How Fossil Fuel Money Made Climate Change Denial
the Word of God
Koch Brothers buy the 2016 Election for $889 Million
Citizens United decision opened the floodgates
for unlimited spending by outside groups. There is now shadowy
fundraising - outside of the official Party Committees.
The Supreme Court 's
Citizen United decision was made with the belief that we had full disclosure
of Super Pac contributors - they were so wrong.
conservative Koch brothers
announced to donors at their annual retreat that they
would spend 1/3 of $889 million in the
2016 presidential and congressional races.
The Koch network's 17 organizations (
approximately 300 rich donors) are to spend about two-thirds
of the $889 million “to help support research and education programs,
scholarships and other efforts designed to change policies and promote a
culture of freedom in the United States,” according to their newsletter. It
includes money that will be donated to the United Negro College Fund, Youth
Entrepreneurs, criminal justice reform and “other worthy causes that help
people improve their lives,” it says.
The remaining one-third will be in direct electoral
spending, including presidential, congressional, state and local races.
(Donations by the Democratic and Republican parties, in contrast, are more
focused on direct electoral efforts than issue advocacy.)
Sept. 29, 2015, interview with Forbes, Charles Koch
rejected claims that the Kochs will spend close to $1 billion on 2016
campaigns. He said “a small fraction” will come directly from his brother
and himself. He estimated about $300 million out of the nearly $900 million
would fund 2016 elections, but the final amount will be decided by donors.
The Kochs and their rich Republican allies, is akin to a
POLITICAL PARTY unto itself .
Whilst the Democratic and Republican Parties
must still abide by Campaign Contribution limits
and disclose their donors, the
Koch groups don't !
The Koch network consists almost entirely of
groups that don't register under the campaign finance
laws and so don't publicly identify their donors.
"So much of their funding and operations are conducted in secret that we
really don't know who else is behind this" .
how the Kochs got so rich, and how they used that fortune to buy off
American action on climate change. They
hijacked the Tea Party movement and,
eventually, the Republican Party itself. You’d
today, if not for the Kochs.
The earliest known conference of climate-change
in 1991, sponsored by the Koch funded Cato
2019 Koch's continue to fund Propaganda
Jan 2018 The Koch network plans to
spend $400 million in the midterm cycle, a 60 percent increase over
Jan 2018 Koch Brothers Could Be $1 Billion Richer Each Year From GOP Tax
The Koch Government: These 44
Trump Officials Have Close Ties to Right-Wing Billionaire Brothers
Trump wouldn’t be President if
not for Robert Mercer
The Doubt Machine: Inside the Koch Brothers' War on Climate Science
reveals how the Koch Brothers have used their vast wealth to ensure the
American political system takes no action on climate change.
Aug 2016 - Groups tied to the Koch brothers lied to the IRS —
and they’re paying for it
even the Republican controlled Federal Elections Committee ( FEC)
had no choice but to act ! ( now the FEC is being sued)
Who pays for TV Attack Ads? Though
Americans for Prosperity Foundation is clearly trying to influence
elections, it is shielded from having to disclose the donors that fund its
work by its 501(c)(4) tax status, which
labels it a “social welfare”
organization. The same goes for its affiliated 501(c)(3) foundation.
Both nonprofit groups spent millions — about $40 million combined — in 2010
attacking Democratic candidates and initiatives
new health care law and cap-and-trade proposals.
unlike (c)(4)s, must disclose their donors.
Several super PACs, such as
American Crossroads on the Republican side and
Priorities USA Action,
have affiliated 501(c)(4) groups.
Video: Seth Meyers on the 158
families that have donated half of the Campaign Funds
The Kochs opened a PANEL featuring three prospective
2016 candidates to the media via a livestream - Republican
- Marco Rubio of Florida,
- Ted Cruz of Texas and
- Rand Paul of Kentucky.
Marc Rubio said “I believe in freedom of speech
and I believe spending money on political campaigns is a form of political
speech that is protected under the Constitution,” .
“And the people who seem to have a problem with it are the ones who only want
Unions to be able to do it, their friends in
Hollywood to be able to do it and their friends in
the media to be able to do it.”
Ted Cruz chimed in, calling Senate Majority
Leader Harry Reid’s repeated attacks on the
Koch brothers in the 2012 and 2014 cycles,
“grotesque and offensive.”
This PANEL constituted three major 2016 candidates openly jockeying for the
blessing of the Koch network.
Ryan noted—a clear
subversion of the Citizens United
ruling whose rationale for allowing outside groups to spend unlimited sums was
that they would not be able to directly coordinate with
candidates or their committees.
But that doesn’t mean it hasn’t happened before. Last April, Wisconsin Gov.
Scott Walker, New Jersey Gov.
Chris Christie, Ohio Gov. John Kasich and
former Florida Gov. Jeb Bush flew to Las Vegas for
an audition of sorts with billionaire Sheldon
Adelson, who famously kept Newt Gingrich’s 2012
presidential campaign afloat, even after the former Speaker’s electoral
prospects all but vanished. So unabashed were the prospective candidates’
pandering to the casino mogul that The Atlantic’s
Molly Ball dubbed the event
the “Sheldon Adelson Suck-Up Fest.”
“The laws are a joke when
presidential candidates can be bought by a dark
money group like the Kochs.”
Presidential super PACs are more necessity than novelty in a modern campaign.
Four 2016 candidates
have formed POLITICAL NONPROFITS, which have
even looser rules around disclosure. (four Republicans—Rick Perry,
Rick Santorum, Bobby Jindal,
and John Kasich Such activities were once the
province of campaign committees, where donors are named and expenses are
tallied. But by raising money through "social welfare"
not-yet-candidates are avoiding disclosure of both their financiers and what,
exactly, they are financing.)
Hillary Clinton's Super PAC raised $11 million
in 2014. There was a time when an $11 million would have been a big kitty, but
next to this, it barely purrs.
Koch Brothers' Toxic Empire
What is less clear is where all that money comes from. Koch Industries is
headquartered in a squat, smoked-glass building that rises above the prairie on
the outskirts of Wichita, Kansas. The building,
like the brothers' fiercely private firm, is literally and figuratively a black
box. Koch touts only one top-line financial figure: $115 billion in annual
revenue, as estimated by Forbes. By that
metric, it is larger than IBM, Honda or Hewlett-Packard and is
America's second-largest private company after agribusiness colossus
Cargill. The company's stock response to inquiries
from reporters: "We are privately held and don't disclose this information."
But Koch Industries is not entirely opaque. The company's troubled legal
history – including a trail of congressional
investigations, Department of Justice consent
decrees, civil lawsuits and felony convictions
– augmented by internal company documents, leaked State
Department cables, Freedom of Information
disclosures and company whistle-blowers, combine
to cast an unwelcome spotlight on the toxic empire
whose profits finance the modern
Under the nearly five-decade reign of CEO Charles Koch, the company has paid
out record civil and criminal environmental penalties.
