Heads I Win, Tails You Lose: How Romney Made His Fortune by Socializing Losses

[TheCouga]

I've linked to this article twice on here already in other threads, and each time people seemed both unfamiliar with its contents or at a loss of words when responding. I really think it deserves its own thread, because it really gets at the core of Romney's background, and at the core of the problems with what we now call "capitalism" in this country.

Romney’s Bain Yielded Private Gains, Socialized Losses

What’s clear from a review of the public record during his management of the private-equity firm Bain Capital from 1985 to 1999 is that Romney was fabulously successful in generating high returns for its investors. He did so, in large part, through heavy use of tax-deductible debt, usually to finance outsized dividends for the firm’s partners and investors. When some of the investments went bad, workers and creditors felt most of the pain. Romney privatized the gains and socialized the losses.

. . .

Thanks to leverage, 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, later wound up in bankruptcy. It’s worth examining some of them to understand Romney’s investment style at Bain Capital.

So out of the 10 deals that basically made Bain, 4 of the companies went bankrupt.

In 1992, Bain Capital bought American Pad & Paper by financing 87 percent of the purchase price. In the next three years, Ampad borrowed to make acquisitions, repay existing debt and pay Bain Capital and its investors $60 million in dividends.

As a result, the company’s debt swelled from $11 million in 1993 to $444 million by 1995. The $14 million in annual interest expense on this debt dwarfed the company’s $4.7 million operating cash flow. The proceeds of an initial public offering in July 1996 were used to pay Bain Capital $48 million for part of its stake and to reduce the company’s debt to $270 million.

From 1993 to 1999, Bain Capital charged Ampad about $18 million in various fees. By 1999, the company’s debt was back up to $400 million. Unable to pay the interest costs and drained of cash paid to Bain Capital in fees and dividends, Ampad filed for bankruptcy the following year. Senior secured lenders got less than 50 cents on the dollar, unsecured lenders received two- tenths of a cent on the dollar, and several hundred jobs were lost. Bain Capital had reaped capital gains of $107 million on its $5.1 million investment.

So not only is Romney screwing over workers with jobs, he's screwing over other businesses by driving these corporations into bankruptcy.

The article goes through various Bain deals, and it gets even worse. I suggest everyone look at the whole thing to get an accurate picture of how this dude got rich. It kind of goes against all the ideals of real capitalism -- where if you fail, you lose, and the rewards are only for the innovative and the successful. Romney figured out a strategy where he couldn't lose...he got rich either way at the expense of other businesses.

Even if you're one of those people that routinely dismisses the rights of workers, you should at least be offended by the other businesses that Romney screwed over through these tactics.

[TheCouga]

And just as an added note, this is the exact same strategy the Big Banks used. Rack up an enormous amount of leverage and debt and then use the borrowing to pay off your insiders before the floor caves in. When the floor caves in, it's not the insiders left holding the bag.

The Romney business strategy is exactly the kind of corrupt business practices that caused the economic collapse in this country.

[TheCouga]

Dana Milbank: Romney’s Bain games - The Washington Post

Another good writeup on Romney's unethical business practices -- this time from Milbank:

According to the Bloomberg account, Bain invested 36 million euros as part of a group that bought a majority of Seat for 853 million euros in late 1997. In February 2000, during the dot-com bubble, Telecom Italia bought back the Seat shares it didn’t own for 14.6 billion — generating a windfall for Bain.

Three years later, according to the report, Seat’s value had collapsed to 3.7 billion euros, and today it’s worth just 57 million. The plunge didn’t matter to Bain, however; it had moved its profits into subsidiaries in Luxembourg, avoiding taxes in Italy.

More troubling than the Bain windfall were the responses to Bloomberg from Bain and the Romney campaign. Bain noted that it was “in full compliance with all tax and reporting requirements.” A spokeswoman for the Romney campaign argued that Romney and Bain “partnered with a new management team to transform this company, and grow it into a tremendous success.”

A tremendous success that quickly toppled, like a child’s tower.

