Throw Them All Out

Part Two CAPITALIST CRONIES

In Part One we looked at the various ways politicians use their power to get rich, or richer than they were when they entered office. The temptation to seize an opportunity—a stock tip, or the power of legislation—is pervasive. But there is a broader, more subtle motivation as well: politicians are surrounded by wealthy friends and donors who use their access to power to enrich themselves. If all of your friends are using you to get rich, wouldn't you want a piece of the action?

In Part Two we will look at the semiprivate sector: businessmen and investors who get rich through their political connections, tilting the playing field of the free market by lobbying for handouts. Just as with the insider trading and land deals in Part One, there is nothing illegal about this aspect of crony capitalism. Unfair, perhaps unethical, perhaps immoral—but not illegal. It would take a revolution in the mindset and the rules of the game in Washington to put a stop to it. But the least we can do is pull back the curtain and bring some sunlight into the dark rooms of the crony game.

5. SPREADING THE WEALTH ... TO BILLIONAIRES

God bless the Obama Administration and the U.S. government. We have really got the A-team now working on green innovation in our country.

—JOHN DOERR, Obama contributor and billionaire investor, who owns a large stake in sixteen companies that have received government loans or grants

IN THE AUDACITY OF HOPE, Barack Obama tells a story about visiting Los Angeles in 2000: His credit card was declined by a rental car company. It was a 'very dry period' for his law firm, and he was devoting most of his energy to his work as a state senator. Then suddenly a wealthy political donor named Robert Blackwell agreed to pay him a $112,000 legal retainer over a fourteen-month period.

But here's what Obama failed to note in his book, and what came to light only later, thanks to investigative reporting: State Senator Obama subsequently helped Blackwell's table tennis company receive $320,000 in Illinois tourism grants to subsidize a state Ping-Pong tournament.¹

Giving specific access and benefits to those who help you get elected (or get rich through investments) is a time-tested American tradition. You can make a business of government service by helping friends who help you. Politicians have always tried to provide favors in the form of tax breaks, regulatory exemptions, and constituent services to a select group of financial friends. Politicians regularly get special provisions inserted in the tax code to help friends in certain industries. Or they try to get them access to particularly powerful bureaucrats. But the best form of payoff and patronage for rich friends and supporters? Give them billions of dollars in taxpayer cash.

When William 'Boss' Tweed ran the Tammany Hall political machine in New York City in the nineteenth century, he forced potential candidates to put up cash to win nomination (and then certain election) to office. Once the electees arrived, they would enrich themselves, but they also funneled money back to Tammany Hall. It was more than just crony capitalism; it was also a system of rigged elections. What brought Tweed down, however, was classic cronyism. He began to construct a courthouse in lower Manhattan in 1861, siphoning off several times its value in government contracts. Finally, a New York Times investigative series pointed out so much blatant graft—one Tweed crony was paid so much for just two days of work that he became known as 'the Prince of Plasterers'—that charges were brought, and Tweed was jailed after milking the courthouse for a decade (construction would not be completed until 1880).

The game of funneling taxpayer money to friends has exploded to astonishing levels in recent years. Now that annual federal outlays exceed $3 trillion, there are extraordinary opportunities to get a piece of the action. Government checks routinely find their way to very wealthy Americans. Convincing the public that billionaires need the money can, needless to say, be tricky. But if a government check somehow serves the 'public interest,' it can become part of a larger program and might escape scrutiny.

With the dramatic events surrounding the 2008 financial crisis, beginning in 2009 the United States embarked on the greatest reverse—Robin Hood transfer of wealth in its history. Tax money was taken from all, rich and poor, and given to billionaires. Under the guise of an economic stimulus plan to create jobs and to develop alternative energy, Washington has handed out billions of dollars in cash and federal loan guarantees. With the exception of some reports on the solar power company Solyndra, almost entirely unreported by the media is the fact that an overwhelming amount of this money has been directed to wealthy financial backers of President Obama and the Democratic Party. This is Boss Tweed's financial payoffs writ large. Many recipients served on the President's campaign finance committee, or functioned as campaign donation 'bundlers' (coordinators of individual contributions that can be combined into large gifts), or were major contributors themselves. In short, they raised and donated millions for Obama's 2008 campaign, and in return, the companies they own or lead have received billions in government-backed loans and outright grants. (The cash grants, by the way, are tax free.)²

When President-elect Obama came to Washington in late 2008 following his electoral victory, he was outspoken about the need for an economic stimulus to revive a struggling economy. He wanted billions of dollars spent on 'shovel-ready projects' to build roads; billions more for developing alternative energy projects; and additional billions for expanding broadband Internet access and creating a 'smart grid' for energy consumption. After he was sworn in as President, he proclaimed that the allocation of taxpayer money would be based strictly on merit—not doled out to political friends. 'Decisions about how Recovery Act dollars are spent will be based on the merits,' he said, referring to the American Recovery and Reinvestment Act of 2009. 'Let me repeat that: Decisions about how Recovery money will be spent will be based on the merits. They will not be made as a way of doing favors for lobbyists.'³

Really? Let's look at the results.

It would take an entire book to analyze every single grant and government-backed loan doled out since Barack Obama became President. But an examination of grants and guaranteed loans offered by just one stimulus program run by the Department of Energy, for alternative energy projects, is stunning. The so-called 1705 Loan Guarantee Program and the 1603 Grant Program channeled billions of dollars to all sorts of energy companies. The grants were earmarked for alternative fuel and green-power projects, so it would not be a surprise to learn that those industries were led by liberals. Furthermore, these were highly competitive grant and loan programs—not usually a hallmark of cronyism. Often less than 10% of applicants were deemed worthy to receive government support.

Nevertheless, a large proportion of the winners were companies with Obama-campaign connections. Indeed, at least ten members of Obama's finance committee and more than a dozen of his campaign bundlers were big winners in getting your money. At the same time, several politicians who supported Obama managed to strike gold by launching alternative energy companies and obtaining grants. How much did they get? According to the Department of Energy's own numbers ... a lot. In the 1705 government-backed loan program, for example, $16.4 billion of the $20.5 billion in loans granted went to companies either run by or primarily owned by Obama financial backers—individuals who were bundlers, members of Obama's National Finance Committee, or large donors to the Democratic Party.⁴ The grant and guaranteed loan recipients were early backers of Obama, before he ran for President, people who continued to give to his campaigns and exclusively to the Democratic Party in the years leading up to 2008. Their political largesse is probably the best investment they ever made in alternative energy. It brought them returns many times over.

FRIENDS GIVE FRIENDS BILLIONS OF OUR MONEY