The Viridian Design Movement

From: Bruce Sterling []
Sent: Thursday, October 17, 2002 11:08 AM

Subject: Viridian Note 00345: Energy Scandals

Key concepts
Enron, scandals, China, Gao Yan, State Power Corp, defection, corruption, energy systems
Attention Conservation Notice
It's an alarming expose of the universal corruption of the energy business.


On October 29 I'll be speaking here in Austin at a Core77 design offsite. Harmless good fun!

Swedish solar robot lawnmower.

While you're at it, compost those lawn clippings in your cheap-o microbial fuel cell.

Our Viridian Enron Logo Contest is still rackin' up website hits. A perennial favorite, of sorts. 300/00284_enron_logo_contest.html

Enron whitewater-gangs litter the Internet, hoping for that big, impeachable publicity-break.

(((It's been a whole year since Enron fell from grace. A year is a long time in the business world, so I guess the mess has all been tidied up by now. Let's ask the BBC! They've likely got a nice objective take on matters.)))

By Briony Hale
BBC News Online business reporter

"Enron's collapse was sufficiently shocking to usher in a revolution. One year after Enron's troubles were first exposed, BBC News Online reviews the changes that have swept through corporate America.

"Exactly a year ago, investors, analysts and journalists smelled the first whiff of trouble.

"A mysterious $1bn hole had appeared in the accounts of Enron, an apparently mighty firm, best known for scooping up awards.

"Just weeks later, one of America's biggest and most revered firms had collapsed as quickly as a pack of cards, its finances built on a pack of lies.

"The smell quickly turned from bad to evil, with the Bush administration, top banks, lawyers and accountants all accused of colluding with the enemy.

"As investigators dug deeper, shady dealings appeared at a host of other firms.

"Public outrage was pushed to new peaks by revelations that executives made millions of dollars by cashing in on their own shares while ordinary investors lost everything.

"Texans opt for change (((uh, but not so you'd notice.)))

"The combination of such public anger and blatant corporate crime has beckoned in a revolutionary era of change. (((Well, it's good to see that hype hasn't died out in the business press.)))

The road to ruin
16 Oct 2001:
$1bn hole emerges
22 Oct 2001:
SEC inquiry
8 Nov 2001:
Profits restated
2 Dec 2001:
Bankruptcy filing
9 Jan 2002:
Criminal inquiry
21 Aug 2002:
Worker's first guilty plea
2 Oct 2002:
Finance chief charged

"That wind of change has even managed to penetrate Texan culture, where the Houston baseball stadium has ditched the E-logo in favour of an orange juice sign. (((Like that took a lot of work? Come on.)))

"The reforming zeal has not stopped short at the door of politics, and the White House will no longer be funding its political campaigns from the depths of company coffers. (Once the mid-term elections are over, that is.) (((Wry British humour there.)))

"Meanwhile, thousands of secret documents detailing the contact between several senior White House officials and Enron are still being examined, with casualties expected – eventually. (((Probably some time after the irrelevant yet inevitable sex scandal. Paging John Major.)))

"Bearing up

"But it is corporate America that has felt the full force of the changes.

"Prison sentences for wrongdoers have increased, listed firms have been made to swear to the accuracy of financial statements, and the once-mighty auditor Andersen has disintegrated. (((Scapegoat shot. Now what?)))

"A new independent body has emerged to keep tabs on accountants, Wall Street firms are promising not to offer biased advice, and bonus stock options have fallen out of fashion.

"Experts pore with glee over such tweaking of corporate governance. (...) (((Unless they actually own some stock, that is. Then they pore with horror over their 401-k.)))

"Suffering in silence

"'The frustration is that we are still not hearing the voices of the people,' says Scott Harshbarger, president of Common Cause, a left-wing think tank. (((Okay, let me redress Scott's grievance. "Gee, Scott, we're sorry we ever believed we were a happy and prosperous people, inventing a better and more advanced future, and living in a nation at peace. Can you ever forgive us?")))

