Dark Money

by Jane Mayer

  The most shocking aspect was its radical rewrite of America’s social contract. To reduce the deficit, Ryan prescribed massive cuts in government spending, 62 percent of which would come from programs for the poor, even though these programs accounted for only about a fifth of the federal budget. According to a New York Times analysis of a similar, later version of Ryan’s budget, 1.8 million people would be cut off food stamps, 280,000 children would lose their school lunch subsidies, and 300,000 children would lose medical coverage. Robert Greenstein of the liberal Center on Budget and Policy Priorities called the plan “Robin Hood in reverse,” arguing, “It would likely produce the largest redistribution of income from the bottom to the top in modern U.S. history.”

  The plan was successfully sold, nonetheless, winning a chorus of acclaim from conservative pundits and think tank scholars, whom the Republican leadership had treated to high-revel policy briefings. Singing the plan’s praise were the Cato Institute, the Heritage Foundation, and Grover Norquist’s powerful antitax group, Americans for Tax Reform, which declared, “Paul Ryan’s budget is what a REAL conservative budget looks like!” Many other nonprofit advocacy groups, like Public Notice, the 60 Plus Association, the Independent Women’s Forum, and American Commitment, also chimed in for the drastic spending cuts. The clamor seemed multitudinous, but beneath the surface each of these groups shared a common aquifer—the pool of cash contributed by the Koch donor network.

  A number of opinion writers also embraced Ryan as oracular. David Brooks, a moderately conservative New York Times columnist whose opinion Obama valued, declared Ryan’s plan “the most courageous budget reform proposal any of us have seen in our lifetimes…His proposal will set the standard of seriousness for anybody who wants to play in this discussion. It will become the 2012 Republican platform, no matter who is the nominee.”

  The broader news media also echoed Ryan’s claim that the federal deficit was the most pressing economic issue facing the country. As Freeland noted in Plutocrats, in April and May the five largest papers in the country published over three times more stories about the deficit than they did about jobs, even though unemployment was at 9 percent. “The right had succeeded in setting the terms of the economic debate. A good outcome for the 1 percent,” she writes.

  Ryan’s success in convincing much of the Washington media establishment that he was tackling hard problems, showing leadership, and bravely putting forth a plan to rescue entitlement programs while also fixing the country’s daunting deficit threw the White House into a tailspin. It scrambled to put forth its own new alternative plan, which to the dismay of liberals called for additional cuts in spending beyond those the administration had already offered. Top political advisers to the president, like David Plouffe and Bill Daley, had long been preoccupied with looking centrist and winning independent voters, rather than catering to their liberal base, whom Plouffe had memorably dismissed as “bedwetters.”

  President Obama now proposed $4 trillion in spending cuts over the next twelve years, not all that far from the $4.4 trillion that Ryan had proposed. The proposal so distressed Hillary Clinton, then secretary of state, a colleague said, she had to go outside to get some air.

  Then, in what came to be known as “the ambush,” the White House invited Ryan to Obama’s speech unveiling his counterproposal. With the congressman sitting in front of him, Obama lambasted Ryan’s plan as “a vision that says we can’t afford to keep the promises we made to our seniors…Put simply, it ends Medicare as we know it.” Obama accused the Republicans of giving “more than $1 trillion in new tax breaks to the wealthy” and argued that it was “less about reducing the deficit than it’s about changing the basic social compact in America.”

  Ryan was affronted at being attacked so publicly and personally. The breach of decorum became a mini-flap in Washington. Obama later told Bob Woodward that he hadn’t known Ryan was there in the auditorium when he delivered his pointed speech. “We made a mistake,” he confessed.

  Out in the country, where people were less concerned with political etiquette than whether their benefits were about to be slashed, Ryan’s proposed Medicare makeover proved immediately toxic. A Democratic underdog in a special congressional election in upstate New York clobbered the expected Republican winner by campaigning against Ryan’s Medicare plan.

