Wednesday, October 10, 2012

Profiles In Courage, Revisited: Meet Americans Elect's John H. Burbank III

With the reincarnation of Americans Elect Corporation as a de facto SuperPAC (reported by us and others), we are once again receiving emails echoing the Cassidian cry, "Who are those guys?" Among the rogues' gallery of players we previously chronicled in our series, Profiles In Courage: The Affiliations AECorp Insiders Don't Want To Talk About, only one, founder and sugar-daddy Peter Ackerman, is on record as staying with the morally sinking ship which is AECorp. But this month's AE filing with the Federal Election Commission introduces one new insider (New York mayor Michael Bloomberg) and one old insider we have not previously profiled: Passport Capital founder, John H Burbank III.

We are not generally fans of ad hominems, but AECorp's habit of assiduously shunning any and all public discussion of what it stands for (and against) leads us to believe it is important to study the only available evidence: the individuals involved, and particularly the mega-donors who put their money where their mouths should be. We have nothing to add to Michael Bloomberg's already too-well known biography, so instead let's meet John Burbank.

Sometimes referred to as "the hotdog hedge fund king" (because, as a youth, he once briefly held a real job selling hotdogs, which apparently is considered remarkable in some quarters), Burbank tends to keep a low profile -- he may be one of the richest Americans about whom there isn't enough to say to warrant a Wikipedia article. In 2000 the then-obscure Burbank decided to launch a hedge fund (initially bankrolled with $50,000 in credit card debt), which has become today's $3 billion Passport Capital. Passport -- and Burbank -- rocketed to fame and fortune in 2007, when an unusual hedge position it had taken suddenly paid off royally. As explains:
Mortgage debt in the U.S. had ballooned about eightfold to $1.4 trillion in 2005 from $181 billion in 1995, according to the Federal Reserve. If a global credit crunch struck, Burbank was sure investors would cease buying subprime mortgages, bringing America's housing party to an abrupt end [....] To profit from that possibility, Burbank invested in a funky instrument known as a subprime mortgage credit default swap -- a CDS that insured the holder against a loss in a pool of high-risk mortgage bonds [....] In 2007, Passport's swaps paid off when foreclosures on subprime mortgages soared. Burbank personally pocketed $370 million that year.
In short, Burbank foresaw an impending threat to the American economy earlier than others, and did what any red-blooded American would do: he cashed in on it. This is how Wall Street legends are born in the post-industrial Wild West. Burbank and AECorp founder Peter Ackerman clearly have a lot to reminisce about over brandy and cigars. Ackerman made his own fortune in the junk-bond scandal which nearly destroyed the American savings and loan industry.

Passport Capital has since made untold additional fortunes betting on other harbingers of hard times, including shortages of depleted commodities such as oil, fertilizer, and copper, and on inflation of gold prices by tea-bagger panic. As Burbank told the SkyBridge Alternatives Conference in Las Vegas this year, "I believe the West is bankrupt and failing and it's just a question of when." And, presumably, when it does fail Burbank intends to be there to reap outsized rewards.

As Business Insider reports, prior to 2010 Burbank considered himself apolitical, but more recent events seem to have encouraged him to see the opportunities in politics. "As a result of the increasing sovereign risk of the United States, Burbank believes that from an investment perspective the U.S. should be viewed as an Emerging [i.e., third world] Market" (note added). "Burbank noted that in 2025 entitlements and spending in the U.S. budget are predicted to surpass revenues [....] He then explained there are 6x as many lawyers in the House of Representatives than there are MBA's, and in the Senate there are 8x as many lawyers as MBAs. His description was it appears Congress is filled with many arguers and policy people and not too many business people [....] Burbank stated the potential for small numbers of people to exert influence in past elections made him hopeful...." (emphasis added).

Burbank's road-to-Damascus moment concerning politics is reflected in his political donations. According to FEC records, prior to 2010 he donated only a modest $6,700 to political campaigns, Democratic and Republican alike. But from 2010 to today he has donated over $100,000 to candidates, PACs, and parties (almost exclusively Republican), including the Republican Congressional and Senatorial Committees,  Eric Cantor's ERICPAC, Paul Ryan's Prosperity PAC, and the anti-safety net Freedom and Prosperity PAC which, in its own dog-whistled words, "help[s] people consider alternatives to government-provided services."

But Burbank's recent donations to candidates, PACs and parties are dwarfed by his largesse to what now appears to be his favorite political Final Solution, Americans Elect. Harold Meyerson reports that John Burbank made a foundational $2.5 million donation to AECorp (probably in 2010-2011) and, as we have reported, Burbank made another $750,000 donation to AE just this month (thus joining Ackerman and Bloomberg in bankrolling AE's transubstantiation from a "non-partisan" online nominating convention to today's partisan PAC).

The picture which emerges of John H. Burbank III then (to our eyes, anyway) is that of yet another icon of that man of the hour, the Titan of Finance cast from the same mold as Pete Peterson, Pete Ackerman, Sheldon Adelson, or Donald Trump, who believes with all his heart and soul that if only America was run by hard-nosed businessmen...businessmen who are unafraid to unemploy the redundant among us (as Burbank himself terminated 16% of Passport's staff in March of this year), then all would be well.

Or, if worries! True to the hotdog hedge fund ethos, Burbank will make sure that he is in a position to profit whether America fails or succeeds.

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