HiddenMysteries ThE-Magazine

During the years following the Second World War, the patrician families of the Eastern Anglophile Liberal Establishment sent numbers of their offspring to colonize those geographic regions of the United States which, the families estimated, were likely to prosper in the postwar period. On the surface, this appears as a simple reflex of greed: cadet sons were despatched to those areas of the provinces where their instinctive methods of speculation and usury could be employed to parasitize emerging wealth. More fundamentally, this migration of young patrician bankers answered the necessity of political control. The Eastern Establishment, understood as an agglomeration of financier factions headquartered in Wall Street, had been the dominant force in American politics since J.P. Morgan had bailed out the Grover Cleveland regime in the 1890's. Since the assassination of William McKinley and the advent of Theodore Roosevelt, the power of the Wall Street group had grown continuously. The Eastern Establishment may have had its earliest roots north of Boston and in the Hudson River Valley, but it was determined to be, not a mere regional financier faction, but the undisputed ruling elite of the United States as a whole, from Boston to Bohemian Grove and from Palm Beach to the Pacific Northwest. It was thus imperative that the constant tendency towards the formation of regional factions be pre-empted by the pervasive presence of men bound by blood loyalty to the dominant cliques of Washington, New York, and the "mother country," the City of London.

If the Eastern Liberal Establishment were thought of as a cancer, then after 1945 that cancer went into a new phase of malignant metastasis, infecting every part of the American body politic. George Bush was one of those motile, malignant cells. He was not alone; Robert Mosbacher also made the journey from New York to Texas, in Mosbacher's case directly to Houston.

The various sycophant mythographers who have spun their yarns about the life of George Bush have always attempted to present this phase of Bush's life as the case of a fiercely independent young man who could have gone straight to the top in Wall Street by trading on father Prescott's name and connections, but who chose instead to strike out for the new frontier among the wildcatters and roughnecks of the west Texas oil fields and become a self-made man.

As George Bush himself recounted in a 1983 interview, "If I were a psychoanalyzer, I might conclude that I was trying to, not compete with my father, but do something on my own. My stay in Texas was no Horatio Alger thing, but moving from New Haven to Odessa just about the day I graduated was quite a shift in lifestyle." [1]

These fairy tales from the "red Studebaker" school seek to obscure the facts: that Bush's transfer to Texas was arranged from the top by Prescott's Brown Brothers, Harriman cronies, and that every step forward made by Bush in the oil business was assisted by the capital resources of our hero's maternal uncle, George Herbert Walker, Jr., "Uncle Herbie," the boss of G.H. Walker & Co. investment firm of Wall Street. Uncle Herbie had graduated from Yale in 1927, where he had been a member of Skull and Bones. This is the Uncle Herbie who will show up as lead investor and member of the board of Bush-Overbey oil, of Zapata Petroleum, and of Zapata Offshore after 1959. If we assume that the Bush-Walker clan as an extended oligarchical family decided to send cadet son George Bush into the Texas and Oklahoma oilfields, we will not be far wrong.

Father Prescott procured George not one job, but two, in each case contacting cronies who depended at least partially on Brown Brothers, Harriman for business.

One crony contacted by father Prescott was Ray Kravis, who was in the oil business in Tulsa, Oklahoma. Oklahoma had experienced a colossal oil boom between the two world wars, and Ray Kravis had cashed in, building up a personal fortune of some $25 million. Ray was the son of a British tailor whose father had come to America and set up a haberdashery in Atlantic City, New Jersey. Young Ray Kravis had arrived in Tulsa in 1925, in the midst of the oil boom that was making the colossal fortunes of men like J. Paul Getty. Ray Kravis was primarily a tax accountant, and he had invented a very special tax shelter which allowed oil properties to be "packaged" and sold in such a way as to reduce the tax on profits earned from the normal oil property rate of 81% to a mere 15%. This meant that the national tax base was eroded, and each individual taxpayer bilked, in order to subsidize the formation of immense private fortunes; this will be found to be a constant theme among George Bush's business associates down to the present day.

Ray Kravis's dexterity in setting up these tax shelters attracted the attention of Joseph P. Kennedy, the bucaneering bootlegger, entrepreneur, political boss, and patriarch of the Massachusetts Kennedy clan. For many years Ray Kravis functioned as the manager of the Kennedy family fortune (or fondo), the same job that later devolved to Stephen Smith. Ray Kravis and Joe Kennedy both wintered in Palm Beach, where they were sometimes golf partners. [2]

In 1948-49, father Prescott was the managing partner of Brown Brothers, Harriman. Prescott knew Ray Kravis as a local Tulsa finance mogul and wheeler-dealer who was often called upon by Wall Street investment houses as a consultant to evaluate the oil reserves of various companies. The estimates that Ray Kravis provided often involved the amount of oil in the ground that these firms possessed, and these estimates went to the heart of the oil business as a ground rent exploitation in which current oil production was far less important than the reserves still beneath the soil.

Such activity imparted the kind of primitive accumulation mentality that was later seen to animate Ray Kravis's son Henry. During the 1980's, as we will see, Henry Kravis personally generated some $58 billion in debt for the purpose of acquiring 36 companies and assembling the largest corporate empire, in paper terms, of all time. And, as we will also see, Henry Kravis was to become one of the leaders of the leveraged buyout gang which became a mainstay of the political machine of George Bush. But in 1948, these events were all far in the future.

So father Prescott asked Ray if he had a job for young George. The answer was, of course he did.

But in the meantime Prescott Bush had also been talking with another crony beholden to him, Henry Neil Mallon, who was the President and Chairman of the Board of Dresser Industries, a leading manufacturer of drill bits and related oil well drilling equipment. Dresser had been incorporated in 1905 by Solomon R. Dresser, but had been bought up and reorganized by W.A. Harriman & Company in 1928-1929.

