How Clinton Lost, by the Numbers, and More

Image source

In order to understand how Trump became president, it is helpful to look at the actual numbers. The following statistics are taken from the United States Election Project.

Voting Eligible Population¹:
2008: 213,313,508
2012: 222,474,111
2016: 231,556,622

^1. As distinguished from Voting Age Population, which is a much higher number.

Votes cast for highest office (nearly always less than votes cast):
2008: 131,304,731 (61.6% turnout)
2012: 129,070,906 (57.9% turnout)
2016: 119,500,978 (53.1% turnout)

It's important to note how voter turnout has declined since 2008 when the excitement for "Hope and Change" was fueling one of the highest turnouts (by percentage) in the last couple decades. Turnout this time was pathetic--seemingly representing the unfavorable ratings of both candidates (Clinton 59% and Trump 60% as of August 31, WSJ).

Votes Won:
2008: Obama: 69,498,516 (52.9%)
2012: Obama: 65,915,795 (51.1%
2016: Clinton: 59,861,516 (47.7%)

2008: McCain: 59,948,323 (45.7%)
2012: Romney: 60,933,504 (47.2%)
2016: Trump: 59,639,462 (47.5%)

In all three elections, the Democratic candidate took the majority of the vote--yet, this year, Clinton lost the Electoral College, echoing 2000 when Al Gore beat George W. Bush in votes and still lost the Electoral College. According to Derek Thompson at The Atlantic:

Donald Trump won the electoral vote due to a margin of about 100,000 votes spread across Wisconsin, Michigan, and Pennsylvania. This critical difference represents about 0.04 percent of registered voters, a statistical speck.

The real issue is that voters did not support Hillary Clinton as they had Obama. Trump received fewer votes than either McCain or Romney and still managed to win the Electoral College because Clinton, although receiving more votes than Trump, received a whopping 6 million fewer votes in 2016 than Obama received in 2012, and nearly 10 million fewer votes than Obama received in 2008.

This would seem to indicate that the most liberal or progressive voters, who long proclaimed their refusal to vote for Clinton, kept their word and stayed home (or voted 3rd party).

Third Party Role

Many had hoped this might be the year of the 3rd party candidate, especially in the spring. But the final numbers reflect an essential binary system in this country: Libertarian Party candidate Gary Johnson won 3% of the vote and Green Party candidate Jill Stein took 1% (both of these are considerably, however, from 2012, when Johnson received 0.9% percent of the vote and Stein took 0.3% percent). Overall, roughly 5 million people cast votes for third party candidates this year.

In Florida, with 29 Electoral College votes, Trump bested Clinton by nearly 129,000 votes in the state, while Johnson and Stein took home more than 268,000 votes between them. Winning Florida would not have been the difference-maker for Clinton, but this outcome was likely repeated in many swing states. There are echoes of the 2000 election that Al Gore lost (also winning the popular vote but losing the electoral college), when Ralph Nader (Green Party) won nearly 100,000 votes in Florida while Democrat Al Gore lost the state by just 537 votes--that was the difference maker in that election.

Here are the six states won by Trump where the 3rd party vote could have shaped the outcome (from the Hit and Run Blog at Reason.com):

Arizona: Trump beat Clinton by four points; Johnson and Stein between them collected 5 percent. But most of that went to Johnson (3.8 percent), so it's unclear whether Trump or Clinton was hurt more by the other options on the ballot.

Florida: Trump eked out a win by just 1.4 percent here. Johnson, Stein, Castle, and Rocky De La Fuente of the Reform Party between them collected 3.2 percent. Enough to cover the spread, but how many of those votes would have otherwise gone to Clinton? Stein got only .7 percent.

Michigan: Trump won this ordinarily blue state by about .3 percent, and Stein got 1.1 percent, so Democrats who feel all Green votes are rightfully theirs are going to be seething at her over this one. Meanwhile, Johnson got 3.6 percent.

Pennsylvania: Trump won by about 1.1 percent. Stein's .8 percent isn't enough to cover that spread; Johnson's 2.4 percent is, but again we don't know whether he was drawing more from Trump or Clinton.

Utah: Trump beat Clinton here by about 17 percent. Sounds like a pretty big victory, but it's still less than McMullin's 20.9 percent. In this case you could make the case that the real spoiler was Clinton: If she weren't on the ballot, nearly all of her supporters surely would have preferred McMullin to Trump, perhaps allowing the independent to deny the Republican six electoral votes.

Wisconsin: Here, on the other hand, Stein's 1.1 percent is just enough to bridge the 1-percent margin between the winning Trump and the losing Clinton. But then what does Johnson's 3.4 percent do to the results—or, for that matter, the nearly half a percentage point that Castle won while running to Trump's right?

It seems that between Florida, Michigan, and Wisconsin, the 3rd party votes could have swayed the election in Trump's favor. But that seems less than genuine.

Clinton could not garner anywhere near the enthusiasm among liberals and progressives that Obama generated, and add that to her image (even among Democrats) as a liar who is both greedy and disingenuous about it, and she shot herself in the knee. Or rather, she shot her own party in the knee, and perhaps again in the groin and the chest for good measure. Because, in her mind, IT WAS MY TURN, DAMN IT!

Where Do Democrats Go from Here?

As a progressive and not a Democrat (I have no party loyalty--my vote is based on values choices), the biggest thing that cost the Dems the White House is Clinton's insistence that it is her turn, which began when she lost to Obama in 2008, upsetting her plans and forcing her to wait. So she waited, and over the next 8 years she locked the party down to the point that only Bernie Sanders and Martin O'Malley (who never was relevant) dared challenge her.

The Democratic National Committee (DNC), as Wikileaks as shown, was in Clinton's pocket to the point that DNC leaders were handpicked by Clinton, first Debbie Wasserman Schultz (who was later forced to resign), and then Donna Brazile (as interim-director of the DNC).

Wasserman Schultz was running the DNC when it cut off Sanders' access to the DNC voter database for a supposed access violation by the Sanders campaign. Sanders sued and was quickly allowed full access once again. However, emails made public by Wikileaks show that the DNC (which was in full support of Clinton) was also gathering info about Sanders voters for their database. Hmmmm....

Later, it was Brazile, while still working for CNN, who provided debate questions in advance (see here and here) when Clinton faced off with Sanders.

What would have happened if the system had been fair? It is quite possible, with the youth vote supporting him, Sanders would have defeated Clinton just as Obama had in 2008. But Clinton had learned her lesson, there was no way she was not going to control EVERY detail of the primary election so that she came out on top.

You can search by topic for specific emails on this at The Heavy. You can read ALL of the DNC emails made public here (July, 2016) and here (Podesta).

The Independent (UK) makes a strong case that Sanders would have defeated Trump in a head to head match. The numbers from polls taken in the spring support that conjecture. For example:

A poll by NBC News-Wall Street Journal on May 15 said Ms Clinton would beat Mr Trump by three points, but said Mr Sanders would win by 15 points.

A CBS News-New York Times on May 3 gave Ms Clinton a six-point advantage over Mr Trump, but said Mr Sanders would win by 13 points.

At the same time, Fox News said Ms Clinton would lose to Mr Trump by three points, but said Mr Sanders would win by four.

Emphasis added.

Ah, what might have been. Instead, we have at least four years of the most hateful, divisive president in my lifetime. If we thought George W. Bush was bad, we will soon be looking back at Bush as the "good old days."

If there is one lesson the Democrats can learn from the fiasco that was the Clinton campaign, it is to listen to the voters. The GOP did that (against the wishes of the establishment) and they won the White House. Will the Dems learn from this disaster? If history is any proof, likely not.

"It's Still the Same United States," Says Derek Thompson at The Atlantic

I saw this article on Google + so I went to read it, because it sure doesn't feel like the same United States to me. It does not even feel like my country, a place where my values and beliefs can be at least tolerated if not accepted or shared. The actual minority (fuck the Electoral College) who elected Trump are shouting down anyone who is concerned that Trump might actually, you know, do what he has promised.

And I know there are many who share my values, because we have talked and cried together over the last 36 hours. But we feel like such a small minority at this point....

The article is brief, so I am sharing all of it here.

It's Still the Same United States

What did Americans really learn about their country on Tuesday night? 

 

Kevin Lamarque / Reuters

By Derek Thompson

In the aftermath of Donald Trump’s shocking victory, many liberals woke up Wednesday morning feeling like strangers in their own country, or perhaps, as if they were the familiar ones and it was the country itself that had become the stranger. I heard it in the voices of friends. I read it in texts from family. I found it in newspaper headlines from some of my favorite writers and in tweets and Facebook messages. What kind of a country do I live in? they asked. Something important has changed. This is not the nation I thought I knew.

But America is what we thought it was. It is still a 50-50 nation, dominated by negative partisanship, in which about half of the country will reliably vote to defeat the other half for the foreseeable future. It is still a nation of propositional pluralism—“send these, the homeless, tempest-tost to me”—crossed with ineradicable xenophobia—“go back to where you came from.” It is still a country teetering on the razor’s edge of both a social-democratic revolution and 1950s-era conservatism. That’s the country Americans knew we had at midnight Tuesday morning. And it’s the nation reflected in the votes tallied on Tuesday night.

Here is what happened 36 hours ago. Hillary Clinton seems to have narrowly won the popular vote, yet narrowly lost the election, because of the geographical distribution of her support. Donald Trump won the electoral vote due to a margin of about 100,000 votes spread across Wisconsin, Michigan, and Pennsylvania. This critical difference represents about 0.04 percent of registered voters, a statistical speck. One vote in 2,500 was the difference between electing a liberal Democrat and rewarding a candidate for the most openly racist campaign in generations.

On its own, this dramatic precarity is not an inspirational thing. But it is so much more inspiring than the prevailing idea that Trump’s victory is statistical evidence that the country Clinton-voters thought they lived in has disappeared, or utterly abandoned them, or never existed in the first place.

In some ways, the current liberal mood is the mirror image of how many conservatives felt after Obama’s win in 2008. While Democrats were triumphant, convinced that the cause of modern liberalism had finally achieved escape velocity, many conservatives were despondent, convinced that the country they thought they knew had left them behind. But the future was not an extrapolation of these hopes and fears, but rather a reversion to 50-50 divisions. Eight years later, the nation is as divided as it had been eight years before in 2000, when, after another popular two-term Democratic president left office during an economic expansion, the electorate delivered a statistical tie that surprisingly handed the White House to a Republican.

