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)
Does, or did, Romney own shares in the Bain fund that is an owner of HCA (which appears to be engaging in Medicare fraud)?*
*The New York Times article explains:
But, to my knowledge, the only one who’s equated the absence of* government policy (of necessity on this issue, statutes) that would restrict corporate employment to the country of the corporation’s origin, and a private equity firm’s investment in companies that specialize in assisting American corporations with offshoring employment, is Yglesias. Even Romney apparently recognizes the distinction. Not sure why Yglesias doesn’t.
It’s one thing to argue that utterly unfettered globalization of employment by corporations worldwide ultimately has a positive effect on the American economy—as Yglesias does. But it’s another thing entirely to actually convince a majority of the public that this is so even in light of current trends and actual facts.
The thing that Yglesias doesn’t get is that Romney’s claiming that his private-sector career demonstrates his ability to create not just wealth for investors but jobs en masse for the public. There’s really no way for him to make that claim persuasively, because it plainly isn’t true. He can defend offshoring as a corporate strategy, but corporate strategy is a different matter than economic strategy.
Unless, of course, Romney wants to argue that encouraging offshoring by American corporations is good government policy. Hope he does. But then, I’m a Democrat.
*Sentence corrected to insert the words “the absence of”.
Was Romney’s Bain-Era IRA Tactic Really Legal In That Circumstance? [with UPDATE from Business Insider]
Re: Romney’s IRA contributions, there was a WSJ article in the past several days that talked about them – they were often a special share class of the PE deals that Bain invested in, where the majority of the value of the company was assigned to the other share class. There are examples of these “low-value class” shares making 600% in several years.
The tax strategy (made sense at the time, less so now) was to put these high(?)-risk, high-reward share classes in your IRA, and your mandatory allocation of the other (lower risk, lower reward) share class in to your taxable brokerage account.
The article quotes tax professionals who question the aggressiveness of the Bain share class valuations.
*Parenthetical added on 7/12 at 11:15 a.m. Should have included it in the original yesterday. Couldn’t resist adding it now.
*This parenthetical was added after the original posting.
**This parenthetical was corrected for clarity.
by Kenneth Thomas
Another Romney/Bain Firm Got Subsidies (Then Closed a Plant)
The Tampa Bay Times reports (via Jed Lewison) that another Bain-owned company, Dade Behring, was a recipient of $7.1 million in subsidies from Puerto Rico and the federal government the year before it laid off 300 workers there. A common problem with many subsidized projects, it took the money and ran without any consequences.
As I have pointed out before, another Bain-owned company, Steel Dynamics, received at least $95 million in incentives from state and local governments in Indiana, for two separate investments. In fact, this exceeds the $85 million Bain made in profit from the firm.
Now we have a third example of Bain-owned companies getting government subsidies. For a candidate who claims to be about private enterprise, Romney clearly doesn’t walk the walk. As Jed Lewison has noted before, it’s clear that when Romney talks about crony capitalism, he’s talking about himself.
How many other government subsidies are in Bain’s past? Inquiring minds want to know.
crossposted with Middle class political economist