Washington Decoded

The Secret Assassination Records and the Story They Tell

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By Max Holland

    In 1994, five presidential appointees embarked on an unprecedented exercise in the history of federal record-keeping: the declassification of the paper explosion that occurred inside the federal government after the gunfire subsided in Dealey Plaza. The Assassination Records Review Board – a Minnesota federal judge, two historians, a college dean, and a university librarian – had the daunting task of collecting documents from more than 30 federal entities, from the obvious (FBI) to the seemingly tangential (National Labor Relations Board). By September 30, when the Board closed its doors for the last time, the panel’s legacy was a collection of more than 4 million pages in the National Archives in Washington.

    The Review Board did not discover a single fact that in and of itself altered the conclusion reached in the first instance by Captain Will Fritz of the Dallas Police Department. As board member Dr. William Joyce, a librarian at Princeton University, put it, “I haven’t seen any document that lends credibility to any kind of conspiracy. Not one.”

    Although the paper mountain erected by the Review Board mostly serves to buttress the official verdict, there are some documents that deepen our understanding of the crimes and provide an unfettered look at our government three decades ago.

    One of the most heart-rending documents unearthed by the ARRB was the diary kept by Clay Shaw, the urbane businessman whose good life was destroyed by Oliver Stone’s white knight, New Orleans District Attorney Jim Garrison. To read the diary is to vicariously suffer along with Shaw as he lives a nightmare.

 “. . . I am still dismayed to find myself charged with the most heinous crime of the century,” Shaw wrote in March 1967, after his arrest. “But I am completely innocent, and the feeling of being a stunned animal, which marked the first part of the month, seems to have gone now. It would appear that one can get used to living with anything, even the bizarre situation in which I find myself.”

    Clay Shaw’s only “contact” with Lee Harvey Oswald was that Oswald was once arrested in front of the building where Shaw worked. Garrison’s “witnesses” included a heroin addict who was about to give himself an injection when he allegedly saw Clay Shaw – more than 100 yards away – give Oswald a wad of bills. Yet an out-of-control DA forced Shaw to stand trial for masterminding the American crime of the century.

    In a legal battle that reached all the way to the U.S. Supreme Court, the review board also obtained Garrison’s original prosecution files and sealed court records, including previously secret transcripts of the more than 40 grand jury witnesses. The current DA, Harry Connick, sought to conceal, if not destroy, many of the records. But the Review Board prevailed, and the result is that Garrison is utterly damned by his own paper trail.

    Apart from the exposure of Garrison’s folly, there are many documents that reveal how tantalizingly close history came to being dramatically different – like the handwritten notes of Captain Fritz, head of the DPD’s Homicide Department during that never-to-be-forgotten weekend.

    After Oswald’s apprehension, Dallas police learned that he was well-known to the FBI, particularly to agent James Hosty, who told them he had no reason to believe Oswald was a threat to JFK. (Hosty and the authorities were not then aware of Oswald’s attempt to kill retired Major General Edwin Walker seven months before.) In fairness, everyone’s attention that November was riveted on Dallas’s increasingly vocal far right extremists, not one of the city’s handful of Marxists.

    Nevertheless, Oswald was so agitated at Hosty’s two visits to the Irving residence where his wife, Marina, was living that he hand-carried a threatening note to the Dallas FBI offices 10 days before the assassination. The note threatened unspecified actions to counter the FBI “harassment.” Hosty interpreted it to mean that Oswald would take his protest to the ACLU.

    Oswald’s note was quickly flushed down a toilet after the assassin’s murder. The note’s existence, and explosive history, remained a deep secret until 1975, when The Dallas Times Herald made the disclosure.

    Captain Fritz’s notes clearly indicate, however, that during his interrogation on Friday, Oswald “admit[ted to] writing Russian Embassy & to Hosty.” If Fritz had only pursued this thread, it is possible that the Bureau’s cover-up would have unraveled in 1963 with far-reaching consequences. J. Edgar Hoover himself might have been forced to resign, as the note’s destruction on November 24 was an obvious expression of the impunity with which the Bureau sometimes operated.

    Another important document excavated by the board has to do with the President Kennedy’s brother Robert. RFK’s behavior after the assassination has always been one of the case’s great puzzles. Bobby was devastated by the event, of course, but seemingly never responded in character, even after the initial shock wore off. The attorney general was famous for his ferocious pursuit of criminals via every means at his disposal. Yet toward the killer or killers of his brother he displayed marked indifference. At the time this posture was explained as the reaction of a brother who simply found the subject too painful.

    The document that challenges this interpretation is a mere three pages, dated November 27, 1963. It lists innocuous information about Jack Ruby, developed by informants in Chicago, and confirms in writing what former Justice Department aides to Bobby now concede. Their boss was never willing to leave certain angles of investigation in the hands of anyone else, not even the Warren Commission.

    Within hours of the assassination, the attorney general asked his trusted network of organized crime/Teamster investigators, led by Walter Sheridan, to conduct a secret investigation of the assassination. This occurred two days before Ruby’s vigilante killing, and that act only underscored the urgency of investigating possible mafia and/or Hoffa links to the assassination.

    Yet by Christmas 1963, the hand-picked team of investigators in Robert Kennedy’s employ reported that they were drawing blanks. They had been unable to tie either Oswald or Ruby to Teamster president Jimmy Hoffa or mobsters like Chicago’s Sam Giancana. Moreover, Sheridan was confident there was no linkage. Robert Kennedy’s passivity stemmed not from a lack of interest but from a fundamental truth: He and men he trusted were satisfied.

    There is nothing more Washington can do. The release of documents is the last chapter in the Kennedy tragedy. If Americans who lived through that weekend cannot find closure, then at least the raw history will have been preserved intact, so future generations can appreciate the somber portrait the documents paint of our government and ourselves.

This article first appeared in D Magazine, November 1998
                                                   © 1998 by Max Holland                                                 

Just a Shot Away

Reporting the Kennedy Assassination:
    Journalists Who Were There Recall Their Experiences
Edited by Laura Hlavach and Darwin Payne
Three Forks Press. 174 pp. $10

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By Max Holland

    The best antidote to paranoid speculation is truth in small, indisputable doses. Herein lies the great value of Reporting the Kennedy Assassination. All Americans sentient on Nov. 22, 1963, remember the instant they heard about the president’s assassination and the reporters fated to cover that story reacted no differently. But then professional news-gatherers, unlike most other Americans, had to subsume their shock, fear and disbelief and get to work. Four arduous days of indelible, incredible memories followed. This volume mostly records what has not been set down elsewhere: telling, eyewitness accounts by men and women trained to observe. They did not flinch or embellish then and steadfastly refuse to do so 33 years later, even though there is plenty of money to be made by exploiting a tragedy that still gnaws at the American psyche.

    Several young reporters who covered that awful weekend went on to prominent jobs in American journalism, in some cases on the basis of their performance in the Dallas crucible: Dan Rather, Jim Lehrer, Robert McNeil, Ike Pappas and Bob Schieffer, to name a few. Aside from Pappas, however, none of these big talents attended the 1993 conference at Southern Methodist University upon which this book is based – indeed, literally transcribed.

    But little is lost by their absence. The 60 or so reporters, editors, photographers and cameramen who did participate were all from local newspaper, radio and television outlets in the Dallas-Fort Worth area. And damned if they were going to be beaten by any of the 250 media outsiders who descended on Dallas in the wake of the assassination. Precisely because it was their town, Dallas reporters made themselves ubiquitous and keen observers of all the dramas that weekend: from the shots in Dealey Plaza and the painstaking search of the Texas School Book Depository, to the agonizing wait at a movie theater and finally, of course, the first live, nationally televised murder.

    The one-day SMU conference evoked a number of fascinating vignettes and what-might-have-beens as the reporters remembered. Take the story of Mary Woodward Pillsworth, a society reporter for the Dallas Morning News. She had no reportorial role to play that day but dearly wanted to see Jacqueline Kennedy. She decided to watch the motorcade on her lunch hour and positioned herself on Elm Street just steps from the depository. That made her the closest media spectator to the president when the shots rang out. After she and her colleagues collected themselves, they headed back to the newsroom, whereupon long before the official announcement was made, Pillsworth insisted, “He’s dead. I know he’s dead, or else I hope he’s dead because his head’s blown open.” But front-page editors did not believe their society reporter – or perhaps just didn’t want to believe – until the official announcement.

    While Pillsworth eventually wrote an exclusive eyewitness report for her paper on Friday afternoon, Bob Jackson, a photographer for the now-defunct Dallas Times Herald, felt he had just missed the picture of a lifetime. Jackson had been riding in a convertible assigned to the motorcade, about six cars behind the president’s limousine, when three rifle shots rang out. Jackson saw a rifle sticking out of a sixth-floor window of the depository and realized he could catch the assassin in the act. But then he remembered he had just started to reload his camera and still wasn’t finished. By the time his colleagues caught up with Jackson’s eye, the rifle was withdrawn. Two days later, Jackson was assigned to photograph the transfer of Oswald to the Dallas County Jail. He decided to focus on a spot where Oswald was likely to pass and was looking through the lens as the accused assassin approached. Milliseconds after Jack Ruby fired his revolver, Jackson fired his camera as planned- and captured the vigilante murder in one of the great spot pictures of all times – an a Pulitzer Prize to boot.

    In the realm of what-might-have-been, Reporting the Kennedy Assassination, also shows how chance and circumstance influence history far more than the paranoid explanations so popular now in Hollywood. Darwin Payne, one of the book’s editors and a journalism professor at SMU, was the night policy reporter for the Dallas Times Herald in November 1963. Shortly after midnight on Sunday, Nov. 24, Payne received a call from a city desk editor. The CBS radio network was carrying a report (by Dan Rather) that Dallas police had in custody an eyewitness who could identity Oswald as the man who pulled the rifle trigger. What did Payne know about that? Nobody at police headquarters could confirm the story, so Payne reluctantly called Jesse Curry at his home at 1:30 in the morning. Exhausted and sound asleep, the police chief made little sense at first. But finally, Payne correctly surmised there was no basis to the Rather story.

    More than a year later, with the publication of the Warren Report, Payne learned of his incidental impact on history. As threats to do Oswald bodily harm mounted through the night, Sheriff Bill Decker decided that it would be better to move the accused murderer surreptitiously. Decker attempted to call Curry to tell him that “we got to transfer [Oswald] tonight. We can’t wait.” But the telephone was constantly busy and operators finally advised Decker the line was out of order. In fact, the policy chief had taken his phone off the hook after Payne’s call, and Oswald’s rendezvous with Jack Ruby in a grimy police garage was the result.

    There are poignant moments in the book too. Tony Zoppi, normally the entertainment columnist for the Dallas Morning News, was drafted into emergency duty like everyone else and told to get down to Parkland Hospital immediately. He made his way to the emergency dock, where he was promptly stopped by Secret Servicemen. But then an ambulance rolled up carrying a heavy bronze casket, so heavy that Zoppi’s help was enlisted and the same agents now waved him through the door. Zoppi then spontaneously did something that to this day he finds hard to explain. “As we’re rolling that casket into the hospital, I reached underneath it and I put my fingerprints as hard as I could on the bottom of that casket … I figured, well, he’s going to be in this casket and I want him to know that Tony Zoppi helped carry this casket in.”

    If this volume has one major shortcoming, it is that the book – or rather the conference on which it was based – was all too brief. Each of the various panels was limited to only one hour, and that was not enough time.

    Forty years ago, the best films and TV dramas took aim at the conformity and paranoia that gripped many Americans during the McCarthy era.

    How many “Twilight Zone” parables illustrated that the most fearful human emotion is fear itself? Today, by contrast, Hollywood producers often choose to nourish the appetite for conspiracy, and Oliver Stone is invited to lecture about postwar history at American University. That’s why this book, albeit modest, is a worthwhile contribution to the literature on that tragic weekend. It tells us the way it was, and the way it wasn’t.

This review appeared in The Los Angeles Times Book Review, 24 November 1996
© 1996 by Max Holland

 

 

The Mind of Somoza

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By Max Holland

    Ensconced in his bunker in the heart of Managua, a tall, middle-aged man with a pencil-thin mustache and receding hairline is confounding his political opponents, the US government and the mass media. Every segment of Nicaraguan society – from dirt-poor campesinos to wealthy industrialists – is strongly opposed to el hombre (as Somoza is called by many Nicaraguans who won’t say his name because they fear it brings bad luck). The US government would like nothing better than his resignation to forestall the possibility of “another Cuba,” yet Somoza shows no signs of obliging the North Americans, who have always been his greatest supporters.

    His departure, imminent in the media’s premature obituaries a month ago, is much less predictable now that he has opened negotiations with a broad opposition coalition that represents all but his armed opponents, the Sandinistas.

    The president/dictator is negotiating with a three-man delegation representing fifteen opposition groups. The stated purpose is to reach a peaceful resolution of the crisis, a term which to the more conservative groups means Somoza’s departure, and to his more radical opponents includes also the confiscation of his ill-gotten property and even some basic restructuring of the political system.

    But Anastasio Somoza Debayle won’t go. To understand why – and how – he keeps his stranglehold over Nicaragua, one must begin with the National Guard. Recent events showed that sheer force is all Somoza has left, but everyone agrees that as long as that force – meaning the Guardia – remains loyal, Somoza’s presidency is relatively safe. But how can Somoza retain that loyalty? After all, Nicaragua is a small country of little more than 2 million people and therefore many of the soldiers have bombed, strafed, and shelled their own neighborhoods, if not their own relatives.

    The technique for keeping the Guard loyal has been handed down from generation to generation in the Somoza dynasty: in return for security, the Guardsmen receive special privileges and upward mobility. That has always worked, but the problem of the present Somoza may lie in convincing the Guard that only a Somoza can deliver these benefits.

    The National Guard is kept in line by manipulating historic divisions within the Nicaraguan elites. Four or five family names appear everywhere in the political and economic life of the country. Some call themselves Liberals and follow Somoza; others are in the Conservative Party. Throughout the Somoza dynasty, and for a long time before, struggles for power and wealth have taken place among these factions. The poor majority has simply been ignored.

    Moreover, the traditional oligarchs’ disdain for the Somozas is visited on the Guard itself, and the Somozas have shrewdly capitalized on it. They have been godfathers to the Guard while insulating and alienating it from the general populace. As Somoza recently explained, “We are fighting a battle here, my friend [with] a well-to-do group that doesn’t want people who are going up on the ladder. The Guard doesn’t get admitted to the country clubs, or the better schools. They are trying to push the Guard down in the gutter. We are trying to uplift their status, socially, economically, intellectually.”

    Somoza “uplifts” the Guard by providing them with a standard of living far above that of the average Nicaraguan. They have separate schools, hospitals, stores and residential areas. And the higher a Guard officer rises, the more lucrative his profession becomes as he gets to partake of the many “business” opportunities that open up, from plain smuggling to mass transit monopolies.

    Even with all these incentives to loyalty, Somoza is watchful of the actual military command in the Guard. According to Richard Millett, an American scholar who has written a book on the subject, only about 20 percent of the Guard are combat troops, and command of these forces is exercised directly by the Somoza family or by a very few trusted associates. As Millett points out, that is why the Guard dealt with the September uprisings one city at a time, rather than in a single coordinated attack.

    It may also help to explain how Somoza retains control of a country in which all classes revolted against him in a national uprising. But it does not account for his staying and waging war against his country under conditions that have persuaded other dictators to take their millions and run.

    The truth seems to be that Somoza sees no distinction between his own welfare and that of Nicaragua. And even before his serious heart attack last year many observers noted the difficulty many Nicaraguans had in imagining life without a Somoza in charge. The family has been in command for forty-two years, and about 75 percent of the population is below 40 years of age.

    Somoza’s attitude toward his vast holdings typifies his failure to distinguish between himself and Nicaragua. A US envoy once wrote of the previous Somoza that “he sees in democracy only a device for the easy domination of his country, with abundant opportunities for plunder to the strains of the national anthem.” The same can be said about his son, whose fortune is estimated at $400 million to $500 million. His determination to profit from every kind of business has spawned an apparatus of graft that can hardly be called a government.

    Yet Somoza sees it quite differently. He considers himself the prime mover behind Nicaragua’s capitalistic development, an investor who takes the risks and therefore deserves the profits. There is a certain perverse logic to his view. While enumerating his fortune, most stories neglect to point out that half of the seventy or so entities Somoza owns are nearly bankrupt, poorly managed and wasting money. Some are surviving only thanks to favored tax or tariff treatment, and it would be wiser to write them off as bad investments. But Somoza will insist on maintaining a losing venture on the undeveloped Atlantic Coast, for example, for what he considers “national” reasons. He believes, somehow, that he is performing the same function as a Rockefeller or Howard Hughes, and his admiration for such Americans and what they represent is unrestrained.

    Anastasio Somoza’s warped nationalism and ego-centrism have been woven into his life ever since he began to be groomed for the presidency at the age of 7, forty-five years ago. It is said that he is the only West Point graduate to receive an entire army as a graduation present. Since then he has been surrounded by a legion of sycophants who strenuously avoid bearing bad tidings. This explains why Somoza still maintains, and believes, that the majority of Nicaraguans support him. If he ever has doubts, they are quickly stilled by his advisers.

    Somoza’s self-deception, together with his still unchallenged power over the Guard, makes prediction easier than usual – at least as to what he will try to do. There have been threats to his family in the past, but the negotiations that followed them always left the dynasty intact after superficial concessions. He will try that game again. But if the opposition now dealing with him keeps this record in mind, it will reject his proposals and the talks will break down. Somoza will be trying to split the opposition front and persuade the more conservative elements to go along with his “reform” proposals and thus recreate a shaky consensus of the elites. But this time, after the city-busting brutality of his Guard’s military actions, the opposition to Somoza is angrier and more widespread than every before. It may not be possible to patch things up.

    The present negotiations are being watched over, to some degree, by a three-nation committee of observers including the United States, Guatemala and the Dominican Republic. Not outside power can be the arbiter of events in Nicaragua, least of all this country with its shameful record there. But the United States should implement a policy of positive non-involvement in Somoza’s tortured country by at least withdrawing our military mission and stopping any connection with the Guard. The policy of the United States and the OAS should be bent toward ending the violence and suffering that will last until the day when Somoza and Nicaragua are no longer inseparable.

This article first appeared in The Nation, 4 November 1978
© 1978 by Max Holland

Three Decades’ Doubt About the JFK Assassination Will Now Get Three Years’ Scrutiny

 

It is easier to perceive error than to find truth, for the former lies on the surface and is easily seen, while the latter lies in the depth, where few are willing to search for it.

                                                                                        Goethe

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By Max Holland

    For three days last month about 250 conspiracy buffs met in Washington to observe the 30th anniversary of their reverse Bible – the Warren Commission Report on the Assassination of President John F. Kennedy. Speakers at the meeting referred to what they believe is the non-defining, if not deliberately misleading, document on that tragedy as “The Warren Omission.”

    The “Three Decades of Doubt” conference convened by the Coalition on Presidential Assassinations, or COPA, a recent alliance of several smaller groups, brought together a virtual Who’s Who of the “JFK research community,” as they prefer to call themselves.

    It included such students of alleged conspiracies as Gary Aguilar, a practicing ophthalmologist who takes exception to the official interpretation of the JFK autopsy; James DiEugenio, a writer billed as the “reigning authority on the New Orleans aspects of the case”; Robert Groden, a consultant to Oliver Stone and author of a book of photographs that allegedly expose the cover-up; Mark Lane, a Washington lawyer who pioneered conspiratorialism; Jim Marrs, an author and Stone consultant who has recently become intrigued with the possible multiple identities of Lee Harvey Oswald; John Newman, a retired Army major who advances the thesis that JFK was murdered, in part, because he wanted to end the Vietnam war and abandon South Vietnam; David Scheim, a mathematician at the National Institutes of Health who believes the Mafia did it; and Peter Dale Scott, an English professor at Berkeley who argues, in Deep Politics, that the assassination was “the product of ongoing relationships and processes within the deep American political process.”

