Freemarket Failures: Investors Prefer Doing Business With Hugo Chavez Over Billionaire Koch Brothers
You didn't hear this on Fox News or the Drudge Report, but on October 10 Venezuela seized and nationalized a massive fertilizer plant part-owned by Koch Industries. The media silence is a bit puzzling. You'd think that the seizure of property belonging to America's second-largest private company, owned by one of the most powerful families in the country and the bankrollers of today’s libertarian/Tea Party revolution—the billionaire brothers Charles and David Koch--would be considered newsworthy. But no, even though their Venezuela plant was nationalized a whole three months ago, other than a handful of short business-wire dispatches, this has yet to make the news. Even Koch Industries has been suspiciously silent on the matter.
One reason why the Kochs could be keeping the news under wraps is that the nationalization of the fertilizer plant may appear to be bad news for Charles and David Koch, but here’s the big surprise: the Kochs made hundreds of millions on every end of this deal…and even more surprising, bond markets cheered the nationalization. In other words, the free markets championed by the Kochs gave a big thumbs-down to Kochs’ negative influence on the value of the business, while at the same time, the free-market Kochs earned huge windfalls doing business with socialists. No wonder this story hasn’t made the rounds.
Here’s what happened: When Chavez's nationalization of the plant took Koch Industries out of the picture, bond investors responded by driving up the value of the company's bond debt by a whopping 33 percent. That means they had a lot more confidence that the debts would be paid back AFTER the free-market Kochs were out of the picture. As every business school flunky knows, price fluctuations of bonds are very much like those of stocks: the more they cost, the higher the confidence in a given company. And that means investors had less faith in the ability of the Kochs to run a tight business operation than they did in a bunch of Venezuelan socialist bureaucrats.
For a free-market family like the Kochs, such a big pro-nationalization thumbs up from the Invisible Hand isn't just bad PR, it’s downright embarrassing.
Here's a dispatch filed by United Arab Emirates-based Gulf Today describing the nationalization:
Koch Industries awaits Venezuela takeoverOctober 18, 2010
CARACAS: Koch Industries said it had received no word that Venezuela nationalised Fertinitro, a large fertilizer maker in which the US-based group has a substantial stake.
Venezuela’s President Hugo Chavez announced that the takeover of Fertinitro, one of the world’s main producers of nitrogen fertilizer, days after vowing to radicalize his socialist “revolution” following legislative elections last month.
Koch has a 35 per cent stake in Fertinitro and Venezuelan state-run petrochemicals company Pequiven has 35 per cent. Saipem, a unit of Italy’s Eni, holds 20 per cent and local brewer and food company Polar has the rest.
“Koch Fertilizer has not received any official or informal notice, nor have we received any notification from Fertinitro regarding any disruption,” a Koch spokeswoman told Reuters by email. “We are attempting to obtain details and information.”
What were true-believer libertarians like the Kochs doing running a fertilizer plant in Venezuela with two state-run companies, anyway? After all, Charles Koch’s own Cato Institute brain trust has been writing for decades that government-owned enterprises are less efficient and productive than private companies. The answer is simple: they were there for the subsidies.
As I revealed last September, the Kochs have a long history of tapping into socialist programs, despite their staunch libertarian rhetoric. Starting with their father, Frederick C. Koch, who amassed the family fortune building up Soviet oil infrastructure in the 1930s during Stalin’s first Five Year Plan, the family has been sucking on the big government teat for as long as they've been in business, using government subsidies to maximize their own profits, even while funding the libertarian movement and trying to deny government spending on anyone or anything else.
Here are just a few of Charles and David Koch’s socialist business deals and schemes from the past few decades: they enrolled their Matador Cattle operation in a New Deal program that allows ranchers to use federal land basically for free, log public forests for private gain and have taxpayers cover the operating costs, and routinely use the government's power of eminent domain to forcibly seize private property on behalf of Koch Industries’ various oil and gas pipeline subsidiaries, which stretch from Texas all the way up to the border with Canada.