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Romney's Equity Firm Pedigree Shows His True Colors

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Mitt Romney is campaigning for president using his credentials as a savvy business owner and job creator to try to convince voters that this is what the nation needs in a president presiding over the worst economic downturn since the Great Depression.

But is Romney the kind of capitalist we need or is he exactly the kind of Wall Street vulture that caused this mess and the kind that the "Occupy" movement is warning us about.   This is part of the underbelly of capitalism that moves some people to push for more regulation to protect workers and consumers.

"Romney co-founded the private equity firm Bain Capital in 1984, and owned 100 percent of the firm from approximately 1992 to 2001. During that time, he made a fortune while thousands of employees in some of the businesses Bain acquired lost their jobs. (How Romney Grew Rich by Plundering Companies, Robyn Blummer)

Private equity firms use large amounts of debt along with a little of their own capital to buy out companies who either are just starting or are on the verge of a growth spurt and need capital to expand.   But they also buy firms that they can "flip" for a profit by selling off assets (often the very buildings that they occupy) and reducing expenses, code for laying off workers.

Oddly, the debt they incur to buy the company is attached to the purchased company, not the equity firm.   Also, often the purchased company must lease back the real estate it used to own from, you guessed it, the equity firm or a leasing company owned by the equity firm.

Since the goal is to sell the company a short term view is taken and long term expenses such as research and development are cut and long-term valuable and expensive employees are laid off.

Sometimes the company is saddled with even more debt to pay off investors of the equity firm in the form of distributions and dividends.  

Now get this, profits in the form of distributions or from the sale of the business are taxed at the capital gains rate, just 15%.   Now you know why Romney refuses to release his tax returns.

It gets worse; the bankruptcy rate for firms purchased by equity firms is twice that of other firms.   But this generally happens after the principals of the private equity firm have been rewarded handsomely.

Finally, research also shows that companies that are bought by equity firms actually shed slightly more jobs than they create.

Make no mistake about it.   Some of the deals made are win-wins for everyone, adding value for shareholders and creating jobs for workers, including some deals by Romney's firm, Bain Capital.   In fact, Romney was a bit of a rock star in some circles.  

But many deals are of the "vulture capital" brand that leaves a very bad taste in everyone's mouth, unless of course you are an owner of the equity firm.   Private equity firms make very good money for their investors and that is their number one goal, profits, not people.

All this attention has private equity insiders a bit nervous.   This is a completely unregulated industry and they want to keep it that way.   Remember all this next time you listen to a Romney speech.   It will sound very different to you now that you know how he made his millions.

"Millions for me, a pink slip for thee," is the playbook of many private equity firms and Romney was one of their savviest players." (How Romney Grew Rich by Plundering Companies, Robyn Blummer)

After a failed attempt to unseat Ted Kennedy in the Senate in 1994 Mr. Romney may have said it best himself in an interview with the Boston Globe.  "He characterized me as a cold-hearted, unfeeling robber baron."  

Well, Mitt, if the shoe fits"

 

A graduate of the State University of New York at Buffalo with an MBA in 1980, John went into the banking business from 1981-1991. John went into the gymnastics business with his wife, with whom he has two children, in 1992 and grew it enough by (more...)
 

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You heard him...He likes to fire people!  ... by John Basel on Saturday, Jan 14, 2012 at 7:41:54 PM