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CNN RELIABLE SOURCES

Coverage of Enron Scandal Examined

Aired January 19, 2002 - 18:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
HOWARD KURTZ, HOST: Welcome to RELIABLE SOURCES, where we turn a critical lens on the media. I'm Howard Kurtz.

Just ahead, we'll talk to the only reporter who dared take on Enron a year ago, and find out how the energy company pressured her to drop the story.

But first, it's been all Enron all the time in the media as the scandal grows each day with the drip, drip, drip of new revelations.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Congressional investigators, some of whom spent the day at Enron's Houston headquarters, are asking Andersen for more documents. But a lot of documents are gone, shredded.

UNIDENTIFIED FEMALE: New accusations hovering around bankrupt energy giant Enron now, and questions are swirling over its ties to President Bush's energy policy.

UNIDENTIFIED FEMALE: Congressional investigators are back in Houston questioning Enron executives. On Wednesday, they questioned the fired Arthur Andersen accountant who had been in charge of auditing Enron.

UNIDENTIFIED MALE: Bringing you the latest now on the Enron scandal; it just keeps getting bigger. The company fired its auditor, Arthur Andersen, for destroying those documents.

(END VIDEO CLIP)

KURTZ: Enron has been all over the front pages as hundreds of reporters dig into the bankrupt companies financial manipulation, its campaign contributions and its close ties to President Bush and other top administration officials.

One news magazine this week trumped Enron as its cover story.

And joining us now, Jake Tapper, Washington correspondent for Salon.com, and Rich Lowry, the editor of "National Review." Welcome.

Rich Lowry, you write that Enron isn't a political scandal, because the Bush administration, despite taking truckloads of campaign cash from these folks, believes in energy deregulation. So is this all being pumped up by scandal hungry reporters?

RICH LOWRY, "NATIONAL REVIEW": Yeah. Well, this will test the theory of whether we can have a political scandal without any real political wrong-doing. And the fact is, all reporters sort of these days work off the "All the President's Men" model. It's follow the money all the time.

So it's sort of this knowing and simplistic and tiresome cynicism where if the president of the United States says, you know, I believe we need more energy supply and we need to subsidize energy sources and drill more, because that's a good thing for the country, most reporters say, no, no, no -- that's not what he's really up to. He's been bought off.

KURTZ: So in the world according to Lowry, Enron and companies like it give millions of dollars to politicians not because they're trying to buy anything like access, but because they're just being nice to their ideological soul mates?

LOWRY: Well, Enron made a lot of bad investments, and soft money was probably one of them.

KURTZ: Because as you were saying, it didn't buy anything.

Jake Tapper, should reporters be suspicious despite what Mr. Lowry says here when the White House refuses to release all the document here, when Ari her isn't answering all the questions about the ties and the links and what happened with this company?

JAKE TAPPER, SALON.COM: Yes. I mean, I think it's our responsibility to be suspicious. I agree with Rich, that I don't think necessarily Enron's input into the energy plan is the scandal it's made out to be.

They already agree -- the Bush administration agrees with energy deregulation. But there are questions. There was the story in "The New York Daily News" on Friday about Vice President Dick Cheney raising a debt that India owed to Enron in a meeting with an Indian public official.

KURTZ: And President Bush was supposed to take this up with India's prime minister, except Enron went bankrupt in the meantime.

TAPPER: Absolutely. But as you point out, one of the oddest things has been the White House's reaction. There was not full disclosure immediately. Cheney is still stonewalling, refusing to give information about his meetings with Enron.

And then yesterday something very odd, which was Ari Fleischer to show that the Clinton administration had been just as at the beck and call of Enron executives, showed three examples where Mickey Cantor and Ron Brown and Bill Bailey did favors for Enron as well, as if the Clinton...

KURTZ: In the Clinton administration. TAPPER: In the Clinton administration -- as if the Clinton administration is some sort of paradigm of ethics and like the Clinton administration is the model from which all presidencies should go when it comes to cozying up to corporate interests.

KURTZ: But the way that the press is playing this -- you've got a lot of conservative media outlets that went wild over WhiteWater, that seemed to not be terribly exercised over this, and that seems to be to be, you know -- there's a certain ideological aspect to that.