And in 1999, a jury handed down to Koch's pipeline company what was then the
largest wrongful-death judgment
of its type in U.S. history, resulting from the explosion of a
defective pipeline that incinerated a pair of Texas teenagers.
The volume of Koch Industries' toxic output is staggering. According to the
University of Massachusetts Amherst's Political Economy
Research Institute, only three companies rank among
the top 30 polluters of America's air, water and climate:
ExxonMobil, American Electric Power and Koch Industries.
Thanks in part to its 2005 purchase of paper-mill giant
Georgia-Pacific, Koch Industries dumps more pollutants into the nation's
waterways than General Electric and International Paper combined.
The company ranks 13th in the nation for toxic air pollution. Koch's climate
pollution, meanwhile, outpaces oil giants including Valero, Chevron and Shell.
Across its businesses, Koch generates 24 million metric tons of
greenhouse gases a year.
For Koch, this license to pollute amounts to a perverse,
hidden subsidy. The cost is borne by communities in cities like Port Arthur,
Texas, where a Koch-owned facility produces as much as 2 billion pounds of
petrochemicals every year. In March, Koch signed a consent decree with the
Department of Justice requiring it to spend more than $40 million to bring this
plant into compliance with the Clean Air Act.
Dirty Business Practices
|The toxic history of Koch Industries is not
limited to physical pollution. It also extends to the company's business
practices, which have been the target of numerous federal investigations,
resulting in several indictments and convictions, as well as a whole host of
fines and penalties.
And in one of the great ironies of the
Obama years, the president's
financial-regulatory reform seems to benefit Koch Industries. The company is
expanding its high-flying trading empire precisely as
Wall Street banks – facing tough new restrictions, which Koch has
largely escaped – are backing away from commodities speculation.
often said that the Koch brothers are in the oil business. That's true as
far as it goes – but Koch Industries is not a major oil producer. Instead,
the company has woven itself into every nook of the vast industrial web that
transforms raw fossil fuels into usable goods. Koch-owned businesses trade,
transport, refine and process fossil fuels, moving them across the world and
up the value chain until they become things we forgot began with
hydrocarbons: fertilizers, Lycra, the innards of our smartphones.
The company controls at least four oil refineries,
six ethanol plants, a natural-gas-fired power plant and 4,000 miles of
pipeline. Until recently, Koch refined roughly five
percent of the oil burned in America (that percentage is down after it
shuttered its 85,000-barrel-per-day refinery in North Pole, Alaska, owing,
in part, to the discovery that a toxic solvent had leaked from the facility,
fouling the town's groundwater). From the fossil fuels it refines, Koch also
produces billions of pounds of petrochemicals, which, in turn, become the
feedstock for other Koch businesses. In a journey across Koch Industries,
what enters as a barrel of West Texas Intermediate can exit as a
A 1996 explosion of a Koch-owned pipeline in Texas killed two teens.
(Photo: National Transportation Safety Board)
|Koch's hunger for growth is insatiable: Since
1960, the company brags, the value of Koch Industries has grown 4,200-fold,
outpacing the Standard & Poor's index by nearly 30 times. On average, Koch
projects to double its revenue every six years. Koch is now a key player in
the fracking boom that's vaulting the
United States past Saudi Arabia as the world's top oil producer, even as
it's endangering America's groundwater. In 2012, a Koch subsidiary opened a
pipeline capable of carrying 250,000 barrels a
day of fracked crude from South Texas to
Corpus Christi, where the company owns a
refinery complex, and it has announced plans to further expand its Texas
pipeline operations. In a recent acquisition, Koch bought
Frac-Chem, a top provider of hydraulic
fracturing chemicals to drillers. Thanks to the Bush
administration's anti-regulatory agenda – which Koch Industries helped
craft – Frac-Chem's chemical cocktails,
injected deep under the nation's aquifers, are almost entirely
exempt from the Safe
Drinking Water Act.
Koch is also long on the richest – but also the
dirtiest and most carbon-polluting – oil deposits in North America: the tar sands of Alberta. The company's
Pine Bend refinery, near
St. Paul, Minnesota, processes nearly a quarter of the Canadian
bitumen exported to the United States – which, in turn, has created for Koch
Industries a lucrative sideline in petcoke
exports. Denser, dirtier and cheaper than coal,
petcoke is the dregs of tar-sands
refining. U.S. coal plants are largely
forbidden from burning petcoke, but it can be
profitably shipped to countries with lax pollution laws like
Mexico and China.
One of the firm's subsidiaries, Koch Carbon, is expanding its
Chicago terminal operations to receive up to 11
million tons of petcoke for global export. In June, the EPA noted the
facility had violated the Clean Air Act with petcoke particulates that
endanger the health of South Side residents. "We dispute that the two
elevated readings" behind the EPA notice of violation "are violations of
anything," Koch's top lawyer, Mark Holden, told
Rolling Stone, insisting that Koch Carbon is a good neighbor.
Over the past dozen years, the company has quietly acquired leases for
1.1 million acres of Alberta oil fields, an
area larger than Rhode Island. By some
estimates, Koch's direct holdings nearly double ExxonMobil's and nearly
triple Shell's. In May,
Koch Oil Sands Operating LLC of Calgary, Alberta,
sought permits to embark on a multi-billiondollar
tar-sands-extraction operation. This one site is projected to produce
22 million barrels a year – more than a full day's supply of U.S. oil.
Koch, the 78-year-old CEO and chairman of the board of Koch Industries, is
inarguably a business savant. He presents himself as a man of moral clarity
and high integrity. "The role of business is to produce products and
services in a way that makes people's lives better," he said recently. "It
cannot do so if it is injuring people and harming the environment in the
Almost from the beginning, Koch Industries' risk-taking crossed over into
recklessness. The OPEC oil embargo hit the
company hard. Koch had made a deal giving the company the right to buy a
large share of Qatar's export crude. At the
time, Koch owned five supertankers and had chartered many others. When the
embargo hit, Koch had upward of half a billion dollars in exposure to
tankers and couldn't deliver OPEC oil to the
U.S. market, creating what Charles has called "large losses." Soon, Koch
Industries was caught overcharging American customers. The
Ford administration in the summer of 1974
compelled Koch to pay out more than $20 million in rebates and future price
Koch Industries' manipulations were about to get more audacious. In the
late 1970s, the federal government parceled out
exploration tracts, using a lottery in which anyone could score a 10-year
lease at just $1 an acre – a game of chance that gave wildcat prospectors
the same shot as the biggest players. Koch didn't like these odds, so it
enlisted scores of frontmen to bid on its behalf. In the event they won the
lottery, they would turn over their leases to the company. In 1980, Koch
Industries pleaded guilty to five felonies in federal
court, including conspiracy to commit fraud.
