From: Bruce Sterling [email@example.com]
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
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.
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
"Texans opt for change (((uh, but not so you'd
"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:
8 Nov 2001:
2 Dec 2001:
9 Jan 2002:
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
"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
"Experts pore with glee over such tweaking of
corporate governance. (...) (((Unless they actually own
some stock, that is. Then they pore with horror over
"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
"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
New rules for financial analysts
SEC announces new accounting body
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
"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
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.
"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
"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,
"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
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WHAT COMES AROUND,
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