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1981 when oil price controls had been in effect.
The entire affair represented a monstrous miscarriage of justice, a
declaration that the entire U.S. legal system was bankrupt. At the heart of
the matter was the pervasive influence of the Bush networks, which gave
Liedtke the support he needed to fight all the way to the final settlement.
Kohlberg, Kravis, Roberts
But even the enormities of Chairman Mao Liedtke were destined to be
eclipsed in the political and regulatory climate of savage greed created
with the help of the Reagan-Bush administration and George Bush's Task
Force on Regulatory Relief. Even Liedtke's colossal grasping was about to
be out-topped by a small Wall Street firm, which, primarily during the
second Reagan-Bush term, assembled a financial empire greater than that of
J.P. Morgan at the height of Jupiter's power. This firm was Kohlberg,
Kravis, Roberts (KKR) which had been founded in 1976 by a partner and some
former employees of the Bear Stearns brokerage firm of lower Manhattan, and
which by late 1990 had bought a total of 36 companies using some $58
billion lent to KKR by insurance companies, commercial banks, state pension
funds, and junk bond king Michael Milken. The dominant personality of KKR
was Henry Kravis.
Henry Kravis's epic achievements in speculation and usury perhaps had
something to do with the fact that he was a close family friend of George
Bush. As we have seen, when Prescott Bush was arranging a job for young
George Herbert Walker Bush in 1948, he contacted Ray Kravis of Tulsa,
Oklahoma, whose business included helping Brown Brothers Harriman to
evaluate the oil reserves of companies. Ray Kravis over the years had kept
in close touch with Senator Prescott Bush and George Bush, and young Henry
Kravis, his son, had been introduced to George and had hob-nobbed with him
at various Republican Party fundraising events. Henry Kravis by the early
1980s was a member of the Republican Party's elite inner circle.
Bush and Henry Kravis became even more closely associated during the time
that Bush, ever mindful of campaign financing, was preparing his bid for
the presidency. Among political contributors, Henry Kravis was a very high
roller. In 1987-88, Kravis gave over $80,000 to various senators,
congressmen, Republican political action committees, and the Republican
National Committee. During 1988, Kravis gave $100,000 to the GOP Team 100,
which meant a "soft money" contribution to the Bush campaign. Kravis's
partner, George Roberts, also anted up $100,000 for the Republican Team
100. In 1989, the first year in which it was owned by KKR, RJR Nabisco also
gave $100,000 to Team 100. During that year, Kravis and Roberts gave
$25,000 each to the GOP. During the 1988 primary season, Kravis was the
co-chair of a lavish Bush fundraiser at the Vista Hotel in lower Manhattan,
at which Henry's fellow Wall Street dealmakers and financier fat cats
coughed up a total of $550,000 for Bush. Part of Kravis's symbolic
recompense was the prestigious title of co-chairman of Bush's Inaugural
Dinner in January 1989. One year later, in January 1990, Kravis was the
national chairman of Bush's Inaugural Anniversary Dinner. / Note #4
According to Kravis, Bush "writes me handwritten notes all the time and he
calls me and stuff, and we talk." The talk concerned what the U.S.
government should do in areas of immediate interest to Kravis: "We talked
on corporate debt -- this was going back a few years -- and what that meant
to the private sector," said Kravis.
Henry Kravis certainly knows all about debt. The 1980s witnessed the
triumph of debt over equity, with a tenfold increase in total corporate
debt during the decade, while production, productive capacity, and
employment stagnated and declined. One of the principal ways in which this
debt was loaded onto a shrinking productive base was through the technique
of the hostile, junk bond-assisted leveraged buyout, of which Henry Kravis
and his firm were the leading practitioners.
Small-scale leveraged buyouts were pioneered by KKR during the late 1970s.
In its final form, the technique looked something like this: Corporate
raiders looked around for companies that might be worth more than their
current stock price if they were broken up and sold off. Using money
borrowed from a number of sources, the raider would make a tender offer, or
otherwise secure a majority of the shares. Often all outstanding shares in
the company would be bought up, taking the company private, with ownership
residing in a small group of financiers. The company would end up saddled
with an immense amount of new debt, often in the form of high-yield,
high-risk subordinated debt certificates called junk bonds. The risk on
these was high, since, if the company were to go bankrupt and be auctioned
off, the holders of the junk bonds would be the last to get any
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