The Federal Bailout That Saved Bain Capital & Mitt Romney
Government documents prove the candidate’s mythology is just that
by: Tim Dickinson
Mitt Romney likes to say he won’t “apologize” for his success in business. But what he never says is “thank you” – to the American people – for the federal bailout of Bain & Company that made so much of his outsize wealth possible.
In fact, government documents on the bailout obtained by Rolling Stone show that the legend crafted by Romney is basically a lie. The federal records, obtained under the Freedom of Information Act, reveal that Romney’s initial rescue attempt at Bain & Company was actually a disaster – leaving the firm so financially strapped that it had “no value as a going concern.” Even worse, the federal bailout ultimately engineered by Romney screwed the FDIC – the bank insurance system backed by taxpayers – out of at least $10 million. And in an added insult, Romney rewarded top executives at Bain with hefty bonuses at the very moment that he was demanding his handout from the feds.
Under normal circumstances, such ample reserves would have made liquidating Bain an attractive option: Creditors could simply divvy up the stockpiled cash and be done with the troubled firm.
What’s more, the bonus loophole gave Romney a perverse form of leverage: If the banks and the FDIC didn’t give in to his demands and forgive much of Bain’s debts, Romney would raid the firm’s coffers, pushing it into the very bankruptcy that the loan agreement had been intended to avert. The losers in this game would not only be Bain’s creditors – including the federal government – but the firm’s nearly 1,000 employees worldwide.
The FDIC considered finding a buyer to take over its loans to Bain, but analysts concluded that “Bain has no value as a going concern.” And the government wasn’t likely to get much out of Bain if it allowed the firm to go bankrupt:
How had Romney scored such a favorable deal at the FDIC’s expense? It didn’t hurt that he had close ties to the agency – the kind of “crony capitalism” he now decries. A month before he closed the 1991 loan agreement, Romney promoted a former FDIC bank examiner to become a senior executive at Bain. He also had pull at the top: FDIC chairman Bill Seidman, who had served as finance chair for Romney’s father when he ran for president in 1968.
The federal documents also reveal that, contrary to Romney’s claim that he returned full time to Bain Capital in 1992, he remained involved in bailout negotiations to the very end….
This story is from the September 13, 2012 issue of Rolling Stone.
(Hat tip Barry Ritholtz via Spencer)