Are your tax dollars paying off Sinclair owners?

If blogging existed during the Summer of ’72, I wonder if Watergate may have been more fully exposed in time for the Nixon v. McGovern election. First of all, let me thank Kash for more fully explaining my first question when Chad rightfully noted that investors might purchase stock held by a family at a discounts. Let me also note that the financial gimmicks of Andrew Fastow prove that corporate corruption can exist even without majority ownership as long as information asymmetries exist. More on Fastow Finance and the emerging Sinclair scandal in a simple analogy later. But first – many thanks to Rain Bo for noting this story:

Jadoo Power Systems, Inc., a producer of portable power systems, announced September 28, that it had been awarded a contract to supply its products, which are used for covert surveillance operations, to US Special Operations Command. According to the SOCOM website, SOCOM “plans, directs, and executes special operations in the conduct of the War on Terrorism.” Jadoo, whose name in Hindi means “magic,” is owned by Sinclair Ventures, Inc. and Contango Capital Management. Sinclair Ventures is “a wholly owned subsidiary of Sinclair Broadcast Group, Inc. as well as other individuals.” A Jadoo press release reveals that in February, 2003, President Bush was personally briefed by the CEO of Jadoo, Larry Bawden, about Jadoo products. For the 2004 election, Sinclair executives have donated nearly $59,000 to the Bush-Cheney campaign or the Republican National Committee (RNC), including a $50,000 gift to the RNC from Sinclair Vice President Fred Smith.

I first read about how the Administration may have used taxpayer dollars to reward David and Fred Smith et al. from the now edited story from Atrios. Note Atrios at first thought that Jadoo was 100% owned by the 100% owned subsidiary of Sinclair Broadcasting, which would have undermined by implicit tie between question 1 and question 4 (question 4 being answered by Rain Bo’s link).

But let me try an analogy as to how the Smiths might be profiting at the expense of minority shareholders and taxpayers alike even as they hurt Sinclair Broadcasting in their efforts to help Bush-Cheney. Imagine a company called SB with two divisions: broadcasting and a Fastow Finance company that is the joint owner of JP. SB is 100% owned by John Smith, while JP is 50% owned by SB and John Smith. John Smith cuts a deal with a corrupt government that extracts $80 million from taxpayers towards JP, while it hurts SB to the tune of $100 million as the market makes SB pay for its brazen partisan smear attack on the political opponents of the corrupt government. Do the math and SB’s net change in value equals 0.5(80) – 100 = negative $60 million. While John Smith is out $36 million in SB value, the minority shareholders are out $24 million. But John is also up $40 million as the outside shareholder of JP. So on net he gains $4 million for his partisan assistance to the corrupt government. Even though $100 million in value was destroyed, collectively the various investors are out only $20 million as taxpayers foot the remaining $80 million from the graft given to JP so John would do the dirty work for this corrupt government.

OK – this tale is in the speculation mode and it’s not a simple of an analogy, as I would have hoped. But remember that the real world version of Fastow Finance (Enron) was very complex and yet our financial press eventually put out some very interesting discussions. Also remember it took two years to unravel a simple burglary that turned out not to be so simple (Watergate) as President Nixon stonewalled this until after the election. Let’s pray we get some smart and eager press folks to check out more of the Sinclair scandal in the next couple of weeks. I’ll just say I’ve been impressed with what we’ve learned over just the past couple of days in the blogworld. Now if the mainstream press would just pay attention.