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Dying Enron reached out but found no lifeline

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WASHINGTON — In the last weeks of Enron's financial free fall, worried company executives grabbed the phone and dialed up Bush administration officials. Yet, to hear officials recount the conversations, the exchanges only casually touched on the company's need of a lifeline it never got.

Treasury Secretary Paul O'Neill describes Enron Chairman Kenneth Lay's calls to him as "business as usual" and a "heads-up" to the company's financial troubles that, within weeks, turned into the largest corporate bankruptcy in U.S. history.

Commerce Secretary Donald Evans says when Lay called him on Oct. 15 — the day before Enron reported a third-quarter loss of more than $600 million — the topic was Enron's electric plant in India, not its financial distress.

Lay's two-minute call to the White House budget office in early October was about the Bush administration's economic stimulus plan. Lay's phone call to Federal Reserve Chairman Alan Greenspan on Oct. 26 was made only to alert him to Enron's worsening financial condition, the company says.

But the phone calls did contain at least hints of the coming demise of the world's largest energy trading company. Enron filed for bankruptcy protection Dec. 2, leaving countless investors burned and thousands of employees out of work and stripped of retirement savings laden with Enron stock.

In a call to O'Neill on Oct. 28, Lay talked about how federal officials helped organize a private-sector bailout in 1998 for a speculative fund for wealthy investors. The next day, Lay called Evans to mention that credit rating agencies were eyeing his troubled company.

Without being specific, Evans said Lay told him, "If there's any kind of support you could give us, we would welcome that."

Some people, however, aren't convinced that Enron executives, who are on a first-name basis with top Bush administration officials and have pitched hundreds of thousands of campaign dollars to the president and members of Congress, could have reached out to Washington and come up empty-handed.

A CBS News Poll taken last week says nearly two-thirds, or 63 percent, of Americans think the Bush administration is either hiding something or fibbing about its relations with Enron. The poll of 1,030 adults has a margin of error of plus or minus 3 percentage points.

"Clearly, they were calling in desperation looking for help," said Lawrence Mitchell, a professor at George Washington University's law school who has written a book on corporate irresponsibility. "It's hard to believe that Enron didn't think they were owed some political favors, given its ties to the administration.

"I'm not a big fan of the administration, but I credit the administration for not giving Enron any favors," Mitchell said.

Enron spokesman Mark Palmer says Lay never asked for any.

Lay only called the Cabinet secretaries and Greenspan to alert them to the company's downward financial spiral, Palmer says. Enron attorney Robert Bennett says the company asked for "nothing," but adds that Lay wouldn't have turned down any help that might have been offered.

"I think, to a fair degree, that Enron was living in a dream world and hoping that lightning would strike," said Ralph Estes, professor emeritus at American University's business school and an expert on accounting.

He and other Enron-watchers don't think there is much, if anything, the government could have done to avert the company's demise.

"The main thing they could have done would have been a bailout along the lines of Chrysler, but that was way too politically hot," Estes said.

It was natural for Enron to contact Bush's Cabinet secretaries to see if something might materialize, Estes said. "These types of contacts are sometimes made without it being a blatant, overt attempt to ask the administration to do X."

The government might have been able to shore up Enron's debt, possibly guaranteeing it in some way, Mitchell says. "That, I think, would have been completely inappropriate," he said. "The problem is that Enron's capital structure was a complete house of cards."

There was no reason for the government to intervene, said Roman Weil, University of Chicago accounting professor.

"At the time the calls were being made, I think the people at Enron believed that if they could just get somebody important to say the company's fine, they would avoid the run on the bank," Weil said.

There's a big difference between administration officials taking Lay's phone calls and offering assistance, he says.

"When a company bets the farm and loses, it's supposed to go broke," Weil said. "It's just not supposed to take us so long to figure out that they're betting the farm."