    What is this deep process? It is a political wonderland linking the CIA, the FBI, drug dealers, Anastasio Somoza and Oliver North, among others – as Scott details in just two pages of his book.

    Ordinary citizens came to the conference, too, paying a convention registration fee of $150. But the meeting was far from a gathering of the conspiracy-consumed John and Jane Does. Many fervent conspiracists are highly educated people – physicians, diplomats, lawyers, and PhD’s. Given the variety of their views, it was striking to observe their comity and the courtesies they extended to each other. In some haughtier academic settings, scholars who present such wildly incompatible views often go for each other’s throats, flinging aspersions and ridicule. Here there was respect and democracy with a small “d.” All conspiracy buffs were given equal time.

    The real heretics are always elsewhere. They are everyone who does not believe in an assassination conspiracy theory. To fully appreciate this phenomenon it helps to recall a classic lecture given by Columbia University historian Richard Hofstadter in 1963. The earmarks of “The Paranoid Style in American Politics,” Hofstadter said then, were “heated exaggeration, suspiciousness, and conspiratorial fantasy.”

    While the paranoid style is not exclusively an American phenomenon, it is an old and recurring reaction here to sweeping social change, economic disorder and national traumas. It surfaced in the anti-Masonic movement of the 1820s, in the anti-Catholicism of the 1850s, among some Populists at the turn of the century, with Father Coughlin during the Great Depression and more recently in Senator Joseph McCarthy’s “immense conspiracy” of the 1950s. The conference in Washington confirmed that while the Kennedy conspiracy choir has a few members on the far right, the majority hold liberal or leftish political views. Several spoke of “an enslaved nation” that has “lost control of its government” and “lost its nationhood.”

Dashed Dreams

    In the aftermath of Kennedy’s death, the advocacy of conspiracy across the liberal political spectrum may be traceable to immediate post-assassination myths. Even though President Kennedy was cautious domestically and, in foreign policy, was a militant cold-warrior, the myth of Camelot made him in death a martyr of liberal causes at home and abroad. A sense of political dispossession still drives many liberal conspiracy buffs. For them, it is as if every wrong in America for three decades is attributable to a future that died in Dallas on November 22, 1963.

    The COPA conference had its share of the absurd. During an hourlong “breakout” panel entitled “Whodunit?” an unsuspecting hotel guest who detoured into the meeting room might have thought it was a rehearsal for a Saturday Night Live skit about Sotheby’s auction house. Conspiracy buffs were outbidding each other.

    “Whodunit?” the chairman asked, and his audience responded energetically with more and more dazzlingly competing suspects: the Federal Reserve banks and Wall Street because an independently wealthy Jack Kennedy was challenging the capitalist system; the Israelis (no reason given); the local police because Dallas was a font of right-wing hatred; H.L. Hunt, the right-wing Texas oil millionaire; the KGB; pro-Castro Cubans; anti-Castro Cubans; and/or the US Joint Chiefs of Staff. There was a conspiracy for every contingency.

    To judge from the steadfast attendance at the larger plenary sessions of this non-stop, three-day conference, the conspiracy movement has never been stronger. For two days running, in the huge, top-of-the-line Washington Sheraton Hotel, the sessions went from 8:30 AM to 10 PM. Books, newsletters, organizational advertisements and JFK paraphernalia were widely on sale.

    And to the great satisfaction of the conspiracy buffs, public opinion polls seem to confirm their growing strength and ardor. Speakers repeatedly cited polls asserting that “90 percent of the public” believes that there was some kind of conspiracy to kill JFK and that its lurking mystery saps American confidence. One of the most popular handouts at the conference was a page copied from Kevin Phillips’s new book, Arrogant Capital, with a graph showing Americans’ trust in Washington starting a headlong plunge in 1964.

Getting Recognition

    As recently as 1991 the movement to prove a conspiracy was getting nowhere. Rebuffed in their efforts to gain access to classified government files, conspiracy theorists were endlessly analyzing the same old information. Then, while motion picture director Oliver Stone was filming the movie JFK, a conspiracy buff wrote Stone a letter reminding him that the records of the House Select Committee on Assassinations, which in 1979 re-investigated both the assassination and the Warren Commission’s work on it, were sealed until 2029.

    According to Jim Lesar, head of a group called the Assassination Archives Research Center, that information prompted Stone to insert a tag line at the end of his film demanding that all government files be opened. A blizzard of letters from moviegoers fell on Washington, and in 1992 Congress passed an extraordinary statute in hopes of alleviating public suspicion about the federal government’s response to the Kennedy assassination.

    The law instructed the National Archives to gather all assassination-related records into a single massive collection, open to the public with the latest high-tech retrieval aids. It established guidelines for the release of federal records that are among the most liberal in existence today. Thanks to Hollywood, conspiracy buffs now stand on the verge of their biggest archival bonanza, and the assassination research community is re-energized.

    A high point of the COPA conference came on its last day when two officials from the JFK Assassination Records Review Board (ARRB), the panel newly commissioned by Congress to oversee and compel the release of assassination records, addressed the audience. John Tunheim, the ARRB chairman, stressed the board’s independence from intragovernment interference. Tunheim and David Marwell, an experienced archivist who is the board’s executive director, answered questions for another half hour. The legislation creating the ARRB guarantees it a life span of only two years, but if need be, the board itself can extend its existence for another year, to October 1997. Tunheim said it probably will do that. The board’s presumption will always be in favor of immediate disclosure, Tunheim also said.

    The COPA conference was almost totally ignored by the press. But the presence of the two ARRB officials was proof that the assassination research community is finally being taken seriously. The gathering ended with a three-hour open hearing during which the full board took formal and stenographically recorded testimony from all who asked to appear. (The board announced its second formal hearing, scheduled for November 18 in Dallas at the Earle Cabell Federal Building.)

    It is easy to foresee future controversy, though. Several critics cited the disclosure law’s exemption of the JFK autopsy records from forced public release. At the Kennedy family’s insistence, the ARRB is not empowered by law to require the release of them. Suspicions may persist. And one witness warned the board to watch out for self-servingly forged government documents – newly released as genuine antiques. Because the board’s mandate expires in 1997, questioners also asked how the panel could pry loose documents proving CIA or FBI complicity when “all the agencies need to do is stonewall for another three years.”

    It is easy to make fun of the conspiracy buffs. But they are responsible for legislation that is on the verge of accomplishing something important. The truth that will eventually emerge from the secret records is that the assassination and its subsequent investigations are misunderstood because they have been persistently divorced from their context. Once history is restored to the terrible events that began on November 22, 1963, they will cease to seem an unfathomably continuing conspiratorial evil. They will be seen instead as another bitter consequence of the Cold War.

The Cold War Chill

    Although nearly every researcher looking at newly released documents will be trying to find new clues to an ostensible cover-up by the FBI, the CIA, the Joint Chiefs of Staff, the Warren Commission or all of them, the genuine story waiting to be discerned is that Cold War considerations drove and sometimes bent the first and subsequent investigations of the JFK assassination.

    These investigations pitted the government against itself. They cut across the entire national security apparatus. In the clashes that ensued between the Warren Commission, for example, and Cold War establishments like the CIA, the latter agencies always won. Cold War dictates overrode the official search for answers because the national trauma of the assassination could not be allowed to add new tensions to the 45-year East-West struggle or disclose covert activities against the Communist bloc. For example, the CIA argued that if specific evidence of no Soviet involvement in the Kennedy assassination – which was quickly available – were to be made public, it would compromise intelligence sources and methods.

    So Cold War secrets were kept. They could be kept because they did not change the essential finding that Oswald did it, and he did it alone.

    If public doubts about the assassination and its aftermath now begin to subside, and if suspicions about the motives of a heinous government cover-up are reduced, perhaps we can finally hold the only debate about the assassination worth having. It is the one that has always been lacking. It is about full disclosure in a democratic society.

    In the 1960s, the CIA was obligated to tell the Warren Commission – not to mention the American people – about its clandestine efforts to overthrow Fidel Castro, including its proposed assassination plots. That was one big secret held back in 1964. If the word “conspiracy” must be uttered in the same breath with the Kennedy assassination, then the conspiracy that existed then was a conspiracy of silence designed to keep secret the  US government’s covert actions against Castro.

    The CIA had every reason to be concerned about a no-holds-barred investigation of the events of November 22 that went beyond a criminal inquiry. The exposure of its anti-Castro operations would have had predictable consequences, including a propaganda windfall for the Communist bloc that would have lasted for years and strong condemnations by the international community, plus an intense investigation of the CIA and officials of two administrations who had directed the anti-Castro efforts.

    It was surely not President Lyndon Johnson’s intention to exacerbate Cold War intrigues when he announced the Warren Commission’s formation. Indeed, his intention was the opposite: to cool fervently anti-Soviet rhetoric in Congress that might heighten East-West fears of nuclear attack.

    Even if there was a risk that condemnation of the Warren Commission’s report would follow if the information being withheld leaked out, there was deemed to be no contest between damaging the commission’s reputation by limiting its scope and raising Cold War risks by allowing full disclosure.

    Former President Gerald Ford, a member of the Warren Commission, explained in a recent interview that government officials believed that Cold War exigencies gave them the right to withhold the truth, in whole or part, to protect national security. No complete federal investigation of the Kennedy assassination could be conducted publicly in the political pressure vessel of the Cold War. It is naïve to believe otherwise. Yet Americans believe that secrecy per se poisons official verdicts.

    Ultimately, whether or not the rationing of the truth to protect “national security” was an all too common and outrageous act during the 45-year-long Cold War struggle depends on one’s perspective. There is no doubt that it was done. Some secrets were shared with the commission but not made public. No doubt referring to US communications intercepts, Chief Justice Earl Warren told the press shortly after publication of the report bearing his name that there were “things that will not be revealed in our lifetime.”

    As former President Ford now acknowledges, “[T]oday, with the totally different atmosphere, those judgments might seem improper . . . [But] it was inappropriate in the atmosphere of [1964] to divulge” certain information.

    It is now argued passionately that this holding back of some truths was one of the greatest misjudgments in American history because the enduring controversies about the assassination have helped foster deep alienation and a loss of respect among the American people for their government. When all, or most, of the secrets become known, that cynicism, ironically, may be the most lasting wound inflicted by Lee Harvey Oswald.

This article first appeared in The Washington Spectator, 15 November 1994
© 1994 by Max Holland 

Dealing with Dealey Plaza

America’s Emotional Grand Canyon Draws Millions of Visitors to Dallas Each Year

Editor’s Note: For Texas historian A.C. Greene's critique

                                     of this story, click here.

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By Max Holland

   

    I stopped for gas about 10 miles short of Dallas, not so much because I was running out of fuel but to pause and take a deep breath. Soon I would be arriving in Dealey Plaza, a place I had never been to and a place I had never left.

    In November 1963 I was about to celebrate my 13th birthday, so I am old enough to remember the weekend when such names as Love Field and Parkland Hospital were branded onto a nation’s memory. For me, and I suspect for most Americans sentient in 1963, the assassination became like oxygen: unseen, ubiquitous, yet highly combustible.

    For the past two years, however, I have been immersed in the events of that day, working on a history of the Warren Commission’s investigation. Not another book about the assassination, as I tell everyone, but the largely unknown story of the government’s response. Arriving as a writer, I wonder what I can possibly see or say that hasn’t already been seen and said about this outdoor Ford’s Theatre.

    While several American cities have been assassination sites – Washington (twice), Buffalo, Memphis, and Los Angeles – none has ever been defined so by a political murder. For months, if not years, afterward, to be from Dallas was to invite scorn and abuse nationwide. A Texas drawl was far from welcome in post-November 22 America. And nowhere were the recriminations more wrenching than in Dallas itself.

    There was an almost unbearable symbolism to President Kennedy having been cut down in Dealey Plaza. With its colonnades and gently sloping lawns, the small park celebrated George Dealey, a civic leader and a founding father of The Dallas Morning News. By the 1960s, George’s son Ted had turned the News into one of the most virulent, anti-Kennedy sheets in the nation, contributing mightily to Dallas’s reputation as the city not too busy to hate. Having stoked a climate of intolerance, it seemed cruelly fitting that the name Dealey was then stained by association.

    All this came back to me as I spent my first afternoon walking around haphazardly, somewhat dazed to find that Dealey Plaza exists in real life, not just on television and in old newsreels. I yearned to spend as much time as possible there, to steep myself in the plaza so that it became an ordinary place as much as an extraordinary one. For the next 11 days I walked around it daily, sometimes when it was jammed with tourists and buses but often when there were no other souls. And I came to understand two unspoken aspects of the dread-inducing site, or as a local columnist once labeled it, America’s emotional Grand Canyon.

    Unlike any other city that has suffered such a calamity, it was difficult for Dallasites to avoid the scene of the crime. A Washingtonian could have easily avoided Ford’s Theatre if the memory were too raw. Not so in Dallas. No less than Los Angeles, the city adored the automobile and geared its development to it. The fan-shaped plaza marked a major motor gateway, a triple-road underpass leading from downtown Dallas to all points west. And for every motorist traveling east into the city, Dealey Plaza presented the city’s first face, the tangible welcome to “Big D.”

    Dealey Plaza also represented to Dallasites the core of their city’s identity. The intersection of Elm and Houston Streets, which border the plaza, was proximate to the very spot where Dallas was founded more than 100 years earlier and where traces of those settlers could still be found. The fact that the president was murdered a matter of yards from where the city was born was especially poignant, a seeming rebuke to Dallas, everything it stood for, and everything it could every hope to achieve. It was as if the city were forever branded with the mark of Cain.

    How, I wondered, does a city cope with a birthplace and a gateway smeared by a horrible crime and with a history much larger than any one city normally is expected to address? Dallas took nearly 30 years to answer that question. But the story of how it did so is something of a road map through a national trauma and persistent obsession – that is, if the one and a half million people, young and old, who visit Dealey Plaza annually are any guide.

    Designated a National Historic Landmark in 1993, the plaza, underpass, surrounding buildings, and rail yards draw pilgrims for much the same reason Gettysburg does. Something vast and profound happened here, consecrating the ground in the process. The difference, of course, is that for many this event happened within their lifetimes. The mood is invariably somber, broken only by chatty teenagers or the “guides” who loiter around the plaza pushing their interpretation of the assassination for a price. Some two blocks away is a private museum devoted entirely to conspiracies, and for $20, the most dedicated can board a chauffeured van for a complete package tour. It begins at Love Field and follows the motorcade route through downtown Dallas, continuing on to Parkland Hospital and the rundown movie theater where police apprehended Lee Oswald, revolver in hand.

    Long before the tourists arrived, of course, Dallasites themselves thronged the compact plaza. Within minutes of the official announcement that the president was dead, the curious began flocking to Dealey Plaza. People brought or sent flowers, ranging from hand-picked bouquets to massive arrangements, until by Saturday afternoon it was difficult to see the ground. Of no less interest was a squat, seven-story brick building set apart from the others nearby. If undistinguished before Friday, now it loomed as large as a peak in the Grand Tetons. For it was from a sixth-floor corner window that one Lee Harvey Oswald, ex-Marine and self-styled Marxist, fired three shots at the presidential motorcade passing below at the crowd-pleasing speed of 11 m.p.h. Twenty years of ensuing civic debate would pivot on what to do with this building.

    Discussion began even as the Warren Commission started its investigation. The building at 411 Elm had become so instantly known as the Texas School Book Depository that few people realized it was only leased by its namesake, the Texas School Book Company. The building’s owner, local real state magnate Colonel D. Harold Byrd, was besieged with offers as high as $1.5 million for what was suddenly the world’s most infamous building, but he refused to sell, fearful that 411 Elm would become a tawdry, profit-making sideshow. His stance mirrored the prevailing attitude of Dallas’s tightly knit business and civic elite. If nothing were done for a few years, passions would simmer down, visitors would stop coming, and 411 Elm could be handled discreetly; that is, razed. Tearing down this affront to Dallas might not expunge the black mark, but it would be a good start. It was only too bad that significant alteration of Dealey Plaza was out of the question, but who was to say what might be achieved over time?

    Benign neglect became the rule as Dallas tried to forget. The sixth floor was sealed off, and tour bus guides neglected to mention the book depository in their commentaries. But knots of people could be seen in Dealey Plaza every day, and they exerted a pressure on the city akin to Chinese water torture. Eventually the city council memorialized the president’s fate in a one-square-block area two blocks east of Dealey Plaza, and when the Kennedy Memorial Plaza opened in June 1970, civic leaders believed that no one had the right to ask more of Dallas. But the plaza proved to be a failure. Architect Philip Johnson’s stark cenotaph, resembling large Legos, left many visitors cold. It told them nothing about that day, which is why they had to come to Dallas in the first place, and many were confused when they realized the memorial was not actually at the assassination site.

    When an exhibitor of Kennedy kitsch bought 411 Elm from Byrd in 1971, the city finally decided to take action: If the awful reminder was not going to go away, at the very least it had to be handled in good taste. Slowly Dallasites came to realize that the city would be cursed again if it allowed demolition, or exploitation, of the albatross on Elm Street. In 1977, voters approved the purchase and renovation of the building, reserving the sniper’s perch for what is now the Sixth Floor Museum. It has been an unqualified success since opening in February 1989. About 175,000 annual visitors were predicted, but in 1995 the Sixth Floor drew 421,000.

    Almost half of the exhibit is devoted to Kennedy’s “life and times,” and I could not help but note one irony. The city that gave Richard Nixon his biggest margin of municipal victory in 1960 now houses an exhibit that rivals the display at the Kennedy Library. Unlike the library, however, the events of November 22 are center stage. To avoid inadvertently glorifying Oswald’s violent act, the museum chose the assassination artifacts with care and the story is carefully redacted. The famous Zapruder film is edited so that the president’s head is not seen exploding. Nonetheless, the stomach still knots at the crackling AM radio broadcast, “We interrupt this program to bring you a special bulletin … from Dallas, Texas… Three shots were fired at President Kennedy’s motorcade.”

    Naturally I was curious to see how the museum handled the Warren Report controversy. The museum only presents at length findings from two federal investigations, giving equal weight to the 1964 Warren Report and the 1979 report of the House Select Committee on Assassinations. This is a real disservice: While the Warren Report has been roundly criticized for more than 30 years, it still holds up, whereas the thin reed upon which the House report claimed a conspiracy was discredited within months. Putting the two on the same footing has also alienated the dwindling band of Dallas lawmen who investigated the assassination that weekend. Long before the Warren Report confirmed it, they knew they apprehended the right bastard.

    Distrust of the city’s own once-exalted lawmen is a sobering reminder of Dallas’s residual trauma. Somehow it remains emotionally more satisfying to believe that the police got the wrong man— that such a momentous crime had to be plotted by men breathing together, rather than by one individual acting in an unpredictable world. I like to think that someday the exhibit will change, explaining the controversy and disbelief but not lending undeserved credence to it.

    Otherwise Dallas has acquitted itself well. The Hertz sign is gone from the roof of 411 Elm, and a few flagpoles grace the plaza, but Dealey Plaza is frozen in time, more or less as it was on that bright November afternoon. Aside from visiting the museum, visitors current and future will walk the hairpin turn that slowed the president’s motorcade and gaze down Elm Street as it descends toward the triple underpass, where Jacqueline Kennedy anticipated a few moments of cool air and relief from the beating sun. They will experience the plaza’s bowl-like depression, which gives a sense of tragic envelopment much like the effect Maya Lin deliberately sought in her design of the Vietnam Memorial.

    Above all, they will catch themselves, as I did whenever I stood in the plaza, stealing furtive glances at a sixth-floor window sealed ajar in perpetuity at the same height it was raised 33 years ago. An open window that might easily be taken for an open wound.

This article first appeared in Preservation November/December 1996
© 1996 by Max Holland

Silence of the Corporate Lambs: Where was Vernon Jordan?