Henry Neil Mallon, for whom the infamous Neil Mallon Bush of Hinckley and Silverado fame is named, came from a Cincinnati family who were traditional retainers for the Taft clan in the same way that the Bush-Walker family were retainers for the Harrimans. As a child, Neil Mallon had gone with his family to visit their close friends, President William Howard Taft and his family, at the White House. Mallon had then attended the Taft School in Watertown, Connecticut, and had gone on to Yale University in the fall of 1913, where he met Bunny Harriman, Prescott Bush, Knight Wooley, and the other Bonesmen.

One day in December, 1928 Bunny Harriman, father Prescott and Knight Wooley were sitting around the Harriman counting house discussing their reorganization of Dresser Industries. Mallon, who was returning to Ohio after six months spent mountaineering in the Alps, came by to visit. At a certain point in the conversation, Bunny pointed to Mallon was exclaimed, "Dresser! Dresser!." Mallon was then interviewed by George Herbert Walker, the president of W.A. Harriman & Co. As a result of this interview, Mallon was immediately made president of Dresser, although he had no experience in the oil business. Mallon clearly owed the Walker-Bush clan some favors. [3]

Prescott Bush had become a member of the board of directors of Dresser Industries in 1930, in the wake of the reorganization of the company which he had personally helped to direct. Prescott Bush was destined to remain on the Dresser board for twenty-two years, until 1952, when he entered the United States Senate. Father Prescott was thus calling in a chit when procured George a second job offer, this time with Dresser Industries or one of its subsidiaries.

George Bush knew that the oil boom in Oklahoma had passed its peak, and that Tulsa would no longer offer the sterling opportunities for a fast buck it had presented twenty years earlier. Dresser, by contrast, was a vast international corporation ideally suited to gaining a rapid overview of the oil industry and its looting practices. George Bush accordingly called Ray Kravis and, in the ingratiating tones he was wont to use as he clawed his way towards the top, said that he wished respectfully to decline the job that Kravis had offered him in Tulsa. His first preference was to go to work for Dresser. Ray Kravis, who looked to Prescott for business, released him at once. "I know George Bush well," said Ray Kravis years later. "I've known him since he got out of school. His father was a very good friend of mine." [4] This is the magic moment in which all the official Bush biographies show our hero riding into Odessa, Texas in the legendary red Studebaker, to take up a post as an equipment clerk and trainee for the Dresser subsidiary IDECO (International Derrick and Equipment Company).

But the red Studebaker myth, as already noted, misrepresents the facts. According to the semi-official history of Dresser Industries, George Bush was first employed by Dresser at their corporate headquarters in Cleveland, Ohio, where he worked for Dresser executive R.E. Reimer, an ally of Mallon. [5] This stint in Cleveland is hardly mentioned by the pro-Bush biographers, making us wonder what is being covered up. The Dresser history also has George Bush working for another subsidiary, Pacific Pumps, before working for IDECO. On the same page that relates these interesting facts, there is a picture that shows father Prescott, Dorothy, Barbara Bush, and George holding his infant son George Walker Bush. Young George W. is wearing cowboy boots. They are all standing in front of a Dresser Industries executive airplane, apparently a DC-3. Could this be the way George really arrived in Odessa?

The Dresser history has George Bush working for Pacific Pumps, another Dresser subsidiary, before finally joining IDECO. According to Bush's campaign autobiography, he had been with IDECO for a year in Odessa, Texas before being transferred to work for Pacific Pumps in Huntington Park and Bakersfield, California. Bush says he worked at Huntongton Park as an assemblyman, and it was here that he claims to have joined the United Steelworkers Union, obtaining a union card that he will still pull out when confronted for his long history of union-busting, as for example when he was heckled at a shipyard in Portland, Oregon, during the 1988 campaign. Other accounts place Bush in Ventura, Compton and "Richard Nixon's home town of Whittier" during this same period. [6] If Bush actually went to California first and only later to Odessa, he may be lying in order to stress that he chose Texas as his first choice, a distortion that may have been concocted very early in his political career to defend himself against the constant charge that he was a carpetbagger.

Odessa, Texas, and the nearby city of Midland were both located in the geological formation known as the Permian Basin, the scene of an oil boom that developed in the years after the Second World War. Odessa at this time was a complex of yards and warehouses where oil drilling equipment was brought for distribution to the oil rigs that were drilling all over the landscape.

At IDECO, Bush worked for supervisor Bill Nelson, and had one Hugh Evans among his co-workers. Concerning this period, we are regaled with stories about how Bush and Barbara moved into a shotgun house, an apartment that had been divided by a partition down the middle, with a bathroom they shared with a mother and daughter prostitute team. There was a pervasive odor of gas, which came not from a leak in the oven, but from nearby oil wells where the gas was flared off. George and Barbara were to spend some time slumming in this setting. But Bush was anxious to ingratiate himself with the roughnecks and roustabouts; he began eating the standard Odessa diet of a bowl of chili with crackers and beer for lunch, and chicken-friend steak for dinner. Perhaps his affected liking for country and western music, pork rinds, and other public relations ploys go back to this time. Bush is also fond of recounting the story of how, on Christmas Eve, 1948, he got drunk during various IDECO customer receptions and passed out, dead drunk, on his own front lawn, where he was found by Barbara. George Bush, we can see, is truly a regular guy.

According to the official Bush version of events, George and Bar peregrinated during 1949 far from their beloved Texas to various towns in California where Dresser had subsidiaries. Bush claims that he drove a thousand miles a week through the Carrizo Plains and the Cuyama Valley. During that same year (or was it 1950?) they moved to Midland, another tumbleweed town in west Texas. Midland offered the advantage of being the location of the west Texas headquarters of many of the oil companies that operated in Odessa and the surrounding area. In Midland, George and Bar first stayed at a motel while he commuted by car each day to the IDECO warehouse in Odessa, twenty miles to the southwest. Then, for $7,500, they bought a home on Maple Street in a postwar mini-Levittown development called Easter Egg Row.

