As Texas Goes... (5 page)

Johnson’s mammoth ambition led him into alliances with the Texas business oligarchy that would pay for all his major campaigns. “He gave them what they wanted, which was contracts,” Caro said. “He gave them these immense contracts and they financed his campaigns and the campaigns of people he wanted them to finance.” As a senator, Johnson swung right to accommodate the conservative-to-reactionary Texas forces outside his own district. “But then when he becomes president he changes completely,” said Caro.

The politician who, as a young man, had once taught impoverished Mexican American children and swore “if I ever had a chance to help those underprivileged kids I was going to do it,” actually did it. And as long as Johnson was around, he kept the Texas Democrats together, through the sheer force of his overwhelming personality and the great expectations of gain from Washington that his growing powers promised. “Johnson was a very unusual human being,” said Caro.

But after LBJ was gone from power in 1969, and the Civil Rights Act he had championed was infuriating a generation of segregationist Texans, the conservative part of the Democratic Party broke off and ran for the other side. When they got there, they turned out to be far righter of wing than many folks had appreciated. When Caro started working on his Johnson books, he went to Texas to talk to some of the people who had known the late president. “I think I went down the first time in 1977,” Caro said. “I was sort of astonished, because the people who had backed Johnson, like John Connally and George Brown, they were by this time Republicans. But they were such violent Republicans.”

“DeLay took things to a much more poisonous level”

The Texas right wing had been a slightly uncomfortable, inside-player power in the Democratic Party. But once it switched sides, it fit right in. The new Texas Republicans were ready to help turn the rest of the GOP into something more aggressive, more radically conservative, a party ready to do battle for the empty-place ethos with the fighting spirit of the Alamo. Picture William Travis as head of the House Rules Committee.

It’s not as if the old Texas Democratic flame has died out. San Antonio still worships the memory of liberal icon Henry Gonzalez. Houston has elected a gay Democrat as mayor. To some, Austin may look like Berkeley with low unemployment and country music. But statewide, Texas politics has become a mixture of Tea Party populism and big-business conservatism that fits in perfectly with the national Republican tide.

There are several reasons why the state got this political tone so fast. For one thing, although money talks loudly in all American politics, it really yells in Texas. The campaign finance laws basically allow any individual to give any amount to anyone, as long as he or she reports it. And Texas has always had more than its fair share of very wealthy people who want to make their opinions felt. Its early history as a semifeudal economy dominated by the cattle barons, oil barons, and mining barons set the pace. Campaigns in Texas tend to be very expensive because it is so big—more than twenty distinct media markets, far more than any other state. Also, voting participation is generally terrible. (
In 2010, Maine
had the highest turnout in the nation at 56 percent of the eligible population. Texas was dead last at 33 percent.) The record is likely to get worse in the future, thanks to a new voter identification law that is pretty clearly designed to discourage poor people from going to the polls.

In a one-party state with low turnout and high campaign costs, power flows disproportionately to anyone with the money to organize and advertise. The people with that kind of cash in Texas tend to be extremely conservative. The combined effect of all this is to give the state a relatively united, high-volume voice in national affairs—the voice of the state’s wealth oligarchy, and the wide open spaces.

The biggest barrier to Texas’s national political influence has been the rest of the country’s suspicion of Texas politicians. Modern history is littered with disastrous Texas presidential candidacies, from John Connally—who proved that money really isn’t everything—to Rick Perry, who demonstrated that good hair won’t get you all that far, either. Other than Lyndon Johnson, who came to office via the Kennedy assassination, the Texans who made it to the White House were people who were born somewhere else. The perfect bridge candidate was George H. W. Bush, a Texas oilman with roots in Connecticut and Kennebunkport, Maine. “H. W. was not a Texan,” said Jim Marston, the director of the Environmental Defense Fund’s Texas office. “We don’t use ‘summer’ as a verb.”

H. W. had settled with his family in Midland, in that pleasant but extremely modest house where he and Barbara raised their young family, which today still bears testimony to the fact that their oldest son was once both a Boy Scout and a charter member of the Roy Rogers Riders Club. (That was about as close to horses as W. was ever going to get.) A defender of business interests, especially when the business was oil, H. W. was otherwise not actually all that conservative by current standards. As president, he signed a major new civil rights law for the disabled and the Clean Air Act, which his son would ignore as governor and then later undermine when he reached the White House himself. H. W. actually raised taxes. When he got into a war—and it was admittedly a war in which American oil interests had great, um, interests—he brought all of America’s allies on board, and he ended it without trying to topple his main enemy, the farthest thing possible from the Alamo spirit.

