Tree Ring Circus
1986 Houston businessman Charles Hurwitz buys a lumber company in California. 1989 The feds investigate Hurwitz for his role in the failure of a Texas savings and loan. 1990 Environmentalists organize Redwood Summer to protest Hurwitz’s logging practices. 1995 The feds sue Hurwitz for more than $1 billion in an effort to get control of his redwoods. 2005 A federal judge dismisses the suit and awards Hurwitz $72 million in damages. Your tax dollars at work.
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As he built his empire, Hurwitz acquired a reputation as a tough, ends-driven operator, someone to be feared. There was something about him—some odd combination of quietude, an uncanny ability to see things others could not, and terrierlike tenacity—that made people distrust him. Or maybe it was just that aggressive, empire-building Texans were supposed to be loud, flamboyant types, and no one quite knew what to do with the cerebral, soft-spoken Hurwitz. He was shunned at McCulloch, which wanted nothing to do with him and tried, unsuccessfully, to fight him off. In 1984, when he made a run at old-line Hawaiian company Castle and Cooke, which owned Dole Pineapple and a lot of prime Hawaiian real estate, the company reacted in horror, obtained a restraining order, and ended up paying him a substantial greenmail premium to make him go away. In the early eighties he wanted to build a luxury residential resort in Rancho Mirage, in the Southern California desert. In the acrimonious battle that ensued, Hurwitz fought the city council and other residents (including Frank Sinatra) and won the right to build the resort, in part because he brought a $240 million suit against the city, threatening it with municipal bankruptcy. Hurwitz denies that he was the sort of investor who, as he says, “went in, took over a company, stripped the assets, and left.” But he clearly had dismantled the companies he had acquired, at least partially. That was part of the play.
In his office conference room, which overlooks the Houston Galleria, Hurwitz rocks back in his chair and talks about the great financial crisis beginning in 1980 that saw the failure of 1,617 banks and 1,295 savings and loans, including his own. “The FDIC sued everybody,” he says. “They went after banks in Houston and Dallas, where the best and the brightest of the city were on the boards, and they sued all of the directors. They accused them of everything, and everybody had to defend themselves and get their own lawyers. Everybody I know settled.” Not Hurwitz. He was the last of the thousands of bank executives and directors sued by the government in the civil courts, the only one who chose to fight to the death instead of settling. He spent ten years and the equivalent of $70 million battling the collective, inexhaustible legal resources of two powerful government agencies. I ask him why.
“I wanted to see it through,” he tells me in a soft voice inflected with an East Texas accent. “I always thought we would win, even though a lot of other people didn’t and nobody I know of had ever won against the [Office of Thrift Supervision]. We knew we were right.” There was another reason he did not settle, he says: He wanted to set an example and punish the people who had violated his rights. “What the government did was outrageous,” he says. “I don’t want anyone else to have to go through what I went through.” He is still visibly angry, indignant at the way he was treated. This is why he is talking to me.
To understand why debt for nature became such a priority for the Clinton administration, you have to understand how Charles Hurwitz came to be regarded as the environmental Darth Vader of the Pacific Northwest. It all started in the fall of 1985, when he sniffed out one of the great, unheralded stock plays in America. Pacific Lumber—or Palco, as it is widely known—was ripe for a takeover. It was a sleepy, paternalistic 116-year-old American company, headquartered in picturesque Scotia, about four hours north of San Francisco. Scotia was the last true company town: Its rows of neat clapboard houses, schools, theater, hospital, recreation center, sawmills, and power plant all belonged to the timber company. What made Palco such a great deal were its depressed stock price and its management’s utter ignorance of how much timber it actually owned. Though the company had once been family controlled, family members no longer ran it and owned less than 5 percent of it, meaning that there was no major obstacle to buying it. After spurning Hurwitz’s initial bid, the company’s board accepted his offer of $40 a share, making it a friendly transaction. To finance his purchase, Hurwitz borrowed $750 million in the form of high-yield, or “junk,” bonds, underwritten by Drexel Burnham Lambert and its star financier, Michael Milken.
But Pacific Lumber did not turn out to be the sweet deal it had seemed. For all his shrewdness, Hurwitz had not foreseen the perfect storm of bad publicity that would soon catapult him into national headlines. Palco was not just any old widget maker. It owned 75 percent of the existing privately owned old-growth redwood trees in the United States. (Most of the remaining old-growth redwoods—81,500 acres, or 92 percent of the total—are in public parks.) These are special trees. They are magnificent and unearthly things that grow to a height of 350 feet and can live to be older than two thousand years. They form canopies so thick that sunlight hardly penetrates them. By the mid-eighties, “Save the redwoods” had become a rallying cry for the environmental movement, and growing numbers of people believed that cutting these ancient trees down to make deck furniture was morally wrong. Hurwitz had another problem: The blossoming national scandal on Wall Street involving insider trading, stock manipulation, and junk bonds zeroed in on Drexel Burnham Lambert and Milken, who would plead guilty in 1990 to securities fraud.
