The Sharpstown Scandal: Birth of the Two-Party System in Texas

Most people imagine that the Republican and Democratic parties have remained the same for all of American history. The reality is, the identity of both parties has shifted over time as the demographics of the country change and various political issues arise. These days, most of the country thinks of Texas as a bastion of the Republican Party. The two most recent Republican presidents have been conspicuously Texan, and the state is known for churning out conservative politicians with a distinctly pro-business, pro-family values attitude. However, just over forty years ago, Texas was a die-hard Democratic state. A popular colloquial term for Texas voters was ‘yellow dog Democrat;’ as in, they would rather vote for a yellow dog than a Republican. All of that changed in 1971, when the Securities and Exchange Commission (SEC) filed charges against Frank Sharp, a Houston-area banker and insurance manager. The SEC alleged that Sharp was the mastermind of a stock scheme that spread throughout the state government, implicating every level of power up to and including Democratic Governor Preston Smith. The scandal would change the face of Texas politics, shifting the balance of power to the Republicans and creating a viable two-party system in Texas for the first time in 100 years.

At the end of the Civil War, Texas was in political chaos. There was still a strong secessionist movement, and no one knew where Texas stood in the new Union. In 1865, federal troops occupied the state and facilitated the election of radical Republicans. Abraham Lincoln was a Republican, and he had freed the slaves and won the war; now, his party-members used their newfound power to impose punitive legislation aimed at the former Confederate power brokers. Confederates were banned from holding public office, and from voting for the new leadership. Newly-freed slaves voted for the Republicans, and in 1869 Republican E.J. Davis was elected. Four years later, ex-Confederates regained the right to vote, and E.J. Davis became the last Republican governor of Texas until 1979. For 100 years, Texas politics consisted of “one-party dominance by an all-white Democratic party, with the numerically smaller, predominately black Republican party in opposition.” That dynamic changed in 1971 with the Sharpstown scandal.

Frank Sharp was a mover and shaker in Texas politics due to his position as the head of the Sharpstown State Bank and the National Bankers Life Insurance Corporation. The SEC alleged that he used his position to broker a stock deal wherein state officials received loans from Sharpstown State Bank that would then be used to purchase stock in the National Bankers Life Insurance Corporation. After the state legislature approved certain bills that aided Sharp in his business endeavors, Sharp artificially inflated the stock so the state officials could sell it, netting a quarter of a million dollars in profit. It was alleged that Lieutenant Governor Ben Barnes was connected to many of Sharp’s schemes, and that Governor Smith himself forced the vote through that weakened banking regulations in a manner favorable to Sharp. Much of this information was gathered from Sharp’s own records. He was not especially secretive about his dealings. John Hill, who would become Attorney General in the wake of the Sharpstown scandal, compared Sharp to “the comic-strip bank robber who unwittingly leads the cops to his location because his getaway car was billowing dollar bills from leaky cash bags...The paper trail created by his disastrous political payoff scheme was so incriminating, it turned a normally low-profile federal investigative agency into a prosecutorial gorilla.” With the media howling and the city reeling, political upheaval was inevitable. The 1972 elections saw more seats contested than any election since World War II. The election was set to be held just three months after the trial of three of the major players in the scandal.

In the end, Representative Tommy Shannon of Fort Worth, House Speaker Gus Mutscher, Jr., and Mutscher’s aide Tommy McGinty were all convicted of conspiracy to accept a bribe. Their sentence was six months probation. During the trial, “District Attorney R. O. (Bob) Smith of Austin said…that Governor Smith was an unindicted coconspirator.” The scandal was tremendous. Such blatant corruption drew significant media attention. By John Hill’s count, between the SEC filing and the 1972 election “the Dallas Morning News published 455 articles on various aspects of the scandal—an average of one article every day.” That does not include articles published in the national media, or account for the effect of increased media attention on the citizens of Houston. The voters felt betrayed, and were determined to see significant political change. Incumbent Democratic candidates had so little hope of keeping their seats that they were “beat when they paid their filing fee.” The elections of 1972 saw the incumbent governorship and lieutenant governorship overturned, half of the House replaced, and a large portion of the Senate given over to either Republicans or moderate Democrats. In the next forty years, until the current Governor Rick Perry, Republicans have largely dominated the political landscape in Texas.

