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TRANSCRIPT
Interviewed by Alex Daley
Alex: Hello, I'm
Alex Daley, and welcome to another edition of Conversations with Casey.
Today our guest is Peter Schweizer, founder of the
Government Accountability Institute and author of Throw Them All Out.
That's a big statement, Peter. All of them?
Peter: Yeah, I
think all of them. That's not to say that there aren't some honest people in
Washington, but I think what we're dealing with is a cultural problem. This
is not a problem of just a few bad apples. This is a problem that the entire
culture in Washington has gravitated towards cronyism and crony capitalism;
and I think that unless we change that, we're in for some very, very
difficult times when it comes to prosperity and economic growth in this
country.
Alex: We've all
heard stories about the connections – lobbyists and whatnot with the
Congressmen and the president and such – but really, how bad is the
problem? Is it really affecting policy?
Peter: It is. It's
affecting policy, and I think it's affecting the entire economy. Think about
this, for example. In the United States now, the city with the highest per capita
income in America is Washington, DC. They passed Silicon Valley last year.
Seven of the ten wealthiest counties in America are counties that border
Washington, DC, so government has become big business. There's a lot of money
to be made. And not only is that leading a lot of young and talented people
into influence-peddling in industries where I'd rather have them doing
something more productive, it's also changing the entire incentive structure.
We know for example now that if you look at hedge funds, hedge funds that
invest in lobbyists and make a lot of campaign contributions actually
consistently outperform those hedge funds that don't. It's not because
they're smarter – it's because they're getting access to information in
terms of legislation or trends that gives them a leg up. So I think that's
extremely troubling, and it's distorting the entire nature of our free-market
economic system.
Alex: And that
kind of influence-peddling is legal and condoned?
Peter: It is. There
are restrictions on lobbying, but there's so much else that goes on that
people don't realize. One of the biggest growth industries in Washington
right now is something called "political intelligence." I know that
sounds like an oxymoron – political intelligence – but what it
really means is that instead of an ex-politician or an ex-Senator going to
work and trying to influence legislation, what they do is they get hired by
hedge funds or by large investors, and they actually literally go to the
Senate floor, and they find out if a certain amendment or a certain piece of
legislation is going to be introduced. And that piece of legislation can have
a huge effect on markets – everything from timber prices to the
healthcare system. And if you are an investor who has a short-term informational
advantage, you know what kind of bill is going to pass and that it's going to
have a dramatic effect on the sector, again it's going to be based on your
crony access, not based on your superior knowledge about investment
decisions. And that's a big growth industry in Washington, and again, it's
further distorting and corroding the nature of our system and, I think, our
financial markets.
Alex: Ah, so it's
not what you know, it's who you know.
Peter: [Laughs]
Unfortunately, it is, and I think that's very troubling, because it may seem
naïve, but I think that having a meritocracy when you're talking about
an economic system or whether you're talking about a political system is the
way to go. We should try to reward those creative types in the private sector,
whether it's a Steve Jobs at Apple or somebody else who creates products and
services that people enjoy. Those are the people who we want to see succeed,
not people who are gaining access to inside information by paying off
ex-politicians and seeing them prosper, because that ultimately doesn't
create prosperity, it simply is an informational advantage that they use to
manipulate the markets.
Alex: And how are
they able to do this? What are the kinds of techniques that you see employed
by the Wall Streeters to try to gain their
advantage in these markets?
Peter: Well, that's
a great question. There are all kinds of ways in which they do it, because
this is an area that really both political parties engage in, and it's very profitable
for them. So, for example, we know that there are individuals that sit on
advisory boards that are unpaid at the Department of Education or other
government sectors, and they will undertake an initiative. There was an
investor in New York who sat on the Department of Education's board relating
to for-profit colleges. He went on a very aggressive campaign to say that we
needed greater regulation of for-profit colleges that advertise – trade
schools and things like that. Well, as he was doing that, he actually was
shorting stocks in several of those companies. And of course the prices went
down when the markets heard that regulation might be around the corner. What
he did, apparently, was completely legal. There was nothing unethical about
it, but it was sheer manipulation; and this is what happens when you see the
intersection of government and private finance. If you look at the way that
government loans and grants are passed out that are designed to do something
positive for our country – let's say, lessen our dependency on foreign
oil – those decisions are really made by a political calculus rather
than who has the best technique or who has the best technology.
Alex: Wow. I mean,
we've all heard of Congressmen and even the president sort of being bought
out. You can understand that, when it costs a hundred million dollars or a
billion dollars to get elected at some level, but all the way down to
individual unpaid contributors at the Department of Education? This really
goes through the whole system, doesn't it?
