Throw Them All Out by Peter Schweizer Read Free Book Online

"extort money" from the lawyers. 21
    Politicians have the power to extract wealth and favors based on their ability to help or harm people. While not as explicit as the extortion by the tanning spa owner, congressional extortion goes on regularly in Washington. When they want campaign contributions or preferential treatment, members of Congress may threaten businesses or individuals with harmful legislation. There is a name for this type of coercion: "juicer bills" or "milker bills," designed to "juice" and "milk" campaign contributions and favors from businesses and industries. Professor Fred McChesney, who teaches law at Northwestern University, says this is nothing short of "political extortion." Politicians threaten to tax something or regulate something in order to extract a campaign contribution, or even for personal financial gain. 22
    How powerful is this weapon? The mere threat of adverse legislation can affect a company's stock price. Two academics looked at thirty cases in which businesses were threatened with political action and the threats were later retracted. The study found that those threats "significantly" affected the stock prices of companies. 23
    Milker bills are often introduced in the area of taxes, says McChesney. Members of Congress threaten to impose a new tax and then withdraw the bill after campaign contributions flow in. Of course, the contributions were the point in the first place.
    In the summer of 2006, Senate Majority Leader Harry Reid announced that he wanted a tax hike on hedge funds. At the time those funds were taxed at the capital gains rate of 15%. Reid declared that Democrats would put at the top of their agenda taxing hedge fund profits as regular income rather than as capital gains, meaning rates of 25% or higher. So they began working on legislation.
    In late January 2007, shortly after the Democrats had captured both houses of Congress, Senator Charles Schumer sat down to dinner with a number of top hedge fund managers at Bottega del Vino in Manhattan. The net worth of the managers at the table totaled more than $100 billion. As the
New York Times
recounted, hedge funds up to this point had spent very little money on lobbying and campaign contributions. They were quite content to be left alone by Washington. But Schumer, who headed the Democratic Senatorial Campaign Committee, wanted to change that. And with the threat of a tax increase, suddenly the hedge funds became very generous. According to the Federal Election Commission, over the course of the next eighteen months, hedge funds dumped nearly $12 million into campaign accounts—with 83% of the money going to Democrats. John Paulson, one of the most successful hedge fund managers, held fundraisers for the Democratic Senatorial Campaign Committee. James Simons, a hedge fund manager who made $1.7 billion in 2006 alone, donated $28,500 to the DSCC, and Schumer raked in $150,000 for his campaign chest. Bain Capital and Thomas H. Lee Partners, both Boston-based investment houses with hedge funds, gave generously to Senator John Kerry.
    PAY UP, OR ELSE
    Â 
    The political class also profited indirectly, because the hedge funds hired lobbyists, often the friends and former aides of politicians, to fight the bill. The Blackstone Group, which manages a huge hedge fund, had previously spent $250,000 a year on lobbying. Now Blackstone hired a number of Democratic Party lobbyists, including Schumer's former staff counsel, and spent more than $5 million on lobbying in 2007 alone. The Managed Funds Association, a lobbying group for hedge funds, also hired Democratic Party lobbyists, including a firm that employed Schumer's former aide for banking issues. Overall, dozens of former Democratic congressional staffers were hired with lucrative contracts to fight the bill.
    Then, in the late fall of 2007, Senator Reid and his colleagues suddenly changed their tune. The Senate schedule, it seemed, was just too crowded to deal with the issue.