Bush Inc.
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Understanding the political dynasty that's made crony capitalism a way of life. Part 4 of "Big Lies."
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By Joe Conason
Salon Premium
salon.com
Aug. 21, 2003 | For the Bush dynasty, crony capitalism is rite of passage, way of life, and family business. President Bush, his father, his three brothers, and sundry other relatives all have joined (and sometimes hastily abandoned) enterprises where their chief contribution was the perception of political influence at home and abroad. It would be possible -- although grim and morally exhausting -- to write an entire book about nothing but ethically dingy Bush business deals.
The Bush clan's investments and directorships have ranged across nearly every sector of the modern economy: oil exploration, banking, equities, venture capital, computer software, life insurance, major-league baseball, high-tech security, real estate, cable television, shoe wholesaling, fruit and vegetable imports, irrigation pumps, and airline catering, among others.
Family partners, investors, and benefactors have included former government appointees, present and former campaign contributors, foreign potentates and favor-seekers -- and numerous business executives who benefited from decisions by government overseen by members of the Bush family. Time after time, Bush family members or their business associates have sidled up to the very edge of legality, and perhaps over it -- without being held accountable.
Until the ascendancy of George W. Bush, the most notorious example of that syndrome was his younger brother Neil. He too ran a failed oil company, like those once operated by George W. -- and his oil company, too, was awarded exploration rights from a foreign government while their father was in the White House. Neil's best-known venture, however, was in the savings-and-loan business.
For the benefit of those who don't remember the name Silverado, that was the romantic moniker of the Denver savings-and-loan whose board Neil graced during the eighties. In the gigantic federal bailout overseen by Neil's father's administration, Silverado's failure eventually cost taxpayers about a billion dollars.
Neil Bush's checkered career overshadowed the business activities of brother Jeb, which took him from the Florida swamps to the capital of Nigeria in the years before he first ran for governor in 1994. Jeb earned much of his fortune in partnership with Armando Codina, a Miami real estate baron and politically active Cuban exile. They eventually got in trouble with a savings-and-loan, Broward Federal, which had loaned them $4.5 million via a third party to purchase an office building. Like so many other thrifts, Broward failed. When the loan went into default, federal regulators reduced the liability of Bush and Codina to $500,000 (and considerately allowed them to keep their building). Around this time, Jeb also got involved in a deal with Miguel Recarey, the strange character who ran International Medical Centers, a Miami-based health maintenance organization. IMC and Recarey were eventually indicted for the largest Medicare fraud in history, costing the U.S. government hundreds of millions of dollars.
Four years later, when his father was president, Jeb visited Nigeria as chief salesman and partner of Bush-El, a firm marketing water pumps to the notoriously corrupt African dictatorship. The water-pump sale went through, conveniently financed by a $74.3 million loan from the U.S. government. Jeb Bush told the Miami Herald that he did nothing to secure the U.S. government loan, and that he turned down a million-dollar commission on the pump-sale after he learned about the taxpayer financing. He did, however, earn $650,000 from Bush-El. In a 1998 letter to the Herald, Jeb responded with the smirking insouciance of the crony capitalist: "Is favorable name recognition helpful in business, as it is in almost every other aspect of life? Perhaps. Is it an 'unfair advantage'? No. It is just a fact of life."
Brother Marvin has rarely caused any negative publicity for his family, with one notable exception. Three months after he left the White House, the first President Bush flew to Kuwait on the emir's private plane to be decorated with the monarchy's highest honors for commanding the Gulf War. Accompanying the former President were his two youngest sons and his former Secretary of State James Baker III. Several months later, the New Yorker magazine revealed that Baker went to Kuwait as a consultant to Enron, which was seeking contracts to rebuild the sheikdom's damaged power plants. Neil Bush was also seeking a share of the fees to operate Enron's power plants. And Marvin Bush was working for a Washington firm that wanted to build an electronic security system for the Kuwaitis. In the eyes of many people there and at home, the grasping conduct of Baker and the Bush sons soiled American honor.
George W. Bush's business career wasn't quite as colorful as those of Neil or Jeb, but the eldest son has also been the most successful in acquiring both power and money. The national media occasionally examined his activities for evidence of influence peddling when his father was still in the White House, but there was no searching scrutiny during his presidential campaign in 2000. Only when the Enron scandal broke did reporters again consider his sojourn in the oil business, especially at Harken Energy, and the baseball deal that made his fortune.