LOWRY: Sure. Well, look, this is obviously a much bigger business story than WhiteWater. WhiteWater, after all, was a couple of two-bit crooks and the governor of Arkansas. But the reason why WhiteWater was a bigger political story is that Bill Clinton was actually involved in the business dealings and arguably also the shady business dealings.

Now, I would agree that this would be a huge political story if George Bush were actually a business partner of Ken Lay and were involved in setting up, you know, offshore accounts for Enron. But that is not the case.

And, you know, what the White House is pointing out with the Clinton revelations is that all U.S. governments help these big corporations try to do business overseas. There's nothing corrupt about that. If you want to stop that, let's eliminate the commerce department, let's eliminate OPEC and the XM Bank (ph) and those are the sort of things the Congressional Republicans proposed in 1995 and were treated as radical and irresponsible for doing it.

TAPPER: Well, there might not be anything illegal. That doesn't mean that there is nothing corrupt about the situation, where Enron gives $100,000 to the Democratic party and then like 10 days later they get some cozy business deal that they want. And then, of course, the same thing is going on with Republicans as well.

LOWRY: If it's your position that the U.S. government should not help American companies get business overseas, I would agree with you. I don't think the government has any business doing that, because you end up creating all this exposure for U.S. taxpayers on business deals that may go sour, exactly the way Enron's did in India.

But, you know, reporters -- no reporter is going to write front page stories about how we need to eliminate corporate welfare. It's all going to be we need campaign finance reform, because that's the story line reporters love.

KURTZ: So you think -- and in fact, just last Sunday Bob Schieffer and Cokie Roberts said the way that Bush should respond to this would be to come out aggressively for campaign finance reform. You think journalists are using the whole Enron debacle as an excuse to push their favorite pet issue?

LOWRY: Sure. It's the most tired cliche in the business. You know, and the reason why governments listen to companies like Enron is because big corporations are important. Any administration that crafted...

KURTZ: But why do they give them all this money?

LOWRY: They think it gets access. It gets you a nickname. It gets you nice notes. It does get you into the meeting.

But the fact is, both administrations did things to help Enron, but both administrations did things that helped Enron that played to ideological type. The Clinton administration signed the Kyoto Treaty because their liberals. The Bush administration wanted to deregulate because they're conservatives. There's no scandal here.

KURTZ: Jake Tapper, is there a media double standard? For example, the White House correspondent for "The Washington Times" told me he's not going to dignify all this innuendo about what the Bush administration may or may not have done to help Enron unless there's more facts here.

It's the same newspaper that two years ago ran a front page headline "Media Abuzz With Rumors That Clinton Fathered Boy." So, are we not seeing quite the same level of aggressiveness? I mean, there are unanswered questions here, at the very least, about the Bush White House.

TAPPER: "The Washington Times" makes interesting decisions that I don't think necessarily represent the media or even conservative media in general.

KURTZ: What about Salon? Salon's been aggressive. You had a story the other day about a new twist in this. Tell us what that was.

TAPPER: OK, but we weren't talking about the Bush administration. My story was just a business story, because as of right now this is still much more of a financial scandal, which is just that there are a lot of individuals inside the company who were complaining about the shell partnerships.

It came out earlier in the week that this woman, Sharon Watkins, had written a memo to Ken Lay and the Salon story that we had yesterday talked about a lawyer in Enron who actually went behind the back of the general counsel, retained outside counsel, this firm in New York called Freid Frank (ph), to find out what they thought of these shell partnerships. They said don't do them, and no more shell partnerships were set up.

KURTZ: And my question is, isn't one of the problems with this story in terms of we're having America by the throat is that it's complicated. Lawyers and off the books partnerships and a lot of accounting tricks that are not easy to explain, for example, on television.

TAPPER: That might be right.

LOWRY: You're doing a good job, though, Jake. You were doing a good job.

TAPPER: That might be my fault more than anything.

It is a complicated story. And, yeah, it is much easier to explain to reporters and to the public if there were more of a smoking gun. I agree.