It is not self-indulgent for liberals to despair about Tuesday night’s outcome. They have many reasons to fear the near future of public policy. But it’s too early for them to despair about America. In a two-party system, the binary outcome of a vote will always be a simplified expression of the complex characteristics of the electorate. The arc of history is long, with many wobbles, and nothing about Tuesday’s vote suggests that the arrow will point in any one direction for very long.

I felt compelled to comment on the article as an antidote to the prevalent anti-liberal, anti-progressive comments that had been posted (and continue to be posted).

While there is merit to the idea that the country has not changed in any significant way, the outcome of this election was about the future of the nation--not merely the next 4-8 years, but the next 50-100 years.

It is in that sense that progressives are weeping . . . for their children, grandchildren, and great grandchildren.

The winner of this election has been given the power to shape the nation far beyond his or her lifetime. That power comes through the ability to shape the Supreme Court.

Here is my comment, which has already been labeled hysterical by one troll.

Trump will have a GOP majority in the House and the Senate, will get between 1-4 nominations to the Supreme Court, and those justices will be there for the next 30-50 years. Add those justices to Alito and Roberts, both younger, ultra-conservative ideologues, and we will effectively be witness to the dismantling of most civil, environmental, and educational reforms enacted over the last 75-100 years, including Roe v. Wade.

With Trump and the GOP controlling Congress, we are likely to see the end of minimum wage laws, the destruction of the social safety net, and the demise of nearly every other government program serving the poorest of our citizens. The GOP seems unfamiliar with the notion that a nation is judged by how it treats the weakest of its citizens. Even conservative NYT editorial writer David Brooks gets that poverty is not a condition most people can escape, no matter how hard they try.

At the same time, corporate welfare likely will increase even more, while any and all regulation of Wall Street will end or be severely curtailed (Dodd-Frank will be gone), and most regulations protecting clean air, clean water, and preserving wilderness areas will be eliminated. Renewable energy investments will end so that the Arctic tundra can be drilled for oil. If you don't believe this, look at the people Trump is choosing to lead the transition at the EPA, FTC, etc.

Trump represents the end of American progress. If it were not for the damage he can do with appointments to the Supreme Court, it would only be a 4-8 year set-back. But he can shape the Court so drastically that it could take generations to undo the damage.

On ending progress, Trump's campaign slogan announced as much: Make America Great Again. I'm sorry, when WAS America great? Prior to the admittedly awful Affordable Care Act when millions of  people had NO health care? Prior to Roe v. Wade when women got abortions from unqualified providers, and often died from the procedures? Prior to the Civil Rights Act, when minorities could be denied service, prevented from using the same schools and restrooms, and prevented from voting? Prior to the New Deal when old people died in extreme poverty and workers had no protections from unreasonable work hours and unsafe conditions?

So WHEN was America great? When higher education was only open to the wealthy, when women could not vote, when minorities were not "full" people, when slavery was legal?

Anyone who proposes that the key to dealing with change is returning to the "good old days" has no idea HOW to change, what change is, and how change becomes successful. Trump is one of those people.

So progressives weep for the loss and wasting of American potential. For possible futures that are lost with a Trump presidency.

And just so you actually get it, Clinton was NOT the answer. She was only the slightly lesser of two evils.

President Trump - The End of the American Experiment, the End of Decency

I blame the progressives who stayed home or voted 3rd party rather than face reality and vote for Clinton to keep Trump from becoming president.

I blame ignorance, fear, hatred, misogyny, racism, nationalism, and the Republican-orchestrated demise of the national educational system.

Only an uneducated and ignorant nation could choose an ignorant and hate-filled man to be it's leader. Well-played.

YOU wanted this - so deal with it.

Trump is not MY president. 

He will NEVER be my president.

I am anti-violence, and I cannot imagine taking arms against the government. But we have been moving toward this moment for years, and now it is here. We do not have government by the people and for the people - we have fascism.

Look it up - Mussolini defined fascism thus: "Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power.”

It's time for progressives and liberals to become as well-armed as the racists and the redneck militias. There will be a time, not too far away, when WE will need to retake America from the powers of fascism.

2016 - Worst Presidential Election [Ever?] - Still Only One Choice We Can Live with as a Nation

"Anyone who is capable of getting themselves made President should on no account be allowed to do the job." ~ Douglas Adams

What follows is an expansion of my penultimate Facebook post before I deactivated my page last week. Some of the comments to the original post were disturbingly blind to what I was trying to say. So I am saying it again, here, with more words and (hopefully) greater depth and span.

Here is the original post:

I used to believe that political differences should not be a reason to unfollow or unfriend someone. I am questioning that perspective.

This feels like one of those times in history where people will look back and ask where you stood when hatred and ignorance were chosen to lead the nation, when a ruler was chosen who brings division and destruction, bigotry and violence.

This is truly a "lesser of two evils" choice. One choice is evil as usual. The other choice is evil on a scale that we have not seen since the first half of the 20th Century.

To be clear:

Clinton is corrupt, greedy, and dishonest. She is politics as usual.

Trump is racist, sexist, hateful, narcissistic, greedy, and quite possibly a sociopath. Electing Trump is on par with the elections of Hitler and Mussolini, both of whom promised to make their respective nations great again.

What these two dictators from the 20th Century share with Trump is hatred -- of the "other." Oh, and they all three share many traits of the sociopath/psychopath.

Says Tony Schwartz, who was the "ghost writer" on their joint book (they split the advance and the royalties, nearly unheard of for a ghost writer), The Art of the Deal, the 1987 book that made Trump famous:

“I put lipstick on a pig,” he said. “I feel a deep sense of remorse that I contributed to presenting Trump in a way that brought him wider attention and made him more appealing than he is.” He went on, “I genuinely believe that if Trump wins and gets the nuclear codes there is an excellent possibility it will lead to the end of civilization.” 

If he were writing “The Art of the Deal” today, Schwartz said, it would be a very different book with a very different title. Asked what he would call it, he answered, “The Sociopath.” [The New Yorker, June 25, 2016]

Emphasis added.

Respected Harvard psychologist Howard Gardner considers Trump a "textbook" narcissist, one of the primary traits of the sociopath.

According to a number of top U.S. psychologists, like Harvard professor and researcher Howard Gardner, Donald Trump is a “textbook” narcissist. In fact, he fits the profile so well that clinical psychologist George Simon told Vanity Fair, “He’s so classic that I’m archiving video clips of him to use in workshops.” This puts Trump in the same category as a number of infamous dictators like Muammar Gaddafi, Napoleon Bonaparte, and Saddam Hussein. [Raw Story, January 12, 2016]

Trump is very clearly a narcissist, and his behavior, lifestyle, and collection of ever-younger wives shows this in stark, very public detail.

But is Trump a sociopath or a psychopath?

Sociopaths tend to be nervous and easily agitated. They are volatile and prone to emotional outbursts, including fits of rage. They are likely to be uneducated and live on the fringes of society, unable to hold down a steady job or stay in one place for very long. It is difficult but not impossible for sociopaths to form attachments with others. Many sociopaths are able to form an attachment to a particular individual or group, although they have no regard for society in general or its rules. In the eyes of others, sociopaths will appear to be very disturbed. Any crimes committed by a sociopath, including murder, will tend to be haphazard, disorganized and spontaneous rather than planned. 

Psychopaths, on the other hand, are unable to form emotional attachments or feel real empathy with others, although they often have disarming or even charming personalities. Psychopaths are very manipulative and can easily gain people’s trust. They learn to mimic emotions, despite their inability to actually feel them, and will appear normal to unsuspecting people. Psychopaths are often well educated and hold steady jobs. Some are so good at manipulation and mimicry that they have families and other long-term relationships without those around them ever suspecting their true nature.

So, based on this, he is a little of both--impulsive and reactive, but also able to charm and manipulate. This makes Trump a frightening prospect as president of the most powerful military on the planet.

And, no doubt, the anti-Clinton folks have dozens of examples of how corrupt she is, how she stole the Democratic nomination from Bernie Sanders (I believe she did), and how horrible she would be as president. Sure, I don't like her, either.

As I said, lesser of two evils.

Given the two options, I have more faith (belief without proof) that Clinton actually does care about some of the social causes she has taken up over the years (women's rights, children, families).

While, in my mind, there is no doubt Trump cares about no one and nothing but himself--his actions and words have proven it repeatedly over the last several decades.

Electing Trump may be looked back on one day as the moment America picked up a gun, stuck the gun in its mouth, and pulled the trigger. Let's not go there.

Damn. Straight. This is from last April (2014), but this is the first I have seen of it.

​The io9 Manifesto: Science Is Political

Annalee Newitz
4/07/14 

Image via the Framestore art department

io9 started out in 2007 as the germ of an idea for a site about futurism, with a name that was a joke about brain implants. Six and a half years later, we've grown in size — but we've also grown up. Our 2008 manifesto still holds true, but in 2014 we've got some amendments. Here they are.

* * * *

Last month, for the first time, io9 had over 10 million unique readers in the United States alone; globally, we had 15 million. We had a staff of three when we launched in 2008; now we've got 14. Our mission has grown too.

Speculative Pop Culture

When I first conceived io9 back in 2007, I had one goal: to give readers a vision of the future that was based in scientific reality as well as science fiction. To do it, I needed to build a publication that would bring science journalism together with cultural criticism and futurist ideas. No one strand of thought would be dominant. To understand where we're headed as a civilization, we cannot privilege science over culture, nor can we afford to ignore even the most speculative predictions.

Often, the weirdest notions about the future turn out to be right.

Over time, io9 has expanded beyond its roots in science fiction. We're fascinated by any story, in any medium, that inspires people to look beyond the narrow confines of everyday life and contemplate an alternate world. I think these kinds of stories are crucial thought experiments, whether they are set in our reality or Westeros. They keep us sharp, preparing us for the day when things change so much that we'll need an education in alternate realities just to cope with this one.

Fighting for Science

Our science coverage has also changed. At this point in history, when science is under attack from many political and religious institutions, we can no longer afford to report on the latest research and call it a job well done. To advocate for science is to advocate for a political position, whether we like it or not.

Pro-science politics don't divide easily into conservative and liberal. Imagine, if you will, that people from all positions on the political spectrum came together to advocate for scientific research and education. Conservatives advocating for defense and agricultural innovations would rub shoulders with liberals pursuing sustainable energy and environmental reforms. But all would be united under the banner of rational inquiry. (And probably they would all want to go to space, too.)

Who knows what kinds of civilizational progress might come out of that crucible, where people with many political backgrounds could join forces to assure humanity's continued survival, using science?

