>> he is also a former consultant to nbc news. among his previous books are the reagans, excuse me. the bushes portraits of a dynasty, reagan more his final triumph over communism and do was i suit -- say not as i do. that book was on "the new york times" bestsellers list eight weeks and "the economist" magazine pronounced to do as i say the ninth biggest political book in selling on the entire plant in 2005. he was executive producer in the face if the ball a documentary based in his book which won the 2004 of liberty festival and steve dannielynn is here today and is the greatest film ever written and refocus on his newest book, it "throw them all out" in which he examines the system and the way it works on capitol hill or the way capitol hill works the system. please join me to welcome my friend, peter schweizer. [applause] >> thank you old friend for that introduction it brings back to the heritage foundation and and it is nice to be back in washington d.c.. i live in florida i don't know how many people realize if you are now the wealthiest community in the united states passed silicon valley with net income. seven of the 10 wealthiest counties in the united states are those that border washington d.c.. those two statistics are indicative of the problem that we face today the subject i am here to talk about which is crony capitalism. how is that different from the free market capitalism? let me describe it by giving some examples. one example is steve jobs. he joined with the occupy wall street crowd would be called the 1% decorating products and services that people want to buy. he became very wealthy as they bought the apple products. that is free market capitalism steve jobs did not have any lobbyists. he was not active politically it was the voluntary purchase people made of his product that made him a very wealthy man. but the crony capitalist this less interested in a voluntary exchange but making money out of the political system. not services but to have connections that allows them to big government contracts contracts, set aside from the tax code and guaranteed government loans, guaranteed government grants come and access to inside information. these are the two arch types that exist today and my fear and concern is weird increasingly move in the direction of the crony capitalist away from the free-market capitalist as steve jobs is the example. money talk about the phenomenon in a couple of different areas the politicians in how they extract their wealth, in then i want to talk about the people on the outside that are politically connected and how they can milk the system to use their connections to enrich themselves at our expense. then finally does this really matter? you is how politicians that take money under the table and have gotten rich and we always have the railroad barons who cuts be hard deals should we care about this? i think you can guess that might answer is absolutely aspects of this is a profound issue we face in the 21st century. talk about politicians first. america should be governed by self governance. the notion resend individuals to washington to represent ourselves and to be a citizen legislature. we now have a situation where elected officials can not only performer public service but do it middle-class but the very, very wealthy one recent example from people this is a bipartisan issue a problem of human nature not one political party or the other. the first is nancy pelosi. when she first came into congress her net worth was around $3 million. in the 20 years she has served after that her net worth has gone up 870 6% which means on a compounded basis averaging 24% return on investment every year. i think george soros or worn by federal me would kill for that type of return. so a dramatic increase in wealth. have at least a large part of that is connected to her political position. what about a republican? the speaker of the house immediately before her dennis faster from illinois when he became speaker in the late nineties had a net worth around $300,000. when he laughed less than one decade later it was in the millions and could be close to the 11 million. he did not in your money or win the lottery it is a function of him leveraging his position in order to enrich himself. those are two individuals but there are multiple other side talk about in the but. i name people from both parties this comes from their public financial disclosures and comparing their activities with what they work on with legislation and to sensitive information how is officials could leverage their position to make money? the first example is the ipo which i would consider simply a form of legalized bribery. one example is the john is in the united states senate i need a favor and i say i need a favor here is a shoebox with $10,000 cash. i appreciate your help. what will happen? if we get caught we will go to jail. i am giving him cash in exchange for the good that does not happen so much anymore you hear about the occasional gentlemen who put $90,000 in his freezer but that is the exception to the rule in that form of the legal draft is small potatoes. you could make more money if you play it right to engage in the go kraft. let's assume i go to senator john office but instead i say i need a favor i am concerned about a piece of legislation by the way i am involved with the company and i will give you access to initial public offering shares of stock. we could buy these $20 a share then the next day when they go public they will go at least $50 per share than you can sell them the next day and make $100,000. that is perfectly legal and that scenario goes on quite frequently. hears the challenging part when senators to engage in the ipo they do not have to disclose it they just listed as another stock transactions when you go through financial disclosure forms the only way you can find out if they received the secret ipo shares is to look at the date of purchase if it was before was publicly available for the rest of us. this is what happened with the nancy pelosi ipo that i talk about that you may recall was the subject of a "60 minutes" episode. literally nancy pelosi and her husband were given access to 5,000 shares of the credit-card company the supper club they could buy those at $44 a share and the next day they immediately sold at $66 per share then in a matter of weeks it is $90 a share. a net gain of $100,000 in the visa ipo stock. pelosi receive access to the shares which is enormously difficult for anybody to get at the same time, visa had two pieces of legislation they were profoundly concerned about on