- Much has been written over the past month about President
George W. Bush's actions while at Harken Energy. This is, indeed, a significant
history: in the early 1990s Bush made hundreds of thousands of dollars
in a deal that reeks of the same insider trading and accounting fraud the
president now claims to oppose. (See On eve of Wall Street speech: Bushís
past business dealings come back to haunt him, 9 July, 2002).
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- However, the media has paid far less attention to what
Bush did with the $850,000 he made through the sale of Harken stock options
and the manner in which he transformed that windfall into the $15 million
that now constitutes the larger part of his personal fortune. If anything,
this story is even more revealing.
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- If the Harken deal was a smaller scale version of the
accounting scandals at WorldCom, Enron and other firms, Bushís purchase
and sale of the Texas Rangers baseball team reveals other characteristic
features of the past several decades of American capitalism: the plundering
of public assets for private gain, the confluence of political and economic
power, the defrauding of the American people.
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- By the time he cashed out in 1998, Bushís return
on his original $600,000 investment in the Rangers was 2,400 percent. Where
did all of this money come from and what did Bush do to get it? Much of
the story was first reported nationally by Joe Conason in a February, 2000
article for Harpers Magazine. A report from the public interest group,
Center for Public Integrity, and recent columns on July 16 in the New York
Times by Paul Krugman and Nicholas Kristof have filled in some of the details.
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- A free stadium, and some choice land on the side
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- The same factors that propelled Bush virtually overnight
from failed oil man to wealthy corporate executiveófamily connections
and the desire of rich Texas businessmen to exploit the Bush nameóopened
the way for him to buy a stake in the professional baseball team. Bill
DeWitt, part owner of Spectrum 7, which had bought Bush's own company several
years earlier and then later sold out to Harken, offered the son of the
then-US president a chance to join in a bid for the Rangers. In 1989 a
deal was reached in which Richard Rainwater, a wealthy Texas financier,
joined Bush and several other investors in buying the team.
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- Bush himself did not have a large fortune at the time,
and only bought a two percent share, financed with a $500,000 loan from
a bank on whose board of directors he had once served. Bush used the proceeds
from his questionable sale of Harken stock to repay this loan.
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- Bush's formal title was 'managing partner.' He served
essentially as a public face, whose main responsibility was to attend the
home baseball games. Edward Rose, another wealthy Texas investor and Rainwaterís
associate, was responsible for the actual business operations of the team.
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- The top priority for the new Rangers owners in increasing
the value of their holdings was to acquire a new stadium. They had no intention
of paying for the stadium themselves, so they threatened to move the team
if the city of Arlington did not foot the bill. The city government readily
agreed to a generous deal. Reached in the fall of 1990, it guaranteed that
the city would pay $135 million of an estimated cost of $190 million. The
remainder was raised through a ticket surcharge. Thus, local taxpayers
and baseball fans financed the entire cost of the stadium.
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- Moreover, the owners were allowed to buy back the stadium
for a mere $60 million, which was deducted from ticket revenues at a rate
of no more than $5 million per year. The Rangers syndicate was also given
a property tax exemption and sales tax exemption on products purchased
for use in the stadium. City residents ended up subsidizing these tax breaks
for the Rangers owners by paying higher local rates.
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- This plan was sold to Arlington voters with Bush's help.
At the end of the day, the owners of the Rangers, including Bush, got a
stadium worth nearly $200 million without putting down a penny of their
own money.
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- But the boondoggle did not end there. As part of the
deal, the Rangers syndicate got a sizable chunk of land in addition to
the stadium. This land naturally increased in value as a result of the
stadium's construction.
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- To oblige the owners, Ann Richards, the Democratic Governor
of Texas at the time, signed into law an extraordinary measure that set
up the Arlington Sports Facilities Development Authority (ASFDA), which
was granted the power to seize privately owned land deemed necessary for
stadium construction.
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- According to documents obtained by the Center for Public
Integrity, the Rangers owners would locate a piece of land they wanted,
offer a price far below the market value, and if the owners of the land
parcel refused, bring in the ASFDA to condemn the land.
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- Kristof notes, 'As part of the deal, the city would even
confiscate land from private owners so that the Rangers owners could engage
in real estate speculation.' According to court documents, one of the Rangers
owners saw a piece of valuable land and sent off a memo with the words:
'[S]ounds like another condemnation candidate if you want to work the site
into your master plan.'
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- In 1990, Bush himself let the cat out of the bag regarding
this 'master plan' when he told a reporter for the Forth Worth Star-Telegram,
"The idea of making a land play, absolutely, to plunk the field down
in the middle of a big piece of land, thatís kind of always been
the strategy." Several home-owners who did not appreciate getting
the short end of Bush's 'land play' brought lawsuits against the Texas
Rangers, for which they were eventually awarded a total of $11 million.
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- Conason writes, "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... On November 8, 1993, with
the stadium being readied to open the following spring, Bush announced
that he would be running for governor. He didn't blush when he proclaimed
that his campaign theme would demand self-reliance and personal responsibility
rather than dependence on government."
