JULY 2018

JULY 2018
One Hundred Years Later, Same Message. 1916 - 2017


Friday, October 10, 2014


I find it curious that “King of the Hill” is such a popular game in Houston, Texas, since there are no hills there. In fact, because of all the oil, gas and water pumped out of the clays underfoot by Texans building their personal hills, most of the town has subsided 10 feet or more. Consider that archetypal post war Houston hill climber – Frank Wesley Sharp (above, left). He was not part of the  circle of wealthy, power hungry men who ran Houston. As one biographer said of the amiable salesman, “He was in many ways...a loner...He just wanted to win whatever race he was in at the time.” At forty Frank first experimented in the northwest suburbs with a development on the cheap. Like the rest of Houston, his 1946 Oak Forest tract had no zoning laws. It did have paved streets and water, sewage, gas and power lines - even a golf course - but Frank left most of the buildings to independent contractors. Having climbed that hill, however, Frank was now compelled to find another, higher, mountain to stand upon.
On July 3, 1954, Houston newspapers screamed, “Sharp Announces Houston's Biggest Home Project.” Humbly titled Sharpstown, Frank's pièce de résistance was to be a $200 million 4,000 acre city within the city, with 15,000 homes, an indoor air conditioned shopping mall, nine churches, seven parks, two hospitals, two high schools, a golf course, a twin drive-in theater, three nursing homes, a 750 acre industrial park, six auto dealerships, even a Jesuit College Prep school And running through the center of Sharpstown, was a 300 yard wide strip Frank “donated” to the city, for a brand new freeway aimed at downtown Houston, 9 miles to the northeast. It was a fully planned if not a fully funded community which only required a $3 million investment from Frank.
And most important of all,. adjacent to the Sharpstown Center Mall, at 7500 Bellaire Boulevard, Frank built a ten story office tower that housed the Sharpstown State Bank, which was Frank Sharp's real money-making scheme. You see, in 1962 (when the mall opened), as in 1867 when Credit Moblier was chosen as the general contractor for the transcontinental railroad, as in 1792, when speculators promoted the swampy Yazoo Lands, Frank Sharp knew that making “real” money had nothing to do with buying low or selling high. In a capitalist system, the greatest profit is always in buying politicians, whose price and morals, are usually cheap.
It was bad luck that Frank Sharp did not really get rich from Sharpstown. One of his partners died in a hunting accident midway through the multi-year construction, and the banks asked for another $5 million to refinance his loan. Frank found new partners to carry him over, but the interest rates they demanded were so high, Frank had to promise not to sue them for usury. Two years later Frank was able to buy himself out of that crushing deal with $3 million in cash, which he borrowed from George and Herman Brown. Of course he also had to agree to grant their company, Brown and Root, exclusive contracts for all future construction in Sharpstown. The thing about sharks, that sharks often forget, is that sharks eat sharks.
Still, by the late 1960's, Frank could finally see the summit, and there was just one last precipice to overcome. His Sharptown Bank had too low a ratio of deposits to loans to qualify as a member of the Federal Deposit Insurance Corporation, the private-slash-government agency that guaranties deposits in member banks. And without that guarantee, Frank's Sharptown Bank could not attract the institutional investors and depositors he needed to firmly establish the foundation of his hill. In July of 1969 Frank met privately with Texas Governor Preston Smith (above) in a Houston hotel suite to discuss the problem. And, what do you know - darn - if they didn't came up with a solution.
At the time Governor Smith (above, left center) was locked in a messy Democratic primary fight, but the winner would go on to an almost default victory in the general election, since Texas had been overwhelmingly Democratic for over a hundred years. But whatever he was going to do, Smith had to do it quickly even if re-elected, because Texas limited its governors to two year terms. So later that summer Smith met with his Lieutenant Governor Ben Barnes, who presided over the State Senate, Speaker of the House Gus Mutscher (above, left), his aide Rush McGinty,  the Speaker's close ally Representative Tommy Shannon, Attorney General Waggoner Carr (above right), State Insurance Commissioner John Osorio, and a member of the State Banking Board, Elmer Baum, who was also Chairman of the Texas Democratic Party. Smith informed his cabal of his three part plan, suggested by Frank Sharp's problem.
Step one required each member to apply for a loan from the Sharpstown Bank, which Frank would personally approve. Cabal members would use those funds to buy stock in another of Frank Sharp's financial properties, his National Bankers Life Insurance Company, now based in Dallas. Step two required the legislature to create a Texas Deposit Insurance program, which would be much more lenient in their deposit to loan ratio's than the FDIC. This would put the Texas taxpayers on the hook should the Sharpstown bank go under, but nobody expected that would happen, since the guarantee would attract the large institutional investment Frank Sharp needed to ensure the bank's future.