Bush’s middle-of-the-roadness failed to get him a second term. But Congress was changing in ways the empty-place wing of the Texas party was finding much to its liking. Really, things could not have been much better unless Newt Gingrich, the new House Speaker, had been from Amarillo instead of Carrollton, Georgia. Texans found Gingrich’s aim—to create a new Republican majority that was united in right-wing ideology—totally appealing. And the man who would be his majority leader when he came into power was a Texan, Dick Armey, who helped Gingrich write the Contract With America, and who would later be a key organizer of the Tea Party movement. Then there was
Tom DeLay
, the hard-charging exterminator from the Houston suburb of Sugar Land, who had first decided to run for office when the Environmental Protection Agency banned his favorite product for eliminating fire ants. DeLay inserted himself into the leadership and became whip, the number three House leader. In DeLay’s case, he was a number three with special interests in partisan fighting and obsessive fundraising. “DeLay took things to a different and much more poisonous level,” said Norman Ornstein, a resident scholar at the conservative American Enterprise Institute.

Armey and DeLay
, who succeeded him as House majority leader in 2003, were not a team. In fact, Armey once referred to the DeLay camp, with its incessant focus on hot-button social issues, as “those nitwits who took over after we left.” Armey was a libertarian who prided himself on his credentials as an economist, while DeLay was part of the social right who would eventually come to pride himself on cha-cha-cha-ing on
Dancing with the Stars
. But they had a similar antipathy toward government. DeLay was once asked whether there were any government regulations worth keeping, and responded, “
None that I can
think of.”

DeLay oversaw the K Street Project, an effort to reserve all the good lobbying jobs in Washington for Republicans and to punish any special interest group that dared to employ Democrats. Meanwhile, the minority party was elbowed out of any role in the House. Under DeLay, committees began to draft legislation in meetings closed to Democrats, and the product of their work was pushed onto the floor with straight party-line votes. The Democrats had ignored the Republicans in a more polite way when they were in charge, partly because they felt confident of their power and partly because so many Democratic members were conservative. Now the split between the parties was clearer and the domination more brutal.

And their agenda was totally clear. Lower taxes. Less government. Phil Gramm moved up to the Senate and became a principal architect of financial deregulation. Armey led the Republicans’ successful fight against the Clinton health care plan.

Meanwhile, back in Texas, George W. Bush had become governor with the help of consultant Karl Rove, who would become almost as influential a player in Texas—and then national—politics as the men whose victories he engineered. (It would be Rove who recruited Rick Perry to run for agricultural commissioner, and put him over the top in a last-minute ad blitz that tied the populist liberal incumbent, Jim Hightower, to the twin sins of flag-burning and shaking hands with Jesse Jackson. (“
He was innocent
of the former and guilty of the latter,” wrote a trio of political journalists in their Rove biography,
Boy Genius.
)

The first President Bush was an easterner who learned to talk Texan—or at least, to talk like a founder of Zapata Petroleum Corporation. (“I am delighted to be here with you this evening, because after listening to George Bush all these years, I figured you needed to know what a real Texas accent sounds like,” Ann Richards told the Democratic National Convention in 1988.) His oldest son was, like his father, born in New England. But W. nevertheless grew up as a real Texan, albeit one who was shipped off to school in the East to rub off some of the western edges. As governor, George W. was eager to get along with legislators of both parties and enthusiastic about improving education, particularly for poor and minority children. He was also extremely conservative, especially when it came to the empty-places priority of keeping government small and underfunded. He was a
fiend for privatization
—the Rove biographers reported in
Boy Genius
that Bush told one state legislator that he dreamed of privatizing the University of Texas. Previewing another cause he’d champion as president, Governor Bush pressed to give faith-based organizations a bigger role in providing social services. (Texans, after all, could get a child out of a well without government help.) He also pushed through a big tax cut that blew the state surplus and left Texas sitting with a monster deficit, while its architect went to Washington to do exactly the same thing to the country. Once in the White House, Bush II also gave us a huge federal education bill that would remake America’s public schools in the image of the ones in Texas, an energy bill that was drawn up by the energy interests, and two wars.

Perhaps it’s a coincidence that Texas presidents keep getting us into conflicts abroad. To be fair, American involvement in Vietnam started before Lyndon Johnson came into power and ratcheted things up. The first Gulf War under H. W. was a limited engagement. You could argue that the fact that W. got us into Iraq and Afghanistan had more to do with W. than with the grand Texas love affair with dramatic gestures. And maybe it’s beside the point that people called Afghanistan “Charlie Wilson’s war” after the Texas congressman who was so deeply gung-ho to get America involved in the Afghani guerrilla war against the Soviet Union.

Just sayin’.