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By Max Holland   

 

    Vernon Jordan is a victim of guilt by corporate association. Because he serves on the boards of Xerox, American Express, RJR Nabisco and eight other corporations, he has been depicted by some as a prima facie threat to the new administration’s tougher ethics. Yet the central issue shouldn’t be where Jordan sits. Rather, it should be what President-elect Clinton’s transition chief actually did at the powerful corporations he served, and the public policy implications of those actions. In this regard, nothing is more worthy of scrutiny than Jordan’s role at RJR Nabisco, once the 19th-largest corporation in America.

    This is not a reprise of the complaints about Jordan’s involvement with a tobacco company. Nor does it discount his work in encouraging corporate America to diversify its workforce and to support worthy causes like the United Negro College Fund. It’s the story of Jordan’s involvement in the leveraged buyout of RJR Nabisco, a deal that in many ways epitomizes the ’80s-style corporate greed and dishonesty that Bill Clinton ran against.

    Like it or not, the corporate form of organization dominates the American economy. It would be surprising, even disturbing, if the Clinton administration excluded men and women who ably serve corporate America. Nevertheless, corporate directors can be pawns or independent voices, and the weight of the evidence shows that Jordan went along to get along while RJR Nabisco was being ill-served, first by its chief executive officer, and then by Wall Street buyout artists doing the mother of all deals.

    At least two of Jordan’s former colleagues on the board of RJR Nabisco now say that the company and the original shareholders would be better off today if there had been no leveraged buyout. One of them, John Macomber, a former chief executive officer of Celanese Corp., says that RJR Nabisco “lost [its] moral compass” in the 1980s. Jordan’s acquiescence in such corporate excesses undermines his claim to represent the social conscience of corporate America.

    Jordan declines to discuss his work as a corporate director, saying that to do so would be akin to breaching lawyer-client privilege. “I do believe directors have a responsibility to keep what goes on in board rooms confidential,” he says. “Directors who comment even on [published] comments do a disservice to the process . . . . I have always abided by this, perhaps to my peril.”

    The tale begins in 1981, when Jordan left the presidency of the Urban League to join the Washington law firm of Akin, Gump, Strauss, Hauer & Feld. In private practice he began adding to an already impressive list of corporate directorships. He became a board member of R.J. Reynolds Industries at the invitation of Paul Sticht, the chief executive officer of the Winston-Salem tobacco company.

    Sticht says he came to rely Jordan’s “good horse sense.” R.J. Reynolds had holdings in South Africa, and Sticht says he particularly prized Jordan’s counsel “in those troubled political waters.” Sticht also invited Jordan to the Bohemian Club’s annual retreat outside San Francisco, a favorite social event of American businessmen and politicians. The gathering offered Jordan an unparalleled opportunity to be a “rainmaker,” drumming up business for Akin, Gump.

    Jordan was only doing what board members routinely do in addition to official duties, namely use their position to network and make deals. But in 1983, an R.J. Reynolds executive named Tylee Wilson became CEO of the company. Wilson’s blunt, no-nonsense style did not appeal to Sticht’s board, according to Barbarians at the Gate, a best-selling account of the leveraged buyout of RJR Nabisco. Wilson thought his job was to make R.J. Reynolds’ operations as profitable as possible -- and that didn’t include handing out goodies to curry the directors’ favor. As reported in Barbarians, Wilson curtly told Jordan to make his requests for a bigger share of R.J. Reynolds’ legal business to the company’s general counsel.

    In 1985, after R.J. Reynolds merged with Nabisco, the board replaced Wilson with a Nabisco executive named Ross Johnson. Wilson knew he was finished after he polled the board members privately. His last call, as reported in Barbarians, was to Jordan, who told him, “You’d better cut yourself a deal and get out.”

    The RJR Nabisco directors soon found themselves in the corporate equivalent of hog heaven. Johnson re-established an international advisory board that held meetings around the world to discuss global issues. A corporate villa sprang up in Colorado, augmented by a compound in Palm Springs and penthouses in Manhattan. All board members received cut-rate auto insurance and were promised annual retirement payments of $ 50,000 for 10 years. There was even talk of lifetime pensions for directors once they retired. “A few million dollars,” Johnson was fond of saying, “are lost in the sands of time.”

    Within a year of Johnson’s ascension, Sticht, now chairman of the board, was complaining about the new CEO’s spend-thrift ways. At the Bohemian Club retreat in 1987, Sticht told Jordan how appalled he was by Johnson’s behavior and suggested it might be time for the board to mount another coup. Sticht’s recollection is that Jordan “didn’t disagree” but did not join Sticht in pressing the issue. John Macomber says that “we were all somewhat culpable over the fact that Ross [Johnson] spent a hell of a lot of money . . . but it’s not the biggest thing in the world.” A few months later, Johnson ousted Sticht as board chairman with nary a word of complaint from the other directors.

    In 1988, Johnson decided to reward himself with the ultimate corporate perk: a management-led leveraged buyout. The idea was to organize a select group of investors to borrow money to buy out all the public shareholders. When the investors captured control of the corporation, they could use all of its cash flow to retire the debt incurred in the buyout (rather than say, paying dividends). Once the debt was whittled down to acceptable levels, the investors could again sell the company’s stock publicly, reaping windfall profits on their relatively small original investment. Within seven years Johnson expected that his personal pot of gold from the buyout would amount to at least $ 100 million.

    Jordan warned Johnson about the danger of putting RJR Nabisco “into play.” “Somebody might come along and buy this company for more than you can pay,” Jordan is quoted as saying in Barbarians. “You might not win.”

    Johnson was not dissuaded. On Oct. 19, 1988, the board, including Jordan, expressed its “strong sense” that Johnson should go ahead with the deal on the grounds that it was their duty to maximize shareholder value. That evening Jordan and Macomber both expressed lingering uneasiness about the decision while meeting informally with other directors. In particular, they were concerned over what a leveraged buyout might mean for their promised $ 500,000 pensions, according to Barbarians.

    As Jordan foresaw, putting RJR Nabisco into play was akin to putting down a pot of honey in front of a hive. Buyout artists, including the Wall Street firm of Kohlberg Kravis Roberts & Co. (KKR), swarmed to the deal. A special board committee was created to select the best bid. John Macomber, who served on the committee, says that he relied informally on Jordan’s “good judgment and uncanny sense of people and ability to size up situations.”

    Macomber, like Sticht, now believes that the buyout was not in the best interests of the stockholders. The buyout was “a good deal,” he says, “but all shareholders would all be better off today if they [still] owned RJR stock.” For his part, Jordan says, “There’s something to be said for that [view]. I’ve thought about it many ways . . . . It was an experience I would not want to repeat.”

    Midway through the bidding for RJR Nabisco, someone in Kohlberg Kravis Roberts & Co. apparently decided that it might help the firm’s bid if the details of Johnson’s offer were made public, especially his anticipated $ 100 million windfall. As the full dimensions of Johnson’s perk-happy corporate empire became public -- the RJR air force, the villas, the $ 1,500 Gucci watches -- Jordan and other directors began to distance themselves from a CEO who was rapidly becoming a symbol of greed along the lines of Ivan Boesky and Michael Milken. Jordan called Charlie Hugel, the head of the special board committee created to select the winning bid, and expressed horror at the details of Johnson’s bid, and how the whole sorry spectacle was unfolding.

    But it is hard to tell if it was the ostentatious details of Johnson’s bid that finally turned Jordan and other directors against Ross Johnson, or if it was merely embarassment about the revelations. Sticht says that he knew about the extent of Johnson’s self-dealing. Jordan and the rest of the board plead ignorance, according to Barbarians. In any case, the board, eager to find a less notorious alternative to Johnson, accepted the KKR bid and the buyout was completed.

    When Adolphus Green founded Nabisco in 1898, he believed that a corporation existed “not merely to make dividends for the stockholders . . . but to enhance the general prosperity.” Of course, part of enhancing the general prosperity is paying corporate taxes. But consider what happened to RJR Nabisco’s tax burden as a result of the buyout. As Treasury Secretary Nicholas Brady observed in January 1989, just after the deal, “The substitution of [tax deductible] interest charges for [taxable] income is the mill in which the grist of takeover premiums is ground.”

    In other words, the RJR deal worked only because the post-buyout financial structure would enable RJR to all but avoid paying corporate income taxes for years. In 1988, the year of the buyout, RJR Nabisco paid $ 893 million in taxes. In 1989, it received $ 222 million in refunds, and in 1990 paid only $ 60 million in taxes. The net effect of the buyout was a gigantic transfer of wealth from the U.S. Treasury to a small group of investors skilled in manipulating the tax code.

    No one expects corporate directors to argue for higher taxes, but it is fair to ask them to consider the interests of stakeholders, meaning not just stockholders, but also workers, customers, suppliers and others with a stake in the corporation. And what was Jordan’s attitude with respect to the impact of the buyout on the workers of RJR Nabisco, many of them women and minorities?

    During the frenzied bidding, KKR representatives fleetingly assured the RJR Nabisco board that they knew the value of happy employees, according to Barbarians. But if Jordan and other directors had been at all curious, they could have learned that earlier KKR buyouts, such as one involving the Safeway supermarket chain, had resulted in plant closings, mass firings, worker give-backs and declines in real wages.

    The actual impact of the buyout on RJR Nabisco workers has been mixed. On the Nabisco side of the company, the unionized work force has not suffered. The workers are represented by the Bakery, Confectionery & Tobacco Workers International, which represented Safeway workers before and after the KKR buyout. “We knew what KKR was capable of doing,” says Ray Scannell, research director of the union. “We were not going to allow them to claim that paper losses were operating losses.”

    But non-unionized workers dominate the tobacco division and they have fared poorly, according to Scannell. He says that these workers have not had a pay increase in three years and that the worker’s pension plan has been reduced and is underfunded.

    Within a year of the buyout, RJR was on the brink of becoming the largest corporate bankruptcy in U.S. financial history. The company’s ability to service its new debt was so razor-thin that Moody’s downgraded RJR’s junk bonds in January 1990. Kohlberg, Kravis, Roberts faced the prospect of resetting the interest rates on certain junk bonds to as high as 25 or 30 percent in order to restore the bonds’ promised value. But at those interest rates, according to the book Merchants of Debt, by George Anders, RJR’s balance sheet would soon disintegrate and the food and tobacco giant might be forced to default. The only reason RJR Nabisco did not go the way of Macy’s or a hundred other busted deals is that KKR arranged an emergency equity infusion of $ 1.7 billion and an additional $ 2.25 billion in new bank loans in 1990.

    Jordan has not personally suffered as a result of the buyout. RJR Nabisco remains a client of Akin Gump. As one of only two directors to be held over, Jordan is paid $ 50,000 annually to attend about five board meetings. As a director he is also entitled to a life insurance policy worth $ 100,000. He has received options on 30,000 RJR shares, worth approximately $ 270,000 at today’s prices. Upon retirement, he is eligible for a pension worth $ 750,000 over 15 years. And unlike the pension he worried about in 1988, this plan cannot be terminated.

    In short, Vernon Jordan deferred to a small group of Wall Street buyout artists who put an engine of American economic growth at risk for the sake of their own enrichment. His performance throughout the RJR Nabisco saga does not inspire confidence in him as a steward of the corporate economy or as a symbol of what is supposed to be a new era of investment.

This article first appeared in The Washington Post, 6 December 1992
© 1992 by Max Holland

The Key to the Warren Report

Seen in its proper historical context — amid the height of the Cold War — the investigation into Kennedy’s assassination looks much more impressive and its shortcomings much more understandable.

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By Max Holland

    In September 1994, after doggedly repeating a white lie for forty-seven years, the Air Force finally admitted the truth about a mysterious 1947 crash in the New Mexico desert. The debris was not a weather balloon after all but wreckage from Project MOGUL, a top-secret high-altitude balloon system for detecting the first Soviet nuclear blasts halfway across the globe.

    During the half-century interim, flying-saucer buffs and conspiracy theorists had adorned the incident with mythic significance, weaving wisps of evidence and contradictions in the Air Force’s account into fantastic theories: Bodies of extraterrestrial beings had been recovered by the Air Force; the government was hiding live aliens; death threats had been issued to keep knowledgeable people from talking. Such fictions had provided grist for scores of books, articles, and television shows.

    In retrospect the Air Force had obviously thought the Cold War prevented it from revealing a project that remained sensitive long after the Soviet Union exploded its first atomic bomb. And such surreptitiousness was certainly not isolated. Might it provide a model even for understanding that greatest alleged government cover-up, the assassination of President John F. Kennedy? Indeed our understanding of the assassination and its aftermath may, like so much else, have been clouded by Cold War exigencies. It may be that the suppression of a few embarrassing but not central truths encouraged the spread of myriad far-fetched theories.

    Admittedly there are Americans who prefer to believe in conspiracies and cover-ups in any situation. H.L. Mencken noted the “virulence of the national appetite for bogus revelation” in 1917, and more than a century after the Lincoln assassination skeptics were still seeking to exhume John Wilkes Booth’s remains. The Columbia University historian Richard Hofstadter definitively described this syndrome in his classic 1963 lecture “The Paranoid Style in American Politics,” later published as an essay. “Heated exaggeration, suspiciousness, and conspiratorial fantasy” are almost as old as the Republic, Hostadter observed, as evinced by the anti-Masonic movement of the 1820s, the anti-Catholicism of the 1850s, claims about the international banking cartel in the early 1900s, and Sen. Joe McCarthy’s “immense conspiracy” of the 1950s. But a recurring syndrome is not to be confused with a constant one, Hofstadter argued. Paranoia fluctuates according to the rate of change sweeping through society, and varies with affluence and education.

    In the case of the Kennedy assassination, unprecedented belief in all kinds of nonsense, coupled with extraordinary disrespect for the Warren Commission, has waxed in good times and bad and flourishes among remarkable numbers of otherwise sober-minded people. Even the highest level of education is not a barrier, to judge from the disregard for the Warren Report that exists in the upper reaches of the academy. In April 1992 the professional historians’ most prestigious publication, the American Historical Review, published two articles (out of three) in praise of Oliver Stone’s movie JFK. The lead piece actually asserted that “on the complex question of the Kennedy assassination itself, the film holds its own against the Warren Report.” In a similar vein, in 1993, Deep Politics and the Death of JFK, by an English professor named Peter Dale Scott, a book conjuring up fantastic paranoid explanations, was published by not less respected an institution than the University of California Press.

    The Warren Commission’s inquiry occurred at what we now know was the height of the Cold War, and it must be judged in that context. Perhaps with its history understood, the Warren Commission, instead of being an object of derision, can emerge in a different light, battered somewhat but with the essential integrity of its criminal investigation unscathed. The terrible events that began in Dallas are not an overwhelming, unfathomable crossroads; they are another chapter in the history of the Cold War.

    In September 1964, when seven lawyers filed into Lyndon Johnson’s White House to deliver their 888-page report on the most searing national event since the attack on Pearl Harbor, the transmogrification of the commission into a national joke would have seemed impossible. Collectively the commission represented one hundred and fifty years’ experience – at virtually every level of American government, from county judge to director of Central Intelligence. Chief Justice Earl Warren’s reputation was nearly impeccable after more than twenty-five years of public service, and the influence of Georgia’s senator Richard Russell in Washington, so the cliché went, was exceeded only by the president’s, given Russell’s power over intelligence matters, the armed forces, and the Senate itself. Two other panel members, Allen W. Dulles and John J. McCloy, were singularly well versed in the most sensitive national matters, Dulles having served as CIA director from 1953 to 1961 and McCloy as an assistant secretary of war from 1940 to 1945.

    For several months the commission appeared to have accomplished its mission of assuring the public that the truth was known about Kennedy’s death. The American people seemed to accept that JFK’s sole assassin was Lee Harvey Oswald, and the report won almost universal praise from the news media. Prior to its release, a Gallup poll found that only 29 percent of Americans thought Oswald had acted alone, afterward 87 percent believed so.

    Long before the report came out, of course, nearly everyone had his or her own explanation for the events in Dallas. It was natural to try to invest the tragedy with meaning. And humans being what they are, individual biases determined people’s theories. Even as the President was being wheeled into Parkland Memorial Hospital, anguished aides insisted that unspecified right-wingers were responsible, since uppermost in their minds was the rough reception Adlai Stevenson had gotten in Dallas a few weeks earlier, when the U.S. ambassador to the United Nations was booed, jostled, and spat on by right-wing demonstrators. Dallas’s long-time reputation as the “Southwest hate capital of Dixie” only reinforced liberals’ inclination to blame “refined Nazis.” Even Chief Justice Earl Warren, before his appointment to the commission, could not resist issuing a “blunt indictment of the apostles of hate.”

    But for officials whose instincts were honed by national-security considerations, the Soviet-American rivalry loomed over what had happened and dictated what immediately needed to be done. The overwhelming instant reaction among these officials was to suspect a grab for power, a foreign, Communist-directed conspiracy aimed at overthrowing the U.S. government. The assassination might be the first in a concerted series of attacks on U.S. leaders or the prelude to an all-out attack. Newly installed intercontinental ballistic missiles were capable of reaching their targets in fifteen minutes; whose finger was on the nuclear button now that the president was dead? Both the president and the vice president had traveled to Dallas, and the fact that six senior cabinet members happened to be aboard an airplane headed for Japan suddenly acquired an awful significance. The Washington-area telephone system suffered a breakdown thirty minutes after the shots were fired, and sabotage was suspected. Attention fixed on the Soviet Union, China, and Cuba as the only governments that could possibly undertake and benefit from such a heinous plot.

    When Major General Chester Clifton, JFK’s military aide, arrived at Parkland Hospital, he immediately called the National Military Command Center and then switched to the White House Situation Room to find out if there was any intelligence about a plot to overthrow the government. The Defense Department subsequently issued a flash warning to every U.S. military base in the world and ordered additional strategic bombers into the air. General Maxwell Taylor issued a special alert to all troops in the Washington area, while John McCone, director of central intelligence, asked the Watch Committee to convene immediately at the Pentagon. The committee, an interdepartmental group organized to prevent future Pearl Harbors, consisted of the government’s best experts on surprise military attacks.

    Back in Dallas, Rufus Youngblood, head of Johnson’s Secret Service detail, told the president-to-be, “We don’t know what type of conspiracy this is, or who else is marked. The only place we can be sure you are safe is Washington.” A compliant LBJ slouched below the windows in an unmarked car on the way to Love Field, where Air Force One was waiting. Despite special security precautions, it seemed possible to those on the tarmac that the presidential jet could be raked by machine-gun fire at any moment. When the plane was finally airborne, it flew unusually high on a zigzag course back to Washington, with fighter pilots poised to intercept hostile aircraft. During the flight, Johnson kept in touch with the Situation Room, manned by the national security adviser, McGeorge Bundy, for any sign that the Communist bloc might be exploiting the situation. Waiting for Johnson at Andrews Air Force Base was JFK’s national security team – or as much of it as could be assembled.

    As minutes and then hours passed uneventfully and overburdened telephone exchanges began working again, fears about a surprise attack receded. Conspiracies like the one being imagined rely on surprise and speed for success, and nothing suspicious had occurred after the assassination. Very soon the thought of a master plot seemed irrational, as William Manchester records in The Death of a President: “Hindsight began early. Within the next three hours most of those who had considered the possibility began trying to forget it. They felt that they had been absurd.” Still, for hours the U.S. military stood poised to deliver an overwhelming counterstrike.

    Within hours the Dallas police arrested a 24-year-old Communist sympathizer named Lee Oswald, a bundle of possibilities and seeming contradictions. Now many liberals showed a reluctance to shift the blame from right-wingers to a self-styled Marxist; a liberal president being assassinated by a Marxist seemed to make no sense. Jacqueline Kennedy’s reaction upon being told of Oswald’s background was to feel sickened because she immediately sensed it robbed JFK’s death of a greater meaning. “He didn’t even have the satisfaction of being killed for civil rights,” she said, according to Manchester. “It’s – it had to be some silly little Communist.”

