STORY OF THE WEEK: Houston's love affair with Enron boss Kenneth Lay is well and truly over as shareholders and employees ponder their now worthless stock and pensions, and erstwhile friends run for cover, writes Conor O'Clery, International Business Editor, in Houston, Texas

At a Christmas buffet in Houston's exclusive River Oaks Country Club - membership fee $100,000 - someone standing in line loudly criticised Enron over its financial mismanagement, which had hit the pocketbooks of several members. There was, apparently, a sudden silence and heads turned. Queuing quietly within earshot was the embarrassed, balding figure of Enron chief executive, Kenneth Lay.

Until Enron collapsed, Ken and Linda Lay were probably the most respected and sought-after dinner guests in this socially conscious Texas city. They were at the very top of the tree - successful, wealthy and beneficent. They made their home among the elite in Houston's River Oaks district, which features grand mansions shrouded by huge oaks and magnolias.

Their address at 2121 Kirby Drive - until recently known only to friends - takes up all of the 33rd floor at the top of "Huntingdon", a walled and gated condominium with smoked picture windows. They don't flaunt their wealth, though they keep a house for their servants in a leafy street behind the condo. The Lays are "new money" but they run around with "old money", said Shelby Hodge, society writer for the Houston Chronicle. "He's certainly not one of your Dallas ranch types; I don't think he ever wore a cowboy hat," laughed a Houston publicist.

Among the "old money" in Houston are Republican icons George and Barbara Bush, who belong to the more exclusive Bayou Club across town, where people like to play polo rather than golf. They were among the first Houston folk to be cultivated by Kenneth Lay, the son of a preacher with a doctorate in economics and a navy background, after he arrived in Houston in 1985.

He quickly made a name as an enthusiastic proponent of a new American business model, taking control of a modest gas pipeline company and making it into a financial powerhouse and the world's biggest trader in energy. In doing so, he helped make Houston one of the fastest growing and successful US cities.

The Lays maintained a certain reserve in their adopted city. They rarely appeared at the charity balls that dominate Houston social life but they often paid for $50,000 tables in support of worthy causes. They sponsored the arts, sometimes underwriting opera productions to the tune of $50,000.

They helped fund the Holocaust Museum, the ballet and the Anti-Defamation League, and endowed professorships at two city universities. Kenneth Lay sponsored Enron Field baseball stadium and gave generous endowments to the Texas Medical Centre. Enron employees contributed $3 million to United Way last year, which the company matched.

Raising money for charity is a full-time preoccupation of the Houston black-tie set. The Lays' neighbour in their condominium, Billye Halbouty, wife of a legendary wildcat oil driller, raised a staggering $2 million in two years for the Houston Grand Opera Ball.

The standing of George Senior and Barbara Bush is so high in Houston society that their name guarantees top dollar at any charity function. Here the Lays and the Bush family interacted socially. Ken Lay became honorary chair at Barbara Bush's Celebration of Reading at the Wortham Theatre Centre, where famous writers - Frank McCourt among them - hold readings every year to raise funds for literacy.

But Ken Lay had other, more significant interests in the Bush family. In tandem with his philanthropy, he lavished money on people in public service.

In Houston, money for charity brings social status but sponsoring politicians buys political clout. From the start he cultivated George Bush Senior. He became a major contributor of the then US president, and co-chaired a host committee for Mr Bush's 1990 economic summit in Houston, where he dined on hickory grilled veal with Margaret Thatcher and Francois Mitterand.

Ken Lay also chaired the host committee for the 1992 Republican National Convention in Houston, which selected George Bush for a second term. Enron benefited hugely when the first Bush administration secured passage of the 1992 Energy Act, which forced utility companies to carry Enron's electricity.

After George Senior retired, Ken and Linda adopted the young George Bush, personally giving him $47,500 in 1994 to help unseat Democratic governor Ann Richards, a former Enron beneficiary herself who had made Lay head of her Texas Business Council.

The Enron chief also donated money to Democrats during the Clinton era - $100,000 earned him a sleep-over in the White House - but he placed most of his bets on George W. They got so close, Bush called him "Kenny Boy" - though he dispenses nicknames freely, said Houston political writer Alan Bernstein. (Bush calls him "Benny".) Enron and Lay gave a total of $550,000 to Bush's campaigns from 1993 to 2000. Enron paid $100,000 towards the 2001 Bush inauguration, and Ken Lay wrote a personal cheque for the same amount.