. . . it gets at Romney’s larger problem with Bain and his personal income taxes: The question is not whether he did well, or whether he did it legally, but whether he did it with any sense of ethics.

Romney almost certainly didn’t break the law by putting his money in Switzerland or the Bahamas, or by paying an income tax rate of 15 percent. He didn’t necessarily break any laws by creating a $100 million 401(k).

The question is whether such things are fair, or whether Romney has exploited a system that allows rich people like him to get richer at the expense of less wealthy taxpayers — Italian, in the most recent case, or American, in other cases. Of more concern is that, as president, Romney would further expand the advantages of fellow rich people.

Yet another company that ended up going bankrupt while Romney avoided taxes by funneling profits through a foreign country.

[Mr. DNA]

Need a little government help making ends meet while raising your family? You're a moocher, a looter, and a parasite. Probably part of some culturally inferior group with lots of embarrassing spokespeople like Cynthia McKinney or Louis Farrakhan. SHAME! Take some responsibility for yourself and your community!

Spend $10 million in lobbying congress so you can get $5 billion in federal government contracts? Found a way to make millions of dollars outsourcing jobs from America to Indonesia while paying less income tax than that Norman Rockwell-inspired doctor who hates Obamacare in your righteous anecdotes? You're just playing the game and not breaking any laws (that Eric Holder bothers enforcing). You're a job creator. The government teat is PRIVILEGED to have you sucking on it. You get way more in benefits from the state than some useless eater on on food stamps, but you're actually entitled to all those benefits because you've already proven your worth as a human by being rich. Objectivism, yo.

Sure, your reckless gambling in the Wall Street casinos may have lowered the value of Joe Republican's house in Ohio or Michigan, but you can always count on him to blame people beneath him on the social ladder because it's the only thing that makes him feel good about his diminishing standard of living. Besides, who cares about rubes like him. They play by the rules so you don't have to. Need to pay down the national debt that your dumb tax cuts and perpetual warfare have created? Joe Republican will degrade himself so you can stay rich. Just repeat a bunch of platitudes and his small-minded pettiness and delusions of grandeur take care of the rest. He's your sin eater.

[hueytaxi]

Drun fa ros qvwetymz; um vetras pom basportium nevum.

[TheCouga]

I just don't see how this conduct is anything but destructive. It goes way beyond the bounds of what capitalism theoretically is supposed to be. It was supposed to be a method of allocating capital to its most effective and efficient use.

Mitt Romney is not doing that. He's profiting from taking advantage of flaws in tax codes, bankruptcy laws, etc. and the way he's profiting isn't by creating efficiency -- he's profiting by screwing over others -- whether they be workers, governments, or private creditors.

[ewsieg]

I just don't see how this conduct is anything but destructive. It goes way beyond the bounds of what capitalism theoretically is supposed to be. It was supposed to be a method of allocating capital to its most effective and efficient use.

Mitt Romney is not doing that. He's profiting from taking advantage of flaws in tax codes, bankruptcy laws, etc. and the way he's profiting isn't by creating efficiency -- he's profiting by screwing over others -- whether they be workers, governments, or private creditors.

isnt' taking advantage of flaws in tax codes, bankruptcy laws, etc, another way of saying he's creating efficiency through his finance department?

Almost makes a case for a complete overhaul of tax law.

[Gehringer_2]

isnt' taking advantage of flaws in tax codes, bankruptcy laws, etc, another way of saying he's creating efficiency through his finance department?

Almost makes a case for a complete overhaul of tax law.

Bingo there. The gov has done a great job of creating a myriad of perverse profit incentives to "non-productive" economic behavior. Now maybe you blame that on the size of government or maybe you blame that on the government having been captured by special interests because of a warped election process, but either way people need to make common cause to put an end to it.

[John_Brian_K]

I think the majority of people want a 'tax overhaul' because it is soo darned complicated and people try to simplify stuff. I, personally, think the tax code is working just fine. It gets tweaks every year.

[pfife]

I want a tax code overhaul because the current code is class warfare against the middle and lower classes perpetrated by the upper class elites.