    For security-conscious officials, however, Oswald’s arrest meant replacing one Cold War scenario with another, and the second script filled them with no less dread than the first. Undersecretary of State George Ball ordered a search of federal files as soon as the networks broadcast Oswald’s capture. Dallas authorities found pro-Soviet and pro-Castro literature in Oswald’s boardinghouse room, and frantic searches of FBI, CIA, and State Department records revealed Oswald’s defection to the Soviet Union, his recent contacts with the Soviet Embassy in Mexico City, and his one-man Fair Play for Cuba committee in New Orleans. Top officials working through the night to assemble all the pieces had to wonder if the KGB had transformed a onetime defector into an assassin or if Castro had used an overt sympathizer to retaliate against an administration plotting his downfall. As Ball told The Washington Post in 1993, “we were just scared to death that this was something bigger than just the act of a madman.”

Procuring Inaction

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By Max Holland

   

    Not all corporate CEOs aim to get the federal government to act.

    Many CEOs go to Washington to persuade the government not to act. They aren’t seeking regulatory relief, federal funds, or the passage of a law. They want to ward off Washington, and although it is easier than prodding the capital into activity, it still requires a CEO’s time, effort, and sometimes a considerable financial investment.

    With the possible exception of the ‘80s savings and loan debacle, nothing illustrates the pursuit of inaction better than the minuet between Washington and Wall Street over leveraged buyouts. From 1979 to 1989 LBOs grew until the leveraging of RJR Nabisco, the 19th-largest corporation in America. Washington uttered hardly a word; indeed the Reagan administration hailed buyouts as a natural outcome of its laissez-faire philosophy. Only following the outcry over RJR did Washington begin a brief and ultimately ineffective investigation.

    No investment banking firm profited more from this boom than a relatively small Wall Street house called Kohlberg Kravis Roberts & Company (KKR). And no executive was more responsible for the government’s inaction than KKR partner Henry R. Kravis. Kravis, a premier buyout artist, went to the capital as a kind of super CEO, the head of a holding-company empire larger than Texaco, Chrysler, or AT&T. By 1989 KKR controlled dozens of leveraged corporations, including RJR Nabisco, Duracell, and Safeway.

    From the mid-1960s to the late ‘70s, buyouts garnered little attention on Wall Street, Main Street, or on either end of Pennsylvania Avenue. Deals were small and infrequent. But in 1979 KKR engineered the first leveraged buyout of a Fortune 500 company – Houdaille Industries, a manufacturer of industrial products. The Securities and Exchange Commission, which regulates the sale of all publicly owned companies, ordered KKR to produce a diagram illustrating the corporate shells and layers of debt needed to carry the buyout. But the SEC’s scrutiny was nothing compared to Wall Street’s reaction. For about $1 million, a trio of investment bankers had captured a controlling interest in a corporation boasting $400 million in annual sales. As one investment banker recalled, the SEC documents on the buyout “were grabbed up by every firm on Wall Street. That deal showed everybody what could really be done. We all said, ‘Holy mackerel, look at this!’”

    The Houdaille deal was even more impressive because Kravis and his partners, Jerome Kohlberg Jr. and George R. Roberts, had been in business for only three years. The men had met at Bear, Stearns in the late 1960s, and in 1976 they formed KKR with $120,000 in capital, most of which was Kohlberg’s.

    Three years after the Houdaille LBO, William E. Simon, who had been Treasury secretary under President Ford, headed a group that bought out Gibson Greetings, a greeting card manufacturer based in Cincinnati, with an investment of about $1 million. Within two years Gibson Greetings went public and Simon’s stake of $330,000 was worth more than $66 million. Taking a public corporation private, paying off the buyout debt, and taking the company public again was yielding profits that had Wall Street scrambling to do the “LBO thing.”

When Burgmaster Lost Its Edge

The Burgmaster plant in Gardena, California, closed its doors for the last time on September 19, 1986. Contents of the plant were sold at auction.

It its 40 years of existence as a machine-tool builder, the company founded in 1944 by Czech immigrant Fred Burg had risen to prominence as an innovative manufacturer of turret-type drilling and milling machines – in fact, the largest American machine-tool builder in the West. In 1965, it was the object of a friendly takeover by conglomerate Houdaille Industries (Buffalo, New York) and in 1979 was acquired in a leveraged buyout. This article, which focuses on events at Burgmaster 20 years ago, is
adapted from the book When the Machine Stopped, published this month by Harvard Business School Press.

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By Max Holland

    The new Burgmaster president, Allan Folger, was not so much a Houdaille man as a machine-tool man.

    He had spent most of his working life in the machine-tool industry but had been with the conglomerate only three years, since 1966. He had a degree in mechanical engineering from the University of Cincinnati and had worked at the Cincinnati Milacron–the GM of the machine-tool industry–before acquiring an MBA from the University of Chicago. He was employed as a consulting engineer in Phoenix in the mid-1960s when a close friend, who was head of a large machine-tool dealership, told him about executive openings in Houdaille’s expanding machine-tool group.

    Folger moved to Buffalo in 1966 and was president of Strippit when Houdaille CEO Gerald Saltarelli asked him to swap jobs with Tom Norton, president of Burgmaster. “Burgmaster is not generating a sufficient return on its assets,” Saltarelli told Folger.

    The CEO was proud that, with profits measured as a percentage of equity, Houdaille was among the most profitable machine-tool builders: his machine-tool group averaged a 14-16% return on investment. Burgmaster’s contribution, though, was about 8-10%. To be sure, Norton had done better than the 3.75% figure that stigmatized Joe Burg’s last year as president. But overall, Burgmaster remained a drag on the entire group.

    Saltarelli did not have to add why this displeased him so. Wall Street regarded the profits/equity measure as the best indicator of corporate performance, far better than net income, and it figured prominently in Wall Street’s calculations of Houdaille’s price-to-earnings ratio. That figure, in turn, was the key to Saltarelli’s ongoing efforts to boost the price of Houdaille stock and toward further conglomeration.

    Folger had come to know his predecessor slightly during group meetings and like everyone else, considered Tom Norton personable and intelligent. Although Folger did not blame him for Burgmaster’s problems, neither did he subscribe to Saltarelli’s credo that “a good man in one product is good in any.” Folger believed that the head of a state-of-the-art machine-tool company needed experience in the industry, if only because the industry defied easy analysis and Buffalo put a premium on meeting forecasts: the more attuned a division president was to the industry vicissitudes, the better.

    But Norton, and many other Houdaille executives, were taken aback when Saltarelli handpicked Folger. “I was surprised that he got the Burgmaster job,” recalled Norton. “They needed someone strong in manufacturing and engineering. Allen did not have the strongest background.”

    That was true. For all his years in machine tools, Folger’s experience had been mostly limited to one segment, marketing. He was unusually adept at figures but had risen to the top of Strippit without the customary seasoning that Saltarelli preferred to give his division presidents. Houdaille executives ordinarily came up steadily through the ranks, spending a year or so in various departments, until they were distinctly comfortable with every aspect of a company’s operations, from labor relations to accounting.

Shore Up Marketing

    But Saltarelli had come to the conclusion that Burgmaster’s foremost problem was marketing. He was determined to bring Burgmaster up to a level of financial performance commensurate with the money Houdaille had poured into the company. And in one period of slumping sales, it seemed sensible to rely on a man of Folger’s expertise. He was confident that Gene Dobmeier, the plant manager, would prevent bottlenecks if and when there was a surge in orders.

    For this reason, Folger’s Burgmaster was quite different from that of its predecessors. In place of the once thoroughly integrated operation stood a company with clear separations of responsibility and power. Burgmaster’s president was in only nominal control of the entire operation. Saltarelli’s implicit intention was that Folger let Dobmeier run the entire manufacturing end of the business without interference.

    The two men, thus, came to an understanding: Folger’s job was to provide the numbers that kept Buffalo at bay, if not happy, and Dobmeier’s was to ensure that production backed up Folger’s numbers. Dobmeier would run Burgmaster in reality; Folger, in appearance.

    The arrangement suited both men for different reasons. For Dobmeier, it was compensation for the fact that he was unlikely to rise any higher in the Houdaille hierarchy. He lacked a college degree, and Saltarelli firmly believed in higher education for all his top executives. Tom Norton had been one of the exceptions to the rule, and some colleagues had referred to him as the “Mustang” president because of it. But Dobmeier, despite Saltarelli’s high regard for his abilities, was not going to become another Norton.

    The situation also satisfied Folger because it relieved him of immediate responsibility for almost everything but Burgmaster’s numbers. Folger was not particularly comfortable dealing with people, whether peers or subordinates. To nearly everyone who worked with him he seemed fair but remote, almost to the point of being cold. Employees were paid to do a job, and he expected them to do it without being coddled or praised, although at times criticism was in order.

    His predecessor, Norton, had tried to keep up the appearance of Burg’s hands-on involvement by touring the shop floor at least once a day, often with his shirtsleeves rolled up. Folger did not. He was rarely seen outside the executive offices, and many long-time employees soon dubbed him the “invisible man.” He thought of himself as a financial man and was “only into one thing,” recalled Burgmaster sales manager Ed Merk: “making forecasts.”

    By mid-1969, a few months after taking office, Folger had developed a comprehensive view of Burgmaster’s prospects and problems. One reason for optimism was the company’s up-to-date plant, a fact driven home to Burgmaster employees whenever they attended a machine-tool show back East or took time to visit other builders. Houdaille had carried though on its plan to invest in Burgmaster, and, by the time Folger arrived, it boasted one of the most modern factories in the industry. Of Burgmaster’s 40 or so machine tools, Houdaille had financed the purchase of 21, which meant the bulk of productive equipment was less than five years old, although few machines were of the NC variety.

    Retaining the skilled labor needed to operate the machines, however, was a growing problem. Perhaps two dozen machinists, all of whom had been with Burgmaster for two years or more, were so ensconced that they were unlikely to leave no matter what the outside inducements. But that mix of loyalty and inertia was rare.

    To most of the blue-collar work force, Burgmaster was just another place to work now. Though still not quite as impersonal as some of the big aerospace plants in Southern California, it no longer offered the intangible benefits that had once made it such a satisfying machine shop. Often Burgmaster found that, if it did manage to find and hire two skilled machinists one month, it was robbed of three by the aerospace industry the next month. Worse, Burgmaster had come to function as part of a “farm system” for the aerospace industry.

    The siphoning-off of machinists was not unique to Burgmaster or the result of its unusual situation. It was an industry-wide problem, made all the more acute by the Vietnam War, which drafted many young men who otherwise would have become apprentices.

    Initially, the US government had been slow to respond to the industry’s wartime problems, refusing at one point to include machine-tool production on the Department of Commerce “List of Currently Essential Activities.” But congressional lobbying by the industry trade association, the National Machine Tool Builders Association (NMTBA), prompted the Labor Department to significantly expand and streamline its job-training program for machinists.

Holding On to Trainees

    Burgmaster was one of the earliest and most enthusiastic participants in the joint NMTBA-Labor Department program. But the results were less than gratifying. With the government subsidizing wages, Burgmaster would hire 15 or so apprentices and give them on-the-job training as a supplement to after-hours schooling, also paid for by the government.

    But, once the trainees became productive, they invariably left for higher aerospace wages. McDonnell Douglas and Lockheed “were stealing [Burgmaster] blind” in the late 1960s, with often chaotic results. For the time being, the downturn mitigated the labor problem considerably. But Folger knew he had to keep it uppermost in his mind if his forecasts were going to accurate once the pace of orders picked up.

    Accuracy was crucial, because it was not going to be easy to placate Saltarelli. In the four years since the takeover, Burgmaster had become a sore subject with him. To begin with, the rather conservative CEO “never liked California. In fact, he hated it,” recalled Folger. “He wasn’t kidding when he said that nothing but a bunch of nuts lived out here.” That, plus the fact that his semiannual visits always had to include a lecture to Burgmaster employees about their shortcomings, was probably more than enough to ensure Saltarelli’s displeasure with the state.

    The chairman of Houdaille preferred to expend his energies on making new acquisitions, rather than scolding old ones. Even the cautious and conservative Saltarelli had finally succumbed to the indiscriminate conglomerate fever. In early 1969, for example, Houdaille found itself making a $31-million bid for a beer brewery. Although the transaction was abruptly called off before being approved by Genesee Brewing and Houdaille stockholders, it revealed the pressures and risks Saltarelli labored under. The ongoing struggle for what was perceived to be corporate survival made underperformers like Burgmaster all the more vexing.

    Nor did longtime Burgmaster employees enjoy being considered the “bad guys” of the machine-tool group. To workers as well as supervisors, the kind of attention that this brought, often in the form of visitors from Buffalo, was a source of concern and an occasion for sarcasm.

    It often summed up Houdaille’s topsy-turvy values. In the old days, employees were measured by one standard: how well they did their work – and the Burgs didn’t tolerate anyone who didn’t do a good job. Now, among other things, neatness, as defined by Saltarelli, seemed the paramount issue.

A Defection in the Family

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    Few people in Washington, other than the die-hards at the Heritage Foundation, would call the liberal-left community a powerful voice in the formulation of US foreign policy. A loose collection of church groups, veteran opponents of the coup that overthrew Salvador Allende in Chile, outgrowths of the antiwar movement, research institutes, the American Civil Liberties Union and the like, it displays few of the trappings of power. It has too few lobbyists working the halls of Congress and garners too little attention in the media. It annoys rather than influences policy-makers. Still, it has presented a united front on many major issues, such as the efficacy of cutting off foreign aid to punish human rights violators.

    For the past five months the ranks of this small community have been shaken by the defection of Bruce Cameron, one of its rare effective advocates on the Hill. A former lobbyist for the Americans for Democratic Action (ADA), Cameron broke to support “humanitarian” aid to the Nicaraguan contras in June. The defection of one person may seem to be a minor matter, but it has touched off accusations of apostasy and counter-accusations of neo-Stalinism. Cameron now openly criticizes the “arrogance of the human rights community,” calling one of the most respected groups on the left, the Washington Office on Latin America, “a shill for the Sandinistas.” More important, Cameron’s defection significantly reduces the liberal-left’s ability to thwart Reagan’s Central America policy in Congress. The crack in its unity has encouraged Congressional liberals to be seduced by the myth that they can make over Nicaragua, and Guatemala, in their image.

    There is little agreement on the reasons for Cameron’s heresy. The simplest explanation making the rounds is that he succumbed to the lure of power. Proponents of this view says that Cameron, known for his overbearing style, enjoys plotting and intrigue, and that the Reagan administration led him to believe he could manipulate its Central America policy. Totally absorbed in the world of Congressional policies, he believes that the subtleties of legislative maneuvers in Washington will be fully comprehended in Managua and persuade the Sandinista government to change its ways.

    The more charitable interpretation, given by Cameron’s friends, is that he is driven by personal loyalty to a few prominent but politically-isolated Nicaraguans who are not averse to Washington’s acting as an arbiter of Nicaragua’s internal affairs.

    A fuller explanation would combine those interpretations and something more. The controversy dramatizes the dilemma of the liberal-left in opposing US foreign policy. Should it accept the logic of imperialism, reducing the struggle over US foreign policy to a quibble over how best to save the world from Marxism-Leninism? Or should it take a cool, tough and candid approach (to borrow the words of William Appleman Williams) to national security, one that forswears the overthrow of another government unless that government represents a clear threat to the United States?

    Cameron’s career once exemplified the liberal-left’s use of human rights as a tool to make US foreign policy non-interventionist. Beginning in 1976 he represented the ADA in an umbrella group, the Coalition for a New Foreign and Military Policy, the successor to a Vietnam-era organization formed to stop the funding of the war, and worked vigorously to attach human rights conditions to the multitude of foreign aid laws. In alliance with two Democratic Congressmen, Donald Fraser of Minnesota and Tom Harkin of Iowa, the liberal-left won several legislative victories, despite the opposition of both the Ford and Carter administrations.

    When the regime of General Anastasio Somoza Debayle began to crumble in 1978, Cameron and the entire community fought the dictator’s formidable Washington lobby for almost two years. After the Sandinistas’ victory in July 1979, the liberal-left immediately advocated reconstruction aid. Cameron, still the ADA’s lobbyist, wrote an influential memorandum circulated in Congress arguing that Nicaragua was a test case of the United States’ ability to work with revolutionary regimes (a document he now considers “full of lies”). Cameron spent eight months lobbying for legislation that would give $75 million in aid to the new government.

    But over the next five years, Cameron says, he became increasingly disenchanted with the Sandinistas. Managua seemed oblivious to liberal tutelage from Washington. Worse, from Cameron’s point of view, the revolution seemed to be leaving behind the democrats who had joined the broad anti-Somoza front in the late 1970s. Cameron had become close to Alfonso Robelo Callejas, a young businessman whose opposition to Somoza had been motivated originally by his disapproval of the dictator’s stranglehold over the economy, and Arturo Cruz, an economist who detested Somoza on more principled grounds, but someone who had lived in Washington for more than a decade and had no political base in his own country. Despite his misgivings about the Sandinistas, Cameron maintained ranks for nearly five years, though he made no effort to hide his personal loyalties. He opposed aid to the contras and worked for the passage of the so-called Boland amendment, which proscribed aid to groups seeking to overthrow the Sandinistas.

    The first inkling that Cameron intended to promote what he would unimaginatively call a third force came last year. By then, the liberal-left had been forced to take a defensive posture in Congress, struggling against the administration’s initiatives aimed at destabilizing the Nicaraguan revolution. With a $27,000 grant to study human rights legislation from the Veatch Program, a liberal foundation in Plandome, New York, Cameron, no longer with the ADA, became a fellow at the Center for International Policy (CIP), a research organization which monitors US military and economic aid to the Third World. One of the tasks he set for himself, without CIP’s knowledge, was to squire Eden Pastora Gomez around Washington, introducing him to members of Congress. In league with Robelo, Pastora, a disgruntled Sandinista whose revolutionary credentials were frequently exaggerated by the mainstream press, had built ARDE, a rudimentary political organization in Costa Rica. When CIP officials read in the newspapers of Cameron’s efforts on Pastora’s behalf, they returned what remained of his grant money to the Veatch Program and asked that he leave the center.

    After his parting of the ways with CIP, Cameron devoted himself to making criticism of revolutionary Nicaragua respectable. He had acquired some allies. In October 1984 The New Republic published an article by Robert Leiken that was highly critical of the Sandinistas. Both Leiken, a senior associate at the Carnegie Endowment for International Peace and a veteren of the antiwar movement, and Cameron, who had rejoined the ADA, argued that a third force, which excluded discredited Somocistas and uncooperative Sandinistas, could be nurtured with careful guidance from liberals who really believed in human rights. Their identification with Robelo, Pastora, Cruz and his son Arturito became even closer. Gradually, Cameron and Leiken even began to consider using contra aid as leverage to force the Sandinistas to become more “democratic.”

    When Ann Lewis became national director of the ADA in January, Cameron’s future as a staff lobbyist was one of the first issues she faced. ADA board members were concerned, according to Lewis, that Cameron “had been operating independently of ADA policy” and that his ties to Cruz were so close that “if Cruz were to endorse aid to the contras, Bruce would also.” Others in the liberal-left community began to suspect that despite Cameron’s unquestioned value as a lobbyist – he was one of the few on their side who had direct access to members of Congress – he had become something of a mole, to the point where they objected to his presence at strategy meetings. Lewis decided to set up a special advisory board, composed of ADA members and outside experts, to oversee Cameron’s work.

    Before the board could be constituted, Cameron began to participate in meetings of what he came to call the contra support group (CSG), which was convened by Penn Kemble, a prominent conservative Democrat. The group discussed various proposals for contra aid that would be palatable to the House. One suggestion, from Bernie Aronson, a former speechwriter for Jimmy Carter and Walter Mondale, was that Congress threaten to approve aid unless the Sandinistas modified their policies in certain specified ways. For the next three months this informal group – whose other members reject Cameron’s description of them as a contra support group – would thrash out ideas about US policy toward Nicaragua. Cameron acted as legislative point man, drawing on his Capitol Hill contacts and nine years’ experience in negotiating compromises.

