Excerpted from Armed Madhouse
May 17, 2001. In a room at the Peninsula Hotel in Beverley Hills, the Financial Criminal of the twentieth century, not long out of prison, met with the Financial Criminal of the twenty-first century who feared he may also have to do hard time. These two, bondmarket manipulators Mike Milken and Ken Lay, no-yet-indicted Chairman of Enron Corporation, were joined by a select group of movers and shakers – and one movie star.
Arnold Schwarzenegger had been to such private parties before. As a young immigrant without a nickel to his name, he put on private displays of his musculature for guests of his promoter. As with those early closed gatherings, I don’t know all that went on at the Peninsula Hotel meet, though I understand “Ahnold,” this time, did not have to strip down to his Speedos. Nevertheless, the moral undressing was just as lascivious, if you read through the 34 pages of notes that arrived at our office.
Lay, who convened the hugger-mugger, was in a bit of trouble. Enron and the small oligopoly of other companies that ruled California’s electricity system had been caught jacking up the price of power and gas by fraud, conspiracy and manipulation. A billion here, a billion there, and pretty soon it was real money — $6.3 billion in suspect windfalls in just six months, May through December 2000, for a half dozen electricity buccaneers, at least $9 billion for the year. Their skim would have been higher but the tricksters thought they were limited by the number of digits the state’s power-buying computers could read.
When Ken met Arnold in the hotel room, the games were far from over. For example, in June 2003, Reliant Corporation of Houston simply turned off several power plants, and when California cities faced going dark, the company sold them a pittance of kilowatts for more than gold, making several million in minutes. Power-market shenanigans were nothing new in 2000. What was new was the response of Governor Gray Davis.
A normally quiet, if not dull, man, this Governor had the temerity to call the energy sellers “pirates” — in public! — and, even more radically, he asked them to give back all the ill-gotten loot, at least $9 billion. The state filed a regulatory complaint with the federal government. The Peninsula Hotel get-together was all about how to “settle” the legal actions in such a way that Enron and friends could get the state to accept dog food instead of dollars. Davis seemed unlikely to see things Ken’s way.
Life would be so much better if California had a governor like the muscle guy in the Speedos. And so it came to pass that, in 2003, quiet Gray Davis, who had the cojonesto stand up to the electricity barons, was thrown out of office by the voters and replaced by the tinker-toy tough guy. The “Governator” performed as desired. Soon after Schwarzenegger took over from Davis, he signed off on a series of deals with Reliant, Williams Company, Dynegy, Entergy and the other power pirates for ten to twenty cents on the dollar, less than you’d tip the waitress. Enron paid just about nothing.