According to the Republican party (and himself), one of Mitt Romney’s biggest selling points is that he is a successful businessman whose knowledge of the free market could save the country from even more years of economic hardship.
Romney claims his experience in private equity means he is the right business leader to turn the economy around. But is private equity a good example of the businesses that push America’s economy onward and upward?
Not if you read Matt Taibbi’s critique of Romney -- "Greed and Debt: The True Story of Mitt Romney and Bain Capital" -- in the Sept. 13 issue of Rolling Stone.
Taibbi claims that while Romney decries the national debt, he made his fortune by forcing debt upon companies then running to the bank with his millions of dollars in profit.
"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," wrote Taibbi.
Taibbi uses as an example the story of KB Toys, in Pittsfield, Mass., in which Bain put up $18 million to buy the company and got big banks to finance the remaining $302 million it needed.
"Less than a year and a half after the purchase, Bain decided to give itself a gift known as a ‘dividend recapitalization,’"
"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," Heather Slavkin Corzo, who monitors private equity takeovers as the senior legal policy adviser for the AFL-CIO, told Taibbi.
Bain then induced KB Toys to redeem $121 million in stock and take out more than $66 million in bank loans -- "$83 million of which went directly into the pockets of Bain’s owners and investors, including Romney," wrote Taibbi.
And then there’s the Beals Brothers and Palais Royale department stores, in which Bain put down $10 million in cash and got $300 million in financing -- from disgraced junk-bond trader Michael Milken -- to make the purchase.
The two chains eventually filed for bankruptcy under the weight of more than $444 million in debt, noted Taibbi.
Then there’s Ampad, which Bain bought 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, wrote Taibbi.
Ampad wound up going bankrupt, and hundreds of workers lost their jobs, but Bain and Romney made more than $100 million on a $5 million investment.
Romney "is the perfect frontman for Wall Street’s greed revolution ... a decades-long campaign in which the old, simple, let’s-make-stuff-and-sell-it manufacturing economy was replaced with a new, highly complex, let’s-take-stuff-and-trash-it financial economy," what Taibbi called "a borrow-and-conquer economy."
Who ends up holding the bag in such transactions? Well, it sure isn’t the vulture capitalists or the big banks that finance their crooked schemes. It’s the acquired companies, which either have to fire workers and slash benefits to pay off all its new obligations, file for bankruptcy or simply shutter the shop all together.
Either way, Bain and its allies on Wall Street win, and the middle class, the pensioners, the folks with retirement accounts, the union workers, the schools, public services ... well, they all pay the price for the benefit of a few.
As if Romney’s hypocrisy couldn’t get any deeper, while he’s been railing about our "entitlement society," he’s spent his whole business career feeding at the trough.
"His personal fortune would not have been possible without the direct assistance of the U.S.government," wrote Taibbi. "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."
The way Romney most directly owes his success to the government is through the structure of the tax code, because leveraged buyouts wouldn’t be financially feasible without the mortgage interest payment deduction, which was designed to make home owning more affordable for the middle class.
"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," wrote Taibbi.
And one more thing: Romney’s portion of the proceeds from Bain’s takeover deals was usually taxed not as income, but either as capital gains or as carried interest, both of which are capped at a maximum rate of 15 percent.
"Romney is the frontman and apostle of an economic revolution, in which transactions are manufactured instead of products, wealth is generated without accompanying prosperity, and Cayman Islands partnerships are lovingly erected and nurtured while American communities fall apart," wrote Taibbi.
"Romney supporters celebrate this orgy of economic looting as ‘creative destruction,’ arguing that it makes the overall economy more efficient," wrote historian Webster Griffin Tarpley. "In reality, Romney’s approach to wrecking companies is a case study of why laissez-faire capitalism cannot survive: Corporate raiding like this destroys jobs and production ... But this is the method which Romney says he wants to bring to the United States government."
That this has become the GOP’s hidden agenda shouldn’t be a surprise to anyone, especially if you look back upon the eight years in which George Bush was president: Waging two wars on credit; tax cuts on income, capital gains and corporations; and the Medicare prescription drug program.
Just like Romney, Bain Capital and other vulture capitalists, the GOP heaped tons of debt on the backs of Americans, its paymasters pocketed the profits and salted the money away out of the reach of the IRS and then called upon the working class to tighten its belt and make the sacrifices necessary to pull the economy back from the brink of collapse.
If this is your definition of a business plan for success, then Mitt Romney should get your vote.