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- How a governor made $15 million from his own appointee
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- The tale of the Texas Rangers does not end with Bushís
ascendancy to the position of Texas governor in 1994. While he placed all
his other assets in a blind trust, Bush held on to his stake in the Rangers
until a man named Tom Hicks bought the team in 1998. The significance of
this sale requires a brief detour down another path in Bushís business
career.
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- Thomas Hicks is a rich Texas financier and leveraged
buyout specialist. One of the wealthiest individuals in Texas, he is chairman
and chief executive of Hicks, Muse, Tate & Furst, a conglomerate that
invests in a variety of companies. After Bush won the gubernatorial election,
Hicks transferred his allegiance from the Democrat Richards to the Republican
Bush. According to Conason, though Hicks had originally supported Richards,
he gave Bush a $25,000 ìcampaign contributionî one month after
Bush had won the election. Hicks would eventually become one of Bush's
biggest supporters.
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- Richards had earlier named Hicks to the University of
Texas Board of Regents, but this appointment had to be supported by Bush
for it to go through. Not only did Bush agree to the appointment, he did
something more. He gave the financier enormous latitude to use the university's
assets - which are supposed to be public funds - to invest in ventures
of his own choosing.
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- Bush accomplished this through the establishment in March
1996 of the University of Texas Investment Management Company (UTIMCO),
to which $9 billion of the school's assets were handed over. UTIMCO would
be technically separate from the regents, but would remain under their
- and, in particular, Hicks' - control. While the Board of Regents as a
whole technically had the power to oversee Hicks, it invariably went along
with his decisions.
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- Unlike the Board of Regents itself, UTIMCO was not required
to open its meetings or publish its activities, and was thus freed of public
oversight. This was an unprecedented action. According to UTIMCO's own
website, it is "the first external investment corporation formed by
a public university system." UTIMCO has control over the University's
extensive land and oil holdings (currently valued at about $7.5 billion)
as well as its General Endowment Fund.
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- The other regents appointed by Bush were all staunch
Republican Party supporters, including Donald Evans, Bush's close personal
friend who would later become chairman of the University of Texas Regents
when Hicks stepped down. Evans was Bush's finance chairman in the 2000
presidential campaign, and is now secretary of commerce in Bushís
cabinet. In the early 1990s Bush served as an outside director at Evans'
company, Tom Brown, Inc. Bush made $300,000 when he sold his shares in
Tom Brown before becoming governor.
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- The investment decisions of UTIMCO were made largely
in secret, though subsequent research has uncovered some of the areas to
which the funds were directed. In 1995, $10 million went to the Carlyle
investment group, which has close ties with the Republican Party and the
Bush family. The chairman of Carlyle is Frank Carlucci, former secretary
of defense under Ronald Reagan. Also linked to Carlyle is James Baker III,
former secretary of state under the elder Bush. George W. Bushís
father has worked for Carlyle, and the younger Bush served in the early
1990s on the board of directors of Caterair, a company that was acquired
by Carlyle in 1989.
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- Among the other beneficiaries of Hicks' generosity was
the KKR 1996 Fund, a subsidiary of Kohlberg Kravis Roberts, the leveraged
buyout firm that became notorious during the 1980s for its aggressive acquisitions
that left target companies nearly bankrupt. The KKR 1996 Fund received
$50 million. Henry Kravis, the company's founding partner, is a major benefactor
of the Republican Party and was a financial co-chairman of the elder Bush's
re-election campaign in 1992.
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- UTIMCO invested another $20 million in a deal involving
the Bass family, which became extraordinarily rich with the help of Richard
Rainwater, who had joined Bush in the Texas Rangers deal. The Basses were
also involved in Harken Energy. After Harken received an extraordinary
deal granting it oil-drilling rights off the coast of Bahrain, it called
in the Bass brothers to finance the preliminary exploration. According
to a report by the Center for Public Integrity, the Bass family is George
W. Bush's fifth largest career patron.
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- These are only a handful of the deals organized by Hicks,
which by no means benefited only Bush's friends - they also benefited Hicks.
UTIMCO invested in a number of companies that had or were about to begin
relations with Hicks' own firm. When Hicks stepped down in 1997 and handed
over the post to Donald Evans, the same investment pattern continued.
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- Hicks ended up buying the Texas Rangers from Bush and
Bush's fellow investors in 1998. The price was $250 million, three times
what Bush & company had paid for it.
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- In and of itself, this transaction would have given Bush
a return of a little over $2 million. However, at some point during Bush's
tenure as managing partner of the Rangers, his fellow owners significantly
increased his stake in the team, free of charge. This netted Bush an extra
$13 million when the team was sold. Much of this gift presumably came from
the main stakeholder in the team, Rainwater, who benefited financially
in numerous ways during Bush's tenure as governor.
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- Krugman notes in his July 26 New York Times column that
at one point the Texas teachers' retirement system sold several buildings
to a company controlled by Rainwater for a $70 million loss, without allowing
other investors to bid on the sale.
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- Such was the manner in which George W. Bush acquired
his fortuneóa classic example of how political power and inside
connections can be leveraged into personal wealth, at the expense of public
assets
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- http://www.wsws.org/articles/2002/aug2002/bush-a01.shtml
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