Circling the wagons: Don't say nothin' bad about our president -- or his friends
Despite the Dow's revival over the last few days, it's not exactly a great time to be an investment fund manager. Gone is that heady era of the Bubble, when prices could only rise, stock analysts' every whim seemed the stuff of genius, and the cable talk shows actually wanted to broadcast the wisdom of twentysomething financial gurus. And then there's that recent unpleasantness about Enron ... Global Crossing ... WorldCom ... Tyco ... Qwest ...
In the words of the Rolling Stones, "Baby, better come back, maybe next week, 'cuz you see, I'm on a losing streak ..."
So it's easy to understand why the big wheeler-dealers are slightly touchy whenever somebody suggests that the Emperor might be, well, a bit underdressed. That's what happened last week when New York Times columnist Paul Krugman took a few hard shots at President George W. Bush, and more specifically, at the record of the University of Texas Investment Management Co., or UTIMCO. In the course of recounting Bush's often questionable "Steps to Wealth," Krugman treated the former governor's role in UTIMCO with a heavy hand. Bush "changed the rules governing [UT's] endowment," wrote Krugman, "eliminating the requirements to disclose 'all details concerning the investments made and income realized,' and to have 'a well-recognized performance measurement service' assess investment results." (That is, it became more difficult for the public to know or understand what was being done with public money.) Moreover, by privatizing the management of UT's financial assets, Krugman charged, "In effect, the money was put under the control of UTIMCO's chairman, Tom Hicks. Under his direction, at least $450 million was invested in private funds managed by Mr. Hicks' business associates and major Republican Party donors." (Hicks' term as chair expired in 1999.)
There was a bit more, but those were the harshest charges -- and they've been made before, much closer to home, most notably by Houston Chronicle reporter R.G. Ratcliffe in articles published in March 1999. "Almost a third of the $1.7 billion directed by UTIMCO, $252 million," reported Ratcliffe, "has been committed to funds run by Hicks' business associates or friends. Another $205 million has gone to five funds run by major Republican political donors." The Chronicle and other state papers added that because most of UTIMCO's meetings were private, it was difficult to determine the details of such investments, including possible conflicts of interest.
It didn't take long for the Emperor's tailors -- in the persons of former UT Chancellor William Cunningham and former UT Regent Bernard Rapoport -- to ride to the rescue. First in a letter to the Times, and then in a longer op-ed (published in the American-Statesman July 24), Cunningham and Rapoport pointed out -- accurately -- that all Bush did as governor was sign legislation authorizing UTIMCO. Only the investment management was privatized and not the assets themselves, they said, and Hicks, while then both a regent and chairman of UTIMCO, "made no effort to dominate investment decisions, nor did he ever vote to approve an investment decision that was not recommended by the UTIMCO staff." They also pointed out that UTIMCO board meetings "are open to the public in accordance with the state open meetings law."
Here Comes the Cavalry
These defenses are all true enough, but they also coyly dodge central questions raised by Krugman -- questions grudgingly acknowledged in a July 17 Statesman editorial ("UTIMCO's problems aren't Bush's fault") published opposite Krugman's syndicated Times column. UTIMCO "has been accused of questionable investments, conflicts of interest, operating in secret and keeping information about its investments from the public," intoned the editors. "But UTIMCO's stormy history has been of its own making, and George W. Bush, as president, governor, candidate and businessman, had very little to do with it." While not exactly a ringing defense of the UT investment company, the Statesman editorial did its deferential best to put distance between the former governor and the "stormy history" of UTIMCO.
However, since Bush currently reigns as the Crown Prince of Privatization, it's a trifle disingenuous for his defenders to imply that as governor he had little to do with the era's continuing mad rush to divest the public of public resources and public oversight, of which UTIMCO is only one small example. More importantly, neither ed. nor op-ed even sniffs the curious coincidence that -- despite Hicks' and the other regents' declared deference to staff recommendations -- "Almost a third of the $1.7 billion directed by UTIMCO, $252 million, [had been] committed to funds run by Hicks' business associates or friends [and] another $205 million [had] gone to five funds run by major Republican political donors," as Ratcliffe detailed in 1999.
Paul Krugman probably does not realize that you can't swing a dead cat in Texas -- at least a dead cat stuffed with public money -- without walloping a dozen or more major Republican political donors, most of whom (ô la Six Degrees of Kevin Bacon) will have some connection to Tom Hicks or George "Son of the Pioneers" Bush. But both the Statesman and the UT Twins know damn well that the only reason UTIMCO now acts "in accordance with the state open meetings law" (although still not legally bound to do so), and that Hicks has returned to Dallas, is that the Texas papers eventually raised such a fuss about UTIMCO's monkey business that both outcomes became inevitable. In response to public pressure, the company's first president, Thomas Ricks, told a 1999 Freedom of Information conference that despite the annoying constrictions public meetings would impose on UTIMCO's discussions, the company would "voluntarily comply" with the open meetings law.
The Usual Suspects
That was big of him: as was his $475,000 salary for 2000, more than three times the amount paid that year to the director of the Texas Employee Retirement System, who was managing a much larger fund than UTIMCO's. "We had an outstanding year," said Ricks. Ricks has since moved on, and this year hasn't been quite as outstanding. The Permanent University Fund (the largest managed by UTIMCO) lost 2.3% in the year ending May 31. Better, we are reassured, than some other folks.
As for the president, pleads the Statesman, "Bush's business dealings are questionable enough without making them worse than they are."
Take that, Paul Krugman.