By the Obama era, Tom DeLay was a political wreck, appealing a three-year sentence for money laundering and licking his wounds after being forced to retreat from
Dancing with the Stars
due to stress fractures in both feet and a bad samba performance. (We bid a temporary adieu to DeLay in his immortal words from the final TV appearance: “
What’s a little pain
when we can party?”) But Dick Armey had never been more ready to roll. He became head of FreedomWorks, which turned the town hall meetings that members of Congress traditionally hold during summer recess into raucous protests against Obama’s health care reform. Then he and the FreedomWorks organizers staged the Tea Party’s big coming-out party, the Taxpayer March on Washington, in the fall of 2009. “
Armey and FreedomWorks
have been the invisible hand behind much of the recent conservativism in this country,” Republican political consultant Mark McKinnon told the
New York Times.

Texas Congressman Ron Paul, another libertarian, became the closest thing the Tea Party had to an intellectual guide.
Paul, who ran as a presidential candidate in 2008 and 2012, differed from other high-profile Republicans in his adamant opposition to an activist American foreign policy. He called for a return to the gold standard and a federal government that was small to the point of itsy-bitsy. He was a perfect empty-places politician—critics might argue that his ideas, if implemented, could turn the entire country into one large empty place. But Paul’s anti-war, anti-drug war, and general anti-authoritarian message won him a devoted following, particularly among young people.

It was the new political flavor, one that was nearly as hostile to traditional mainstream Republicanism as it was to the Democrats, although of course when it came to things to complain about, the Democrats and Barack Obama got top billing. “Nearly every important office in Washington DC today is occupied by someone with an aggressive dislike for our heritage, our freedom, our history, and our Constitution,” Armey told his crowds.

It really was a declaration of political war. No surrender! No retreat! What could be more Texas?

PART TWO

HOW TEXAS CHANGED
THE NATION

4

Financial Deregulation—
the Texas Angle

“In a Gramm administration,
we will keep the cake��

B
ecoming a Republican worked very well for Phil Gramm, who not only won the 1983 special election to replace Democrat Phil Gramm in the House, but then moved on up to the Senate two years later. Waving his PhD in economics everywhere he went, Gramm got himself appointed to the Senate Budget Committee and became both a kind of economic guru to some conservatives and a recipient of mammoth campaign contributions from wealthy Texans. In February of 1995, armed with his huge bag of cash, he announced his candidacy for president of the United States.

Almost instantly, the Gramm luck ran out. As a presidential candidate, he was awful. We’ve already taken note of the state’s talent for producing deeply unsuccessful White House contenders. (Outside of Lyndon Johnson’s post-Kennedy-assassination victory in 1964, the only native-born Texan ever elected president was Dwight Eisenhower, who moved to Kansas when he was two.) But even by that standard, Gramm’s presidential run was pretty dismal. In the end he won all of ten delegates, at an average cost of $2.1 million apiece.

One of the many terrible things about candidate Gramm was his campaign stump speech, in which he told his audience, “
What we have to share
with a hungry world is not our cake but the recipe that we use to bake that cake.” (Finally, we had a public figure even less sympathetic than Marie Antoinette, who at least never suggested that the state let the starving poor eat the recipes.)

“That recipe is private property, free enterprise, and individual freedom,” Gramm would continue. He is a tall, balding man with a rather long neck that he would stick forward as he peered at the crowd with his tiny little eyes. The general effect was of a turtle, wearing glasses and a really good suit.

“In a Gramm administration, we will keep the cake and share the recipe!” the candidate concluded triumphantly, often to deafening silence from his listeners. Nobody really got the part about the cake. The audiences may have been wondering whether the hungry nations had enough sugar and eggs and butter to follow the cookbook.

Gramm is important to this story because he represents what happened when the empty-places philosophy turned toward financial regulation—be it of savings and loan associations, commercial banks, energy markets, or all those inexplicable investments we have come to think of under the fits-all term of “swaps.” A former economics professor at Texas A & M, Gramm was in love with the vision of endless financial prairies where Americans could enjoy the blessings of a free market, roaming unfettered by federal regulation like happy mustangs on the range. “
When I am on Wall Street
and I realize that that’s the very nerve center of American capitalism and I realize what capitalism has done for the working people of America, to me that’s a holy place,” he said in 2000 after a visit to New York.