"And justice has not been done.

"'The executives have yet to be disgorged of their ill-gotten gains,' he says. (((It's not like they're enjoying any of it, though: they've got to save it all for their lawyers and PACs.)))

"'That broad sense that there will be some level of holding them accountable no longer exists." (((Yeah, where are we when we need you, Hague Court of Justice? Hey wait – the Administration put the kibosh on the Hague Court just before inventing new doctrines of pre-emptive warfare! Gotta give 'em credit for foresight!)))

The road to change
27 Mar 2001:
Bush signs campaign finance bill
14 June:
New rules for financial analysts
18 June:
SEC announces new accounting body
26 July:
Congress passes anti-fraud bill

"Unsurprisingly, America's investors are more than a little reluctant to get their fingers burnt again.

"'It's akin to terrorism,' says Alan Reynolds, an expert on corporate governance at the Cato Institute. (((Big greenhouse denial freaks over at Cato. You gotta love these guys. "Let Ken Lay off the hook or the terrorists have won.")))

"One set of people deliberately plotted to break all the rules and commit a terrible crime. (((Yeah – the guys from Houston who sponsored and financed your President, Alan. That set of people.)))

"Now everybody has to prove they're not a terrorist before selling shares." (((I haven't seen that stopping anybody from "capitulating." Sell shares, but who's buying?)))

"Business is afraid to take risks, afraid to make commitments, afraid to make the much-needed investment decisions," says Mr Reynolds. (((They're not afraid to buy politicians, though. Or journalists. Check out this Washington Post quote: "Enron 'collected visible people' by gathering up pundits, journalists and politicians and placing them on lucrative retainers. For a couple days spent chatting about current events with executives at Enron's Houston headquarters, advisers could walk away with five-figure payments." – Washington Post, 10 February 2002

Bill Kristol         $100,000
Paul Krugman     $50,000
Larry Kudlow      $50,000
Lawrence Lindsay $50,000
Peggy Noonan over $25,000 for minor speechwriting
Irwin Stelzer $50,000
Robert Zoellick $50,000)))

(((Man, those were the days. No wonder those guys were so free-market. It's hell to get that kind of money for a junket when there's no ads left in the magazines today.)))

"The more aggressive regulatory environment, together with the threat of litigation is making it difficult to recruit high-level executives, he said, underlining the fear lingering in boardrooms.

"'This anti-corporate frenzy is very worrying, and often illogical,' says Kevin Hassett, a senior economist and scholar at the right-wing American Enterprise Institute. (((More greenhouse-denial guys. Real "logical" bunch over at AEI.)))

"The difficulties of using correct accounting methods for joint ventures means they are drying up, venture capitalism is falling, some firms will be afraid to go public altogether, he explains.

"Winning investors back

"On top of all that, there is the increased cost of the regulation, a cost that business is bearing. (("Boy, this 'honesty' stuff sure is expensive!")))

"But, given the amount of public money lost and the depths of corruption, sympathy is clearly not on the cards. (((Even if the economy were clean as a whistle, where are investors supposed to put their money? There are no breakout growth industries these days. And no, cruise missiles don't count. Missiles don't increase anybody's productivity, you see.)))

"And the reforms were obviously needed.

"But firms will continue to suffer until they work out how to regain the confidence of investors. ((("Without dreams, the people perish.")))

"And no amount of reforms or regulatory change has succeeded in wooing them back – so far.

"One year on, the legacy of Enron continues to terrorise corporate America."

(((Yeah, okay, that was sort of hopeless fluff from BBC, with repugnant self-pity from right-wing talking heads. But look: why would anybody sink big venture capital in an economy when its lead high-tech industries, computers and communications, have both cratered?

(((You know, the problem may go even deeper than that. Maybe there's something wrong with the energy system per se. These gigantic centralized machines are so hard to reform or rebuild that they become fixtures in the infrastructure. So they're politicized sinecures, run into the ground and dumped Harken-style by semi-competent kids from the political elite. Even an attempt to bring market forces to bear on these behemoths will backfire, because it's so easily defeated by California-style market-gaming, whenever you choke off a pipeline or two, or a Strait of Hormuz.