capitol hill park out remember, visa is not a credit card issuer but a credit card company. they make the money from the 3% that the restaurants or the grocery store has the merchant swipe fee which is about 3%. they don't make their money on interest rates but this still specifically with the issue of the swipe if the. one of those that came out of committee was strong bipartisan support nancy pelosi never allowed it and the same thing happened and the following year so for two years she took the position and she would not support or get behind the swipe at the reform. is that related to the visa ipo? i don't know what if somebody from visa brought her $50,000 cash? would there be any doubt there was the quid pro quo? i don't think so but because it is done to the legal mechanism, this practice happens quite frequently do no end congressman pelosi case there is between eight and 10 that they have participated and oftentimes getting access to stock seeing the value double then selling at the next day. now let's talk about inside information. we can recognize over the last 40 years the size of government has gotten much bigger and much more intrusive whether the bailout for the growth of government of the health care sector, clearly government has been much more involved in the markets and the economy that means you have a situation where the government moves markets and if you have access in the position of how are you can trade on that affirmation to do very, very well. let me give you a couple of examples very briefly. one republican and when democrats. first. the financial crisis the beginnings of it september 2008. there was a series of meetings held in washington d.c. one doesn't ever 16th and another on september 18th in which ben bernanke, and paul send and-- hank paulson and sat down to discuss the true gravity of the situation. keep in mind this is mid september that tranfive is still at 11,400. people are nervous but the panic has not said in. we know from his memoir, paul singh asked those who had to leave the blackberry's and cellphones at the door. be no based on his account that they inform the members of congress that this is the potential cataclysmic crisis that the tranfive would go down at least 20% and we were looking at potential catastrophe in terms of the economy. accordingly they were ashen face and stunned what they were hearing. after that meeting 10 people, the members of congress went out and sold a bunch of stock the next day. when congressman sold stock in 90 different companies to have other members who dumped shares in to the financial sector in those that did very well. there's also a gentlemen named senator baucus he left the meeting and the next meeting -- morning brought coulter short in? q what on earth is that? i am not a financial person but that is the options trade that is a leverage by that use short the market you are betting the market that it will go down he literally made the trade the next morning and made $10,000 while putting a couple thousand dollars at risk. during the financial crisis as he had a series of meetings writing t.a.r.p legislation ranking republican committee literally engaged and 40 options trades that seem to be well timed and he made a lot of money. his insistence is he does not trade on inside information but this was a corporate executive rather than member of congress the sec would take a huge interest in this. there is the republican example of me give an example of the democrats. that would be senator john kerry. him in his wife are very wealthy and investment funds worth hundreds of millions of dollars but what is interesting is there is an amazing correspondence between his legislative activity and the investments that his portfolio makes. during 2009 with the obamacare debate he was on the health subcommittee which is where the legislation initiated initiated, involved in crafting legislation to put it together and literally buying and selling millions of dollars of health care stock at the same time. and those investment funds literally picked the right-wingers pharmaceutical companies, and dumped the right losers. and bought medical device manufacturers. this is an amazing confluence of his activity and trading activity going on in. the same thing happened in 2003 when he was involved in the prescription drug benefit for medicare. his investment funds made 111 purchases during 2003 and capital gains as they were involved in the upper scripts gin benefit plan this activity goes on quite frequently and bitterly the equivalent of allowing a basketball player on the washington wizards to bet on a game in which they are playing. would we ever tolerate that allows a starting guard to place bets on a game in which he is playing? of course, not he is involved in controlling the outcome. that is really what is going on in washington d.c. all the time. they are treating defense stock but officials are not so this is an example of the access to this information. let's talk about the third component of how they enrich themselves and that is what i call the land deal. here everybody is probably familiar with earmarks were members of congress introduce something specific to say i $1,552,000 into this nonprofit or to build this road. it is a car and -- , in part of washington and have been criticized because people who are campaign contributors seem to be beneficiaries. but to my mind that is not the most egregious misuse the most is that members of congress often use earmarks to enhance the property of their own real estate or the value of their real-estate. how does that work and how is that ethical or illegal? it is pretty widespread. that would be done as pastor how he had this amazing increase of his net worth one way to do it was the land deal and 2004 bought 2333 acres in rural illinois four months after he put in an earmarked for $207 million to build something called the prairie parkway. what that did was make the land that he purchased not out in the middle of nowhere any more because the road would run right by the property that he purchased in less than one year he could sell the land at more than twice of what he paid for it to the net gain was about $2 million off of the one real estate transaction. how can this be? it cannot be ethical or legal but by the standards of washington is there is nothing illegal about it the ethics committees have the amazingly lobar when it comes to earmarks. as long as congressmen hassert introduces anything the benefits themselves to show least one other person at least one may be the neighbor or your cousin benefits other than