Peter: It does, and
they've gotten very creative in what I call "legal graft." We think
of the Congressman who's getting a shoebox full of cash – that that's
really what we really need to be concerned about. That's not what we need to
be concerned about. They're far too smart by and large to do that. But, for
example, instead of taking a pile of cash, they might have somebody come in
and say, "Look, I need a favor, and in exchange for that favor, I'll
give you access to IPO shares of stock, and you're going to make a hundred
thousand dollars in a day, because you can buy this stuff before it goes
public, and when it spikes, you can sell it." Well, that has gone on in
Washington and does, and it's completely legal. So there are all sorts of
forms of legal graft that the permanent political class in
Washington are able to engage in and do so legally and
"ethically." I'll put that in quotation marks – at least by
the standards of Washington it's considered ethical.
Alex: Yeah, I was
going to say, aren't there at least ethics rules for
say, Senators and Congressmen that prevent them from doing these kinds of
things, even if it's not yet – and probably should be – illegal?
Aren't there some rules that will at least cost them their jobs?
Peter: You know,
unfortunately not. When it comes to Congress, for example, they're basically
policing themselves. And any time you give teenagers or politicians the
opportunity to police themselves, you're asking for trouble. So, for example,
one of the things I talk about in my book is what I call the "land
deal," and I give the example of Speaker of the House Dennis Hastert,
who with some friends bought farmland in rural Illinois, and then two months
later, put an earmark in the transportation bill for $220 million to build
something called the Prairie Parkway highway. And of course that parkway was
going to run right by the property that he just purchased a couple of months
ago. He made about $2 million in that deal, but the reality is the ethics
committees looked at it, and said that basically as long as he can show at
least one other person in the community benefited from seeing that highway
built, it was okay for him to do this. That's how low the ethical standards
are, and that's what happens when you allow them to police themselves.
Alex: This sounds
like the railroad barons at the beginning of the 1800s, buying up swaths of
lands and creating towns out of nowhere, because they knew where the railroad
was going to run. It's absolutely incorrigible. What can we do about this? Is
there anything the average person can or should do to help police this,
enforce this?
Peter: Absolutely.
I'm a big believer in transparency, and what's happening is we have had some
positive reforms that have come out as a result of this book, and other media
related to this, so you now have politicians have to disclose their personal
finances every 45 days, any stock trades. So for example, if they're debating
reforming 20% of the economy, like health care in 2009, and they're trading
healthcare stocks, like they were in 2009, now we will know at the time. So
ultimately it's going to reside in people policing their elected officials.
If we expect somebody in Washington to do it – some ethics czar or
other politicians or the news media – it simply is not going to happen.
Ultimately, if we're going to be about self-government,
I would encourage people to find out what their elected officials are doing.
It's very easy to find. You can go to something called "OpenSecrets.org."
It's not a website that I own, but they put up the financial disclosures of
all politicians, and you can see what their investments are and how that
serves their interests in terms of the political decisions they're making.
Alex: Well,
sunshine is the best disinfectant, as they say –
Peter: Yes.
Alex: – but
is there anybody in government, are there any Congressmen or Senators now
trying to take action to limit some of this or maybe even to make some of
this illegal?
Peter: There are.
There are some Congressmen that came in. There's a Congressman from
Wisconsin, he's only been there a couple of years – Congressman Sean
Duffy; he was elected in 2010 – who is committed to trying to reform
the system. There are people on both sides of the political aisle that are
trying to do this, but honestly, it's not going to happen unless, in
Washington, they feel like they have to do it. They're only going to do it if
they feel the pressure from the American public. And the reason that I titled
the book Throw Them All Out is not to say that there aren't any honest
people there, but I do believe we have to have a zero-tolerance policy. If
you have an elected official who you like or maybe sees this world the same
way that you do or is a member of your political party, my view is, if
they're doing this, you have to tell them you're going to vote against them,
and you have to vote against them. Because unless we have a
zero-tolerance policy, they're going to continue to manipulate the system, enrich
themselves, their family members, and their friends in such a way that
continues to undermine the health of our entire economy. So find out what
your Congressman is doing. Even if you agree with him on the issues, tell him
you're going to vote against him because of what they are doing.
Alex: Yes, power
is the currency in Washington, so I guess the one way to hold them
accountable is to threaten to take away their power.
Peter: That's
right. That's exactly right, and voting – a
lot of people may think that voting doesn't make a difference. It makes a
huge difference, because at the end of the day, these individuals, they want
to get wealthy, but they want to keep their jobs, they want to stay in
office. And so if they feel that is at risk, they will make change.
Alex: That's
great. Well, thank you very much for talking with us today, Peter.
Peter: It's great
to be here. Thanks for having me.
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