Crony Capitalism And President Obama: How The System Really Works

June 11, 2012
By

Marita Noon 2013 greyPresident Obama’s attacks on Romney’s record while at Bain Capital have opened the window on what is being called “Obama’s public equity record”—with Romney’s surprise news conference in front of failed solar manufacturer Solyndra and new campaign ads bringing the Obama administration’s record into the spotlight. Suddenly the “green jobs” record is being carefully examined and “giving taxpayer money to big donors, and then watching them lose it” is back in the news.

In his book, Throw Them All Out, Peter Schweizer says: “These programs might be the greatest—and most expensive—example of crony capitalism in American history. Tens of billions of dollars went to firms controlled or owned by fundraisers, bundlers, and political allies, many of whom—surprise!—are now raising money for Obama again.”

We understand that “crony capitalism” involves helping those who have helped you; “you scratch my back, I’ll scratch yours.” But the simple term crony capitalism belies the evil, corrupt nature associated with the actual process. Crony capitalism goes way beyond helping your friends, your cronies. It is a twisted, orchestrated plan that rewards the cronies and costs the taxpayer, while punishing the average citizen.

It may take years of Freedom of Information Act (FOIA) requests to uncover the depth of President Obama’s crony capitalism, but we can get a glimpse of how it is done and what it costs us through a new book, Governor Richardson and Crony Capitalism, which meticulously chronicles the crony capitalism of one of Obama’s cronies: former New Mexico Governor Bill Richardson—President Obama’s original pick for the Secretary of Commerce post.

Governor Richardson and Crony Capitalism is a little book. It can be read in an hour. It addresses just one aspect of Governor Richardson’s crony capitalism—but it covers it thoroughly, with nearly as many pages of footnotes and documentation as story. I didn’t write the book, but I did have a bit part. I filed a couple of the FOIA requests and picked up some of the documentation. When I read the manuscript, I knew this was a story everyone needed to read—not so much because everyone needs to know about New Mexico, but because everyone needs to understand how the system really works.

New Mexico is a poor state, on the bottom of about every list—except for drunk driving (where we are on the top). Governor Richardson and Crony Capitalism, documents just one rule—not even a law—that Richardson appointees, heads of state agencies (think EPA), inflicted on the state’s most economically important industry: oil and gas. With color photos, charts and graphs, the author, Harvey E. Yates, through Governor Richardson and Crony Capitalism demonstrates how the “pit-rule” has cost the state $6 billion in overall revenues, and the state and local governments, specifically, $1 billion. Remember New Mexico is a poor state, and the rule chronicled in the book, the pit-rule, is just one rule that favored one of Richardson’s friends. Similar actions likely played out over-and-over by a governor with higher aspirations. Similar actions likely continue to play out in the Obama White House with bigger numbers.

Johnny Cope was a long-time friend of Bill Richardson who the newly-elected Governor intended to appoint to an important position in his administration. (Note: the definition of cronyism is “Favoritism shown to old friends without regard for their qualifications, as in political appointments to office.”) Cope owned a financially troubled business: Controlled Recovery Inc. (CRI) which serviced the oil industry through oil field remediation and waste management. At the time of Richardson’s election in 2002, CRI was near worthless and struggling, yet in 2006 CRI was sold for $10 million.

CRI grew to include a fleet of trucks and round-the-clock operations in just four years. Along the way, CRI got regulatory preference, uncooperative officials were removed, CRI’s business was increased, and its competitors were eliminated through agency orders. Official filings show that, on six specific occasions, Cope made substantial donations—or raised donations—totaling hundreds of thousands of dollars to Richardson, which coincided with critical regulatory events.

Pit-rule 17 was proposed in March 2006—the same month Cope’s companies donated $70,000 to Richardson’s re-election campaign. This statewide rule virtually required that all drilling waste from new drill sites be transported to an approved disposal facility. But in 2004, the Richardson administration had made the CRI facility exempt from tough new regulations on oil field waste landfills and oil sludge recovery facilities, such that CRI had a huge advantage over its few remaining competitors. Effectively, the oil and gas industry had to pay CRI for the privilege of drilling new wells in New Mexico.

(On a national level, we have what could be called “crony environmentalism.” Laws and regulations, which should apply to everybody, are waived for the favored few. For example, the oil and gas industry is hauled into court if a migratory bird happens to die in an oil pit, but the thousands of birds—including protected eagles—killed by wind turbines are actually authorized.)

In the years prior to the pit-rule draft release, New Mexico’s drilling rig count closely paralleled the neighboring oil-and-gas states of Oklahoma, Texas, and Colorado. However, after March 2006, New Mexico’s rig count started trending downward and fell below Colorado’s for the first time in more than a decade—costing New Mexico lost jobs, and severance and royalty income.

Chapter 1, Overview, starts with “Environmentalists eagerly claim fatherhood of the pit-rule. However, a close examination of the evidence leads to the conclusion that, while environmentalists indeed were useful midwives in the delivery of the pit-rule, cronies of former Governor Richardson sired the rule.” Chapter 6, The Price We Paid, ends with these words: “Such is the legacy of a Crony Capitalist enterprise. The losers were the state’s public education system, state employees, the state infrastructure, and generally, the citizens of the state. If the environmental community wishes to assume part of the responsibility for the loss to the state because of its role of midwife of pit-rule 17, that is probably appropriate.”

Governor Richardson left the state with a budget deficit. Yet he was somehow able to have plenty of campaign cash to launch his presidential run. Governor Susana Martinez took on the deficit. She put different people in charge of the agencies and changed the policies. Instead of using regulations as a hammer, they are now used as a guideline. The industry with New Mexico’s single largest economic impact is coming back. Nationally the economy is still in crisis, yet in one year, the New Mexico state budget has gone from deficit to surplus.

There is an obvious parallel with the New Mexico story and the national one. Governor Richardson and President Obama seem to be cut from the same ideological cloth. They hurt the industry that has the ability to help—if not fix—economic woes while making policy decisions that help their friends at the expense of the tax-paying citizens, often under the cover of environmentalism. Yates’ Governor Richardson and Crony Capitalism shows how it was done in New Mexico through the tight, single story of the pit-rule. The reader can easily extrapolate it out to the national stage.

Additionally, Governor Richardson and Crony Capitalism offers activists a lesson in the power of FOIA. There are surely similar stories being played out in other states where winners are picked and others are punished while the person in power laughs all the way to the bank.

In New Mexico, we elected a new governor who doesn’t share Governor Richardson’s ideology, and, in one year, the state budget went from a deficit to a surplus. On a national level, the problem is bigger than that of my poor state, but the results of a change at the top—and therefore, a change in the various agency heads—could well produce similar results for America.

 

The author of Energy Freedom, Marita Noon serves as the executive director for Energy Makes America Great Inc. and the companion educational organization, the Citizens’ Alliance for Responsible Energy (CARE). Together they work to educate the public and influence policy makers regarding energy, its role in freedom, and the American way of life. Combining energy, news, politics, and, the environment through public events, speaking engagements, and media, the organizations’ combined efforts serve as America’s voice for energy.

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