Herman Cain's Enron-esque Disaster
— By Andy Kroll

May. 23, 2011 3

What GOP presidential contender Herman Cain lacks in political experience, he likes to say, he makes up for with decades' worth of success in corporate America. He climbed the corporate ladder at the Pillsbury Company, chaired the Federal Reserve Bank of Kansas City, and rescued the failing Godfather's Pizza franchise. That business-centric message has won Cain his share of admirers: a focus group convened after a recent Fox News presidential debate overwhelmingly declared Cain the winner.

"I think that over 40 years of business experience is resonating a lot more with people than simply having political experience," he said on a recent Iowa visit. "Knowing how Washington works isn't necessarily an advantage. As a businessman going in, I don’t want to know how Washington works. I want to change Washington D.C. and so by not knowing how it is supposed to work I can ask tough questions that will help change the culture."

Cain clearly believes that his pro-business message is what GOP voters want to hear. So much so, in fact, that on Saturday he officially unveiled his candidacy for the 2012 GOP nomination. But scrubbed from Cain's official story is his long tenure as a director at a Midwest energy corporation named Aquila that, like the infamous Enron Corporation, recklessly dove into the wild west of energy trading and speculation—and ultimately screwed its employees out of tens of millions of dollars.

According to five lawsuits filed in federal court in 2004, Aquila's board of directors—which Cain joined in 1992—allegedly steered employees into heavily investing their retirement savings in company stock. At the same time, the company shifted its business model from straightforward energy generation to risky energy trading, an unregulated market made infamous by now-defunct Enron. The suits, later folded into a single, massive class action (PDF), alleged that Cain and top company officials violated a 37-year-old federal law requiring that employers manage employees retirement programs responsibly. (Cain's presidential exploratory committee did not respond to a request for comment.)

Founded in 1917 as Green Light and Power, Aquila traditionally made its money operating electric and gas plants and selling the energy they produced. In the years after Cain joined the board, Aquila's earnings climbed, from $254 million in 1995 to $351 million in 1998. Then, in early 1999, the company's leadership decided running power plants wasn't lucrative enough; energy trading and speculation had grown popular, and as the class suit lays out, Aquila wanted a piece of the action.

It was a dangerous move—as a company spokesman later put it, "the risk was huge." In the end, it proved disastrous. Aquila's decision to join Enron, Reliant Energy, and the other heavy-hitters in the energy trading markets would ultimately wipe out 94 percent of Aquila's stock value between 1999 and 2004. The company also faced criticism for using some of the same trading tricks that Enron did as a way to puff up its stock price, the lawsuit says. That included using "roundtrip" trades, a scheme in which Aquila would sell a trading partner some energy and then that partner would sell the same amount back to Aquila, a deal that canceled itself out. In the end, nothing actually changed hands. But it boosted Aquila's trading volume and revenue, sending a positive signal to the markets. The company also engaged in megawatt laundering, or "ricochet" trading, the lawsuit alleges. In such transactions, Aquila and other companies would buy energy from California at a lower capped price, move that energy out of the state, then re-sell it back to California at a higher price for a tidy profit.

But this financial trickery couldn't save a listing ship. In 2002, Aquila teetered on the brink of collapse. And for Aquila's employees, the result of the company's foray into energy trading was devastating: The company's employee retirement fund, overseen by the board of directors, lost more than $200 million in 2002. The reason: At the same time Aquila's executives and directors were investing more and more in highly risky energy speculation, they were selling their employees on the conservative nature of Aquila and pushing them to invest their retirement savings in company stock.

For years, the lawsuit says, executives urged employees in company speeches to reinvest in Aquila, lauded those who did so as "Aquila partners," and even offered a 15 percent discount to buy company stock. Executives and board members also made it more difficult to sell off company stock by implementing lock-up periods, during which employees couldn't cash in their holdings. At the end of 2000, 85 percent of Aquila employees owned common stock in the company. What's more, 60 percent of the employees' retirement fund consisted of Aquila stock—even though financial experts say that total should never be more than 10 to 20 percent.

The spectacular failure of Aquila's trading venture practically wiped out the hard-earned retirement savings of veteran employees. Richard Itteilag, a plaintiff in the Aquila class action, lost 87 percent of his savings. Robert Goodson, a 20-year Aquila employee, lost 75 percent. Michael Reinhardt lost a staggering 94 percent. All told, thousands of employees saw their retirement funds eviscerated thanks to Aquila's Enron-esque activities. (In 2007, Aquila settled with the employees for $10.5 million. Not long after, Aquila merged with other Midwestern energy companies and now no longer operates as Aquila.)

