At a recent Senate hearing Corzine asked Federal Reserve chairman Alan Greenspan if he saw any "economic value" in the special partnerships Enron had devised to hide debt, avoid taxes and prettify its earnings reports. None, Greenspan replied. Corzine's question carries an important insight that goes to the guts of what's wrong in the financial-corporate operating system. These arcane accounting maneuvers obviously benefit companies (and the Wall Street banks and brokerages that invent such devices for corporate clients), but do they add any real benefit to the economy and thus for the general public? When I suggested that his question should be asked across-the-board about the corporate gimmicks employing offshore banking havens to avoid US taxes and escape US securities laws, the Senator turned a bit defensive, perhaps because his firm invented some of those gimmicks. "Objectively and statistically, I can't tell you whether more of them are eyewash than not," he said. "But I saw a lot of them that were used for good purposes when I was an investment banker." The examples he offered seemed unpersuasive to me (but judge for yourself--the interview text is posted at www.thenation.com).

The Wall Street Journal recently zinged Corzine and Goldman Sachs for inventing their own peculiar device for Enron back in 1993 with a similar purpose--the "monthly income preferred shares" (or MIPS) that enabled Enron to sell fifty-year securities through an entity it created on a Caribbean island. For tax purposes, Enron described the preferred stock as "debt" and claimed tax deductions on the interest payments to investors. For shareholder reports, Enron called it "equity" that supposedly boosted the company's capital value. As Goldman's chairman, Corzine joined the lobbying efforts to overturn the Treasury Department's objections to this novel device. He signed an industry letter to members of Congress, urging them to keep the regulators off their backs, and Treasury eventually gave up the fight. The device is now used by other companies to raise somewhat cheaper capital offshore and, in the same stroke, reduce their US tax obligations.

"In that particular case, there's no question the financial engineering did what you just said it did," Corzine responded. But he argued that unlike other Enron deals, it was fully disclosed at the time, vetted by the credit-rating agencies and eventually upheld in litigation. Goldman, he added, stopped doing deals with Enron about five years ago because "we ended up having difficulty with how people did business with each other." He has recused himself from voting on any item that goes directly to Goldman Sachs's bottom line.

On reflection, the Senator agreed that he may need to re-evaluate some of his work as an investment banker now that he represents the public interest. "By the way," Corzine said, "I'm not sure, as a senator now who is interested in absolutely making sure, particularly in the current environment, that we have transparency and openness, that I would be as supportive today, given that we have created a world where people are skeptical of why [business] people are doing this." Maybe he will look back through all those letters to Washington he signed as chairman.

That brought the conversation around to the power of Wall Street and the one-sided contest in which financial-corporate interests influence lawmakers and help shape ambiguous regulatory language they then manipulate into ingenious loopholes. As Goldman Sachs chairman, Corzine spoke for the firm and its clients' interests, but he said he always tried to frame a larger public purpose. "If it was pure self-interest you were about, you quickly lost an ability to have any advocacy of acceptability, except to those particular folks who were so happy for the money that they were just dealing with it," he said. "I'm not going to name names." What about former Treasury Secretary Robert Rubin's call to the Assistant Treasury Secretary on behalf of Citigroup and Enron, asking him to pressure credit-rating agencies to go easy on the failing company? "I'm sure Bob didn't feel good about the call he was making.... In fact, he's torn between his responsibility as a senior member of Citigroup who's working to represent a client's interest and representing what he thinks is good public policy."

Corzine himself is now experiencing the lopsided political pressures from the other end, as he tries to push pension-fund reforms to protect future retirees from various corporate abuses. "The companies holding 401(k)s are resisting changes that would bring sound diversification to portfolios," he said. "The response, I think, of a lot of folks in political life is, well, they can't be all wrong, those guys on that side. There's a more willing ear because of how the system works. You know, nobody is coming up here speaking for the individual investor."

"I'd like to level the playing field so that all points of view have the same throw-weight," he said. "Some of those who are left out of the debate don't seem to have much, relative to others. And I think it's potentially dangerous." With a hint of anger, he mentioned the one-sided bankruptcy bill passed with bipartisan support in both houses, but now lingering in conference committee because its sponsors are embarrassed to enact it during bleak times and rising unemployment. "A bankruptcy bill that was basically written by the banking and credit-card industry," Corzine said, "and completely ignored the hooting and hollering of small folks and their rights in the legal system."

Campaign finance reform is essential to creating a "level playing field" for citizens, but, though he voted for McCain-Feingold, he fears it will mainly lead to unintended consequences, including more "self-funded candidates" of wealth like himself. "I think that we need to get public financing of campaigns generally, and if we did that, I'd be willing to make sure that folks who are wealthy come into the system--that they either comply or, if they don't comply, they'd get the opprobrium of the public," Corzine said. "But I think what's going to happen now is, we're going to get just derivative political-action committees taking up most of the soft money and repositioning it."

The one element in McCain-Feingold that seemed most valuable to Corzine was the provision forcing lower prices for TV campaign advertising--a vital first step, he believes, toward en-acting broad public financing for campaigns, real public debates and other reforms to restore democracy. Yet as we talked, Corzine also predicted that the very powerful broadcasting industry would find a way to kill this measure before final enactment. Sure enough, the next day it was removed from the bill before the House passed it. The Senator from Wall Street appears to understand well enough how Washington works.

• « Previous
• 1
• 2

• Get The Nation at home (and online!) for 75 cents a week!
• If you like this article, consider making a donation to The Nation.