by Jane Mayer
“The Koch brothers went after me literally 24-7,” recalled Boucher, who after his defeat that November became a partner at the law firm Sidley Austin. By Election Day, he recalled, he was reeling from $2 million spent against him by Americans for Prosperity and other conservative outside groups. “This is Appalachia!” he said. “It’s a cheap media market. That would have been like $10 million most other places.” He said his Republican opponent, Morgan Griffith, “actually didn’t raise and spend much, but he didn’t have to, because the Koch groups carried his water.”
Griffith’s only issue was his opposition to addressing climate change and other environmental problems, according to Boucher. Griffith’s victory left Saltville—where the EPA had forced the Olin Corporation to take responsibility for remediating a river that was still too toxic to fish—represented by a congressman who painted the EPA as the district’s greatest foe.
In Boucher’s view, the polluters had triumphed by overturning the campaign-finance laws. “There was a huge change after Citizens United,” he contends. “When anyone could spend any amount of money without revealing who they were, by hiding behind amorphous-named organizations, the floodgates opened. The Supreme Court made a huge mistake. There is no accountability. Zero.”
To shape the midterm message, Noble turned back to the pollster Frank Luntz for market testing. The Center to Protect Patient Rights paid for polls in a hundred congressional districts, often multiple times. The help did not come cheap. Records later showed that CPPR spent over $10 million in 2010 on “communications and surveys.”
After conducting focus groups, Luntz suggested that opponents needed to avoid direct attacks on Obama, who was still popular, and instead tie Democratic candidates to Nancy Pelosi, the Speaker of the House. “She was totally toxic,” one insider on the project said. “People saw her as so San Francisco, so out of touch. Their verbatims”—unedited comments—“about her were hilarious.”
To make the anticipated attack ads, Noble again chose Larry McCarthy, the veteran media consultant who was known for his ability to distill a complicated subject into a simple, potent, and usually negative symbol. McCarthy had a reputation for being a particularly shrewd consumer of O, or opposition research on the rival candidates he was targeting. He often honed his ads using polls, focus groups, micro-targeting data, and “perception analyzers”—meters that evaluated viewers’ split-second reactions to demo tapes.
McCarthy was an old hand at making disreputable ads for “outside” groups that wanted to be seen as unrelated to the candidates for reasons of legal and political hygiene. By saying the ads were “independent expenditures,” candidates got deniability. The Willie Horton ad, for instance, had been paid for by an “outside” group run by the right-wing operative who founded Citizens United, Floyd Brown. It was the same group that later made the film attacking Hillary Clinton and that gave its name to the corporate speech test case. “Larry is not just one of the best ad-makers these days,” Brown attested. “He’s one of the best advertising minds this century. You go into a studio with Larry, and you’re watching art. It’s beautiful,” he said, laughing. “From my standpoint, it’s beautiful.”
Geoff Garin, a Democratic pollster who had occasionally worked in the past with McCarthy but who was far more accustomed to being on the other side, was less effusive. He described McCarthy as a “serial offender” who had played “a pretty big part in lowering the bar on what is acceptable in American politics.”
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Shortly before the Kochs held their second summit of the year, a June get-together at the St. Regis Resort in Aspen, they got a break that enormously increased their network’s financial clout when House Democrats passed a bill, backed by President Obama, to eliminate the so-called carried-interest loophole. The idea of eliminating the special tax break enjoyed by private equity and hedge fund managers struck fear in the finance industry. Obama had won the support of a surprisingly large share of New York’s finance titans in 2008, but his stance on the tax—which would never make it through the Senate—enraged many of its heaviest hitters. Stephen Schwarzman, the chairman and CEO of the enormously lucrative private equity firm the Blackstone Group, whose personal fortune Forbes then estimated at $6.5 billion, would call the administration’s efforts to close the loophole “a war,” claiming it was “like when Hitler invaded Poland in 1939.”