  But the House Republicans were jubilant anyway. They had forced Obama to play their budget game. Instead of talking about jobs and spending, he was talking about the deficit and bargaining with them over how many trillions to cut. “We led. They reacted to us,” exalted Kevin McCarthy, the House Republican whip. The donors were excited, too. Just the fact that Obama had been thrown on the defensive convinced those whose fortunes had helped pay for the Ryan plan that their investment was worth it.

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  By the late spring, the House Republicans had Obama in a bind on another issue as well. No sooner had the president reached a temporary budget agreement with the Republicans—one that included large Democratic concessions—than the self-styled “Young Guns,” backed by the Tea Party faction in the House, forced a fight over raising the debt ceiling, a pro forma measure long used to authorize payment of the country’s financial obligations. It looked as if the Tea Party radicals were protesting profligate spending, but in fact all they were doing was refusing to formally authorize payment of funds that Congress had already appropriated, in essence refusing to pay Congress’s credit card bill after the previous year’s shopping spree. In the end, their self-destructive fight hurt themselves more than anyone else, but meanwhile the radicals’ willingness to pitch the U.S. government into default created a national crisis. The increasingly desperate standoff might produce chaos and dysfunction, but that prospect merely served the conservatives’ antigovernment agenda. In the words of Mike Lofgren, a longtime Republican congressional aide, his party was becoming like “an apocalyptic cult.”

  If Congress failed to pay its bills, the country’s AAA credit rating would be downgraded, potentially rocking markets, shaking business confidence, and worsening the painful recession. No one knew exactly how bad the consequences of default would be. Ordinarily, it would be unthinkable. Boehner had warned the insurgents in his caucus that they needed to “deal with it as adults.” But Eric Cantor, the House majority leader and a founder of the Young Guns, seized on the debt ceiling vote as what he called “a leverage moment.”

  By 2011, the extremist upstarts had formed a powerful clique within the party’s leadership and appeared itching to challenge Boehner’s authority. Many owed more to the Kochs and other radical rich backers than they did to the party. The White House was under the misimpression that stolid business forces within the Republican Party would see the threat to the economy and force the radicals back from the edge. But while more traditional business interests, as represented by the U.S. Chamber of Commerce, took this stance, the right flank of the donor base was urging the Young Guns on to a showdown. In The Wall Street Journal, Stanley Druckenmiller, a billionaire hedge fund manager, described government default as less “catastrophic” than “if we don’t solve the real problem,” by which he meant government spending. And Charles Koch made clear in a March 2011 op-ed piece in The Wall Street Journal that he regarded any raise of the debt ceiling as simply a way to “delay tough decisions.”

  Pushing the Young Guns forward toward the financial cliff was Americans for Prosperity, the Kochs’ political arm. Some forty other Tea Party and antitax groups also clamored for all-out war. Among the most vociferous was the Club for Growth, a small, single-minded, Wall Street–founded group powerful for one reason: it had the cash to mount primary challenges against Republicans who didn’t hew to its uncompromising line. The club had developed the use of fratricide as a tactic to keep officeholders in line after becoming frustrated that many candidates it backed became more moderate in office. It discovered that all it had to do was threaten a primary challenge, and “they start wetting their pants,” one founder joked. Its
top funders included many in the Koch network, including the billionaire hedge fund managers Robert Mercer and Paul Singer and the private equity tycoon John Childs.

  The Young Guns portrayed their opposition to compromise as a matter of pure principle, but beneath the surface huge vested interests were at play. The president and Boehner were close to negotiating what they called a “grand bargain” that anticipated closing some tax loopholes. The Young Guns were categorically opposed to reforms that might cut into the profits of hedge funds and private equity firms.

