What Mitt Romney Taught Us about America’s Economy

Mitt Romney

Mitt Romney ran on his record as a businessman.  But over the summer, when bloggers and journalists started taking a closer look at that record, they shined some light into the shadows of the private equity industry.

The companies’ names change, but the sequence of events is basically the same:

  • Rolling Stone writer Matt Taibbi:  “Bain put up a mere $18 million to acquire KB Toys … Less than a year and a half after the purchase, Bain decided to give itself a gift known as a ‘dividend recapitalization.’ The firm induced KB Toys to redeem $121 million in stock and take out more than $66 million in bank loans – $83 million of which went directly into the pockets of Bain’s owners and investors, including Romney. ‘The dividend recap is like borrowing someone else’s credit card to take out a cash advance, and then leaving them to pay it off.’ “
  • Pensions and Investments writer Aaron Elstein: Hospital operator HCA borrowed $2.5 billion in October to help finance a $1.2 billion dividend payout, 40% of which went into the pockets of private equity owners Bain Capital and KKR & Co.
  • Bloomberg News blogger William Cohan: “Welcome to Mitt Romney’s America. This is the true story of how in October 1993 buyout firm Bain Capital LLC, which Romney founded and ran from 1984 to (roughly) 1999, and its partners bought a steel mill in Kansas City, Missouri, from Armco Steel Corp. for $75 million, merged it with other steel companies, loaded it with too much debt, paid themselves big dividends and ran the company into the ground.”
  • San Diego Free Press writer John Lawrence:  “In 1994, Bain bought medical equipment manufacturer Baxter International. After a merger with another company, it became known as Dade Behring.  Bain froze the workers’ pension benefits … it used the projected savings as the basis to borrow $421 million…  Dade paid Bain and its partner, Goldman Sachs, the entire amount as a dividend. … Bain and Goldman had only put down $81 million to buy the company in the first place. Yet, in June 1999 they received $365 million from the dividend—a gain of 4.3 times their initial investment.”
  • Forbes Blogger Peter Cohan: “Consider Bain Capital’s Thomas Lee Partners’ $26 billion acquisition of Clear Channel Communications — home of Rush Limbaugh … This takeover has turned a company that formerly earned net income of nearly $1 billion into a money-loser (almost $4.7 billion in cumulative losses), resulted in thousands of layoffs, extracted millions in fixed management fees, and recently resulted in a multi-billion special dividend for the two PE owners paid for by highly risky borrowing.”
  • David Stockman, Former Budget Director for President Ronald Reagan:    American Pad and Paper was a 20-bagger—that is, $5 million was invested in 1992 for a $100 million profit, a miraculous outcome for Bain, but hardly so for the Ampad workers and shareholders left holding the bag when the company went bankrupt in 1999 with massive debt.  … Ampad generated barely enough operating income during the first six months of 1996 to cover its swollen interest payments… Yet since Bain Capital had now harvested a dividend that was 12X its original investment, it was basically home free.
  • Bloomberg News writer Anthony Luzzatto Gardner:  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.

Time and time again, companies controlled by Bain Capital borrowed money to pay a dividend to Bain Capital.  [Bain Capital then passed the dividends through to its partners and investors, including Mitt Romney.  Want to see all the different ways that dividends were passed through to Romney?  Read his Personal Financial Report here.]

Dividends are supposed to be a method of profit-sharing.  Companies figure out what their income and expenses have been, and how much they will need to invest in growing the business.  Then the rest of the profit is divided among the stockholders (that’s why the payments are called “dividends”).

Dividends used to be taxed as “ordinary income” – and for a lot of years, high-income taxpayers paid a 90% tax rate on dividend income.  That tax mechanism tended to encourage corporate decision-makers to reinvest profits in growing their business, rather than paying profits out as dividends.

But the Bush tax cuts changed the law so that dividends are treated as “capital gains” – which are currently taxed at a 15% rate.  That tax mechanism tends to encourage corporate decision-makers to pay out as much money as possible in dividends.

Bain, and some other private equity companies, took things one step further: they had companies paying dividends using borrowed money, not profits.