yourself, it is difficult and you can do it. i count in the book where this have been a senator has a stake in a real-estate development earmarking $66 million and run by his brother who was part owner and the ethics committee approved it to said it is okay because there's other beneficiaries. this is the method and the techniques the insiders use and i believe part of the reason that we don't see a huge amount of difference in the growth of government and the size of government in part because all of the profit centers are in seeing government grown not get smaller. talking about the insiders let me talk about crony capitalist and the people on the outside. what has happened in america is a lot of financiers and corporations have come to the conclusion is a much better business investment to hire a lobbyist and make contributions than two engage in research and development and there is such a bigger upside me give you a couple of examples of people that i discuss in the book to demonstrate exactly how this technique works look at the hedge fund investment community us study was done that looks at 50 different and hedge funds they found those that were most politically active to make the most campaign contributions consistently outperformed the a political hedge funds by a good 10%. that is a huge. 10% per year and the conclusion of the study is they benefit from that access to have their friends in power because they learn the things government will do and they could make trades according way. one of them involves george soros who was often discussed for his political activism in his charitable work and the other is warren buffett that people are surprised to hear because he has the impression of being the of grandfather from nebraska who is squeaky clean owning dairy queen and he has that good american in spirit. both are politically active but both men use that activism not just to expand ideas but to help their investment decision. beginning with george soros we know he was a close friend and supporter of barack obama but we also know he had an important role to play in what the stimulus would look like and how it would be structured. what people saw realize is that the same time when it george soros said by some administration how to structure the stimulation and he was buying large stakes in companies that would be the exact beneficiary of that stimulus and did very well. i will not go to the list here but we are talking about millions upon millions of shares of stock and just give you a couple of examples of the timing and the first quarter 2009 he bought 1.5 million shares in american electric power and just a few months later in june american electric power about $1 billion of taxpayer money for an energy project in illinois. with he bought shares of the midwest utility company then they got $540 million from the department of energy. he bought shares of nrg energy than a couple months later at 154 million. list goes on and on but one could say this coincidence b.c. the curious pattern to invest in companies that are the beneficiaries of government loans and contracts now talk about warren buffett. this surprises a lot of people be is very much engaged in this. also a strong backer barack obama and in the 2008 campaign he had the luxury of having both barack obama and john mccain saying they would like him as treasury secretary. he did not prefer that the light the role of being the savior of the american economy. when the crisis begins immediately becomes involved with the treasury department to structure what would eventually become the public-private partnership by the treasury department and the diocese hank paulson them and timothy geithner becomes the treasury secretary he works as geithner and literally that public/private partnership resembles a five page letter that warren buffett had written saying how it should be structured. here is an individual that is interested in helping the american public but the problem is he is literally buying millions of shares of stock in the very banks that will benefit from that public private partnership buying shares then american express, m and t bank i could literally buy them cheap because nobody knows what will happen nobody knows what the bailout will look like a but warren buffett does because he is helping to design its himself and buy them for pennies on the dollar then the shares surged and he does very well. you have a circumstance where warren buffett may or may not have helped to design the effective bailout but it cannot be avoided the fact when he was doing so he was actively and aggressively buying millions of shares of stock in the companies that would benefit from the bail-out he was helping to design. it doesn't matter if you are an investor how good your analysts are or your number crunchers if you don't know how the bailout will be structured, you will not be a beneficiary. now i will talk briefly about the third part of the crony capitalist system that i call the green energy economy that barack obama has created and this is another example of crony capitalism. people are familiar with solyndra given a $535 million government guaranteed loan the chief investor was an individual who is a bumbler for the obama campaign to have the sound of political favoritism i had been researching this program more than a year and if you look at the entire program can be fined solyndra is the tip of the iceberg. of approximately $20 billion handed out, you can link more than 16,000,000,002 obama connected financiers or capitalist. what this means is there are least 10 members of barack obama finance committee that got so winter type loans or even in larger to three times sometimes. many of these are in worse economic shape. let me give you one example. a solar company added california largest in venture headed by robert kennedy, jr. of the famous family and active environmentalist owning 25% stake in the tire company. this is a company that last year by its own accounting had total revenues of $13 million and lost $78 million by the sec filing it spent about six times more on marketing than it does on research and development and a confess even if the big massive project works, they may still may not be profitable that is everything they have disclosed. that is their disclosure to the sec. what happens? of course, they get 1.4 billion dollar loan guarantee from the taxpayer will that change the circumstances? no. not know they do have robert kennedy, jr. as a partner one of the individuals who was a principal of the firm was an obama fund-raiser in after the 2012 election went to wo