From the outset, the opportunities that eventually led to Bush's eventual baseball bonanza intertwined politics and business, crony capitalist style. The limited partnership that financed Arbusto, his first oil firm, included George W.'s grandmother Dorothy Bush; Rite Aid drugstores chairman Lewis Lehrman, then a rising force in New York Republican politics; William Draper III, a corporate executive and family friend who was later appointed by his father to head the Export-Import Bank; and James Bath, a mysterious Houston aircraft broker who served as a front man for several Saudi Arabian sheiks. About $3 million poured into Arbusto, producing little oil and no profits but expansive tax shelters.
In 1982 George W. changed the infelicitous name Arbusto to Bush Exploration Oil Company. His father by then was Vice President of the United States, but the new company name didn't improve matters. More than once, George W.'s venture was near ruin when wealthy benefactors suddenly appeared with fresh cash. The most generous was Philip Uzielli, an old Princeton buddy of James Baker III, the family friend then serving as Chief of Staff in the Reagan White House. For the sum of $1 million, Uzielli bought 10 percent of the company at a time in 1982 when the entire enterprise was valued at less than $400,000.
Soon Uzielli's million was gone, too. But just as Bush Exploration was heading toward failure, George W. met William DeWitt and Mercer Reynolds, a pair of Ohio investors with their own small oil firm, called Spectrum 7. After a quick courtship, the Spectrum 7 partners agreed to merge with Bush Exploration, naming George W. as chairman and CEO and awarding him a substantial share of stock. Although the Vice President's son helped Spectrum 7 to raise additional money, catastrophic losses continued. Then George W. attracted yet another financial savior.
That September, Harken Energy Corporation, a midsized firm, stepped in to acquire Spectrum 7. For his worthless company, Harken gave Bush $600,000 worth of its publicly traded stock, plus a seat on its board of directors and a consultancy that paid him up to $120,000 a year. His partners understood perfectly what had happened. As Spectrum 7's former President Paul Rea later recalled, the Harken management "believed having George's name there would be a big help to them."
In 1987 Bush moved his family from Texas to Washington, where he served as "senior adviser" in his father's presidential campaign. Not long before Election Day, he heard from his former Spectrum 7 partner Bill DeWitt that the Texas Rangers were on the market. To make a successful bid, DeWitt would need Texas backers, and the son of the incoming President was perfectly situated to find them. George W. also had a powerful advantage in dealing with the team's owner, an aging oil millionaire named Eddie Chiles, who had been a Bush family friend in Midland, Texas, for more than thirty years.
Baseball commissioner Peter Ueberroth was eager to help the son of the new President, but wasn't happy that Bush's two biggest investors were the New York film financiers Roland Betts and Tom Bernstein. The indispensable local money came from Richard Rainwater, formerly the chief financial adviser to the Bass brothers of Fort Worth. Little known to the general public, Rainwater was famous on Wall Street for growing the Bass inheritance from around $50 million in 1970 to more than $4 billion by the time he left in 1986 to manage his own investments.
After Bush and Ueberroth met with him in early 1989, Rainwater took effective control of the deal, bringing along Edward "Rusty" Rose, a well-known Dallas investor, to oversee the franchise. Under an agreement worked out by Betts and Rainwater, the President's son would serve as the new ownership's public face while Rose ran the business.
Bush's stake in the team, just under 2 percent, was among the smallest. He purchased his shares with a $500,000 loan from a Midland bank of which he had been a director and eventually scraped together $106,000 more to buy out two other limited partners. Two months after his father's inauguration, George W. Bush called a press conference in Arlington to announce that the Rangers sale had been successfully completed for a price that was later reported to be $86 million. While Rainwater, Rose, Betts, and all the other partners remained in the background, George W. greeted the public as if he were "the owner" of the Rangers. He attended every home game and even printed baseball cards bearing his own picture to hand out from his box.
Meanwhile, he maintained a financial interest in Harken Energy. He had been granted enough additional stock options, at a generous discount, to increase his holdings by more than half. By 1989, however, those shares were falling in value. A series of questionable decisions by Chairman Alan Quasha had jeopardized the company's future, and its losses reached $40 million in 1990. Even the company's CEO admitted that its financial statements were "a mess."