All of this was regarded as pretty unexceptional in a city with a history of corporate funding for those who run the political machinery. It was part of the culture. Houston's rise to prominence was due to similar figures over the years, like Jesse Jones, a crony of Franklin D Roosevelt, who brought the 1928 Democratic Convention to the oil town.

As Enron injected a vitality and prosperity into Houston, now home to 500 other energy companies and several major corporations such as Compaq and Continental Airlines, Lay's influence increased accordingly. Almost every senior political figure in Texas, especially Republicans, received some Enron money, ranging from Texas Attorney-General John Cornyn to Supreme Court Judge Greg Abbot. This was widely tolerated, even when favours were done in return and apparent abuses surfaced.

There was little fuss in 1993, for example, when Wendy Gramm, wife of Senator Phil Gramm (who took $97,500 in Enron money over the years), was hired by Enron as a director five weeks after leaving the post of head of the US Commodity Futures Trading Commission, where she granted Enron a lucrative exemption from federal regulation on some commodities trading.

Wendy Gramm is now head of the Mercatus Centre (so anti-regulatory she has been named "villain of the month" by the non-profit Clean Air Trust), to which Enron donated $50,000, further compromising her present role as a director of Enron charged with looking after shareholders' interests.

Another Enron director is John Mendelsohn, president of the prestigious MD Andersen Cancer Centre in Houston, which received $332,150 from the company.

There was an outcry when Republican Governor Rick Perry took a $25,000 contribution from Enron, the day after appointing a former Enron executive to head the Texas Public Utility Commission, as even Houston found it hard to swallow Perry's explanation that it was "totally coincidental".

As Governor from 1994 to 2000, the free-market ideals of Bush and Lay happily coincided and, like his father before him, he signed a deregulatory law in 1999 clearing Enron's path into new markets. When George W. reached the White House last year, Lay was able to extend his influence, already considerable in Congress where most members had taken Enron money at some time or other, to the heart of the administration. He and Enron officials had several meetings with Vice-President Dick Cheney in the spring, helping to draft the President's energy plan. He played a role in shaping White House appointments that might affect his business.

In the most noted case, in May, Curtis Hebert, chairman of the Federal Energy Regulatory Commission, received what he termed an offensive phone call from the Enron chief executive, suggesting thathe change his views on energy deregulation. Mr Hebert didn't and was quietly replaced in August by Lay's choice, former Texas utility regulator, Pat Wood. In another instance, a pro-deregulation officer in Pennsylvania, Nora Mead Brownwell, won a second term over officials' objections after Lay telephoned Karl Rove, the President's political adviser, on her behalf.

This autumn, even as Enron was sinking, Lay was discussing with White House budget director Mitch Daniels the repeal of the alternative minimum tax in a House stimulus package that would have delivered $254 million in tax rebates to Enron - though the package was killed in the Senate.

Kenneth Lay didn't get his way on everything. Despite his lobbying, President Bush abandoned a campaign pledge to impose mandatory limits on carbon-dioxide emissions that would have boosted Enron's natural gas interests. In the end, the former naval officer who liked to lecture people on the benefits of the free market was reduced to seeking government help as Enron collapsed, but this was beyond the capacity even of his friends in Washington.

Kenneth Lay is now a fallen idol in Houston. The city he helped so much is in a funk, its civic pride and prosperity hurting badly.

A half-built $4 million mansion in River Oaks lies deserted, testimony to the sudden loss of fortunes for Enron shareholders.

There is deep anger in Houston at the way shareholders were left with nothing while Enron executives enriched themselves, and fury among the 4,500 workers laid off with investments and pensions made worthless by people they trusted. "I bear Ken Lay's two-headed love child and he's not returning my calls," declared a former employee on one of the internet sites in Houston that let off steam about Enron.

Some old friends are standing by him and the Lays are still listed as honorary chairs (including Celebration of Reading) by charities who hope their personal wealth will still be directed towards philanthropy.

But the really important invitations are no longer arriving at 2121 Kirby Drive. Ken Lay is not expected at the prestigious Davos World Economic Forum this year, where in 2001 he held forth as a "real economy" player on the lessons of the dotcom bubble.

And shortly after the Lays received an invitation to a White House Christmas party for 600 on December 12th, with the scandal unfolding around them, they got the word verbally from Washington that it would be much appreciated if they didn't bother turning up.

They didn't.