What Erskine Knows

RALEIGH — Erskine Bowles, the Democratic nominee for U.S. Senate in 2002 and the likely one again in 2004, is no fool. As President Bill Clinton's chief of staff in the White House, Bowles was one of the few grown-ups picking up the beer cans and broken lamp shades after the adolescents occupying the place. Having proven himself on Wall Street and in the North Carolina business world, Bowles didn't need the Washington power trip the way others around him did.

But in 2002, the level-headed Bowles got bad advice, tried to be something he was not, and got thoroughly thrashed by Republican Elizabeth Dole. It's likely that Bowles had little chance of winning the race anyway, in my judgment, but his 180-degree turn on a variety of issues had him facing left when the rest of the electorate was clearly moving to the center-right.

This time appears to be different. Erskine Bowles knows something that the national Democratic Party, strident and trapped in tantrum-mode, has yet to realize. The 2004 elections will not be won by "energizing" left-wing voters with left-wing red falafel (red meat being, of course, out of the question).

Judging by recent appearances, such as one Monday with Dole and 2004 GOP rival Richard Burr before the North Carolina Bankers Association in Greensboro, Bowles isn't going along with John Kerry's national Democratic message, the one destined to resonate so well with so many millions of voters -- in France and Spain. For one thing, for one big thing, Bowles continues to support the war in Iraq. I think opposition (in addition to being mistaken) would doom his chances for election, a fact also likely to be true in the other Southern and Western states with competitive Senate races this year.

Indeed, Bowles has gone further than the dwindling number of hawkish Democrats left in Washington. He has opposed attempts to force Bush national-security advisor Condoleeza Rice to testify in public before a Congress-created commission on 9/11. "That's a big precedent to break," the former White House bureaucrat told the bankers. On Iraq itself, Bowles said just a few weeks ago at a campaign stop in Sylva that he still believes the resolution authorizing Bush to use force was the right vote, though he criticizes how the Bush administration has handled the situation after the invasion. At another event, he defended intelligence estimates placing biological and chemical weapons in Saddam Hussein's hands in the recent past and warning of the dangers of letting them fall into the hands of terrorists.

On the economy, Bowles properly senses some political vulnerability because of Bush's big-spending proclivities and is trying to link Burr to the mushrooming federal deficit (that's a stretch). Interestingly, Bowles is talking about how excessive regulations are keeping small businesses from creating new jobs (he once ran the U.S. Small Business Administration) and distancing himself from Kerry's laundry list of spending proposals, which has been opening up the latter to legitimate accusations from the Bush camp about potential tax increases.

Bowles calls himself a "centrist" in an obvious attempt to position himself for a tough race with Burr, whose political talents and impressive record in the U.S. House are undeniable. Bowles has the luxury to do this because he likely won't face a primary challenge this year, so he won't need to pander to those liberal Democratic activists with their loud mouths full of crimson chickpeas. And it also happens to be much closer to the truth -- Bowles being a centrist, I mean -- than the reflexively leftist candidate invented for the 2002 effort.

I'm not arguing that Bowles will necessarily pull this off, of course. For example, he's still being unforgivably protectionist on trade issues, and surely knows better. Burr has a free-trade record, for the most part, so Bowles sees a opening in a tough economy to peel off cultural and even fiscally conservative voters by demagoguing the issue. I'll differ with the conventional wisdom and argue that this is not the best political play here. I don't think that North Carolina voters really believe that erecting barriers to the free flow of goods and services is a sound way to promote growth and opportunity. The policy sounds a hundred years old, and is.

I also think that Bowles may still be vulnerable on the tax issue, as Burr presses forward a strong defense of the Bush record on taxes (in a year in which many North Carolinians are going to be getting sizable tax refunds) and dares Bowles to oppose making the tax cuts permanent and enacting some additional reductions.

But I have to return to my initial point: Erskine Bowles knows something that many Democrats across the country are probably going to learn in the coming months. Bush is probably not going to be an unpopular president in November, the Iraq campaign in the war on Islamofascist terror is probably not going to be a political liability for its supporters, and the hyperbolic hysterics we hear out of Washington Dems are probably not going to increase their ranks much, if at all.

Hood is president of the John Locke Foundation and publisher of Carolina Journal.

From National Review Online| October 25, 2002 | Joel Mowbray. http://www.freerepublic.com/focus/f-news/775763/posts

In a published manifesto last month, former Clinton chief of staff and current U.S. Senate candidate Erskine Bowles firmly declared, "Companies must go beyond the law to adapt best governance practices without waiting to be told to do so." If only he had lived up to that standard when he was in the private sector.

In a year when "corporate accountability" has taken on unusual importance, Bowles has tried to convince North Carolina voters that not only could he crack down on the WorldComs and Enrons of the world, but that Bowles is a paragon of corporate virtue. His track record suggests otherwise.

One of Bowles's many projects was a B2B (remember the business-to-business craze?) company called Metiom, where he served as chairman of the board of directors. For a while, Metiom seemed poised for greatness — and riches. But then, history (as we now know it) happened.

Bowles's actions do not appear to have been criminal, but his reputation for good judgment might take a beating if the facts of this case become known.

Here are the facts:

In April, 2000, Metiom — under Bowles's direction — lured Chris Wagner away from a cushy post at then-highflying Computer Associates to take over as its chief operating officer. (He later became chief executive officer.) Part of the contract, engineered at least in part by Bowles, called for a type of pact that Bowles himself now decries.