Once more, however, the Bush name provided sudden deliverance -- in the form of a contract with the emirate of Bahrain. Until 1989 the Bahraini oil minister had been negotiating an agreement for offshore drilling with Amoco, a huge energy conglomerate with decades of worldwide experience. Those talks were abruptly broken off. Then, through a former Mobil executive working on retainer for the State Department, Bahraini officials were put in touch with Harken.
Industry analysts were astonished by the announcement in January 1990 that Bahrain had awarded exclusive offshore exploration rights to Harken, a debt-ridden company that had never drilled a well anywhere but Texas, Louisiana, and Oklahoma, and had never drilled undersea at all. Harken had to bring in the more experienced and solvent Bass brothers, old friends and political supporters of the Bush family, to begin construction on the $25 million project.
Only the presence of President Bush's oldest son could explain the Bahraini ministers' extraordinary decision. "They were clearly aware he was the President's son," said Monte Swetnam, a former Harken executive who conducted the talks with the emirate's oil ministry. George W. denied any part in Harken's bid. "Ask the Bahrainis," he replied flippantly when journalists asked whether the emirate had been enticed by his name.
Among the other major Harken investors around that time was billionaire financier George Soros, who discussed the company and Bush a decade later with the Nation magazine. "I didn't know him," Soros said. "He was supposed to bring in the Gulf connection. But it didn't come to anything. We were buying political influence. That was it. He was not much of a businessman." Soros apparently lost patience while waiting for the President's son to arrange matters in the Persian Gulf and unloaded all his stock on July 12, 1989 -- six months before Harken signed its deal with Bahrain.
Billionaires are often lucky as well as smart. Years later, those wells off the coast of Bahrain turned out to be dry holes. By then Bush had long since dumped Harken, too.
On June 22, 1990, six months after the Bahrain contract was announced, George W. quietly sold off 212,140 Harken shares, which grossed $848,560. He used most of the proceeds to pay off the bank loan he had taken a year earlier to finance his portion of the Texas Rangers deal. In early August, Iraqi dictator Saddam Hussein sent his troops and tanks across the southern border into Kuwait. Saddam's aggression drove down the stock price of every oil company doing business in the Gulf, including Harken, whose shares fell to $3.12.
Although there is no evidence that the president's son was tipped off about the impending Gulf crisis, he certainly had reason to know about Harken's other troubles. He served on the company's three-member audit committee and also on a special "fairness committee" appointed that spring to consider how a corporate restructuring would affect share value.
When Bush's stock dumping was first reported by the Houston Post in October 1990, there were no accusations of insider trading. Then in April 1991, the Wall Street Journal revealed that the Securities and Exchange Commission had not been notified of his timely trade until eight months after the legal deadline. The regulatory agency commenced an investigation that concluded in 1991 with no action against George W.
That outcome was hardly a surprise. The SEC chairman at the time, Richard Breeden, was an especially ardent Bush loyalist, and the agency's general counsel, James Doty, was the same Texas attorney who had handled the sale of the Rangers baseball team for George W. and his partners in 1989. During the SEC investigation, Bush was represented by Robert Jordan, who had been a law partner of Doty at the Baker Botts firm in Texas. (In 2001, Bush named Jordan as U.S. Ambassador to Saudi Arabia.) Bush has insisted that he didn't know about the firm's mounting losses and that Harken's general counsel approved his stock sell-off.
What he didn't say -- and what his lawyers didn't tell the SEC until the day after its investigation officially closed -- was that Harken's lawyers had explicitly warned Bush and other directors against insider trading in a memo issued just before he sold his shares. The memo explained that if directors had any unfavorable information about the company's outlook, their sale of Harken stock would be viewed critically if the price dropped soon after. "Unless the favorable facts clearly are more important than the unfavorable, the insider should be advised not to sell," it said.
All the information Bush had about Harken's prospects at that point was negative. The firm was near bankruptcy. A year earlier, the Harken management had created a phony profit of $10 million by selling some of the company's assets, at an inflated price, to Aloha Petroleum, a front company owned by company insiders. That maneuver, similar to what Enron did on a much larger scale a decade later, had preserved the Harken stock price for a while by concealing most of the company's losses.
