Nel's New Day

October 30, 2012

Bain Capital, Romney – Part Two

Before I continue with Part Two of the Bain Capital debacle, I want to say how sad I feel for the devastation of Hurricane Sandy, both in the Caribbean and in the United States. In addition, I am grateful for the speed with which government has moved to keep the storm’s effects from as much tragedy as possible. In watching all the work that has been done to save people’s lives and make their lives a bit better, I am also angry at the outrageous comments made by Michael Brown, head of FEMA largely responsible for the disaster in New Orleans following Hurricane Katrina and now a radio host in Colorado. From his safety on the other side of the country, he criticized President Obama for moving too fast. Yesterday he talked about how New Yorkers were saying that the storm, Sandy, isn’t a big deal. The people hit by Sandy are indeed fortunate that he is no longer in charge of government emergency assistance.

The same people are also fortunate that the United States has a president who believes that government should help people in need after such an act of nature. Mitt Romney not only said in the primary debates that the federal government, and probably the state governments, should have no part in emergency aid, he also refused to answer any questions today—14 times after one interview–about how he sees the role of FEMA.

In his writings, David Stockman, budget director for Ronald Reagan, summarized Bain Capital in less than glowing terms: “Bain would put in a little money, borrow much more, and buy out a company. It wasn’t hostile because Bain paid company executives so much they welcomed a takeover. Bain would have the company fire the workers and sell off assets to pay the crushing debt and high ‘management’ fees to Bain. Often the ‘saved’ company would go bankrupt after Bain left. Companies almost never produced more useful goods or services or employed more people after Bain than before.”

Stockman was kind enough, however, not to explain the source of Romney’s capital to set up Bain. When Romney says he knows how to start a small business, he may mean one that is funded by Central American elites linked to death squads in El Salvador. After initially struggling to find start-up investors, Romney traveled to Miami in 1983 to win pledges of almost 40 percent of Bain’s $37 million start-up money. Huffington Post reporter Ryan wrote, “There’s no possible way that anybody in 1984 could check out these families–which is the term that [Romney’s campaign] use, these families–and come away convinced that this money was clean.”

During the 1980s, Romney managed to get lots of cigarettes into Russia. Bain & Co.—and Romney–worked with British American Tobacco (BAT), which is behind brands like Kool and Lucky Strike, to move their products into Russia. Before Bain, BAT was largely locked out of the Russian market; now it controls almost one-fourth of cigarette sales that have skyrocketed since the Soviet Union collapse. Then Bain moved into the U.S.; a month after Romney took over, the first got a $1 million contract with Philip Morris.

Romney clearly described Bain’s goal in 1985: its purpose has never been to create jobs; its purpose is to “harvest” companies. The most recent harvested company is moving into China right before this year’s general election.

Although Romney is no longer active in Bain, he’s still reaping the benefits from moving Sensata Technologies from Freeport (IL) to China. The company made record revenues last year, and workers have been working three shifts for 24 hours a day. They make $14-$17 per hour with benefits. The first thing that Bain did after buying the company was to organize its capital funds in the Cayman Islands so Bain could avoid paying taxes on these funds. Now Bain will get money for relocating the plant offshore while U.S. taxpayers have paid $780,000 to retrain some of Sensata’s fired workers.

Romney has a history with Bain and China. In 1998, when he was running Bain, he saw the horrible conditions of workers making $.24 an hour at the Global-Tech Appliances plant in Dongguan and invested millions in the firm. But he could make money by exploiting these workers.

William Cohen wrote in Bloomberg, “Is there any fairness in a system where a group of people can borrow a bunch of money to buy a company and pay themselves millions of dollars in dividends and fees, while the company itself ends up bankrupt and its employees lose their jobs, health insurance and pensions?”

Romney’s experience with Bain makes him uniquely unqualified to be president of the United States. In campaigning he said, “A prairie fire of debt is sweeping across Iowa and our nation. Every day we fail to act, that fire gets closer to the homes and children we love.” Our collective debt is no ordinary problem: According to Romney, the debt will “burn our children alive.” Yet he made his personal fortune by borrowing vast sums of money that other people were forced to pay back. His experience with Bain shows that he is one of the greatest and most irresponsible debt creators of all time, piling more debt onto more unsuspecting companies and writing more gigantic checks that other people have to cover than perhaps all but a handful of people on planet Earth.

A private equity firm like Bain typically finds floundering businesses with good cash flows. It puts down 10-30 percent of its own money and then borrows the rest from a large bank to buy a controlling stake in the company. Bain avoided the hostile takeover, done without the company’s consent, by buying off the management with huge bonuses. The takeover companies, including Bain, aren’t on the hook for the debt; the company they purchase is. That company is destroyed by just the interest they have to pay, either going bankrupt or slashing benefits and firing workers. Then Bain can swoop in and purchase the company for pennies on the dollar, the vulture approach.

