[forbes]The cheapest asset for billionaires?

For Billionaires, Politics Is The Cheapest Asset Around

This story by Daniel Fisher and Jon Bruner appears in the Feb. 27 issue of Forbes. It comes as President Obama reversed a pledge to discourage wealthy contributors from funding independent political action committees to support his reelection. And a recent report in the Huffington Post — dismissed as inaccurate by the subject — suggested industrialist Charles Koch and his brother David had committed $60 million toward a $100 million war chest to fund anti-Obama groups. Philip Ellender, president in charge of government relations at Koch Industries, called the HuffPo report “inaccurate and unsubstantiated.” But don’t be surprised if numbers like that appear before the election is over.

Political strategist Douglas Schoen once relayed a question to former Treasury Secretary Larry Summers: When you were president of *Harvard, if someone agreed to donate a quarter-million dollars, could he or she have gotten a *meeting with you? The response: “Not a chance.” But what if that same quarter-million was going into politics? “You can get Romney, you can get Gingrich,” said Schoen, who served as a Bill Clinton’s chief pollster in the White House. “You can get a meeting with the Senate Majority Leader, the Speaker of the House, the President—anyone.”

Why is it cheaper to buy access to a President of the United States than the president of a university? That market imbalance explains why Las Vegas billionaire Sheldon Adelson is singlehandedly floating Newt Gingrich’s presidential campaign, why Mitt Romney was able to dominate the recent Florida primary, why Democrats are frantically courting their big donors—and why 2012 represents a *watershed year for the relationship between money and power.

Put simply: Political influence is currently a bargain. “The most undervalued asset in America,” as one influential billionaire told FORBES. That quarter-million gets a presidential sitting because campaign laws still cap direct campaign contributions in federal elections at $2,500 per candidate, magnifying the influence of those who are sidestepping the traditional party structure entirely.

Until recently those who wanted to curry influence on an industrial scale were stuck funding a byzantine collection of lobbying groups, think tanks and “grassroots” organizations. Witness the Koch brothers—Rube Goldberg would likely be needed to construct the organization chart of their various political efforts. But such inefficiency is no longer necessary, thanks to the Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission, which cemented the idea of political spending as free speech, eliminating a longstanding ban on corporate political spending and effectively ending limits on how much individuals can give to PACs as well.

This is the first presidential election playing out under these new rules, and while the media have become transfixed by Adelson’s support of Gingrich—yes, his well-timed $5 million infusion surely bought the South Carolina primary for his longtime friend—they are missing the larger point: The proper cost of *influencing politics has long been artificially *suppressed, and the market is now clearing.

The result is that money is surging into super PACs, the “independent” committees that nevertheless tend to be firmly aligned with one party or candidate. So far in this presidential race super PACs have spent more than $43 million, and the Democrats are just getting started (President Obama’s Priorities USA Action held $1.5 million as of the beginning of the year).
More is on the way. For all the huff and puff about the escalating cost of a presidential election—some predict it will consume $6 billion this year, up from $5 billion in 2008—these figures are a pittance relative to the assets marshaled by American billionaires. The ten richest Americans alone are worth $266 billion. There are thousands of people who could singlehandedly fund a presidential candidate the way Adelson has propped up Gingrich (the $11 million he and his wife gave to a super *PAC backing Gingrich as of the end of January represented about 13 hours of his 2011 personal wealth creation). They can influence politics in a big way without impacting their lives or those of their children or grandchildren. Tens of thousands can do the same for a congressional candidate.

This imbalance means that the money is going to flow. “Candidates are marketed and sold like any other products,” billionaire Mark Cuban, who is pointedly not backing any candidates, tells FORBES. “For anyone who is willing to spend money, the super *PAC is a very simple vehicle.”

To see how this is working, look at Florida. Adelson’s continuing support of Gingrich got the attention, but the pro-Romney Restore Our Future PAC pulled out the heavy weapons after South Carolina, spending $10.8 million on a barrage of negative ads accusing Newt of everything from supporting illegal immigration to China’s “brutal one-child policy.” Billionaires and near billionaires who came through with $1 million contributions included hedge fund manager John Paulson, the Marriott family, Houston home builder Robert M. Perry and hedge fund billionaire Julian Robertson.