Illustration from Destiny

A Better Future

Now I want you to stretch your imagination even further, and think about how our group of politically-mixed science advocates could include cultural and ethical issues on their agenda too. What if we finally admitted that the scientific project has always been a wider cultural movement, full of guiding myths and useful fictions and passionate believers?

What if, in short, political change could be as astounding as scientific discovery and as mind-expanding as the best pop culture?

Here at io9, we aim to find out. The point of futurism isn't just to describe what comes next — it's to change it. Come with us, on our quest to build a better tomorrow.

Salon Culture: Network of Ideas - A Conversation with Andrian Kreye

In 2001, the LA Times wrote about the emergence of a new salon culture in Los Angeles, frequented by writers, filmmakers, and actors. This phenomenon is the re-emergence of a salon culture, which began originally in the 16the century in Italy, but is most often associated with the 17th and 18th century literary culture of France.

In 2011, both Alternet (US) and The Telegraph (UK) did articles on salon culture. This is a bit of the history of American salons from the Alternet article:

The modern salon formally emerged in New York during the early 20th century. Edith Wharton, who loathed the American literary scene and resettled in Paris in 1907, likely attended the intellectual gatherings hosted by her sister-in-law, Mary Cadwalader Jones, on East 11th Street. In 1900, Jones gained national prominence championing the role of nurses in public health, fiercely arguing for the professionalization of a traditionally female vocation. She enjoyed intellectual life and hosted "Mary Cadwal's parlor” at which many leading intellectual lights of the day were regulars, including the writers Henry James, Henry Adams and F. Marion Crawford, the painters John LaFarge and John Singer Sargent, and the sculptor Augustus Saint-Gaudens.

However, it was Mabel Dodge’s famous “Evenings,” hosted at her townhouse at 23 Fifth Avenue during the 1910s, that made salons part of the city’s social life. Dodge was a classic Gilded Age “poor little rich girl,” a spoiled dilettante and libertine who, until she found her calling, attached herself to the latest fad and male celebrity. In 1913 she helped organize the controversial International Show of Modern Art, popularly known as the Armory Show, which launched modern art in America. That same year, she joined John Reed, “Big Bill” Hayward and Emma Goldman in support of the IWW-backed silk workers strike in Paterson, NJ, playing a leading role organizing the controversial, “Pageant of the Paterson Strike,” held at Madison Square Garden.

Dodge’s salons were organized along the lines of the traditional discussion-group format known as the General Conversation. An appointed leader, normally a specialist in an artistic, academic or political subject, offered a brief introductory commentary focusing the discussion and then invited those in attendance to jump into the discussion. Salon leaders ranged from A. A. Brill on Sigmund Freud and psychoanalysis, Reed on Pancho Villa and the Mexican Revolution, Margaret Sanger on birth control and women’s rights and even African-American entertainers from Harlem.

As the scholar Andrea Barnet reminds us, “Dodge’s salon was where black Harlem first met Greenwich Village bohemia and, conversely, where white bohemia got its first taste of a parallel black culture that it would soon not only glorify but actively try to emulate.”

I wish there were something like this in Tucson today. It would be awesome to meet up with a group of intelligent and educated people to exchange ideas, explore new topics, and generally hear new ideas or new perspectives.

I said this out loud the other night, so my girlfriend immediately mentioned to a friend on Facebook, and he and his wife like the idea, so maybe it will happen. And as tradition holds, the salon is often hosted by a female, the Salonnière.

The article below is about one of the major ongoing salons in the 20th-21st century - the Edge Salons hosted by John Brockman.

Salon Culture: Network of Ideas

A Conversation with Andrian Kreye [10.2.14]

Despite their intense scientific depth, John Brockman runs these gatherings with the cool of an old school bohemian. A lot of these meetings indeed mark the beginning of a new phase in science history. One such example was a few years back, when he brought together the luminaries on behavioral economics, just before the financial crisis plunged mainstream economics into a massive identity crisis. Or the meeting of researchers on the new science of morality, when it was noted that the widening political divides were signs of the disintegration of American society. Organizing these gatherings over summer weekends at his country farm he assumes a role that actually dates from the 17th and 18th century, when the ladies of the big salons held morning and evening meetings in their living rooms under the guise of sociability, while they were actually fostering the convergence of the key ideas of the Enlightenment.

Salon Culture
NETWORK OF IDEAS

The Salon was the engine of enlightenment. Now it's coming back. In the digital era the question might be different from the ones in the European cities of the 17th century. The rules are the same. Why is there such a great desire to spend some hours with likeminded peers in this age of the internet?

by Andrian Kreye, Editor, The Feuilleton (Arts & Essays), Süddeutsche Zeitung, Munich.

The salon, which marked a entire era: Duchess Anna Amalia of Saxe-Weimar with her guests, including Goethe (third from left) and Herder (far right).

For more than a century now the salon as a gathering to exchange ideas has been a footnote of the history of ideas. With the advent of truly mass media this exchange had first been democratized, then in rapid and parallel changes diluted, radicalized, toned down, turned up, upside and down again. It has only been recently that a longing emerged for those afternoons in the grand suites of the socialites in the Paris, Vienna, Berlin or Weimar of centuries past, where streams of thought turned into tides of history, where refined social gatherings of the cultured elites became the engine of the Enlightenment.

Just like back then, today's new salons are mostly exclusive if not closed circles. If you do happen to be invited though you will swiftly notice the intellectual force of those gatherings. On a summer's day on Eastover Farm in Connecticut for example, in the middle of green rolling hills with horse paddocks and orchards under the sunny skies of New England. This is where New York literary agent John Brockman spends his weekends. Once a year, he invites a small group of scientists, artists and intellectuals who form the backbone of what is called the Third Culture. Which is less of a new culture, but a new form of debate across all disciplines traditionally divided into the humanities and the natural sciences, i.e.,  the first and second culture.

On that weekend, for example, he had invited a half-dozen men. Each of whom had a large footprint in their respective disciplines: the gene researcher Craig Venter, who was the first to sequence the human genome; his colleague George Church, Robert Shapiro, who explored the chemistry of DNA, the astronomer Dimitar Sasselov, quantum physicist Seth Lloyd, and the physicist Freeman Dyson, who sees in his his role as scientist the need to continually question universally accepted truths. A few science writers were also present, along with Deborah Triesman, literary editor at the New Yorker.

At some of his other meetings, the number of Nobel Laureates might have been higher, but the question under discussion in the warm summer wind among rustling tops of maple trees with jugs full of freshly made lemonade, carried utmost weight: "What is life?" Seth Lloyd formulated the problem right at the start: science knows everything about the origin of the universe, but almost nothing about the origin of life. Without this knowledge, the sciences, on the threshold of the biological age, are groping in the dark.

Brockman had deliberately chosen the invited scientists as representatives of different fields, who, for years, had understood the need to think across the scientific disciplines. But even then, you could feel like an outsider, as was the case when Robert Shapiro made a joke about ribonucleic acids, which was greeted with boisterous laughter by the scientists.

Despite their intense scientific depth, John Brockman runs these gatherings with the cool of an old school bohemian. A lot of these meetings indeed mark the beginning of a new phase in science history. One such example was a few years back, when he brought together the luminaries on behavioral economics, just before the financial crisis plunged mainstream economics into a massive identity crisis. Or the meeting of researchers on the new science of morality, when it was noted that the widening political divides were signs of the disintegration of American society.  Organizing these gatherings over summer weekends at his country farm he assumes a role that actually dates from the 17th and 18th century, when the ladies of the big salons held morning and evening meetings in their living rooms under the guise of sociability, while they were actually fostering the convergence of the key ideas of the Enlightenment.

Not all salonnières were content to play the host role—Johanna Schopenhauer (the mother of the philosopher Arthur, here with her daughter Adele) was a significant writer with an extensive oeuvre.

The salon is still regarded as a mysterious world of thoughts and ideas, a world in which the participants soon were consigned to the role of historical figures in history books. In the early days of the salon culture these meetings were incubators of new ideas as well as the first form an urban and bourgeois culture. The first salons were formed in Paris in the early 17th century, when the nobles left their estates and are gathered in the capital around the King. Initially, they cemented these early manifestations of bourgeois culture such as music and literature. But soon philosophers such as Voltaire and Diderot appeared in the 18th century and prepared the intellectual ground for the French revolution.

In all major cities in Europe, it soon was common for ladies of high society to gather influential thinkers around them. Often, these were for their time radical gatherings, because those salons dissolved the rigid boundaries between social classes. With rational thinking of the Enlightenment, the reputation enjoyed by a person was measured in terms of intellect, not status or wealth. Berlin and Vienna were established, next to Paris, as cities of culture of the salon. But in small towns too, the intellectual life soon revolved around salons. The salons in Weimar were legendary, where Johanna Schopenhauer, the mother of the future philosopher, Arthur, and the Duchess Anna Amalia of Saxe-Weimar-Eisenach, counted Johann Wolfgang von Goethe and Friedrich Schiller among their guests.

At the end of the 18th century, the revolutionary spirit was present in the salons of Caroline Schelling in Mainz. The Prussian military arrested Schelling in 1793 for her links to the Jacobins.

At the same time England developed the first coffee house culture. In 1650, the first English cafe, called Grand Café, opened in Oxford. The open structure of the cafés had a tremendous effect on the culture of debate, but so did coffee and tea, the new drinks from the colonies. In a country in which the entire population at any time of day was drinking alcohol, the stimulant of caffeine acted as fertilizer for the burgeoning idea cultures. But it was mostly the lounges and cafes in Europe (and later America) that gave birth to the fundamental principle of progress and innovation, namely the network. Indeed, it was rarely the sudden Eureka-moments in the solitude of the laboratory of the study, that scientists and thinkers brought humanity from the dark times of the pre-modern era into the light of reason.  It was the fierce debates held in the lounges and cafes that allowed the ideas behind these Eureka-moments to mature.

The salon of the Duchess Anna Amalia  was called "Garden of the Muses." In addition to her role as salonnière, the Duchess was also generous patron of Goethe and Schiller.

No wonder that the nostalgia for these meetings between big thinkers is so strong today. With his 2010 film "Midnight in Paris", Woody Allen, the greatest of the urban romantics, created a cinematic monument to this nostalgia. As the American author Gil Pender roams the nighttime streets and alleys of Paris, he accidentally falls into a time portal and lands in the Paris of the 1920s. There, in the rooms of the writer and collector Gertrude Stein with walls covered in works of art, he meets Pablo Picasso, F. Scott Fitzgerald, Ernest Hemingway, Salvador Dalí and Luis Buñuel. This is a tribute to the small world of bohemians who gave birth to so many great things in the history of culture.

