Politics & Policy

Crony Capitalists Occupy D.C.

Toward changing “the economics of public service.”


Peter Schweizer’s new book, Throw Them All Out, debuted on 60 Minutes as a tale of bipartisan “honest graft,” which Schweizer says is both widespread and legal among members of Congress.

He talks to National Review Online’s Kathryn Jean Lopez about the book, Occupy Wall Street, the Tea Party, and a movie role for Mark Steyn.

KATHRYN JEAN LOPEZ: You open the book with Chesterton. Is there really anything new under the sun if Gilbert Keith was on to it? Or is there just nothing new under the sun?

PETER SCHWEIZER: Chesterton understood that politicians are capitalists. They are looking to enrich themselves in office. What is new under the sun is the methods they use. The old methods — bribes, kickbacks, etc. — are old hat. They are inefficient, not cost-effective, and they can get you thrown into jail. So instead of taking a bribe for $10,000, the Permanent Political Class in Washington gets access to special IPO shares of stake that will net them ten times that amount in a day. Or they buy stock options with inside information and double their money. And let’s not forget those land deals where they use earmarks to boost their own property values. It’s all very profitable. And has the added advantage of being legal.

LOPEZ: Is it just to “Throw Them All Out”?

SCHWEIZER: What I mean is that everyone needs to have a zero-tolerance policy on legal graft. I don’t care if I agree with a politician 95 percent of the time on the issues. If he’s getting rich on insider deals, I will no longer support him. Both sides need to embrace a zero-tolerance policy. I honestly believe the future of the country is at stake.


LOPEZ: “Ideology and political philosophy matter in Washington, but often less than you might think. Honest graft is generally bipartisan. Complex bills that are hundreds or even thousands of pages long can contain a single sentence or word that translates into money and that can influence how a politician votes.” This sounds like Mr. Smith. Have you thought about making a movie? Perhaps your book is only the beginning.

SCHWEIZER: A movie sounds great. Who should play the role of the earnest senator . . . perhaps Mark Steyn? In all seriousness, I used to think that the great debates in Washington were about philosophy and ideas. Actually, they are less important than we think. Politics is increasingly a business. One academic study looked at the TARP vote and found that the determining factor in whether someone voted for or against was not political party or ideology. It was whether they owned bank stocks or not. Those who did voted heavily in favor of the bailout. Those who didn’t tended to vote against.


LOPEZ: Is this what the Tea Party wants?

SCHWEIZER: What is so refreshing about the Tea Party is that they don’t make excuses for anyone. They are genuinely committed to the idea of a citizen legislature and are fiercely opposed to crony capitalism.

LOPEZ: Wasn’t the Tea Party supposed to fix this?

SCHWEIZER: The Tea Party managed to replace certain people. But the problem is not corrupt individuals; we are talking about a compromised system. I’m firmly convinced that we can’t just change the names of our representatives or simply elect someone from another party. The bottom line is that government grows and grows regardless of who is in charge. Once we make it clear that you are not going to personally profit from government growth, that will change the system.

LOPEZ: Is this Occupy Wall Street, too? Could it be?

SCHWEIZER: OWS is not really an organized body like the Tea Party. But they share the same sense of anger and disgust about crony capitalism. And I think they would condemn what I condemn in the book. They are misguided somewhat. The 1 percent they should worry about are not the rich. Someone like Steve Jobs joined the 1 percent because he made products that people really wanted. The 1 percent the OWS movement should focus on are the people who got rich or richer through crony capitalism: the people who landed those billion-dollar loan guarantees from the Obama administration, for example. They make money because of connections and influence, not because people are voluntarily choosing to buy a product or service they produce.


LOPEZ: What is “crony capitalism,” and is there a danger it’s just too broad-brush a phrase?

SCHWEIZER: Crony capitalism is simply the use of government and government connections to make yourself rich (or even richer). For the crony capitalist, you are better off spending money on lobbyists to carve out set-asides, secure government loans, tap into government grants, or obtain contracts than you are spending money on R&D. It’s not a merit-based system of free-market economics.


LOPEZ: Barney Frank leaving can’t hurt, can it?

SCHWEIZER: Barney Frank served for years as chairman and as ranking member of the House Financial Services Committee. I would disagree with Frank on a lot of issues — Fannie and Freddie, for example, or excessive financial regulation — but I do need to say that he never played the inside-trading stock game. He invested solely in bonds. He didn’t get rich from serving in government. He should be commended for that. The same can’t be said for the chairman of the House Financial Services Committee, Spencer Bachus, who has traded massive amounts of stock options while overseeing the regulation of financial markets and dealing with all sorts of sensitive financial information. I’m sorry, but there is something unseemly to me about a senior member of such a powerful committee sitting at his computer and essentially day-trading stock options. On a good year he makes as much as his congressional salary.