With Republicans and Democrats united in regulating the oil business,
Charles had begun throwing his wealth behind the upstart Libertarian Party,
seeking to transform it into a viable third party. Over the years, he would
spend millions propping up a league of affiliated think tanks and front
groups – a network of Libertarians that became known as the "Kochtopus."
Charles even convinced David to stand as the
Libertarian Party's vice-presidential candidate in 1980 – a clever
maneuver that allowed David to lavish unlimited money on his own ticket. The
Koch-funded 1980 platform was nakedly in the brothers' self-interest –
slashing federal regulatory agencies, offering a 50 percent tax break to top
earners, ending the "cruel and unfair" estate tax and abolishing a $16
billion "windfall profits" tax on the oil industry. The words of
Libertarian presidential candidate Ed Clark's
convention speech in Los Angeles ring across
the decades: "We're sick of taxes," he declared. "We're ready to have a very
big tea party." In a very real sense, the modern
Republican Party was on the ballot that year – and it was running
against Ronald Reagan.
Charles' management style and infatuation with far-right politics were
endangering his grip on the company. Bill believed his brothers' political
spending was bad for business. "Pretty soon, we would get the reputation
that the company and the Kochs were crazy," he said.
In late 1980, with Frederick's backing, Bill launched an unsuccessful
battle for control of Koch Industries, aiming to take the company public.
Three years later, Charles and David bought out their brothers for $1.1
billion. But the speed with which Koch Industries paid off the buyout debt
left Bill convinced, but never quite able to prove, he'd been defrauded. He
would spend the next 18 years suing his brothers,
calling them "the biggest crooks in the oil industry."
Bill also shared these concerns with the federal
government. Thanks in part to his efforts, in 1989 a
Senate committee investigating Koch business
with Native Americans would describe Koch Oil
tactics as "grand larceny." In the late 1980s,
Koch was the largest purchaser of oil from American
tribes. Senate investigators suspected
the company was making off with more crude from tribal oil fields than it
measured and paid for. They set up a sting, sending an
FBI agent to coordinate stakeouts of eight remote leases. Six of them
were Koch operations, and the agents reported "oil
theft" at all of them.
One of Koch's gaugers would refer to this as "volume enhancement." But in
sworn testimony before a Texas jury, Phillip
Dubose, a former Koch pipeline manager, offered a more succinct definition:
"stealing." The Senate
committee concluded that over the course of three years Koch "pilfered" $31 million in Native oil; in 1988, the
value of that stolen oil accounted for nearly
a quarter of the company's crude-oil profits.
"I don't know how the company could have figures like that," the
FBI agent testified, "and not have top
management know that theft was going on." In his own
testimony, Charles offered that taking oil readings "is a very uncertain
art" and that his employees "aren't rocket scientists." Koch's top lawyer
would later paint the company as a victim of Senate
By this time, the Kochs had soured on the
Libertarian Party, concluding that control of a small party would
never give them the muscle they sought in the nation's capital. Now they
would spend millions in efforts to influence – and ultimately take over –
the GOP. The work began close to home; the
Kochs had become dedicated patrons of Sen. Bob Dole of Kansas, who ran
interference for Koch Industries in Washington. On the
Senate floor in March 1990, Dole
gloatingly cautioned against a "rush to judgment" against Koch, citing "very
real concerns about some of the evidence on which the special committee was
basing its findings." A grand jury investigated the claims but disbanded in
1992, without issuing indictments.
Arizona Sen. Dennis DeConcini was "surprised and disappointed" at the
decision to drop the case. "Our investigation was some of the finest work
the Senate has ever done," he said. "There was
an overwhelming case against Koch." But Koch did not avoid all punishment.
Under the False Claims Act, which allows
private citizens to file lawsuits on behalf of the government, Bill sued the
company, accusing it of defrauding the feds of royalty income on its "volumeenhanced"
purchases of Native oil. A jury concluded Koch
had submitted more than 24,000 false claims,
exposing Koch to some $214 million in penalties.
Koch later settled, paying $25 million.
Selfinterest continued to define Koch Industries' adventures in public
policy. In the early 1990s, in a high-profile initiative of the first-term
Clinton White House, the administration was
pushing for a levy on the heat content of fuels. Known as the
BTU tax, it was the earliest attempt by the
federal government to recoup damages from climate polluters. But Koch
Industries could not stand losing its most valuable subsidy: the public
policy that allowed it to treat the atmosphere as an open sewer. Richard
Fink, head of Koch Company's Public Sector and the longtime mastermind of
the Koch brothers' political empire, confessed to
The Wichita Eagle in 1994 that Koch could not compete if it
actually had to pay for the damage it did to the environment: "Our belief is
that the tax, over time, may have destroyed our business."
To fight this threat, the Kochs funded a "grassroots" uprising – one that
foreshadowed the emergence, decades later, of the Tea
Party. The effort was run through Citizens for
a Sound Economy, to which the brothers had spent a decade giving
nearly $8 million to create what David Koch called "a
sales force" to communicate the brothers' political agenda through
town hall meetings and anti-tax rallies designed to
look like spontaneous demonstrations. In 1994, David Koch bragged
that CSE's campaign "played a key role in
defeating the administration's plans for a huge
and cumbersome BTU tax."
Despite the company's increasingly
sophisticated political and public-relations operations, Charles' philosophy
of regulatory resistance was about to bite Koch Industries – in the form of
record civil and criminal financial penalties
imposed by the Environmental Protection Agency.
Koch entered the 1990s on a pipeline-buying spree. By 1994, its network
measured 37,000 miles. According to sworn testimony from former Koch
employees, the company operated its pipelines with almost
complete disregard for maintenance. As Koch
employees understood it, this was in keeping with their CEO's trademarked
business philosophy, MarketBased Management (MBM).
For Charles, MBM – first
communicated to employees in 1991 – was an attempt to distill the business
practices that had grown Koch into one of the largest oil businesses in the
world. To incentivize workers, Koch gives employees bonuses that correlate
to the value they create for the company. "Salary is viewed only as an
advance on compensation for value," Koch wrote, "and compensation has an
To prevent the stagnation that can often bog down big
enterprises, Koch was also determined to incentivize risk-taking. Under MBM,
Koch Industries books opportunity costs – "profits foregone from a missed
opportunity" – as though they were actual losses on the balance sheet. Koch
employees who play it safe, in other words, can't strike it rich.
On paper, MBM sounds innovative and
exciting. But in Koch's hyperaggressive corporate culture, it contributed to
a series of environmental disasters. Applying
MBM to pipeline maintenance, Koch employees
calculated that the opportunity cost of shutting down equipment to ensure
its safety was greater than the profit potential of
pushing aging pipe to its limits.
