Monday, July 16, 2012

Casino capitalism

The Mittster is madly trying to keep the focus of the Bain media mania on whether or not he really left management of the corporation in February 1999. But that's not the real issue. Bain business practices before 1999 are just as horrible as what happened after that date:
What’s clear from a review of the public record during his management of the private-equity firm Bain Capital from 1985 to 1999 is that Romney was fabulously successful in generating high returns for its investors. He did so, in large part, through heavy use of tax-deductible debt, usually to finance outsized dividends for the firm’s partners and investors. When some of the investments went bad, workers and creditors felt most of the pain. Romney privatized the gains and socialized the losses.

Thanks to leverage, 10 of roughly 67 major deals by Bain Capital during Romney’s watch produced about 70 percent of the firm’s profits. Four of those 10 deals, as well as others, later wound up in bankruptcy.
Read the whole piece. It's not that long and the details are damning.

Back in the day I believe they called these leveraged buyouts, hostile takeovers. The formula is to put in a few million, take over management, load unsustainable debt through leveraged loans, pay themselves huge management fees from the loaned money and then get out with obscene returns on the initial investment. Taxpayers pick up the costs of shorted pension funds, empty factories and workers who lost their jobs in the ensuing bankruptcies.

Bloomberg calls it casino capitalism. If Bain didn't invent it, they certainly perfected it. That's Rmoney's real Bain problem. And likely why he won't release his tax returns. It's not that he did something illegal, it's just that it will expose the inherent greed and callousness of his business practices.

[More posts daily at the Detroit News.]

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