Their efforts have plenty of American precedent. William McKinley won the presidency in 1896 with the aid of $4 million, or $103 million in current dollars, raised by his friend Mark Hanna and a group of like-minded industrialists. Richard Nixon raised a then unthinkable $60 million for his 1972 reelection, an effort, of course, that led to the post-Watergate establishment of the FEC to enforce campaign contribution limits.

In recent years donors have become increasingly creative about circumventing the rules (including the McCain-Feingold law, which banned large “soft money” donations to political parties). By the late 1990s rich liberals like George Soros were funding a constellation of left-leaning “community organizations” and get-out-the-vote groups that engaged in thinly disguised campaigning for Bill Clinton and other Democratic candidates.

Conservatives returned fire with Swift Vets & POWs for Truth, which torpedoed John Kerry’s candidacy in 2004 with a barrage of negative ads about his military service. Its $26 million war chest was funded to a large degree by rich Texans, including Perry ($4.5 million), corporate raider Harold Simmons ($2 million) and energy mogul Boone Pickens ($2 million). Ultimately it was fined $299,500 by the FEC for illegal campaigning and forced to disclose its donors.

The post-Citizens United rules, however, are “trivially simple,” says Joe Birkenstock, a campaign finance expert with Caplin & Drysdale in Washington. “There’s next to no paperwork.” Hire a lawyer or two and some veteran campaign officials and you’ve got a super PAC, which can directly advocate on behalf of a candidate or against another one. In terms of influence, there’s a no-lose quality to it. Bet right, and you’re a kingmaker; bet wrong, and you’re still a player to be reckoned with. “They’re buying the fear of what they could do next time,” says Schoen. “That’s as much—or most—of the impact.”

Besides the influence of the funders, there’s a growing prominence for those who put the money to work. As with a fund manager, past per*for*mance may not guarantee future results, but it does generate big checks. Karl Rove, the architect of George W. Bush’s presidential victories, has raised $18 million so far this cycle for American Crossroads, a Washington super PAC that helped win Republican control of the House of Representatives in 2010.

Super PAC influence on congressional races can be even more dramatic. Independent groups spent $4.6 million in 2010 trying to replace longtime Nevada Democratic Senator Harry Reid with Sharron Angle (they lost). Similar groups also threw $3.7 million against Republican Mark Kirk in the race for Obama’s old Senate seat in Illinois (he won anyway).

These endeavors are far more strategic than traditional party structures, able to swoop in nimbly as conditions dictate, disrupting the way campaigns have been traditionally waged. “Over time this will weaken parties and cause further fracturing of political loyalties and coalitions,” says Rob Stein, a veteran Democratic Party strategist who conducted a 2004 study of Republican tactics and concluded that his side needed an infrastructure of PACs.

It’s hard to say a candidate de facto funded by a single individual, Mark Hanna-style, is good for democracy, just as it’s equally hard to say that the government should regulate what people say. The key, then, is transparency. Super PACs register with the FEC and disclose the spending and contributors. (Hiding behind a paper corporation is a bad idea, as one of Romney’s former Bain colleagues discovered when he tried to route $1 million through a firm that disappeared after the check cleared.)

But there’s a loophole when money is routed through nonprofits. Suddenly rules designed for altruistic charities can be exploited by the likes of the AFL-CIO or Crossroads GPS, the stealthy nonprofit arm of Rove’s American Crossroads. They can take in as much as they want and have to report aggregate finances only to the IRS. They’re supposed to spend most of their money on nonpolitical activities “but the genius of this is lobbying counts as nonpolitical,” says Birkenstock. The smart 501(c) funds start their fiscal year right before an election, so they can concentrate their spending on a race and then worry about raising enough to meet the non-political requirement later.

One thing working in favor of disclosure: Those who have made their fortunes based on the crisp logic of the private sector don’t like the idea of more than half their money wasted on generic issue ads, rather than the efficient attacks ads that turned the primaries in South Carolina and Florida this year. There’s also the game-theory aspect of it all: Political influence in this new reality is now measured by viewing the league tables after the election is over.

 

^If that hangout thread is any indication, it gets cheaper by the pound.

 

You could call his patrons Koch suckers.