The fact that preventive pipeline maintenance is required
by law didn't always seem to register. Dubose, a 26-year Koch veteran who
oversaw pipeline areas in Louisiana, would
testify about the company's lax attitude toward maintenance. "It was a
question of money. It would take away from our profit margin." The testimony
of another pipeline manager would echo that of Dubose: "Basically, the
philosophy was 'If it ain't broke, don't work on it.'"
When small spills occurred, Dubose testified, the company would
cover them up. He recalled incidents in which
the company would use the churn of a tugboat's engine to break up waterborne
spills and "just kind of wash that thing on
down, down the river." On land, Dubose said,
"They might pump it [the leaked oil] off into a
drum, then take a shovel and just turn the earth over." When larger spills
were reported to authorities, the volume of the discharges was habitually
low-balled, according to Dubose.
Managers pressured employees to falsify
pipeline-maintenance records filed with federal authorities; in a
sworn affidavit, pipeline worker Bobby Conner recalled arguments with his
manager over Conner's refusal to file false reports: "He would always
respond with anger," Conner said, "and tell me that I did not know how to be
a Koch employee." Conner was fired and later
settled a wrongful-termination suit with Koch Gateway Pipeline. Dubose
testified that Charles was not in the dark about the company's operations.
"He was in complete control," Dubose said. "He was the one that was
line-driving this Market-Based Management at
Before the worst spill from this time, Koch employees had raised concerns
about the integrity of a 1940s-era pipeline in South
Texas. But the company not only kept the line in service, it
increased the pressure to move more volume. When a valve snapped shut in
1994, the brittle pipeline exploded. More than
90,000 gallons of crude spewed into Gum Hollow
Creek, fouling surrounding
marshlands and both
Nueces and Corpus Christi bays with a
12-mile oil slick.
By 1995, the EPA had
seen enough. It sued Koch for gross violations of the
Clean Water Act. From 1988 through 1996, the
company's pipelines spilled 11.6 million gallons of
crude and petroleum products. Internal Koch records showed that its
pipelines were in such poor condition that it
would require $98 million in repairs to bring them up to industry standard.
Ultimately, state and federal agencies forced Koch to pay a $30 million
civil penalty – then the
largest in the history of U.S. environmental law – for
312 spills across six states. Carol Browner,
the former EPA administrator, said of Koch,
"They simply did not believe the law applied to them." This was not just
partisan rancor. Texas
Attorney General John Cornyn, the future Republican senator, had
joined the EPA in bringing suit against Koch.
"This settlement and penalty warn polluters that they cannot treat oil
spills simply as the cost of doing business," Cornyn said. (The Kochs seem
to have no hard feelings toward their one-time tormentor; a lobbyist for
Koch was the number-two bundler for Cornyn's primary campaign this year.)
Koch wasn't just cutting corners on its pipelines. It was also
violating federal environmental law in other
corners of the empire. Through much of the 1990s at its
Pine Bend refinery in
Minnesota, Koch spilled up to 600,000 gallons
of jet fuel into wetlands near the Mississippi
River. Indeed, the company was treating the
Mississippi as a sewer, illegally dumping
ammonia-laced wastewater into the river – even increasing its
discharges on weekends when it knew it wasn't being monitored.
Koch Petroleum Group eventually pleaded guilty
to "negligent discharge of a harmful quantity of oil"
and "negligent violation of the Clean Water Act,"
was ordered to pay a $6 million fine and $2 million in remediation costs,
and received three years' probation. This facility had already been declared
a Superfund site in 1984.
In 2000, Koch was hit with a 97-count indictment over claims it violated
the Clean Air Act by venting massive quantities
of benzene at a refinery in
Corpus Christi – and then attempted to cover it
up. According to the indictment, Koch filed documents with
Texas regulators indicating releases of just
0.61 metric tons of benzene for 1995 –
one-tenth of what was allowed under the law. But the government alleged that
Koch had been informed its true emissions that
year measured 91 metric tons, or 15 times the legal
By the time the case came to trial, however, George
W. Bush was in office and the indictment had been significantly pared
down – Koch faced charges on only seven counts. The
Justice Department settled in what many perceived to be a
sweetheart deal, and Koch pleaded guilty to a
single felony count for covering up the fact
that it had disconnected a key pollution-control device and did not measure
the resulting benzene emissions – receiving
five years' probation. Despite skirting stiffer criminal prosecution, Koch
was handed $20 million in fines and reparations
– another historic judgment.
But even as compliance began to improve among its industrial operations,
the company aggressively expanded its trading activities into the Wild West
frontier of risky financial instruments. In
2000, the Commodity Futures Modernization Act
had exempted many of these products from regulation, and Koch Industries was
among the key players shaping that law. Koch joined up with
Enron, BP, Mobil and J. Aron – a division of
Goldman Sachs then run by Lloyd Blankfein – in
a collaboration called the Energy Group. This
corporate alliance fought to prohibit the federal government from policing
oil and gas derivatives. "The importance of derivatives for the
Energy Group companies . . . cannot be
overestimated," the group's lawyer wrote to the
Commodity Futures Trading Commission in 1998. "The success of this
business can be completely undermined by . . . a costly regulatory regime
that has no place in the energy industry."
Koch had long specialized in "over-the-counter" or
OTC trades – private, unregulated contracts not disclosed on any
centralized exchange. In its own letter to the CFTC,
Koch identified itself as "a major participant in the
OTC derivatives market," adding that the
company not only offered "risk-management tools for its customers" but also
traded "for its own account." Making the case for what would be known as the
Enron Loophole, Koch argued that any big firm's desire to "maintain a good
reputation" would prevent "widespread abuses in the
OTC derivatives market," a darkly
hilarious claim, given what would become not only of
Enron, but also Bear Stearns, Lehman Brothers
The Enron Loophole
became law in December 2000 – pushed along by Texas Sen. Phil Gramm, giving
the Energy Group exactly what it wanted. "It
completely exempted energy futures from regulation,"
says Michael Greenberger, a former director of trading and markets at the
CFTC. "It wasn't a matter of regulators not
enforcing manipulation or excessive speculation limits – this market wasn't
covered at all. By law."
Before its spectacular collapse, Enron would
use this loophole in 2001 to help engineer an energy crisis in California,
artificially constraining the supply of natural gas and power generation,
causing price spikes and rolling blackouts. This blatant and criminal market
manipulation has become part of the legend of Enron.
But Koch was caught up in the debacle. The CFTC
would charge that a partnership between Koch and the utility
Entergy had, at the height of the California
crisis, reported fake natural-gas trades to reporting firms and also
"knowingly reported false prices and/or volumes" on real trades.