[Euphdude]

I want a tax code overhaul because the current code is class warfare against the middle and lower classes perpetrated by the upper class elites.

I tend to agree pfife. Our system is not set up to be a level playing field, and it should be fixed.

[John_Brian_K]

How often do we have to have this debate? How is the current code 'tax warfare'? How much is enough? You guys take a couple stories about people scamming the IRS and attribute that to most of the upper class. How much should they be paying?

Class warfare: Who pays fair share of taxes? - Oct. 14, 2011

National Taxpayers Union - Who Pays Income Taxes?

Tax Year 2009

Percentiles Ranked by AGI
AGI Threshold on Percentiles
Percentage of Federal Personal Income Tax Paid

Top 1%
$343,927
36.73

Top 5%
$154,643
58.66

Top 10%
$112,124
70.47

Top 25%
$66,193
87.30

Top 50%
$32,396
97.75

Bottom 50%
<$32,396
2.25

Note: AGI is Adjusted Gross Income
Source: Internal Revenue Service

[TheCouga]

It's not just the tax code he abused, though. It's bankruptcy laws. He succeeded in business by debt-financing payouts to Bain and then leaving creditors, pension plans and workers hanging in the wind when it went belly-up.

I mean, this just cannot be overlooked:

In 1992, Bain Capital bought American Pad & Paper by financing 87 percent of the purchase price. In the next three years, Ampad borrowed to make acquisitions, repay existing debt and pay Bain Capital and its investors $60 million in dividends.

As a result, the company’s debt swelled from $11 million in 1993 to $444 million by 1995. The $14 million in annual interest expense on this debt dwarfed the company’s $4.7 million operating cash flow.

He increased the company's debt by 4000% in just two years -- and this was a company that was already faltering. If someone can explain to me how that's a responsible business practice, or that a guy who takes that kind of approach to things is the answer to this nation's troubles right now, please do. Because I'm at a loss of words.

[Truth]

It's not just the tax code he abused, though. It's bankruptcy laws. He succeeded in business by debt-financing payouts to Bain and then leaving creditors, pension plans and workers hanging in the wind when it went belly-up.

I mean, this just cannot be overlooked:



He increased the company's debt by 4000% in just two years -- and this was a company that was already faltering. If someone can explain to me how that's a responsible business practice, or that a guy who takes that kind of approach to things is the answer to this nation's troubles right now, please do. Because I'm at a loss of words.

All you convince me of is that I'd rather have a share in a Romney run enterprise than one run by Obama. How were the non-union folks treated in the GM deal? How much did the Solyndra political paybacks cost tax payers? How does it feel when Obama giggles about shovel ready projects after using that line to muscle through a historic stimulus bill?

Obama had absolutely zero experience in business or economics. He has a social theory and he surrounded himself with advisors that were as guilty, if not more so since some had had regulatory responsibilities, than you allege Romney to be.

[pfife]

All you convince me of is that I'd rather have a share in a Romney run enterprise than one run by Obama. How were the non-union folks treated in the GM deal? How much did the Solyndra political paybacks cost tax payers? How does it feel when Obama giggles about shovel ready projects after using that line to muscle through a historic stimulus bill?

Obama had absolutely zero experience in business or economics. He has a social theory and he surrounded himself with advisors that were as guilty, if not more so since some had had regulatory responsibilities, than you allege Romney to be.

Thank the lord for the stimulus bill, it has helped our economy greatly. The evidence of this claim has been posted ad nauseum.

Not bad for someone with zero experience. The last dude with experience in business tanked the economy. Fact.

Someday these people that appoint themselves as masters of economics because they subscribe to conservative THEORY will realize that business doesn't equal economy. Until then, I'll just point and laugh every time they act like its the same thing. Besides, if you're worried about experience, Obama has awy more presidential experience than Romney.

It would be interesting to know how much Romney's enterprises have cost the taxpayer. Hopefully some journalist is FOIA'ign the PBGC for that.