Reality was somewhat more complex. The Bush social circle in Odessa was hardly composed of oil field roughnecks. Rather, their peer group was composed more of the sorts of people they had known in New Haven: a clique of well-heeled recent graduates of prestigious eastern colleges who had been attracted to the Permian Basin in the same way that Stanford, Hopkins, Crocker, and their ilk were attracted to San Francisco during the gold rush. Here were Toby Hilliard, John Ashmun, and Pomeroy Smith, all from Princeton. Earle Craig had been at Yale. Midland thus boasted a Yale Club, and Harvard Club, and a Princeton Club. The natives referred to this clique as "the Yalies." Also present on the scene in Midland were J. Hugh Liedtke and William Liedkte, who had grown up in Oklahoma, but who had attended college at Amherst in Massachusetts.

Many of these individuals had access to patrician fortues back east for the venture capital they mobilized behind their various deals. Toby Hilliard's full name was Harry Talbot Hilliard of Fox Chapel near Pittsburgh, where the Mellons had their palatial residence. Earle Craig was also hooked up to big money in the same area. The Liedkte brothers, as we will see, had connections to the big oil money that had emerged around Tulsa. Many of these "Yalies" also lived in the Easter Egg Row neighborhood. A few houses away from George Bush there lived a certain John Overbey. According to Overbey, the "people from the east and the people from Texas or Oklahoma all seemed to have two things in common. They all had a chance to be stockbrokers or investment bankers. And they all wanted to learn the oil business instead." [7] Overbey made his living as a landman. Since George Bush would shortly also become a landman, it is worth investigating what this occupation actually entails; in doing so, we will gain a permanent insight into Bush's character. The role of the landman in the Texas oil industry was to try to identify properties where oil might be found, sometimes on the basis of leaked geological information, sometimes after observing that one of the major oil companies was drilling in the same locale. The land man would scout the property, and then attempt to get the owner of the land to sign away the mineral rights to the property in the form of a lease. If the property owner were well informed about the possibility that oil might in fact be found on his land, the price of the lease would obviously go up, because signing away the mineral rights meant that the income (or "royalties") from any oil that might be found would never go to the owner of the land. A cunning landman would try to gather as much insider information as he could and keep the rancher as much in the dark as possible. In rural Texas in the 1940's, the role of the landman could rather easily degenerate into that of the ruthless, money-grubbing con artist who would try to convince an ill-informed and possibly ignorant Texas dirt farmer who was just coming up for air after the great depression that the chances of finding oil on his land were just about zero, and that even a token fee for a lease on the mineral rights would be eminently worth taking.

Once the farmer or rancher had signed away his right to future oil royalties, the landman would turn around and attempt to "broker" the lease by selling it at an inflated price to a major oil company that might be interested in drilling, or to some other buyer. There was a lively market in such leases in the restaurant of the Scharbauer Hotel in Midland, where maps of the oil fields hung on the walls and oil leases could change hands repeatedly in the course in the course of a single day. Sometimes, if a landman were forced to sell a lease to the mineral rights of land where he really thought there might be oil, he would seek to retain an override, perhaps amounting to a sixteenth or a thirty-second of the royalties from future production. But that would mean less cash or even no cash received now, and small-time operators like Overbey, who had no capital resources of their own, were always strapped for cash. Overbey was lucky if he could realize a profit of a few hundred dollars on the sale of a lease.

This form of activity clearly appealed to the mean-spirited and the greedy, to those who enjoyed rooking their fellow man. It was one thing for Overbey, who may have had no alternative to support his family. It was quite another thing for George Herbert Walker Bush, a young plutocrat out slumming. But Bush was drawn to the landman and royalty game, so much so that he offered to raise capital back east if Overbey would join him in a partnership. [8]

Overbey accepted Bush's proposition that they capitalize a company that would trade in the vanished hopes of the ranchers and farmers of northwest Texas. Bush and Overbey flew back east to talk with Uncle Herbie in the oak-paneled board room of G.H. Walker & Co. in Wall Street. According to Esquire, "Bush's partner, John Overbey, still remembers the dizzying whirl of a money-raising trip to the East with George and Uncle Herbie: lunch at New York's 21 Club, weekends at Kennebunkport where a bracing Sunday dip in the Atlantic off Walker's Point ended with a servant wrapping you in a large terry towel and handing you a martini." [9]

The result of the odyssey back east was a capital of $300,000, much of it gathered from Uncle Herbie's clients in the City of London, who were of course delighted at the prospect of parasitizing Texas ranchers. One of those eager to cash in was Jimmy Gammell of Edinburgh, Scotland, whose Ivory and Sime counting house put up $50,000 from its Atlantic Asset Trust. Gammell is today the eminence grise of the Scottish invesment community, and he has retained a close personal relation to Bush over the years. Mark this Gammell well; he will return to our narrative shortly.

Eugene Meyer, the owner of the Washington Post and the father of that paper's present owner, Katharine Meyer Graham, anted up an investment of $50,000 on the basis of the tax-shelter capabilities promised by Bush-Oberbey. Meyer, a president of the World Bank, also procured an investment from his son-in-law Phil Graham for the Bush venture. Father Prescott Bush was also counted in, to the tune of about $50,000. In the days of real money, these were considerable sums. The London investors got shares of stock in the new company, called Bush-Overbey, as well as Bush-Overbey bonded debt. Bush and Overbey moved into an office on the ground floor of the Petroleum Building in Midland.

The business of the landman, it has been pointed out, rested entriely on personal relations and schmooze. One had to be a dissembler and an intelligencer. One had to learn to cultivate friendships with the geologists, the scouts, the petty bureaucrats at the county court house where the land records were kept, the journalists at the local paper, and with one's own rivals, the other landmen, who might invite someone with some risk capital to come in on a deal. Community service was an excellent mode of ingratiation, and George Bush volunteered for the Community Chest, the YMCA, and the Chamber of Commerce. It meant small talk about wives and kids, attending church-- deception postures that in a small town had to pervade the smallest details of one's life. It was at this time in his life that Bush seems to have acquired the habit of writing ingratiating little personal notes to people he had recently met, a habit that he would use over the years to cultivate and maintain his personal network. Out of all this ingratiating Babbitry and boosterism would come acquaintances and the bits of information that could lead to windfall profits.