This nostalgia fits perfectly in an age when the mass media abandon models of publications and programs to turn into networks with an infinite number of nodes. Facebook, Twitter and countless blogs and forums perfectly simulate this exciting exchange of ideas for an audience of billions. In terms of today's digital Weltgeist, there is already talk about the global salon, and a universal brain. Could it be that nostalgic interest in the salons of the past is a desire for more clarity to face the complexity of the networked future?

In the digital era we might very well witness once again the phenomenon that Jürgen Habermas has called "structural transformation of the public sphere", the rise of a new bourgeoisie and mass society that began with the salons. There is no across-the-board answer to this question, that's impossible when the structural transformation of the digital age affects various spheres of the international community differently. In Europe and America, digital media always leads to new cul-de-sacs and roundabouts of communication. Social networks claim to be not only the successors of salons, they evoke the ominous metaphysical principle of the Weltgeist (global mind), while they actually reduce the principle of intellectual eruptions in salons to a de-intellectualized white noise.

Salon of the 21st century: the literary agent John Brockman (Center, with Hat) in the circle of the scientists of the Edge network during one of his legendary weekends at Eastover Farm in Connecticut.

In emerging and developing countries on the other hand, the use of digital media has indeed made Habermas's structural transformation of the public possible, in much the same way as in the Europe of the Enlightenment in terms of the salons and the early mass media. In countries like Iran, Egypt or the Ukraine, each change begins with dangerous ideas, because if ideas are to make a difference, they must be dangerous.

This was no different in the early salons. If the great intellectuals and artists of the time met in the literary salons, it was by no means solely to discuss questions of aesthetics or literary forms. In the late 18th century salons of the woman of letters Caroline Schelling, for example, in Mainz and Göttingen, were collecting revolutionary spirits who took a stand in Paris, at the dawn of a new era that brought the demise of the monarchy. Caroline Schelling was arrested, slandered, vilified, but it did not change the fact that, under her leadership, the Jacobins eventually formed in Germany as well as a force opposing the monarchy and empire.

This is the very reason that an autocracy such as China uses its power to promote the social concept of the individual, because a single individual cannot spread dangerous ideas. This fear of the power of networks also explains the unusually harsh persecution of religious communities. It's bad enough that faith calls into question the sovereignty of the party on thinking. However there is a danger for power is also lurking in the networks of churches and monasteries. Faith calls into questions the sovereignty of the party line of thinking and thoughts. Danger lurks for those in power in the networks of churches and monasteries.

In the birthplaces of the enlightenment, in America and Europe, the current struggle for sovereignty over interpretation is not a political fight though—this has dissolved since the end of ideologies in countless, often regional micro-conflicts. Similarly, the battle between religion and science has been in play for a long time. Yet it is science that challenges the certainties.

The Internet has the possibility to enlarge the circle of great minds that exchange ideas ad infinitum. To not get lost in the vastness of cyberspace, thinkers and creators have started to meet again on a regular basis for various new forms of salons like DLD; the Aspen Ideas Forum or the TED Conference. What started as an elite gathering of Silicon Valley pioneers thirty years ago has turned into a global forum of ideas, which are spread via internet videos of lectures and talks. Twice a year about a thousand scientists, artists, activist and entrepreneur come together in one place like Monterey, Vancouver, Oxford or Rio, to learn about new ideas "worth spreading" to quote the motto of the conference. In a lot of cases, such ideas will have an impact on the world for years on end.

At this point, the memory of that summer day in Connecticut comes into focus, and the moment when the scientists asking questions about the origin of life talked about their research and projects. Craig Venter told of his plans to develop bacteria that could supplant fossil fuels as an energy source. George Church described the sequencing of the genome of the Mammoth. Dimitar Sasselov reported by his search for Earth-like planets. Seth Lloyd explained the unprecedented opportunities of the quantum computer.  What, for the onlookers under the maple trees only a few years ago sounded like science fiction, is today, to a large extent, scientific reality.

In the New York of the 1960s, hardly anyone understood the network of eccentric artist Andy Warhol, as seen here with John Brockman (left) and Bob Dylan (right) in the "Factory", a hybrid of salon, studio, and party room.

Of course, John Brockman long ago put his salon online. Leading scientists, artists, prominent intellectuals, regularly meet on his edge.org website to have a conversation about the issues of our time. Annually, there is a concerted action in which he asks the entire network a big question. Eight years ago, the following was central issue for this salon culture: "What is your most dangerous idea?" More than a hundred responses were submitted and published. It reads like intellectual fireworks. In your own head, you quickly feel for yourself how ideas clash, release energy and generate new ideas. It is then that you experience the intellectual thrill that has always inspired the salons.

In the meantime, Brockman's arena of ideas has sparked countless likeminded gatherings of all scales and fields. Conferences have been established as a distinct independent form of communication, because the network tends to be significantly more effective and fruitful beyond the Internet. Other than the observable external format, events such as the TED Conferences, the Aspen Ideas Festival, PopTech, or the Digital Life Design (DLD), have little in common with the congresses and meetings of old. They have long since become the new crucibles in the history of ideas. Especially the American TED Conference has shown in recent years the way in the salon of the 21st century can evolve. What started in 1984 as a meeting of Silicon Valley elites under the banner "Technology, Entertainment, Design", is now a global network that utilizes all channels of communication—conferences, online videos, books, TV, radio, blogs to make ideas blossom and develop on a global scale. Twice a year, a small circle from this large network meets in a cosmopolitan city ... in the spirit of the salons of yesteryear.

Inside the Koch Brothers' Toxic Empire (via Rolling Stone)

Tim Dickinson, writing for Rolling Stone, has created an in-depth and highly relevant portrait of the Koch brothers, the most powerful men in conservative politics. They are incredibly wealthy - so much so that the teaser line for this article accuses them of buying the American political system.

The question, then, is how they made their fortune - and it's not a pretty tale.

Inside the Koch Brothers' Toxic Empire

By Tim Dickinson | September 24, 2014
Illustration by Victor Juhasz

Together, Charles and David Koch control one of the world's largest fortunes, which they are using to buy up our political system. But what they don't want you to know is how they made all that money

THE ENORMITY of the Koch fortune is no mystery. Brothers Charles and David are each worth more than $40 billion. The electoral influence of the Koch brothers is similarly well-chronicled. The Kochs are our homegrown oligarchs; they've cornered the market on Republican politics and are nakedly attempting to buy Congress and the White House. Their political network helped finance the Tea Party and powers today's GOP. Koch-affiliated organizations raised some $400 million during the 2012 election, and aim to spend another $290 million to elect Republicans in this year's midterms. So far in this cycle, Koch-backed entities have bought 44,000 political ads to boost Republican efforts to take back the Senate.

Related:

• Three New Ways the Koch Brothers Are Screwing America
• The Koch Brothers – Exposed!

What is less clear is where all that money comes from. Koch Industries is headquartered in a squat, smoked-glass building that rises above the prairie on the outskirts of Wichita, Kansas. The building, like the brothers' fiercely private firm, is literally and figuratively a black box. Koch touts only one top-line financial figure: $115 billion in annual revenue, as estimated by Forbes. By that metric, it is larger than IBM, Honda or Hewlett-Packard and is America's second-largest private company after agribusiness colossus Cargill. The company's stock response to inquiries from reporters: "We are privately held and don't disclose this information."

But Koch Industries is not entirely opaque. The company's troubled legal history – including a trail of congressional investigations, Department of Justice consent decrees, civil lawsuits and felony convictions – augmented by internal company documents, leaked State Department cables, Freedom of Information disclosures and company whistle­-blowers, combine to cast an unwelcome spotlight on the toxic empire whose profits finance the modern GOP.

Under the nearly five-decade reign of CEO Charles Koch, the company has paid out record civil and criminal environmental penalties. And in 1999, a jury handed down to Koch's pipeline company what was then the largest wrongful-death judgment of its type in U.S. history, resulting from the explosion of a defective pipeline that incinerated a pair of Texas teenagers.

The volume of Koch Industries' toxic output is staggering. According to the University of Massachusetts Amherst's Political Economy Research Institute, only three companies rank among the top 30 polluters of America's air, water and climate: ExxonMobil, American Electric Power and Koch Industries. Thanks in part to its 2005 purchase of paper-mill giant Georgia-Pacific, Koch Industries dumps more pollutants into the nation's waterways than General Electric and International Paper combined. The company ranks 13th in the nation for toxic air pollution. Koch's climate pollution, meanwhile, outpaces oil giants including Valero, Chevron and Shell. Across its businesses, Koch generates 24 million metric tons of greenhouse gases a year.

For Koch, this license to pollute amounts to a perverse, hidden subsidy. The cost is borne by communities in cities like Port Arthur, Texas, where a Koch-owned facility produces as much as 2 billion pounds of petrochemicals every year. In March, Koch signed a consent decree with the Department of Justice requiring it to spend more than $40 million to bring this plant into compliance with the Clean Air Act.

The toxic history of Koch Industries is not limited to physical pollution. It also extends to the company's business practices, which have been the target of numerous federal investigations, resulting in several indictments and convictions, as well as a whole host of fines and penalties.

And in one of the great ironies of the Obama years, the president's financial-regulatory reform seems to benefit Koch Industries. The company is expanding its high-flying trading empire precisely as Wall Street banks – facing tough new restrictions, which Koch has largely escaped – are backing away from commodities speculation.

IT IS OFTEN said that the Koch brothers are in the oil business. That's true as far as it goes – but Koch Industries is not a major oil producer. Instead, the company has woven itself into every nook of the vast industrial web that transforms raw fossil fuels into usable goods. Koch-owned businesses trade, transport, refine and process fossil fuels, moving them across the world and up the value chain until they become things we forgot began with hydrocarbons: fertilizers, Lycra, the innards of our smartphones.

The company controls at least four oil refineries, six ethanol plants, a natural-gas-fired power plant and 4,000 miles of pipeline. Until recently, Koch refined roughly five percent of the oil burned in America (that percentage is down after it shuttered its 85,000-barrel-per-day refinery in North Pole, Alaska, owing, in part, to the discovery that a toxic solvent had leaked from the facility, fouling the town's groundwater). From the fossil fuels it refines, Koch also produces billions of pounds of petrochemicals, which, in turn, become the feedstock for other Koch businesses. In a journey across Koch Industries, what enters as a barrel of West Texas Intermediate can exit as a Stainmaster carpet.