Does anyone think Bain Capital would be operating that way if dividends were still taxed at 90%?

For the past decade, our country’s tax policies have provided the wrong incentives to corporate decision-makers.  The low tax rate on dividends has encouraged executives to wring as much money as possible out of companies (however they can!).

That’s not good tax policy.

Good tax policy wouldn’t provide a financial incentive for executives to mortgage their companies, inflate the books and pay bootleg dividends.

Good tax policy would encourage executives to invest in growing their businesses; to structure their companies to succeed over the long haul; and to borrow only for legitimate business needs.

As our nation teeters on the fiscal cliff, there is also an opportunity: Congress can get rid of this obscene tax incentive that we learned about from Mitt Romney.

 

The Truth About GOV Romney and Massachusetts

Mitt-Romney-Profile-Photo

Mitt Romney likes to portray himself as a successful governor of Massachusetts who worked in a bipartisan manner to reduce government spending and create jobs. Conveniently he seems to forget he left office with a 34% approval rating. All but certain to be a one term failed Governor as he was losing in the polls by 15% to his Democratic challenger.  Outside the Beltway commented at the time “the prospect of a guy who can’t win re-election in his own state moving on to the presidency is quite bizarre.”

Romney takes advantage of voters short attention spans to constantly misinform voters about his Massachusetts record. He likes to say he knows how to work with members of both parties to keep government functioning. He seems to forget that he had an astonishing 844 vetoes during his term. Almost all were overridden some unanimously.

Romney told the Christian Broadcasting Network earlier this year that ” Issue by issue (voters) have an opportunity to see my record when I was governor of Massachusetts. We were able to cut back on the size of government. Actually we just didn’t slow the rate of growth of our government, we actually cut it. We pulled back on the spending of our state.” Actually Mr Romney may have misled voters according to the facts.Massachusetts Taxpayer Foundation provides the facts and they don’t match his rhetoric.

Fiscal year 2003 (partial-year Romney influence): $22.25 billion
Fiscal year 2004 (full-year Romney influence): $22.49 billion
Fiscal year 2005 (full-year Romney influence): $24.22 billion
Fiscal year 2006 (full-year Romney influence): $25.44 billion
Fiscal year 2007 (partial-year Romney influence) $27.92 billion

Lets turn to Governors Romney role as a “job creator” that he proudly bills himself. According to Wall Street Journals Market Watch:

“The Republican contender was the governor of Massachusetts from January 2003 to January 2007. And during that time, according to the U.S. Labor Department, the state ranked 47th in the entire country in jobs growth. Fourth from last.” (Maybe that’s why he does not care about the number 47 and the human beings attached to it.)

“The only ones that did worse? Ohio, Michigan and Louisiana. In other words, two rust belt states and another that lost its biggest city to a hurricane.

The Massachusetts jobs growth over that period, a pitiful 0.9%, badly lagged other high-skill, high-wage, knowledge economy states like New York (2.7%), California (4.7%) and North Carolina (7.6%). The national average: More than 5%.”

Romney has only won a single election out of the three he campaigned for. When you analyze the facts of Romneys one term in elected office the picture painted is not an appealing one.  Romney has proven himself to be an ineffective and unpopular governor. As well as having a negative effect on the states job creation numbers.

Add to the fact that at Bain Capital Romney has proven to be a wealth creator for the wealthy not a job creator for working people, unless you consider China.

The one thing he does have on his side is the wealthy conservative super pacs who distort his record to information challenged voters, with millions of dollars of TV ads. Romney is a premiere salesman who is now selling himself to the American voters untethered to both the facts of his present policies and his past record in public office. They are looking at low information voters to pull them through.

The Quarter Billionaire’s $9 Jobs

Cross Posted from EmptyWheel.net

Fairly early in Mitt’s speech last night he said this:

But today, four years from the excitement of the last election, for the first time, the majority of Americans now doubt that our children will have a better future.

It is not what we were promised.

[snip]

It’s not just what we wanted. It’s not just what we expected.

It’s what Americans deserved.