One of 10 companies punished for such schemes,
Entergy-Koch avoided prosecution by paying a $3 million fine as part
of a 2004 settlement with the CFTC, in which it
did not admit guilt to the commission's charges but is barred from
maintaining its innocence.
Trading, which had long been peripheral to the company's
core businesses, soon took center stage. In 2002, the company launched a
subsidiary, Koch Supply & Trading.
KS&T got off to a rocky start. "A series of bad
trades," writes a Koch insider, "boiled over in early 2004 when a large
'sure bet' crude-oil trade went south, resulting in a quick, multimillion
loss." But Koch traders quickly adjusted to the reality that energy markets
were no longer ruled just by supply and demand – but by rich speculators
trying to game the market. Revamping its strategy, Koch Industries soon
began bragging of record profits. From 2003 to 2012,
KS&T trading volumes exploded – up 450 percent. By 2009,
KS&T ranked among the world's top-five oil
traders, and by 2011, the company billed itself as "one of the leading
quantitative traders" – though Holden now says it's no longer in this
Trading with Iran
Artificially constraining oil supplies is
not the only source of dark, unregulated profit for Koch Industries. In the
years after George W. Bush branded
Iran a member of the "Axis of Evil," the Koch
brothers profited from trade with the state sponsor of terror and reckless
would-be nuclear power. For decades, U.S. companies have been forbidden from
doing business with the Ayatollahs, but Koch Industries
exploited a loophole in 1996
sanctions that made it possible for foreign
subsidiaries of U.S. companies to
do some business in Iran.
In the ensuing years, according to Bloomberg
Markets, the German and Italian arms of Koch-Glitsch,
a Koch subsidiary that makes equipment for oil fields and refineries, won
lucrative contracts to supply Iran's Zagros
plant, the largest methanol plant in the world. And thanks in part to Koch,
methanol is now one of Iran's leading non-oil
exports. "Every single chance they had to do business with
Iran, or anyone else, they did," said Koch
whistle-blower George Bentu. Having signed on to work for a company that
lists "integrity" as its top value, Bentu added, "You feel totally betrayed.
Everything Koch stood for was a lie."
Koch reportedly kept trading with
Tehran until 2007 – after the regime was exposed for supplying IEDs
to Iraqi insurgents killing U.S. troops. According to lawyer Holden, Koch
has since "decided that none of its subsidiaries would engage in trade
involving Iran, even where such trade is permissible under U.S. law."
These days, Koch's most disquieting foreign dealings are
in Canada, where the company has massive
investments in dirty tar sands. The company's
1.1 million acres of leases in northern Alberta
contain reserves of economically recoverable oil numbering in the billions
of barrels. With these massive leaseholdings, Koch is poised to continue
profiting from Canadian crude whether or not
the Keystone XL pipeline gains approval, says
Andrew Leach, an energy and environmental economist at the business school
of the University of Alberta.
Counter-intuitively, approval of
Keystone XL could actually harm one of Koch's most profitable
businesses – its Pine Bend refinery in
Minnesota. Because tar-sands crude presently
has no easy outlet to the global market, there's a glut of
Canadian oil in the midcontinent, and Koch's
refinery is a beneficiary of this oversupply; the resulting discount can
exceed $20 a barrel compared to conventional crude. If it is ever built, the
Keystone XL pipeline will provide a link to
Gulf Coast refineries – and thus the global export market, which would erase
much of that discount and eat into company profit margins.
Leach says Koch Industries'
tar-sands leaseholdings have them hedged against the potential
approval of Keystone XL. The pipeline would
increase the value of Canadian
tar-sands deposits overnight. Koch could then
profit handsomely by flipping its leases to more established producers.
"Optimizing asset value through trading," Koch literature says of these and
other holdings, is a "key" company strategy.
The one truly bad outcome for Koch would be if
Keystone XL were to be defeated, as many
environmentalists believe it must be. "If the signal that sends is that no
new pipelines will be built across the U.S. border for carrying oil-sands
product," Leach says, "that's going to have an impact not just on Koch
leases, but on everybody's asset value in oil sands." Ironically, what's
best for Koch's tar-sands interests is what the
Obama administration is currently delivering:
"They're actually ahead if Keystone XL gets
delayed a while but hangs around as something that still might happen,"
The Koch family, mid-1950s. (Photo: Wichita State
The Koch family's lucrative blend of pollution,
speculation, law-bending and self-righteousness stretches back to the early
20th century, when Charles' father first entered the oil business. Fred C.
Koch was born in 1900 in Quanah, Texas – a sunbaked patch of prairie across
the Red River from Oklahoma. Fred was the second son of Hotze "Harry" Koch,
a Dutch immigrant who – as recalled in Koch literature – ran "a modest
newspaper business" amid the dusty poverty of Quanah. In the family legend,
Fred Koch emerged from the nothing of the Texas range to found an empire.
But like many stories the company likes to tell about itself, this piece of
Kochlore takes liberties with the truth. Fred was not a simple country boy,
and his father was not just a small-town publisher. Harry Koch was also a
local railroad baron who used his newspaper to promote the Quanah, Acme &
Pacific railways. A director and founding shareholder of the company, Harry
sought to build a rail line across Texas to El Paso. He hoped to turn Quanah
into "the most important railroad center in northwest Texas and a
metropolitan city of first rank." He may not have fulfilled those ambitions,
but Harry did build up what one friend called "a handsome pile of dinero."
Harry was not just the financial springboard for the Koch
dynasty, he was also its wellspring of far-right politics. Harry
editorialized against fiat money, demanded hangings for "habitual criminals"
and blasted Social Security as inviting sloth. At the depths of the
Depression, he demanded that elected officials in Washington should stop
trying to fix the economy: "Business," he wrote, "has always found a way to
overcome various recessions."
In the company's telling, young Fred was an innovator
whose inventions helped revolutionize the oil industry. But there is much
more to this story. In its early days, refining oil was a dirty and wasteful
practice. But around 1920, Universal Oil Products introduced a clean and
hugely profitable way to "crack" heavy crude, breaking it down under heat
and heavy pressure to boost gasoline yields. In 1925, Fred, who earned a
degree in chemical engineering from MIT, partnered with a former Universal
engineer named Lewis Winkler and designed a near carbon copy of the
Universal cracking apparatus – making only tiny, unpatentable tweaks.
Relying on family connections, Fred soon landed his first client – an
Oklahoma refinery owned by his maternal uncle L.B. Simmons. In a flash,
Winkler-Koch Engineering Co. had contracts to install its knockoff cracking
equipment all over the heartland, undercutting Universal by charging a
one-time fee rather than ongoing royalties.