Koch's hunger for growth is insatiable: Since 1960, the company brags, the value of Koch Industries has grown 4,200-fold, outpacing the Standard & Poor's index by nearly 30 times. On average, Koch projects to double its revenue every six years. Koch is now a key player in the fracking boom that's vaulting the United States past Saudi Arabia as the world's top oil producer, even as it's endangering America's groundwater. In 2012, a Koch subsidiary opened a pipeline capable of carrying 250,000 barrels a day of fracked crude from South Texas to Corpus Christi, where the company owns a refinery complex, and it has announced plans to further expand its Texas pipeline operations. In a recent acquisition, Koch bought Frac-Chem, a top provider of hydraulic fracturing chemicals to drillers. Thanks to the Bush administration's anti-regulatory­ agenda – which Koch Industries helped craft – Frac-Chem's chemical cocktails, injected deep under the nation's aquifers, are almost entirely exempt from the Safe Drinking Water Act.

A 1996 explosion of a Koch-owned pipeline in Texas killed two teens. 

(Photo: National Transportation Safety Board)

Koch is also long on the richest – but also the dirtiest and most carbon-polluting – oil deposits in North America: the tar sands of Alberta. The company's Pine Bend refinery, near St. Paul, Minnesota, processes nearly a quarter of the Canadian bitumen exported to the United States – which, in turn, has created for Koch Industries a lucrative sideline in petcoke exports. Denser, dirtier and cheaper than coal, petcoke is the dregs of tar-sands refining. U.S. coal plants are largely forbidden from burning petcoke, but it can be profitably shipped to countries with lax pollution laws like Mexico and China. One of the firm's subsidiaries, Koch Carbon, is expanding its Chicago terminal operations to receive up to 11 million tons of petcoke for global export. In June, the EPA noted the facility had violated the Clean Air Act with petcoke particulates that endanger the health of South Side residents. "We dispute that the two elevated readings" behind the EPA notice of violation "are violations of anything," Koch's top lawyer, Mark Holden, told Rolling Stone, insisting that Koch Carbon is a good neighbor.

Over the past dozen years, the company has quietly acquired leases for 1.1 million acres of Alberta oil fields, an area larger than Rhode Island. By some estimates, Koch's direct holdings nearly double ExxonMobil's and nearly triple Shell's. In May, Koch Oil Sands Operating LLC of Calgary, Alberta, sought permits to embark on a multi-billion­dollar tar-sands-extraction operation. This one site is projected to produce 22 million barrels a year – more than a full day's supply of U.S. oil.

CHARLES KOCH, the 78-year-old CEO and chairman of the board of Koch Industries, is inarguably a business savant. He presents himself as a man of moral clarity and high integrity. "The role of business is to produce products and services in a way that makes people's lives better," he said recently. "It cannot do so if it is injuring people and harming the environment in the process."

The Koch family's lucrative blend of pollution, speculation, law-bending and self-righteousness stretches back to the early 20th century, when Charles' father first entered the oil business. Fred C. Koch was born in 1900 in Quanah, Texas – a sunbaked patch of prairie across the Red River from Oklahoma. Fred was the second son of Hotze "Harry" Koch, a Dutch immigrant who – as recalled in Koch literature – ran "a modest newspaper business" amid the dusty poverty of Quanah. In the family legend, Fred Koch emerged from the nothing of the Texas range to found an empire. But like many stories the company likes to tell about itself, this piece of Koch­lore takes liberties with the truth. Fred was not a simple country boy, and his father was not just a small-town publisher. Harry Koch was also a local railroad baron who used his newspaper to promote the Quanah, Acme & Pacific railways. A director and founding shareholder of the company, Harry sought to build a rail line across Texas to El Paso. He hoped to turn Quanah into "the most important railroad center in northwest Texas and a metropolitan city of first rank." He may not have fulfilled those ambitions, but Harry did build up what one friend called "a handsome pile of dinero."

Harry was not just the financial springboard for the Koch dynasty, he was also its wellspring of far-right politics. Harry editorialized against fiat money, demanded hangings for "habitual criminals" and blasted Social Security as inviting sloth. At the depths of the Depression, he demanded that elected officials in Washington should stop trying to fix the economy: "Business," he wrote, "has always found a way to overcome various recessions."

In the company's telling, young Fred was an innovator whose inventions helped revolutionize the oil industry. But there is much more to this story. In its early days, refining oil was a dirty and wasteful practice. But around 1920, Universal Oil Products introduced a clean and hugely profitable way to "crack" heavy crude, breaking it down under heat and heavy pressure to boost gasoline yields. In 1925, Fred, who earned a degree in chemical engineering from MIT, partnered with a former Universal engineer named Lewis Winkler and designed a near carbon copy of the Universal cracking apparatus – making only tiny, unpatentable tweaks. Relying on family connections, Fred soon landed his first client – an Oklahoma refinery owned by his maternal uncle L.B. Simmons. In a flash, Winkler-Koch Engineering Co. had contracts to install its knockoff cracking equipment all over the heartland, undercutting Universal by charging a one-time fee rather than ongoing royalties.

It was a boom business. That is, until Universal sued in 1929, accusing Winkler­Koch of stealing its intellectual property. With his domestic business tied up in court, Fred started looking for partners abroad and was soon doing business in the Soviet Union, where leader Joseph Stalin had just launched his first Five Year Plan. Stalin sought to fund his country's industrialization by selling oil into the lucrative European export market. But the Soviet Union's reserves were notoriously hard to refine. The USSR needed cracking technology, and the Oil Directorate of the Supreme Council of the National Economy took a shining to Winkler-Koch – primarily because Koch's oil-industry competitors were reluctant to do business with totalitarian Communists.

Outside its London offices, protesters gather. 

(Photo: P.Wolmuth/REPORT DIGITAL-REA/Re)

Between 1929 and 1931, Winkler-Koch built 15 cracking units for the Soviets. Although Stalin's evil was no secret, it wasn't until Fred visited the Soviet Union, that these dealings seemed to affect his conscience. "I went to the USSR in 1930 and found it a land of hunger, misery and terror," he would later write. Even so, he agreed to give the Soviets the engineering know-how they would need to keep building more.

Back home, Fred was busy building a life of baronial splendor. He met his wife, Mary, the Wellesley-educated daughter of a Kansas City surgeon, on a polo field and soon bought 160 acres across from the Wichita Country Club, where they built a Tudor­style mansion. As chronicled in Sons of Wichita, Daniel Schulman's investigation of the Koch dynasty, the compound was quickly bursting with princes: Frederick arrived in 1933, followed by Charles in 1935 and twins David and Bill in 1940. Fred Koch lorded over his domain. "My mother was afraid of my father," said Bill, as were the four boys, especially first-born Frederick, an artistic kid with a talent for the theater. "Father wanted to make all his boys into men, and Freddie couldn't relate to that regime," Charles recalled. Frederick got shipped East to boarding school and was all but disappeared from Wichita.

With Frederick gone, Charles forged a deep alliance with David, the more athletic and assertive of the young twins. "I was closer with David because he was better at everything," Charles has said.

Fred Koch's legal battle with Universal would drag on for nearly a quarter-century. In 1934, a lower court ruled that Winkler-Koch had infringed on Universal's technology. But that judgment would be vacated, after it came out in 1943 that Universal had bought off one of the judges­ handling the appeal. A year later, the Supreme Court decided that Fred's cracker, by virtue of small technical differences, did not violate the Universal patent. Fred countersued on antitrust grounds, arguing that Universal had wielded patents anti-competitively. He'd win a $1.5 million settlement in 1952.

Around that time, Fred had built a domestic oil empire under a new company eventually called Rock Island Oil & Refining, transporting crude from wellheads to refineries by truck or by pipe. In those later years, Fred also became a major benefactor and board member of the John Birch Society, the rabidly anti-communist organization founded in 1958 by candy magnate and virulent racist Robert Welch. Bircher publications warned that the Red endgame was the creation of the "Negro Soviet­ Republic" in the Deep South. In his own writing, Fred described integration as a Red plot to "enslave both the white and black man."

Like his father, Charles Koch attended MIT. After he graduated in 1959 with two master's degrees in engineering, his father issued an ultimatum: Come back to Wichita or I'll sell the business. "Papa laid it on the line," recalled David. So Charles returned home, immersing himself in his father's world – not simply joining the John Birch Society, but also opening a Bircher bookstore. The Birchers had high hopes for young Charles. As Koch family friend Robert Love wrote in a letter to Welch: "Charles Koch can, if he desires, finance a large operation, however, he must continually be brought along."

But Charles was already falling under the sway of a charismatic radio personality named Robert LeFevre, founder of the Freedom School, a whites-only­ libertarian boot camp in the foothills above Colorado Springs, Colorado. LeFevre preached a form of anarchic capitalism in which the individual should be freed from almost all government power. Charles soon had to make a choice. While the Birchers supported the Vietnam War, his new guru was a pacifist who equated militarism with out-of-control state power. LeFevre's stark influence on Koch's thinking is crystallized in a manifesto Charles wrote for the Libertarian Review in the 1970s, recently unearthed by Schulman, titled "The Business Community: Resisting Regulation." Charles lays out principles that gird today's Tea Party movement. Referring to regulation as "totalitarian," the 41-year-old Charles claimed business leaders had been "hoodwinked" by the notion that regulation is "in the public interest." He advocated the "barest possible obedience" to regulation and implored, "Do not cooperate voluntarily, instead, resist whenever and to whatever extent you legally can in the name of justice."

After his father died in 1967, Charles, now in command of the family business, renamed it Koch Industries. It had grown into one of the 10 largest privately owned firms in the country, buying and selling some 80 million barrels of oil a year and operating 3,000 miles of pipeline. A black-diamond skier and white-water kayaker, Charles ran the business with an adrenaline junkie's aggressiveness. The company would build pipelines to promising oil fields without a contract from the producers and park tanker trucks beside wildcatters' wells, waiting for the first drops of crude to flow. "Our willingness to move quickly, absorb more risk," Charles would write, "enabled us to become the leading crude-oil­gathering company."

Charles also reconnected with one of his father's earliest insights: There's big money in dirty oil. In the late 1950s, Fred Koch had bought a minority stake in a Minnesota refinery that processed heavy Canadian crude. "We could run the lousiest crude in the world," said his business partner J. Howard Marshall II – the future Mr. Anna Nicole Smith. Sensing an opportunity for huge profits, Charles struck a deal to convert Marshall's ownership stake in the refinery into stock in Koch Industries. Suddenly the majority owner, the company soon bought the rest of the refinery outright.

