Co-Director Campaign for America's Future
As the Republican convention approaches, “Etch-a-Sketch” Mitt Romney continues to reshape himself. Overnight, he’s for allowing abortion in cases of rape and incest, after being against it. Now he’s the savior of Medicare after being the scourge of the entitlement society.
But for all the shapeshifting, Romney’s core worldview is clear, forged in the experience that made his fortune as head of Bain Capital. For this reason, the Campaign for America’s Future has created bainofourexistence.com to provide a constantly updated resource of reporting on and analysis of Bain and Romney. (This will be a constant work in progress. To contribute to the site, please use this contact page.)
The questions spawned by the various scandals surrounding Romney at Bain – Did he create jobs or destroy them? Did he actually quit in 1999 or later? Was he responsible for companies that went bankrupt after he left? – miss the point. Bain Capital, with Romney at its head, epitomizes the Gilded Age capitalism of the last decades, the casino finance that eventually brought the economy to its knees. And Romney, for all of his repositioning, is running as an advocate of that casino capitalism, a defender of the rigged rules and skewed policies that underpin it. Unlike Teddy and Franklin Roosevelt, who ran as “traitors to their class,” Romney is an unabashed tribune of the rich. The worldview forged at Bain is revealed in his personal life as well as his policy choices.
The Fixed Casino
As Charles Ferguson writes in Predator Nation, private equity companies like Bain Capital may be the “most efficient money-seeking organisms in the world.” As the head of Bain, Romney was a money guy, not a businessman. Bain people don’t know cars or steel; they aren’t part of building companies grounded in communities, with proud workforces. They aren’t entrepreneurs with an idea, seeking to build a business. They know numbers, money and tax codes.
Typically, Bain and private equity firms buy existing companies with other people’s money. Firm partners put little of their own capital in their deals. The money comes from their limited partner investors and from taking on debt. The companies they buy are forced to take on enormous debts. Bain would pay itself exorbitant fees and distribute special dividends to itself and its limited partners. The debt is attractive because interest can be written off.
Under Bain guidance, the new managers would then seek to lower operating costs to sustain profits. Not surprisingly, Bain was an early proponent of offshoring and outsourcing of jobs, and a brutal adversary of unions and worker contracts. After getting their money out in fees, Bain would take risks with companies laden with debt. If things worked out, the companies might expand. If they failed, as they often did, the companies went bankrupt, workers lost their jobs, communities were shattered, but Bain partners profited.
Thus, as Bloomberg reported, 10 of roughly 67 major deals by Bain Capital during Romney’s watch produced about 70 percent of the firm’s profits. Four of those 10 deals, as well as others, went bankrupt even as Bain cleaned up. Joe Soptic, the steelworker in the Obama ad who lost his job, his health care and his wife, was a victim. The workers at UniMac, K.B Toys, DDI and AmPad –in the famous Gingrich film, “When Mitt Romney Came to Town,” were collateral damage. As David Stockman, the former budget director for Ronald Reagan said, Bain wasn’t about creating jobs: “The LBO business is about how to strip cash out of old, long-in-the-tooth companies and how to make short-term profits.”
Romney similarly sought to limit his own personal risk in setting up Bain Capital. He got a guarantee that if the firm failed, he would be made whole financially, guaranteed a position in the parent investment company, and provided with a cover story to erase the failure from his record. He insisted there was, as Bill Bain put it, “no professional or financial risk.” (more…)