It was a boom business. That is, until Universal sued in
1929, accusing WinklerKoch of stealing its intellectual property. With his
domestic business tied up in court, Fred started looking for partners abroad
and was soon doing business in the Soviet Union, where leader Joseph Stalin
had just launched his first Five Year Plan. Stalin sought to fund his
country's industrialization by selling oil into the lucrative European
export market. But the Soviet Union's reserves were notoriously hard to
refine. The USSR needed cracking technology, and the Oil Directorate of the
Supreme Council of the National Economy took a shining to Winkler-Koch –
primarily because Koch's oil-industry competitors were reluctant to do
business with totalitarian Communists.
Between 1929 and 1931, Winkler-Koch built 15 cracking
units for the Soviets. Although Stalin's evil was no secret, it wasn't until
Fred visited the Soviet Union, that these dealings seemed to affect his
conscience. "I went to the USSR in 1930 and found it a land of hunger,
misery and terror," he would later write. Even so, he agreed to give the
Soviets the engineering know-how they would need to keep building more.
Back home, Fred was busy building a life of baronial
splendor. He met his wife, Mary, the Wellesley-educated daughter of a Kansas
City surgeon, on a polo field and soon bought 160 acres across from the
Wichita Country Club, where they built a Tudorstyle mansion. As chronicled
in Sons of Wichita, Daniel Schulman's investigation of the Koch
dynasty, the compound was quickly bursting with princes: Frederick arrived
in 1933, followed by Charles in 1935 and twins David and Bill in 1940. Fred
Koch lorded over his domain. "My mother was afraid of my father," said Bill,
as were the four boys, especially first-born Frederick, an artistic kid with
a talent for the theater. "Father wanted to make all his boys into men, and
Freddie couldn't relate to that regime," Charles recalled. Frederick got
shipped East to boarding school and was all but disappeared from Wichita.
With Frederick gone, Charles forged a deep alliance with
David, the more athletic and assertive of the young twins. "I was closer
with David because he was better at everything," Charles has said.
Fred Koch's legal battle with Universal would drag on for
nearly a quarter-century. In 1934, a lower court ruled that Winkler-Koch had
infringed on Universal's technology. But that judgment would be vacated,
after it came out in 1943 that Universal had bought off one of the judges
handling the appeal. A year later, the Supreme Court decided that Fred's
cracker, by virtue of small technical differences, did not violate the
Universal patent. Fred countersued on antitrust grounds, arguing that
Universal had wielded patents anti-competitively. He'd win a $1.5 million
settlement in 1952.
Around that time, Fred had built a domestic oil empire
under a new company eventually called Rock Island Oil & Refining,
transporting crude from wellheads to refineries by truck or by pipe. In
those later years, Fred also became a major benefactor and board member of
the John Birch Society, the rabidly anti-communist organization founded in
1958 by candy magnate and virulent racist Robert Welch. Bircher publications
warned that the Red endgame was the creation of the "Negro Soviet Republic"
in the Deep South. In his own writing, Fred described integration as a Red
plot to "enslave both the white and black man."
Like his father, Charles Koch attended MIT. After he
graduated in 1959 with two master's degrees in engineering, his father
issued an ultimatum: Come back to Wichita or I'll sell the business. "Papa
laid it on the line," recalled David. So Charles returned home, immersing
himself in his father's world – not simply joining the John Birch Society,
but also opening a Bircher bookstore. The Birchers had high hopes for young
Charles. As Koch family friend Robert Love wrote in a letter to Welch:
"Charles Koch can, if he desires, finance a large operation, however, he
must continually be brought along."
But Charles was already falling under the sway of a
charismatic radio personality named Robert LeFevre, founder of the Freedom
School, a whites-only libertarian boot camp in the foothills above Colorado
Springs, Colorado. LeFevre preached a form of anarchic capitalism in which
the individual should be freed from almost all government power. Charles
soon had to make a choice. While the Birchers supported the Vietnam War, his
new guru was a pacifist who equated militarism with out-of-control state
power. LeFevre's stark influence on Koch's thinking is crystallized in a
manifesto Charles wrote for the Libertarian Review in the 1970s,
recently unearthed by Schulman, titled "The Business Community: Resisting
Regulation." Charles lays out principles that gird today's Tea Party
movement. Referring to regulation as "totalitarian," the 41-year-old Charles
claimed business leaders had been "hoodwinked" by the notion that regulation
is "in the public interest." He advocated the "barest possible obedience" to
regulation and implored, "Do not cooperate voluntarily, instead, resist
whenever and to whatever extent you legally can in the name of justice."
After his father died in 1967, Charles, now in command of
the family business, renamed it Koch Industries. It had grown into one of
the 10 largest privately owned firms in the country, buying and selling some
80 million barrels of oil a year and operating 3,000 miles of pipeline. A
black-diamond skier and white-water kayaker, Charles ran the business with
an adrenaline junkie's aggressiveness. The company would build pipelines to
promising oil fields without a contract from the producers and park tanker
trucks beside wildcatters' wells, waiting for the first drops of crude to
flow. "Our willingness to move quickly, absorb more risk," Charles would
write, "enabled us to become the leading crude-oilgathering company."
Charles also reconnected with one of his father's earliest
insights: There's big money in dirty oil. In the late 1950s, Fred Koch had
bought a minority stake in a Minnesota refinery that processed heavy
Canadian crude. "We could run the lousiest crude in the world," said his
business partner J. Howard Marshall II – the future Mr. Anna Nicole Smith.
Sensing an opportunity for huge profits, Charles struck a deal to convert
Marshall's ownership stake in the refinery into stock in Koch Industries.
Suddenly the majority owner, the company soon bought the rest of the
David Koch (Photo: Alexis C. Glenn /Landov)
$296 million – then the
largest wrongful-death judgment in American legal history
day before Danielle Smalley was to leave for college, she and her friend
Jason Stone were hanging out in her family's mobile home. Seventeen years
old, with long chestnut hair, Danielle began to feel nauseated. "Dad," she
said, "we smell gas." It was 3:45 in the afternoon on August 24th, 1996,
near Lively, Texas, some 50 miles southeast of Dallas. The Smalleys were too
poor to own a telephone. So the teens jumped into her dad's 1964 Chevy
pickup to alert the authorities. As they drove away, the truck stalled where
the driveway crossed a dry creek bed. Danielle cranked the ignition, and a
fireball engulfed the truck. "You see two children burned to death in front
of you – you never forget that," Danielle's father, Danny, would later tell
Unknown to the Smalleys, a decrepit Koch pipeline carrying
liquid butane – literally, lighter fluid – ran through their subdivision. It
had ruptured, filling the creek bed with vapor, and the spark from the
pickup's ignition had set off a bomb. Federal investigators documented both
"severe corrosion" and "mechanical damage" in the pipeline. A National
Transportation Safety Board report would cite the "failure of Koch Pipeline
Company LP to adequately protect its pipeline from corrosion."