There had been a boom in Scurry County, but that was subsiding. Bush drove to Pyote, to Snyder, to Sterling City, to Monahans, with Rattlesnake Air Force Base just outside of town. How many Texas ranchers can remember selling their mineral rights for a pittance to smiling George Bush, and then having oil discovered on the land, oil from which their family would never earn a penny?

Across the street from Bush-Overbey were the offices of Liedtke & Liedtke, Attorneys at law. J. Hugh Liedtke and William Liedtke were from Tulsa, Oklahoma, where they, like Bush, had grown up rich as the sons of a local judge who had become one of the top corporate lawyers for Gulf Oil. The Liedtke's grandfather had come from Prussia, but had served in the Confederate Army. J. Hugh Liedtke had found time along the way to acquire the notorious Harvard Master of Business Administration degree in one year. After service in the navy during the war, the Liedtkes obtained law degrees of the University of Texas law school, where they rented the servant's quarters of the home of US Senator Lyndon B. Johnson, who was away in Washington most of the time. During those years, Johnson's home was occupied most of the time by his protege, John Connally.

The Liedtkes combined the raw, uncouth primitive accumulation mentality of the oil boom town with the refined arts of usury and speculation as Harvard taught them. Their law practice was a law practice in name only; their primary and almost exclusive activity was buying up royalty leases on behalf of a money bags in Tulsa who was a friend of their family; the Liedtkes got a 5% commission on every deal they handled.

Hugh Liedtke was always on the lookout for the Main Chance. Following in the footsteps of his fellow Tulsan Ray Kravis, Hugh Liedtke schemed and schemed until he had found a way to go beyond hustling for royalty leases: he concocted a method of trading oil-producing properties in such a way as to permit the eventual owner to defer all tax liabilities until the field was depleted. Sometimes Hugh Liedtke would commute between Midland and Tulsa on an almost daily basis. He would spend the daylight hours prowling the Permian Basin for a land deal, make the thirteen hour drive to Tulsa overnight to convince his backers to ante up the cash, and then race back to Midland to close the deal before the sucker got away. It was during this phase that it occurred to Liedtke that he could save himself a lot of marathon commuter driving if he could put together a million dollars in venture capital and "inventory" the deals he was otherwise forced to make a piecemeal and ad hoc basis. [10]

The Liedtke brothers now wanted to go beyond royalty leases and land sale tax dodges, and begin large-scale drilling for and production of oil. George Bush, by now well versed in the alphas and omegas of oil as ground rent, was thinking along the same lines. In a convergence that was full of ominous portent for the US economy of the 1980's, the Liedtke brothers and George Bush decided to pool their capital and their rapacious talents by going into business together. Overbey was on board initially, but would soon fall away.

The year was 1953, and Uncle Herbie's G.H. Walker & Co. became the principal underwriter of the stock and convertible debentures that were to be offered to the public. Uncle Herbie would also purchase a large portion of the stock himself. When the new company required further infusions of capital, Uncle Herbie would float the necessary bonds. Jimmy Gammell remained a key participant and would find a seat on the board of directors of the new company. Another of the key investors was the Clark Family Estate, meaning the trustees who managed the Singer Sewing machine fortune. [fn 11] Some other money came from various pension funds and endowments, sources that would become very popular during the leveraged buyout orgy Bush presided over during the 1980's. Of the capital of the new Bush-Liedtke concern, about $500,000 would come from Tulsa cronies of the Liedtke brothers, and the other $500,000 from the circles of Uncle Herbie. The latter were referred to by Hugh Liedtke as "the New York guys."

The name chosen for the new concern was Zapata Petroleum. According to Hugh Liedtke, the new entrepreneurs were attracted to the name when they saw it on a movie marquee, where the new release Viva Zapata!, starring Marlon Brando as the Mexican revolutionary, was playing. Liedtke characteristically explains that part of the appeal of the name was the confusion as to whether Zapata had been a patriot or a bandit. [12]

The Bush-Liedtke combination concentrated its attention on an oil property in Coke County called Jameson Field, a barren expanse of prairie and sagebrush where six widely separated wells had been producing oil for some years. Hugh Liedtke was convinced that these six oil wells were tapping into a single underground pool of oil, and that dozens or even hundreds of new oil wells drilled into the same field would all prove to be gushers. In other words, Liedtke wanted to gamble the entire capital of the new firm on the hypothesis that the wells were, in oil parlance, "connected." One of Liedtke's Tulsa backers was supposedly unconvinced, and argued that the wells were too far apart; they could not possibly connect. "Goddamn, they do!" was Hugh Liedtke's rejoinder. He insisted on shooting the works in a va-banque operation. Uncle Herbie's circles were nervous: "The New York guys were just about to pee in their pants," boasted Leidtke years later. Bush and Hugh Liedtke obviously had the better information: the wells were connected, and 127 wells were drilled without encountering a single dry hole. As a result, the price of a share of stock in Zapata went up from 7 cents a share to $23.

During this time, Hugh Liedtke collaborated on several small deals in the Midland area with a certain T. Boone Pickens, later one of the most notorious corporate raiders of the 1980's, one of the originators of the "greenmail" strategy of extortion by which a raider would accumulate part of the shares of a company and threaten to go all the way to a hostile takeover unless the management of the compnay agreed to buy back those shares at an outrageous premium. Pickens is the buccaneer who was self-righteously indignant when the Japanese business community attempted to prevent him from introducing these shamless looting practices into the Japanese economy.

Pickens, too, was a product of the Bush-Liedtke social circle of Midland. When he was just getting started in the mid-fifties, Pickens wanted to buy the Hugoton Production Company, which owned the Hugoton field, one of the world's great onshore deposits of natural gas. Pickens engineered the hostile takeover of Hugoton by turning to Hugh Liedtke to be introduced to the trustees of the Clark Family Estate, who, as we have just seen, had put up part of the capital for Zapata. Pickens promised the Clark Trustees a higher return than was being provided by the current management, and this support proved to be decisive in permitting Pickens's Mesa Petroleum to take over Hugoton, launching this corsair on a career of looting and pillage that still continues. In 1988, George Bush would give an interview to a magazine owned by Pickens in which the Vice President would defend hostile leveraged buyouts as necessary to the interests of the shareholders.

