A Pleasure Worth the Price

To hear the witnesses tell it last week, doing favors for former Senate Majority Secretary Bobby Baker must have been a pleasure worth the price. Testifying before the Senate Rules Committee, two of Baker's one-time business associates explained how they helped Bobby boost his personal net worth to $2,000,000.

Max H. Karl, president of Milwaukee's Mortgage Guaranty Insurance Corp. (nicknamed "Magic"), sketched in the background of the now familiar Magic stock deals. Baker, he said, had tumbled to the potential of the infant home-mortgage insurance company as early as mid-1959. Naturally, he wanted in on a deal with so much profit potential. Though the company's stock had not yet been registered with the Securities and Exchange Commission, Karl sold Baker 250 shares for $28,750; their market value later soared to about $400,000. Admittedly, said Karl, the legality of the early sale might be questioned. But, he said of Baker, "I was impressed with his title." It would be good for Magic, he added, to have "well-known stockholders," and Baker "knew a lot of people."

A Philosophy. At the time, Karl was seeking changes in federal regulations to help make his firm's private insurance more competitive with Veterans Administration and FHA mortgage insurance. He wrote a letter to his Capitol pal Bobby, pointing out that he had met some friendly Congressmen who were sympathetic to Magic's cause. Added Karl: "You undoubtedly know many congressional leaders who share the same view."

Nebraska's Republican Senator Carl Curtis demanded an explanation. Karl: "It wasn't lobbying, sir. I'm not used to that term. I was just trying to keep them informed." How about his suggestion that Baker might know other "congressional leaders"? Karl: "I was just expanding on a philosophy." Had Karl ever asked Baker to use his influence on Magic's behalf? Karl: "Definitely not. What he did was talk to some of his friends about the great possibility of the company."

The friends Baker talked to were mostly members of a tight little Capitol clique, comprised largely of Senate-committee staffers, known as the "F80 Club" (after Bobby's Senate office number). With clubby generosity, Baker eventually shared his good fortune by getting some Magic shares for them. Karl got what he wanted too, in the form of a tax-relief decision from the Internal Revenue Service.

The Texas Way. Baker kept right on buying Magic stock--with borrowed money. One who helped him was Robert F. Thompson, executive vice president of Tecon Corp., a Dallas construction firm headed by Wheeler Dealer Clint Murchison Jr. Tecon performs nearly $90 million worth of work a year for the Army Corps of Engineers. Thompson testified that he first met Baker in 1957. Where? "I thought," replied Thompson, "that it was in the office of Lyndon Johnson."

In 1960, said Thompson, Baker told him about Magic. Thompson proposed a deal, and borrowed $110,000 from the First National Bank in Dallas to buy the company's stock. Bobby, said Thompson, did not cosign the loan, but he was to share equally in the profits or losses. Again the stock rose, and Baker cleared $21,000--without ever having invested a cent of his own money. Incredulous, the Senators wanted to know why Bobby had not been obliged to sign the note. "I just borrowed the money and had a gentleman's agreement with Bobby," said Thompson. "That's the way we do business in Texas."

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