Installed in the early Eighties, the pipeline had been out
of commission for three years. When Koch decided to start it up again in
1995, a water-pressure test had blown the pipe open. An inspection of just a
few dozen miles of pipe near the Smalley home found 538 corrosion defects.
The industry's term of art for a pipeline in this condition is Swiss cheese,
according to the testimony of an expert witness – "essentially the pipeline
Koch repaired only 80 of the defects – enough to allow the
pipeline to withstand another pressure check – and began running explosive
fluid down the line at high pressure in January 1996. A month later,
employees discovered that a key anticorrosion system had malfunctioned, but
it was never fixed. Charles Koch had made it clear to managers that they
were expected to slash costs and boost profits. In a sternly worded memo
that April, Charles had ordered his top managers to cut expenditures by 10
percent "through the elimination of waste (I'm sure there is much more waste
than that)" in order to increase pre-tax earnings by $550 million a year.
The Smalley trial underscored something Bill Koch had said
about the way his brothers ran the company: "Koch Industries has a
philosophy that profits are above everything else." A former Koch manager,
Kenoth Whitstine, testified to incidents in which Koch Industries placed
profits over public safety. As one supervisor had told him, regulatory fines
"usually didn't amount to much" and, besides, the company had "a stable full
of lawyers in Wichita that handled those situations." When Whitstine told
another manager he was concerned that unsafe pipelines could cause a deadly
accident, this manager said that it was more profitable for the company to
risk litigation than to repair faulty equipment. The company could "pay off
a lawsuit from an incident and still be money ahead," he said, describing
the principles of MBM to a T.
At trial, Danny Smalley asked for a judgment large enough
to make the billionaires feel pain: "Let Koch take their child out there and
put their children on the pipeline, open it up and let one of them die," he
told the jury. "And then tell me what that's worth." The jury was emphatic,
awarding Smalley $296 million – then the largest
wrongful-death judgment in American legal history. He later settled
with Koch for an undisclosed sum and now runs a pipeline-safety foundation
in his daughter's name. He declined to comment for this story. "It upsets
him too much," says an associate.
Recklessness be gone
official Koch line is that scandals that caused the company millions in
fines, judgments and penalties prompted a change in Charles' attitude of
regulatory resistance. In his 2007 book, The Science of Success, he
begrudgingly acknowledges his company's recklessness. "While business was
becoming increasingly regulated," he reflects, "we kept thinking and acting
as if we lived in a pure market economy. The reality was far different."
Charles has since committed Koch Industries to obeying
federal regulations. "Even when faced with laws we think are
counterproductive," he writes, "we must first comply." Underscoring just how
out of bounds Koch had ventured in its corporate culture, Charles admits
that "it required a monumental undertaking to integrate compliance into
every aspect of the company." In 2000, Koch Petroleum Group entered into an
agreement with the EPA and the
Justice Department to spend $80 million at
three refineries to bring them into compliance with the
Clean Air Act. After hitting Koch with a $4.5
million penalty, the EPA granted the company a
"clean slate" for certain past violations.
Then George W. Bush entered
the White House in 2001, his campaign fattened with Koch money. Charles Koch
may decry cronyism as "nothing more than welfare for the rich and powerful,"
but he put his company to work, hand in glove, with the
Bush White House. Correspondence, contacts and
visits among Koch Industries representatives and the Bush White House
generated nearly 20,000 pages of records, according to a
Rolling Stone FOIA request of the
George W. Bush Presidential Library. In 2007, the administration installed a
fiercely anti-regulatory academic, Susan Dudley, who hailed from the
Koch-funded Mercatus Center at George Mason University, as its top
Today, Koch points to awards it has won for safety and
environmental excellence. "Koch companies have a strong record of
compliance," Holden, Koch's top lawyer, tells
Rolling Stone. "In the distant past, when we failed to meet
these standards, we took steps to ensure that we were building a culture of
10,000 percent compliance, with 100 percent of our employees complying 100
percent." To reduce its liability, Koch has also unwound its pipeline
business, from 37,000 miles in the late 1990s to about 4,000 miles. Of the
much smaller operation, he adds, "Koch's pipeline practice and operations
today are the best in the industry."
Since Koch Industries aggressively expanded into high finance, the net
worth of each brother has also exploded – from roughly $4 billion in 2002 to
more than $40 billion today. In that period, the company embarked on a
corporate buying spree that has taken it well beyond petroleum. In 2005,
Koch purchased Georgia Pacific for $21 billion, giving the company a familiar,
expansive grip on the industrial web that transforms Southern pine into
consumer goods – from plywood sold at Home Depot
to brand-name products like Dixie Cups and
Angel Soft toilet paper. In 2013, Koch leapt
into high technology with the $7 billion acquisition of
Molex, a manufacturer of more than 100,000
electronics components and a top supplier to smartphone makers, including
Koch Supply & Trading makes money both from
physical trades that move oil and commodities across oceans as well as in
"paper" trades involving nothing more than high-stakes bets and cash. In
paper trading, Koch's products extend far beyond simple oil futures. Koch
pioneered, for sale to hedge funds, "volatility swaps," in which the actual
price of crude is irrelevant and what matters is only the "magnitude of
daily fluctuations in prices." Steve Mawer, until recently the president of
KS&T, described parts of his trading operation as "black-box stuff."
Like a casino that bets at its own craps table, Koch engages in
"proprietary trading" – speculating for the company's own bottom line.
"We're like a hedge fund and a dealer at the same time," bragged Ilia
Bouchouev, head of Koch's derivatives trading
in 2004. "We can both make markets and speculate." The company's many
tentacles in the physical oil business give Koch rich insight into market
conditions and disruptions that can inform its speculative bets. When oil
prices spiked to record heights in 2008, Koch was a major player in the
speculative markets, according to documents leaked by Vermont Sen.
Bernie Sanders, with trading volumes rivaling
Wall Street giants like Citibank. Koch rode a
trader-driven frenzy – detached from actual supply and demand – that drove
prices above $147 a barrel in July 2008, battering a global economy about to
enter a free fall.
Only Koch knows how much money Koch reaped during this price spike. But,
as a proxy, consider the $20 million Koch and its
subsidiaries spent lobbying Congress in 2008 – before then, its
biggest annual lobbying expense had been $5 million – seeking to derail a
raft of consumer-protection bills, including:
|the Federal Price Gouging Prevention Act,
|the Stop Excessive Energy Speculation Act
of 2008, |
|the Prevent Unfair Manipulation of Prices Act
of 2008 and |
|the Close the Enron Loophole Act.|
In comments to the Federal Trade
Commission, Koch lobbyists defended the company's right to rack up
fantastic profits at the expense of American consumers. "A mere attempt to
maximize profits cannot constitute market manipulation," they wrote, adding
baldly, "Excessive profits in the face of shortages are desirable."
