Daniel Garza: Government Cronyism is Back

In this January 21, 2010 file photo, President Obama speaks about financial reform after his meeting with Presidential Economic Recovery Advisory Board Chair Paul Volcker at the White House. (Reuters)

Americans today are seeing a surge of an ancient malady we thought had long been ushered away with the likes of Spain’s Borgia family, Mississippi's infamous Gov.Willie Stark, past Olympic Committee members, and union bosses like Jimmy Hoffa.

I am referring to cronyism, the activity of dispensing monetary or political favors, looking the other way when criminal or regulatory violations are afoot, or covenanting payoffs in the form of government appointments, grants and contracts to political supporters, allies and associates who serve to influence elections and public policy.

The practice of favoritism based on relationships and connections - rather than someone who demonstrates top credentials and well-suited experience – ultimately results in vastly inferior government service to the public.

The costs in the private sector resulting from these political shenanigans also are reflected in inflated consumer prices, an often fatal disadvantage for affected organizations, and a societal degradation where the old adage of "it’s who you know, not what you know" reigns supreme.

In the private sector it is akin to the “good old boys club,” “the golden circle,” or “the system we live in” – it is pernicious and it is detrimental to any organization.

This system of breaching market principles has seen an incredible rise at the federal level as of late.

Recent policies inducing this onerous behavior include “stimulus” spending, bailouts, takeovers of private banks and auto companies, and congressional earmarks going to anyone who puts a hand out to politicians apparently powerless to say no.

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Apparently no one in Washington is doing it better than President Barack Obama, who has shown a special knack for cronyism going back four long years now that has ill-served the American taxpayer.

Let's start by looking at his appointees.

His chief of staff was a vice president at JP Morgan Chase. Former Chief of Staff Rahm Emanuel earned a reported $16.2 million working in investment banking for Wasserstein Perella. Former heads of the National Economic Council -- Larry Summers and now Gene Sperling -- earned $7.9 million and $1.45 million, respectively, from consulting and speaking fees from Wall Street banks.

Now let's look at President Obama's political fundraising: according to the independent Sunlight Foundation, President Obama has received more campaign contributions from Wall Street than any president in 20 years. He has raised more money from Wall Street through the Democratic National Committee and his campaign account than any politician in American history.

Other facts include:

* According to Reuters, Wall Street accounted for 20 percent of the president's campaign funds because of a massive cash haul from Goldman Sachs, AIG, Morgan Stanley, JP Morgan Chase, Bank of America and Citigroup.

This year alone, he has raked in more cash from bank employees, hedge fund managers and financial services companies than all Republican candidates combined.

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* Close to 100 of the big money bundlers for President Obama's reelection team have ties to investment banks and other financial institutions such as Morgan Stanley, Goldman Sachs, JP Morgan Chase, and Bank of America--each of which received tens of millions of dollars in bailout money at the start of the recession. (Goldman Sachs donated nearly $1 million in campaign contributions to Obama's presidential campaign. That was the most from any single employer except the University of California.)

This activity leads to putting more emphasis on the political and/or "relationship" value in spending decisions rather than the economic value in spending taxpayer money.

That is to say, companies with close ties to the administration have received loan guarantees and tax-free grants that total in the billions of dollars, rather than just millions – and taxpayers are not given any other choice but to pay for these favors.

Examples of "relationship spending" include:

* Celgard, a battery manufacturer, received $49 million in stimulus grant money despite the fact that its parent company, Polypore, was under investigation by federal regulators for monopolizing the battery industry at the time. Polypore is owned by Warburg Pincus, whose employees donated $253,000 to President Obama's 2008 campaign.

* Siga Technologies, a pharmaceutical company received a $443 million contract for an untested, unnecessary anti-smallpox pill. The administration accepted Siga's offer to provide anti-smallpox pills for an absurd $255 a dose, despite the fact that smallpox has been eradicated and that the government has enough anti-smallpox pills to save the entire U.S. population at a cost of only $3 a dose. The company’s controlling shareholder is President Obama donor Ronald Perelman.

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* Tesla Motors received $465 million in government loans to build an electric car then went public in 2010. The IPO made possible by taxpayer money caused the share price to spike, making President Obama donor Elon Musk $15 million.

* The U.S. Treasury gave a $200 million grant to Peco Energy, which is owned by Exelon, a company well-connected to the Obama Administration. Exelon executive Frank Clark and board member John Rogers Jr. are both members of the Obama campaign's National Finance Committee. Also, White House advisor David Axelrod was a longtime consultant for Exelon.

* Reports show almost 80 percent of the $20.5 billion Department of Energy loan guarantee program went to green energy companies owned or operated by President Obama donors.

Failure of this sort leads to a more inefficient and wasteful government.

As it is, much of the unfair inequality of opportunity we are seeing today has not resulted from true open free market, but of "cronyism" and ever-increasing government meddling into areas the Constitution had deliberately, and wisely, sought to constrain.

The market rewards those who add value to society, while cronyism rewards those who have connections and receive favors from professional spenders - politicians and bureaucrats from both sides of the political spectrum.

Many have failed to understand this basic fundamental difference.

Rather, they have attributed many of our current maladies to our free market system instead of placing the blame where it belongs -- on an ever more mixed economy created by government intervention into the markets and highly sophisticated brand of cronyism.

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But the administration is not alone in free-wheeling taxpayer dollars. Congress’ earmark system and liberalized budget process have given taxpayers such indispensable items like the $15 million “bridge to nowhere” in Alaska, the million-dollar soccer field in Guantanamo, the video game preservation center in New York, and the $750,000 “pancakes for yuppies” event.

Nancy Pelosi, while Speaker of the House, made huge profits in 2008 after investing millions in Visa, a company that at the time was seeking to shape credit card reform legislation. The Pelosis made a 50% profit from the deal in just two days.

These are but a few examples of the cronyist culture that only begin to scratch the surface of what has taken hold in Washington.

These examples don't even include the favorable treatment unions received in the G.M. bailout, the now famous Solyndra disgrace, or the waivers other favored companies received from complying with Obamacare.

The foregoing is not meant to denigrate these companies nor accuse any of them of committing any crimes.

However, it does expose the hypocrisy of doublespeak as President Obama has actually been speaking out against cronyism. What he should be doing is setting the example. However, candidate Barack Obama has no problem ignoring his proclaimed values when it comes to raising money for his campaign.

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Make no mistake, if Americans allow this type of crony behavior to become institutionalized, it is a cancer that will continue to erode our already fragile rule of law, irreversibly alter free and open competition into old world mercantilism, accelerate the reckless spending, and make a cesspool of our entire political system -- one filled with the worst kind of politicians free-handing away hard-earned taxpayer dollars to an immense troupe of slick and professional beggars.

When it comes to stopping cronyism, the President and Congress have shown a poor record and Americans need to hold them accountable -- you can bet their friends won't.

Daniel Garza was formerly Associate Director at the Office of Public Liaison for The White House. He is currently the Executive Director of The LIBRE Initiative. You can learn more about The LIBRE Initiative by visiting their website at www.thelibreinitiative.com , liking their facebook page “The LIBRE Initiatiative” or following them on twitter @libreinitiative