffs in an upcoming Supreme Court case that will determine whether Enron's shareholders can receive any damages from the banks and brokerage houses that supplied the matches when Enron cooked its books.
In choosing not to file a brief, Clement turned down a request from the Securities and Exchange Commission to have the government intervene on shareholders' behalf. The SEC's petition had been something of a surprise, since its chairman, former representative Christopher Cox, had generally shown more solicitude to the concerns of financial institutions than to those of litigious investors. But at the heart of the SEC's raison d'etre is the charge to protect investors from scams such as those of Enron and its enablers.
Even though the Bush White House has generally entrusted government agencies to officials devoted either to running those agencies into the ground or to negating those agencies' purposes, Cox and the SEC decided that weighing in on behalf of shareholders, at least this once, would be okay.
But the SEC wasn't the only government agency that Clement heard from. The Treasury Department got into the act as well. Treasury Secretary Henry Paulson sent Clement a letter recommending that the official policy of the government should be to butt out. "Treasury believes that uncertainty related to the primary liability for third parties could adversely affect domestic and international competitiveness of U.S. financial markets by posing unknown risks for entities that do a broad range of business with public companies," Treasury spokeswoman Jennifer Zuccarelli said.
In other words, Treasury argued, since capital is mobile, shareholder protections in the United States cannot be any stricter than those in Albania and the Cayman Islands, lest we lose our business edge. (Which argues -- not that Treasury has any inclination to move in this direction -- for strict, uniform global investor protections precisely because capital is global. But that's another column.) The specter of capital flowing out of the United States has been an obsession of Paulson's since he arrived at Treasury. He's argued that the obligations that the Sarbanes-Oxley Act imposed on CEOs -- having to vouch for the accuracy of their companies' financial statements, that sort of thing -- would cause capital to seek friendlier climes. The fact that U.S. financial markets are swimming in capital has not deterred him.
Paulson is nothing if not empathetic. The former Goldman Sachs chief executive still registers the pain of CEOs struggling with Sarbanes-Oxley. For that matter, Goldman Sachs is one of the defendants from which Enron's defrauded shareholders are seeking damages.
Just in case Paulson didn't pack enough oomph, still one more prominent figure came forward to give Clement his two cents: President Bush. According to Al Hubbard, the president's national economic adviser, "the president believes that it's important to make certain that we reduce the unnecessary lawsuits, because that's a very big burden to the economy which adversely impacts investors." This message, Hubbard said, was conveyed to Clement by deputy White House counsel Bill Kelley. The president's alternative suggestion was that the SEC itself was the proper body to bring lawsuits protecting investors -- not that the SEC has bestirred itself to do so on Enron shareholders' behalf in the 5 1/2 years since Enron went belly up.
In the cause of not adversely impacting investors, the president decided to keep the government from helping investors recover the savings and pensions and retirement nest eggs that they lost in the biggest swindle of modern times. The president's powers may be in irreversible lame-duck decline, but it's good to see his chutzpah is undiminished.
Back, now, to Justice, where the message from the president probably caught Clement's eye. He filed no brief, and when the Supreme Court takes up one (and possibly more) of the cases dealing with bank liability this fall, the federal government will not be there arguing for swindled investors. An appalling appellate court ruling that came down in March -- saying that Merrill Lynch wasn't the least bit liable for Enron's public misrepresentation of a shady deal it had transacted with Merrill Lynch -- may be allowed to stand. Donald Rumsfeld's immortal words have now become official federal policy, at least in regards to investors: Stuff happens.
But only to the schnooks. From the viewpoint of the powerful, the system worked perfectly. The SEC did its job, Treasury weighed in, the president dropped a hint, Justice stayed out, Wall Street prevailed. Is America a great country or what?
A version of this column appeared in The Washington Post.