When the global economy crashed in 2008, so did oil
prices. By December, crude was trading more than $100 lower per barrel than
it had just months earlier – around $30. At the same time, oil traders
anticipated that prices would eventually rebound. Futures contracts for
delivery of oil in December 2009 were trading at nearly $55 per barrel. When
future delivery is more valuable than present inventory, the market is said
to be "in contango." Koch exploited the contango market to the hilt. The
company leased nine supertankers and filled them with cut-rate crude and
parked them quietly offshore in the Gulf of Mexico, banking virtually
risk-free profits by selling contracts for future delivery.
All in, Koch took about 20 million barrels of oil off the
market, putting itself in a position to bet on price disruptions the company
itself was creating. Thanks to these kinds of trading efforts, Koch could
boast in a 2009 review that "the performance of Koch
Supply & Trading actually grew stronger last year as the global
economy worsened." The cost for those risk-free profits was paid by
consumers at the pump. Estimates pegged the cost of the contango trade by
Koch and others at up to 40 cents a gallon.
Outside its London offices, protesters gather. (Photo:
Unfettered by financial regulation
The Dodd-Frank bill
was supposed to put an end to economyendangering speculation in the $700
trillion global derivatives market. But Koch has
managed to defend – and even expand – its turf, trading in largely unregulated
derivatives, once dubbed "financial weapons of mass destruction" by billionaire
In theory, the Enron
Loophole is no longer open – the government now has the power to police
manipulation in the market for energy derivatives. But the
Obama administration has not yet been able to come up with new rules that
actually do so. In 2011, the CFTC mandated
"position limits" on derivative trades of oil and other commodities. These would
have blocked any single speculator from owning futures contracts representing
more than a quarter of the physical market – reducing the danger of
manipulation. As part of the International Swaps and
Derivatives Association, which also reps many Wall Street giants
including Goldman Sachs and
JPMorgan Chase, Koch fought these new restrictions.
ISDA sued to block the position limits – and won in court in September
2012. Two years later, CFTC is still spinning its
wheels on a replacement. Industry traders like Koch are, Greenberger says,
"essentially able to operate as though the Enron Loophole
were still in effect."
Koch is also reaping the benefits from Dodd-Frank's
impacts on Wall Street. The so-called
Volcker Rule, implemented at the end of last year,
bans investment banks from "proprietary trading" – investing on their own behalf
in securities and derivatives. As a result, many Wall
Street banks are unloading their commodities-trading units. But
Volcker does not apply to nonbank traders like
Koch. They're now able to pick up clients who might previously have traded with
JPMorgan. In its marketing materials for its
trading operations, Koch boasts to potential clients that it can provide
"physical and financial market liquidity at times when others pull back." Koch
also likely benefits from loopholes that exempt the company from posting
collateral for derivatives trades and allow it to
continue trading swaps without posting the transactions to a transparent
electronic exchange. Though competitors like BP and
Cargill have registered with the
CFTC as swaps dealers – subjecting their trades to
tightened regulation – Koch conspicuously has not. "Koch is compliant with all
CFTC regulations, including those relating to swaps
dealers," says Holden, the Koch lawyer.
That a massive company with such a troubling record as Koch Industries
remains unfettered by financial regulation should
strike fear in the heart of anyone with a stake in the
health of the American economy. Though Koch has cultivated a reputation
as an economically conservative company, it has long
flirted with danger. And that it has not suffered a catastrophic loss in
the past 15 years would seem to be as much about luck as about skillful
The Kochs have brushed up against some of the major debacles of the crisis
years. In 2007, as the economy began to teeter, Koch was gearing up to plunge
into the market for credit default swaps, even
creating an affiliate, Koch Financial Products, for
that express purpose. KFP secured a AAA rating from
Moody's and reportedly sought to buy up
toxic assets at the center of the financial crisis
at up to 50-times leverage. Ultimately, Koch Industries survived the experiment
without losing its shirt.
More recently, Koch was exposed to the fiasco at
MF Global, the disgraced brokerage firm run by
former New Jersey Gov. Jon Corzine that improperly
dipped into customer accounts to finance reckless bets on European debt. Koch,
one of MF Global's top clients, reportedly told
trading partners it was switching accounts about a month before the brokerage
declared bankruptcy – then the eighth-largest in U.S. history. Koch says the
decision to pull its funds from MF Global was made
more than a year before. While MF's small-fry
clients had to pick at the carcass of Corzine's company to recoup their assets,
Koch was already swimming free and clear.
Because it's private, no one outside of Koch
Industries knows how much risk Koch is taking – or
whether it could conceivably create systemic risk, a concern raised in 2013 by
the head of the Futures Industry Association. But
this much is for certain: Because of the loopholes in
financial-regulatory reform, the next company to put the American economy
at risk may not be a Wall Street bank but a trading giant like Koch. In 2012,
Gary Gensler, then CFTC chair, railed against the
very loopholes Koch appears to be exploiting,
raising the specter of AIG.
"[AIG] had this massive risk built up in its
derivatives just because it called itself an insurance company rather than a
bank," Gensler said. When Congress adopted Dodd-Frank,
Gensler added, it never intended to exempt financial heavy hitters just because
"somebody calls themselves an insurance company"
Republican Party -- a protection racket for
In "the science of success," Charles Koch highlights the
problems created when property owners "don't benefit from all the value they
create and don't bear the full cost from whatever value they destroy." He is
particularly concerned about the "tragedy of the commons," in which shared
resources are abused because there's no individual accountability. "The biggest
problems in society," he writes, "have occurred in those areas thought to be
best controlled in common: the atmosphere, bodies of water, air. . . ."
But in the real world, Koch Industries has used its political might to
beat back the very market-based mechanisms that (–
including a cap-and-trade market for carbon pollution
– needed to create the ownership rights for pollution that Charles says)
would improve the functioning of capitalism.
|In fact, it appears the very essence of
the Koch business model is to exploit breakdowns in
the free market. Koch has profited precisely by
dumping billions of pounds of pollutants into our
waters and skies – essentially for free. It racks up enormous profits from
speculative trades lacking economic value that drive up costs for consumers
and create risks for our economy.
The Koch brothers
get richer as the costs of what Koch destroys are
foisted on the rest of us – in the form of ill health, foul water and a
climate crisis that threatens life as we know it on this planet.
Now nearing 80 – owning a large chunk of the
Alberta tar sands and using his billions to transform the modern
Republican Party into a
protection racket for Koch Industries' profits – Charles Koch is not
about to see the light. Nor does the CEO of one of America's most toxic
firms have any notion of slowing down. He has made it clear that he has no
retirement plans: "I'm going to ride my bicycle till I fall off."
Charles Koch (Photo: Larry W. Smith / Polaris)
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