Mitt Romney: Vulture Capitalist

by on June 12, 2012 · 1 comment

in Government, Politics

Criticisms of Mitt Romney’s background at Bain Capital and his record as a “job creator” are fair game.

I have never heard so many conservative pundits offering gratuitous avuncular advice to Barack Obama that his campaign strategy attacking Bain Capital will not get him anywhere. Joe Scarborough of Morning Joe on msnbc and others have gone on and on about how using Bain Capital against Mitt Romney is not a good strategy. Well, when conservatives offer advice to Barack Obama about what will or will not work for him, Obama better do just the opposite of what they recommend because ultimately they want him to lose. Therefore, he should double down, not abandon, the Bain Capital strategy.

But the problem with Obama is that he starts out praising Romney for being a good businessman (Clinton said he was “superlative”), certainly something no Republican would do for Obama. Then Obama goes on to say that, while Romney created wealth for himself and his investors, the President of the US must be concerned about creating jobs for everyone. This is a roundabout, circuitous route to putting Romney down, a circumlocution, something the Republicans would never do. Instead, they start right our calling Obama a failure. Obama starts out praising Romney, then seeming to walk on eggshells aiming at a scholarly criticism of his activities at Bain. Obama should get right to the point: Romney made his money at Bain by destroying jobs and companies, picking over their bones like the vulture he is.

Bain Capital is a private equity (formerly known as leveraged buyout) firm. They changed the name  to protect the guilty. What they do is to pick the bones of perfectly healthy companies and in many cases drive them into bankruptcy. Here’s how it works: they buy a private company with borrowed money (the leverage in leveraged buyout). But they don’t buy just any company. They buy one with assets they can strip. It just so happens that they usually buy companies that have a unionized work force. Why? Because a company with a unionized work force usually has a pension fund. Their goal is to get their hands on that pension fund and transfer that asset to Bain Capital. So they borrow the money to buy a company, strip the pension fund and fire all the unionized workers. Then they hire a nonunionized work force to do the same jobs at half the pay. In this way they claim to have made the company “more efficient.” Contrary to Republican hogwash, wealthy Individuals like Romney are job destroyers not job creators. Then the vulture capitalists borrow as much money as they can using the company itself as collateral. The next thing they do is to pay Mitt Romney himself, his partners and investors all the borrowed money plus the pension fund. They may also sell off parts of the company or move jobs overseas. Then the company is left to sink or swim on its own. If it can manage to pay all the increased debt Bain Capital put it in, it swims. If not, it sinks and goes bankrupt. In either case, Mitt Romney and Bain Capital have made tens or hundreds of millions of dollars.

President Obama’s attack on Romney and Bain Capital has been rather tepid and timid. He essentially says that, while Romney and Bain have done wonderfully well for Bain Capital’s investors making them a lot of money, that this is not the skill set required of the President of the United States who has to create jobs for the general public, not make a lot of money for investors. This is typical Barack Obama rationalizing. Instead, he should go for Romney’s jugular, something the Republicans including Romney never fail to do, not congratulate him on making money for his investors. First of all, even the companies that have managed to survive the Bain treatment have ended up with a non-union work force working for minimal pay. The fact that Staples and some others are successful companies has nothing to do with it. Staples was never acquired by Bain. They just played a venture capital role there. Romney’s role as a vulture capitalist was to identify companies with tangible assets and then to figure out a way to get control of those assets for Bain and its investors. But it gets worse from there.

This is from the LA Times:

Bain Capital had bought a controlling interest in a paper products company called Ampad for $5 million in 1992. Two years later, after Ampad bought a factory in Marion, Ind., the new management team dismissed about 200 workers, slashed salaries and benefits, and hired strikebreakers after the union called a walkout.

“We were just fired,” Randy Johnson, a former worker and union officer at the Marion plant, recalled in a telephone interview. “They came in and said, ‘You’re all fired. If you want to work for us, here’s an application.’ We had insurance until the end of the week. That was it. It was brutal.”

In October 1994, Johnson and other striking workers drove to Massachusetts to protest Romney’s Senate campaign. “We chased him everywhere,” Johnson recalled. “He took good jobs with benefits, and created low-wage, part-time, no-benefit jobs. That’s what he was creating with his investments.”

The Republicans like to point out how Solyndra, which was invested in by Obama’s administration and then went bankrupt, was a huge flop. No matter how many successes the Obama administration has had, Republicans will characterize the whole program as a failure because of the failure of a small part of it. They don’t mention the other successes like saving General Motors. By the same token Obama should talk about Ampad, GST Steel, Aventis and other companies whose bones have been picked by Romney and Bain and ignore any successes Romney and Bain might have had.

This is from Rolling Stone:

And let’s take a look at the record specifically of Bain Capital, which Romney owned from 1992 to 2001.

• 1988: Bain put $10 million down to buy Stage Stores, and in the mid-’90s took it public, collecting $184 million from stock offerings. Stage filed for bankruptcy in 2000.
• 1992: Bain bought American Pad & Paper, investing $5 million, and collected $107 million from dividends. The business filed for bankruptcy in 2000.
• 1993: Bain invested $25 million when buying GS Industries, and received $58 million from dividends. GS filed for bankruptcy in 2001.
• 1994: Bain put $27 million down to buy medical equipment maker Dade Behring. Dade borrowed $230 million to buy some of its shares. Dade went bankrupt in 2002.
• 1997: Bain invested $41 million when buying Details, and collected at least $70 million from stock offerings. The company filed for bankruptcy in 2003.

President Obama is afraid to criticize Romney’s Bain Capital days because Republicans will accuse him of being against capitalism. Well, so what. Today’s capitalism is not your Grandfather’s capitalism. If a law were passed making it illegal to raid a company’s pension fund and make a large payout to investors, would that be against capitalism? Capitalism is malleable. It only exists within a legal framework. Some of it should be outlawed like the part that let Romney buy companies with borrowed money and then take a tax writeoff because the money was borrowed. Wall street lobbyists have changed the laws regarding capitalism to their own advantage. The Commodities Futures Modernization Act of 2000 deregulated derivatives and helped to cause the financial meltdown of 2008. Advocating reregulating derivatives is not anti-capitalistic. So if Obama were to go after Romney’s record as a vulture capitalist, it does not mean he is against capitalism, only capitalism as it has been “modernized” and deregulated.

Obama should double down on what Romney and  Bain Capital really did which was to load companies up with debt, take the borrowed money for their own personal benefit, raid pension funds, fire unionized workers and hire nonunionized ones at much reduced pay, sell off profitable parts of companies and then force them into bankruptcy. This is exactly what a vulture does: picks apart a carcass for its own profit. He should not give Romney one iota of credit for making money for himself and his investors. After all Romney will never be caught dead giving Obama one iota of credit for anything.

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John Lawrence

John Lawrence graduated from Georgia Tech, Stanford and University of California at San Diego. While at UCSD, he was one of the original writer/workers on the San Diego Free Press in the late 1960s. He founded the San Diego Jazz Society in 1984 which had grants from the San Diego Commission for Arts and Culture and presented both local and nationally known jazz artists. His website is Social Choice and Beyond which exemplifies his interest in Economic Democracy. His book is East West Synthesis. He also blogs at Will Blog For Food. He can be reached at j.c.lawrence@cox.net.
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avatar Andy Cohen June 12, 2012 at 3:15 pm

I suspect we’ll see more of the hard hitting stuff later in September and October, after the convention. Right now he’s just setting the stage for what’s to come. No need to fire all your ammunition at the start of the general election campaign; no one will remember anything that was said 5 months back.

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