Cain served on the board of directors throughout Aquila's ill-fated trading misadventure and the subsequent collapse of the company's retirement fund. In fact, he chaired the board's compensation committee, which, according to the lawsuit, had direct oversight of the push to get employees to invest more and more in Aquila stock. As chair of the compensation committee, Cain also saw fit to dole out $30 million in bonuses, not including stock options, to the top five execs at Aquila in 2002, with the company's stock plummeting. A month after the Kansas City Star reported on the hefty bonuses in July 2002, the company laid off 500 employees, and the losses to employees holding company stock had reached hundreds of millions of dollars.

As a board member, Cain would've had direct knowledge of Aquila's activities, says Fred Taylor Isquith, a New York attorney who litigated the employee class action. Asked if it was fair to place blame on Cain for the debacle at Aquila, Isquith replied, "Yes, I believe it is."

Herman Cain's Enron-esque Disaster | Mother Jones

-----------------------------------------------------------------

Of course, no one knows what the future holds so it's easier to blame the move into energy trading now than then. But it's true that it changed the nature of business so it was a bit dubious to sell yourself to ANY pension plan as "conservative"... And, of course, it shows that while Cain may lack political know-how, he also lacks any particularly noticeable business acumen - He just goes with the flow.

__________________
Unless otherwise specified, I am posting as a regular poster. When I will act as a mod, I'll make sure you're in no doubt.

Tim Pawlenty's Truthiness
— By David Corn

May. 24, 2011

Tim Pawlenty has a new campaign motto. In a slick video officially announcing his bid for the 2012 GOP presidential nomination, Pawlenty notes that he could unveil his candidacy with a big speech replete with balloons ("red ones, white ones, and blue ones"), pass out cupcakes, and promise to eliminate a $14 trillion debt, create jobs for 10 million Americans, and restructure Social Security and health care "all without making any tough decisions." Or, he says, "I could try something different. I could just tell you the truth." What truth? That "our country is in big trouble," with too much debt and too few jobs. And to emphasize that Pawlenty is the truth-telling candidate, his campaign attached this slogan to the video: "A time for truth."

This is clearly a consultant's concoction: Let's position you, Governor, as a guy who tells it as it is. In the two-minute video, Pawlenty repeatedly bangs this drum, saying that he will launch "a campaign that tells the American people the truth." But do voters want truth or do they want action—more jobs, say? In the personal integrity department, President Barack Obama tends to rate well in public opinion surveys. In a recent NBC news poll, 51 percent rated Obama "very good" when asked if he is honest and straightforward. Only 29 percent granted him a "very poor" rating on this front. Obama has scored higher in the past; 64 percent dubbed him honest in an April 2009 survey. But his personal reputation has not been much of a political problem. CNN polling director Keating Holland noted in January that a survey conducted for the cable network "tested Obama on a variety of personal characteristics, and he gets high marks for honesty, sincerity, leadership skills, and compassion." Americans, the poll found, could disagree with Obama's policies and still think of him as honest and stalwart.


By trying to depict the former Minnesota governor as a truthier guy than the man in the White House, Pawlenty—and his aides—might be attempting to exploit a problem that doesn't exist. (Though they may also be aiming at Republican frontrunner Mitt Romney, who has a history of flip-flopping on issues important to social conservatives, including gay rights and abortion rights.) Emphasizing straight talk as the critical matter also comes with a potential cost. It inevitably invites greater scrutiny of the candidate who's boasting of his honesty, and Pawlenty is hardly more truth-loving than the average presidential candidate.

Factcheck.org, a nonpartisan outfit that vets the statements of politicians, reports that in recent months "we have found [Pawlenty] straying from the facts." The group provided several examples:

In January, Pawlenty told Fox News that he "never did sign a bill relating to cap and trade" climate action when he was governor. But he did sign legislation in 2007 to set up a task force that would produce recommendations for how his state could implement a cap-and-trade regimen. He also signed a multi-state compact to "develop a market-based and multi-sector cap-and-trade mechanism." As Mother Jones reported, at a Republican presidential debate earlier this month, Pawlenty claimed—falsely—that while governor he merely backed the "study" of cap and trade. He went on to apologize to Republican voters for his support of this policy.

