How the insiders gain power... - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 27 August 2013
How the insiders gain power... A  A  A

Baltimore, Maryland

Yes, it's back to school. Back to work. And back to Zombieland.

Stocks dropped 64 points on the Dow yesterday. Gold rose over $1,400. What's next? We wait and see. But we wait and see from a safe distance.

Last night, we drove into the heart of darkness itself to celebrate a birthday. The party was held in Georgetown, the richest enclave in the richest city in the richest country in the world.

How did Georgetown get so rich? You have to ask...?

It's always a culture shock for us. Coming from Baltimore, we meet very different people in Washington. Richer people. More worldly people. Better dressed. Better looking. More sophisticated and well traveled. Lawyers...almost always lawyers. Architects. Ambassadors. People who work for trade associations. Lobbyists. Congressional staffers.

A typical conversation:

"My husband would have been here," said a very pretty woman. "But he's in Alaska fishing."

"Do you live here in Georgetown?"

"Yes...but my husband had been reluctant to leave our home in Potomac (a very up-market suburb). So, we split our time. And we have a farm down in Charlottesville (VA) too."

"What's your husband do?"

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"He's a lawyer. And I'm so delighted. My daughter just passed the bar exam. She and her husband are both lawyers too."

Terry McAuliffe went to Georgetown Law Center. In the interest of full disclosure, so did we. But in the interest of preserving our dignity we hasten to add that we are not now, nor have we ever been, a member of the bar. Or any other respectable trade.

McAuliffe is running for governor of Virginia. Does the name sound familiar? He was chairman of the Democratic National Committee who raised millions for the Clintons, with whom he remains tight.

How tight? Well, Hillary's bro' Tony is under investigation for having abused a government program with Terry. It had to do with a new electric automobile company that McAuliffe set up - GreenTech.

What does a political hack like McAuliffe know about the auto industry? Well, nothing. But nothing is what you need to know in today's zombie world. The whole idea is to get government grants, subsidies, crony deals and tax which Misters McAuliffe and Rodham are experts.

This little note from Wikipedia describes one of McAuliffe's early achievements. He invested $100...and somehow got half of assets worth $50 million. Sweet deal? You decide:

    In 1990, federal regulators seized [Terry McAuliffe's father-in-law] Swann's American Pioneer Savings Bank...The Resolution Trust Corporation, a federal agency, took over American Pioneer's assets and liabilities and sued McAuliffe and a former unit of the bank foreclose on a real estate loan. Under the guidance of Swann, McAuliffe partnered with a pension fund controlled by the International Brotherhood of Electrical Workers and the National Electrical Contractors Association to buy some American Pioneer real estate, valued at $50 million, for $38.7 million from the Resolution Trust Corporation. Of the purchase amount, McAuliffe paid $100, while the pension fund paid $38.7 million; McAuliffe still received a 50% equity stake.
Hey, it pays to have friends in high places. Not that we're complaining about it. Government programs are meant to be abused. And government money - that is, taxpayers' money - is meant to change hands...from the outsiders to the insiders. That's how government is meant to work. Always has. Always will. Taxpayers are outsiders. The McAuliffe/Rodham partners are insiders. 'Nuff said.

Meanwhile, Mark Leibovich, author of "This Town," has more on how Washington, DC functions:
    "...this city that was supposedly built on public service is this permanent feudal class of insiders, of people who are not term limited. Of people who never leave and never die, figuratively never die. And who are there and who are doing very, very well for themselves, very, very well for Washington, and not very, very well for the United States.

    It's a gold rush. People now come to Washington to get rich. That was never the defining ethic of the town, certainly 30 years ago. There is now so much money. It is now the wealthiest community in the United States. It is home to seven of the wealthiest ten counties in the United States. And frankly--it is--I mean, the power is obviously going to be very alluring.

    No truth is going to be told here by--based on any sort of cowardly go along, get along way. And I think that there are many ways in which the money, the system is financed--the politics are financed the way the media works, that will not under any circumstances reward someone who takes a stand.

    ...if you can sell yourself as someone who knows how Washington works, someone who has these relationships, someone who can get on the phone and get the president of the United States... that's a very, very marketable commodity. I mean, if you see--if you are seen as someone who knows how this town works, someone who is a usual suspect in this town, you can dine out for years. That's why no one leaves.

    They talk about how much they hate Washington, but they settle in here--quite comfortably. And Trent Lott was the Senate majority leader--you know, very powerful Republican. He kind of abruptly retired in 2007 I think, went into business with John Breaux, a Democratic senator.

    He was a long time senator from Louisiana. As a member of Congress, Breaux said that his vote--someone said that--someone called him a cheap whore and he said, "I'm not that cheap." And he also said, "My vote cannot be bought. It can be rented." There's always been a symbiosis between Wall Street and Washington to some degree. But I think the Clinton Era introduced a whole new level of magnitude to this. And Bob Rubin, who was the sort of storied head of Goldman Sachs for many years, coming to take the reins of treasury was really--I mean, he was a real guru. And brought a lot of proteges, Larry Summers being the biggest example, to town. Tim Geithner being another one...
Small world. Larry Summers is our #1 rival. He's the man at the head of the list...followed by about 10,000 other names ...all way ahead of us...for the top job at the Fed.

His phone rings night and day. Ours never does. He has lots of ideas about how to fix the economy and everything else...we only have one idea. He has

Well...that's what you get when you're an insider.

Here is how it works. As the insiders gain power and influence they are able to shift more of the nation's real wealth to themselves. That's why Larry Summers is up for the job of chief banker for the United States of America, rather than, say, someone who knows something about banking...or someone who has actually worked at a bank. Being an insider is more important than banking experience or knowledge of the economy.

Then, as the insiders take more and more power, gradually, the outsiders are ruined as the insiders grow rich.

The taxpayers, who might have been outraged a few years ago, become blase. They accept it as a 'fact of life.' They don't fight it. They want to join it. They no longer send their sons and daughters to Detroit to make real cars; instead, they are urged to go to McLean, Virginia...home of GreenTech. There, they will not see any assembly lines...with skilled workers putting together the next generation of electric cars.

McAuliffe said the company would hire 1,500 people and turn out 10,000 cars a year. So far, no cars have been built. And, although pal Tony Rodham has reported raised $45 million for the company in his 'visa-for-sale' program, only about 100 people have been employed. As far as we know, not a single one has ever so much as turned a lug nut.

But that's the discreet charm of the insiders: someone else turns the lug nuts. They twist the money.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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2 Responses to "How the insiders gain power..."

parimal shah

Aug 28, 2013

How long will this last?
What happens when all tax-payers money gets exhausted?
Even if you have helicopter money, where will food and grains come from; if no one is able to saw and harvest in the farms due to poverty???


R Deshpande

Aug 27, 2013

Hey guys

Isn't that the best way to turn the world's most powerful democracy -US of A into the world's most populous democracy- Indi? What you have mentioned is why things are like what they are in India. It has taken USA two hundred years to get into phases of barbarism, feudalism, anarchy, then immature democracy and then supposedly an accountable mature one with greater governance rules. The wheels are now slowly turning backwards I guess. Did someone say eternal vigilance is price of freedom?

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