  Cantor was especially protective of the carried-interest tax loophole. For him, the happiness of hedge fund and private equity titans was personal. He was among the House’s top recipients of contributions from securities and investment firms. Three of the largest contributors to Cantor’s two campaign funds in 2010 were financiers affiliated with the Koch network: Steven Cohen, the billionaire founder of the hugely lucrative hedge fund SAC Capital; Paul Singer, the multimillionaire head of the so-called vulture fund Elliott Management; and Stephen Schwarzman, the billionaire co-founder of the Blackstone Group. So although one study showed that the top twenty-five hedge fund managers earned an average of nearly $600 million a year and that closing this one loophole would raise $20 billion over the next decade, Cantor and the other rebels in the House who professed concern over the deficit “crisis” refused to back Boehner’s proposed “grand bargain.”

  As tensions built in the increasingly calamitous debt ceiling stalemate, two sources say, Boehner traveled to New York to personally beseech David Koch’s help. One former adviser to the Koch family says that “Boehner begged David to ‘call off the dogs!’ He pointed out that if the country defaulted, David’s own investments would tank.” A spokeswoman for Boehner, Emily Schillinger, confirmed the visit but insisted, “Anyone who knows Speaker Boehner knows he doesn’t ‘beg.’ ” But the spectacle of the Speaker of the House, who was among the most powerful elected officials in the country, third in line in the order of presidential succession, traveling to the Manhattan office of a billionaire businessman to ask for his help in an internecine congressional fight captures just how far the Republican Party’s fulcrum of power had shifted toward the outside donors by 2011.

  In the final days of July, with default looming, Obama thought he was close to reaching a deal with Boehner. It was an abomination in the eyes of many Democrats because, among other features, it included cuts in projected Medicare and Medicaid spending. Obama had bought into the idea that cutting the deficit was of paramount importance and believed that the deal was necessary to stabilize the economy. He started preparing Democrats on the Hill for the painful news. Yet when the president called Boehner to formalize the agreement the night of July 21, to Obama’s growing fury, with the clock ticking dangerously toward default, the Speaker didn’t call him back. The president made multiple calls. He left messages. Almost an entire day passed. Finally, when Boehner called, it was to break off the talks, walk away, and then denounce Obama publicly.

  “With no basis in fact,” according to Thomas Mann and Norman Ornstein’s study of congressional dysfunction, It’s Even Worse Than It Looks, Boehner claimed that the president had reneged on the terms of their agreement. “I gave it my all,” Boehner proclaimed. “Unfortunately, the president would not take yes for an answer.”

  Cantor later told the real story to Ryan Lizza of The New Yorker. Blowing up the grand bargain had been his idea. He said it was a “fair assessment” to say that in the critical final moments he had talked Boehner out of accepting the deal for purely political reasons. Cantor had argued, why give Obama a win? Why aid his reelection campaign by helping him look competent? It would be more advantageous for the Republicans to sabotage the talks, regardless of the mess it left the country in, and wait to see if the next year’s presidential election brought them a Republican president who would give them a better deal.

  The eventual result was what Lizza described as a “byzantine” arrangement in which in order to forestall default, both parties agreed to automatic spending cuts, imposed indiscriminately across the whole budget. No one believed the mindless cuts, which were called a “sequester,” would ever get enacted. But in fact, when no other resolution could be reached, they were. The mechanism placed Obama in a fiscal straitjacket indefinitely. The chairman of the Congressional Black Caucus, Emanuel Cleaver, denounced the deal as “a sugarcoated Satan sandwich,” which the House minority leader, Pelosi, amended to “a Satan sandwich with Satan fries on the side.”

  The political damage stretched far and wide. The nonpartisan Congressional Budget Office estimated that the sequester would cost the economy 750,000 jobs a year and hurt millions of Americans who were reliant on public services. Standard & Poor’s downgraded America’s credit rating for the first time in the country’s history. The stock market plummeted, falling 635 points on the spot. The public, meanwhile, was so disgusted with Congress that polls registered the lowest approval rating in the history of such measurements. Obama’s popularity also took a hit, dropping below the all-important 50 percent threshold for the first time. He was derided and belittled by both the Left and the Right. Internal polls called him “weak.”