    In April, an administration-based contra aid bill lost in the House by only two votes. At that point, Cameron was telling his liberal-left colleagues, “I can’t imagine any administration package I could sign off on.” Privately, however, he, Kemble, Leiken, Aronson, and others in the CSG had mixed feelings. Although willing to support contra aid in principle, they believed that the administration’s approach, with all its blather about “freedom fighters,” was ham-handed. They also felt that the White House had snubbed them. What the liberal-left saw as a tragic self-fulfilling prophecy, Cameron et. al. regarded as a vehicle for enforcing their vision of a brighter political future for Nicaragua.

    On May 9 the CSG met with Democratic Representative Dave McCurdy of Oklahoma, after he had introduced an amendment to the contra aid bill that would provide for the money to be distributed through the Agency for International Development. Since McCurdy and the CSG were obviously of like mind, the congressman asked for the group’s help in fashioning a contra aid package that would pass. The next day, Cameron met with Lewis and said he needed “time to think through” his position on Nicaragua. They agreed that he should take a leave of absence from the ADA.

    In June, Cameron announced that “as an individual,” he supported the $28 million “humanitarian” aid package. McCurdy, by and large, had adopted Cameron’s complicated carrot-and-stick approach, which called on the contras to observe human right and negotiate with the Sandinistas as conditions for receiving “humanitarian” aid. The final drama occurred when McCurdy lost control of his amendment to House Republican leader Robert Michel, who stripped it of the human rights conditions Cameron had painstakingly crafted. Feeling betrayed, Cameron desperately sought to bolster his claim that he only wanted to make Nicaragua more democratic. He appealed directly to McCurdy and suggested he ask President Reagan to write a letter certifying that the administration did not seek to overthrow the Sandinistas, just reform them. Reagan wrote the letter, which proved instrumental in persuading McCurdy and thirty-two others to switch their votes, although the final language of the aid bill did not differ substantially from the one voted down in April. Nevertheless, the CSG congratulated itself for finally getting the administration to “compromise.”

    The day after the vote, Lewis told Cameron, who had come to the ADA to ask for his job back, that he could not return. Cameron argued that Lewis was ignoring the nuances of his position and insisted that the final language in the amendment did not reflect his views. Moreover, he said, while he supported Michel’s final version, he hadn’t lobbied for it – although some who worked against the bill say they saw Cameron button-holing members of Congress. Cameron’s nine-and-a-half-year relationship with the ADA had come to an end. He went to work for McCurdy as a consultant, staying two months.

    Cameron’s defection continues to split the liberal-left in Washington many ways. Some still consider him a friend because of associations that go back to his antiwar days, but they no longer discuss Central America with him. Others have adopted a harsher attitude. Cameron has lost his position in two organizations in the community: the Foreign Policy Education Fund and the Human Rights Political Action Committee, which he helped found. As justification, members of the groups cite not only his efforts in behalf of contra aid but his new associations. In October the “Washington Talk” column of The New York Times carried an item reporting that Cameron gave a Nicaraguan cigar to Lieutenant Colonel Oliver North, the National Security Council aide who coordinates assistance to the contras, at a party attended by key administration specialists on Latin America. Six weeks ago, Cameron, ignoring alternative sites, chose to sublet office space from the Institute on Religion and Democracy, a neoconservative think tank dedicated to exposing the unholy alliance between the liberal-left and the same churches Cameron worked with for nine years.

    More significantly, Cameron’s critics point out, he has become a renegade on Guatemala as well. When the country’s foreign minister, Fernando Andrade Diaz-Duran, visited Washington in June, Cameron arranged for him to meet with several key members of Congress and their staffs. Andrade was described by Aryeh Neier, vice chair of Americas Watch, a human rights group, as “by far the most effective public relations advocate I have encountered for a government that has engaged in a consistent practice of grotesque abuses of human rights over a period of years.” It was no surprise to see Cameron join, at Andrade’s request, the official US government delegation that recently monitored the November round of presidential elections in Guatemala.

    Cameron exults in his new role as a martyr to the liberal-left, purged because he cares too deeply about human rights. He claims that he stands between extremes, refusing to be an apologist for left-wing totalitarianism (as are his former allies) or for right-wing authoritarianism (the blind spot, he says, of his neoconservative friends). As proof that he has not totally abandoned his former friends on the left he points to his recent support for a Senate amendment that curtails military aid to El Salvador until its government publishes the killers of two US labor representatives and a Salvadoran land reform official. Otherwise, he says his mission is to persuade the neoconservatives that “not everything goes” in the struggle against communism, that they cannot be blind to the outrages perpetrated by US allies. “There has to be a third force.”

    When asked if he worries about being used by the administration, he replies,” I was used before when I kept saying things that weren’t true about the Sandinistas.” Compromising with the administration is the least of his worries, however. The contra leadership in Florida – the “Key Biscayne Mafia” – has told Arturo Cruz that after they march into Managua, their first act will be to convene Nuremberg-style proceedings to try the Sandinistas arrepentidos, repentant Sandinistas like Cruz. Cameron, Leiken, McCurdy and company have countered by fostering stories about Cruz’s unhappiness over contra human rights violations and his lack of influence over the contras’ military decisions. In a New York Times Op-Ed piece published last month, Leiken threatened that he and his cohorts would undo the Faustian bargain they brokered on contra aid unless Washington backs Cruz against the “cabal of former National Guard officers and Miami exiles who have the upper hand among the contras.”

    In a sense, this entire drama is the tragedy of American foreign policy writ small. Some members of the liberal-left community say the lesson is: Keep liberals away from revolution. Liberals are so busy protecting their flanks that they cannot understand that North Americans have no God-given responsibility for how others manage their internal affairs. We do not have to defend their mistakes or correct them.

    Senator Frank Church – a quintessential liberal – showed that a persuasive argument can be made that keeps the liberal-left alliance intact when, inevitably, revolution occurs. Shortly before he died, Church wrote an article in The Washington Post titled, “We Must Learn to Live With Revolutions,” which summed up what he considered the most important lesson he had learned during twenty-four years in the Senate. “There is no reason,” he concluded, “to transform a revolution in any of the countries of Central America, regardless from where it draws its initial external support, into a security crisis for us.”

This article first appeared in The Nation, 30 November 1985        

Castros and Kennedys

 

“One Hell of a Gamble”: Khrushchev, Castro,
     and Kennedy, 1958-1964
By Aleksandr Fursenko and Tim Naftali
W.W. Norton. 420 pp. $27.50

Foreign Relations of the United States, 1961-1963:
Volume XI, Cuban Missile Crisis and Aftermath
Edited by Edward C. Keefer, Charles S. Sampson,
    Louis J. Smith, Office of the Historian,
    Department of State
US Government Printing Office. 934 pp. $48

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By Max Holland

    It’s been one long Christmas for historians of the cold war since it ended. Communist-bloc documents have been bursting out all over since the fall of the Berlin wall in 1989. First came Stasi files from East Germany; subsequently, as regimes collapsed, access to state and party archives in those countries became possible. Then, with the implosion of the Soviet state in August 1991, came the biggest prize of them all: the promise of “open access” to documentary records from the Central Committee of the Communist Party, the Defense and Foreign Ministries, the Kremlin, even the KGB.

    Fundamental as well as titillating revelations aplenty have issued from a steady stream of documents. The Bulletin of the Washington-based Cold War International History Project, which functions as a clearinghouse for documentation, has grown in five years from a modest thirty-two pages to 400-plus pages in its latest incarnation. But Soviet archives have often been opened in an incomplete, haphazard or preferential manner, and even gaining access to previously opened materials can be a byzantine experience. Scholarly access has been granted or restricted, as Raymond Garthoff tells us in Diplomatic History, “to serve current political objectives [or sometimes] nothing more than venal considerations.”

    “One Hell of a Gamble” has to be considered in this context. It would be easy enough to reinforce all the superlatives on the dust jacket, for the book contains raw, new riches from Soviet sources about the Havana-Moscow-Washington triangle from 1958 to 1964. Not Only are ministerial, Politburo, Communist Party and KGB records cited, but the authors had unprecedented access to records of the GRU, the intelligence service of the Soviet armed forces, which played a larger role in this history than anyone in the West ever knew. On these grounds alone “Gamble” qualifies as a “must-have” book on the “Caribbean crisis,” as the Soviets preferred to label it, reflecting Moscow’s claim that the real issue was not missiles in Cuba, but survival of a fraternal socialist state.

    Yet a caveat seems necessary because of the complexities regarding access. Aleksandr Fursenko, by reputation a cautious historian who made no waves during the Soviet era, was not able to rummage through all the cited archives at will and decide firsthand what was important. Under such circumstances, he and co-author Naftali had an obligation – which they do not discharge – to describe precisely the terms and scope of their unprecedented, privileged access to the inner sanctum. Even casual readers, and “Gamble” is obviously calculated to reach a popular audience, are entitled to know if the book is solely the product of the authors’ selectivity and enterprise or if other factors intruded, as they did. Until access is transparent, the situation amounts to a continuation of the cold war by the only means available these days.

    The centerpiece of the book is undoubtedly the Cuban missile crisis, and the meaning of the Soviet-sourced information will be debated by students of that clash for years to come. At least one controversy about the period leading up to the crisis, however, would seem settled for good. The notion that a ham-handed US policy alone drove Havana into Moscow’s embrace is hard to sustain after reading Fursenko and Naftali’s account. Fidel Castro was not a card-carrying Communist when his July 26th movement seized power in January 1959; the Cuban Communist Party considered him bourgeois and undisciplined. But the hard-liners on his side, like his brother Raúl and Che Guevara, never had anything less than a Marxist-Leninist revolution and a Moscow alliance as goals, and struggled to bend developments in that direction while Fidel vacillated. “There is no other road [to independence] but the construction of a socialist society and friendship with the socialist camp,” Guevara told Aleksandr Alekseev in October 1959, when the senior KGB operative arrived – unbeknown to the CIA – to establish contacts with the top levels of the Cuban leadership. With the 1954 overthrow of the Arbenz regime in Guatemala uppermost in mind, and via back channels and shell corporations, Raúl Castro immediately set out to obtain Communist-bloc help in bolstering the revolution, while simultaneously purging it of less than reliable elements. This zeal to remake Cuban society, combined with Fidel Castro’s will to power, determined Havana’s course to the point where, in August 1960, the KGB enthusiastically changed its code name for Cuba from YOUNTSIE (Youngsters) to AVANPOST (Bridgehead).

    “Gamble” also makes a dramatic contribution to understanding US policy toward Moscow during the Kennedy Administration. President Kennedy wanted to finesse the views and participation of his foreign policy team. So he turned to his most trusted confidant – Attorney General Robert Kennedy – to establish a back channel to Premier Nikita Khrushchev, hoping and informal exchange of views would allow the two leaders to be more flexible than they could be otherwise. Existence of this confidential channel has been known at least since 1995, when former Soviet ambassador Anatoly Dobrynin published his memoirs. But no one has ever had access to the gist of the more than fifty meetings that occurred between Robert Kennedy and Georgi Bolshakov, nominally head of the Washington bureau of TASS, the Soviet press agency, but actually a GRU colonel. This back channel is a fine example of what McGeorge Bundy aptly called the “non-sharables,” the secret things the Kennedy brothers kept between themselves.

    Ultimately, however, the narrative often seems driven by the next event about which there is a Soviet document. The temptation to toss out information from Soviet files rather than plumb its meaning is most evident in the chapter on Dallas. Given Lee Harvey Oswald’s sojourn in Minsk, the Soviet Union was mortified at the prospect of being blamed for the assassination of President Kennedy, and its propaganda organs worked overtime spewing out disinformation. At the same time, the assassination was a political Rorschach, and Moscow tried to make sense of the event by putting it in understandable, self-referential terms. Thus, according to KGB analysts, an anti-Soviet coup d’etat had in fact occurred, “organized by a circle of reactionary monopolists in league with pro-fascist groups of the US with objectives of strengthening the reactionary and aggressive aspects of US policy.” It’s one thing to convey what ruling circles in the Soviet Union thought about the assassination. But the authors make almost no effort to distance themselves from the tripe about an oil depletion allowance conspiracy, nor do they stop to consider the implications of an intelligence service so hidebound by ideology that it cannot report objectively about a critical event in the adversary’s camp.

    Not coincidentally, access to new Soviet sources has its counterpart on the American side. Tangible evidence comes in the form of the latest volume in Foreign Relations of the United States (FRUS), a historical series initiated by President Lincoln during the Civil War. Beginning in the mid-1980s, FRUS volumes came under justified attack by diplomatic historians. The series is supposed to be the official documentary record of US foreign policy and activity. Yet despite ample public evidence to the contrary, new volumes were implying that covert action had played no role in US diplomacy vis-à-vis such countries as Iran in 1953 or Guatemala in 1954. In 1991 Congress stepped in and passed a statute requiring that FRUS volumes be thorough, accurate and reliable – which was another way of saying they had to include covert actions of major proportions.

    Volume XI, Cuban Missile Crisis and Aftermath, is an impressive step in this direction. The book painstakingly documents American decision-making over the removal of the missiles, the less heralded “bomber crisis” and the protracted negotiations that never reached any formal agreement ending the standoff. There was never a flat “no invasion” pledge, just a limited assurance by Washington full of loopholes. The active role of then-Director of Central Intelligence John McCone is documented, but the new US openness is truly on display when covert action against Castro’s rule resumes. Notwithstanding the Bay of Pigs debacle and the failure of Operation MONGOOSE, the Kennedy administration embarked on an “Integrated Program of Action toward Cuba” in June 1963. The covert program sought to make Cuba’s economy scream, circa 1963, and employed the full panoply of clandestine tools. President Kennedy apparently had no illusions about its chances of success, but it represented a domestic as much as a foreign policy – promulgated with the November 1964 election clearly in mind. The administration simply had to give the impression of “busyness in Cuba,” as McGeorge Bundy put it.

    The FRUS volume also reveals at the highest level of government an unusual preoccupation in 1963 with the possibility of Castro’s death. Contingency planning, of course, is normal. But the number of references to Castro’s death indicates this line of thinking wasn’t all that wishful and is further circumstantial evidence that the assassination plots were yet another of the Kennedy brothers’ “non-sharables.”

This article first appeared in The Nation, 14 July 1997

© 1997 by Max Holland

After Thirty Years: Making Sense of the Assassination

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By Max Holland

 

    In the context of other books about the JFK assassination, Deep Politics by Peter Dale Scott is an unremarkable work. The field already brims with books that conjure up fantastic conspiracies through innuendo, presumption, and pseudo-scholarship while ignoring provable but inconvenient facts.  Deep Politics is simply another addition to this literature. Yet there remains something truly remarkable and disturbing about Deep Politics, and it’s not that a tenured English professor wrote its opaque prose.  Rather it’s that Deep Politics is a University of California Press book. According to the UC publicity office, this means an editorial committee consisting of 20 UC professors, including four senior historians, approved Deep Politics for publication. This peer approval by a major university press illustrates the boundless and utter disbelief in the Warren Report that exists even in the highest reaches of the academy, and it also reveals the gross inattention given to the subject by serious historians. 

    It’s instructive to compare scholars’ treatment of the JFK assassination with their output and stance toward the Japanese attack on Pearl Harbor, the other event in recent history that seared the national consciousness. Like the assassination, the attack was the subject of an executive branch investigation followed by a separate congressional investigation. Like the assassination, conspiratorial theories about the surprise attack (mainly, that FDR knew in advance) have always dogged the official story. By and large, historians have promptly exposed distortions of the documentary record and faulty logic, thereby relegating December 7th conspiracy theories to the political fringes where they belong. In stark contrast, historians have forged nothing close to a consensus on the assassination; in fact their voice is rarely raised. Very few of the more than 450 books and tens of thousands of articles that compose the vast assassination literature published since 1964 have been written by historians. And when they do write about the Kennedy presidency history becomes bifurcated. The assassination is treated as a footnote or afterthought if it is addressed at all. Consequently, the field is left by default to the fevered imagination of authors like Peter Dale Scott, who banks on what H.L. Mencken once called “the virulence of the national appetite for bogus revelation.” 

    Future historians will have to account for this abdication because it carries a meaning, just as the hound who didn’t bark in unlocked Sherlock Holmes’s Baskerville mystery. Of course, in one sense it is too easy to understand why historians have steered clear of the controvery. Any assassination buff worth his or her salt will gladly stupefy a historian with countless variations on the Warren Report or altogether different theories. And any historian who delves deeply into the literature does so at considerable risk to his or her own sanity. JFK assassination literature is the contemporary strain of the resilent paranoid style in American politics, defined so memorably by Richard Hofstadter 30 years ago. Or as one wag remarked after seeing Oliver Stone’s JFK, which feverishly wove several published theories into a meta-conspiracy, it was hard to leave the theater without momentarily double-checking your own whereabouts on 22 November 1963. 

    The disbelief attached to the Warren Report has to be grounded in unfinished business, some yearning that goes well beyond narrow questions like whether all pertinent government documents have been released.  In a letter to The New York Times last year, William Manchester skillfully identified this unrequited need as well as anyone ever has.  The author of Death of a President wrote,

        . . . To employ what may seem an odd metaphor, there is an esthetic principle here. If you put six million dead Jews on one side of a scale and on the other side put the Nazi regime--the greatest gang of criminals ever to seize control of a modern state--you have a rough balance:  greatest crime, greatest criminals.

         But if you put the murdered President of the United States on one side of a scale and that wretched waif Oswald on the other side, it doesn’t balance. You want to add something weightier to Oswald. It would invest the President’s death with meaning, endowing him with martyrdom. He would have died for  something.

          A conspiracy would, of course, do the job nicely.

    The desire to invest a national trauma with meaning was not something which developed gradually. It was evident within minutes of Kennedy’s death, as Death of a President vividly chronicles. Dallas was a fount of right-wing activity dating back to the 1920s, when it was known as “the Southwest hate capital of Dixie.” That reputation, plus the rough reception accorded U.N. ambassador Adlai Stevenson in October, prompted anguished presidential aides to assert that unspecified right-wingers were responsible in the hours right after the assassination.  And once Oswald was arrested, there was a marked reluctance to shift the blame from ultraconservatives to a self-styled Marxist; in America, a liberal President being assassinated by a Marxist seemed to make no sense. Jacqueline Kennedy’s first reaction, upon being told by Robert Kennedy of Oswald’s background, was to feel sickened because she immediately sensed Oswald robbed JFK of martyrdom. “He didn’t even have the satisfaction of being killed for civil rights,” Mrs. Kennedy said, according to Manchester. “It’s--it had to be some silly little Communist.” Significantly, the search for meaning extended outside the immediate Kennedy circle too. It can be seen in such minor details as the media’s use of Oswald’s middle name, as if employing it gave him more stature. Prior to that Friday, no one called him Lee Harvey Oswald.

    If great events demand great causes, as Manchester argues, thirst for a conspiracy will never be satisfied so long as Oswald stands as he does now.  He is unequal to the task of assassinating a President who, fairly or not, is more esteemed in public opinion polls than Abraham Lincoln or Franklin Roosevelt. But perhaps 30 years is sufficient time to re-examine this imbalance, if possible adjust the scales, and make the assassination coherent. In addition to the sheer passage of time, last November marked the first major anniversary since the geo-political rules changed and with them exaggerated passions and fears. New documentary evidence, not only about the assassination but also Kennedy’s Cuba policy, has been released, and many principal officials are talking, some after a long silence. It is more than just possible that our understanding of the assassination, like so much else, has been clouded by cold war exigencies.

    Of course, it’s fashionable now to throw up one’s hands at the slightest mention of November 22nd, and suggest that the truth is unknowable. But one might just as well assert that history doesn’t matter. It is past time to incorporate the assassination into post-war history instead of treating the event as some unfathomable crossroads. 

---

    In his first Weekly published after the assassination, the independent journalist I.F. Stone wrote a piercing column on the fallen President entitled “We All Had a Finger on That Trigger.” 