Step three would see Frank use his new investors to encourage his customers and associates, like the Strake Jesuit College, to buy shares of National Bankers Life as it went up, from $20 to $26 a share. Finally, the cabal members would cash out their stock, pocketing the profits. It seemed a fool proof plan, particularly when handled by astute politicians who had almost complete control of the Texas Legislature. And all went according to plan. To a point.
Frank approved $600,000 in loans for the cabal members, which they used to buy Bankers Life stock. The Texas Deposit Insurance Program was hurriedly passed in the final late night hours of a special session. But then to the surprise of many in the cabal, Attorney General Carr issued a public letter warning that Texas taxpayers would be put at risk insuring banks too weak to qualify for the FDIC program. That gave Governor Smith an excuse to veto the bill, which he did. Of course Smith and most of the cabal sold their Banker's Life stock before he signed the veto. Preston Smith was not stupid.
All told, the cabal members made about $250,000 in profits. Governor Smith alone made a $62,500 profit . The head of the Texas House Appropriations, Bill Heatly, made just under $50,000. Rush McGinty, made about $45,000 . And Rep. Tommy Shannon profited $37,000. But that left Frank's other customers who had trusted and believed in him, like the Jesuits, holding the Bankers Life stock on its way down. The Jesuit college lost $6 million dollars after the Governor's veto was announced. And being sore losers in this King of the Hill game, they called the Federal Securities and Exchange Commission.
Two years later, on January 18th, 1971, Governor Smith was inaugurated to his second term. But the Austin celebratory parade was disrupted by angry crowds, cursing and throwing bottles at the floats and marching bands. That very afternoon in Dallas, the U.S. Department of Justice had publicly indicted several members of the cabal, and Governor Smith had been named as an unindicted co-conspirator. The public reaction was immediate and extremely angry. By the end of the month the SEC had seized the Sharpstown State Bank. Examining its books they were unable to locate $16 million. And even though the bank was not a member, the FDIC paid the private depositors in full, up to $20, 000. By the end of February the National Bankers Life Insurance Corporation had also been seized. Civil suits were flying, and two dozen elected and appointed state officials were charged in Federal and State courts with crimes. For a time it looked like people were actually going to jail. .
The February 1972 trial of Speaker Mutscher, Rep Shannon and aide Rush McGinty was moved to Abilene, Kansas because of pretrial publicity in Austin. And on March 15th , after two hours of deliberation, a jury found them guilty. The very next day Federal Judge J. Neil Daniel sentenced them each to five years...probation. Gus Mutscher had his conviction thrown out on appeal, and was later elected as a judge for Washington County, Texas. At his trial in Dallas, Frank W. Sharp was sentenced to three years...probation. He also paid a fine. Of $5,000, or about 1/15 of the profit made on Sharpstown Bank Scandal. In the next election cycle, about half of the state legislature was replaced, but the Democrats retained control of both houses.
In the end only one politician actually went to jail - Walter Knapp Jr (above), a four term Democratic Representative from Amarillo. He was not involved in any part of the cabal, but in the attendant publicity he was convicted of stealing $1,200 worth of postage stamps, which he traded for a new pickup truck. For that crime Walter Knapp was sentenced to four years in prison, and there was no probation for him. He served a year, before an appeals court judge ordered a new trial, and released Walter on bail. In March of 1974, his wife Nancy, divorced him, and over Thanksgiving that year she remarried. In December Walter confronted Nancy on an Amarillo street and shot her in the head. When police confronted him, Walter shot himself.
Governor Smith (above) remained an uninidicted conspirator, and although he tried to run for re-election, he was eliminated in the Democratic primary. In 1974 he started his own bank in Lubbock, Texas, and in 1986 transferred to Great Western Mortgage Company. He died in 2003.
Frank Welsey Sharp never shot anybody. He never stole $1,200 in petty cash. He never committed a violent crime in his life, unless you consider bankrupting families and emptying college funds a violent act. .In his final years, he liked to wander the mall he had built, talking to shoppers and business owners. It was all that was left of the hill he had named after himself and then clambered atop  Frank died peacefully, at 87 years of age, in 1993. And in Houston, a new generation is still playing King of the Hill, which still remains, a game of winner-take-all by any means possible..
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