How the GOP presidential candidate and his private equity firm staged an epic wealth grab, destroyed jobs – and stuck others with the bill
“… a self-righteously anal, thin-lipped, Whitest Kids U Know penny pincher who'd be honored to tell Oliver Twist there's no more soup left.”
By Matt Taibbi
His legendary flip-flops aren't the lies of a bumbling opportunist ~ they're the confident prevarications of a man untroubled by misleading the nonbeliever in pursuit of a single, all-consuming goal.
And the drama of this rhetorical high-wire act was ratcheted up even further when Romney chose his running mate, Rep. Paul Ryan of Wisconsin ~ like himself, a self-righteously anal, thin-lipped, Whitest Kids U Know penny pincher who'd be honored to tell Oliver Twist there's no more soup left.
"Paul Ryan has become an intellectual leader of the Republican Party," Romney told frenzied Republican supporters in Norfolk, Virginia, standing before the reliably jingoistic backdrop of a floating warship. "He understands the fiscal challenges facing America: our exploding deficits and crushing debt."
by borrowing vast sums of money that other people were forced to pay back.
Mitt Romney is one of the greatest and most irresponsible debt creators of all time.
A man makes a $250 million fortune loading up companies with debt and then extracting million-dollar fees from those same companies, in exchange for the generous service of telling them who needs to be fired in order to finance the debt payments he saddled them with in the first place.
No one in history has ever successfully run for president riding this big of a lie. It's almost enough to make you think he really is qualified for the White House.
Four years ago, the Mitt Romneys of the world nearly destroyed the global economy with their greed, shortsightedness and ~ most notably ~ wildly irresponsible use of debt in pursuit of personal profit.
But today that same insane greed ethos,that same belief in the lunatic pursuit of instant borrowed millions~ it's dusted itself off,it's had a shave and a shoeshine,and it's back out there running for president.
Instead of cars and airplanes, we built swaps, CDOs and other toxic financial products.Instead of building new companies from the ground up, we took out massive bank loans and used them to acquire existing firms, liquidating every asset in sight and leaving the target companies holding the note.
"But he comes out, he not only has a Harvard Business School degree, he's got a national pedigree with his name. He could have done anything ~ but what does he do? He says, 'I'm going to spend my life loading up distressed companies with debt.'"
"That interest," says Lynn Turner, former chief accountant of the Securities and Exchange Commission, "just sucks the profit out of the company."
"I believed he was making a mistake by framing himself as a job creator," said Wolpow. "That was not his or Bain's or the industry's primary objective. The objective of the LBO business is maximizing returns for investors."
Take a typical Bain transaction involving an Indiana-based company called American Pad and Paper. Bain bought Ampad in 1992 for just $5 million, financing the rest of the deal with borrowed cash. Within three years, Ampad was paying $60 million in annual debt payments, plus an additional $7 million in management fees.A year later, Bain led Ampad to go public, cashed out about $50 million in stock for itself and its investors, charged the firm $2 million for arranging the IPO and pocketed another $5 million in "management" fees.Ampad wound up going bankrupt, and hundreds of workers lost their jobs, but Bain and Romney weren't crying:They'd made more than $100 million on a $5 million investment.
Romney, who has compared the devilish federal debt to a "nightmare" home mortgage that is "adjustable, no-money down and assigned to our children," took over Ampad with essentially no money down, saddled the firm with a nightmare debt and assigned the crushing interest payments not to Bain but to the children of Ampad's workers, who would be left holding the note long after Romney fled the scene. The mortgage analogy is so obvious, in fact, that even Romney himself has made it. He once described Bain's debt-fueled strategy as "using the equivalent of a mortgage to leverage up our investment."
"I never actually ran one of our investments," he says in Turnaround. "That was left to management."
"I insisted on having almost dictatorial powers," he bragged years after the Ampad deal.
The seemingly religious flavor of Bain's culture smacks of the generally cultish ethos on Wall Street, in which all sorts of ethically questionable behaviors are justified as being necessary in service of the church of making money.
"I'm not going to apologize for having changed my mind," he likes to say.
Goldman Sachs excused its lying to clients, for example, by insisting that its customers are "sophisticated investors" who should expect to be lied to."Last time I checked," former Morgan Stanley CEO John Mack sneered after the same scandal, "we were in business to be profitable."
Hey, I'm trying to win an election. We're all grown-ups here.
But under Romney's business model, leveraging other people's debt means you can carve out big profits for yourself and leave everyone else holding the bag.
The debacle that followed serves as a prime example of the conflict between the old model of American business, built from the ground up with sweat and industry know-how, and the new globalist model, the Romney model, which uses leverage as a weapon of high-speed conquest.
"The dividend recap is like borrowing someone else's credit card to take out a cash advance, and then leaving them to pay it off," says Heather Slavkin Corzo, who monitors private equity takeovers as the senior legal policy adviser for the AFL-CIO.
"It wasn't like, 'Yay, we did a good job, we get a dividend,'" she says with a laugh. "It was like, 'We can do this, so we will.'"
Takeovers rose sharply with each of Wall Street's great easy-money schemes, then plummeted just as sharply after each of those scams crashed and burned, leaving the rest of us with the bill.
The new owners of American industry are the polar opposites of the Milton Hersheys and Andrew Carnegies who built this country, commercial titans who longed to leave visible legacies of their accomplishments, erecting hospitals and schools and libraries, sometimes leaving behind thriving towns that bore their names.
The men of the private equity generation want no such thing.
"If anyone at Cerberus has his picture in the paper and a picture of his apartment, we will do more than fire that person," Feinberg told shareholders in 2007. "We will kill him. The jail sentence will be worth it."
Which brings us to another aspect of Romney's business career that has largely been hidden from voters:
His personal fortune would not have been possible without the direct assistance of the U.S. government.
The taxpayer-funded subsidies that Romney has received go well beyond the humdrum, backdoor, welfare-sucking that all supposedly self-made free marketeers inevitably indulge in.
So the Romney who routinely rails against the national debt as some kind of child-killing "mortgage" is the same man who spent decades exploiting a tax deduction specifically designed for mortgage holders in order to bilk every dollar he could out of U.S. businesses before burning them to the ground.
Because minus that tax break, Romney's debt-based takeovers would have been unsustainably expensive. Before Lynn Turner became chief accountant of the SEC, where he reviewed filings on takeover deals, he crunched the numbers on leveraged buyouts as an accountant at a Big Four auditing firm. "In the majority of these deals," Turner says, "the tax deduction has a big enough impact on the bottom line that the takeover wouldn't work without it."
As a private equity pirate, Romney pays less than half the tax rate of most American executives ~ less, even, than teachers, firefighters, cops and nurses.
Asked about the fact that he paid a tax rate of only 13.9 percent on income of $21.7 million in 2010, Romney responded testily that the massive windfall he enjoys from exploiting the tax code is "entirely legal and fair."
That conflict will be between people who live somewhere, and people who live nowhere.It will be between people who consider themselves citizens of actual countries, to which they have patriotic allegiance, and people to whom nations are meaningless, who live in a stateless global archipelago of privilege ~ a collection of private schools, tax havens and gated residential communities with little or no connection to the outside world.
Mitt Romney isn't blue or red. He's an archipelago man. That's a big reason that voters have been slow to warm up to him.