Schwarzman later apologized for the remark, but in truth the relationship between Obama and Wall Street had begun deteriorating almost as soon as he took office. Financiers resented being blamed for the collapse of the economy in 2008, they took extreme umbrage when Obama had chastised them as “fat cats,” and they claimed that his administration was run by college professors who knew nothing about business. But Schwarzman and a number of other financiers regarded this as a new level of affront and flocked to the June Koch summit with their checkbooks in hand, determined to prevent his reelection.
Ironically, it was probably Schwarzman’s own excesses that had brought the carried-interest loophole to critics’ attention. In 2006, when he decided to transform Blackstone from a private partnership into a public company, he had been required to disclose his earnings for the first time. The numbers stunned both Wall Street and Washington. He made $398.3 million in 2006, which was nine times more than the CEO of Goldman Sachs. On top of this, his shares in Blackstone were valued at more than $7 billion. A 2008 New Yorker profile by James B. Stewart quotes a friend of Schwarzman’s saying, “You have no idea what an impression this made on Wall Street. You have all these guys who have spent their entire lives working just as hard to make twenty million. Sure, that’s a lot of money, but then Schwarzman turns around and, seemingly overnight, has eight billion.”
Beyond this, Stewart wrote, Schwarzman “made himself an easy target for critics of Wall Street greed and conspicuous consumption” with “an expanding collection of trophy residences that are lavish even by the current standards of Wall Street.” A 2007 Wall Street Journal profile also described how, at one of Schwarzman’s five houses, an “11,000-square-foot home in Palm Beach, Fla., he complained to Jean-Pierre Zeugin, his executive chef and estate manager, that an employee wasn’t wearing the proper black shoes with his uniform…[H]e found the squeak of the rubber soles distracting.” His own mother told the paper that money is “what drives him. Money is the measuring stick.”
Schwarzman’s most serious self-inflicted wound, though, was the $3 million sixtieth birthday party he threw for himself in February 2007, at which he paid pop stars Rod Stewart and Patti LaBelle to serenade him. The media sensation stirred by the billionaire bacchanal led directly to congressional calls to close the carried-interest loophole.
The loophole was in essence an accounting trick that enabled hedge fund and private equity managers to categorize huge portions of their income as “interest,” which was taxed at the 15 percent rate then applied to long-term capital gains. This was less than half the income tax rate paid by other top-bracket wage earners. Critics called the loophole a gigantic subsidy to millionaires and billionaires at the expense of ordinary taxpayers. The Economic Policy Institute, a progressive think tank, estimated that the hedge fund loophole cost the government over $6 billion a year—the cost of providing health care to three million children. Of that total, it said, almost $2 billion a year from the tax break went to just twenty-five individuals.
Congressional critics had been trying to close the loophole since at least 2007, but while the Democratic House had passed reform bills three times, the measures always died in the Senate, the victim of both Republican and Democratic protectors, beholden to Wall Street.
With the issue back in play in the summer of 2010, the financiers were again mobilizing. As Clifford Asness, who ran a hedge fund in Greenwich, Connecticut, had declared in a call to arms when Obama first started speaking critically of hedge fund “speculators” and “fat cats,” “Hedge funds really need a community organizer.”
Organizers were waiting for
Schwarzman and others at the June Koch summit, the theme of which was “Understanding and Addressing Threats to American Free Enterprise and Prosperity.” The financiers represented a different strain of the Republican Party from the Kochs. Few were fanatically ideological. Most were simply concerned with protecting their continued accumulation of wealth. But when their resources were combined with the idea machinery built by the conservative movement’s early funders, along with the ideological zealotry of the Kochs and other antigovernment radicals, the result was a raging river of cash capable of carrying the whole Republican Party to the right.
Another hedge fund manager who attended the Aspen session was the former Obama bundler Ken Griffin, founder and CEO of the Chicago-based hedge fund Citadel, whose shift from a Democratic bundler for Obama to the Republican side was part of what came to be known as the “Hedge Fund Switch.” Other billionaire financiers at the event included the Home Depot founder turned investment banker Ken Langone and the Massachusetts-based private equity investor John Childs. Childs was the second-in-command at Thomas H. Lee Partners when it made $900 million in two years in a leveraged buyout deal for the beverage company Snapple. His own company, J. W. Childs Associates, had ups and downs, but he had been a consistently huge investor in conservative politics, once described as “the closest thing the Republican Party has to an automatic teller machine in Massachusetts.” In the 2010 election cycle, Childs would go on to spend $907,000 on federal elections.