In the meantime, after two to three years of operations, the oil flow out of Zapata's key Jameson field had begun to slow down. Although there was still abundant oil in the ground, the natural pressure had been rapidly depleted, so Bush and the Liedtkes had to begin resorting to stratagems in order to bring the oil to the surface. They began pumping water into the underground formations in order to forced the oil to the surface. From then on, "enhanced recovery" techniques were necessary to keep the Jameson field on line.

During 1955 and 1956, Zapata was able to report a small profit. In 1957, the year of the incipient Eisenhower recession, this turned into a loss of $155,183, as the oil from the Jameson field began to slow down. In 1958, the loss was $427,752, and in 1959 there was $207,742 of red ink. 1960 (after Bush had departed from the scene) brought another loss, this time of $372,258, It was not until 1961 that Zapata was able to post a small profit of $50,482. [13] Despite the fact that Bush and the Liedtkes all became millionaires through the increased value of their shares, it was not exactly an enviable record; without the deep pockets of Bush's Uncle Herbie Walker and his British backers, the entire venture might have foundered at an early date.

Bush and the Liedtkes had been very lucky with the Jameson field, but they could hardly expect such results to be repeated indefinitely. In addition, they were now posting losses, and the value of Zapata stock had gone into a decline. Bush and the Liedtke brothers now concluded that the epoch in which large oil fields could be discovered within the continental United States was now over. Mammoth new oil fields, they believed, could only be found offshore, located under hundreds of feet of water on the continental shelves, or in shallow seas like the Gulf of Mexico and the Caribbean. By a happy coincidence, in 1954 the US federal government was just beginning to auction the mineral rights for these offshore areas. With father Prescott Bush directing his potent Brown Brothers, Harriman/Skull and Bones network from the US Senate while regularly hob-nobbing with President Eisenhower on the golf links, George Bush could be confident of receiving special privileged treatment when it came to these mineral rights. Bush and his partners therefore judged the moment ripe for launching a for-hire drilling company, Zapata Offshore, a Delaware corporation that would offer its services to the companies making up the Seven Sisters international oil cartel in drilling underwater wells. 40% of the offshore company's stock would be owned by the original Zapata firm. The new company would also be a buyer of offshore royalty leases. Uncle Herbie helped arrange a new issue of stock for this Zapata offshoot. The shares were easy to unload because of the 1954 boom in the New York stock market. "The stock market lent itself to speculation," Bush would explain years later, "and you could get equity capital for new ventures." [14]

1954 was also the year that the US overthrew the government of Jacopo Arbenz in Guatemala. This was the beginning of a dense flurry of US covert operations in central America and the Caribbean, featuring especially Cuba.

The first asset of Zapata Offshore was the SCORPION, a $ 3.5 million deep-sea drilling rig that was financed by $1.5 million from the initial stock sale plus another $2 million from bonds marketed with the help of Uncle Herbie. The SCORPION was the first three-legged self-elevating mobile drilling barge, and it was built by R. G. LeTourneau, Inc., of Vicksburg, Mississippi. The platform weighed some 9 million pounds and measured 180 by 150 feet, and the three legs were 140 feet long when fully extended. The rig was floated into the desired drilling position before the legs were extended, and the main body was then pushed up above the waves by electric motors. The SCORPION was delivered early in 1956, and was commissioned at Galveston in March, 1956, and was put to work at exploratory drilling in the Gulf of Mexico during the rest of the year.

During 1956, the Zapata Petroleum officers included J. Hugh Liedtke as president, George H.W. Bush as vice president, and William Brumley of Midland, Texas as treasurer. The board of directors lined up as follows:

Arthur E. Palmer, Jr., New York, NY, a partner in Winthrop, Stimson, Putnam, and Roberts;

G.H. Walker Jr. (Uncle Herbie), managing partner of G.H. Walker and Co., New York, NY;

Eugene F. Williams, Jr., secretary of the St. Louis Union Trust Company of St. Louis, Missouri;

D.D. Bovaird, president of the Bovaird Supply Co. of Tulsa, Oklahoma, and chairman of the board of the Oklahoma City branch of the Tenth Federal District of the Federal Reserve Board; and

An interim director that year had been Richard E. Fleming of Robert Fleming and Co., London, England. Counsel were listed as Baker, Botts, Andrews & Shepherd of Houston, Texas; auditors were Arthur Andersen in Houston, and transfer agents were J.P. Morgan & Co., Inc., of New York City and the First National Bank and Trust Company of Tulsa. [15]

George Bush personally was much more involved with the financial managment of the company than with its actual oil-field operations. His main activity was not finding oil or drilling wells but, as he himself put it, "stretching paper" -- rolling over debt and making new financial arrangements with the creditors. [16]

During 1956, despite continuing losses and thanks again to Uncle Herbie, Zapata was able to float yet another offering, this time a convertible debenture for $2.15 million for the purchase of a second Le Tourneau drilling platform, the VINEGAROON, named after a west Texas stinging insect. The VINEGAROON was delivered during 1957, and soon scored a "lucky" hit drilling in block 86 off Vermilion Parish, Louisiana. This was a combination of gas and oil, and one well was rated at 113 barrels of distillate and 3.6 million cubic feet of gas per day. [17] This was especially remunerative because Zapata had acquired a half-interest in the royalties from any oil or gas that might be found. VINEGAROON then continued to drill of Louisiana on a farmout from Continental Oil, also off Vermilion Parish.