You deserved it because during these years, you worked harder than ever before. You deserved it because when it cost more to fill up your car, you cut out movie nights and put in longer hours. Or when you lost that job that paid $22.50 an hour with benefits, you took two jobs at 9 bucks an hour and fewer benefits. You did it because your family depended on you. You did it because you’re an American and you don’t quit. You did it because it was what you had to do.

But driving home late from that second job, or standing there watching the gas pump hit 50 dollars and still going, when the realtor told you that to sell your house you’d have to take a big loss, in those moments you knew that this just wasn’t right.

But what could you do? Except work harder, do with less, try to stay optimistic. Hug your kids a little longer; maybe spend a little more time praying that tomorrow would be a better day. [my emphasis]

The passage is fundamentally important to the logic of the speech–and indeed, Mitt’s entire campaign–both because it pretends Mitt understands the struggles of average people and because it suggests Obama failed to deliver on Hope and Change.

And at the core of the passage are $9 jobs that don’t pay enough to live on.

Which is funny, because just a few hours earlier, the Founder of Staples, Thomas Stemberg, bragged about Mitt’s role in this:

The truth is Mitt was not a typical investor. He was a true partner. Where some saw an unproven new business, he saw a store that could save people money. He recognized that efficiency creates consumer value. He never looked at Staples as merely a financial investment. He saw the engine of prosperity it could become.

Today Staples employs nearly 90,000 people. It has over 2,000 stores. Over 50 distribution centers.

The average self-reported hourly wage of a Staples EasyTech Associate is $8.89. The average self-reported hourly wage of a Staples Sales Associate is $8.54.

Those jobs Mitt talked about as a symbol of America’s failed promise, the ones that don’t pay a living wage? That’s what Mitt’s campaign boasted about last night as his idea of an “engine of prosperity.”

And it was an engine of prosperity, for Mitt, for Stemberg. Mitt’s worth at least $250 million. Stemberg is reportedly worth $202 million. And they got that money by running an engine of prosperity that relies on workers who are Mitt’s own example of the failure of the American dream. “This just wasn’t right,” Mitt said himself. (Not to mention that some of the steel jobs Mitt destroyed probably were $22.50 an hour jobs, with benefits.)

And look at the solution Mitt imagines for these Americans in the dead-end jobs he created. Not joining a union, the historically proven way to improve dead-end jobs. But work harder, cut back on expenses.

Pray.

And, vote for Mitt Romney, the guy who destroyed those $22.50 an hour jobs and replaced them with $9 an hour ones.

The RNC spent a lot of time this week appealing to small business owners. Indeed, those small business owners are the customers whose prosperity Stemberg imagines Staples serving.

But to a large and increasing number of American people, Mitt’s actually arguing that he should be President so he can solve the problem he got phenomenally rich by causing in the first place.


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Romneys Bain of Existence…

It is only July and the campaigns are in full swing.  Mitt Romney has been on the attack and President Obama has been defending his position while tossing a few jabs of his own. However I think Mitt Romney is the one who has been getting hit the hardest the last few days.

Mitt Romney has been standing firm that he should be President because he is a “job creator” and a businessman.  He has been all around the country telling people that his time at Bain Capitol makes him the better candidate.  So what exactly did he do at Bain Capitol?  I will let Paul Krugman explain:

“Romney wasn’t that kind of businessman. He didn’t build businesses, he bought and sold them – sometimes restructuring them in ways that added jobs, often in ways that preserved profits but destroyed jobs, and fairly often in ways that extracted money for Bain but killed the business in the process.”

“And recently the Washington Post added a further piece of information: Bain invested in companies that specialized in helping other companies get rid of employees, either in the United States or overall, by outsourcing work to outside suppliers and offshoring work to other countries.”

“So now he proposes bringing the skills and techniques he used in business to the White House. Somehow, I’m not enthusiastic about the prospect.”

President Obama also released this ad which is currently playing in Iowa where he will make his next campaign stop.  It shows the truth behind Mitt Romney’s claims to be a job creator.

Romney and Bain: Americas Job Killers

Photo By Austen Hufford

JOBS, JOBS, JOBS.  This is all we hear about as every politician in the country rolls through New Hampshire.  Some are trying to be President, other are here supporting someone running for President.  Every campaign from local state representative to President of the United States, has had something to say about creating more jobs.  

