Washington electrified as 'the perfect storm' breaks around Bush

Democrats seek revenge as scandal surrounding biggest US corporate bankruptcy swirls closer to the White House

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Concern over Enron's links to British parties and politicians

Leading article: Mr Bush's business links come back to haunt him

When does a scandal become a scandal? In Washington, the answer is easy. When a president starts distancing himself from a corporation in trouble; when senior members of his Cabinet issue carefully worded statements about when they last had contact with its chief executive; and key documents in the case are suddenly found to have disappeared.

In the space of a few hours on Thursday afternoon, all these ingredients magically came together as the Enron affair, long obscured by the war in Afghanistan, burst in all its tawdry splendour over the Bush administration.

"As Washington scandals go, this is the perfect storm," enthused a top aide of Henry Waxman, the Democrat congressman from California who leads one of half a dozen committees on Capitol Hill gearing up for hearings on the matter.

You could almost sense the glee among the capital's army of scandal trackers, vastly underemployed since the departure of Bill Clinton. Democrats in particular relish the moment. Washington is a city where revenge is an industry. Is Enron going to be payback time for the Republican hounding of the previous Democratic adminstration? You bet.

But even a political neutral has to admit this scandal has everything. To start with, Enron's collapse is the biggest business failure in United States history. Once America's seventh largest company, the energy conglomerate with sales last year of $101bn (£70bn) folded in the space of two months last autumn, as its share price plunged from $85 (£58) to barely 50 cents.

It is a collapse with a rapacious and bitter human dimension, in which thousands of Enron employees, obliged to keep their pension funds in company stock, saw their retirement funds wiped out – even as executives of the company cashed in shares and options to the tune of an alleged $1.1bn (£760m) in the 18 months before Enron filed for bankruptcy protection on 2 December last year.

Nor was this decline and fall a tale of honest mistakes. Andersen, the firm of accountants that audited Enron's books, has already warned of "possible illegal acts" that might have contributed to the company's demise.

On Thursday, to universal astonishment, Andersen admitted that many – probably thousands – of documents relating to the audit had been destroyed by its employees. In the accounting world, where records are everything, such behaviour is unheard of.

Only when it was too late did Andersen learn that billions of dollars of debt had been kept off Enron's books, hidden away in private partnerships set up by top executives.

Not long ago Enron was one of the most admired US companies, vacuuming up 250 newly graduated MBAs from the country's top business schools every year. "In the old days, people worked for the assets. What we've said is that the assets work for the people," Jeffrey Skilling, the former Enron chief executive, mused to Business Week.

In fact, the main financial innovation of Mr Skilling and his protégé Andrew Fastow, Enron's sacked chief financial officer, seems to have been a new technique to make debt disappear. The key was to prop up the share price. Once that started to fall, the debts tucked away in the independent partnerships would contractually revert to Enron's own books, exposing its true problems.

This alone would be enough to keep investigators going for years. But Enron was also a cash machine for politicians in its home state of Texas and beyond – foremost among them the state's political first family, led by George Bush Senior and Junior, the 41st and 43rd Presidents of America.

Since 1990, Enron has made political contributions totalling almost $6m (£4.1m), including over $500,000 (£345,000) to George Bush Junior in his campaigns for the Texas governorship, and his 2000 White House run. So close is Kenneth Lay, Enron's founder and chairman, to the President that Dubya calls him "Kenny Boy". Enron has been a major backer of Texas's two senators, Phil Gramm and Kay Bailey Hutchinson, and the two powerful Texans in the House – the outgoing Republican majority leader, Dick Armey, and his probable successor Tom DeLay.

Of course, like many big corporate donors, Enron has hedged its bets: it has given money to 71 of the present 100 Senators, and to over 180 of the 435 Congressmen, many of them Democrats. But three-quarters of its contributions went to Republicans, including $60,000 (£41,000) to John Ashcroft, now Attorney General, for his unsuccessful 2000 Senate run in Missouri – which is why Mr Ashcroft has had to remove himself from the Justice Department's criminal investigation of the bankruptcy.

The investments, however, paid off handsomely. Two years ago, despite strong objections from the Clinton administration, Congress voted in a crucial exemption for Enron's energy derivative trading from federal oversight.

In the meantime, "Kenny Boy" became a key advisor to the task force headed by vice-President Dick Cheney that drew up the Bush energy strategy last year – so much so that Bush comments on advocating deregulation would include passages from Lay speeches almost word-for-word.

Enron's influence on national energy policy may be profoundly distasteful. It is not, however, illegal. Money has always greased the wheels of Washington politics; contributions are given in the expectation of favours returned, and a vast lobbying industry lives on the proceeds. In this perspective, Lay was merely someone who had gilt-edged Washington contacts and who used them.

So far, not so bad for Mr Bush. The real trouble for the Administration will arise if, and when, the financial scandal and the political donations come together – if it emerges that government figures gave financial counsel to Enron, or that they knew of illegal activities and did nothing, or that they used inside knowledge to sell shares ahead of the debacle.

None of this has happened yet. But these questions will be the focus of the Congressional committees and the media in the months ahead, in the increasingly partisan run-up to mid term elections in which the Democrats will leave no stone unturned to gain the six seats they need to regain control of the House of Representatives. The Republican counter-attack will centre on the argument that Democrats in glass houses should not throw stones.

The golden rule for those on the receiving end of Washington scandals is: Get the facts out, and get them out fast. The Clintons' mistake over the ultimately inconsequential Whitewater affair was to stonewall, thus ensuring a steady drip of damaging revelations. Mr Bush, by contrast, has moved smartly to address the issue.

Already, 29 of Enron's top managers face a civil suit for selling the $1.1bn (£760m) of stock while knowing the company was in danger of folding. But everything could change if it transpires, for instance, that Mr Lay's pre-collapse contacts with the Treasury Secretary Paul O'Neill and with Don Evans, the Commerce Secretary, were more extensive then either has yet admitted.

But even if no wrongdoing is established, the affair presents the Republicans just as Democrats like to portray them: as a party in bed with big business, out of touch with ordinary people and indifferent to the concerns of the little man – who in this case has seen his retirement savings go up in smoke.

This is something a President elected by a minority of the popular vote cannot ignore. Even a President wrapped in clouds of Afghan glory.