As for the SCORPION, during part of 1957 it was under contract to the Bahama-California Oil Company, drilling between Florida and Cuba. It was then leased by Gulf Oil and Standard Oil of California, on whose behalf it started drilling during 1958 at a position on the Cay Sal Bank, 131 miles south of Miami, Florida, and just 54 miles north of Isabela, Cuba. Cuba was an interesting place just then; the US-backed insurgency of Fidel Castro was rapidly undermining the older US-imposed regime of Fulgencio Batista. That meant that SCORPIO was located at a hot corner.

During 1957 a certain divergence began to appear between Uncle Herbie Walker, Bush, and the "New York guys" on the one hand, and the Liedtke brothers and their Tulsa backers on the other. As the annual report for that year noted, "There is no doubt that the drilling business in the Gulf of Mexico has become far more competitive in the last six months than it has been at any time in the past." Despite that, Bush, Walker and the New York investors wanted to push forward into the offshore drilling and drilling services business, while the Liedtkes and the Tulsa group wanted to concentrate on acquiring oil in the ground and natural gas deposits.

The 1958 annual report notes that with no major discoveries made, 1958 had been "a difficult year." It was, of course, the year of the brutal Eisenhower recession. SCOPRPION, VINEGAROON, and NOLA I, the offshore company's three drilling rigs, could not be kept fully occupied in the Gulf of Mexico during the whole year, and so Zapata Offshore had lost $524,441, more than Zapata Petroleum's own loss of $427,752 for that year. The Liedtke viewpoint was reflected in the notation that "disposing of the offshore business had been considered." The great tycoon Bush conceded in the Zapata Offshore annual report for 1958: "We erroneously predicted that most major [oil] companies would have active drilling programs for 1958. These drilling programs simply did not materialize..." In 1990 Bush denied for months that there was a recession, and through 1991 claimed that the recession had ended when it had long since turned into a depression. His blindness about economic conjunctures would appear to be nothing new.

By 1959, there were reports of increasing personal tensions between the domineering and abrasive J. Hugh Liedtke on the one hand and Bush's Uncle Herbie Walker on the other. Liedtke was obsessed with his plan for creating a new major oil company, the boundless ambition that would propel him down a path littered with asset-stripped corporations into the devastating Pennzoil-Getty-Texaco wars of a quarter century later. During the course of this year, the two groups of investors arrived at a separation that was billed as "amicable," and which in any case never interrupted the close cooperation among Bush and the Liedtke brothers. The solution was that the ever-present Uncle Herbie would buy out the Liedtke-Tulsa 40% stake in Zapata Offshore, while the Liedtke backers would buy out the Bush-Walker interest in Zapata Petroleum.

For this to be accomplished, George Bush would require yet another large infusion of capital. Uncle Herbie now raised yet another tranche for George, this time over $800,000. The money allegedly came from Bush-Walker friends and relatives. [18] Even if the faithful efforts of Uncle Herbie are taken into account, it is still puzzling to see a series of large infusions of cash into a poorly managed small company that had posted a series of substantial losses and whose future prospects were anything but rosy. At this point it is therefore legitimate to pose the question: was Zapata Offshore an intelligence community front at its foundation in 1954, or did it become one in 1959, or perhaps at some later point? This question cannot be answered with finality.

George Bush was now the president of his own company, the undisputed boss of Zapata Offshore. Although the company was falling behind the rest of the offshore drilling industry, Bush made a desultory attempt at expansion through diversification, investing in a plastics machinery company in New Jersey, a Texas pipe lining company, and a gas transmission company; none of these investments proved to be remunerative.

By contrast, Hugh Liedtke's approach to business was aggressive to the point of being picaresque. Liedtke decided that he would use the money he had gotten back for selling his interest in Zapata Offshore ot Uncle Herbie in order to take a giant step on the road to building the top-flight oil company of his dreams, a new sister for the Anglo-American oil cartel. In Liedtke's Malthusian mentality, drilling for oil no longer made sense, since all the major finds had been made: what counted now was buying up the oil that already existed. His immediate target was South Penn Oil Company, the owner of a piece of the Bradford oil field, and the producer of a brand of motor oil called Pennzoil, which it sold by the quart in characteristic yellow cans. South Penn possessed a significant quantity of oil in the ground. In order to seize control of South Penn, Liedtke capitalized on his personal acquaintance with J. Paul Getty, the founder of Getty Oil, whom he had known since Getty had shown up at an engagement party in honor of Liedtke at the Tulsa home of the Skelly family during the waning years of World War II. J. Paul Getty owned about 10% of the stock of South Penn. Liedtke assembled an investment partnership and matched Getty's stake with a 10% interest of his own. Liedtke hypocritically reassured the management of Southe Penn that he was accumulating their stock "for investment purposes only." When Liedtke had bought as much stock as he had funds to afford, he appealed to Getty to honor a previous committment and install J. Hugh Liedtke as the new president of South Penn. Getty, who had been a corsair of the stock market during the 1920's, when he had engineered the hostile takeover of Tide Water Associated Oil, supported Liedtke, and the previous South Penn management was ousted in favor of the Liedtke team. J. Hugh Liedkte merged Zapata Petroleum with South Penn, and gave the new corporation the name Pennzoil.

Now J. Hugh Liedtke, following in the footsteps of J. Paul Getty, had carried out a hostile takeover of his own. Within a couple of years, Liedtke would execute a second corporate raid, this time the takoever of United Gas Pipeline Company of Shreveport, Louisiana. United Gas operated 8,800 miles of gas pipeline, and carried about 7% of the natural gas consumed in the United States. Hugh and Bill Liedtke calculated that the infrastructure of United Gas had been expensive to build and install, but that it would be cheap to operate. Running United Gas into the ground could generate prodigious quantities of cash. This cash could then be mobilized by the Liedtkes to buy up other companies. In addition, United Gas owned oil, copper, sulphur, and other mineral deposits. United Gas was a corporation about six times the size of Pennzoil, but the Liedtkes began to acquire shares.