The hedge fund manager Paul Singer, chairman of the Manhattan Institute and a major contributor to the Republican Party, didn’t attend, but his close aide Annie Dickerson appeared on his behalf. Singer’s company, Elliott Management, had a unique niche in the financial world. It bought the distressed debt of bankrupt companies and countries and then demanded to be paid in full or, if necessary, took them to court. Critics had called the tactic immoral particularly when applied to impoverished countries, castigating him as a “vulture capitalist” who profited off poverty, but Singer had accumulated a fortune estimated at $900 million from the practice. Singer, who described himself as a Goldwater free-enterprise conservative, was a supporter of gay rights but a harsh critic of the Obama administration’s proposed financial regulatory reforms. Furious with the Democrats, he hosted his own fund-raiser in Manhattan for Republican candidates opposing Dodd-Frank and other financial reforms that summer. He also attended a similar meeting at the $14 million home of another disgruntled hedge fund donor, Steve Cohen of SAC Capital. According to later reports, this small and intensely wealthy circle of billionaire moguls soon “pumped at least $10 million” into groups boosting Republicans in the midterms, often without any public trace.
The concentration of wealth at the Koch summit by this point was extraordinary. Of the two hundred or so participants meeting secretly with the Kochs in Aspen that June, at least eleven were on Forbes’s list of the four hundred wealthiest Americans. The combined assets of this group alone, assessed in accordance with the magazine’s estimates of their wealth at the time, amounted to $129.1 billion.
Hoping to inspire their generosity, Noble previewed a sample television ad for the donors, slamming Obamacare, as well as touting the Republicans’ chances of winning, on a panel titled “Mobilizing Citizens for November.” “Is there a chance this fall to elect leaders who are more strongly committed to freedom and prosperity?” the brochure for the discussion asked. “This session will further assess the landscape and offer a plan to educate voters on the importance of economic freedom.”
Joining Noble on the panel was Tim Phillips, the president of Americans for Prosperity, who unveiled his group’s plan to spend an unheard-of $45 million on a few targeted midterm races.
In the evening, conference goers were treated to a rousing dinner speech from the Fox News host Glenn Beck titled, in homage to Hayek, “Is America on the Road to Serfdom?” Finally, topping off the night was a “cocktails and dessert reception,” hosted by DonorsTrust. Whitney Ball, the head of the organization that offered donors a politically safe way to give big and anonymously, later explained her attendance at the event succinctly: It’s a “target-rich environment.”
On the final day, the donors engaged in auction-like bids over lunch, one-upping each other with their seven-figure pledges amid laughter and applause. Charles and David Koch themselves reportedly pledged $12 million. By the end of the meal, the Koch-backed nonprofits could count on $25 million more in the kitty.
By July, Democratic strategists began to feel a strange undertow, as if an offshore tsunami were gathering force. One operative put together a chart compiling the pledged midterm expenditures by ten Republican-aligned independent groups and was appalled to discover that this slice of the total spending alone would likely reach at least $200 million. Americans for Prosperity had pledged to spend $45 million. Karl Rove’s group American Crossroads had pledged $52 million. The U.S. Chamber of Commerce had committed to spend $75 million. Countless other groups, including an unknown number of dark-money organizations loaded with secret funds, were lined up to spend millions and millions more. A Democratic operative who saw the chart, which was passed around like samizdat within the party, admitted that it was “one hell of a wake-up call.”
The numbers caught the Obama administration off guard. The former White House aide Anita Dunn admits, “It was clear that Citizens United was going to open the floodgates and it would be bad for the Democrats. But it exploded in 2010. The amount spent in those midterms probably surprised everyone.”