  A political minority, responding to the interests of its extreme sponsors, had succeeded in rendering the most powerful democracy in the world dysfunctional. Thirty years after the Libertarian Party platform called for the “abolition of Medicare and Medicaid,” the “repeal…of the increasingly oppressive Social Security System,” and “the eventual repeal of all taxation,” its billionaire backers had the upper hand.

  At this point, Neera Tanden believes, the president finally understood what he was up against. “I think he came in truly trying to be post-partisan,” she said. “I think it took the debt ceiling fight to make him see that they hated him more than they wanted to succeed. It was an irrational deal, driven by their funders.” Two and a half years into his presidency, she said, “he finally realized they would rather kill him than save themselves.”

  CHAPTER TWELVE

  Mother of All Wars: The 2012 Setback

  On a soft, summery night in Beaver Creek, Colorado, at the end of June 2011, the Kochs mustered their troops once again for what Charles described as “the Mother of All Wars.” The phrase, borrowed from the Iraqi dictator Saddam Hussein, hinted at the level of martial ferocity with which the billionaire brothers planned to approach the coming 2012 presidential campaign.

  It would be the first presidential race after the Supreme Court’s Citizens United decision. For those with the requisite financial resources, political spending was now as limitless as the open sky above the Bachelor Gulch Ritz-Carlton. Three hundred or so participants were there for the semiannual seminar, whose theme was “Understanding and Addressing Threats to American Free Enterprise and Prosperity.” This time, the planners took extra precautions to keep the proceedings secret. A series of loudspeakers formed a fence around an outdoor pavilion in which the donors met, emitting static toward the outside world, to prevent eavesdropping. Or so they thought until a reporter for Mother Jones, Brad Friedman, obtained an audio recording of the weekend’s highlights and published a transcript.

  As they gathered in the foothills of the Rockies, the donors had ample reason for optimism. The New York Times’s resident number cruncher, Nate Silver, who handicapped political odds with the unsentimental eye of a racetrack bookie, was openly asking, “Is Obama toast?” After analyzing Obama’s sagging approval rating and the economy’s lagging indicators, he concluded that Obama had gone from “a modest favorite to win re-election to, probably, a slight underdog.” If the Republicans chose a weak candidate or the economy miraculously revived, he noted, this could change. But if the challengers played it right, he predicted, Obama would go the way of the recent reelection losers Jimmy Carter and George H. W. Bush.

  The choice of a strong Republican candidate, however, fifteen months before the next presidential election, was far from assured. Behind the scen
es, Sean Noble, with the assent of the Kochs, had been furtively trying for months to persuade Paul Ryan to run for the White House. The billionaire backers were eager for him to apply his “sharp knives” to the federal budget. But Ryan had demurred. Neither he nor his wife relished a presidential marathon. “Wouldn’t it be easier just to be picked as vice president?” he asked an emissary from the Kochs, in a meeting in the congressman’s Washington office. “Because then it’s only, like, two months.”

  With Ryan declining to run, the Kochs and their operatives searched anxiously for an alternative. Mitt Romney was obviously a serious contender, but they worried that he couldn’t relate well enough to ordinary people to get elected. Polls showed that Romney, who had made a fortune in finance before his stint as governor of Massachusetts, fared dismally when voters were asked if he “cares about people like you.” The search for a more promising candidate set off a torrid courtship of Chris Christie, the tough-guy governor of New Jersey. David Koch invited Christie to his Manhattan office, where the two spent almost two hours bonding over Christie’s brawls with the unions and other liberal forces. The governor’s scrappy blue-collar style, combined with his plutocrat-friendly economic policies, made him an almost irresistible prospect. By June, the Kochs had given Christie the keynote speaker slot at their seminar, where he could audition for his party’s leading role in front of the people who could pay his way.

  Rick Perry, the governor of Texas, who preceded Christie as a speaker, provided a perfect foil. In a prelude to Perry’s later “oops” moment during the Republican debates, the governor made a poor impression on the numerically minded businessmen in the audience by displaying five fingers to illustrate a four-point plan, only to be left with one digit still waving in the air, programmatically unaccounted for.