Two months after Bush sold the bulk of his Harken holdings, the company posted losses for the second quarter of well over $20 million and its shares fell another 24 percent; by year's end, Harken was trading at $1.25. (The current price of Harken shares is around 20 cents -- equivalent to 2 cents a share in 1990, before a reverse stock split that later gave investors one new share for every ten held previously.)
Suspicions surrounding Harken and other dubious enterprises associated with the President's sons -- particularly Neil's Silverado fiasco -- caused the family severe embarrassment during the doomed 1992 reelection campaign. But that unhappy interlude scarcely stalled George W.'s own quest for success. The Rangers partnership needed a new stadium or they would never make any money.
Backed by Rainwater's billions they could have built a new stadium themselves, of course, but that would have violated the crony capitalist methods of the major leagues. In the sports business it's the taxpayers, not the club owners, who pay the construction costs of new facilities. So Rangers management began to hint unsubtly that unless the city government of Arlington, Texas, provided land and financing on concessionary terms, they would be obliged to move the team to nearby Dallas or Fort Worth.
Even by baseball monopoly standards, the capitulation of Arlington Mayor Richard Greene was abject. In October 1990, Mayor Greene signed a contract that guaranteed $135 million toward the stadium's estimated price of $190 million. The city would earn a maximum of $5 million annually in rent, no matter how much the Rangers reaped from ticket sales and television (a sum that eventually rose to $100 million a year). Amazingly, the Rangers could buy the stadium after the accumulated rental payments reached a mere $60 million -- and the property acquired so cheaply would include not just a fancy new stadium with a seating capacity of 49,000, but an additional 270 acres of valuable land.
When Mayor Greene signed on to this giveaway deal, he was simultaneously negotiating with federal authorities to settle a massive lawsuit against him, in yet another savings-and-loan bust. Greene had formerly been president of the Arlington branch of Sunbelt Savings Association, described by the Fort Worth Star-Telegram as "one of the most notorious failures of the S&L scandal."
Sunbelt had lost an estimated $2 billion, and cleaning up the mess there cost the feds about $297 million. Around the same time that Greene signed the deal enriching the Rangers syndicate, federal officials agreed to let him pay $40,000 to settle the Sunbelt case -- scarcely enough to cover the costs of the negotiation -- and walk away. "George had no knowledge of my problems; there is no connection," he assured the New York Times in September 2000.
The stadium scheme predictably generated local opposition to "corporate welfare." But together with Mayor Greene, George W. convinced an overwhelming majority of Arlington voters to approve a sales tax hike that would back the stadium bonds in January 1991. The referendum must have impressed Democratic Governor Ann Richards, who quickly signed legislation creating the Arlington Sports Facilities Development Authority -- with power to issue bonds and exercise eminent domain over any obstinate landowners.
That legislation represented crony capitalism at its worst. Never before had a municipal authority in Texas been given license to seize the property of a private citizen for the benefit of other private citizens. When a recalcitrant family refused to sell a 13-acre parcel near the stadium site for half its appraised value, their land was condemned and handed over to Bush and his partners. The ensuing lawsuit revealed that prior to passage of the enabling legislation, the Rangers management had planned to wield condemnation as a weapon to drive down the property's price. In a judgment against the city, an outraged jury awarded more than $4 million to the Arlington family whose land had been expropriated.
Long before that verdict came down, however, the shiny new structure George W. had christened The Ballpark in Arlington was finished. With the stadium being readied to open the following spring, Bush announced in November 1993 that he would be running for governor. He didn't blush when he proclaimed that his campaign theme would promote self-reliance and personal responsibility rather than dependence on government. As governor, Bush would find that his personal financial interests meshed with those of his partners and supporters -- and those mutual interests were advanced by his actions in office. In Austin, crony capitalism became a way of life.
On December 6, 1994, George W. received a belated $25,000 campaign contribution from Thomas O. Hicks, whose support Bush had unsuccessfully solicited at the beginning of his campaign. Hicks was easily one of the wealthiest men in Texas, and, more specifically, he was the chief executive of Hicks, Muse, Tate & Furst, a highly diversified investment partnership.
Bush took his donation and supported the investor's ambitious plan to take control of the financial assets of the University of Texas, then worth about $13 billion. As a UT grad, Tom Hicks frankly believed that his alma mater's investment strategy had been far too cautious. He wanted to move billions out of equities and into "alternative" investments of the kind managed by his firm.
