There were two points made by Newt Gingrich during the primaries where I agree:
- Romney and his former company, Bain Capital, practiced “vulture capitalism”.
- Romney is a liar.
Listing all of the cases where Romney is a liar would take-up too much space in this post and, frankly, it wouldn’t be much of a challenge. A Google search of “Romney lies” results in over 20 million links.
But the cases where Romney practiced vulture capitalism aren’t discussed in enough detail since Gingrich and the remaining GOP challengers left the stage. And I don’t believe most people understand what is meant by the phrase, or they may think that it simply means taking over companies and making them “lean and mean”. Fact is, Romney’s definition is much more diabolical.
Bain Capital, under Romney’s leadership, had one goal: take the money and run. More specifically, their highly successful process goes like this:
- Take over a company
- Borrow millions against the assets
- Procure millions more in taxpayer funded grants and low-interest loans
- Put the millions in grants and loans in their pockets
- File for bankruptcy and hightail it out of town, asap
The banks lose, the taxpayers lose, the workers lose, but Romney and his company pocket millions in ill-gotten gains. How is this not illegal? I have no idea. I suspect it probably is illegal but the people and towns they bilked can’t afford the legal costs of taking on a multi-billion dollar company like Bain. But Gingrich was correct when he coined the phrase, “vulture capitalism”. Like a vulture, Romney pickedthe dead bones of the carcass, but he also picked the bones of every living thing for miles around.
However, Romney’s team wasn’t happy with picking bones, they wanted other living creatures to help the vultures pick bones:
In their more complex deals, they couldn’t rely on their own team to seek out every inefficiency. They needed a more powerful lever, and they turned to the solution Jensen and Meckling had begun to explore a decade earlier: offering CEOs large equity stakes in the company in the form of stock or stock options.
[David Dominik, a former Romney colleague at Bain, said]
“You have the total alignment of incentives of ownership, board, and management—everyone’s incentives are aligned around building shareholder value. It really is that simple.”
In 1986, Bain took over a division of Firestone. They gave plant managers performance incentives to shed labor, basically paying them to do Bain’s dirty work. The managers quickly consolidated two plants and fired workers, making $18 million in incentives for themselves while the workers were out on the street. Bain made $116 million on the venture.
Bain took control of Holson Company in 1987, got $20k in utility support and a $5 million construction bond from the taxpayers. They later sold the company and pocketed $2.8 million while the taxpayers got nothing.
The Obama campaign has put together a new site, Romney Economics, that shows a pattern of Bain Capital’s use of vulture capitalism. In three cases it followed the same tried-and-true process: took over the company, borrowed millions from the bank, pocketed the millions, and then filed bankruptcy. Dade Behring, GST Steel and Stage Stores were all used to get millions in loans and then forced into bankruptcy, and Bain made hundreds of millions of dollars before skipping town.
Romney loves to tout his “success” with Staples. Fact is, Bain lobbied government officials to subsidize their ventures. They received $2.5 million in taxpayer funded grants and low interest loans in Maryland and $6 million in Connecticut. Even when Bain keeps a business going, it does so at the expense of taxpayers.
Vulture capitalism has been very good to Bain: Starting with $37 million under management in 1984, and now over $65 Billion. And even after leaving Bain, Romney was handsomely rewarded for his efforts, receiving a share of the corporate buyout and investment profits from all Bain deals for 10 years earning him millions each year. Millions in income that we now know cost him less than 14% in taxes.
The fact that Romney sees nothing wrong with his “career” decisions tells us all we need to know about a potential Romney presidency. As a writer at New York Magazine put it:
It is arresting to imagine a Romney White House, inevitably filled with as many former Bain colleagues as each of his other public ventures have been: The PowerPoints, the 80-20 jargon, the clinical separation of decision-making from ideology, the detachment of those decisions from moral consequence, a persistent blind spot for people as people.