Legalized Corruption

The book on how making law makes you money.

Texas Representative Charlie Gonzalez announced his retirement this weekend past. “I’ve been in Congress for 14 years and I want to do something else—what that is, I really don’t know,” the chairman of the Congressional Hispanic Caucus explained. “But financially, I would like to be productive and have the resources to make a better life.”

The second-generation legislator may reconsider should he get his hands on Peter Schweizer’s Throw Them All Out: How Politicians and Their Friends Get Rich Off Insider Stock Tips, Land Deals, and Cronyism That Would Send the Rest of Us to Prison. Schweizer posits that the six-figure congressional salary isn’t the preferred way to get rich in Congress. Instead, unscrupulous legislators profit over inside, investment-guiding information about imminent policy shifts, land development, and corporate favoritism. As the author bluntly notes, “U.S. public policy is a marketable commodity.”

It’s a commodity marketed by everyone from former Democrat House Speaker Nancy Pelosi to former Republican House Speaker Dennis Hastert. And when not marketed in the uncouth manner of Randy “gold-plated-toilet-seat” Cunningham or William “cash-in-the-freezer” Jefferson, it’s perfectly legal. “Politicians are often extraordinarily good investors—too good to be true,” Schweizer writes. “They may not have figured out how to help our economy prosper, but the Permanent Political Class is itself prosperous to a degree that should make us all suspicious.”

Take, for example, Massachusetts Senator John Kerry. Schweizer contends that the richest senator has made himself richer through his office. His stock transactions showan uncanny knack for anticipating coming legislation. When pharmaceuticals stood to gain through the prescription drug plan, for instance, Kerry’s portfolio loaded up on them. “By far the most aggressive congressional trading of pharma stock during the debate was done by Senator John Kerry and his wife,” Schweizer observes. “Oversight of the prescription plan would fall to Kerry’s committee in the Senate, so he was intimately familiar with the law and its ramifications.” When medical-device manufacturers stood to lose through ObamaCare, Kerry’s portfolio dumped them.

But the politicians’ profits prove a pittance next to the take of the moneymen who bankroll their campaigns. Obama supporter Warren Buffet demonstrates that investments in candidates and lobbying are money well spent. Schweizer details the Oracle of Omaha’s intense advocacy of the Troubled Asset Relief Program (TARP), which meant a financial windfall for his private holdings. “Berkshire Hathaway firms received $95 billion in bailout cash,” Schweizer points out, with TARP-bailed out companies comprising a full 30 percent of Buffet’s stock portfolio. His subsequent profits in just one company, Goldman Sachs, peaked at $3.7 billion. “Warren Buffet is a financial genius,” the author quips. “But even more important for his portfolio, he’s a political genius.”

Ditto for George Soros. Schweizer follows the trail of the billionaire speculator’s donations to the Obama campaign, his visits to the White House in the administration’s first months, his public advocacy of a stimulus package, and finally his scores of curious investments in companies that ultimately scored stimulus funding. Throw Them All Out notes that Soros’s “investment decisions aligned remarkably closely with government grants and transfers. It would appear that one of the world’s smartest investors chose a strategy based on political decisions—whether he knew about the decisions in advance or just guessed extremely well.”

The lesson? The wealthier you are the wealthier you want to be. This applies to people as well as governments. The multifold benefits of big government to big business ensure that big money backs big expansions of the state. What money is there to be scammed, by politician or businessman, from a fiscally restrained government?

In the wake of the Solyndra scandal, and news that financial institutions secretly received exponentially more money from the Federal Reserve than they had from the enormous TARP bill, Throw Them All Out appears perfectly timed. 60 Minutes recognized this by recently featuring the book on its broadcast. In a nation where “fortunes rise and fall on policy decisions rather than market competition,” entrepreneurialism is perverted from pleasing a market of 311 million people to persuading just a handful of congressmen.

The growth of Washington has created a new class, what the author calls “the Government Rich.” This includes rags-to-riches pioneers of state entrepreneurialism such as Lyndon Johnson and riches-to-more-riches ostensibly market entrepreneurs such as General Electric’s Jeffrey Immelt. Tellingly, Schweizer points out that four decades ago less than 1 in 7 boards of Fortune 1000 companies contained members holding some government experience. Today, the figure is greater than 1 in 2. As the government has grown, private companies seeking a piece of that ever-expanding pie find it expedient to focus greater resources on siphoning money from Washington than on luring money from consumers. Schweizer concludes by offering suggestions to inhibit this crony capitalism—e.g., apply whistleblower laws to Congress and ban Congressmen from trading stock in companies that their committees oversee. But the $3.8 trillion elephant in the room is the size of the federal government. The bigger Washington gets, the bigger Washington corruption gets. Taming corruption requires taming the budget.

Retiring Representative Gonzalez says he wants to leave government to purse greener financial pastures. That’s like if Willie Sutton had said he robbed snow banks because that’s where the money’s kept.

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