Almost from the beginning, Koch Industries' risk-taking crossed over into recklessness. The OPEC oil embargo hit the company hard. Koch had made a deal giving the company the right to buy a large share of Qatar's export crude. At the time, Koch owned five supertankers and had chartered many others. When the embargo hit, Koch had upward of half a billion dollars in exposure to tankers and couldn't deliver OPEC oil to the U.S. market, creating what Charles has called "large losses." Soon, Koch Industries was caught overcharging American customers. The Ford administration in the summer of 1974 compelled Koch to pay out more than $20 million in rebates and future price reductions.

Koch Industries' manipulations were about to get more audacious. In the late 1970s, the federal government parceled out exploration tracts, using a lottery in which anyone could score a 10-year lease at just $1 an acre – a game of chance that gave wildcat prospectors the same shot as the biggest players. Koch didn't like these odds, so it enlisted scores of frontmen to bid on its behalf. In the event they won the lottery, they would turn over their leases to the company. In 1980, Koch Industries pleaded guilty to five felonies in federal court, including conspiracy to commit fraud.

The Koch family, mid-1950s. 

(Photo: Wichita State University Libraries)

With Republicans and Democrats united in regulating the oil business, Charles had begun throwing his wealth behind the upstart Libertarian Party, seeking to transform it into a viable third party. Over the years, he would spend millions propping up a league of affiliated think tanks and front groups – a network of Libertarians that became known as the "Kochtopus."

Charles even convinced David to stand as the Libertarian Party's vice-presidential candidate in 1980 – a clever maneuver that allowed David to lavish unlimited money on his own ticket. The Koch-funded 1980 platform was nakedly in the brothers' self-interest – slashing federal regulatory agencies, offering a 50 percent tax break to top earners, ending the "cruel and unfair" estate tax and abolishing a $16 billion "windfall profits" tax on the oil industry. The words of Libertarian presidential candidate Ed Clark's convention speech in Los Angeles ring across the decades: "We're sick of taxes," he declared. "We're ready to have a very big tea party." In a very real sense, the modern Republican Party was on the ballot that year – and it was running against Ronald Reagan.

Charles' management style and infatuation with far-right politics were endangering his grip on the company. Bill believed his brothers' political spending was bad for business. "Pretty soon, we would get the reputation that the company and the Kochs were crazy," he said.

In late 1980, with Frederick's backing, Bill launched an unsuccessful battle for control of Koch Industries, aiming to take the company public. Three years later, Charles and David bought out their brothers for $1.1 billion. But the speed with which Koch Industries paid off the buyout debt left Bill convinced, but never quite able to prove, he'd been defrauded. He would spend the next 18 years suing his brothers, calling them "the biggest crooks in the oil industry."

Bill also shared these concerns with the federal government. Thanks in part to his efforts, in 1989 a Senate committee investigating Koch business with Native Americans would describe Koch Oil tactics as "grand larceny." In the late 1980s, Koch was the largest purchaser of oil from American tribes. Senate investigators suspected the company was making off with more crude from tribal oil fields than it measured and paid for. They set up a sting, sending an FBI agent to coordinate stakeouts of eight remote leases. Six of them were Koch operations, and the agents reported "oil theft" at all of them.

One of Koch's gaugers would refer to this as "volume enhancement." But in sworn testimony before a Texas jury, Phillip Dubose, a former Koch pipeline manager, offered a more succinct definition: "stealing." The Senate committee concluded that over the course of three years Koch "pilfered" $31 million in Native oil; in 1988, the value of that stolen oil accounted for nearly a quarter of the company's crude-oil profits. "I don't know how the company could have figures like that," the FBI agent testified, "and not have top management know that theft was going on." In his own testimony, Charles offered that taking oil readings "is a very uncertain art" and that his employees "aren't rocket scientists." Koch's top lawyer would later paint the company as a victim of Senate "McCarthyism."

By this time, the Kochs had soured on the Libertarian Party, concluding that control of a small party would never give them the muscle they sought in the nation's capital. Now they would spend millions in efforts to influence – and ultimately take over – the GOP. The work began close to home; the Kochs had become dedicated patrons of Sen. Bob Dole of Kansas, who ran interference for Koch Industries in Washington. On the Senate floor in March 1990, Dole gloatingly cautioned against a "rush to judgment" against Koch, citing "very real concerns about some of the evidence on which the special committee was basing its findings." A grand jury investigated the claims but disbanded in 1992, without issuing indictments.

Arizona Sen. Dennis DeConcini was "surprised and disappointed" at the decision to drop the case. "Our investigation was some of the finest work the Senate has ever done," he said. "There was an overwhelming case against Koch." But Koch did not avoid all punishment. Under the False Claims Act, which allows private citizens to file lawsuits on behalf of the government, Bill sued the company, accusing it of defrauding the feds of royalty income on its "volume­enhanced" purchases of Native oil. A jury concluded Koch had submitted more than 24,000 false claims, exposing Koch to some $214 million in penalties. Koch later settled, paying $25 million.

Self­interest continued to define Koch Industries' adventures in public policy. In the early 1990s, in a high-profile initiative of the first-term Clinton White House, the administration was pushing for a levy on the heat content of fuels. Known as the BTU tax, it was the earliest attempt by the federal government to recoup damages from climate polluters. But Koch Industries could not stand losing its most valuable subsidy: the public policy that allowed it to treat the atmosphere as an open sewer. Richard Fink, head of Koch Company's Public Sector and the longtime mastermind of the Koch brothers' political empire, confessed to The Wichita Eagle in 1994 that Koch could not compete if it actually had to pay for the damage it did to the environment: "Our belief is that the tax, over time, may have destroyed our business."

To fight this threat, the Kochs funded a "grassroots" uprising – one that foreshadowed the emergence, decades later, of the Tea Party. The effort was run through Citizens for a Sound Economy, to which the brothers had spent a decade giving nearly $8 million to create what David Koch called "a sales force" to communicate the brothers' political agenda through town hall meetings and anti-tax rallies designed to look like spontaneous demonstrations. In 1994, David Koch bragged that CSE's campaign "played a key role in defeating the administration's plans for a huge and cumbersome BTU tax."

DESPITE the company's increasingly sophisticated political and public-relations operations, Charles' philosophy of regulatory resistance was about to bite Koch Industries – in the form of record civil and criminal financial penalties imposed by the Environmental Protection Agency.

Koch entered the 1990s on a pipeline-buying spree. By 1994, its network measured 37,000 miles. According to sworn testimony from former Koch employees, the company operated its pipelines with almost complete disregard for maintenance. As Koch employees understood it, this was in keeping with their CEO's trademarked business philosophy, Market­Based Management.

For Charles, MBM – first communicated to employees in 1991 – was an attempt to distill the business practices that had grown Koch into one of the largest oil businesses in the world. To incentivize workers, Koch gives employees bonuses that correlate to the value they create for the company. "Salary is viewed only as an advance on compensation for value," Koch wrote, "and compensation has an unlimited upside."

To prevent the stagnation that can often bog down big enterprises, Koch was also determined to incentivize risk-taking. Under MBM, Koch Industries books opportunity costs – "profits foregone from a missed opportunity" – as though they were actual losses on the balance sheet. Koch employees who play it safe, in other words, can't strike it rich.

On paper, MBM sounds innovative and exciting. But in Koch's hyperaggressive corporate culture, it contributed to a series of environmental disasters. Applying MBM to pipeline maintenance, Koch employees calculated that the opportunity cost of shutting down equipment to ensure its safety was greater than the profit potential of pushing aging pipe to its limits.

The fact that preventive pipeline maintenance is required by law didn't always seem to register. Dubose, a 26-year Koch veteran who oversaw pipeline areas in Louisiana, would testify about the company's lax attitude toward maintenance. "It was a question of money. It would take away from our profit margin." The testimony of another pipeline manager would echo that of Dubose: "Basically, the philosophy was 'If it ain't broke, don't work on it.'"

When small spills occurred, Dubose testified, the company would cover them up. He recalled incidents in which the company would use the churn of a tugboat's engine to break up waterborne spills and "just kind of wash that thing on down, down the river." On land, Dubose said, "They might pump it [the leaked oil] off into a drum, then take a shovel and just turn the earth over." When larger spills were reported to authorities, the volume of the discharges was habitually low-balled, according to Dubose.

Managers pressured employees to falsify pipeline-maintenance records filed with federal authorities; in a sworn affidavit, pipeline worker Bobby Conner recalled arguments with his manager over Conner's refusal to file false reports: "He would always respond with anger," Conner said, "and tell me that I did not know how to be a Koch employee." Conner was fired and later settled a wrongful-termination suit with Koch Gateway Pipeline. Dubose testified that Charles was not in the dark about the company's operations. "He was in complete control," Dubose said. "He was the one that was line-driving this Market-Based Management at meetings."

Before the worst spill from this time, Koch employees had raised concerns about the integrity of a 1940s-era pipeline in South Texas. But the company not only kept the line in service, it increased the pressure to move more volume. When a valve snapped shut in 1994, the brittle pipeline exploded. More than 90,000 gallons of crude spewed into Gum Hollow Creek, fouling surrounding marshlands and both Nueces and Corpus Christi bays with a 12-mile oil slick.

By 1995, the EPA had seen enough. It sued Koch for gross violations of the Clean Water Act. From 1988 through 1996, the company's pipelines spilled 11.6 million gallons of crude and petroleum products. Internal Koch records showed that its pipelines were in such poor condition that it would require $98 million in repairs to bring them up to industry standard.

Ultimately, state and federal agencies forced Koch to pay a $30 million civil penalty – then the largest in the history of U.S. environmental law – for 312 spills across six states. Carol Browner, the former EPA administrator, said of Koch, "They simply did not believe the law applied to them." This was not just partisan rancor. Texas Attorney General John Cornyn, the future Republican senator, had joined the EPA in bringing suit against Koch. "This settlement and penalty warn polluters that they cannot treat oil spills simply as the cost of doing business," Cornyn said. (The Kochs seem to have no hard feelings toward their one-time tormentor; a lobbyist for Koch was the number-two bundler for Cornyn's primary campaign this year.)

Koch wasn't just cutting corners on its pipelines. It was also violating federal environmental law in other corners of the empire. Through much of the 1990s at its Pine Bend refinery in Minnesota, Koch spilled up to 600,000 gallons of jet fuel into wetlands near the Mississippi River. Indeed, the company was treating the Mississippi as a sewer, illegally dumping ammonia-laced wastewater into the river – even increasing its discharges on weekends when it knew it wasn't being monitored. Koch Petroleum Group eventually pleaded guilty to "negligent discharge of a harmful quantity of oil" and "negligent violation of the Clean Water Act," was ordered to pay a $6 million fine and $2 million in remediation costs, and received three years' probation. This facility had already been declared a Superfund site in 1984.