[TheCouga]

Thank the lord for the stimulus bill, it has helped our economy greatly. The evidence of this claim has been posted ad nauseum.

Not bad for someone with zero experience. The last dude with experience in business tanked the economy. Fact.

Someday these people that appoint themselves as masters of economics because they subscribe to conservative THEORY will realize that business doesn't equal economy. Until then, I'll just point and laugh every time they act like its the same thing.

Fantastically said.

[TheCouga]

All you convince me of is that I'd rather have a share in a Romney run enterprise than one run by Obama.

So you admit that you have no ethics, and that profiting off of screwing other people is your main criteria for what defines success? Welcome to the W. Mitt Romney fan club.

[pfife]

Fantastically said.

Thanks Comrade

[pfife]

When a company goes into bankruptcy, who does that ultimately affect? I'm very sure those creditors don't pass that on to other consumers................... I'm very sure those creditors don't write off those losses.....

[TheCouga]

Unfortunately for the rest of us, profiting chiefly off of finding loopholes in the tax code and abusing bankruptcy law is not economic productivity in any sense of the word. It's not the goal of capitalism, which is to encourage ingenuity, innovation, and productivity by allocating capital towards businesses that promise to do such.

W. Mitt Romney made his fortune almost entirely from sucking the blood out of other entities. NOT by creating efficiencies. This behavior created great returns for Bain's investors, but those returns came at the expense of others, not through generation of economic efficiency.

Bain Capital is a perfect example of how today's so-called "capitalists" are really anti-capitalist fascists. They don't play by the same rules as everyone else, and everything is just a scheme totally devoid of any ethics to extract money from everyone else no matter how you get it done. A country can't function like that.

[TheCouga]

This is a great story because conservatives generally flip off the interests of governments, pension funds and workers with ease -- but the fact that Romney profited off of screwing over other businesses will make this difficult for them to ignore.

[hueytaxi]

Thanks Comrade

mind if I chuckle?

[Melody]

So, government offers tax benefits to encourage various types of purchases, investments or activities by private companies or individuals.

And an individual or company who takes advantage of these legal tax benefits are ... immoral?

Geez.

[pfife]

mind if I chuckle?

I hoped someone would.

[pfife]

So, government offers tax benefits to encourage various types of purchases, investments or activities by private companies or individuals.

And an individual or company who takes advantage of these legal tax benefits are ... immoral?

Geez.

I know, people really need to drop the Solyndra nonsense

[hueytaxi]

The continuing campaining for Obama is becoming boring. Could not we just combine about 30 of these threads under a sticky and call it "Couga's Lessons As I Learned Them From Drinking The Kool Aid".

[pfife]

That thread would be epic.

[TheCouga]

So, government offers tax benefits to encourage various types of purchases, investments or activities by private companies or individuals.

And an individual or company who takes advantage of these legal tax benefits are ... immoral?

Geez.

No, the stuff Romney is abusing was never intended to be abused. His tactics do the exact opposite: work around the law with legal fictions and technicalities to purposefully skirt the intent of the law.

Also, how are you going to defend screwing other companies over in bankruptcy proceedings? That's definitely unethical any way you look at it.

[TheCouga]

The continuing campaining for Obama is becoming boring. Could not we just combine about 30 of these threads under a sticky and call it "Couga's Lessons As I Learned Them From Drinking The Kool Aid".

The substance of this thread is actually very important and factual. Are you going to deny that Romney got rich by increasing Ampad's debt by 4000%, extracting millions of dollars of fees paid to Bain with that debt, and then letting the bottom fall out of the pension plan and Ampad's creditors?

Or are you just going to continue to offer up jocular strawmen and distractions? :)

[hueytaxi]

The substance of this thread is actually very important and factual. Are you going to deny that Romney got rich by increasing Ampad's debt by 4000%, extracting millions of dollars of fees paid to Bain with that debt, and then letting the bottom fall out of the pension plan and Ampad's creditors?