Romney is a prime example of why lowering taxes doesn’t create jobs. He pays low taxes while he destroys jobs or sends them offshore. And he can’t pretend that he doesn’t know what happens at Bain.  “I insisted on having almost dictatorial powers.” Colleagues described him as cunning, manipulative and a little bit nuts, with “an ability to identify people’s insecurities and exploit them for his own benefit.”

In the business world, lying and changing positions is praised because it makes money. Romney seems genuinely puzzled by the public’s insistence that he be consistent. “I’m not going to apologize for having changed my mind,” he’s fond of saying. But that doesn’t translate into successful leadership of a country.

And it’s all legal. The entire business of leveraged buyouts wouldn’t be possible without a provision in the federal code that allows companies like Bain to deduct the interest on the debt they use to acquire and loot their targets. And he couldn’t pay such low taxes if it weren’t for the same tax code. Romney rails against the national debt at the same time he exploits a tax deduction specifically designed for mortgage holders. He bilks every dollar he can out of U.S. businesses before burning them to the ground.

Romney also shows his lack of ethics in his tax avoidance strategies. He used a loophole to “rent” the Mormon church’s tax exemption status and defer paying taxes for 15 years. Bloomberg News reported that Romney set up a charitable remainder unitrust (CRUT) in June 1996 just before Congress cracked down on the loophole in 1997. “In this instance, Romney used the tax-exempt status of a charity — the Mormon Church, according to a 2007 filing — to defer taxes for more than 15 years,” Bloomberg’s Jesse Drucker explained. “At the same time he is benefiting, the trust will probably leave the church with less than what current law requires.” The amount available to go to the Mormon Church has decreased from at least $750,000 in 2001 to $421,203 at the end of 2011 as Romney has collected yearly cash payments from the trust. Although a small amount when compared to Romney’s fortune, he has many other methods of avoiding taxes.

Romney’s hypocrisy is overwhelming. His strong opposition to federal aid has no relationship to the experiences of himself and his family. According to Romney’s biography The Real Romney, written by  journalists Michael Kranish and Scott Helman, the United States first helped the Romney family in 1912: “Fortunately for the Romneys, the U.S. government, which had once chased Miles [Romney] to Mexico due to his polygamy, now welcomed the Romneys and other Mormons to the United States. Congress established a $100,000 relief fund that enabled the Romneys and other Mormon exiles to receive food and lodging. Initially, the [Romneys’] stay on U.S. soil was to be temporary. The El Paso Herald reported on October 25, 1912, that Gaskell Romney and his family, including little George, had gone to Los Angeles “until it is safe for his family to return to the colonies in Mexico.’”

Much later George Romney received welfare from the federal government. According to his wife,Lenore Romney, [George Romney] was a refugee from Mexico. He was on relief, welfare relief for the first years of his life. But this great country gave him opportunities.” Romney is unwilling to give anyone else the same opportunities that his family had.

The Olympics is a classic example of Romney’s hypocrisy. While describing his magical leadership to save the faltering Winter Olympics in 2002, much of his success came from the $1.5 billion that he took from the federal government, an amount 1.5 times the amount, adjusted for inflation, spent by the federal government to support all seven Olympic games in the United States back to 1904.  These expenditures averaged $625,000 in taxpayer money for each athlete, an increase of 5,582 over the $11,000 average at the 1984 games in Los Angeles. Even Sen. John McCain pointed out that at the time that this was a bailout.

Donald Barlett and James Steele reported that “wealthy Utahans used the games as an excuse to receive exemptions for projects that would otherwise never meet environmental standards, or to receive generous subsidies for improvements of questionable value to the games—but with serious value to future real estate developments.” bailout.

Romney has always been clear about all his priorities. The Salt Lake games came just months after 9/11. When a representative of widows and orphans whose husbands and fathers were firefighters killed in the terrorist attack inquired about free or discounted tickets to games, Romney twice denied the request, saying that there was a policy against giving away tickets. Six weeks later, Romney offered a hundred tickets, valued at $885 each, free to Utah legislators.

Romney has always used Bain to justify his ability to become president instead of his time as governor of Massachusetts. During his one term the state ranked 47th in job growth; suffered the second-largest labor force decline in the nation with only Louisiana greater because of Hurricane Katrina in 2005; lost 14 percent of its manufacturing jobs, double that of the nation at the time perhaps because he vetoed legislation that would have banned companies doing business with the state from outsourcing jobs to other countries; experienced “below average” economic growth and was “often near the bottom”; and piled on more debt than any other state despite his raising fees while he was in office.

That’s what would happen to the United States if he were to be elected—or appointed—president.

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