Let us ask ourselves honest questions. How many Americans have not assumed--with approval--that the CIA was probably trying to find a way to assassinate Castro? How many would not applaud if the CIA succeeded? Have we not become conditioned to the notion that we should have a secret agency of government--the CIA--with secret funds, to wield the dagger beneath the cloak against leaders we dislike? Even some of our best young liberal intellectuals can see nothing wrong in this picture except that the ’operational’ functions of CIA should be kept separate from its intelligence evaluations! . . . When the right to kill is so universally accepted, we should not be surprised if our young President was slain. It is not just the ease in obtaining guns, it is the ease in obtaining excuses, that fosters assassination. 

    Drawing a rhetorical, unproven connection between the cold war mindset and Oswald’s stunning act was vintage Stone. With virtually every American still in shock, or blinded by the fairy tale quality of the funeral, it took a habitual dissenter to hold up the assassination against a backdrop of political violence contributed to by the United States. The only political leader who dared do so was Malcolm X. He pointedly refused to utter consoling words, calling the assassination a case of “chickens coming home to roost.” At the time the remark only served to justify his reputation as an cold-eyed extremist. In retrospect, however, I.F. Stone and Malcolm X were closer to identifying the context of the assassination than anyone at the time.

In a review article in The Nation, Holland discusses how the recent release of documents under the aegis of the Assassination Records Review Board has affected how we view various issues.

    The full story is a bipartisan one and properly begins in the waning years of the Eisenhower Administration, when the correlation of forces seemed to be turning against the West at the core and periphery of the postwar struggle. In Europe, the Soviets appeared determined to alter the status of Berlin unilaterally and a more threatening development was impossible to imagine, short of armed attack. Simultaneously, the postwar revolutionary tide that had begun in China, and was barely checked in Korea, seemed poised to sweep through Africa, Southeast Asia, and even into Latin America. Patrice Lumumba was ostensibly paving the way for a hostile takeover of the richly-endowed Belgian Congo; in Asia, Ho Chi Minh had designs on the balance of Vietnam; and in America’s backyard, Fidel Castro was on the brink of taking power from Juan Batista. In the midst of all this ferment Moscow and Washington were rapidly developing ICBMs that could obliterate both capitals in fifteen minutes.

Buyouts: The LBO Lobby Makes Its Move on Washington

 

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By Max Holland and Viveca Novak

 

    No matter what the weather report says, 12 January 1989 may have been the coldest day of the year in the gusty canyons of lower Manhattan. It was no less a staunch Republican than George Bush who sent shivers up Wall Street’s collective spine that day. At a pre-inaugural press conference, Bush indicated that he might be willing to cut back on a tax deduction that helps make leveraged buyouts (LBOs) the best game going for the Street’s brash new stars.

    The unprecedented $25 billion LBO of RJR Nabisco last fall had sparked public furor and the threat of congressional investigations; but this evidence of top-level discussion of the issue among even Republicans steeped in laissez-faire economics was worse news. Buyout artists, banking on continuing the ideological harmony of the Reagan years, had invested heavily in the 1988 Bush campaign, with LBO king Henry Kravis of premier buyout firm Kohlberg, Kravis, Roberts (KKR) setting a furious pace. Kravis personally contributed at least $112,000 to the Bush effort (most of it in “soft” money), arranged a Wall Street lunch that took in more than $500,000 for the candidate, and was named finance co-chairman for the Bush New York campaign.

    The buyout community began breathing easier when, two weeks later, Treasury Secretary Nicholas Brady – a longtime Wall Streeter himself, though from a more conservative line – testified on LBO mania before two congressional panels. His statement was a mild replay of a common criticism of LBOs, that they are simply financial devices designed for the outrageous profit of a few investors with little regard for the long term. “I have a gnawing feeling that we are headed in the wrong direction,” said Brady, “when so much of our young talent and the nation’s financial engineering while the rest of the world is laying the foundation for the future.” Yet despite his disapproval, which Wall Street knew came from the heart, Brady offered Congress no proposals for change.

    And by the time Treasury again went before the House Ways and Means Committee, nearly four months later, Wall Street was finding the administration as comfortable as an old shoe. A Brady emissary not only failed to offer specific suggestions on how to curb the LBO trend but rejected those of the committee as well. Dan Rostenkowski (D-Illinois), chairman of the powerful tax-writing panel and one of many who thought Brady’s testimony had opened the door a crack for congressional action, was fuming: “The best you can do is tell us you are monitoring and you are concerned . . . Why has Secretary Brady changed his position?”

    And so goes the tale of how Washington backed off from tackling an issue that, nearly a year ago, had promised to bring a kind of public reckoning of Wall Street’s increasingly speculative, debt-ridden ways.

     Policy-makers haven’t sat still for lack of popular support. In a February public opinion poll taken for the National Law Journal, 84 percent of the respondents said they believed mergers and acquisitions take place in a corrupt environment, and two-thirds singled out LBOs for stiffer government regulation. But public backing was no match for the riches and personal ties of Wall Streeters with Washington, their constant generation of confusing economic data and their ability to feed the dread, especially in Congress, of triggering another October 1987 “Black Monday.”

    As one critic, economist Robert Reich, observes, “Congress and the administration were simply afraid to act, and the inhibitory mechanism was primarily Wall Street’s connections with Washington” – not the least of which, of course, is money. A Common Cause magazine analysis of contributions by 239 of the individuals most active in LBOs, along with 54 wives and offspring who also gave, attests to their generosity: in 1987-88 practitioners at well-known buyout boutiques, as well as some of the key executives and buyout artists at larger houses like Salomon Brothers, gave a total of $3.5 million to presidential candidates, members of Congress, Republican and Democratic party committees and PACs. And that doesn’t come close to reflecting the total contributions by Wall Streeters and those in the securities industry generally, many of whom profit through business generated by the buyout deals.

    The returns for the LBO community wasn’t votes – there was nothing to vote on. That, in fact, was the goal: inaction by both Congress and the executive branch – a prize the buyout community valued as highly as any affirmative government handout.

Paranoia Unbound

Deep Politics and the Death of JFK
By Peter Dale Scott
University of California Press. 413 pp. $25

Case Closed: Lee Harvey Oswald
    and the Assassination of JFK
By Gerald Posner
Random House. 607 pp. $25

Who Shot JFK?: A Guide
    to the Major Conspiracy Theories
By Bob Callahan
Fireside. 159 pp. $12

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By Max Holland

    It is instructive to contrast the mythology surrounding the assassination of President John F. Kennedy with the public and scholarly attitudes toward Japan’s attack on Pearl Harbor – the other “flashbulb” event that seared America’s collective memory. Like the assassination of Kennedy, the surprise attack was the subject of an executive branch investigation followed by congressional hearings. As with the assassination, explanations based on conspiracy have dogged the official story about Pearl Harbor. (The latest accusation surfaced only three years ago.)

    But distortions of the record and questionable logic have always helped relegate Pearl Harbor conspiracy theories to the political fringes; the official story remains intact. The phenomena surrounding the JFK assassination could not present a starker contrast. There the passage of time has only heightened public disbelief in the official account of the assassination, commonly known as the Warren Report. After the Warren Commission published its findings in September 1964, a Gallup poll indicated that 56 percent of Americans believed the report’s main finding: that Lee Harvey Oswald, acting alone, was President Kennedy’s assassin. Today, however, approximately 90 percent of the public believes there was some kind of conspiracy to kill JFK.

    This figure includes some who toil in the halls of academe. Among the plethora of new offerings on the 30th anniversary of the assassination is Deep Politics and the Death of JFK, by Peter Dale Scott, an English professor at the University of California at Berkeley. In one sense, there is nothing remarkable about this work. Indeed, its outstanding characteristics put it squarely in the tradition of most books about the assassination. Deep Politics is an unreadable compendium of “may haves” and “might haves,” non-sequiturs, and McCarthy-style innuendo, with enough documentation to satisfy any paranoid. The assassination, Scott writes (in typically opaque prose), was “the product of ongoing relationships and processes within the deep American political process.” What is this deep process? A virtual political Disneyland: the CIA, drug dealers, Somoza, Fred Hampton, COINTELPRO, Oliver North. And that’s just from two pages.

    The manuscript apparently went unpublished for years, and one is mightily tempted to say that it should have remained so. Astoundingly, though, the book won the majority approval of the 20 professors, including four historians, who served on the University of California’s editorial committee in 1991-92.

    To understand the JFK phenomenon, it helps to revisit the classic lecture “The Paranoid Style in American Politics,” delivered at Oxford 30 years ago by Columbia University historian Richard Hofstadter (and published in a book of essays by the same title in 1965). The most prominent qualities of the paranoid style, according to Hostadter, are “heated exaggeration, suspiciousness, and conspiratorial fantasy.” Propagators don’t see conspiracies or plots here and there in history; they regard “a ‘vast’ or ‘gigantic’ conspiracy as the motive force in historical events.”

    To be sure, as Hofstadter noted, the paranoid style isn’t unique to America. Witness Germany under Hitler or the Soviet Union under Stalin, where it actually came to power. But it is an old and recurring mode of expression in American public life, as evinced by the anti-Masonic movement in the 1820s, the anti-Catholicism of the 1850s, Populists’ claims about an international banking conspiracy in the 1900s, and Senator Joe McCarthy’s “immense conspiracy” of the 1950s. Purveyors often feel threatened by sweeping change, whether it be waves of new immigrants or a revolution in the economic order. At other times, they articulate an acute sense of dispossession, such as that felt by the far Right from the 1930s into the early 1950s.

    Although the Kennedy conspiracy choir has some voices on the Right, the great preponderance of books (450 since 1963) and articles (tens of thousands) have been written from the liberal/left perspective. Factual disputes have much less to do with this than one might think. “Catastrophe . . . . is more likely to elicit the syndrome of paranoid rhetoric,” Hofstadter wrote. And putting aside venal reasons, clearly the liberal/left outpouring is related to its sense of political dispossession since 1963. (Democrats were out of power for 20 of the next 30 years.) Indeed, every wrong in America is considered traceable to the presidency that was aborted and the future that died on November 22, 1963.

    Still, what is markedly different about this phenomenon from previous manifestations of paranoia is that the distrust is so deep and pervasive. Glancing through Who Shot JFK? one can find a conspiracy theory for practically every contingency and political belief: The Mafia did it; Robert Kennedy did; Jackie was upset because her husband had extramarital affairs, so she did it. The KGB, Cubans (both anti- and pro-Castro), the CIA and/or FBI, right-wing Texas oilmen, tsarist Russians, rocket scientist Wernher von Braun – and on the zany list goes. The “friendly fire” theory holds that a Secret Service agent riding in the limousine behind JFK fired the fatal shots, by accident. And apparently the latest trend among conspiracy theorists is to bash one another for believing in the wrong conspiracy.

    Commentators usually ascribe the public’s paranoia to the disturbing events that followed Kennedy’s murder: Vietnam, other assassinations, Watergate, exposure of FBI and CIA abuses in the 1970s, and finally the Iran-contra scandal, all of which undermined Americans’ trust in their elected government. But a more complicated argument can be made. The assassination and its aftermath have never been firmly integrated into their place and time, largely because of Cold War exigencies. Consequently, Americans have neither fully understood nor come to grips with the past.

    But the assassination is very much a part of the Cold War, an unintended consequence of U.S. Policies. And once bolted down, it ceases to be unfathomable and becomes another defining post-World War II event, as much as Vietnam or the Cuban missile crisis.

    In a letter to The New York Times last year, William Manchester, author of The Death of a President, identified the key source of the public’s incomprehension:

     To employ what may seem an odd metaphor, there is an aesthetic principle here. If you put six million dead Jews on one side of a scale and one of the other side put the Nazi regime – the greatest gang of criminals ever to seize control of a modern state – you have a rough balance: greatest crime, greatest criminals.

     But if you put the murdered president of the United States on one side of a scale and that wretched waif Oswald on the other side, it doesn’t balance. You want to add something weightier to Oswald. It would invest the president’s death with meaning, endowing him with martyrdom. He would have died for something.

     A conspiracy would, of course, do the job nicely.

    Actually, though, Oswald carries more weight than Americans have dared admit to themselves. As the Warren Report showed and Gerald Posner, a former Wall Street lawyer, reiterates in Case Closed, Oswald was a highly politicized Marxist sociopath. Disappointed with Soviet-style communism, he returned to the United States in June 1962 and began to see Cuba as the purest embodiment of communist ideology, the only truly revolutionary state. In New Orleans, he started his own “Fair Play for Cuba” chapter and walked the streets with a “Viva Fidel” placard.

    Oswald, who fervently read left-wing periodicals and monitored Radio Havana, was acutely aware of the depth and nature of U.S. hostility toward Cuba. In all likelihood, he believed the worst rumors of U.S. attempts to overthrow – even assassinate – Castro, information that was later kept from the Warren Commission. After leaving New Orleans, Oswald tried to obtain a visa to Cuba to enlist in the country’s defense. But the Cuban embassy failed to see him as a “friend of Cuba,” and he returned to Dallas, embittered.

    A month later, Kennedy came to town. The opportunity to subject Kennedy to the same dangers plaguing Castro presented itself. As Posner writes, Oswald, who had failed at almost everything he tried, “was suddenly faced with the possibility of having a much greater impact on history.” Jack Ruby was equally emotional, violent, and opportunistic, though not political.

    Because of the Cold War, the CIA and FBI did not inform the Warren Commission about the covert operations to remove Castro. Such information, the agencies reasoned, would not contradict the central conclusion and therefore could be, and was, kept secret. Consequently, the Warren Report depicted Oswald as acting upon inchoate feelings (compounded by marital troubles) but without acute political motives.

    Twelve years later, however, Senator Frank Church’s select committee on intelligence revealed the extent of anti-Castro plotting and the fact that the CIA and FBI had lied by omission to another arm of government. This shattered whatever trust remained in the official story and ripped the lid off a Pandora’s box of conspiracy theories. A slightly amended version of the official story should have become the new dogma by the late 1970s: The Kennedys’ fixation with Castro had inadvertently motivated a political sociopath. Instead, the disturbing truths were again obfuscated by Cold War exigencies, and by Kennedy partisans, who tried to disavow JFK and RFK’s knowledge of the plots.

    The 30th anniversary of the assassination, especially since it coincided with the end of the Cold War, should have been marked by attempts to integrate the assassination into history. Of all the offerings, Posner’s Case Closed would seem the most suitable. But though Posner exhaustively debunks every canard proposed to date about the assassination, he largely ignored the contextual history of Oswald’s act and provides little more insight than the Warren Commission did as to why Kennedy became Oswald’s target. In addition, Posner’s stamina fails him when he writes about events after 1964, and the aftermath is almost as important in understanding the assassination as the act itself. (In his new biography, President Kennedy: Profile of Power, Richard Reeves doesn’t shrink from depicting Kennedy as a Cold Warrior, intend on overthrowing Castro. Yet he fails to draw any connections to the assassination; indeed, Oswald is not even mentioned in the book.)

    So long as it lacks historical coherence, the official story will probably never be believed, and Americans will continue to ask questions based on cunningly manufactured falsehoods. To be sure, every nation is sustained by its own myths, which occasionally collide with reality. But when myths are as divorced from reality as these are, they become dangerous. Americans are encouraged to feel nostalgia for a past that ever was, wax dreamily about what might have been, or indulge in elaborate paranoid fantasies about their own government. Such states of mind hardly conduce to a rational consideration of America’s role in a new world.

This article first appeared in The Wilson Quarterly, Winter 1994

© 1994 by Max Holland

Junkman in DC

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By Max Holland

    Henry Kravis prefers doing deals to cajoling Congress. But for the moment, Washington has taken precedence over Wall Street for this leveraged buyout artist and his creative colleagues at Kohlberg, Kravis and Roberts (KKR). The investment bankers are acutely worried that Congress may take away their paints.

    Last December, some of the most powerful in Congress were clamoring for an abrupt end to the buyout madness after the unprecedented $25 billion RJR Nabisco deal. No fewer than nine investigations were launched. In response, the normally secretive Kravis promptly assembled a supporting cast of lobbyists and personally began trying to convince key senators and representatives that LBOs are elixirs for what ails corporate America. And Kravis appears to be succeeding, with help from such unlikely parties as Representative Tom Downey, a liberal New York Democrat who is a member of the pivotal Ways and Means Committee. Downey has helped arrange meetings for Kravis with Democrats on Capitol Hill, even though Kravis was one of George Bush’s major fund-raisers last year.

    As Disraeli once said, there are “three kinds of lies – lies, damned lies, and statistics,” and LBO partisans have labored mightily to keep Congress awash in the last. Instead of taking the word on LBOs from Kravis now, Congress should invest at least one of those nine investigating committees with subpoena power so it can investigate some of the target companies inside out. The buyout by KKR of Houdaille Industries is a perfect place to start.

    In 1979, KKR “leveraged,” or bought largely with a debt issue, Houdaille (pronounced “WHO-dye”), a Florida-based conglomerate with some 8,000 employees and gross annual sales of $410 million. The deal was not just a buyout; it was a benchmark. Until then, no corporation worth more than $100 million had ever been leveraged. When KKR engineered the $355 million deal, Wall Street investment bankers said, Holy Mackerel, look at this! LBOs began getting bigger and bigger.

    The firm of Kravis et. al. is quite proud of the Houdaille buyout, calling it, in a thirty-four-page study it commissioned on the virtues of LBOs, “a case study in the ability of LBOs to withstand economic adversity.” The report contends that all “of the Houdaille constituents” . . . fared well in the LBO.” Owners of Houdaille stock, which was trading at around $15 a share before the buyout, received $40 per share. Top management was handsomely rewarded; as were those managers who stayed on; the institutional investors; the banks that bought Houdaille’s “junk bond” debt offering; and, of course, Kohlberg, Kravis and Roberts.

    But what was the price of success? The KKR report doesn’t mention Houdaille’s almost complete collapse as a major machine tool builder or the hundreds of high-paying manufacturing jobs that were lost as a result. Nor is there one word about a factory that became a warehouse for foreign imports. Yet these facts are just as much a part of the Houdaille story as the “superior” returns realized by KKR and investors.

    For the first two years after the buyout, Houdaille was able to go about its business as usual. By 1982, however, the conglomerate was caught in a triple bind of debt, recession, and competition. Debt, of course, was a given. But no one in 1979 foresaw the worst recession since the 1930s, or the Japanese competition in machine tools. In pre-buyout days, Houdaille could have suspended dividend payments to tide itself over until better times or borrowed money to help make itself more competitive. But the heavy debt it had to service as a result of the LBO ruled out those alternatives.

    At the time of the buyout, Kohlberg, Kravis and Roberts promised investors a pot of gold by 1984 – that is, a financial windfall when Houdaille reissued public stock after paying down its debt. Instead, the Houdaille stock became a “dog,” to borrow from the vernacular of Wall Street.

    Houdaille doesn’t exist anymore except as a hollow shell, a holding company with a letterhead. John Crane, its most profitable division, was sold to a British conglomerate in 1987. Other parts of Houdaille were either merged, purged, or taken over in other leveraged buyouts. Yet according to the KKR study, the chief (and to KKR the only) significance of the buyout was that “Houdaille never fell behind on its debt service . . . [and] superior returns were realized by the investors.” [Emphasis in original.]

    Before corporate indebtedness becomes the nation’s fourth debt crisis, Congress should not invite but compel Kravis and his kind to defend publicly their reshaping of corporate America.

This article first appeared in The Nation, 20 March 1989

© 1989 by Max Holland

LBOs: Enough Already!

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By Max Holland and Viveca Novak

   

    Washington, not just Wall Street, must share the blame for the latest panic in the stock market. It had its chance to do something decisive about the market’s speculative orgy, in the guise of leveraged buyouts, but so far has backed off.

    A key reason: the growing political clout of what might be called the LBO lobby. Buyout artists are using a portion of their lucre to make investments in key politicians. Inaction on Capitol Hill is the buyout artists’ prized commodity, and so far their investment is paying good dividends.

