Rick Perry, quite possibly the dumbest man ever to make a serious run at the Republican nomination finally got something right a while back, when he called Mitt Romney’s company, Bain Vulture Capital. This got David Brooks, one of my favorite Republican columnists all aflutter. David felt obligated to come to Romney’s defense, writing in the NY Times that Romney wasn’t the spoiled child of rich parents; that he was a hard working guy who studied hard in college and went on to work hard afterward to add to the family’s net worth.
Now all of this may be true, but it’s not the point. It’s not the point because there is nothing bad about working hard and making a lot of money. The point is how you make the money and frankly Romney hasn’t got much of a sterling record on that scorecard.
As soon as Romney’s company Bain Capital is attacked, all its defenders jump in to point out that Bain has created a great many jobs and this is true and admirable, especially in the last few years when Bain has become more of an investment bank than the corporate raider it once was. But the fact is that the money, which filled the coffers of the investment bank came from destroying companies that Bain had bought up and liquidated. As an investor, Bain has put money in a number of businesses, which have flourished. That is great, that is what we want from our banking system, both commercial and investment. That’s what banks are for. This creates jobs and right now creating jobs is job number one.
But Bain didn’t always operate that way, in fact Bain created the capital that is the last half of, their own name by being a corporate raider. For those of you who don’t remember the 80’s and early 90’s that phrase may not hold much importance but that was a time when Wall Street discovered that there were thousands of small and sometimes not so small business existing in this country that were in trouble. Typically they were small manufacturing companies, in the northeast or mid-west, often family owned, and often the main or only employer in a small town. These targets became dinner for the voracious sharks known as venture capitalists.
Let’s take a single example because the pattern was so similar that it only takes one example to illustrate how the whole system worked.
Edgertown Widgets is a small, under one thousand employees, company, in New England. It was founded in 1895 by the grandfather of the current owner who is himself nearing retirement. He has a son and daughter who plan to take over the company when the old man retires. The company is not in debt but for the last ten years the profit margin has shrunk to the point where debt is inevitable. The family gets together and decides that something has to be done. They can take a chance on overhauling the whole business in hopes that they can revitalize it and move forward into the 21st century. This will mean taking on a huge debt that they don’t know if they can carry or repay.
As they are making their decision Bain capital steps in and makes them an offer that they can’t refuse. Bain is big enough and has the capital, available to revitalize the company and they make the family a serious offer. This gets the family off the hook as to their obligations to the workers and the town, both of whom they assume will now be taken care of, so they sell the company.
Once in possession of the company, Bain allows it to take on huge amount of debt by continuing the manufacturing process, shipping orders, extracting cash from their payments, but slowly beginning a process of not paying bills. As soon as this strategy reaches its peak, Bain closes down the company, files for bankruptcy, sells off its remaining assets and leaves a town with massive unemployment and no potential to take up the slack. If Edgerton Wickets employed a thousand workers then a thousand jobs are gone forever. This is a scenario that was carried out over and over throughout upstate New York, Pennsylvania, Ohio, Michigan, Indiana and all over New England. The ghost towns still exist, blighting the American landscape; the jobs don’t, thanks to the corporate raiders of which Bain Capital was a leading force.
Yes, Mitt Romney’s Bain Capital creates some jobs now, but how many thousand have they destroyed over the years they have been in operation. It doesn’t come close to balancing out and that doesn’t even take into account the jobs that Bain and other vulture capitalists sent overseas.
Private Equity Partnerships: (Venture Capitalists)
1- Don’t risk their own money. They get money from others.
2- Use this money to buy up companies that have the potential for short term gain.
3- Raise the value of the companies by investing some money in them and then cutting their costs by firing workers or reducing their health care and pensions.
4- Use the increased value of the company as collateral to borrow huge amounts of money. Since the interest payments are tax deductable they make even more money on them.
5- Make the company issue a dividend to repay the initial investors so they are free and clear and have made a profit.
6- Sell the now seemingly more profitable company for much more than they bought it for.
6a- Pocket 20% of the gains from the sales.
6b- Pay only 15% tax on the gains because they are capital gains. This is a sham because capital gains are supposed to occur from the possibility of loss but they have never risked a dime of their own money
OR
7- They continue to take money out of the company by not paying bills and running up other bills until it can no longer sustain itself
7a- They then file bankruptcy and close the company, walking away with all the money they have drained from it.
7b- They send all the jobs from the closed company overseas to one of their subsidiaries where the product can be manufactured for a much cheaper price due mainly to lower labor costs.
7c-They leave thousands unemployed.
We as taxpayers foot this bill:
a-When they fire workers who have to collect unemployment.
b-When they pump, up interest payments to lessen taxes.
c-When they treat their earnings as capital gains to save taxes.
d-When those companies go bust under the weight of all that debt and the govt. has to take over their obligations.
Is this Mitt Romney’s plan to increase employment in this country? Based on this do you believe his claims of knowing how to increase employment? It is his history with Bain Capitol that he is putting forth as his proof that he knows how to fix the economy. He keeps telling us that he is a businessman and as such he knows better than Obama how to run the business of the nation. Is this how he is going to do it? Is this how he is going to save our economy?
This is specifically why the Obama campaign is attacking his management of Bain. For Romney’s staff to take offense at this tactic is absurd. They brought it up. They claimed that as a businessman, Romney knew how to save the economy. The Obama team is merely pointing out how he acted as a businessman and how it actually did nothing but hurt the economy of the companies, towns and cities that Bain bought into.
The problem with Romney and his advisors is that they have nothing to sell and when they tried to create something they didn’t have the foresight to realize that it was the wrong answer to the big question, which is how do we save the economy? You don’t save it by destroying companies and ending jobs. You save it by creating jobs which is what Obama has been trying to do but has been thwarted at because the Republicans don’t want him to accomplish anything before the election. They don’t care how much it hurts the country; all they care about is getting back in office. Then they can send what jobs we have left overseas.