Or are you just going to continue to offer up jocular strawmen and distractions? :)

I'll choose door #2, distractions. But I was serious. It would be nice to offer up some substance on how a term 2 is going to be better than term 1. I know that may be difficult. The debt has not been cut in half,, but that was obviously a gaffe. Claiming responsibility and accountability seems to be another and then was the revelation that if Obama could not live up to his promises, he would be a one term president. Well that one may turn out to be true.
I don't see growth in the private sector, nor do I see an improvement in unemployment figures adjusted for those no longer in the market, nor do I see an increase in my standard of living.

[Gehringer_2]

I'll choose door #2, distractions. But I was serious. It would be nice to offer up some substance on how a term 2 is going to be better than term 1. I know that may be difficult. The debt has not been cut in half,, but that was obviously a gaffe. Claiming responsibility and accountability seems to be another and then was the revelation that if Obama could not live up to his promises, he would be a one term president. Well that one may turn out to be true.
I don't see growth in the private sector, nor do I see an improvement in unemployment figures adjusted for those no longer in the market, nor do I see an increase in my standard of living.

TBH, a good chunk of the unemployment in this cycle is government shrinkage - teachers, public safety, public hospital employees etc. Private sector employment has grown every quarter for a couple years now. It's a measure of how doctrinaire today's conservative are in their opposition to Obama that they can't seem to admit that they are getting what they have always wanted.

[TheCouga]

Right...this is exactly what conservatives wanted. Less government jobs, more private jobs. A Heritage Foundation healthcare plan. More state discretion in determining welfare rules. Continued occupation of the Middle East.

Obama's practically to the right of Reagan.

[hueytaxi]

Most rational people don't really consider public health employees, teachers, public safety as "real government" jobs even if they truly are. They look at the Junior assisstant to the assistant secretary to the 4th level of bureaucracy as not needed. As well as the government spending with no returns on the dollar other than to send pork into the congressmans territory. No it certainly is far from what conservatives want. They want government to get out of women's wombs, out of their bedrooms and out of their communications. They want a real cop to write them a ticket rather than a bureaucracy issuing ticket based on a camera aimed at the rear of their car. It's not only Washington, it is our own cities and counties trying to get was DC has been taking for generations.

[Gehringer_2]

Most rational people don't really consider public health employees, teachers, public safety as "real government" jobs even if they truly are. They look at the Junior assisstant to the assistant secretary to the 4th level of bureaucracy as not needed. As well as the government spending with no returns on the dollar other than to send pork into the congressmans territory. No it certainly is far from what conservatives want. They want government to get out of women's wombs, out of their bedrooms and out of their communications. They want a real cop to write them a ticket rather than a bureaucracy issuing ticket based on a camera aimed at the rear of their car. It's not only Washington, it is our own cities and counties trying to get was DC has been taking for generations.

But Huey, teachers are are the largest single mass of employees paid by taxes. Cops and firefighters are right behind. That assistant to the dept undersecretary stuff is mostly myth. The Federales employ fewer people today than they did in 1964 and the population of the country is 60% higher. The intrusion you speak of is not a matter of government employment levels or even the size of the federal budget per se. The regulatory intrusion of our lives will go on apace exactly because it does NOT depend on government employment or budget levels. People who want to attack the government ROLE by making the government bankrupt will not succeed in their efforts because they are not getting to the correct source and will just make the things we do need people to do harder to get done. Stuff like ticket cameras exist exactly because we have squeezed government so hard they can't put cops on the street. The policy stuff like abortion has absolutely nothing to do with Federal or local or state taxing or employment levels. I hear this all the time and want to tear (what's left of) my hair out. Your complaints are fair, but the current conservative prescription is a misdirected cure.

What the big money pushing for small government wants is to neuter government to the point where it cannot effectively represent the public against private economic interests. But none of that helps any of the things you just complained about.

[pfife]

I find the notion that conservatives don't bash public school teachers to be quite ridiculous.

Hell, the leader calls them "public screwls".

