Mitt Romney and Bain Capital

[Rolfe]

Greed and Debt: the true story of Mitt Romney and Bain Capital

Apologies if this is dealt with in another thread.

But what most voters don't know is the way Mitt Romney actually made his fortune: by borrowing vast sums of money that other people were forced to pay back. This is the plain, stark reality that has somehow eluded America's top political journalists for two consecutive presidential campaigns: Mitt Romney is one of the greatest and most irresponsible debt creators of all time. In the past few decades, in fact, Romney has piled more debt onto more unsuspecting companies, written more gigantic checks that other people have to cover, than perhaps all but a handful of people on planet Earth.

By making debt the centerpiece of his campaign, Romney was making a calculated bluff of historic dimensions – placing a massive all-in bet on the rank incompetence of the American press corps. The result has been a brilliant comedy: 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. That same man then runs for president riding an image of children roasting on flames of debt, choosing as his running mate perhaps the only politician in America more pompous and self-righteous on the subject of the evils of borrowed money than the candidate himself. If Romney pulls off this whopper, you'll have to tip your hat to him: 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.

Read more: http://www.rollingstone.com/politic...omney-and-bain-capital-20120829#ixzz26dq1U0y7
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Comments, American voters?

Rolfe.

 

[jimbob]

Greed and Debt: the true story of Mitt Romney and Bain Capital

Apologies if this is dealt with in another thread.




Comments, American voters?

Rolfe.

Not an American voter, but I work for a company that was bought in a leveraged buyout by KKR. Philips sold Philips Semiconductors at the height of the semiconductor cycle for an inflated price mostly to KKR.

Of course it didn't matter to them, as the debt was loaded onto the company that they bought.

I wish that I could get a mortgage for a buy to let property and not only use the property as security, but actually claim that the debt is the property's and not mine.

I'd then charge the property a management fee, and after a while decide that the property can only pay the some of the mortgage back at 20-cents in the dollar.

 

[Twiggett]

Greed and Debt: the true story of Mitt Romney and Bain Capital

Apologies if this is dealt with in another thread.




Comments, American voters?

Rolfe.

As I was reading the article I wondered how it was possible that the Obama campaign wasn't personally delivering copies of this article to every eligible voter they could afford to. The claims in it are more than a little damning, many much, much worse than the excerpt from it posted above. So I came to the conclusion that there must be some other side to the story that I was missing.

Since I have no intention of voting for Romney for reasons that have nothing to do with his history with Bain and have little desire to spend my limited free time investigating said history for positive stories I decided to have a quick look at the author himself as I believe the source of claims is relevant as those with an agenda often slant coverage to accentuate their beliefs about a subject. What I found is not surprising in the least.

His career has included covering the 2008 election for Real Time with Bill Maher, a contributor to Countdown with Keith Olbermann and appearances on the Rachel Maddow show. In addition he once threw a cream pie spiked with horse semen in to the face of the NYT Moscow bureau chief's face and was accused of throwing coffee at a journalist who criticized a book he had written, which he later said was "an aberration from how I've behaved in the last six or seven years."

None of that means the things he claimed about Bain and Romney himself are untrue but it certainly gives me the impression that anything the guy says or writes ought to be taken with more than just a single grain of salt.

 

[Rolfe]

I think that is the literal definition of argumentum ad hominem.

It's not always invalid, but in this case, given the vast amount of specifics in the article, I'd prefer factual rebuttal if it was available.

Rolfe.

 

[Twiggett]

I think that is the literal definition of argumentum ad hominem.

It's not always invalid, but in this case, given the vast amount of specifics in the article, I'd prefer factual rebuttal if it was available.

Rolfe.

Actually it is and was intended as such since as I stated, I have neither the time nor inclination to investigate Bain or Romney's history myself. It was meant as a warning against accepting the conclusions of the article as fact, not to rebut the specific claims.

I wish you luck in finding someone else with the time on their hands who will be willing to look further in to the subject.

ETA: What I was trying to get at about the conclusions is if the author only looked for negatives about Romney and Bain, that's all he would find and the only conclusions possible would be negative.

 

[Brainster]

A very silly article indeed. Reading through the piece, it appears that the whole argument that Taibbi makes is long on Gordon Gekko comparisons, and short on actual case studies. In fact, Taibbi only presents two actual case studies in the entire piece (assuming that Tricycle, Inc., is fictional):

Ampad:

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.

It is hardly surprising that Ampad was able to be taken public in 1996, given the spectacular record the company had under Bain:

Since its inception in 1992, the new company has seen net sales grow at nearly a 53 percent compound annual rate through 1996, increasing from $8.8 million in 1992 to $200.5 million in 1996.