From Hicks's point of view, the chief obstacle in tapping such repositories of public treasure was that their activities were subject to scrutiny from a variety of interested parties, including legislators, newspaper reporters, and public interest organizations. So in 1995 Hicks brought a radical innovation to the UT endowment: privatization. He even paid for his own lobbyist to ensure that the legislature passed his plan to transfer all the university's diverse holdings into a new nonprofit corporation known as the University of Texas Investment Management Company, or UTIMCO.
It was one of the most significant changes in Texas government during Bush's tenure in the statehouse and among the first important bills that he signed. With Bush's support and the sponsorship of legislators associated with the Governor, the UTIMCO bill flew through the capitol in 1995 with very few questions asked. The new outfit would not be subject to state laws that mandate open meetings and public records. After UTIMCO officially took over from the regents' investment committees in early 1996, with Hicks as its first chairman, all its business was done behind closed doors. The directors often gathered for their monthly board meetings at the lavish offices of Hicks, Muse, Tate & Furst in downtown Dallas.
Largely freed from public accountability, UTIMCO embarked on a series of deals that raised serious questions about conflict of interest and political favoritism. Friends and longtime associates of Thomas Hicks, and his firm's past and future business partners -- as well as major Republican contributors and political supporters of the Bush family -- received hundreds of millions of dollars from the University of Texas investment funds. There was nothing unlawful about these decisions, all of which were vetted by the powerhouse law firm of Vinson & Elkins, another of Bush's largest lifetime donors.
Named by the Governor to oversee the entire UTIMCO operation, as chairman of the university regents, was oilman Donald Evans. He has raised money for all George W.'s political campaigns, beginning with an unsuccessful congressional race in 1978. For the presidential campaign in 2000, Evans ran the Bush "Pioneers," the team of heavy funders who raised more than $100,000 each. (He is currently serving as Secretary of Commerce.)
Following that first $25,000 contribution to George W. in December 1994, Tom Hicks and his brother Steven eventually gave another $146,000 to the Governor's election war chests. His partners have donated tens of thousands more. Together they are among the biggest donors to George W. Bush since 1995. Total contributions to Republican candidates and causes from Hicks, his family members, and his firm are well over half a million dollars.
In 1996, UTIMCO directors made an investment of $50 million with Kohlberg Kravis Roberts. Among that firm's founding partners is Henry Kravis, the corporate raider who has consistently been among the country's largest contributors to Republican causes during the past decade. Kravis was a financial cochairman of Bush-Quayle 1992, and he boasted to reporters that he was a personal friend and confidant of George Herbert Walker Bush. Two years later, UTIMCO invested $20 million in a deal with Bass Brothers Enterprises. As Republican donors, the Bass clan in Fort Worth rivals Kravis and his partners in generosity. Lee Bass raised $78,000 as a Bush Pioneer in 2000.
UTIMCO also placed $96 million with Maverick Capital, a relatively new partnership in Dallas. Among Maverick's main investors and general partners are members of the Wyly family, the principal stockholders in Sterling Software -- and, again, longtime friends of the Bushes. Between 1993 and 1998, various Wyly family members gave well over $300,000 to Republican candidates and committees. But investor Sam Wyly is best known for funding a series of harsh attack ads against John McCain during the 2000 Republican primaries. (As the Republican Party's leading critic of crony capitalism -- a term he has often uttered on the Senate floor -- McCain made himself into a dangerous enemy of the party insiders. They would have spent much more to defeat him.)
Did George W. Bush understand what his appointee Tom Hicks was doing? "I swear I didn't get into politics to feather my nest or feather my friends' nests," Bush told the Houston Chronicle in August 1998. "Any insinuation that I have used my office to help my friends is simply not true."
On completion of the Rangers deal in 1998, Hicks paid about $250 million for the team -- or three times the price paid by Bush and his partners in 1989. The other members of the Rangers partnership had fattened Bush's payout six times over, by awarding him additional shares in the team that brought his 1.8 percent share up to 12 percent. The then governor made about $15 million on the sale.
About the writer:
Joe Conason writes a daily journal for Salon. He also writes a weekly column for the New York Observer. His new book, "Big Lies: The Right-Wing Propaganda Machine and How It Distorts the Truth," is now available. |