LOWRY: I think that's an excellent point, Howard, because if we're going to cover this from a financial angle, you need to know what a derivative is, and it's really hard to understand what a derivative is if you're a political reporter.

But if you're going to play it as a political scandal, what do you? You go to the Web site of the FEC or the Center for Public Integrity and pull up how many soft money dollars went to both parties and, bang, there's your big story. It's much easier.

KURTZ: Well, who in Washington has not gotten Enron money? I mean, you have the top administration officials, you have lots of members of Congress, you have all these consultants and academics...

TAPPER: And Arthur Andersen money, too.

KURTZ: Exactly. And so, you seem to be taking sort of a narrow view of this, Rich, in the sense that if President Bush and Dick Cheney...

LOWRY: I'm never narrow, Howard.

KURTZ: OK.

TAPPER: He's very broad-minded.

KURTZ: If President Bush and Dick Cheney didn't do something specific to help them stave off bankruptcy, then where is the political scandal -- whereas the broad view, maybe journalists justifying the pursuit of the story, is about the relationship in which they would help Enron in many ways, not in any small part because of the campaign contributions.

LOWRY: Well, no one can point to specifically anything they got that they shouldn't have gotten. And, you know, the fact is, Enron backed Chuck Schumer, the Democrat in the 1998 New York Senate race. Why? Because Chuck Schumer agreed with Enron on deregulation. Companies that support deregulation are going to give money to candidates who support deregulation. There's nothing inherently corrupt about that...

KURTZ: So it's a journalistic yawn?

The fact is, ideas and philosophy are much more important in politics than money, and most journalists can't wrap their minds around that.

TAPPER: But by the same token, the SEC chairman, Levitt, at the time, in the year 2000, wanted to crack down on accounting firms that audited and also consulted, as Arthur Andersen did. And he was rebuffed by many senators, including Chuck Schumer. And I think money probably did play a role in that.

KURTZ: So it's not clear at this point whether it's Watergate, WhiteWater, or no gate, as you might see it.

Well, up next, we'll talk with the reporter who first raised questions about Enron's financial practices a year ago.

(COMMERCIAL BREAK)

KURTZ: Welcome back to RELIABLE SOURCES.

And joining us now in New York is Bethany McLean of "Fortune" magazine.

BETHANY MCLEAN, "FORTUNE" MAGAZINE: Hi, Howard.

KURTZ: You started digging into Enron's financial problems a year ago when the stock was still up by 90 percent. What was the company's reaction when you started asking tough questions?

MCLEAN: I didn't start asking the questions until I had done a fair amount of homework. And I'd say their reaction was a little stronger than you usually get when you ask a company questions.

But no company wants to be asked questions that are obviously tough.

KURTZ: What did the CEO at the time, Jeff Skilling, say to you when you first called him?

MCLEAN: Well, Jeff Skilling has always had a reputation for getting frustrated pretty quickly and for not responding well to questions. And I think the same was definitely true in my phone conversation with him.

He became pretty frustrated and pretty abruptly ended the phone call.

KURTZ: In addition, Ken Lay, the chairman of Enron, called your managing editor, the managing editor of "Fortune," Rik Kirkland, to complain about the story.

So my question is, were you a little bit nervous that all these multi-million dollar executives, some of whom came to New York to tell you that everything was just great with this company, were putting their reputations on the line against a 31-year-old reporter?

MCLEAN: Of course I was nervous, that I was just missing something that was really obvious to everybody else, or that I was making a mistake. Enron's financials are very complicated, as everyone knows by now all too well, and when you're doing a lot of complicated calculations, you're always worried that perhaps you slipped up on one and there's going to be an error in the story. So yeah.

KURTZ: What prompted you to look at Enron in the first place? And this was at a time when Enron was just getting glowing press because its stock price was way up, it was voted the most innovative company in America, and most financial journalists were basically asleep at the switch.

MCLEAN: Well, if you read Enron's financial documents, most notably the 10K filing, it was clear that it just wasn't easy to figure out how they were actually making money.

And one tip for a lot of people who look at financials is earnings and cash flow. While Enron was reporting earnings that met Wall Street's estimates every quarter, their cash flow -- actual cash the business brings in -- was very erratic. And that's kind of a clue that perhaps something isn't making sense.