“The worst in the nation and
that’s saying something”

Gramm became a key player in setting the national agenda on financial deregulation. But this story started earlier, back in the 1970s, when Texas began applying the principles of the wide open economic spaces to its state-chartered savings and loan associations. The S & Ls—which we can never mention without pointing out that Jimmy Stewart ran one in
It’s a Wonderful Life
—had traditionally taken in deposits for a modest fixed rate and then lent out mortgage loans for slightly more. That hardly allowed for much elbow room, let alone free range-roaming. So the state decided to let them loan more money with fewer assets to back up the loans. It also permitted the S & Ls, which had formerly been all about home ownership, to lend money on commercial properties.

The results were spectacular—profits soared—and then spectacularly disastrous. Texas S & L owners—some of them crooked, some of them just inept—loaned money at very high interest rates to people with no capacity, and sometimes no intention, to repay. They invested in stuff that was wildly speculative at best, and at worst, total theft.
One historic state thrift
spent depositors’ money to send its president and his friends on a luxury tour of France under the theory that it was research for a high-end restaurant the thrift planned to open in Dallas. A collective of crooked Texas S & Ls shuffled their bad loans around, creating paper profits for the edification of the accountants.

Meanwhile, the Reagan administration was trying to figure out what to do with the federally chartered S & Ls, which were floundering in a world of double-digit inflation. They had already been effectively permitted to
set their own interest rates
, and by 1981 were paying depositors an average of 11.53 percent. But they were only taking in 10.02 percent from all those mortgage loans. The Federal Home Loan Bank Board, which regulated the S & Ls, went looking for a new economic model that would allow them to get their income and outgo back in balance. At the time, state-chartered thrifts in Texas, which were less regulated than the federal S & Ls, were thriving. When it came to profits, “Texas was at the top of the charts,” said Bill Black, who worked for the Bank Board in the 1980s and had a ringside seat for the chaos that was to come.

Of course, Black added, that was “because more of its savings and loans engaged in accounting fraud than anywhere else.”

The Bank Board team wrote up a bill, which became the basis of the Garn–St. Germain Act, pretty much deregulating the S & Ls. If Black is right about the inspiration, they wanted to go where Texas had gone—without, of course, the still-unnoticed fraud.

In fact, the feds went even further, in hopes that if they gave the S & Ls enough leeway, they could grow their way out of their huge losses. That created what Black called “a race to the bottom” when it came to control and oversight. First out of the box was California, which attempted to lure business back to the state by making its charters even more permissive than those of the feds. Texas upped the ante, deregulating its already pretty well deregulated thrifts even further.

Black was head of litigation at the Bank Board and then deputy director of the Federal Savings and Loan Insurance Corporation, the agency that was on the hook for compensating depositors when an S & L went under. He came to have a painfully detailed knowledge of the Texas S & L scene, with its cowboy-culture rules and skimpy oversight. “Its state regulatory system was the worst in the nation and that’s saying something,” he concluded.

The most infamous of the Texas S & Ls was Vernon Savings and Loan, which the regulators fondly referred to as “Vermin.” It lives on in history for the theory that using S & L funds to hire a prostitute to entertain a bank regulator wasn’t a bribe if the regulator was unable to rise to the occasion. (
The lawyer for the thrift’s
former president made that argument at his trial.) But for a time, Vernon was, on-paper-by-its-own-accounting,
the most profitable S & L
in America. Its owner, Don Dixon, was a real estate developer who discovered innumerable advantages in the Texas thrift business. One was that acquiring Vernon cost him
no actual money
—like all the crooked insiders in this game, he paid for his investments with borrowed funds from other insiders, who kept the Ponzi chain going until the string ran out. Among the disadvantages was that running Vernon Savings and Loan involved working in Vernon, a humble city north of Wichita Falls that was, until its moment of infamy, best known as the birthplace of Roy Orbison.
Dixon overcame that problem
by investing depositors’ money in vacation houses, a mini-fleet of jets, and a yacht, which he kept on the Potomac due to lack of available docking space in landlocked Vernon. (“
It served as
a floating lobbying platform. Yes, the prostitutes showed up here as well,” wrote Black in his account of the S & L meltdown,
The Best Way to Rob a Bank Is to Own One
.) It was also Dixon who invested bank money in a fact-finding tour of top-notch French restaurants. (
Dixon’s wife
kept a diary of the tour, entitled “Gastronomique Fantastique!”) There was not, however,
any long-term solvency
in the game plan, and Dixon was eventually convicted of twenty-three counts of bank fraud.

“Very Texas instincts”

Athough Texas had swung hard for Reagan in the presidential elections, at the time the S & Ls were imploding, the state’s biggest power in Washington was a Democrat, House Speaker Jim Wright of Fort Worth, and Wright became a go-to guy for Texas thrift officials seeking protection from regulators who wanted to pull the plug on their doomed institutions. “The Speaker had very Texas instincts—these folks call themselves entrepreneurs who are beset by government, so they must be right,” said Black.

