A Chat with a Sometime GOP Maverick


When Illinois voters first elected Peter Fitzgerald to the U.S. Senate in 1998, the Republican Establishment cheered. The Prairie State hadn't sent a GOPer to the Senate in two decades.

Yet, since Fitzgerald first arrived on Capitol Hill, he has occasionally disappointed those who believed that the far right at last had another friend in the Big House. While the freshman senator's votes stick mostly to the party line, he often sides with the Democrats on such matters as the Patients' Bill of Rights and the environment.

A banking attorney by training, Fitzgerald has used his financial expertise to delve into hot-button issues like the airline bailout Congress passed after September 11 and the investigation into Enron's demise. Last fall, he demonstrated his independence by casting the only vote against the airline bailout, saying he saw no rationale for its large size.

More recently, Fitzgerald has taken on former Enron CEO Kenneth L. Lay, calling him "perhaps the most accomplished confidence man since Charles Ponzi." Fitzgerald, who, at 41, is the most youthful member of the Senate, is the youngest of five children born into a family banking fortune. He spoke with BusinessWeek Correspondent Laura Cohn recently about his outlook for post-Enron reforms, his airline vote, and his hands-on approach to policy. The following are edited excerpts from that conversation:

Q: You've spent much of your time recently investigating the demise of Enron. What post-Enron reforms do we need?

A: What has support is much different from what should be done. Certainly, it's very clear we should break up auditing and consulting functions amongst accounting firms. The [Securities & Exchange Commission] needs to have greater resources.

There needs to be a crackdown on analysts. I've introduced a bill that would require analysts to disclose their conflicts. The first hearing we had on Enron was in December. We had the people who had lost their money in their 401(k)s. I asked them: "How many of you, in deciding not to sell your Enron positions in your 401(k), relied on analysts?" They all raised their hands. And I said: "Did you believe that was independent, objective advice?" They said: "Absolutely."

Most Americans don't recognize that the company being analyzed is often paying for the research via fees that it's paying to the investment bank that employs the analyst.

Q: What's the outlook for the bill requiring companies to count the cost of stock options against earnings?

A: That's going to be really tough because every CEO in America is mad about that one. That's the reform that gets to the heart of this. We had all these hearings on Enron, and everyone concluded that they were fictitiously pumping up their earnings, but nobody really asked why. I have a suspicion why.

All of the senior executives stood to make millions -- or in some cases hundreds of millions -- of dollars by temporarily pumping up their stock price and cashing in their options.

Q: Your staff says you personally went through dozens of boxes of documents that Enron sent to Capitol Hill. What did you hope to find?

A: We got 41 boxes of documents. I paid specific attention to the board of directors' minutes. Then I looked through a lot of the partnership documents. I quickly became convinced that there was no economic purpose for the partnerships other than to fictitiously pump up earnings.

At the end of the day, I believe Enron was simply borrowing money, filtering the borrowings through partnerships, and then reporting the money as income. Where indebtedness occurred, they'd park the indebtedness in the partnerships -- not on Enron's books. In simple terms, they were borrowing money and booking borrowed money as income.

Q: Who's to blame?

A: All of senior management. It would have been close to impossible for them not to know what was going on because there were so many transactions, they were of such magnitude, and they went on for so long. If [former Enron CEO Jeffrey] Skilling and Lay didn't know what was going on, then they didn't even have a general idea how Enron was driving its reported earnings.

Q: Switching subjects, how did it feel to cast the only vote against the $15 billion airline-bailout package the Senate passed after September 11?

A: It was clear to me that a lot of people, maybe everyone in the Senate, were going to be for the bailout. So that made me think long and hard because if everyone is disagreeing with you, there's a good chance you're wrong. But this is one case where I think I was right. After the bill passed, it was severely criticized.

Q: Why did you vote against it?

A: A legitimate case could have been made to compensate the airlines for the period that they were shut down. The airline industry, prior to September 11, was running about $340 million a day in revenue. If we had compensated them for a four-day shutdown -- it was really only three, but let's say a four-day shutdown -- that would have been $1.4 billion. Not $15 billion!

I remember [Democratic New Jersey Senator] Jon Corzine and I were on the train, asking each other, "Where did they get this $15 billion?" They started at $2 billion, went to $25 billion, went back and forth, and settled on $15 billion.

Q: Your critics say your positions on the environment are inconsistent. You voted against raising Corporate Average Fuel Economy (CAFE) standards, yet you plan to vote with those who oppose drilling in Alaska's Arctic National Wildlife Refuge.

A: I take each issue on its own. I don't try to fit it into an ideological mode or a partisan mode. With respect to CAFE standards, we could require all cars in America to meet higher requirements, and it would be a good thing if we conserved more energy. However, there's a competing concern, and that's the safety of the vehicles we drive. With respect to the Arctic National Wildlife Refuge, it's a wildlife refuge. We should keep it a refuge. It's supposed to be a protected area.

Q: Why did you sign a term-limit agreement that allows you to only serve two terms?

A: I was thinking I could accomplish an awful lot in two terms. I can think of no better [place than the U.S. Senate] that would position me to have a positive effect on my constituents' [everyday lives].

I think there's a danger of people staying in too long after they've lost their freshman exuberance. I wouldn't want to be here after I've lost that.


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