KURTZ: So you wrote the story that was published in "Fortune" in mid-February of last year. You said that there were red flags here, that it was very hard to understand what this company did, that there could be a nasty surprise. Some pretty tough language. And the rest of the press kind of greeted it with a yawn. Why was there no follow- up from other financial journalists, other news organizations?

MCLEAN: Honestly, I don't know. I'm not a beat reporter, so at that time I moved on to other stories...

KURTZ: Were you surprised that this didn't lead to other stories, at least raising the question of whether Enron was what it was cracked up to be?

MCLEAN: Not necessarily, because once one story has been done, unless somebody has something new to add to it, it's not likely that other reporters are going to write the same story.

KURTZ: Well, as we're seeing in the kind of media frenzy that's going on now, everybody is chasing everybody else because this is the story of the moment.

MCLEAN: Well now no one has a choice.

KURTZ: Nobody, obviously, even you, could have predicted that there would be an implosion of this magnitude...

MCLEAN: Definitely not.

KURTZ: All these financial questions, all the employees, many of the employees losing large chunks of their retirement money. But what lesson do you draw from this, looking back at the kind of questions you raised about financial reporting and the kinds of scrutiny that journalists ought to provide? What do you take away from this?

MCLEAN: I think it's just really important, and I hope I keep this in mind going forward, to ask questions when you don't understand something. I think it becomes tempting, especially after you've done this a while, to just assume that you understand, or to not want to say, you know, I know this is probably a silly question, but I don't get it. And I think it's really important to just remember to ask the obvious question. In Enron's case, the obvious question, how does this company make money, actually turned out to be the right one.

KURTZ: You know, everybody else in this system, the auditors, the board of directors, the Wall Street analysts who are often so bullish on stocks that later go south on people who've put their money into it, they were all saying that Enron was fine. Did that give you any pause, that putting your judgment up against all these so-called experts?

MCLEAN: Absolutely, but there is one nice thing about financial reporting, and that's that companies do have to file documents. And if you go through the documents and calculate the numbers and you write a story that is not based on gossip or rumors, that is based on actual facts coming out of the financial statements, well, perhaps you'll be wrong about the direction of the stock price, but your facts aren't wrong.

KURTZ: Perhaps it would be good if more financial journalists took the time to go through the SEC documents and do the kind of work that you did.

Bethany McLean, "Fortune" magazine -- thanks very much for joining us.

MCLEAN: Thank you.

KURTZ: And turning our attention now to Jake Tapper and Rich Lowry -- so what does this tell us about the press culture? Here was a reporter who got out there, asked the right questions, poked some holes in the carefully constructed armor of the seventh largest corporation in America, and nobody else in the press cared.

LOWRY: Well, she's extremely modest, first of all.

TAPPER: Yeah.

LOWRY: I mean, she did a tremendous job. The company was trying to intimidate her and, you know, if the auditors had been so honest and tough-minded, maybe a lot of this could have been avoided.

But, you know, the press is partly just human nature. There is a herd mentality and she was riding a story that was extremely counterintuitive. And it takes a lot of courage to do that, and not all reporters can do that.

TAPPER: Reporters are lazy. And reporters think in the pack mentality, as Rich said, and I'll bet a lot of reporters, when they read her story, because they didn't get it, they didn't break the story, probably a lot of people dismissed her.

She's young, for one, she's 31 years old, and, you know, all the more reason why she should be proud of her big scoop. She is very modest. But I mean, it doesn't surprise me. I've only been a journalist for about three or four years now, and I have to say, I don't look around the room and think that these are, like, the most brilliant, aggressive and insightful, creative minds in the world. I mean, there's a lot of hacks in this business.

KURTZ: No vote of confidence from Jake Tapper.

But what amazes me is that even when the storm clouds gathered, the CEO Jeff Skilling, the one who hung up on Bethany McLean, he quit. The company restated its earnings to the tune of $600 million. The company declared bankruptcy in December. Even then it wasn't much of a TV story. It was only on some front pages.

TAPPER: Well, Howie, there was another story going on.

KURTZ: The war.

TAPPER: The war and the biggest terrorist attack in the history of the world.