When the Bank Board needed money to cover all the failing S & Ls, regulators believed Wright was holding up authorization while he demanded more leeway for home state businesses. (At one point, he
requested more time
for “Vermin.”) Wright wound up being brought before the House Ethics Committee on a range of allegations, ranging from misusing his power in relation to the S & Ls, to using a congressional aide to help him write his memoirs. Wright claimed he was simply doing his duty to aid his constituents in the first case. When it came to the book, he
told the committee
that the aide in question was so eager to have a part in the creation of
Reflections of a Public Man
that he volunteered to do it on his own time, in the evenings and on weekends.

The Ethics Committee
decided that Wright’s efforts on behalf of the Texas S & Ls, while “intemperate,” fell within the normal course of legislative business. Whether this makes you feel better about Wright or worse about Congress is another one of those natural-optimism tests. However, the committee did agree to pursue some of the other charges, which appeared to cluster around the sins other members were less likely to dabble in. In response, the Speaker resigned from office in 1989. It was the last time Texas would get its power on the national level through a Democrat.

For the rest of us, the repercussions of the Texas part of the S & L debacle were multitudinous. Wright’s main accuser, a hitherto little-known Georgia Republican named Newt Gingrich, was catapulted into political stardom, and began his quest to turn the Republican minority into an ideologically unified attack force. At his side were allies like Tom DeLay, who turned out to be as bloodthirsty in partisan House politics as he was in Sugar Land extermination projects.
Gingrich would eventually
wind up before the Ethics Committee himself, topping Wright by becoming the first Speaker to be officially sanctioned by the House. But not before he, DeLay, and Armey had turned the clubby House of Representatives of yore into the partisan battlefield we all know and loathe today.

And then there was the price of Texas bidness itself. By the time the thrifts stopped imploding in the 1990s, 237 Texas S & Ls had failed, more than twice as many as in next-place California. In the end, more than half of all the money lost in the nationwide debacle was lost in Texas. As Robert Bryce notes in his Texas book,
Cronies
, Texas got
$4,775 per capita
in federal bailout funds, while New Jersey lost $1,074 per capita. It was one of those times when Texas politicians did not complain about massive government spending.

“I want our America back”

But back to Phil Gramm.

The other memorable point
in Gramm’s presidential candidacy speech was biographical—the story of how he had failed the third, seventh, and ninth grade, and how his algebra teacher told his mother that little Phil would never graduate high school. How, in a last-ditch effort to save her son’s future, his mom sent him to military school under a federal program that provided scholarships for even the least promising offspring of dead servicemen. There, Gramm was turned around; his mother’s fondest hopes were realized and he went to college and then graduate school, all on government money. “Too many mothers’ dreams are dying too easily in America today,” he would conclude. “I want our America back.”

He told this story often, and once the speech was over, everyone would proceed to a press conference where reporters would get to point out that as a US senator, Gramm had supported legislative proposals that would lead to draconian cuts in federal spending on education.

“The debate is not about how much money should be spent on education and housing and nutrition,” Gramm would say. “The debate is about who should do the spending. Bill Clinton wants the government to do the spending, and I want the families to do the spending.”

And off he went to the next stop.

“He’s been asked that one for years and he still hasn’t come up with a good answer,” one of the Texas reporters on the presidential tour plane said.

Gramm threw all his hopes on the Iowa Republican caucus, where he came in fifth. Even the conservative caucus-goers, it turned out, didn’t want a guy who opposed food stamp spending because “
all our poor people
are fat” and joked that
he did indeed have a heart
—which he kept in a jar in his office. Ronald Reagan occasionally made weird or offputting remarks, but he had a lovely smile. Gramm just had that turtle thing.

“I look at subprime lending and
I see the American dream”

So much for the presidency. But Gramm did not go away. No, he had promises to keep, and miles to go before he retired from public service to become a lobbyist for an international megabank. He went back to the Senate, where he later became chairman of the Banking, Housing, and Urban Affairs Committee, and where his continuing quest for wide open markets played a central role in creating several major economic earthquakes for the entire nation.

When predatory lending—the practice, basically, of making home loans to people who could not afford to keep up on the payments—began to create an uptick in foreclosures in 2001, Gramm led the fight to beat back any attempts to crack down. Once again, he brought back his poor widowed mother, who he claimed was able to put a roof over her children’s heads thanks to a 1950s’ version of subprime lending. “
Some people look
at subprime lending and see evil. I look at subprime lending and I see the American dream in action,” he said. It was not perhaps the most devastating blow to the nation’s economic balance that he helped deliver, but it did kind of set a pattern.