Deception is one of nature’s long-standing survival strategies. It is the transmission of misinformation by one animal to another in a way that propagates beliefs that are not true. Such techniques help chameleons avoid being eaten, tigers stalk their prey, and politicians gain influence (just kidding).

Investigative journalists and criminal investigators often use the Latin phrase “Cui bono?” (Who benefits?) as a strategy for exposing lies and hidden motives. Rather than taking information at face value, they try to establish which parties benefit the most from a given crime or situation.

The assassination of John F. Kennedy on Friday 22nd November 1963 shocked the world and sparked a number of conspiracy theories trying to identify the reasons behind his murder. These range anywhere from a CIA agent’s gun accidentally misfiring in the car, suggestions that Kennedy had contact with aliens, to a speech he once gave that alluded to the country being run by secret societies hell-bent on constructing a “New World Order”. There’s a lot. And many of them sound utterly ridiculous. The sheer number of theories and variables to factor in, combined with a lack of quantitative data makes the task of separating the signal from the noise an uphill struggle. However, a paper written in 1996 by an American economist, William O. Brown Jr., offers an empirical insight into the mystery using a combination of anecdotal evidence and stock market data.

An interesting divergence from the typical empirical papers I’ve read in the past, this study begins with a narrative describing the links between Lyndon Johnson, Vice President to Kennedy, and groups of U.S. firms operating in the construction, petroleum, and aircraft industries.

In this article we will focus on identifying Johnson’s ties with the corporate world. Later, in a follow-up piece, we will delve into the empirical study itself and the results of the analysis.

Following the paper trail

The first group consists of firms associated with Brown & Root Incorporated of Houton, a Texas construction firm owned and operated by George and Herman Brown. Dugger (1982) briefly summarises their relations with Johnson below:

“The Brown brothers, Herman and George, poured money into Johnson’s campaigns, won fat federal contracts in lines of work that paralleled his career, gave him a personal-political interest in higher military spending, and rooted his politics in their own anti-unionism. For their part, they became nationally dominant builders and George became a tycoon in gas pipelines. Lyndon and the Brown boys rose from poverty to power together.”

It pays to have friends in high places…

In 1936, Brown & Roots (B&R) started work on a dam project in Texas which was to be funded using a $10 million grant from the Department of the Interior’s (DoI) Bureau of Reclamation. However, the project had not been approved by Congress before construction began and thus no funds were authorised. Franklin D. Roosevelt, president at the time, promised congressman James P. Buchanan that the approval was coming.

Buchanan, serving as chairman of the House Ways and Means Committee, had the influence to persuade the Comptroller of the Currency to issue $5 million to begin construction of the dam. B&R found themselves in $500k of debt, but were expecting the 2nd instalment of $5 million to make the project profitable.

Soon after construction began, and much to B&R’s dismay, it was discovered that the land was owned by the state of Texas and not by the Federal Government. Federal law prevented the DoI from building on land they do not own, and Texas law prevented this particular piece of land from being sold to federal government – what a conundrum! Though worried by the prospects of not seeing the project through, the Browns had faith that Buchanan would soon amend the federal law and allow the project to continue. At least they did until Buchanan unexpectedly suffered a heart attack and died before he could make the necessary changes.

Enter, Lyndon Johnson.

Johnson was one of eight candidates standing in a special election to find a replacement for Buchanan as congressman of the district. B&Rs legal advisor, Alvin J. Wirtz, believed Johnson had the greatest potential in obtaining the remaining funding for the dam and, realising that Johnson would need money to win the campaign, had B&R and several of his other clients to send large amounts his way. Caro (1982) estimated that Johnson spent between $75k to $100k for his 1937 campaign, making it one of the most expensive races in Texas history at the time.

Needless to say, Johnson won the 1937 campaign and B&R completed the dam project as promised. So successful was B&Rs investment in Johnson that they received an additional $17 million in funding to build the dam higher than originally planned, as well as future contracts to build more dams, ships, defence factories, and military complexes around the world. Dugger (1982) quotes a public relations representative of B&R claiming that the company had completed a billion dollars worth of defence related business by 1954.

Now, this narrative may sound somewhat biased, but note that authorised biographers of Johnson such as the Miller Center suggest that Johnson’s influence was an important component of B&Rs success. In 1962, a $1.2 billion Defence Department construction project in Vietnam was awarded to a group of private firms including B&R; it later surfaced that waste, mismanagement and outright theft from the contract had reached hundreds of millions of dollars.

“You scratch my back, and I’ll scratch yours.”

In 1962, Herman Brown passed away and a 95% stake in B&R was sold to Halliburton Inc for $32.7 million. The following year, three other private companies in which Brown had an interest were also sold to Halliburton for $36.7 million. The Brown family became very wealthy indeed, though it was a reward for their hard work.

During Johnson’s unsuccessful campaign for U.S. Senate in 1941, Caro (1982) estimates that B&R contributed at least $200k, in addition to the $25k that B&R were legally allowed to contribute. How did they do this? By paying large bonuses to top executives, subcontractors and lawyers with the specific instructions to donate the larger part of these sums to Johnson’s campaign – clever. Charles Herring, a former aide of Johnson’s future campaigns for senate describes how other aides would travel to Houston (B&R headquarters), later returning with $40k to $50k in cash to add to the fire. Johnson would later come Vice President of the United States, behind Kennedy.

For next time…

Having identified the history of Brown & Roots’ relationship with Lyndon Johnson, we can use this information to identify specific firms that should benefit from any rise in power that Johnson receives. We can construct portfolios of stocks and analyse the differences between their performance in relation to the rest of the market before and after Kennedy’s assassination using an event study methodology.