KURTZ: So -- OK. So by December, the press can't walk and chew gum at the same time? We can't cover the war and this kind of collapse?

LOWRY: Well, the timing is awfully convenient. I mean, there is a news hole now because the war has simmered down a bit. It isn't as exciting as dominating, so you have to do something. You have to fill the column inches and fill the time on TV, so you have Enron.

KURTZ: I would say it's a huge story, even in a time of war.

Now, we have about a minute left. Yesterday we learned that "Talk" magazine, the magazine founded by Tina Brown, who achieved such success with "Vanity Fair" and "The New Yorker," is folding, a victim of financial problems, as many magazines are experiencing.

Jake, you were a contributor to "Talk." What did it do right and what did it do wrong?

TAPPER: I think Maya Richon (ph), the new editor that came on over the summer, had really finally -- the magazine had gotten its editorial voice and had gotten its stride. But the problem is, it's really tough to launch a general interest magazine in general, and post-9-11, the advertising dollars are drying up all over the place.

I think Tina is to be commended for the effort and I think Maya (ph) did a great job. It's a real shame.

KURTZ: A lot of media critics tell me, Rich Lowry, that the financial situation aside, they had trouble understanding what "Talk" was, what was its identity. It seemed to be a general interest magazine without much of a mission.

LOWRY: They ran some occasionally interesting political stories. They ran some nice pictures of pretty, sexy actresses. And besides that, I don't have much nice to say, so maybe I shouldn't say anything.

KURTZ: You didn't think it worked as a magazine?

LOWRY: No. It just never was a compelling read. I'd always kind of leave it on my desk and kind of look at the cover for a week or two.

TAPPER: Except for the stories that I wrote for them.

LOWRY: They were the interesting ones.

KURTZ: So the stories about Gwyneth Paltrow didn't compel your attention.

LOWRY: No. You know, they had a -- Tucker Carlson did a great story for them in their inaugural issue about George W. Bush and it was important and controversial, but it never really -- in my mind, that was the best issue they ever did.

KURTZ: Miramax put a lot of money into talk, but Hearst magazines, which was the other partner, decided to walk away. They could not find another investor. "Talk" magazine dead at the age of 2 1/2.

Rich Lowry, Jake Tapper -- thanks very much for joining us.

And when we come back, the attack of the killer pretzel in "The Spin Cycle."

(COMMERCIAL BREAK)

KURTZ: Time now for "The Spin Cycle." The White House says it was a minor incident. The president chokes on a pretzel, faints, hits the floor, as if it happens every day.

But what do we really know about Pretzel Gate?

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: He's in great health and great spirits and I don't think there's anything to worry about.

KURTZ (voice-over): That, at least, is the official line.

But not everyone in the media was swallowing the story.

DIANE SAWYER, NETWORK NEWS ANCHOR: Is it possible that there was some hidden heart problem, and of course everyone will worry about stroke.

KURTZ (voice-over): Medical correspondents were probing for an explanation.

UNIDENTIFIED MALE: Well, the episode itself is not so dangerous, and the issue is whether the president has another underlying problem other than what the doctors have said.

KURTZ (voice-over): The president, of course, tried to make light of the incident.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: My mother always said, when you're eating pretzels, chew before you swallow.

KURTZ (voice-over): But then why the cover-up? First Bush looked like this. And then the injury mysteriously seemed to vanish.

They say Laura Bush was in another room, but where's the evidence? They say only Barney and Spot were there, but have Congressional investigators talked to them? And why won't the White House release key details?

"USA Today" says the beleaguered pretzel industry is working overtime to find out what brand Bush was eating. Sources say it was a small, round pretzel.

(END VIDEOTAPE)

KURTZ: Enron was bad enough. Isn't it time for the administration to come clean? We at RELIABLE SOURCES will investigate every twist of this story, but we are trained professionals. Don't try this at home.

Well, that's it for this edition of RELIABLE SOURCES. I'm Howard Kurtz.

Join us again tomorrow morning at 9:30 Eastern. We'll talk about the administration's damage control on Enron with two White House correspondents and a prominent financial columnist.

CAPITAL GANG is up next.

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