Republicans just don't like that a well organized group of professionals that do great things for society sees through GOP bullspit

[hueytaxi]

G2, I always admire your comments, but let me bring government down home for a moment and it has nothing to do with "our corrupt state". Picture the local pothole you call the local authority about. Soon their will be 5 pickup trucks and two vans parked nearby and one county (or authority) work truck. After a couple hours of consideration (planning), a work order is issued to throw three shovels of asphalt patch into the hole. The group hovers in the vicinity until two men climb out of the truck and spend five minutes patching the hole. As the guys in their flourescent jerseys drive off, the group discuss what a good job they did and head to their desks to write up their reports. The first heavy rain and I have the same pothole again. This used to worry me because the waste in this case runs uphill. Job security at our expense and governmental failure to conserve and use manpower wisely. My problem is government is inefficient.
I've been on the business end where I was hired to cut costs and streamline five production lines. Of a 75 man crew I eliminated almost 20 positions as redundant. Most of those were offered other positions, but possibly not at the same pay level.....and this was a Teamsters Union plant.

[Gehringer_2]

G2, I always admire your comments, but let me bring government down home for a moment and it has nothing to do with "our corrupt state". Picture the local pothole you call the local authority about. Soon their will be 5 pickup trucks and two vans parked nearby and one county (or authority) work truck. After a couple hours of consideration (planning), a work order is issued to throw three shovels of asphalt patch into the hole. The group hovers in the vicinity until two men climb out of the truck and spend five minutes patching the hole. As the guys in their flourescent jerseys drive off, the group discuss what a good job they did and head to their desks to write up their reports. The first heavy rain and I have the same pothole again. This used to worry me because the waste in this case runs uphill. Job security at our expense and governmental failure to conserve and use manpower wisely. My problem is government is inefficient.
I've been on the business end where I was hired to cut costs and streamline five production lines. Of a 75 man crew I eliminated almost 20 positions as redundant. Most of those were offered other positions, but possibly not at the same pay level.....and this was a Teamsters Union plant.

You don't need to tell me about featherbedding - I grew up in Detroit. A story hit the news today that the State installed city managers think the city water dept should be able to run with ~375 employees, they now have roughly 2000. But wouldn't a better solution be accountability instead of throwing out the baby with the bathwater? The water department still has to run. The pothole still needs to be fixed. I don't see any reason to let a private entity make a profit on my water. It's a crazy admission of failure to say that in the 21st century we have suddenly lost the ability to run public infrastructure publically after 250 years of previous success. It wasn't the concept of government action that was wrong, it's been our recent implementations that have failed. Isn't the real conservative response to try and go back to what we know once worked, which is an active government with reasonable accountability?

I think two things have happened that have left the public confused. There is no question that particularly in the big cities, public employee union power has been too high and that the interface between the public and those deadbeats has poisoned the public about government in general in a way the ideological right is taking advantage of for other purposes. But to me the answer is not to kill the government, which we really do need to function, but to fix what went wrong with it in the first place. Things like the changes that Snyder has made in MI, and even the Michigan emergency manager law are part of that push back for example. Likewise what has been happening in Wisconson (though a pretty hamhanded and hard to support effort there) and to a less extent Ohio. A lot of it is just the need to fix politics to get back more accountability, and on that score I'm afraid we are still losing ground. But the point I come back to is that even if you take away ever more tax revenue, you do nothing ultimately to reduce the government's legal power - so I say better to get control of beast and then have it do right what it is useful for it do.

[hueytaxi]

The continuing campaining for Obama is becoming boring. Could not we just combine about 30 of these threads under a sticky and call it "Couga's Lessons As I Learned Them From Drinking The Kool Aid".

I'm sorry I wrote this. I often spar with Couga and really like the guy, but this was a low shot by me.
I'm sorry my friend! Campaign on!

[pfife]

Heck I thought it was a brilliant idea. I would have deleted my political discussions bookmark and just bookmarked that thread instead.

[shabba4detroit]

Fantastically said.

Fantastic -- imaginary or groundless in not being based on reality; foolish or irrational:

Never have you been more correct or revealing. Well done, surrogate.