In June 1986, while these explosive issues simmered in the background, Palco’s managers unwittingly pulled the trigger. That month they filed papers showing that they intended to double the company’s annual timber harvest and also to rapidly harvest the old-growth redwoods. The reason: They had many more trees than the company’s previous managers had thought and thus could cut more of them and still obey state “sustainable yield” harvest limits. Both Hurwitz and his managers at Palco thought this was a perfectly reasonable idea.
What happened next was a political and media firestorm of astounding fury. Environmentalists looking for a cause célèbre had finally found one, and the perfect villain to match. A corporate raider, allied with the felons at Drexel Burnham Lambert, was going to chop down the last of the redwoods to satisfy Wall Street greed. By the summer of 1987, Palco was squarely in the national spotlight. Democratic congressman John Dingell, of Michigan, held a widely publicized hearing in Washington to look into whether Maxxam had engaged in stock manipulation or other illegal activities. Hurwitz was summoned and harshly chastised. Hearings were held that year in the California legislature, also driven by the idea that Hurwitz was illegally destroying a national treasure.
That summer there were protests in cities all across the country. In Houston demonstrators carried signs saying, “Hurwitz Is Destroying America.” In Manhattan protesters dressed up as owls and other endangered species. By 1990 the organized protest known as Redwood Summer had attracted thousands of activists to Scotia. Radical groups such as Earth First were not only sitting in trees to keep them from being cut down but also spiking them—a sometimes lethal means of sabotage that destroys the band saws at the sawmill. Lawsuits were filed by local groups like the Environmental Protection Information Center (EPIC), first simply to prevent logging and later to preserve endangered species such as the spotted owl and the marbled murrelet, who were said to require old-growth redwoods for nesting and breeding. (Studies would eventually show that claims that old-growth logging was driving spotted owls to extinction were uniformly false.)
Fueling these political fires was Palco’s often surly attitude toward such eco-interlopers as Earth First, the Sierra Club, and EPIC, in nearby Garberville. “They historically did things contrary to law and said, ‘Come get me,’” says Mark Stopher, a habitat conservation program manager for the California Department of Fish and Game. “They got their reputation the old-fashioned way. They earned it.” A good example of this was the so-called Thanksgiving Day Massacre of old-growth trees in 1992 at Owl Creek, near Scotia. Palco had filed for permission to cut, but in its hurry to cut logs before winter set in, it had not waited for all the required approvals. The result was a wave of negative publicity that seemed to confirm everything bad that protesters were saying about Palco.
What was really going on was a largely inaccurate propaganda campaign against Hurwitz and Palco, orchestrated by environmental groups and eagerly swallowed by reporters and editors. The myth relied on two narrative assumptions: first, that Palco had been an ecofriendly, family-run company that refused to harvest its old-growth redwoods out of the goodness of its heart and practiced only environmentally friendly logging; and, second, that because Hurwitz had loaded the company with Drexel-arranged debt, Palco had to increase its harvest of young and old trees to pay it off. Both assumptions were wrong. Palco was obviously neither well managed nor family run. But according to a 1996 study by two University of Southern California professors, pre-Hurwitz Palco would have cut down the oldest redwoods at a rate only slightly slower than Hurwitz. The study also found that Palco’s debt had nothing to do with the rate of harvest: The company could have paid the bonds off with no increase at all. Nor was the old Palco a paragon of ecofriendly logging: Its “selective” harvesting had been driven largely by California tax law.
Moreover, the plan to cut the old-growth trees simply followed existing company policy and the policy of every outfit that had ever logged the Northwest. One may disagree with the idea of cutting old redwoods down, as a matter of principle. Logging is a violent activity that leaves a devastated-looking landscape, destroys habitat, and can cause landslides, flooding, and silt runoff that clogs streams and interferes with the breeding of fish. Before the wave of new regulations in the seventies and eighties, logging was often brutally irresponsible, especially in its wanton destruction of creeks and rivers. But times had changed. Logging was now subject to strict environmental regulation, and Palco’s insistence that it had the right to cut those trees was fully in keeping with its legal authority and with industry practices in the Pacific Northwest.
As the battle was joined it became clear that it was being fought mainly over the largest stand of old-growth trees in private hands in America, a roughly three-thousand-acre parcel of land known as the Headwaters Forest. Though Palco had voluntarily accepted a moratorium on logging the Headwaters, it wanted to cut those trees down, while almost the entire environmental community in America wanted to save them. This impasse led to the evolution of two ideas that would animate the debate throughout the nineties. The first was that the government should buy the Headwaters Forest. The second was that the way to pay for the Headwaters was to sue Charles Hurwitz for the failure of United Savings Association of Texas—for which he was assumed to be responsible—and to use the presumed government victory in that civil action to force Palco to surrender its trees. This was what came to be known as debt for nature.
Around the time Hurwitz began battling with environmentalists in California, back in Houston he was experiencing the first major setback of his career. In December 1988 United Savings Association of Texas failed and was seized by banking authorities. At the time that it failed, Hurwitz-owned companies controlled just under 25 percent of the stock of its parent company, United Financial Group. When United Savings went down, it had $4.6 billion in assets and was the fifth-costliest thrift failure in the country.
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