The GOP Presidential candidate Mitt Romney has talked non stop about jobs.  He blames President Obama for not creating jobs and that he will fix the economy. They’ve been able to put American businesses out of business and kill American jobs,” Romney told workers at a Toledo fence factory in February. “If I’m president of the United States, that’s going to end.

Romney has continued to say that his experience with Bain Capitol and as a businessman gives him the advantage.  He also says he wants to bring American jobs back. 
For me it’s all about good jobs for the American people and a bright and prosperous future,” he said.   However his past is slowly coming back to haunt him.  

As we all know, Mitt Romney worked for an investment firm named Bain Capitol.  Bain Capitol has been taking a lot of heat lately for their business practice of closing down factories and putting people out of work.  So what is the real story?

Romney talks about wanting to bringing jobs back, however Bain Capitol was all about moving jobs overseas. Bain was not the largest player in the outsourcing field, the private equity firm was involved early on, at a time when the departure of jobs from the United States was beginning to accelerate and new companies were emerging as handmaidens to this outflow of employment.” Bain was on the forefront of outsourcing.  Bain played several roles in helping these outsourcing companies, such as investing venture capital so they could grow and providing management and strategic business advice as they navigated this rapidly developing field.

Here are just a couple of examples of how Mitt Romney and Bain Capitol worked to send good American jobs overseas.

Bain’s foray into outsourcing began in 1993 when the private equity firm took a stake in Corporate Software Inc. CSI employed U.S. workers to provide these services but by the mid-1990s was setting up call centers outside the country. Two years after Bain invested in the firm, CSI merged with another enterprise to form a new company called Stream International Inc. Stream immediately became active in the growing field of overseas calls centers. 

Modus Media told the SEC it was performing outsource packaging and hardware assembly for IBM, Sun Microsystems, Hewlett-Packard Co. and Dell Computer Corp. According to a news release issued by Modus Media in 1997, its expansion of outsourcing services took place in close consultation with Bain.

So now which Mitt is the real Mitt.  Is he the one who is going to take your job and send it overseas.  Or is he the one who will bring those jobs back in an effort to save our economy that he worked to destroy.  It was Wall Street gamblers like Mitt Romney and Bain Capitol that pushed America into this recession.

Real Americans are still losing their jobs to outsourcing.  Bain Capitol is still very active in pushing jobs overseas.  The most recent example is that of Sensata Technologies in Freeport, Illinois. Bain is closing down the plant and sending those jobs to China.  If you are tired of seeing hard working Americans loose their job to outsourcing then speak up.  Take a moment and sign this petition to Bring Jobs Home.
Your voice matters and every signature counts.

Quotes Taken from Washington Post 6-22-12


Working Families Are Welcoming Mitt Romney In Stratham Tommorrow 6/15

Working families are welcoming Republican presidential candidate Mitt Romney at his campaign stop in Stratham tomorrow with a few pointed questions about his campaign’s claims that taxpayers want him to lay off more teachers, firefighters and police officers.

New Hampshire workers – who are, let’s face it, taxpayers too – will show their suport for the public employees that Romney would love to fire and ask him a few simple questions:
1) What ideas does Romney have for fighting crime with fewer police officers?
2) Are classrooms of 40 middle school students acceptable?
3) Who will terrified homeowners call when their houses catch on fire?
It isn’t just public workers who should be worried about Romney’s taste for firing people.
A
new ad up on the New Hampshire airwaves reveals Bain’s little known role in triggering layoffs in the Holson Burnes’ plant in Claremont, NH. (embeded below) 
Bain doubled its 10 million dollar investment into the clock and photo supply company. But workers in NH lost their jobs as the company consolidated its operations overseas.
Overall, about 100 jobs were lost at Holson Burnes Claremont plant, according to the Associated Press.
Romney may try to peg Obama as out-of-touch with the American people tomorrow in Stratham. But if these recent revelations about Romney are right, then working Granite Staters should worry about Romney’s concern for them – regardless of whether they work in the private or public sector.