I’d highly recommend Jane Mayer’s New Yorker piece, Covert Operations: The billionaire brothers who are waging a war against Obama, about David and Charles Koch, lifelong libertarians that have quietly given more than a hundred million dollars to right-wing causes. Here they are helping to create the Cato Institute:
In 1977, the Kochs provided the funds to launch the nation’s first libertarian think tank, the Cato Institute. According to the Center for Public Integrity, between 1986 and 1993 the Koch family gave eleven million dollars to the institute. Today, Cato has more than a hundred full-time employees, and its experts and policy papers are widely quoted and respected by the mainstream media. It describes itself as nonpartisan, and its scholars have at times been critical of both parties. But it has consistently pushed for corporate tax cuts, reductions in social services, and laissez-faire environmental policies.
And here is David Koch talking about how they hold a serious amount of ideological control over the institutions they fund, which many believe to be the Tea Party infrastructure as well (my bold):
The Kochs have gone well beyond their immediate self-interest, however, funding organizations that aim to push the country in a libertarian direction. Among the institutions that they have subsidized are the Institute for Justice, which files lawsuits opposing state and federal regulations; the Institute for Humane Studies, which underwrites libertarian academics; and the Bill of Rights Institute, which promotes a conservative slant on the Constitution. Many of the organizations funded by the Kochs employ specialists who write position papers that are subsequently quoted by politicians and pundits. David Koch has acknowledged that the family exerts tight ideological control. “If we’re going to give a lot of money, we’ll make darn sure they spend it in a way that goes along with our intent,” he told Doherty. “And if they make a wrong turn and start doing things we don’t agree with, we withdraw funding.”
The article discusses the battle of regulation between the government and Koch Industries via Koch intermediaries over environmental regulation and global warming. Sadly, presumably because of space but also because it’s a very shadowy, private battle to follow, this fight also occurred over financial reform. It’s not well reported, but subsidiaries of Koch Industries are major players in derivatives financial markets.
Here’s a report for customers explaining: “Koch Supply & Trading companies are subsidiaries of one of the world’s largest privately held companies, Koch Industries, Inc., and backed by the strong credit rating of Koch Resources, LLC.” Ah, using a strong rating based off an industrial firm from the ratings agencies to backstop a derivatives dealership out of the backroom.
And occasionally Koch Industries would show up in coverage of the debate. Here is Bloomberg, 4/10:
Industry groups backed by Koch Industries Inc. and Cargill Inc. are fighting a Senate bill that would reshape almost 30 years of policy that allowed the $605 trillion over-the-counter derivatives market to surge and helped trigger the financial crisis in 2008…A provision in the bill known as the “end-user exemption” is of particular concern to industry groups representing Koch, Lockheed Martin Corp. and Caterpillar Inc. The rule would exempt companies that use derivatives to hedge their risks in commodities, currencies and interest rates from posting margin, or a deposit against default, on over-the-counter trades.
Koch Industries took a muscular role in making sure that there were enough loopholes and broad enough exemptions so that it could escape most of the new derivatives legislation. Combined with their “And if they make a wrong turn and start doing things we don’t agree with, we withdraw funding” quote, I wonder how that impacted Cato’s coverage of the financial reform bill, which they quite despised. I noticed something was up when the Tea Party came out hard against the financial reform bill, which made little practical sense to me.
Instead of coding a group of reasonable powers that regulators lacked, Mark Calabria described it as a terrible bill, saying that the real problem was with monetary policy and Fannie/Freddie, and that Republicans were right to vote against it. They push a lot of how homeownership policy was the cause of the crisis, and still push for dismantling the CRA.
I think a lot of the housing arguments are torn apart by this simple graph from Krugman, showing that what we really saw was a credit bubble, not simply a housing bubble as it was spread across all credit channels in the economy (there is forthcoming academic work I’ve seen that will really hit this home we’ll cover when it is published):
Lots of other right-of-center people pushed for some form of derivatives regulation, notably Luigi Zingales, The Squam Lake Working Group – a collection of economist including John H. Cochrane, Douglas W. Diamond, Darrell Duffie, Kenneth R. French and Raghuram G. Rajan – here and here, Nicole Gelinas of the Manhattan Institute, Christopher Papagianis of the new shop Economics 21, and those are all off the top of my head.
Cato didn’t push that way. They seemed to be against any changes in the derivatives market (notably here and here though representative of their writing generally) and have pushed against clearing requirements (notably here). When they mention the crony carve-outs they specifically mention auto-companies instead of the far more relevant oil companies like Koch Industries (they also appear to mention in in April 2010, well after that fight was over).
(Cato also, as EoC pointed out, lead the call back in 2007 for our government to emulate Iceland. Heh.)
The issue of the regulation of clearinghouses is key, and Roosevelt Institute will be putting out some exciting work on this topic soon, but I can’t tell how to read some of what Cato has done here in light of the New Yorker story. Is this another extension of their fight against global warming research?