As late as May, Axelrod had barely known who the Kochs were. When a reporter asked what he knew about them, he seemed unsure. Later, the Koch public relations team would suggest that press coverage of them was initiated by the White House. In truth, Obama’s political team was almost clueless. Only after Noble’s team, working undercover, began launching attacks on Democrats all across the country did some in the White House start to sense something odd. As Axelrod recalls, “We began to wonder, where is all this money coming from?”
In Iowa, the American Future Fund began airing an ad created by Larry McCarthy that Geoff Garin, the Democratic pollster, described as perhaps “the most egregious of the year.” The ad accused the then congressman Bruce Braley, an Iowa Democrat and a lawyer, of supporting a proposed Islamic community center in lower Manhattan, which it misleadingly called a “mosque at Ground Zero.” As footage of the destroyed World Trade Center rolled, a narrator said, “For centuries, Muslims built mosques where they won military victories.” Now it said a mosque celebrating 9/11 was to be built on the very spot “where Islamic terrorists killed three thousand Americans”; it was, the narrator suggested, as if the Japanese were to build a triumphal monument at Pearl Harbor. The ad then accused Braley of supporting the mosque.
In fact, Braley had taken no position on the issue. No surprise for a congressman from Iowa. But an unidentified video cameraman had ambushed him at the Iowa State Fair and asked him about it.
Braley replied that he regarded the matter as a local zoning issue for New Yorkers to decide. Soon afterward, he says, the attack ad “dropped on me like the house in ‘The Wizard of Oz.’ ” Braley, who won his seat by a margin of 30 percent in 2008, barely held on in 2010. The American Future Fund’s effort against Braley was the most expensive campaign that year by an independent group.
After the election, Braley accused McCarthy, the ad maker, of “profiting from Citizens United in the lowest way.” As for those who hired McCarthy, he said, they “are laughing all the way to the bank. It’s a good investment for them…They’re the winners. The losers are the American people, and the truth.”
In North Carolina, Congressman Bob Etheridge, a seven-term Democrat, fared worse. He was the target of ads made by McCarthy for another of Noble’s front groups, Americans for Job Security. That summer, Etheridge was walking on Capitol Hill when he too found himself the victim of a video ambush. Two young men in suits approached him. One thrust a video camera in his face while the other de
manded to know, “Do you fully support the Obama agenda?” Taken aback, Etheridge asked, “Who are you?” When he got no answer, he asked again. Growing irate, he repeated the question five times, until finally he pushed the camera away and gripped his inquisitor.
“Please let go of my arm, Congressman,” the inquisitor pleaded as the camera kept recording.
“Who are you?” Etheridge repeated.
Finally, the interviewer stammered, “I’m just a student, sir.”
“From?” Etheridge asked.
“The Streets,” came the answer.
Within days, a video of the confrontation, edited to make Etheridge seem unhinged, was posted on the conservative Web site Big Government under the headline “Congressman Attacks Student.” It went viral. Soon afterward, McCarthy inserted the video into an attack ad titled “Who Are You?” in which people purporting to be from Etheridge’s district answered, “We’re your constituents,” and then accused Etheridge—inaccurately—of wanting to cut Medicare. As per Luntz’s instructions, Nancy Pelosi figured prominently in the ads as well. The spot that dealt the deathblow to Etheridge, finally, was one that accused him, like Braley, of supporting the “Ground Zero Mosque.”
The local television station WRAL-TV in Raleigh, which covered the campaign, noted that Americans for Job Security had spent $360,000 on media against Etheridge, but at the time no one was able to figure out who was behind the group.
After a seventeen-day recount, Etheridge lost in November in a stunning upset to a Tea Party sympathizer, Renee Ellmers, who was a nurse running with the support of Sarah Palin. The next day, the National Republican Congressional Committee (NRCC), which had previously denied any role, acknowledged that it had been behind the ambush video. How the video made its way into the “independent” ad was never revealed, but the NRCC, too, was one of McCarthy’s clients.