Bush's first big scandal rises from the ashes of Enron

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It may not yet quite be the "cancer on the presidency" of which John Dean warned Richard Nixon in the early days of Watergate. But the collapse of the energy conglomerate Enron is suddenly shaping up as big, big trouble for George Bush.

All the ingredients of a classic Washington scandal are there: the biggest corporate failure in history, a chief executive on such good terms with George Bush that the President refers to him as "Kenny Boy" and a history of massive contributions by the Houston-based Enron to the White House campaigns of Bush the father and Bush the son.

The final element fell into place last week with the announcement of a full-scale Senate investigation, complete with subpoenas for top Enron executives including Kenneth Lay (aka "Kenny Boy"), representatives of the Arthur Andersen accounting firm which singularly failed to spot the impending disaster, and perhaps senior figures in the Bush administration as well.

Even the cast of characters is comfortingly familiar. Enron's lead attorney, for instance, is Robert Bennett, the $500-an-hour DC superlawyer who featured in Washington's most recent presidential scandal when he represented Bill Clinton in the Paula Jones sexual harassment suit. That led directly to the Monica Lewinsky saga.

By any yardstick, Enron is a massive financial scandal, a tale of concealed debt and shell companies, incompetent auditing and scanty regulatory oversight – not to mention the sudden impoverishment of thousands of employees obliged to hold their pension savings in now worthless Enron shares, even as senior executives cashed in stock and stock options for up to $1bn (£700m) during 2000 and 2001.

Until now, however, Enron has been the dog which failed to bark – or, more exactly, was ignored as the media concentrated on Afghanistan and barely dared mention such goings-on as the presidential approval ratings hovered around the 90 per cent mark. Enron unravelled in November, but not until 28 December was Mr Bush first asked about the debacle. All that is about to change as the news focus starts to shift from the anti-terror campaign to domestic politics. Not only is this a mid-term election year in which the Democrats need just half-a-dozen seats to recapture the House of Representatives, but thoughts are already turning to the 2004 White House race. In all these calculations, Enron could prove a factor.

Already, at least three Congressional committees have been sniffing around the affair. But the main investigation will be conducted by the Senate's governmental affairs committee, headed by the Democrat Joe Lieberman of Connecticut. Mr Lieberman, it will not be forgotten, was Al Gore's vice-presidential running mate last time and is is widely believed to have ambitions for the top job in 2004.

Thus far, Mr Lieberman has followed the Washington scandal script to a T. Echoing investigators of Watergate, Iran-Contra and Whitewater before him, he promises solemnly that his probe will be even-handed, "a search for the truth, not a witchhunt". But, he warns, "we're going to go wherever the search takes us". If so, it could be a most interesting journey.

Enron has been a fountain of money for politicians of every hue. Since 1990, according to the Center for Responsive Politics, which monitors such donations, it has made campaign contributions of $5.8m (£4m), three-quarters of it to Republicans. The biggest single beneficiaries, unsurprisingly, have been the two Texas senators, Kay Bailey Hutchinson and Phil Gramm, whose wife Wendy sits on the Enron board.

Like most big corporate donors, it has hedged its bets. On Capitol Hill, 71 of the 100 current senators and nearly half the 435 congressmen have received contributions. The investment paid off with a vengeance, when Enron secured exemption for its energy derivatives business under a 2000 Act regulating commodity futures trading. But the Bush family has been a special object of its attentions. Mr Lay was listed by the Bush-Cheney campaign as one of the "Pioneers" who raised at least $100,000 (£70,000) for the election, while Enron gave $100,000 to the inauguration gala, a contribution matched by "Kenny Boy" and his wife.

Potentially most damaging is its possible backstage role in the formulation of Mr Bush's energy policy. At least four Enron consultants and executives have done work for the administration. A champion of the deregulation favoured by the White House, Mr Lay was a frequent informal adviser to the panel under the Vice-President, Dick Cheney, which drew up a national energy strategy.

"We've got to ask whether the advice tendered was self-serving," Mr Lieberman says. Or, to put it more bluntly, were the Texan oilman in the White House and the Texan energy baron in Houston running a mutual benefit society? These questions can no longer escape an answer.