Problems arose when the Liedtke brothers' intentions became public knowledge: the price of United Gas went up sharply, and a rival group of buyers of United Gas stock appeared. "As the Pennzoil board pondered its next move, a Scotsman serving as director suggested a new strategy: a cash tender offer, a takeover practice that was virtually unheard of in the US, but was widely used in Britain. Pennzoil could publicly announce an offering price to the public for only a portion of the shares; the stockholders, fearful that the stock price would tumble once the offer was closed, would 'tender' as many shares as Pennzoil could afford to buy. The company's thunderstruck management resisted in every way possible, but the shares flooded in and before long Pennzoil owned 42% of [United Gas]." [fn 19] The Scotsman in question could only have been J.G.S. Gammell, who had remained with the Liedtkes as a member of their board. This was the same Gammell whom Bush and Uncle Herbie had brought into the United States to invest in Bush-Overbey back in 1950. Gammell had brought with him the particularly virulent bacillus of British stockjobbing methods. Pennzoil had to borrow a quarter of a billion dollars to buy up the United gas stock, but when the dust had settled, Pennzoil had grown by 500%, almost exclusively on the basis of borrowed money, usury and debt.

The rapacious Liedtke brothers then proceeded to subject United Gas to a brutal process of asset stripping. They forced United Gas to pay $20 million more in dividends to Pennzoil than United Gas ever earned. They detached the more profitable branches of United Gas, especially the oil and mineral deposits, and transferred them to Pennzoil. They forced United Gas to fork over $100 million worth of preferred stock to Pennzoil in the form of yet another dividend. This amounted to a transfer of $100 million of United Gas capital into the Liedtke coffers.

By 1972, George Bush was a Nixon Administration cabinet member and insider, speaking for Tricky Dick and Kissinger at the United Nations. George's influence must have been conducive to the efforts of the Liedkte brothers to place two of their lawyers from Baker & Botts on the Federal Power Commission. With these Liedtke stooges in place, the Federal Power Commission proceeded to approve a series of transactions by which United Gas, ignoring existing contracts, diverted natural gas destined for delivery in Louisiana in favor of other markets where the price was much higher. The result of this high-handed greed was a severe gas shortage in Louisiana, which impacted both industrial users and home consumption. The then Louisiana Governor Edwin Edwards declared during the winter of 1972 that "the health and safety of millions of Louisiana's citizens are gravely threatened" as a result of these Liedtke machinations. Governor Edwards denounced an "absolute disregard for the public interest in this state" on the part of Pennzoil/United Gas. There were layoffs at industrial plants, and at least one lawsuit accused the Liedkte concerns of breaching their exisiting contracts. All in all it was estimated (by Middle South utilities) that a whopping extra $200 million had been added to the gas and electric bills of customers in the Deep South, the poorest part of the United States, in order to provide alternate supplies of boiler fuels. But the Liedtke brothers were not disturbed by all this, for they were becoming multimillionaires through the looting and asset-stripping of United Gas.

In 1974, the Liedtkes decided that the despoiled carcass of United Gas should now be cast adrift. The story of this squalid final chapter of the pillaging of United Gas was entitled "Love Her and Leave Her" by Forbes magazine: "That, say the critics, is just what the Liedkte brothers did with United Gas-- acquiring it, deflowering it, then dumping it." [20] As Forbes also noted, "contacts with men like Johnson, Connally, and Bush never did the Liedktes any harm." It was considered dubious that the post-Liedtke United Gas could avoid collapse as a result of its vastly weakened condition. But, with Watergate and the crumbling of the Nixon power cartel, the Liedktes had now gone beyond what the Washington traffic would bear. Federal regulators forced the greedy brothers to return the $100 million preferred stock capital transfer. The Liedtkes were also nailed for insider trading in buying 125,000 Pennzoil shares just before the stock went up as the news of the $100 million transfer became known on Wall Street; they had to cough up $108,125 in profits thus realized, and they were obliged to sign a consent decree that they would never repeat a caper of this sort. But this was a wholly insignificant sum when measured against the large oil reserves from United Gas that Pennzoil was allowed to retain.

During the late 1970's, the Liedkte brothers would receive an entree into the People's Republic of China thanks to the personal connections acquired there by their former business partner and lifetime crony, George Bush. And later, during the Reagan-Bush years, when federal regulatory intervention against monstrous stock market swindles virtually disappeared as a result of George Bush's Task Force on Regulatory Relief, J. Hugh Liedtke, by that time sporting the nickname of "Chairman Mao," would be the protagonist of the Pennzoil/Getty/Texaco war, a conflagration that laid waste to whole chunks of a fatally weakened US economy. And in those future days, J. Hugh Liedtke would repeatedly flaunt his continuing close friendship with his old business partner George Bush. [21]

In 1959-60, George Bush was operating out of his new corporate base in Houston, Texas, where Zapata Offshore had transferred upon separating from the Liedktes. Economic conditions were slowly improving, and Uncle Herbie's ability to mobilize capital permitted George to move towards expanding his fleet of offshore drilling equipment. By 1963 Zapata Offshore had four operational rigs: SIDEWINDER, VINEGAROON, SCORPION/NOLA I, and NOLA III. Bush's interest was attracted down to the Gulf at Galveston, east to New Orleans, then further east and south to Miami, and still further south the Cuba, the target of the immense covert action operation which the Eisenhower Administration, advised by father Prescott Bush, was assembling in south Florida and in Guatemala under the code name of JM/WAVE, which in the spring of 1961 would become manifest to the world in the form of the Bay of Pigs attempted invasion of Cuba.

In a Zapata Offshore Annual Report issued a couple of years later, Bush published the following description of the nature of the company's business:

This account makes clear that the most important factor for Zapata Offshore was contracts from the big oil companies of the Seven Sisters Anglo-American cartel, the world oil oligopoly which during these years defended its domination of the world oil market with the assassination of Enrico Mattei, the President of the Ente Nazionale Idrocarburi, the Italian State Oil Company, who had dared to undercut the arrogant looting methods of the Seven Sisters and challenge the oligopoly in north Africa and the Arab world. In the early years of Zapata Offshore, contracts had come from Gulf Oil and Standard Oil of California, as we have seen. During the early 1960's, more and more contracts came from components of Royal Dutch Shell, the Anglo-Dutch heart of the Seven Sisters cartel, the dominant strategic force in the oligopoly. Zapata Offshore soon had British insurance, British contracts, British investors, a British director, and drilling sites in British Commonwealth oil fields in many parts of the world. This should come as no surprise: after all, Prescott Bush's partner, Averell Harriman, had been Franklin D. Roosevelt's special envoy to Churchill during the first years of World War II, and Averell later married the divorced former wife of Churchill's son Randolph.