After the 1972 election, the new legislature had a mandate to make sweeping reforms. During the first legislative session, reformers passed bills that “required state officials to disclose their sources of income, forced candidates to make public more details about their campaign finances, opened up most governmental records to citizen scrutiny, expanded the requirement for open meetings of governmental policy-making agencies, and imposed new disclosure regulations on paid lobbyists.” The political mood was so in favor of reform that lawmakers were able to promote other consumer protection reforms. Sharpstown predates the similar reforms that would take place on a national level after the Watergate scandal broke a few years later. All the traditional methods of brokering power in the Texas state government were turned upside down. John Hill observes that “election of a governor, attorney general, presiding officers of both houses and half of the legislators having minimal influence from lobbyists was unprecedented in modern times…now (business lobbyists) were forced to go hat-in-hand to individual legislators—many of whom they had opposed during the election—to protect their interests.” Many of the ‘good ol’ boy’ networks of power were dismantled during this time, or repopulated with a new cast of un-controversial players. Like the Confederate government after the Civil War, the old Democrats were stripped of their power and forced to make changes to appeal to the electorate.

Democrats have had some success in Texas since Sharpstown, but in general Republicans have dominated the political landscape. The governorship went back and forth between the parties every four years between 1979 and 1995. In the early 1990s, Democrat Ann Richards appointed a record number of women and Latinos to governmental offices. But since 1999, with Republicans holding both the governorship and lieutenant governorship, Texas has been staunchly Republican. It is important to note that this shift in party loyalty does not signal a concomitant shift in political values. Instead, “it now appears that what the state witnessed was a change in party label rather than a change in ideology.” The voters objected to the massive corruption evident in the Democratic Party, but did not change their opinions on pertinent political and social issues. The Sharpstown Scandal encouraged voters to get rid of the dominate Democratic Party, but not to change the political beliefs that the then-Democrats espoused.

Since its inception, Texas has had a strong state’s rights bent, and that preoccupation continues under Republican leadership. The old Democratic Party was predominately white, as is the new Republican Party; Texas has never had a minority governor, and only two females have held the seat. In Texas, both parties oppose gun control, and a strong family-values stance is necessary for a candidate to win state-wide support. Sharpstown did not signify a significant change in political values, merely a repudiation of the corruption and greed that characterized state politics in the late 1960s and early 1970s. In the last forty years, the demographics of political parties have shifted. The Republican Party, once characterized by the youthful energy and reformer’s passion of the Reconstruction, has now become the more conservative party on both fiscal and social issues. Democrats have become more liberal, and the party now controls most of the minority vote. This is an important lesson to learn from the Sharpstown scandal. The names may change, but politics remains the same.

One-party dominance can create a stagnant political system where government officials become so sure of their position that they are willing to abuse it. The Sharpstown scandal was an example of political corruption fostered by an environment where the electorate was willing to elect candidates based purely on party loyalty. These ‘yellow-dog Democrats’ were creating the perfect political environment for corruption. Competition between parties is healthy because it encourages members of both parties to be hard-working, dedicated and conspicuously moral. Sharpstown was an example of political power run amok, and we can only hope that we will not see similar evidence of political corruption in the future.

Bibliography

Kinch Jr., Sam. “SHARPSTOWN STOCK FRAUD SCANDAL.” Texas State Historical Association. http://www.tshaonline.org/handbook/online/articles/mqs01 (accessed April 4, 2014).

Hill, John L., and Ernie Stromberger. John Hill for the State of Texas: My Years as Attorney General. College Station, Texas. Texas A&M University Press 2008.

Maxwell, William Earl and Ernest Crain. Texas Politics Today, 2011-2012. 15th Edition, Mexican-American politics ed. Mason, OH.: Cengage Learning 2012.