Bowles wrote in a North Carolina paper last month that he strongly supported "banning public companies from making loans to CEOs and other members of a public company's management team." But when Bowles was Metiom's chairman, he helped arrange a $3.5 million, unsecured, no-interest loan for Wagner — which cost investors over $100,000 in interest charges.

Although Metiom was not a public company — the new Sarbanes-Oxley corporate-reform bill doesn't apply to private entities — evidence on the public record indicates that Bowles played a key role in setting up the sweetheart-loan deal for Wagner. The loan, by the way, was not secured by any assets from Wagner, and only went to pay off an existing loan he had.

The loan never would have passed muster at a bank under normal circumstances, and in fact, it didn't. Chase Manhattan Bank, which was a Metiom investor, refused to loan money directly to Wagner — forcing the startup to swallow the risk and take the loan out itself and separately loan the $3.5 million to Wagner.

Even though Metiom's loan to Wagner was interest free, Chase wasn't as charitable to Metiom — meaning Metiom's investors were stuck ponying up over $100,000 in interest charges alone each year.

There is a dispute about the nature of the loan itself. Wagner claims — like so many of its ilk in that day and age — that it was made with a wink-and-a-nod with no expectation of payback. But one thing is for certain: Wagner put his name on the dotted line for the $3.5 million loan.

Wagner's contention that it was never intended for him to live up to the actual terms of the loan seems to be backed up by two unrelated events: 1) the possibility that the board of directors never approved the lucrative loan, and 2) a draft of an agreement for the sale of Metiom to another firm would have wiped out Wagner's debt entirely.

Upon learning about the $3.5 million loan one or two months after Wagner had joined Metiom, one board member — who claims she went to all board meetings that year — says she was "dumbfounded" to learn about the unsecured, interest-free deal. Her surprise, combined with a lack of any hard proof that the board actually approved the generous seven-figure arrangement with Wagner, leaves open the distinct possibility that Wagner got the $3.5 million without prior board approval.

Having such a significant contract — $3.5 million is a serious chunk of change, even to a startup that spent $13 million on new offices — go forward without board approval raises a number of concerns. The first, and most important, is the specter of what's known as "fraudulent conveyance" — that the money was passed on to Wagner without proper authority for it to happen. Aside from the legal question, though, is the general principle that a board needs to fully protect investors' interests by deciding all of a company's meaningful issues.

The board may or may not have approved the loan, but when the company was put up for sale, it looks like Metiom was willing to help relieve Wagner's debt to the company. A draft of an agreement to sell Metiom to a company called Manugistics seems to read that Wagner's $3.5 million obligation to the company would be wiped out in the process. The sale never materialized, though, leaving Wagner on the hook.

People looking for answers to these sticky questions, however, should not bother reading Bowles's deposition in the case.

In the 28-page abstract (out of approximately 90 total pages) that NRO has obtained, Bowles seems like a guy in a fog. He suffers from 35 lapses in memory in just 28 pages — an average of more than once per page. While nobody's memory is perfect, nearly three-dozen "I don't know," "I don't recall," and "I don't remember" comments hardly inspire confidence in his business ethics.

But the one point where Bowles's memory was "very clear"? That he never told Wagner that the loan was a freebie. On that point, he was adamant.

While Bowles's deposition testimony was none too helpful for Wagner, the Democrat candidate for Senate did help Wagner get a nice going-away present.

As shown in the minutes for the board of directors meeting on May 9, 2001, Bowles convinced the other board members to alter the terms of Wagner's "loan." Originally, Wagner was slated to pay back 50 percent at the end of 30 days after leaving Metiom, and the remainder at the end of one year.

After Bowles was done cajoling his colleagues, however, Wagner was allowed to skate on repayments for a full year after parting ways with Metiom — no more having 50 percent due at the end of one month. The timing of such a change was a bit suspect, as the board discussed — within minutes — plans for its pending bankruptcy filing.

Metiom, in fact, filed for bankruptcy six days later. Thus, Metiom pushing back the repayment date didn't come out of the company's pocket; it came straight from that of the creditors. The court-appointed representative for the creditors alleges that the Bowles-led action was made "with the actual intent to hinder, delay, or defraud present and future creditors."

With more breathing room before having to pay back a seven-figure sum, one might think that Wagner would be more likely to bolt, not less. This would have been particularly bad, though, as the company needed an experienced hand to guide it through bankruptcy. At the least, one has to wonder what Bowles's logic was in offering such a generous gift without getting anything in return.

Actually, Bowles did get something in return from Wagner — albeit a few months later.

Five days after the court-appointed trustee for Metiom's creditors filed suit for recovery of the $3.5 million, Wagner cut a $1,000 check — the maximum allowed by law — to Bowles's Senate campaign. Could it have been entirely coincidental timing? Sure — but how many people would find that likely?

Of course Bowles has no control over who gives money to his campaign, but he doesn't have to keep every contribution. Which begs the question: With full knowledge at some point of both the contribution and the lawsuit for which he would have to (and did) testify under oath, why did he not return Wagner's dough?

The bankruptcy case in the Southern District of New York is still in the middle of what could be a very long process. And there seem to be more question marks than answers.

At the end of the day, though, Wagner has a loan deal he's most likely going to have to pay back — regardless of the circumstances under which the deal was originally struck.

Bowles, for his part, seems to have escaped any legal trouble for the whole affair — even if the incident reveals what could be construed as surprisingly poor business judgment, never mind a failure to live up to his own lofty standards.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

NC *Ping*

NC Ping