Although Zapata Offshore was a company of modest dimensions, Bush nevertheless created a network of subsidiaries which was suspiciously complex. This topic is difficult to research because of the very convenient disappearance of the Zapata Offshore filings with the Securities and Exchange Commission in Washington for the year 1960-1966 which were "inadvertently" destroyed by a federal warehouse. This is the kind of convenient tampering with official records from which Bush has benefitted again and again over his career, from the combat report on the San Jacinto in 1944 to the disappearance of the Hashemi-Pottinger tapes and the shredding of Iran-contra documents more recently.

Some illumination is provided by a short profile of the Zapata Offshore corporate substructure researched by a Mr. Allan Mandel and submitted to Texas Senator Ralph Yarborough on October 13, 1964, in the midst of Bush's attempt to unseat the senator. [23] This report was based on "Standard and Poors, oil industry publications, [and] personal interviews with Interior Department officials."

At this time, Mr. Mandel found, Zapata Offshore owned 50% of Seacat-Zapata Offshore Compnay, which operated the drilling rig NOLA III in the Persian Gulf. In addition, Mandel identified the following Zapata Offshore subsidiaries:

Zapata Lining was the pipe lining concern; it was divested in 1964. Ownership of Amata Gas was shared with the American Research and Development Corporation of Boston. The Zapata Annual Report for 1964 is strangely silent about the other companies, with the exception of Seacat Zapata.

George Bush has always loved secrecy, and this appears to have extended to the business activities -- or alleged business activities -- of Zapata Offshore. A small window on a whole range of secret and semisecret activities and transactions during these years is provided by recently published information about Bush's shady business relations with Jorge Diaz Serrano of Mexico, the former head (1976-1981) of the Mexican national oil company Pemex, who was convicted and jailed for defrauding the Mexican government of $58 million. During 1960, Bush and Diaz Serrano secretly worked together to set up a Mexican drilling company called Perforaciones Marinas del Golfo, or Permargo. At that time Diaz Serrano had been working as a salesman for Dresser Industries, Bush's old firm. Diaz Serrano came into contact with an American oilman who wanted to drill in Mexico; a new Mexican law stipulated that drilling contracts could be awarded only to Mexican nationals. The American oilman was Edwin Pauley of Pan American Petroleum Corp. When Diaz Serrano wanted to buy drilling equipment from Dresser Industries, Dresser demanded that Diaz take on Bush as a co-owner in the venture. Bush's spokesman Peter Hart conceded in 1988 that Bush and Zapata had been partners with Diaz Serrano, but alleged that the partnership had lasted for only seven months.

Diaz Serrano is very open about being a personal friend of Bush. "One remembers a man that one likes and appreciates," says Diaz, who wanted to become the president of Mexico before he was sentenced to five years in jail for appropriating government monies; the business dealings spawned "a friendship of which I am most proud." In 1982, Diaz Serrano was made Mexican Ambassador to Moscow, and he stopped off to talk with Bush in the White House on his way to his new assignment.

Bush reciprocates the friendship: "I have high regard for Jorge," Bush told People Magazine in 1981; "I consider him a friend."

One of Jorge Diaz Serrano's associates in the drilling deal was his long-time partner, Jorge Escalante, who has also remained in contact with Bush over the intervening years, a fact that Bush's office also confirms.

Bush was clearly dishonest in that the annual reports of Zapata Offshore do not mention this deal with Permargo, which created a company that was in direct competition with Zapata Offshore itself, much to the detriment of that "shareholder value" which Bush professed to hold sacred whenever his clique of cronies was on the track of a new leveraged buyout. Bush may also have illegally concealed his dealings from the government. The Zapata Offshore filings with the SEC between 1955 and 1959 are cryptic, and the SEC files on Zapata Offshore between 1960 and 1966, when Bush had exclusive control of the company, were destroyed by the SEC either in 1981, when Bush had just become vice president, or somewhat later, in October, 1983, according to various SEC officials. Perhaps these files were removed not just to protect Bush, but also to protect Zapata Offshore as a front operation for the US intelligence community. The 1964 Zapata offshore Annual report does note that the drilling barge NOLA I was sold "to a subsidiary of a Mexican drilling company" because it had become "a marginal operation" in that it could only be used in the summer because of a lack of seaworthiness in bad weather, but even this annual report does not name Permargo, which appears to be the Mexican company that bought NOLA I. [24]

Diaz recalls that Bush was a highly political businessman back in 1960: "In those days, I remember very clearly, he was a very young chap and when we were talking business with him at his office he spent more time on the telephone talking about politics than paying attention to the drilling affairs. He was a born politician."

Bush's business dealings had brought him into direct contact with a number of the corporate raiders who would later act out the paroxysm of speculation, looting, and usury that would mark the Reagan-Bush years. The Permian basin of the 1940's and 1950's had attracted such figures as the Liedtke brothers, their friend Blaine Kerr, and T. Boone Pickens, all leading practitioners of the leveraged buyouts, hostile takeovers, greenmail, mergers and acquisitions of the 1980's. George Bush was in touch with them, and with the Kravis family of Tulsa. Nick Brady of Dillon, Reed was an old friend of the family who would also join in the orgy of the eighties. Frank Lorenzo would also come into the picture a little later on. Bush's main business success was in assembling this legion of greed as a base of political support for later on.

Otherwise Bush was a businessman of very mediocre success, kept afloat by constant capital infusions from his doting Uncle Herbie.

NOTES:

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