    The last election cycle graphically illustrates how the buyout lobby is putting its money where its interests lie. An analysis of contributions by 239 LBO practitioners, including their wives and children, shows they invested a total of $3.5 million in presidential candidates, key members of Congress, party committees, and PACs – including $1.2 million in “soft money” to the Bush campaign. The list reads like a Who’s Who in the buyout world: Henry Kravis, $182,000; George Roberts, $124,000; Theodore Forstmann, $131,000; Raymond Chambers, $154,00 and so on.

    Common sense and public opinion are decidedly against the speculative leveraging of corporate America. Yet it wasn’t until the RJR Nabisco buyout last fall that Washington took serious notice. At $25 billion, the deal was more than triple the largest previous LBO and had other eye-popping features: RJR head Ross Johnson put his own company into play in a proposed LBO that would have enriched him by more than $100 million; but he lost out to Henry Kravis, head of the Kohlberg, Kravis, Roberts & Co. buyout boutique.

    It looked, for a moment, as if the RJR Nabisco deal might rouse the politicians to take action. In early November, Senate Minority Leader Robert Dole (R-Kansas) told an American Stock Exchange conference that corporate buyouts do not contribute to the U.S. economy and that LBO loans feed on loopholes in the tax code. Then-House Speaker Jim Wright (D-Texas) told reporters the government should act swiftly to stem LBOs. Finance Committee Chairman Lloyd Bentsen (D-Texas), said LBOs “have gotten out of hand.” By New Year’s Day, nine congressional committees had announced hearings.

    That sort of talk threatened the dealmakers and their staggering incomes. Senior buyout engineers at KKR each took in about $50 million last year, according to Financial World, and more than 150 buyout boutiques and departments of long-established Wall Street firms are doing LBOs – up from half a dozen in 1981.

    Both Wall Street and Capitol Hill knew that any effort not supported by the incoming Bush administration would be tough going, if only because of the LBO interests’ clout. But Congress also remembered that, back when the market crashed in October 1987, the House Ways and Means committee had been blamed by some for approving a limit on interest deductibility for debt incurred from buyouts.

    If the administration’s position was pivotal, then the LBO community had every reason to believe it was holding some good cards. During his campaign, Bush had pushed all the right buttons by proclaiming himself heir to the pro-market, anti-regulatory environment nurtured under Reagan. The buyout interests had responded by going all out financially for the Bush campaign.

    Six weeks after the 1987 market meltdown, Henry Kravis arranged a Wall Street luncheon that took in more than $500,000 for Bush; subsequently Kravis became finance co-chairman for the candidate’s New York campaign. Kravis and his partner George Roberts each gave at least $100,000 to the Bush “soft money” drive, thereby earning a place on “Team 100.” All told, KKR’s 19 professionals and their spouses gave a total of $418,200 to Bush and various campaign funds.

    “Obviously the people who give want to be invited to the party, the White House, the lunch, the dinner,” says veteran political consultant David Garth. In late June, for instance, Kravis and his fashion-designer wife, Carolyne Roehm, helicoptered to Washington for dinner at the home of top Bush fund-raiser and Commerce Secretary Robert Mosbacher and his wife, Georgette, where they mingled with the likes of Republican National Committee Chairman Lee Atwater, House Speaker Tom Foley (D-Washington) and Michael Boskin, chairman of the president’s Council of Economic Advisers.

    Still, administration support wasn’t a fait accompli.  One of the most intriguing divisions on Wall Street and within the GOP pits old money, in the person of Treasury Secretary Nicholas Brady, against the cocky and frequently ostentatious buyout entrepreneurs who now reign. Brady’s unease, in part, reflects his concern that much of the cash financing LBOs is coming from the government’s coffers.  “The substitution of tax-deductible interest charges for [taxable] income is the mill in which the grist of takeover premiums is ground,” Brady told Congress in January. Nearly every leveraged company pays no income taxes for a few years after a buyout and some even get large refunds: RJR Nabisco may get back most of the $1 billion it paid in taxes in the three years prior to the buyout.

    But if Brady is discomfited by contemporary Wall Street, he has hardly led a charge against LBOs. When Treasury testified in May, it rejected 25 of the Ways and Means panel’s 27 ideas for dampening LBO fervor, urged extreme caution if the committee pursued the other two – and offered no ideas of its own. In July the administration finally made one recommendation eliminating the interest deduction for certain types of junk bonds. As Representative Byron Dorgan (D-South Dakota) puts it, “Treasury’s taken a vacation on this issue.”

    The focus on the administration didn’t mean buyout interests ignored either party on Capitol Hill. Democrats, who control both houses, received $517,500 from the 239 buyout activists and their families, versus $440,000 to Republicans in 1987-88. The top 10 Banking and Finance recipients in the Senate – far more popular than the House with this group – took in $222,000 in individual contributions from LBO players, and LBO-connected PACs supplied an additional $255,197.

    The largest single amount went to Senator Bill Bradley (D-New Jersey), a smart, influential member of the Finance Committee who wasn’t even up for reelection. He took in at least $96,000 from individuals in the buyout community, including more than 60 contributions of $1,000 each from employees of just two firms, Wesray and Hambrecht & Quist. Bradley’s staff says the senator isn’t sure there is a buyout problem or how to fix it if there is one.

    Members of the leadership were also favorite targets. In March 1988, when Representative Foley was House majority leader, 41 executives of the securities firm Salomon Brothers (which has many interests, including a growing LBO fund) attended a $500-per-person breakfast fund-raiser for him or sent in checks.

    Still, some argue that Wall Street’s contributions didn’t make the difference on LBOs – that uncertainty over a complex issue did. But by using its relatively easy access, the LBO gang was able to effectively exploit that uncertainty and cultivate confusion.

    The buyout interests sang two refrains to Congress: that buyouts are good for the economy; and, anyway, a cure could be worse than the disease. Some top firms prepared their own studies. The first and most important was a KKR report released in January, claiming outstanding results, not only for investors, but the economy as a whole.

    The KKR report was immediately accepted on the Hill as self-serving, but solid. Several months later, the report was undercut at a hearing arranged by the House Subcommittee on Telecommunications and Finance. Bill Long, a former Federal Trade Commission economist researching buyouts at the Brookings Institution, took apart KKR’s methodology, and argued that nearly all the claims were misleading. But Long’s testimony came late – in May – and by that time the terms of the LBO debate had shifted decisively.

    Meanwhile the LBO lobby fed the Democrats’ nagging fear of being blamed for another Black Monday, though they rarely made their argument publicly. At 17 days of hearings before various panels over five months, only two buyout boutiques agreed to testify, and they weren’t from the top ten buyout firms.

    Only two proposals are included in the pending budget bills passed by each house – one based on the administration’s junk bond interest deduction idea and another limiting refunds of past taxes. Experts say both measures would likely affect only deal-pricing, not deal-making. If Washington started out intent on curbing buyout mania, an intimidating and tenacious lobby has so far dulled its impulse.

This article first appeared in The Washington Post, 22 October 1989

© 1989 by Max Holland

 

King Oil

The Prize: The Epic Quest for Oil, Money, and Power
By Daniel Yergin
Simon & Schuster. 877 pp. $24.95

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By Max Holland

    Every author dreams about good timing, some stroke of luck that will distance his book from the pack of 50,000 titles published annually in the United States. During the seven years he worked on The Prize, Daniel Yergin may have imagined some sort of crisis in the oil-rich Middle East that would make his book a hot property when it was published. But even in his wildest reverie, Yergin could not have dreamed that publication of his oil saga would coincide with the greatest American military expedition since the Vietnam War.

    But coincide it did. Five days after Yergin delivered his epilogue to Simon & Schuster, Saddam Hussein’s troops invaded Kuwait. The publisher immediately embarked on a crash publishing schedule. In four months, or one-third the time it normally takes to publish a book, The Prize was in bookstores.

    Critics of the war have pointed to a base motive behind American policy ever since George Bush uttered the words, “This will not stand.” If Kuwait exported, say, artichokes instead of oil, the United States would have cared considerably less about the fate of the emirate. But readers of The Prize will recognize an enduring principle at stake. In our century, oil begets national wealth, which begets state power. Americans differed over whether the resort to force was premature or wise. But unless one had been a pacifist or considered Saddam Hussein a benign force, the case for doing nothing would have been hard to make. American inaction would have been as grievous a miscalculation as was its involvement in Vietnam. A nation’s foreign policy is, after all, a matter of making distinctions.

    But no one should conclude that Yergin’s book lets the United States off the hook. Many of the loudest advocates of force had earliest dismissed the criticism, popular in the mid-1970s, that indiscriminate arms sales in the Persian Gulf would eventually come to haunt America. Yergin also reminds us that, even as US forces battled in the Middle East, Americans were consuming far more gasoline per capita, and paying far less for the privilege of doing so, than anyone else in the world.

    Yergin, the author of Shattered Peace (1977) and Energy Future (1982), here sets himself his most ambitious task to date: nothing less than a history of petroleum, and all that oil has achieved and despoiled since its modern discovery in the Pennsylvania hills. The word modern is significant because black ooze seeping up through the ground has been used since at least 3000 B.C., mostly as a medical nostrum. But the Industrial Revolution found new and ever more uses for petroleum – beginning with artificial lighting – until oil has become the key ingredient that makes modern society work.

    At the outset, Yergin announces the three themes that he will explore in The Prize. These are the ways petroleum has been perceived in this century: first as a business, then as a strategic resource, and finally as a factor affecting the environment.

    Oil became a big business and fortunes were made almost from the day that first Pennsylvania well hit pay dirt in 1859. Speculators in one early well earned $15,000 in profit for every dollar they invested. By the 20th century oil had become the world’s biggest business, virtually inextricable from modern capitalism, multinational enterprise, the international economy, and business-government relations. Seven of today’s top 20 Fortune 500 companies are oil conglomerates.

    World War I, with its new petroleum-powered fleets and tanks, transformed oil from merely a commodity that generated immense wealth into an essential resource for nation-states. A young Winston Churchill was among the first to realize that strategic mastery itself was the prize conferred by control over oil. Churchill’s insight sounds the second theme of The Prize, in which Yergin correlates national power with control of oil resources. Oil-rich Iraq seems to prove this proposition: With a population of only 17 million, Iraq was able to support the fourth largest military force in the world. Yergin also reminds the reader how much American power is oil power. After World War II, in crises extending from the Korean War to the Six Day War in 1967, America’s capacity to maintain its oil supply through international production and its ability to guarantee the international transport of oil to its allies played a major role in cementing the Western alliance under US leadership.

    Yergin makes this argument correlating oil and power persuasive, perhaps too persuasive, because he fails to treat what seem significant exceptions. His thesis does not explain, for example, why the Soviet Union, the world’s largest oil-producing country, has failed economically, or why Germany and Japan were able to become great powers without oil resources. (It can be argued of Japan and Germany, however, that their defeat in World War II was in no small part due to oil shortages).

    The struggle for control of oil has created, paradoxically, an environment out of control: The follies and shortsightedness of Hydrocarbon Man is Yergin’s final theme. From global warming to the pollution and congestion in cities from Mexico City to Eastern Europe, oil has contributed to conditions of life that threaten human health, endanger other species, and possibly imperil the planet. Yergin’s look at the high-energy way of life is, in many respects, the most sobering aspect of the entire book. What emerges, after putting aside all the struggles for individual, corporate, or national wealth and power, is an unflattering picture of human incapacity to manage a non-renewable resource with even a modicum of enlightenment.

    With such themes, and cast of characters ranging from John D. Rockefeller to the shah of Iran, Yergin could hardly have produced a dry, lifeless book. Yet for all its detail, The Prize leaves several important threads dangling, never fully exploring what the oil saga tells us about the business-state relationships, or the mix of oil money with politics. It is only after 100 pages of discussion that the reader is informed, almost incidentally, that John D. Rockefeller’s great success as an oilman depended in no small part on Standard Oil’s ability to pass and block legislation.

    Yergin’s narrative becomes more politically oriented when it comes to the Depression. He shows why the Roosevelt administration agreed to ration production and keep oil prices at or above $1 per barrel during the 1930s. Grateful oilmen responded by becoming the only major industrialists to back the Democrats. Even if, eventually, more dollars from oil flowed to the Republican Party, the Democrats continued to receive competitive contributions. (Certainly virtually no other industry was as generous to the Democratic Party in the period from the 1930s to the ‘60s.) Oklahoma and Texas campaign contributions were a financial pillar of the New Deal coalition. They made the infamous oil-depletion allowance politically invincible. Yet even here Yergin expends more words on petroleum’s contribution to the rise of the motel than in explaining this stunning tax break.

    Even when Yergin seems ready to get down to business, he often drops the ball. He devotes deserved space to one of the most revealing episodes in the entire post-war era: that struggle which began in 1951 when Iran’s new prime minister, Mohammed Mossadegh, nationalized British oil holdings. After a British-imposed embargo failed to deter Mossadegh, the US Central Intelligence Agency sponsored a coup in 1953 that overthrew him and placed the shah in power. The previous year, when Truman had sent Averell Harriman to negotiate with Mossadegh, the prime minister had claimed he could not compromise because of the power of Ayatollah Seyed Kashani. Harriman had then sought out Kashani, only to be told – in words that anticipate a later ayatollah – that all foreigners were evil, and foreigners interested in oil were candidates for butchering. Yergin fails to do justice to the lawyer and democrat Mossadegh, who quite legitimately wanted Iran to have control of its own resources. Mossadegh is portrayed here as something of an unreliable clown, irrational in his obstinacy.

    The ramifications of Mossadegh’s defeat still resound today. The coup, its supporters say, brought 25 years of stability in Iran and provided America a key ally in the Cold War. But others note the irony with which this episode has come full circle: American opposition to Mossadegh ushered in the regime of the shah; internal Iranian opposition to the shah eventually brought about the theocracy of the Ayatollah Khomeini. The United States, to oppose Kohomeini’s Iran, supported and built up Saddam Hussein during the 1980s – and the rest is history. Ironies and tragic elements abound in the all-too-human struggle over petroleum and all it confers, but too often they are missing from Yergin’s account.

    Some early readers criticized The Prize, feeling that Yergin had ascribed too much significance to oil, inflating its importance in events big and small. In fact, his opus omits too much of the real history. One is left with the sense that, while The Prize sketches the outlines of the complex tale, neither Yergin nor anyone else has completely mastered this epic drama.

This article first appeared in the Wilson Quarterly, Spring 1991
© 1991 by Max Holland

A.C. Greene on the Texas School Book Depository

 

Editor’s Note: Texas historian A.C. Greene took issue with the article “Dealing with Dealey Plaza” that appeared in the November/December 1996 issue of Preservation magazine. Here is Greene’s January/February 1997 critique, followed by a response.

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    Max Holland’s highly romantic and personal article, “Dealing with Dealey Plaza,” contains a number of factual errors and pays too much attention to the legends and rumors that have accumulated around the former, and infamous (as he puts it), Texas School Book Depository.

    There never was a time, following the Kennedy assassination, when the building was in any real danger of being razed. There were undoubtedly private citizens who, for whatever reason, wished the structure could be torn down, but no Dallas official ever made any kind of formal proposal that this be done. I was editorial-page editor of the late Dallas Times Herald at the time of the assassination. Had there been any significant move to raze the school book depository, I would have been informed quickly, and I had access to the Dallas leaders who would have joined the Times Herald in dismissing anything in that direction.

    Holland writes that “20 years of ensuing civic debate would pivot on what to do with this building.” This glides over a lot of Dallas social and political change and is perhaps based on a 1984 national television interview broadcast during the Republican convention in Dallas, when a Dallas businesswoman stated she wished the building could be razed and the whole event forgotten. Her remark was received with a great deal of popular resentment in Dallas, where a $3.5-million fund-raising effort was underway to create the highly successful “Sixth Floor” exhibition.

    The depository building (which was never called “411 Elm”) was not sold to “an exhibitor of Kennedy kitsch,” as Holland states. That was a building across the street from the depository. The Texas School Book Company remained a tenant of the depository building for a number of years after the assassination and thus was not open to the public. The contention that “tour bus guides neglected to mention the book depository” shows a distinct unfamiliarity with the tour-guide business. And it should be pointed out that the building was purchased in 1977 by Dallas County, not “voter approved” by the city of Dallas, and was made into an office adjunct to the nearby Dallas County Courthouse complex.

    Perhaps the most unfair paragraph is the lengthy one in which Holland states that the late D. Harold Byrd’s refusal to sell the depository building after the assassination “mirrored the prevailing attitude of Dallas’s tightly knit business and civic elite [that] if nothing were done for a few years, passions would simmer down, visitors would stop coming, and 411 Elm could be handled discreetly; that is, razed.” Byrd knew his way around the world of public opinion well enough to realize that the depository building would forever be part of the historical inventory, not just of Dallas, but of the nation. He, along with the mayor and most city council members, understood the assassination was never going to “simmer down” and that people would never stop coming to Dealey Plaza. There may have been people in Dallas, in the first year after the tragedy, who thought that eventually the assassination “would go away,” but they had little or nothing to do with operating the city.

    I recognize that Holland’s article is a personal, emotional view that, were it merely a literary essay, might be acceptable as such. But to have this article appear in Preservation as factual recounting is not fair to history.

                                                                                                        A.C. Greene
                                                                                                        Salado, Tex.

Max Holland responds:

    As a noted historian of Texas, A.C. Greene is more than entitled to criticize my perspective and opinions. But before he casts aspersions on my ability to gather and report facts accurately, perhaps he had better go back and read the more than 30 years of newspaper clippings about 411 Elm that are on file at the Dallas Public Library. It is Greene who has the important facts wrong.

    “The depository building . . . was not sold to ‘an exhibitor of Kennedy kitsch’”? The building was sold in 1970 to Aubrey Mayhew, a Nashville entrepreneur and trashy purveyor of Kennedy memorabilia. On April 17, 1970, Greene’s own former newspaper, The Dallas Times Herald, described Mayhew as having the “largest collection of Kennedy items in the world.” The New York Times of the same day noted that Mayhew was the author of a book, The World’s Tribute to John F. Kennedy in Medallic Art, and that his recent purchase of some personal letters written by Jacqueline Kennedy had caused a furor.

    Mayhew’s ownership was the gaudy threat that galvanized Dallas into action, according to local newspaper accounts. As The Dallas Morning News of November 1, 1971, reported, “there has been a change in attitude by the city’s business leadership on disposition of the Depository. Previously, city leaders tried to ignore the assassination . . . and have not wanted any tangible reminders. They would have been happy if . . . the highest bidder [when Byrd sold it] had been a real estate developer who wanted to tear the building down . . . . Fearing it would become a ‘tourist trap’ over which they had no control, the city’s business and civic leadership finally sat up and took notice.”

    “No Dallas official ever made any kind of formal proposal” to tear down the former depository? In 1972 two Dallas city councilmen, Fred Zeder and Russell Smith, publicly advocated razing 411 Elm and sought to prevent any federal, state, or local tax monies from being spent to preserve the building. Quoting again from Greene’s former employer (September 9, 1972): “Zeder . . . said he was against ‘any memorializing of that day of infamy with that structure’ [and] said he would rather see the building razed and turned into a park.” The next day the Times Herald published an op-ed piece by Zeder making his argument at length. And although Zeder and Smith were in a decided minority on the city council, their sentiments were echoed by organized private citizens. The Morning News of August 2, 1972, reported that Tom B. Rhodes, a businessman representing “Dallas Onward,” told the city council that “we feel strongly it is a mistake to preserve the [building] as it continues to give Dallas a black eye.”

    I did not write, nor did I mean to imply, that a majority of Dallasites ever wanted to tear the building down. And several local political leaders – including former mayor Wes Wise, state senator Mike McKool, and councilman Garry Weber – fought tirelessly over many years to preserve the site with dignity, recognizing explicitly that the former depository was an inseparable element of Dallas’s outdoor Ford’s Theater.

    There is one embarrassing error in the article’s final paragraph. The assassination obviously occurred 33 years ago in November, not 43 as printed. But otherwise I stand by my “emotional” account: The path to the present, almost superb situation was long and tortuous.

