Pay to Play and the Political Class: '90s McAuliffe Investment Reveals Cronyism in GOP

Peter Schweizer’s book, Extortion: How Politicians Extract Your Money, Buy Votes and Line Their Own Pockets, exposes abusive money schemes undermining the legitimacy of representative government. Beltway tactics such as the “tollbooth," the “milker bill,” and “double milker bills” shamelessly extort campaign cash to advance or stall legislation aimed at targeted money. All too often, the reality is “pay to delay” or “pay to play."

One scandalous revelation is the staggeringly high interest rate some politicians charge on personal loans they make to their own campaigns, resulting in windfall personal profit. Rep. Grace Napolitano (D-CA) pocketed $294,245 in interest payments on a $150,000 loan at 18% (later lowered to 10%). She dismissed 60 Minutes journalist Steve Kroft’s challenge to the “Mafia” interest rate, saying, “It’s not like I really profited… I am not a billionaire, or a millionaire, for that matter.” 

Her comment opens a window into a dirty secret soiling mainstream party politics. Players get rich—typically with your money. At times, the sums are staggering.

Jamie Gorelick served as deputy attorney general during the Clinton administration and followed that gig with a five-year tenure as a board member of the congressionally-chartered, tax-exempt Fannie Mae, where she reportedly received over $26 million in salary, bonuses, so-called performance pay, and stock options. 

Fellow Fannie Mae board member Franklyn Raines, who previously served as Bill Clinton’s Director of the Office of Management and Budget, received $90,000,000 in total compensation for six years' service. Yet Time Magazine called him one of the twenty-five people to blame for the 2008 financial meltdown. The New York Times reported that he agreed to pay $24.7 million, including a $2 million fine, to settle claims against him flowing from the crash. 

It is simply a “given” within the professional political class that insiders profit. A seemingly endless supply of tax dollars has long fueled complaints that government policy makers, office holders, functionaries, party insiders, connected lobbyists, and families cash in on the public dole. It even has a name: “crony capitalism." The latest example is the debacle known as HealthCare.gov—hundreds of millions for what can at best be called an embarrassment developed by a Canadian subsidiary that contributed heavily to pols of all stripes.  

Rep. Napolitano’s dismissive backhand at the suggestion of anything remiss over her pocketing a mere $294k is symptomatic of the narcissism now epidemic in the political class. Real profit for the new elites is about serious largesse. Anything as paltry as her racket is chump change. It crosses party lines and flows from bloated government, obscure quasi-governmental entities, and politically packed special entities such as Fannie Mae. And it passes stealthily into respectful private business deals, where political rivals become strange bedfellows.

The current gubernatorial race in Virginia offers a fascinating glimpse of one such pairing. Terry McAuliffe, a DC-area transplant from upstate New York, parlayed his political connections and fundraising acumen into the chairmanship of the DNC. His style of politics takes no prisoners.  

McAuliffe has a penchant for investing in techie upstarts with potential for big profit. In 1999, he invested in and joined the board of directors of Telergy, Inc., in Syracuse, New York, his home town. Telergy planned to create a contiguous end-to-end high-speed fiber optics network in the northeastern US along utility rights-of-way. Its plan was to leverage relationships with Niagara Mohawk, NYSEG, Consolidated  Edison, GPU, El Paso, and certain National Grid electric subsidiaries. A good old-fashioned dose of classic American initiative—with risks, to be sure—and the potential for handsome profit. 

And if the story stopped there, God bless every penny he and his partners could make. That’s why the Constitution protects private property as a fundamental right and encourages capital market creation by granting Congress legislative authority to introduce copyright and patent legislation, all of which encourages the risk/profit correlation that has driven the American economic engine to produce a better standard of living for the broadest swath of society the planet has ever known. 

However, the company vastly overvalued its assets and went bust. The Washington Free Beacon reported on McAuliffe’s Telergy link long ago. Byron York added some details here.

But there is more to the story. Telergy laid off a slew of local Syracuse employees—hundreds—without any severance in 2001 and, by the end of the year, filed for bankruptcy. McAuliffe has always said he was just an investor and did not run day-to-day operations. But Telegry’s S-1 SEC filing offers a tantalizing window into the relationships of political insiders and the subordination of principle to profit.

The S-1 identifies McAuliffe under its list of “EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES." See page 59. But notice who else it lists among the officers and directors:  

J. Patrick Barrett, President and Director. The former Chairman of the New York GOP State Committee during the administration of George Herbert Walker Bush, he is a wealthy and powerful party insider. No one moves within the upstate NY GOP without clearing things with Pat Barrett.

Thomas G. Young, Vice President, Government Relations. He was the Democrat Mayor of Syracuse from 1986-1993, which coincided with Pat Barrett’s term as GOP state party chair. A longtime political of Terry McAuliffe, who hails from Syracuse.

John F. O'Mara, Director. He served as special counsel to George Pataki when the latter was governor of NY and was chair of the New York State Public Service Commission. A powerful state GOP insider.

And, of course, McAuliffe.

All were key players in the political rough and tumble of NY party politics. Some still are. And they were adversaries. Ideologically and politically split—or so it would appear. Yet here they were, in bed together in their personal business investments—and not as mere passive investors the way millions are when vested in mutual funds or as capital investors in start-ups. Each took publicly-identified roles as significant players with fiduciary responsibilities. 

But even when the deals go bust, the directors and key people make out, as happened with Telergy. McAuliffe reportedly made some $1.2 million by brokering an investment in Telergy by Gary Winnick of Global Crossing, another company McAuliffe invested in and made millions before it, too, went bankrupt. That failure resulted in $54 billion in shareholder losses and 10,000 lost jobs

There is nothing wrong with making lots of money. We all love the idea. But the deeper point is to recognize what the money can do to the insiders. Telergy was but one example. 

Is it reasonable to believe that such relationships do not erode independence? How aggressively will a state party chair campaign against the local mayor of a rival party come election season when the two are officers of the same business venture? And what of their advocacy of the cherished goals of the grass roots party faithful?It isn’t crony capitalism, but it reeks of cynicism. And its effect on sincerity and message is corrosive. 

It is one reason some believe the RINO element within the GOP is uncomfortable with Ken Cuccinelli. Like Ted Cruz, Mike Lee, Rand Paul, and Scott Walker, these insurgent new bloods really believe in freedom, the ideals of their agenda, the sanctity of life, and the restoration of principal. And a new core of GOP leaders stands ready to seize the party with them: Gov. Nikki Haley, Congresswomen Cathy McMorris Rodgers and Kristi Noem, Senators Tom Coburn, Deb Fisher, Pat Toomey, and more.

The emerging voices of conservative principle are sounding the heat of the nation. For a long time, too many have allowed deception to pile high the precipice from which we fall until so dark and damp a tomb we become accustomed to the stench of rotted expectation. No more. With a nod to Mr. Dylan, “the times they are a-changing.”


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