Earlier this year, Pawlenty said, "I don't think the government should bail out Wall Street or the mortgage industry or for that matter any other industry." But in 2008, he asserted that he did endorse these sort of interventions when necessary: "If you allow those entities to fail, the consequences are so severe for innocent bystanders, namely average Americans who rely on the markets, rely on those mortgages, you know, the consequences are too severe...[T]hey are too big, the consequences are too severe for innocent bystanders to allow them to fail."
In blasting Obama's economic policy, Pawlenty, in a Wall Street Journal op-ed in December, declared that "local, state and federal governments added 590,000" jobs in the previous two years, while private sector employment had dropped by millions. Pawlenty was wrong: Government employment had actually fallen by 118,000 jobs. (PolitiFact.com, another fact-checking shop, dubbed this statement a "pants on fire" lie.)
PolitiFact.com also slapped Pawlenty with a "barely true" verdict for declaring in his book, Courage To Stand: An American Story, that in 2009 he cut government spending in Minnesota "in real terms for the first time in 150 years." It turns out the state only keeps fiscal data dating back to 1960, so it's not possible to compare Pawlenty's action to the previous 150 years. Also, spending had dropped in years prior to 2009, including 1986 and 1983. And here's the kicker: State spending in 2009 dropped partly because Pawlenty used money from Obama's stimulus to put off some of the state's own spending that year.

In an announcement speech in Iowa on Monday, Pawlenty repeated this first-time-in-150-years claim. (The staffers on his time-for-truth campaign obviously didn't check with PolitiFact.com.) That speech also included another familiar GOP whopper; Pawlenty maintained that Obama "promised that spending $800 billion dollars" on the stimulus bill "would keep unemployment under 8 percent." PolitiFact.com has charitably called this accusation "barely true." (As PolitiFact points out, the Obama administration's early use of the 8-percent figure "was a projection, not a promise. And it was a projection that came with heavy disclaimers.") The prepared text for Pawlenty's speech mentioned the word "truth" 16 times; the word "economy" just six times.

Pawlenty's "A Time for Truth" video looks and sounds great. His speech was full of sharp lines: "Politicians are often afraid that if they're honest, they might lose an election." But do Pawlenty and his campaign handlers believe he can run from his own record of non-straight talk on such grand matters as bank bailouts and cap and trade? It's far too early to handicap the GOP race, but Pawlenty's use of such hollow spin suggests his campaign team is not strong on strategic creativity—even though it is indeed creative to claim Pawlenty is more honest than the competition.

Tim Pawlenty's Truthiness | Mother Jones

-------------------------------------------------------

I thought that was quite adult of Americans to disagree with Obama while respecting he was sincere. Maybe some good can still come out of the USA?

__________________
Unless otherwise specified, I am posting as a regular poster. When I will act as a mod, I'll make sure you're in no doubt.

There was a nice political cartoon a while back that showed the Republican candidates as Snow White and the 7 Dwarfs.

Huckabee was probably their best shot, and he dropped out along with a couple other more serious players.

That said you gotta think a tree stump would get 40% of the popular vote, so, who knows how things will look once the big money gets involved.

Last time around, around this time, everyone KNEW it was going to be Hilary V Giuliani in the general election.

__________________
Righteousness will always be the trap at the gates of hell

I am not making prognostics per se. I am just looking at the "talent" on the field.

I just read an article where a guy, a liberal, was hoping that the Rep would field the most extreme, most deluded, most crazy candidate possible (He was praying for Michele Bachmann to get the go-ahead), would then lose in spectacular fashion (admitting that, should he/she win, the USA was doomed anyway) and thus push the Rep to re-evaluate their strategy of always-push-for-the-extreme.

I am not sure if that's plausible but he was comparing it to the alternative of the Rep fielding a semi-reasonable, reality-based candidate (like Pawlenty), losing and then going ape-shit extremist...

And I thought he had a point.

__________________
Unless otherwise specified, I am posting as a regular poster. When I will act as a mod, I'll make sure you're in no doubt.

Amateur assessment.

The base is the base is the base.

Why do you think so many reasonable candidates have dropped out or passed on running?

Because they realize its a lot harder today to play to an extremist base that represents 4% of the country for months on end, and then run back to the middle in a nationwide general election with all that stock footage weighing them down. (4% comes from total number of Rep primary voters in 2000 or 2008)

The establishment is not in control of the party right now, that should be obvious. Thus they cannot "re-evaluate" anything... short of a party split.

__________________
Righteousness will always be the trap at the gates of hell