Caroline Kennedy may not be a moron, but she's certainly politically involved. Granddaddy amassed a fortune in bootlegging, became powerful and someone probably did owe him and pay him with an Ambassadorship. Granddaddy's children were all groomed to be politicians.
Maybe it has less to do with politics than marital problems that need to have a lid kept on them? None of the Kennedy's seem to have been able to fare too well in that arena.
Ah, the biggest Kennedy myth.
The facts of Kennedys life (that he was rich; that he was in the liquor business; that he was deeply unpopular and widely distrusted) were rich loam for a rumor that did not begin to blossom until nearly 30 years after Repeal. Three times during the 1930s, Kennedy was appointed to federal positions requiring Senate confirmation (chairman of the Securities and Exchange Commission, chairman of the U.S. Maritime Commission, Ambassador to Great Britain). At a time when the memory of Prohibition was vivid and the passions it inflamed still smoldered, no one seemed to think Joe Kennedy had been a bootleggernot the Republicans, not the anti-Roosevelt Democrats, not remnant Klansmen or anti-Irish Boston Brahmins or cynical newsmen or resentful Dry leaders still seething from the humiliation of Repeal. Theres nothing in the Senate record that suggests anyone brought up the bootlegging charge; theres nothing about it in the press coverage that appeared in The New York Times, The Washington Post, The Wall Street Journal, or The Boston Globe. There was nothing asserting, suggesting, or hinting at bootlegging in the Roosevelt-hating Chicago Tribune, or in the long-dry Los Angeles Times. Around the time of his three Senate confirmations, the last of them concluding barely four years after Repeal, there was some murmuring about Kennedys involvement in possible stock-manipulation schemes, and a possible conflict of interest. But about involvement in the illegal liquor trade, there was nothing at all. With Prohibition fresh in the national mind, when a hint of illegal behavior would have been dearly prized by the presidents enemies or Kennedys own, there wasnt even a whisper.
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Joseph P. Kennedy was the ambitious son of a prosperous Boston saloon keeper and ward boss. He married the mayor's daughter, went to Harvard, and generally made the most of his ample connections and talent. He ran a bank (admittedly two-bit) at 25, and was number-two man at a shipyard with more than 2,000 workers during World War I. At 30 he became a stockbroker and made a fortune through insider trading and stock manipulation. He was a master of the stock pool, a then-legal stunt in which a few traders conspired to inflate a stock's price, selling out just before the bubble burst.
Kennedy may also have traded in illegal booze, although the evidence is circumstantial. His father had been in the liquor business before Prohibition, and Joe himself got into it (publicly, that is) immediately after repeal. Some believe the family business simply went underground during the dry years. He may have been strictly a nickle-and-dimer; Harvard classmates say he supplied the illicit booze for alumni events.
But there might have been more to it than that. In 1973 mob boss Frank Costello said he and Kennedy had been bootlegging partners. Other underworld figures have also claimed Joe was in pretty deep. At least one writer (Davis, 1984) thinks bootlegging enabled Joe to earn his initial financial stake, but that's hard to believe; he had plenty of chances to make money more or less legally.
The Straight Dope: What is the true source of the Kennedy family's wealth?