Romney's Audacious Corporate Raid

The Washington Post's political "fact checker" Glenn Kessler has given the Obama campaign "four Pinocchios" for calling Mitt Romney "a corporate raider" who plunders struggling companies, but a new article by Rolling Stone's Matt Taibbi explains why the description fits the venture capital approach of Bain Capital.

Taibbi's article describes how Romney in the 1980s pioneered the strategy of taking over vulnerable companies, burdening them with massive debt, bleeding them with extravagant fees, forcing them to lay off workers and then sometimes driving them into bankruptcy -- all while he and Bain Capital walked away with millions of dollars.

"Obama ran on "change' in 2008," Taibbi wrote...

"...but Mitt Romney represents a far more real and seismic shift in the American landscape. Romney is the frontman and apostle of an economic revolution, in which transactions are manufactured instead of products, wealth is generated without accompanying prosperity, and Cayman Islands partnerships are lovingly erected and nurtured while American communities fall apart.

"The entire purpose of the business model that Romney helped pioneer is to move money into the archipelago from the places outside it, using massive amounts of taxpayer-subsidized debt to enrich a handful of billionaires. It's a vision of society that's crazy, vicious and almost unbelievably selfish, yet it's running for president, and it has a chance of winning."

In other words, the buccaneers of "financialization" and "corporate restructuring" have set up their own pirate kingdom and have dispatched one of their own to govern the conquered masses.

Defending Romney

However, the Post's Kessler has chosen to defend Romney's business approach, saying it's unfair to call Romney a "corporate raider." Kessler bases his complaint on the fact that Bain Capital avoided hostile takeovers of targeted companies, preferring instead to win over the management. Kessler insists on reserving the "corporate raider" tag for takeovers that aggressively overthrow the old management.

But "corporate raider" can also apply to a private equity firm that swoops in on a vulnerable company, secures a controlling stake and then bleeds it of resources, it's what led Texas Gov. Rick Perry to famously describe Romney as a "vulture capitalist."

Kessler's interpretation of "corporate raider" didn't even fit with the definition he himself cited from a Web site called Investopedia, which defines the term as:

"An investor who buys a large number of shares in a corporation whose assets appear to be undervalued. The large share purchase would give the corporate raider significant voting rights, which could then be used to push changes in the company's leadership and management. This would increase share value and thus generate a massive return for the raider."

Everything in that definition would apply to what Romney's Bain Capital did with the companies it took over. It assessed the potential value of the beleaguered companies, bought a substantial equity stake, forced management changes designed to raise share value (usually abrupt layoffs of employees), and achieved big rewards for Bain by either selling its stake in the slimmed-down firm or taking it public. Bain even made money if a company went bankrupt.

What Taibbi adds to this understanding of Romney as a more genteel "corporate raider" is that Bain Capital's piracy would eschew the messiness of boarding the targeted vessel with swords, grappling hooks and muskets in favor of simply bribing the old management by offering a cut of the loot. Taibbi wrote:

"Romney and Bain avoided the hostile approach, preferring to secure the cooperation of their takeover targets by buying off a company's management with lucrative bonuses. Once management is on board, the rest is just math. So if the target company is worth $500 million, Bain might put down $20 million of its own cash, then borrow $350 million from an investment bank to take over a controlling stake.

"But here's the catch. When Bain borrows all of that money from the bank, it's the target company that ends up on the hook for all of the debt."

And, since some of the old managers are in on the plunder, the ultimate victims are the workers down the line, who face savage job cuts and loss of benefits. Also suffering are their communities which have to grapple with shuttered plants, more unemployment and the social stress that comes with joblessness.

However, Romney and his fellow Wall Street financiers lack sympathy for these "losers" or even an understanding of their plight because the "winners" have transferred the equity of the doomed or downsized company into the "archipelago" of the ultra-rich, into their cloistered communities of gated mansions and global villas, into the world of this new aristocracy.

Indeed, there is something audacious about the Romney presidential candidacy, especially coming so soon after the bailout of Wall Street in 2008 and the transferring of trillions of dollars in its bad debt onto the American public.

Now, one of Wall Street's own is the presidential choice of a major party, as if the struggling United States were just the latest of Bain Capital's targeted companies, one which is now expected to accept the pleasure of having one of Bain's "turnaround artists" installed in the CEO suite.