In 2000, Koch was hit with a 97-count indictment over claims it violated the Clean Air Act by venting massive quantities of benzene at a refinery in Corpus Christi – and then attempted to cover it up. According to the indictment, Koch filed documents with Texas regulators indicating releases of just 0.61 metric tons of benzene for 1995 – one-tenth of what was allowed under the law. But the government alleged that Koch had been informed its true emissions that year measured 91 metric tons, or 15 times the legal limit.

Charles Koch 

(Photo: Larry W. Smith / Polaris)

By the time the case came to trial, however, George W. Bush was in office and the indictment had been significantly pared down – Koch faced charges on only seven counts. The Justice Department settled in what many perceived to be a sweetheart deal, and Koch pleaded guilty to a single felony count for covering up the fact that it had disconnected a key pollution-control device and did not measure the resulting benzene emissions – receiving five years' probation. Despite skirting stiffer criminal prosecution, Koch was handed $20 million in fines and reparations – another historic judgment.

ON THE DAY before Danielle Smalley was to leave for college, she and her friend Jason Stone were hanging out in her family's mobile home. Seventeen years old, with long chestnut hair, Danielle began to feel nauseated. "Dad," she said, "we smell gas." It was 3:45 in the afternoon on August 24th, 1996, near Lively, Texas, some 50 miles southeast of Dallas. The Smalleys were too poor to own a telephone. So the teens jumped into her dad's 1964 Chevy pickup to alert the authorities. As they drove away, the truck stalled where the driveway crossed a dry creek bed. Danielle cranked the ignition, and a fireball engulfed the truck. "You see two children burned to death in front of you – you never forget that," Danielle's father, Danny, would later tell reporters.

Unknown to the Smalleys, a decrepit Koch pipeline carrying liquid butane – literally, lighter fluid – ran through their subdivision. It had ruptured, filling the creek bed with vapor, and the spark from the pickup's ignition had set off a bomb. Federal investigators documented both "severe corrosion" and "mechanical damage" in the pipeline. A National Transportation Safety Board report would cite the "failure of Koch Pipeline Company LP to adequately protect its pipeline from corrosion."

Installed in the early Eighties, the pipeline had been out of commission for three years. When Koch decided to start it up again in 1995, a water-pressure test had blown the pipe open. An inspection of just a few dozen miles of pipe near the Smal­ley home found 538 corrosion defects. The industry's term of art for a pipeline in this condition is Swiss cheese, according to the testimony of an expert witness – "essentially the pipeline is gone."

Koch repaired only 80 of the defects – enough to allow the pipeline to withstand another pressure check – and began running explosive fluid down the line at high pressure in January 1996. A month later, employees discovered that a key anti­corrosion system had malfunctioned, but it was never fixed. Charles Koch had made it clear to managers that they were expected to slash costs and boost profits. In a sternly worded memo that April, Charles had ordered his top managers to cut expenditures by 10 percent "through the elimination of waste (I'm sure there is much more waste than that)" in order to increase pre-tax earnings by $550 million a year.

The Smalley trial underscored something Bill Koch had said about the way his brothers ran the company: "Koch Industries has a philosophy that profits are above everything else." A former Koch manager, Kenoth Whitstine, testified to incidents in which Koch Industries placed profits over public safety. As one supervisor had told him, regulatory fines "usually didn't amount to much" and, besides, the company had "a stable full of lawyers in Wichita that handled those situations." When Whitstine told another manager he was concerned that unsafe pipelines could cause a deadly accident, this manager said that it was more profitable for the company to risk litigation than to repair faulty equipment. The company could "pay off a lawsuit from an incident and still be money ahead," he said, describing the principles of MBM to a T.

At trial, Danny Smalley asked for a judgment large enough to make the billionaires feel pain: "Let Koch take their child out there and put their children on the pipeline, open it up and let one of them die," he told the jury. "And then tell me what that's worth." The jury was emphatic, awarding Smalley $296 million – then the largest wrongful-death judgment in American legal history. He later settled with Koch for an undisclosed sum and now runs a pipeline-safety foundation in his daughter's name. He declined to comment for this story. "It upsets him too much," says an associate.

THE OFFICIAL Koch line is that scandals that caused the company millions in fines, judgments and penalties prompted a change in Charles' attitude of regulatory resistance. In his 2007 book, The Science of Success, he begrudgingly acknowledges his company's recklessness. "While business was becoming increasingly regulated," he reflects, "we kept thinking and acting as if we lived in a pure market economy. The reality was far different."

Charles has since committed Koch Industries to obeying federal regulations. "Even when faced with laws we think are counterproductive," he writes, "we must first comply." Underscoring just how out of bounds Koch had ventured in its corporate culture, Charles admits that "it required a monumental undertaking to integrate compliance into every aspect of the company." In 2000, Koch Petroleum Group entered into an agreement with the EPA and the Justice Department to spend $80 million at three refineries to bring them into compliance with the Clean Air Act. After hitting Koch with a $4.5 million penalty, the EPA granted the company a "clean slate" for certain past violations.

Then George W. Bush entered the White House in 2001, his campaign fattened with Koch money. Charles Koch may decry cronyism as "nothing more than welfare for the rich and powerful," but he put his company to work, hand in glove, with the Bush White House. Correspondence, contacts and visits among Koch Industries representatives and the Bush White House generated nearly 20,000 pages of records, according to a Rolling Stone FOIA request of the George W. Bush Presidential Library. In 2007, the administration installed a fiercely anti-regulatory academic, Susan Dudley, who hailed from the Koch-funded Mercatus Center at George Mason University, as its top regulatory official.

Today, Koch points to awards it has won for safety and environmental excellence. "Koch companies have a strong record of compliance," Holden, Koch's top lawyer, tells Rolling Stone. "In the distant past, when we failed to meet these standards, we took steps to ensure that we were building a culture of 10,000 percent compliance, with 100 percent of our employees complying 100 percent." To reduce its liability, Koch has also unwound its pipeline business, from 37,000 miles in the late 1990s to about 4,000 miles. Of the much smaller operation, he adds, "Koch's pipeline practice and operations today are the best in the industry."

But even as compliance began to improve among its industrial operations, the company aggressively expanded its trading activities into the Wild West frontier of risky financial instruments. In 2000, the Commodity Futures Modernization Act had exempted many of these products from regulation, and Koch Industries was among the key players shaping that law. Koch joined up with Enron, BP, Mobil and J. Aron – a division of Goldman Sachs then run by Lloyd Blankfein – in a collaboration called the Energy Group. This corporate alliance fought to prohibit the federal government from policing oil and gas derivatives. "The importance of derivatives for the Energy Group companies . . . cannot be overestimated," the group's lawyer wrote to the Commodity Futures Trading Commission in 1998. "The success of this business can be completely undermined by . . . a costly regulatory regime that has no place in the energy industry."

Koch had long specialized in "over-the-counter" or OTC trades – private, unregulated contracts not disclosed on any centralized exchange. In its own letter to the CFTC, Koch identified itself as "a major participant in the OTC derivatives market," adding that the company not only offered "risk-management tools for its customers" but also traded "for its own account." Making the case for what would be known as the Enron Loophole, Koch argued that any big firm's desire to "maintain a good reputation" would prevent "widespread abuses in the OTC derivatives market," a darkly hilarious claim, given what would become not only of Enron, but also Bear Stearns, Lehman Brothers and AIG.

The Enron Loophole became law in December 2000 – pushed along by Texas Sen. Phil Gramm, giving the Energy Group exactly what it wanted. "It completely exempted energy futures from regulation," says Michael Greenberger, a former director of trading and markets at the CFTC. "It wasn't a matter of regulators not enforcing manipulation or excessive speculation limits – this market wasn't covered at all. By law."

Before its spectacular collapse, Enron would use this loophole in 2001 to help engineer an energy crisis in California, artificially constraining the supply of natural gas and power generation, causing price spikes and rolling blackouts. This blatant and criminal market manipulation has become part of the legend of Enron. But Koch was caught up in the debacle. The CFTC would charge that a partnership between Koch and the utility Entergy had, at the height of the California crisis, reported fake natural-gas trades to reporting firms and also "knowingly reported false prices and/or volumes" on real trades.

One of 10 companies punished for such schemes, Entergy-Koch avoided prosecution by paying a $3 million fine as part of a 2004 settlement with the CFTC, in which it did not admit guilt to the commission's charges but is barred from maintaining its innocence.

David Koch 

(Photo: Alexis C. Glenn /Landov)

Trading, which had long been peripheral to the company's core businesses, soon took center stage. In 2002, the company launched a subsidiary, Koch Supply & Trading. KS&T got off to a rocky start. "A series of bad trades," writes a Koch insider, "boiled over in early 2004 when a large 'sure bet' crude-oil trade went south, resulting in a quick, multimillion loss." But Koch traders quickly adjusted to the reality that energy markets were no longer ruled just by supply and demand – but by rich speculators trying to game the market. Revamping its strategy, Koch Industries soon began bragging of record profits. From 2003 to 2012, KS&T trading volumes exploded – up 450 percent. By 2009, KS&T ranked among the world's top-five oil traders, and by 2011, the company billed itself as "one of the leading quantitative traders" – though Holden now says it's no longer in this business.

Since Koch Industries aggressively expanded into high finance, the net worth of each brother has also exploded – from roughly $4 billion in 2002 to more than $40 billion today. In that period, the company embarked on a corporate buying spree that has taken it well beyond petroleum. In 2005, Koch purchased Georgia Pacific for $21 billion, giving the company a familiar, expansive grip on the industrial web that transforms Southern pine into consumer goods – from plywood sold at Home Depot to brand-name products like Dixie Cups and Angel Soft toilet paper. In 2013, Koch leapt into high technology with the $7 billion acquisition of Molex, a manufacturer of more than 100,000 electronics components and a top supplier to smartphone makers, including Apple.

Koch Supply & Trading makes money both from physical trades that move oil and commodities across oceans as well as in "paper" trades involving nothing more than high-stakes bets and cash. In paper trading, Koch's products extend far beyond simple oil futures. Koch pioneered, for sale to hedge funds, "volatility swaps," in which the actual price of crude is irrelevant and what matters is only the "magnitude of daily fluctuations in prices." Steve Mawer, until recently the president of KS&T, described parts of his trading operation as "black-box stuff."