(((Evidence? Check out this Chinese energy scandal. It's remarkably Enron-esque, with its political favoritism, banking rip-offs and behind the scenes cutthroat jockeying for power.)))

Source: CNN Asia

"Top power official 'flees China'

By Alex Frew McMillan
Wednesday, October 16, 2002 Posted: 4:51 PM HKT (0851 GMT)

"The turmoil in the electricity industry is likely a symptom of a power struggle among China's top officials" (((Hey, good call, Beijingologist – they should reassign you to the Beltway.)))

"HONG KONG, China – Gao Yan, the former head of China's largest electricity company, has fled China to escape arrest, according to a report published Wednesday.

"According to the Hong Kong-based South China Morning Post, Gao, who served as president and CEO of the State Power Corp., is hiding in an unidentified Western country. (((Houston, maybe?)))

"The same newspaper reported Tuesday that Lao Derong, the head of the Shenzhen Energy Group, is currently being investigated by Communist Party officials.

"The power industry is expected to get an overhaul and top-level changes at the 16th Communist Party Congress. That begins on November 8 and is also expected to see a transition in key Communist Party positions. (((Florida election ballot.)))

"Observers have interpreted the scandals in the electricity industry as signs a power struggle is under way. Gao is a protege of Li Peng, China's second in command, who is expected to step down at the congress.

"Li's son, Li Xiaopeng, was Gao's deputy at the State Power Corp. (((Harken)))

"Gao's troubles may be a response to the jailing of China Everbright chief Zhu Xiaohua. Zhu, a protege of Premier Zhu Rongji, though not a relation, was last week sentenced to 15 years in jail. (((No big parallel here, as American executives don't actually go to jail.)))

"Several top businessmen are eyeing important positions, as China's top level leaders try to put successors in place and ensure their policies continue.

"Government media confirmed this week that Gao had disappeared. Gao has not been seen since August 29, according to the 21st Century Business Herald, which said he resigned August 2.

"Gao would be the most-senior Chinese figure to flee the country since Xu Jiatun, once Beijing's top envoy to Hong Kong, escaped to the United States after the Tiananmen Square killings in 1989.

"Connection to Wang Xuebing

"Gao, a former vice governor of Jilin Province, took over State Power Corp. in 1998. He and Xu both held the title of government minister.

"But where Xu's flight was politically motivated, Gao is escaping arrest on corruption charges, according to the Post. (((Like there's a difference.)))

"Reports suggest that stock buybacks and the acquisition of assets from a State Power subsidiary may be at issue, with the company reportedly only paying one- third of what the assets were worth. (((Okay, I take it back – you CAN blame it on the stockholders. And where is the Andy Fastow figure?)))

"Gao also negotiated a three-year credit deal with China Construction Bank, then headed by Wang Xuebing. (((Oh wait – there's our Andy. Inside the bank.)))

"Wang, another Zhu protege, has since been stripped of his positions in banking and the Communist Party and held responsible for fraud that happened while he was running the Bank of China's New York operations. (((Great New York banking angle there. Learn from the best!)))

"The State Power Corp., which controls 72 percent of power-generating assets in China, was listed as the 60th- largest company in the world by Fortune magazine. (((FORTUNE gave Enron its "America's Most Innovative Company" award for five years in a row. They were right, too.)))

"China does not typically acknowledge investigations or arrests for white-collar crime.

"China placed Yang Bin, the man chosen to head North Korea's fledgling enterprise zone, under house arrest earlier this month in connection with tax evasion." (((I should have cut this irrelevant last paragraph, but I just like that line "North Korea's fledgling enterprise zone.")))

O=c=O O=c=O O=c=O
O=c=O O=c=O O=c=O

Go back to the Viridian Design home page.