Bush's step-by-step approach to wealth

By Paul Krugman

THE NEW YORK TIMES

Wednesday, July 17, 2002

Why are George W. Bush's business dealings relevant? Given that his aides tout his "character," the public deserves to know that he became wealthy entirely through patronage and connections. But more important, those dealings foreshadow many characteristics of his administration, such as its obsession with secrecy and its intermingling of public policy with private interest.

As the unanswered questions about Harken Energy pile up -- what's in those documents the White House won't release? Who was the mystery buyer of Bush's stock? -- let me now turn to how Bush, who got by with a lot of help from his friends in the 1980s, became wealthy in the 1990s. He invested $606,000 as part of a syndicate that bought the Texas Rangers baseball team in 1989 -- borrowing the money and repaying the loan with the proceeds from his Harken stock sale -- then saw that grow to $14.9 million over the next nine years. What made his investment so successful?

First, the city of Arlington built the Rangers a new stadium, on terms extraordinarily favorable to Bush's syndicate, eventually subsidizing Bush and his partners with more than $150 million in taxpayer money. The city was obliged to raise taxes substantially as a result. Soon after the stadium was completed, Bush ran successfully for governor of Texas on the theme of self-reliance rather than reliance on government.

Bush's syndicate eventually resold the Rangers, for triple the original price. The price-is-no-object buyer was a deal maker named Tom Hicks. And thereby hangs a tale.

The University of Texas, though a state institution, has a large endowment. As governor, Bush changed the rules governing that endowment, eliminating the requirements to disclose "all details concerning the investments made and income realized," and to have "a well-recognized performance measurement service" assess investment results. That is, government officials no longer had to tell the public what they were doing with public money or allow an independent performance assessment. Then Bush "privatized" (his term) $9 billion in university assets, transferring them to a nonprofit corporation known as Utimco that could make investment decisions behind closed doors.

In effect, the money was put under the control of Utimco's chairman: Tom Hicks. Under his direction, at least $450 million was invested in private funds managed by Hicks' business associates and major Republican Party donors. The managers of such funds earn big fees. Due to Bush's change in the rules, these investments were hidden from public view; an employee of Utimco who alerted university auditors was summarily fired. Even now, it's hard to find out how these investments turned out, though they seem to have done quite badly.

Eventually Hicks' investment style created a public furor, and he did not seek to retain his position at Utimco when his term expired in 1999.

One last item: Bush, who put up 1.8 percent of the Rangers syndicate's original capital, was entitled to about $2.3 million from that sale. But his partners voluntarily gave up some of their share, and Bush received 12 percent of the proceeds -- $14.9 million. So a group of businessmen, presumably with some interest in government decisions, gave a sitting governor a $12 million gift. Shouldn't that have raised a few eyebrows?

All of this showed Bush's characteristic style. First there's the penchant for secrecy, for denying the public information about decisions taken in its name. So it's no surprise that the proposed Homeland Security Department will be exempt from the Freedom of Information Act and from whistle-blower protection.

Then there's the conversion of institutions traditionally insulated from politics into tools for rewarding your friends and reinforcing your political control. Yesterday the University of Texas endowment; today the Federal Energy Regulatory Commission; tomorrow those Social Security "personal accounts"?

Finally, there's the indifference to conflicts of interest. In Austin, Gov. Bush saw nothing wrong with profiting personally from a deal with Tom Hicks; in Washington, he sees nothing wrong with having the Pentagon sign what look like sweetheart deals with Dick Cheney's former employer Halliburton.

So the style of a future Bush administration was easily predictable, given Bush's career history.