Like a casino that bets at its own craps table, Koch engages in "proprietary trading" – speculating for the company's own bottom line. "We're like a hedge fund and a dealer at the same time," bragged Ilia Bouchouev, head of Koch's derivatives trading in 2004. "We can both make markets and speculate." The company's many tentacles in the physical oil business give Koch rich insight into market conditions and disruptions that can inform its speculative bets. When oil prices spiked to record heights in 2008, Koch was a major player in the speculative markets, according to documents leaked by Vermont Sen. Bernie Sanders, with trading volumes rivaling Wall Street giants like Citibank. Koch rode a trader-driven frenzy – detached from actual supply and demand – that drove prices above $147 a barrel in July 2008, battering a global economy about to enter a free fall.

Only Koch knows how much money Koch reaped during this price spike. But, as a proxy, consider the $20 million Koch and its subsidiaries spent lobbying Congress in 2008 – before then, its biggest annual lobbying expense had been $5 million – seeking to derail a raft of consumer-protection bills, including the Federal Price Gouging Prevention Act, the Stop Excessive Energy Speculation Act of 2008, the Prevent Unfair Manipulation of Prices Act of 2008 and the Close the Enron Loophole Act.

In comments to the Federal Trade Commission, Koch lobbyists defended the company's right to rack up fantastic profits at the expense of American consumers. "A mere attempt to maximize profits cannot constitute market manipulation," they wrote, adding baldly, "Excessive profits in the face of shortages are desirable."

When the global economy crashed in 2008, so did oil prices. By December, crude was trading more than $100 lower per barrel than it had just months earlier – around $30. At the same time, oil traders anticipated that prices would eventually rebound. Futures contracts for delivery of oil in December 2009 were trading at nearly $55 per barrel. When future delivery is more valuable than present inventory, the market is said to be "in contango." Koch exploited the contango market to the hilt. The company leased nine supertankers and filled them with cut-rate crude and parked them quietly offshore in the Gulf of Mexico, banking virtually risk-free profits by selling contracts for future delivery.

All in, Koch took about 20 million barrels of oil off the market, putting itself in a position to bet on price disruptions the company itself was creating. Thanks to these kinds of trading efforts, Koch could boast in a 2009 review that "the performance of Koch Supply & Trading actually grew stronger last year as the global economy worsened." The cost for those risk-free profits was paid by consumers at the pump. Estimates pegged the cost of the contango trade by Koch and others at up to 40 cents a gallon.

ARTIFICIALLY constraining oil supplies is not the only source of dark, unregulated profit for Koch Industries. In the years after George W. Bush branded Iran a member of the "Axis of Evil," the Koch brothers profited from trade with the state sponsor of terror and reckless would-be nuclear power. For decades, U.S. companies have been forbidden from doing business with the Ayatollahs, but Koch Industries exploited a loophole in 1996 sanctions that made it possible for foreign subsidiaries of U.S. companies to do some business in Iran.

In the ensuing years, according to Bloomberg Markets, the German and Italian arms of Koch-Glitsch, a Koch subsidiary that makes equipment for oil fields and refineries, won lucrative contracts to supply Iran's Zagros plant, the largest methanol plant in the world. And thanks in part to Koch, methanol is now one of Iran's leading non-oil exports. "Every single chance they had to do business with Iran, or anyone else, they did," said Koch whistle-blower George Bentu. Having signed on to work for a company that lists "integrity" as its top value, Bentu added, "You feel totally betrayed. Everything Koch stood for was a lie."

Koch reportedly kept trading with Tehran until 2007 – after the regime was exposed for supplying IEDs to Iraqi insurgents killing U.S. troops. According to lawyer Holden, Koch has since "decided that none of its subsidiaries would engage in trade involving Iran, even where such trade is permissible under U.S. law."

These days, Koch's most disquieting foreign dealings are in Canada, where the company has massive investments in dirty tar sands. The company's 1.1 million acres of leases in northern Alberta contain reserves of economically recoverable oil numbering in the billions of barrels. With these massive leaseholdings, Koch is poised to continue profiting from Canadian crude whether or not the Keystone XL pipeline gains approval, says Andrew Leach, an energy and environmental economist at the business school of the University of Alberta.

Counterintuitively, approval of Keystone XL could actually harm one of Koch's most profitable businesses – its Pine Bend refinery in Minnesota. Because tar-sands crude presently has no easy outlet to the global market, there's a glut of Canadian oil in the midcontinent, and Koch's refinery is a beneficiary of this oversupply; the resulting discount can exceed $20 a barrel compared to conventional crude. If it is ever built, the Keystone XL pipeline will provide a link to Gulf Coast refineries – and thus the global export market, which would erase much of that discount and eat into company profit margins.

Leach says Koch Industries' tar-sands leaseholdings have them hedged against the potential approval of Keystone XL. The pipeline would increase the value of Canadian tar-sands deposits overnight. Koch could then profit handsomely by flipping its leases to more established producers. "Optimizing asset value through trading," Koch literature says of these and other holdings, is a "key" company strategy.

The one truly bad outcome for Koch would be if Keystone XL were to be defeated, as many environmentalists believe it must be. "If the signal that sends is that no new pipelines will be built across the U.S. border for carrying oil-sands product," Leach says, "that's going to have an impact not just on Koch leases, but on everybody's asset value in oil sands." Ironically, what's best for Koch's tar-sands interests is what the Obama administration is currently delivering: "They're actually ahead if Keystone XL gets delayed a while but hangs around as something that still might happen," Leach says.

THE DODD-FRANK bill was supposed to put an end to economy­endangering speculation in the $700 trillion global derivatives market. But Koch has managed to defend – and even expand – its turf, trading in largely unregulated derivatives, once dubbed "financial weapons of mass destruction" by billionaire Warren Buffett.

In theory, the Enron Loophole is no longer open – the government now has the power to police manipulation in the market for energy derivatives. But the Obama administration has not yet been able to come up with new rules that actually do so. In 2011, the CFTC mandated "position limits" on derivative trades of oil and other commodities. These would have blocked any single speculator from owning futures contracts representing more than a quarter of the physical market – reducing the danger of manipulation. As part of the International Swaps and Derivatives Association, which also reps many Wall Street giants including Goldman Sachs and JPMorgan Chase, Koch fought these new restrictions. ISDA sued to block the position limits – and won in court in September 2012. Two years later, CFTC is still spinning its wheels on a replacement. Industry traders like Koch are, Greenberger says, "essentially able to operate as though the Enron Loophole were still in effect."

Koch is also reaping the benefits from Dodd-Frank's impacts on Wall Street. The so-called Volcker Rule, implemented at the end of last year, bans investment banks from "proprietary trading" – investing on their own behalf in securities and derivatives. As a result, many Wall Street banks are unloading their commodities-trading units. But Volcker does not apply to nonbank traders like Koch. They're now able to pick up clients who might previously have traded with JPMorgan. In its marketing materials for its trading operations, Koch boasts to potential clients that it can provide "physical and financial market liquidity at times when others pull back." Koch also likely benefits from loopholes that exempt the company from posting collateral for derivatives trades and allow it to continue trading swaps without posting the transactions to a transparent electronic exchange. Though competitors like BP and Cargill have registered with the CFTC as swaps dealers – subjecting their trades to tightened regulation – Koch conspicuously has not. "Koch is compliant with all CFTC regulations, including those relating to swaps dealers," says Holden, the Koch lawyer.

That a massive company with such a troubling record as Koch Industries remains unfettered by financial regulation should strike fear in the heart of anyone with a stake in the health of the American economy. Though Koch has cultivated a reputation as an economically conservative company, it has long flirted with danger. And that it has not suffered a catastrophic loss in the past 15 years would seem to be as much about luck as about skillful management.

The Kochs have brushed up against some of the major debacles of the crisis years. In 2007, as the economy began to teeter, Koch was gearing up to plunge into the market for credit default swaps, even creating an affiliate, Koch Financial Products, for that express purpose. KFP secured a AAA rating from Moody's and reportedly sought to buy up toxic assets at the center of the financial crisis at up to 50-times leverage. Ultimately, Koch Industries survived the experiment without losing its shirt.

More recently, Koch was exposed to the fiasco at MF Global, the disgraced brokerage firm run by former New Jersey Gov. Jon Corzine that improperly dipped into customer accounts to finance reckless bets on European debt. Koch, one of MF Global's top clients, reportedly told trading partners it was switching accounts about a month before the brokerage declared bankruptcy – then the eighth-largest in U.S. history. Koch says the decision to pull its funds from MF Global was made more than a year before. While MF's small-fry clients had to pick at the carcass of Corzine's company to recoup their assets, Koch was already swimming free and clear.

Because it's private, no one outside of Koch Industries knows how much risk Koch is taking – or whether it could conceivably create systemic risk, a concern raised in 2013 by the head of the Futures Industry Association. But this much is for certain: Because of the loopholes in financial-regulatory reform, the next company to put the American economy at risk may not be a Wall Street bank but a trading giant like Koch. In 2012, Gary Gensler, then CFTC chair, railed against the very loopholes Koch appears to be exploiting, raising the specter of AIG. "[AIG] had this massive risk built up in its derivatives just because it called itself an insurance company rather than a bank," Gensler said. When Congress adopted Dodd-Frank, Gensler added, it never intended to exempt financial heavy hitters just because "somebody calls themselves an insurance

IN "the science of success," Charles Koch highlights the problems created when property owners "don't benefit from all the value they create and don't bear the full cost from whatever value they destroy." He is particularly concerned about the "tragedy of the commons," in which shared resources are abused because there's no individual accountability. "The biggest problems in society," he writes, "have occurred in those areas thought to be best controlled in common: the atmosphere, bodies of water, air. . . ."

But in the real world, Koch Industries has used its political might to beat back the very market-based mechanisms – including a cap-and-trade market for carbon pollution – needed to create the ownership rights for pollution that Charles says would improve the functioning of capitalism.

In fact, it appears the very essence of the Koch business model is to exploit breakdowns in the free market. Koch has profited precisely by dumping billions of pounds of pollutants into our waters and skies – essentially for free. It racks up enormous profits from speculative trades lacking economic value that drive up costs for consumers and create risks for our economy.

The Koch brothers get richer as the costs of what Koch destroys are foisted on the rest of us – in the form of ill health, foul water and a climate crisis that threatens life as we know it on this planet. Now nearing 80 – owning a large chunk of the Alberta tar sands and using his billions to transform the modern Republican Party into a protection racket for Koch Industries' profits – Charles Koch is not about to see the light. Nor does the CEO of one of America's most toxic firms have any notion of slowing down. He has made it clear that he has no retirement plans: "I'm going to ride my bicycle till I fall off."

From The Archives Issue 1219: October 9, 2014