Jane Mayer’s investigative piece on Koch Industries, the large conglomerate led by two powerful right-wing billionaire brothers who fund an important chunk of the conservative movement, does an important public service by debunking the notion of a spontaneous grassroots uprising in reaction to the new Democratic Administration. Koch funds Americans for Prosperity and FreedomWorks, two of the largest organizations on the right and the ones most closely associated with the tea party movement. Both organizations plan to play a major role in the midterm elections, and are already running ads to that effect, some of them in possible violation of their tax-exempt status.
Because of the reach of Mayer’s article, “Koch-funded” has been employed as an epithet in front of these organizations more than at any time in the past 30 years, even though much of the information contained in the article was already publicly available. It’s important that these previously obscure figures have been brought out of the shadows.
But Koch Industries and its two leaders, Charles and David, are not only out to destroy progressivism and restore Republican dominance in Washington, though that’s a side benefit. They are out to protect their company’s financial industries, which run the gamut of practically every major policy the Obama Administration has tackled this year.
Mayer’s report focuses mainly in the policy arena on the Koch family’s resistance to climate change legislation. The fact that they operate oil refineries and control pipelines makes this a natural. However, the Kochs have stakes in the health care and financial worlds as well. In fact, their company’s operations line up well with the four areas which Americans for Prosperity labels as their key issues for the future. Net neutrality, the fourth, seems like an area where Koch strives for control of access to information, which has served them well in protecting the other three interests.
Koch has a tremendously large derivatives portfolio. Nobody knows quite how large, and precisely where it’s located. Koch acknowledges trading in commodities like crude oil and precious metals, but they also list multiple other products:
Petroleum & Chemicals
Petrochemicals: paraxylene, orthoxylene, metaxylene, cumene, pseudocumene, toluene, benzene, styrene, mixed xylenes
Crude oil: Synthetic crude
Fuels: gasolines, diesels, jet fuel, residual fuels, ethanol Intermediate Feedstocks: naphtha, vacuum gasoil
Group II base lube oils
electricity, emissions, natural gas, power
Minerals & Fertilizers
Minerals: petroleum coke, coal, sulfur, pulp and paper products, magnetite, cement, salt
Fertilizer: anhydrous ammonia, Urea, UAN
foreign exchange, interest rates
Financially traded commodities: crude oil, refined products, crack spreads, spark spreads, ethanol, steel, base, precious & industrial metals, power, natural gas, coal, freight
risk management, derivatives, cross-commodity derivatives, hedging products
Base metals: OTC and futures
tanker, barge, bulk, dry bulk ocean
That’s right, Koch specializes in foreign currency and interest rate swaps, two of the riskiest and most lucrative trades out there. The derivatives trading mostly goes through Koch Metals and Koch Supply and Trading, subsidiaries that do as much speculation as it does hedging with commodities and end-users. KS&T absolutely engages in proprietary trading and “paper” trading, or non-physical trades like derivatives and CDO’s.
During the financial reform bill debate, Koch led the charge in fighting changes to the derivatives market.
Industry groups backed by Koch Industries Inc. and Cargill Inc. are fighting a Senate bill that would reshape almost 30 years of policy that allowed the $605 trillion over-the-counter derivatives market to surge and helped trigger the financial crisis in 2008.
Legislation introduced by Senator Christopher Dodd, a Connecticut Democrat, would give the Commodity Futures Trading Commission authority over most of the U.S. market, the broadest expansion of its authority since becoming an independent agency in 1974.
In the end, Koch got their “end-user exemption” to allow certain trades to occur away from exchanges or clearinghouses or margin requirements. Koch can use their shell companies to claim that all their trades are made on behalf of end users, instead of the pure speculative trading that clearly exists in their portfolio.
Mike Konczal has recently written quite a bit about this.
Koch Industries produces through Koch Membrane Systems a vast amount of the chemicals that go into all pharmaceutical products. They are essentially a feeder for Big Pharma. The Koch Institute at MIT also has a strategic partnership with Ortho-McNeil-Janssen Pharmaceuticals. Ortho-McNeil-Janssen is a subsidiary of Johnson and Johnson.
During the health care debate, pharmaceutical interests made a deal with the Obama Administration that limited their givebacks in the bill in exchange for stopping larger intrusions on their industry, like reimportation of drugs from Canada or bulk purchasing in Medicare.
As Mayer notes in her story, Americans for Prosperity organized hundreds of rallies against health care reform across the country. While that effort proved seemingly unsuccessful, the deal with the pharmaceuticals that help fund Koch Industries held. Much like with financial reform, Koch and their offshoots pushed to kill the bills from the outside, while working on the inside to secure just enough of an exemption to make the ultimate reform still profitable for the overall company.
The Kochs have a philosophical paper called “Teaching the Principles” on their website, where they explain that selling ideas mirrors selling products. The ideas they have sold tell a story about the importance of principles of freedom and liberty and against progressivism or collectivism. However, their inner dealings with government portray a company concerned with maintaining a certain type of socialism, one exclusively kept for the rich. That means doing whatever they have to do to influence all sides of the debate. They even sat on the trustees board of the Democratic Leadership Council back in 2001. Think about where the two major bills passed by the Obama Administration fell short, and how they line up with Koch Industries’ financial interests.
Simply put, on all the major issues which have been important concerns for the tea party movement, Koch Industries holds a bottom-line financial interest. Furthermore, Koch Industries was successful in all three major cases in either scotching the legislation contrary to their interests, or coming up with a way to preserve their profits in the legislation that passed. The tea parties may by fighting to “take back America,” but it looks like Koch Industries already has it.