LOPEZ: Do you and Rochelle [Schweizer, author of She’s the Boss: The Disturbing Truth about Nancy Pelosi] have a vendetta against Nancy Pelosi, tag-teaming against the former speaker as you have?

SCHWEIZER: Pelosi is in my book for one simple reason: She and her husband have leveraged her position in public life to enrich themselves. What on earth is the Speaker of the House in 2008 doing taking privileged IPO shares of stock in Visa? They were allowed to buy 5,000 shares at $44 a share, and in one day it jumped to $66 a share; they made $100,000. By the way, they were given access to these highly lucrative shares just as troubling legislation for Visa was being introduced. She has done this before, participating in what appears to be ten other IPOs over the course of her congressional career. Getting access to lucrative and difficult-to-obtain IPO shares is in my mind just a sophisticated form of bribery.

LOPEZ: What do Obamacare waivers reveal about what the health-reform law means for business?

SCHWEIZER: A lot of legislation that is being written these days is being written to essentially allow the Permanent Political Class in Washington to extort money and favors from the rest of us. The health-care bill is no different. Businesses now need to bow (and donate?) to connected people in Washington to avoid or put off the burdens of Obamacare.

LOPEZ: What do the states get right? Any states in particular?

SCHWEIZER: States like Florida, where I live, have been very focused on dealing with crony capitalism and limiting the power of politicians to extract payments and donations from businesses. In Florida, for example, members of the state legislature are not allowed to solicit or receive campaign contributions when the legislature is in session. We need the same thing in Washington. It will either lead to shorter congressional sessions or limit the ability of congressmen to essentially blackmail businesses into giving them campaign contributions. As I point out in the book, for example, Harry Reid did this very thing to hedge funds when he proposed a tax on them a few years ago. He didn’t expect the bill to pass. He simply used it as a form of extortion to get campaign contributions and lobbying contracts for his friends and former colleagues.


LOPEZ: You don’t want campaign contributions when Congress is in session? What will that mean for the Capitol Hill Club and other businesses in D.C. that do quite well on political fundraising?

SCHWEIZER: It will mean that they have to survive just like other businesses around the country.


LOPEZ: Did you find anything good to say? Anything elevating or inspiring about anything in Washington? There are good people there doing good things, not necessarily looking to make a living off of politics. I’ve met them, you’ve met them.

SCHWEIZER: Yes, there are good guys out there. But the problem is not having “good people” or “bad people” in office. This is not about corrupt individuals. It’s about a compromised system. We need to change the economics of public service. You should not be able to come in relatively middle class and leave rich because you have leveraged your position.


LOPEZ: Is Newt Gingrich or anyone who has ever spent time in Washington going to be able to win an election in 2012?

SCHWEIZER: Yes, I think so. The notion that a complete outsider can win is highly suspect. People want real change (not Obama’s variety) and if they believe an insider will deliver it, they will vote for him. But if he fails to deliver, he is going to have real trouble.


LOPEZ: Is a rich guy?

SCHWEIZER: Yes, people recognize the difference between free-market capitalism and crony capitalism. If you’ve made your money in the private sector (I mean the true private sector, not a private company that does tons of business with the government) that should not count against you. And I think the real frustration expressed by the Tea Party or OWS has more to do with crony capitalism and bailouts than with real capitalism.

LOPEZ: So what questions should Congress be asking itself, based on your book? There are hearings this week in the Senate . . . 

SCHWEIZER: Don’t hold your breath on those hearings. They have all the makings of a whitewash. The hearings are being held because of the incredible heat that is being brought to bear on them as a result of the book and the 60 Minutes segment that featured the book. The expectation is that if they go through the motions of appearing to do something, people will forget about it. People need to hold them accountable. No one is going to want to tell his constituents that he thinks congressional insider trading is all right. So we need to demand that these guys support reform. They want to keep their positions.

LOPEZ: What would you consider a Throw Them All Out victory?

SCHWEIZER: Apply insider-trading laws and conflict-of-interest provisions that the rest of us have to deal with to members of Congress. And ban access to sweetheart IPO deals. It’s legal bribery. It needs to stop. And on the executive-branch side, end the practice of giving government loans and grants. Period. They end up in the pockets of cronies.


LOPEZ: How can the book be useful in a presidential-election year?

SCHWEIZER: Some presidential candidates like Rick Perry have already weighed in on the issue. (The Texas governor doesn’t want to just throw them out, he wants to throw them into jail.) We need to ask GOP presidential contenders and President Obama where they stand on these issues and whether they support reform.

— Kathryn Jean Lopez is editor-at-large of National Review Online.


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