Actually that compounded growth rate seems wrong; I calculate more like 119% annual growth, but given that the company made some interim acquisitions, there may be something I'm not considering.

Note as well that Ampad is still in business, has over 4,000 employees and sales of over half a billion dollars.

KB Toys:

Then in 2000, right before Romney gave up his ownership stake in Bain Capital, the firm targeted KB Toys. 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.

In a typical private-equity fragging, Bain put up a mere $18 million to acquire KB Toys 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 firm 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. "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.

Right off the bat, note that Taibbi is including a 2000 acquisition. Romney gave up day-to-day operations at Bain in 1999 in order to run the Salt Lake City Olympics, although some conspiracy theorists have seized on his signature on a few legal documents after that time as "evidence" that he continued working at Bain. Second, Taibbi does not know what he's talking about. "The firm 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." If you redeem stock, that means you buy it back from the market. So I don't know where Taibbi thinks the $83 million came from. And wow, I am completely astounded that a labor lawyer came up with a ridiculous analogy on cue. More to the point, Taibbi acknowledges that KB was screwed because their toy line was not geared to the current generation of kids, and even admits in a roundabout way that Romney wasn't in charge:

At the time of the KB Toys deal, Romney was a Bain investor and owner, making him a mere beneficiary of the raping and pillaging, rather than its direct organizer. Moreover, KB's demise was hastened by a host of genuine market forces, including competition from video games and cellphones.

 

[The Don]

More on Ampad:

From wikipedia:

On January 8, 1999, unable to sustain profitability, the company announced it would be delisted from the New York Stock Exchange. After filing for Chapter 11 bankruptcy protection, Ampad was acquired in 2003 by an affiliate of Crescent Capital Investments, later renamed Arcapita

So, there was a management buyout in 1992 and the growth between 1992 and 1996 was largely fuelled by acquisition. The company was floated in 1996 and the investors at this stage took their rewards.

These acquisitions were paid for by accumulating debt which was unaffordable and the company was subsequently de-listed and filed for Chapter 11. At a later point in time, freed from its debts, a worthwhile business was formed from the remainder of the business.

Looking at the winners and losers:

Winners

• Ampad shareholders at the time of the IPO
• Shareholders of the businesses bought by Ampad
• Bain - who got generous management fees

Losers

• Ampad shareholders at the time of filing for Chapter 11
• Ampad creditors at the time of filing for Chapter 11
• Ampad employees at the time of filing for Chapter 11

This cycle of acquisition --> debt --> IPO --> Bankruptcy --> resurrection is not unknown. I cannot blame Bain, they were doing what they try to do - achieve a return for themselves. The ones I blame are the shareholders who allowed Bain to take a stake and then grow the business in such an unsustainable way and the banks who were willing to lend the money.

 

[Puppycow]

Comments, American voters?

Rolfe.

I'm not a fan of Romney, but I don't think much of this article.

If you believe that a picture is worth a thousand words, then you can save time by not reading the article and just look at the accompanying cartoon picture of Rich Romney holding wads of money and kicking the little guy in the hard hat.

The article is just the prose version of that: a cartoon.

 

[tyr_13]

It's a huge red flag for me when an article basically states, 'every other journalist is an idiot except for me!' so blatantly and in a long winded manner.

 

[Chris_Halkides]

add hock

It's a huge red flag for me when an article basically states, 'every other journalist is an idiot except for me!' so blatantly and in a long winded manner.

IMO this is an unhelpful portrayal of the article. For one thing it fails to explain what (if anything) is actually incorrect. I was the OP of a thread goes into the question of whether Bain's strategy is dependent on the debt deduction. Taibbi wrote, "But the way Romney most directly owes his success to the government is through the structure of the tax code." Vanity Fair's Nicholas Shaxson wrote, "The beauty—or savagery—of leverage is that it can magnify any and all cash-flow boosts, such as this one. Take $10 to $40 million squeezed from a pension pot, then use that to create new, rosier financial projections to borrow several times that amount, and then pay yourself a big special dividend from the borrowed funds, many times the size of the pension savings. That is just what Bain Capital did..."

 

[carlitos]

I think that is the literal definition of argumentum ad hominem.

It's not always invalid, but in this case, given the vast amount of specifics in the article, I'd prefer factual rebuttal if it was available.

Rolfe.

As a young, liberal, impressionable young man I read an article in Rolling Stone about an outrageous, racially-motivated hate crime against a young woman named Tawana Brawley. As an adult, I view most of their political coverage through that lens.

