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General News    H4'ed 7/23/12

Mitt Romney: Bush-Out King

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Author's Note: Conservatives are found of blaming the current government deficits on "profligate spending." That's true, but only half the story. The other half is "profligate stealing." A study just released exposes for the first time the massive amounts of money being hidden by the super-wealthy in shady, offshore tax havens... and it's a super-big number: $21 trillion. I just wanted to share that little tidbit before launching into the - very much related - tale that follows. Steve.

"As through this world I've rambled,

I've seen lots of funny men.

Some will rob you with a six-gun,

some with a fountain pen."

                    Woody Guthrie

One of the first terms I ran into when working on Mob stories back in the 1980s was, "bust-out." I'd never heard the term before, but proud (criminal) practitioners of the art - and it is an art - were all too happy to describe the process. The "perfect bust-out" was, to these guys, something akin to bowling a perfect game, something to proud of.

Here's how bust-outs work: 

First a business enterprise -- often already in financial trouble -- is targeted. The the struggling owner is approached with a proposition; investors will provide financing to save the business. The terms are unusually quite generous, but become tighter and tighter once the money is accepted. 

Eventually, when the owner cannot meet the terms, these "investors" make their move. With the business-owner now firmly painted into the corner, they announce the only solution to suing them - or worse - is to convert their loan into an equity share in the business. "Okay, you no longer owe us anything because we're now your new partners," is the message. It's an offer often impossible to refuse. 

Once these vultures are inside and with access to the company's books and assets, they get down to the work of busting out the business. 

The first thing the go are any lines of credit the company might have that are not already tapped out. Then they contact the company's creditors, especially its bankers. They convince the bankers that, if they just loan the business a bit more, they will use the money to reorganize the business and make it profitable again.  Bankers, likely already on the hook for a bunch of delinquent loans from the company, are a reliably gullible lot. They see the hope of getting the asses out of trouble on the loans and take the bait. Of course the only "reorganizing" that goes on involves these "equity partners" moving that fresh money to someplace no one will ever see it again. (More on that later). 

The next thing they go for are the suppliers who provided goods and services to the business. If, say the the bust-out target is a stationary store, they order all the stationary supplies they can from every supply that maintains 30-day accounts with the store. When those goods are delivered they are quickly sold for cash at bargain prices out the backdoor. Again, the money going to the "equity partners," and then off into a network of impenetrable shell companies, never to be heard of again.

When the credit lines and merchandise wells run dry they turn their attention on business' own hard assets. The dismembering phase of a bust-out begins, liquidating its physical assets; trucks, machinery, and real estate, all under the cover of "shrinking the business and cutting expenses." When they're done  the business exists in name only. 

When creditors inevitably come a-calling to collect on the business'  debts, these savvy "equity partners" are ready for the final phase of the bust-out; they throw the whole smoking mess into bankruptcy court, and walk away.

White collar crooks described bust-outs to me as, "the perfect crime." They explained that, by using existing business laws and practices as a cover, they were able to loot and pillage and pocket the booty without fear of criminal prosecution because, as they noted, it's not illegal to fail in American business. "So we're lousy businessmen," they claim when authorities, regulators or judges would ask them what happened to all the money.

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Stephen Pizzo has been published everywhere from The New York Times to Mother Jones magazine. His book, Inside Job: The Looting of America's Savings and Loans, was nominated for a Pulitzer.

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