By now there’s been a lot of discussion in the media about the Vanity Fair and Associated Press exposés of Romney’s and his wife’s offshore bank accounts, to the limited extent that information about them is publicly available. Romney is now likening overseas bank accounts and shell/money-laundering corporations to investing in real overseas companies—as if investments in overseas companies guarantee profit rather than loss in the same way that Bain and its executives usually were guaranteed profits, through financial-transaction fees and “consulting” fees they arranged for themselves irrespective of whether the acquisitioned company made money or instead collapsed under the weight of the debt Bain forced it to incur, in large part, in order to pay Bain those fees. And as if personal profits from overseas investments aren’t taxable here in the United States unless those profits are stored in bank accounts elsewhere.
Romney’s refusal to disclose enough specifics about these foreign bank accounts, where the money actually came from and under what circumstances, and how it has been invested gives new meaning to the term “private equity,” at least in Romney’s case. And this refusal, too, has been and will continue to be widely discussed.
But there’s one aspect of the investigative reports that I think has not been given enough attention and analysis: that Romney’s IRA account from his 15 years as CEO of Bain Capital—a period of time when annual IRA investments could be no more than $2,000—now has assets of more than $100 million. The Vanity Fair article quotes an expert that the author consulted as saying he believes that they only way that this could have happened would be if Romney significantly undervalued the actual value of the assets he was placing into that account. Paul Krugman in his New York Times column on Monday discussed the IRA and said there were conceivable legal ways to accomplish this but, because of the secrecy, no way for the public to know whether these wealth was accumulated legally or not.
Krugman didn’t discuss how this could have happened legally, so I’m wondering: what kinds of investments would there have to have been for this money to have so wildly metastasized? Apple stock? If so, how much Apple stock? Precious-metal funds? A quiet Louvre heist?
But there’s another issue concerning Romney’s and Bain’s peculiar brand of investment—this one involving the realdefinition of private equity, not the pun one I used in the title of this post—that also hasn’t received enough media attention: the difference between Bain-style private equity and Silicon Valley-style venture capital. That difference being the one I alluded to above regarding the investor’s forcing the invested-in company to borrow large sums from banks and use some of the borrowed money or some of its profits to pay huge fees to the investor. Or, in Bain’s case, apparently, not to all the investors, just to the investment company itself and to its executives—thus eliminating, for them, the usual risk inherent in capitalist investment. You know; the risk so vaunted by uber-capitalist-advocates like Romney. Not to mention Romney himself.
Slate writer Will Oremus has an article there today in which he argues that the real difference between the federal government as an angel investor in startups such as Solyndra and private venture capitalists is that the former can only recoup its investment, while the latter can make substantial—sometimes huge—profits.
But venture capitalists, unlike Bain and its executives, also can lose all or some of their investment, just as the government can. ((Does Andreesson Horwitz load up the startups it invests in with huge bank debt and use some of the loan money to pay the venture capitalist firm huge financial-transaction and consulting fees?)* Just as there’s a difference between Silicon Valley-type venture capitalism and Bain-style private equity—something that Obama should point out—there’s a difference between making off like a bandit and being one.
UPDATE: Well, as implied in my reply to a comment below, I was unaware that Romney was the sole owner of Bain; I thought Bain was a closely-held corporation in which Romney was the main, but not the sole, shareholder. But a jaw-dropping Boston Globe investigative report today, titled “Mitt Romney stayed at Bain 3 years longer than he stated,” makes clear—among, um, other things—that Romney was the sole owner of Bain.
ALSO: On the subject of what types of investments Romney would have to have placed in his Bain-years IRA in order for it to have gained so much wealth, I just emailed Paul Krugman at his Princeton email address, told him about my post and about the speculation in the comments by Mike and Kaleberg, and asked whether he could write on his blog or even in his column about the various possibilities. So … we’ll see ….
*Parenthetical added on 7/12 at 11:15 a.m. Should have included it in the original yesterday. Couldn’t resist adding it now.