The Fundamental Lie Behind Mitt Romney and the Financial Elite
Rolling Stone is reporting in its online edition today (“The Federal Bailout That Saved Mitt Romney”) — based on Freedom of Information Act documents they have obtained — that Romney’s much touted rescue of Bain & Company (B&C) from bankruptcy in the early 1990s was in fact a game of extortion exercised by Romney against the U.S. government (and in turn, U.S. taxpayers). Romney and his gang of financial mavens walked away from their debts of more than $30 million to the U.S. government with, in effect, a $10 million bailout, allowing B&C to survive when by all rights it should have gone bankrupt.
The background to this story: B&C created a spin-off Bain Capital (BC) in 1984 – headed by Romney – to engage in LBOs (leveraged buyouts). LBO’s were all the rage of the 1980s’ Reagan/Bush years and the cutting edge of the new economic game in which some of the biggest monies were to be made by buying up companies, saddling them with crushing debt in the process of borrowing the money to buy those very companies, then selling off those companies’ assets piece by piece like a car thief stealing a car and taking it to a chop shop for its parts. This is also how the infamous Savings & Loan disaster was engineered – looting regular people’s, including retirees’, life savings, so that a few robbers could raid the S&L’s and saddle the taxpayers with hundreds of millions in debts. This is how the cheerleaders for “makers” have made their fortunes. This is compared to alleged “takers” (for example, public employees such as teachers, nurses, and firefighters who do nothing but “take” from the people by teaching them, healing them, and protecting them from being burned alive).
B&C lost much of its operating capital when the principals of B&C cashed in B&C stock in order to fund BC. Then a series of events put them in further and deep trouble. As Rolling Stone describes it:
First came scandal: In the late 1980s, a Bain consultant became a key figure in an illegal stock manipulation scheme in London. The firm’s reputation took a hit, and it fired 10 percent of its consulting force. By the time the 1989 recession began, Bain & Company found itself going broke fast. Cash flows weren’t enough to service the debt imposed by the founders, and the firm could barely make payroll. In a panic, Bill Bain tapped Romney, his long-time protégé, to take the reins.
Romney proceeded to try to rescue B&C by renegotiating B&C’s crushing debts with its four largest creditors (which included the Federal Government) and also got the B&C principals to return $25 million of the monies they’d raided from B&C and forgive $75 million in debts in exchange for being exempted from most future liabilities.
Romney’s plan shortly went bust as B&C’s revenues were inadequate to meet the terms of the deal and Romney went back to redo the deal, this time using the leverage that he had engineered in the deal that if the creditors didn’t accept the reduction of B&C’s debts by, at first 65%, and then, subsequently squeezing even further, 70%, then B&C would instead pay its management (VP’s and up making more than $200,000 per year) big bonuses, draining the $25 million that they had in cash. This would ensure B&C’s bankruptcy and leave its creditors with very little to liquidate in value. Given the choice, the creditors, including the Feds, capitulated to Romney’s extortion play.
What is notable about this story is how closely it matches the manner in which Romney and his brethren operate with respect not just to corporations that they control, but the U.S. economy and its people: the very rich, while making speeches and daily pounding the airwaves and media outlets with their market-solves-everything talk, operate in the precise opposite manner to their rhetoric. They use every advantage they can through their connections with people in high positions in government and business (Romney had close ties to people in the FDIC during this deal-making) to provide themselves huge tax breaks and government subsidies and protection, award themselves fat bonuses for doing so, suck dry the working people who make these concerns actually go and when their house of cards is about to fall apart, extort the government to bail them out or else they will bring the economy down. The perversely revealing thing about this particular story is how Romney used the threatened prospect of executive bonuses being paid to bankrupt the company as a way to force the government to forgive 70 cents for every dollar that B&C owed.
The reason that Romney can’t and won’t reveal his taxes is because his implementation of this this-is-all-for-me-and-fuck-the-rest-of-you philosophy would stand out so starkly that his candidacy would be destroyed. This tale shows the fundamental lie that rests at the heart of Romney and more broadly the GOP’s claims that they stand for fiscal responsibility, that government is the problem and “private enterprise” the solution, and that we would all be better off without government subsidies by unleashing the forces of the “free market.”
Those such as Romney and Ryan who shout the loudest about being self-reliant and contemptuous of “government handouts” and who extol the supposed virtues of the market are in fact among the biggest scofflaw, parasitic, welfare recipients of all, not in the hundreds or thousands of dollars (small fry stuff) but in the millions and, for their ilk, billions. You know, where the big boys and girls play. Their arena is the whole world where they use the government treasury as their personal piggybank and get the ordinary citizens of the world to fight their wars for them while they sit at home comfortable in their mansions, displaying great big American flags from their flagspoles.
Dennis Loo is Professor of Sociology at California State Polytechnic University, Pomona. He is a Harvard honors graduate in Government and received his Ph.D. from the University of California, Santa Cruz. He is the author of “Globalization and the Demolition of Society” and Co-Editor/Author of “Impeach the President: the Case Against Bush and Cheney”. Website: Dr. Dennis Loo