Mr. Moderate

Few people today will realize that one effect of the Reagan Revolution was to convert the government of the United States into a kleptocracy. Now, the United States doesn’t have the usual form of a kleptocracy, which is actually denounced by the President’s Statement on Kleptocracy. In the usual form of kleptocracy, the higher the rank of the leader (up to and including the highest ranking leader of the nation), the greater the amount of ill-gotten gains which end up in the leader’s own personal bank account. That sort of thing is just a bit too obvious for politicians in the United States as the voters still have a bad habit of usually tossing out any politician who is stained with corruption. (There are, of course, exceptions to any such rule.)

The United States has a very indirect form of kleptocracy. While in office, most politicians will only receive campaign contributions from the thieves who stand to gain from the government. However, once they are retired from political office, they will receive large advance payments for a book or books they intend to write and they will receive additional large payments for speaking at meetings of (largely) thieves and others who have benefitted from the policies followed by the former office holder. But of course, there are many ways around the usual restrictions. The boldest is to simply direct the payoff to a spouse or family member, usually through the grant of a job or participation in a “sweetheart deal” where the outcome is virtually guaranteed. Many current political campaigns have accusations of this sort buried somewhere within them. And this isn’t really new. Just research the television holdings of Lady Bird Johnson and ask yourself if being married to Lyndon Johnson had anything at all to do with her owning those lucrative franchises.

The so-called “Keating Five” scandal gives us another look at how high level politicians can be bought and paid for by high level crooks. Charles Keating used political contributions and the influence they purchased to shield his crooked bank dealings from investigation by federal bank regulators.

So, we can see that the real currency of the kleptocracy in one direction is the political favors that a politician can use to enrich third parties. The return is made to the politician and/or his family in numerous ways, including campaign financing, enrichment of family members, and post-office-holding compensation for the politician through organized exploitation of the fame they gained while in office.

But what is the true value of the political favors which are exchanged for millions of dollars in campaign contributions and other benefits to politicians? The answer isn’t at all clear, but it certainly is an amount which runs into the billions of dollars. Charles Keating contributed just over a million dollars to the Keating Five senators (mostly to Alan Cranston of California), and this amount appears to have bought Keating about two more years of operations before Lincoln Savings was finally shut down. During that two year period, the assets of Lincoln Savings grew by over $1.5 billion, and Keating was able to directly steal roughly $285 million by defrauding Lincoln depositors into accepting junk bonds from his construction company instead of actual certificates of deposit. When Lincoln Savings was finally wound down by the federal government, the losses excluding the junk bonds were roughly $3 billion.

The question which never gets asked is this one: if Charles Keating didn’t end up with any of those billions of dollars (as he claims), then just where did the money actually go? The answer is that it went to land speculators who would “buy low and sell high” regardless of any true market value. This can be called the “greater fool theory” of investment. Sooner or later, the price gets so far above what the market can bear that no “greater fool” can be found to purchase the property in question. Unfortunately, in cases like the Lincoln Savings scandal, it isn’t the buyer who is left holding the bag when the speculative bubble finally bursts. While the lender (in this case, Lincoln Savings) is the initial victim, in a huge organized systemic fraud like Keating ran, the federal insurance fund is the real victim. It paid out roughly $3 billion for losses in the Lincoln Savings case. That $3 billion went somewhere, and the “where” can only be described as “wealthy land speculators.”

And those “wealthy land speculators,” while unidentified in the scandal, and largely unpursued by the federal government for their ill-gotten gains, are the real beneficiaries of the scam, and are very likely to have been Republican co-contributors to the Keating Five senators, along with Keating himself.

So, what we see in microcosm in the Lincoln Savings scandal, most likely proves true for virtually the entire set of scandals and financial melt-downs we’ve seen in the United States since the beginning of the Reagan Revolution. It starts with a political mantra by Republicans about how bad government regulation is. It then proceeds into a period of deregulation, which sets up the circumstances whereby crooks can suck vast quantities of wealth out of a federally-backed institution (or at least, an institution which the federal government dare not allow to fail). The actual enriched crooks always seem to be insulated enough from the scene of the crime to avoid both prosecution and disgorgement of their ill-gotten gains. Nonetheless, you can bet they are always riding the circuit of making campaign contributions and giving money to organizations to pay (ex-)politicians for speaking fees so as to gain influence for the front-men who appear to be running the scam for their personal gain.

The Republican kleptocrats did it once with the savings and loan deregulation in the 1980s. And they’ve just finished doing it again with the subprime mortgage crisis of the past decade. The full cost of that crisis is yet to be determined, but the bill is running up fast: $29 billion for Bear Stearns; $85 billion for AIG insurance; and uncounted losses for Fannie Mae, Freddie Mac, and any number of failed and yet-to-fail banking institutions where additional taxpayer dollars will necessarily be used to cover the losses eaten up by crooks. Home loans are the biggest financial transactions most people will ever be involved with. It is logical, then, that home loans have the biggest opportunity for crooked dealing that most people will ever get near. The Republican kleptocrats have probably stolen over $1 trillion this time around, and the United States is hovering ever closer to bankruptcy as a consequence. How much more taxpayer wealth are we going to allow them to suck out of the Treasury before we decide that deregulation is the real source of this fiasco? I don’t know, but it sure seems to me that the American voters just don’t get it (yet)!