An April NYT story about Tagg Romney’s private equity firm illustrates two points:
- How the 1% becomes an entrenched aristocracy.
- How subtly political corruption works.
Tagg is Mitt’s oldest son. Right after Mitt’s 2008 presidential campaign folded its tent, Tagg, a lawyer, and Romney-for-President finance director Spencer Zwick used the campaign’s rolodex of big-money contributors to start Solamere Capital — which describes itself as
A small number of families with broad networks joined together to aggregate their access to top-tier private equity firms, proprietary deal flow, and unparalleled management resources and expertise.
The strategy page of Solamere’s web site has seven bullet points, six of which begin with the word access. The gist: We know the right people, so we get offered deals that ordinary Joes never hear about.
Only the lawyer had any previous experience in private equity, but between the Romney name, the campaign donor list, and an early $10 million investment from Mitt himself, they have raised $244 million from 64 investors and made $16.8 million in fees.
Zwick was simultaneously raising capital for Solamere and PAC money for Mitt Romney’s Free and Strong America — often from the same people. All perfectly legal. Did any of those investors see the son’s company as a way to get in good with the father, a possible future president? Was anybody looking down the road far enough to anticipate Tagg continuing the Romney political dynasty? We’ll probably never know.
George W. Bush’s pre-politics career is a similar story: Contributors to his father’s campaigns repeatedly opened doors for him and invested in his businesses. Was that corruption? Or just helping out a nice young man from a good family?
It seems not to have been classic quid-pro-quo corruption. Nobody has identified any particular favor that the Bushes, senior or junior, did in exchange for junior’s opportunities. But this is one more example of the Washington gift economy. Lobbyist A doesn’t buy the vote of Congressman B; he just does nice things for B, thereby establishing a lasting relationship in which A and B will continue to be nice to each other without breaking any laws. Win/win.
So far, both Solamere and its investors seem to be winning. The firm has made 20% per year for the last two years. (Investments in general have also been up these last two years, though, so it’s hard to say how impressive that is without knowing more. Solamere might get those returns via a high risk/high reward strategy that will burn them in down years.)
But that raises another question: Did Solamere make money because they were cut in on lucrative deals, again, by people who wanted to get in good with a possible future president? Similar suspicions dogged George W. Bush. (The most controversial incident was when Bush Jr.’s company Harken Energy got a surprising contract from Bahrain while Bush Sr. was president, though a WaPo reporter called implications of influence-peddling “baseless”.) Questions were also raised about the profit Hillary Clinton made in commodity-trading while her husband was governor. (Like everything else about the Clintons, this was investigated to the Nth degree and no charges were brought.)
But even if you assume that everything in Tagg Romney’s career is above board and 100% honest, this is still a story about how the aristocracy reproduces. Tagg hasn’t inherited any of his parents’ hundreds of millions yet. And maybe he never will. Mitt claims he gave away his inheritance from his millionaire/auto-executive/governor father because he and Ann already had “enough of our own”. (Though he did get through school by selling stock his father had given him.)