This letter first appeared in  Preservation, January/February 1997
© 1997 by Max Holland

 

Conspiracy Theories Keep Coming, But the Plot Gets Thinner

The majority of men prefer delusion to truth. It is easier to grasp. Above all, it fits more snugly than the truth into a universe of false appearances.

                                                               H.L. Mencken, 1920

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By Max Holland

    Conspiracy theories are rampant these days. Allegations of government involvement supposedly explain everything from the assassination of the Reverend Dr. Martin Luther King, Jr. to the downing of TWA Flight 800. Given this atmosphere, it will take a generation or two for most Americans to appreciate the raw historical data now becoming available on the assassination of President John F. Kennedy, which remains the main melodrama of conspiracy theorists.

    Taken together, the government records being assembled and made public by the five-member JFK Assassination Records Review Board (ARRB) paint a sobering portrait of the federal government. It’s not the idealized version depicted in civics textbooks or the demonized version featured on talk radio. It’s the real federal government – imperfect, plodding, riven by distrust and rivalries, compartmentalized by secrecy, working at cross-purposes or in ignorance, simultaneously guided by elevated national concerns and the most banal of bureaucratic instincts. But it does struggle to do the right thing. The Warren Commission, though established to determine the facts about a heinous crime, was at the same time a window on the vast, clanking machinery of the government.

    It is government not as the American people are accustomed to seeing and hearing about it, but as it really worked in 1963 – and, in many respects, the way it still works today. Despite shortcomings and conflicts, the government did not violate its sacred duty to tell Americans the truth about who murdered the 35th President of the United States.

    Although it is almost entirely ignored by the mainstream media, a fabulously rich record is being laid bare under the terms of the JFK Records Collection Act of 1992, by the panel charged with carrying out the provisions of that law. Now in its third year of operation, the ARRB is asking Congress for another year and an additional $1.6 million. The funds ought to be appropriated. The board is an unprecedented and unheralded success.

    The ARRB’s job is to pull back the shroud covering literally thousands of government records on the November 1963 assassination of President Kennedy. These documents run the gamut from the obvious (FBI and CIA files) to the obscure (records from the Social Security Administration and Army Corps of Engineers). A succession of local, state, and federal investigations of the assassination has generated a mountain of documents, many of them classified “Secret,” “Top Secret,” and higher.

    The national government’s conclusion has long been that Lee Harvey Oswald, acting alone, fired all the shots that killed the President, and that Oswald, in turn, was murdered by a vigilante named Jack Ruby. The ARRB is not specifically charged with re-investigating the events in Dallas. But nothing the ARRB has turned up alters these findings by one iota. Through the panel’s efforts, all Americans will have access to millions of pages of records relevant to the government’s conclusion.

    The ARRB’s efforts have resulted in the declassification of thousands of records from heretofore secret FBI and CIA files; the release of the Marine Corps’s original personnel file on Oswald; and access to private papers of two key lawyers in the saga, J. Lee Rankin and Jim Garrison, the former New Orleans district attorney.

    Rankin was chief counsel of the Warren Commission, and his papers show that he acted honorably in a difficult situation. Garrison’s papers reveal that he egregiously abused his prosecutorial powers. If justice had prevailed, rather than being sainted by the likes of Oliver Stone in the movie JFK, Garrison would have been sued by the Justice Department’s civil rights division for violating the rights of Clay Shaw, who was wrongfully prosecuted for an alleged role in the Kennedy assassination.

Don’t Blame the Japanese: The Rise and Fall of Burgmaster

 

The Rise of Burgmaster Corporation Was a Typically American Saga–and Unfortunately, So Was Its Fall

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By Max Holland

   

    Many people come to Los Angeles to make movies. Fred Burg came to make machines.

    It was 1943, and Burg had a secure, well-paying job as a department store manager in Chicago. But his passion was for things mechanical. Finally, during the Christmas shopping season, Burg got fed up. He uprooted his family and moved to Los Angeles and its booming war economy. He wanted, simply, to get back to machines.

    Nothing has fascinated Burg more, ever since he began working, at age 10, as a locksmith in his native Czechoslovakia. When he arrived in America in 1911, he landed a job as a lathe operator at an International Harvester plant and until his marriage nine years later, Burg worked with machinery. He reluctantly changed jobs and went to work in the dry-goods business owned by his in-laws – and invested and tinkered in every spare moment he had. But after two decades, he was tired of the compromise.

    Within a few months of his arrival in Los Angeles, he patented a tool-holding device and was running a business out of his garage. Over the next two decades, Fred Burg, aided by his son and son-in-law, would build a manufacturing concern – Burgmaster Corporation – that was the largest of its kind west of the Mississippi.

    His enterprise bears all the attributes of a typically American vision – the rags-to-riches saga of an immigrant who had a better idea. More than four decades later, however, the machine tool company he founded no longer exists. In January, 1986, the contents of the Burgmaster plant in Gardena were put up for sale at a public auction.

     At the time, Burgmaster’s demise was considered proof of American manufacturing’s inability to compete. Though the machine tool industry is a small manufacturing sector, it is at the heart of any nation’s industrial health. Machine tools are the “mother” or “master” machines. Every manufactured product is made either by machine tool, or made by a machine that was made by a machine tool.

    A story about the rise and fall of Burgmaster, then, is more than the tale of one company. It is about the decimation of U.S. manufacturing – its failure to innovate successfully, and to endure increased competition from the global economy. It is a parable of a system out of kilter: of a government seemingly incapable of sustaining a sound economy, leading to a climate in which “speculation replaces enterprise,” in the words of the economist John Maynard Keynes; of corporate mismanagement of a capable and willing American work force, and lastly, of Wall Street’s ability to win big even while a company is irrevocably damaged.

Who’s Bankrolling the Buyout Artist?

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By Max Holland

    Sometimes one does not know whether to laugh or rail at the gullibility of Congress, and the hypocrisy of Wall Street.

    During the past nine months, lawmakers on Capitol Hill have engaged in a desultory debate over the wisdom of leveraged buyouts. There are several reasons why the debate is mostly going nowhere while the buyouts change the face of corporate America. But one of the most potent arguments for doing nothing has been the specter of foreign takeovers.

    Buyout artists have argued, and with considerable success, that if Congress tampers with the tax subsidies that fuel buyouts it will hasten foreign takeovers of American businesses. In June, for example, Merrill Lynch & Company ran a full-page advertisement in Roll Call, a newspaper read widely in Washington, to warn against any proposals that might limit the deductibility of interest incurred after a buyout. One of the most prominent “severe negative effects” citied by Merrill Lynch was that foreigners who borrow abroad would have an advantage over American bidders for our companies.

    There is a case to be made for equal treatment of foreign and domestic investment. But before Congress allows Wall Street to wrap itself in the American flag, it’s worth taking a closer look at the buyout lobby’s loyalties.

    Truth be told, buyouts are a driving force behind the rapid rise in direct foreign investment in the United States, especially foreign ownership of indigenous manufacturing assets. In some instances, debt-laden corporations can no longer make the investments they need to compete, so they are put up for sale to foreign concerns seeking greater access to the world’s most lucrative market. A case in point is the recent sale of Uniroyal Goodrich Tire Company to the Michelin Group, the French tire maker. As Martin Dublilier, chairman of Clayton & Dublilier, the buyout firm that took Uniroyal private in 1988 and then sold it to Michelin, explained to The Wall Street Journal on September 25: “We were leveraged. It would have been difficult to spend the kind of money we needed to spend over a long period in order to be in the forefront.”

    Buyouts also foster foreign takeovers because so many of them go bad. The percentage of companies that get into difficulty in “middle market” buyouts, which do not grab the headlines, is between 70 to 80 percent, according to Daniel Morris, head of Morris Anderson & Associates, a financial consulting firm in Glenview, Illinois. Most of these companies don’t ever file for bankruptcy, yet between 30 and 50 percent get into financial distress and have to pay the price of a buyout gone bad. In other words, a drastic restructuring occurs, which means that assets are sold to meet interest payments.

    With growing frequency, the foreign purchasers who are coming to rescue are Japanese. While some Japanese acquisitions have been huge and have had no relation to buyouts, the great majority of Japanese acquisitions have been in the $15 million to $45 million range – precisely the kind of companies likely to be jettisoned by leveraged corporations in trouble.

    Moreover, in recent years, as the buyout mania has burdened companies with ever-increasing mountains of debt, many deals have been predicated on asset sales. Not surprisingly, foreign buyers have been quick to snap up these long-term bargains. Good opportunities for Japanese investors occur “when major parts of American companies are sold following an acquisition,” one American takeover specialist recently noted at a Tokyo conference, adding that “the opportunity to acquire pieces of these companies is particularly suitable for the Japanese.” American corporate executives used to complain bitterly that the Japanese can buy us but we cannot buy them. Now they insist on checking out the Japanese market, so that they do not miss out on a high price for their assets.

    The 10 largest American securities firms all have offices in Tokyo that specialize in selling off American assets. Morgan Stanley & Company just raised $2.3 billion to engineer buyouts, one of the largest pools of buyout funds around. At the same time, 8.5 percent of all Morgan Stanley employees worldwide are working in Tokyo. Some sell stock, others trade currencies. But many are dealing in American assets sold because a buyout has gone sour.

    In some cases the ties between buyout firms and Japanese investors are virtually hand-in-glove. The 12th-largest buyout boutique, the Blackstone Group, is concentrating its $850 million buyout pool on Rust Belt companies. Blackstone also happens to be 20 percent owned by Japan’s mammoth Nikko Securities, the third-largest securities firm in the world, and Japanese investors make up 25 percent of Blackstone’s buyout fund. Blackstone’s chairman, Peter Peterson, makes no secret of the fact that one of Blackstone’s purposes is to help pave the way for the Japanese to invest another $300 billion in the United States over the next decade.

    Nor is Blackstone unique. Wasserstein, Perella & Company and the Lodestar Group, two other large buyout houses, also have significant shares owned by Japanese securities firms eager for direct access to and experience in the American market. Wasserstein is training employees from the Nomura Securities Company, and Lodestar is schooling trainees from its 20 percent shareholder, the Yamaichi Securities Company. And most recently, Clayton & Dublilier reached a working agreement with Japan’s Dai-Ichi Kangyo Bank, the world’s largest. In addition to investing as much as $100 million in a new buyout pool, Dai-Ichi will help Clayton & Dublilier locate Japanese buyers for American assets.

    While the Japanese are not shy about pursuing opportunities being handed to them on a silver platter, it is interesting to note their attitude toward the leveraging of corporate America, and the asset fire sales that result. Contrary to the attitude of American investment bankers, who casually reshuffle assets, the Japanese view a company up for sale as an occasion for shame, and a stark admission of failure.

    The problems afflicting American business, and manufacturing in particular, are broad and deep. But surely, permitting buyout artists to speculate in, and profit from, a liquidation program for American assets is not an answer.

This article first appeared in The New York Times, 8 October 1989
© 1989 by Max Holland

Inside KKR’s Buyout Boutique

The Money Machine: How KKR Manufactured Power & Profits
By Sarah Bartlett
Warner Books. 345 pp. $24.95

Print

By Max Holland

    Move over, Michael Milken and Drexel, Lambert. In The Money Machine, author Sarah Bartlett nominates a serious rival for their dubious reputations. The financiers who epitomize the excesses of the 1980s, Bartlett convincingly argues, are actually named Henry Kravis and George Roberts, from the firm of Kohlberg, Kravis & Roberts (KKR).

    In less than a decade, Kravis and Roberts parlayed a financing technique known as the leveraged buyout into one of the largest corporate empires in the world. They did it by weaving a web of greed, deceit, and conflict of interest that stretched from Wall Street to Washington, and all the way to Oregon. Their web attracted several of the nation’s biggest banks, insurance companies, pension funds and a dozen esteemed investment houses and law firms along with scores of CEOs.  What’s more, every deal engineered by KKR was legal, or has stood up in court when tested. And that, Bartlett contends, is what finally makes Kravis and Roberts more characteristic of the era than Milken. The 1980s were not about illegality on Wall Street, although there was plenty of that. First and foremost it was about the stunning lack of business ethics by America’s best and brightest while they flipped corporations like hamburgers.

    By zeroing in on KKR, Bartlett clearly aims to follow in the footsteps of such influential (and successful) books as Connie Bruck’s The Predator’s Ball and Barbarians at the Gate by Bryan Burrough and John Helyar. Bruck was the first to expose the inner workings of Milken’s Drexel, and Burrough and Helyar took readers on a financial roller-coaster ride by recreating the biggest deal of them all, the leveraging of RJR/Nabisco. Not coincidentally, the winner of that deal was KKR, making a book about this particular buyout boutique overdue.

    Bartlett, a financial reporter for The New York Times, advances our understanding of the 1980s by showing how KKR raised the huge pools of capital necessary to leverage corporate America. When state pension funds arrived on the investment markets in the 1970s, they were hailed as a stable source of capital for the revitalization of the economy, their arrival serendipitous because Americans’ savings rate was declining. Bartlett shows how KKR’s buyout artists wooed and dined pension fund managers who controlled hundreds of millions of dollars, and how KKR contributed thousands of dollars to influence obscure, but pivotal, state races. A manager who helped KKR tap into public pension funds, such as Roger Meier, chairman of the Oregon Investment Council, was amply rewarded. Meier funneled a cool $500 million KKR’s way by the mid-1980s, and in return KKR handed him seats on the board of companies it acquired like so many $15,000 trinkets. Later, in what can only be interpreted as a quid pro quo for putting KKR on the map, Meier was even permitted to become an investor in certain deals from KKR’s portfolio.

    This pattern of corruption by inclusion marked many of KKR’s relationships, and goes a long way toward explaining why KKR became a financial juggernaut and the most imitated firm on Wall Street in the 1980s. Longstanding pillars of that elite community, such as the venerable law firm of Simpson, Thacher & Bartlett, home to former Secretary of State Cyrus Vance, even proved vulnerable to KKR’s calculated largesse. With KKR generating enormous fees for Simpson Thacher, the law firm allowed partner Richard Beattie, a prominent Democrat who handled the KKR account, to invest in his client’s deals. Again, this was nothing illegal. It only violated a longstanding ethical notion that lawyers should not invest in their clients’ businesses. Although Bartlett did not make the connection, with liberals like Richard Beattie it’s no wonder the Democratic Party is in shambles. Beattie, who was general counsel of the Department of Health, Education, and Welfare under Joseph Califano during the Carter Administration, has pulled the laboring oar for the most virulently anti-union, anti-worker phenomenon on Wall Street in recent history.

    Despite her considerable achievement in exposing KKR’s means of ascent, Bartlett’s book has serious flaws and omissions. The Money Machine strives for an intimate tone and ends up long on gossip and short on substance. Admittedly, much of the personal information goes to the heart of “Henry’s” and “George’s” lack of character and the sources of their ambition (the book annoyingly refers to Kravis and Roberts by their first names). Yet something is out of kilter when the manipulation of the corporate tax code, which makes or breaks so many deals, is referred to only in passing, while paragraphs are spent on the sexual preferences of Kravis’s elder brother. It’s as if the book were written by a reporter from People magazine rather than one of the chief financial journalists for the Times.

    Even more regrettable is Bartlett’s apparent failure to investigate what happened at some or any of the scores of companies that were subject to KKR’s financial engineering. After all, if this is a story about two arrogant financiers who became conspicuously rich, why bother? Bartlett approvingly cites one critic towards the end of the book: “Acquisitions of companies are . . . serious matters. They are economic events that affect the lives and fortunes of investors, employees, suppliers, and customers.” A Wall Street Journal reporter just won a Pulitzer prize for revealing the dark side of KKR’s Safeway buyout. Bartlett sheds no additional light on this decisive question, however, aside from referring to a few deals that have gone sour from the investors’ point of view. This reportorial lapse is an inexplicable omission, especially given that Bartlett castigates colleagues in the financial press for being intimidated or suckered by KKR.

    Bartlett’s instincts were sound as could be. But the book on KKR, and Wall Street speculation in the 1980s, still waits to be written.

This article first appeared in Washington Post Book World, 14 July 1991
© 1991 by Max Holland

 

Roger and the NYSE

Print

By Max Holland

   

    Wall Street, the fall of 1989. For the second October in three years, the New York Stock Exchange gyrates hundreds of points an hour without apparent rhyme or reason. Brokers, corporate officers and individual investors – many of whom operate on the quaint notion that big shifts in the market should correlate with fundamental changes in the economy – scream bloody murder. Almost uniformly they point to computer-aided program trading as the culprit and demand reforms. To quell the outrage and buy time, the NYSE reaches for a hoary American tradition invoked by government and business alike in such situations. It appoints a panel to study the problem.

    Last month, after five months of due diligence, the Market Volatility and Investor Confidence Panel issued its report. A principal finding, according to panel chairman Roger Smith, outgoing CEO of General Motors, is that there is no problem, or at most one that is merely perceptual: “ . . . inaccurate information concerning trading practices and strategies has helped create mistrust of activities that are, in fact, inevitable and desirable features.”

    One assertion in that sentence is beyond dispute. Strategies such as program trading, especially of stock-index futures, are desirable (read, lucrative). The question is, for whom? Come up with the answer, and it becomes obvious that Roger Smith & Co. have delivered a directed verdict favorable to a handful of investment houses and institutional investors.

    As the report itself makes plain, these interests now dominate the nation’s equity and equity-related markets. Institutional investors – banks, pensions funds, and insurance companies – control assets worth $3.8 trillion, equivalent to 77 percent of America’s 1988 GNP (up from 31 percent of 1950 GNP). Approximately 30 percent of this sum, or $1 trillion, is invested in the equity markets. Looking at it another way, the equivalent of 44 percent of total NYSE market value is owned by institutional investors. An additional $300 billion, or about one-third of these institutions’ equity investment, is devoted to the portfolio, or baskets of stock, investments that are the basis of program trading. Meanwhile, about 10 investment houses account for 90 percent of all program trading.

    Given these interests’ hegemony over the equity market, and their concurrent stake in program-trading strategies, the “no problem here” finding of the panel was utterly predictable. For, after institutional investors have spent years, and millions of dollars, learning how to use their vast sums to exploit the market, can anyone doubt their resolve to control the conclusions of a 19-member panel? Nor was it simply the participation of Morgan Stanley and Salomon Brothers, two of the biggest program traders, that made the panel a stacked deck. General Motors has one of the biggest pension funds in the nation, and that fund is a primary user of newfangled trading strategies. During the October, 1987, meltdown, for example, GM’s pension fund was one of the biggest program sellers, dumping blocks of stock on the market in wave after wave. The irony is that markets whipsawed by program trading raise the cost of capital for GM and other corporations. They’re raiding Peter to pay Paul.

    There is one mild surprise in the Roger Smith report, however, and that is the willingness of some key traders and institutional investors to disregard fundamental market principles. The panel advocates mandatory “circuit breakers,” or trading halts, in all US markets whenever the Dow Jones spins out of control by more than 100 points. These halts would last from one to two hours, depending on the severity of the market stress. Yet historically, the factor that set the New York Stock Exchange apart was its standing as the only continuous equity market in the world. Regardless of whether droves of investors wanted in or out, the market was always open during trading hours. That fact, more than any other, created the confidence that built New York’s capital markets into one of this country’s greater economic assets.

    Now some institutional investors are willing to violate that principle in their zeal to protect program-trading strategies. Unwilling to address the causes of market volatility, yet under orders to allay anxieties about it, the panel chose to treat its symptoms. Shutting down the markets in any circumstances short of a calamity will more likely, however, induce panic than cure it, and deep inside the report an academic expert says just that. “Closing the market creates uncertainty . . .  and makes it impossible for [market] forces to work efficiently,” writes finance professor Sanford Grossman of the Wharton School.

    History has repeatedly proved, in both the political and economic spheres, that concentrations of power give rise to abuses in power. Some of the changes in the market over the past decade are progressive and legitimate. But overall, the power of finance capital in American markets is too great, too unrestrained, and too unaccountable. The stock exchanges, which should function as a service to both capital and corporations, are instead in thrall to the former.

This article first appeared in  New York Newsday , 3 July 1990
© 1990 by Max Holland