 

[Chris_Halkides]

Bain's performance

I think that is the literal definition of argumentum ad hominem.

It's not always invalid, but in this case, given the vast amount of specifics in the article, I'd prefer factual rebuttal if it was available.

Rolfe.

Here is a link to Barry Ritholtz's article. He wrote, "Their fundamental flaw, at least according to the math, is that they took lots of risk, use immense leverage, and charged enormous fees, for performance that was more or less the same as indexing."

 

[Chris_Halkides]

tofu and fruitcakes

As a young, liberal, impressionable young man I read an article in Rolling Stone about an outrageous, racially-motivated hate crime against a young woman named Tawana Brawley. As an adult, I view most of their political coverage through that lens.

Here is what the tofu-eating, Che-loving fruitcakes at The Economist said: "The industry has seduced investors with the promise of outstanding returns. But there is no clear evidence that private equity outperforms public markets (see article). Once the exorbitant fees are taken into account, returns look much less impressive than the industry's promoters claim, and than an illiquid, leveraged and long-duration investment would warrant."

 

[carlitos]

Here is what the tofu-eating, Che-loving fruitcakes at The Economist said: "The industry has seduced investors with the promise of outstanding returns. But there is no clear evidence that private equity outperforms public markets (see article). Once the exorbitant fees are taken into account, returns look much less impressive than the industry's promoters claim, and than an illiquid, leveraged and long-duration investment would warrant."

That's not

Romney has piled more debt onto more unsuspecting companies, written more gigantic checks that other people have to cover, than perhaps all but a handful of people on planet Earth

though, is it?

 

[tyr_13]

IMO this is an unhelpful portrayal of the article. For one thing it fails to explain what (if anything) is actually incorrect. I was the OP of a thread goes into the question of whether Bain's strategy is dependent on the debt deduction. Taibbi wrote, "But the way Romney most directly owes his success to the government is through the structure of the tax code." Vanity Fair's Nicholas Shaxson wrote, "The beauty—or savagery—of leverage is that it can magnify any and all cash-flow boosts, such as this one. Take $10 to $40 million squeezed from a pension pot, then use that to create new, rosier financial projections to borrow several times that amount, and then pay yourself a big special dividend from the borrowed funds, many times the size of the pension savings. That is just what Bain Capital did..."

I said 'red flag' and I meant red flag. Red flags aren't evidence of anything, but a good reason to double check. I wasn't portraying the article as only that and if it came across as that I apologize.

 

[Chris_Halkides]

I said 'red flag' and I meant red flag. Red flags aren't evidence of anything, but a good reason to double check. I wasn't portraying the article as only that and if it came across as that I apologize.

You raise a valid issue, IMO, in that Taibbi has a certain point of view. My previous reply may have been too narrowly focused.

 

[Chris_Halkides]

competence

That's not though, is it?

Fair enough, but Taibbi also raises the issue of Bain's performance. I think that there are two points worth considering. My restatement of Taibbi's thesis would be that Romney made his fortune using the tax advantage of debt, yet he and the republicans are now running on the premise that government debt is bad. I would add that this is at least paradoxical, and it is up to Romney to explain why one is OK and the other is not. Two is that Taibbi's article suggests that Bain's performance was not stellar. This undercuts Romney's claim to competence.

 

[Rolfe]

He also claims that Romney benefited enormously from public money in his business endeavours, but he is against the hoi polloi receiving public assistance. Or that's how I read it anyway.

Rolfe.

 

[Chris_Halkides]

Key Airlines

Here is a link to a story about an early Bain acquisition, an airline with a government contract. The author concludes:

"In the final analysis, it is hard to say whether Bain Capital was good or bad for Key Airlines. The operating company had higher sales, was more focused, more efficient and employed more people by the time that Bain sold out.
On the other hand, it was also more fragile, with only one line of business, net losses and a weak balance sheet. There is no doubt, however, that Key Airlines was good for Bain Capital. The young private equity firm had demonstrated what it could do. Bain Capital was on its way."

 

[Chris_Halkides]

David Stockman at Newsweek

Former budget director David Stockman evaluated Romney's record at Bain capital and takes on LBOs in general: "That is the modus operandi of the leveraged-buyout business, and in an honest free-market economy, there wouldn’t be much scope for it because it creates little of economic value. But we have a rigged system—a regime of crony capitalism—where the tax code heavily favors debt and capital gains, and the central bank purposefully enables rampant speculation by propping up the price of financial assets and battering down the cost of leveraged finance."