Relevant and even prescient commentary on news, politics and the economy.

Romney’s VERY Private Equity (with UPDATE)

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.

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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 ….

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*Parenthetical added on 7/12 at 11:15 a.m.  Should have included it in the original yesterday.  Couldn’t resist adding it now.

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John Roberts and Elena Kagan: Mirror Images of Each Other

The second biggest surprise of the day, after the survival of the Affordable Care Act, is that we’ve never really gotten over our collective crush on John Roberts. How else to explain today’s outpouring of praise, not merely for the decision but for the man himself, for his statesmanship and judicial modesty? All these years, it now appears, we’ve held it in our hearts; we’ve written it in our diaries, remembering every one of those sweet nothings he once whispered about “common ground” and “humility.” No, we never really gave up on Roberts. Not during that long judicial bender he took with the boys—Nino, Clarence, Tony, and Sam; not during the Citizens United argument, when he called the government “big brother”; not when he swept away a century’s worth of campaign finance regulations. So complete is our swoon, in the afterglow of the ACA ruling, that Bob Shrum has written that if Roberts had been Chief Justice in 2000, Bush v. Gore might have gone the other way.

To which I posted the following comment:

I write on legal and political issue issues for a left-of-center blog and have indicated there that I detest and really fear John Roberts because of his deeply diabolical nature and his checklist of ‘80s-era Federalist Society things-to-do.   Linda Greenhouse has written several columns, two or three of them within the last few months, highlighting those two quintessential John Roberts traits.  But Greenhouse, and I, predicted that Roberts would save the ACA because the case is so high-profile and the grounds for striking down the statute so utterly artificial that it would place more public scrutiny on the types of things he and his cadre normally get away with with virtually no public awareness.  I don’t think he did what he did out of a sense of statesmanship, nor in order to gut the Commerce Clause; I think the Commerce Clause ruling will have almost no practical effect, and he could have done the same thing with it simply by joining the other four conservatives in a 5-4 ruling striking down the ACA. 

I think he’s, in a way, the mirror image of Elena Kagan, who in high-profile cases usually votes liberal but who, best as I can tell, almost never goes out on a limb for the “nobody” “cert” petitioner and actually fights to get a “cert grant,” as Sotomayor does, and who I’d bet doesn’t even vote very often to hear such cases.  Her priorities seem to be her own public image and being buddies with the “in” crowd on the Court, whereas Roberts’ priority is making as many dramatic changes to the law as he can, but doing so as much under the public’s radar as possible.  (I also think Kagan is a bit naïve on some issues because of her unfamiliarity with them—see, e.g.: federal habeas review of state-court convictions—and fairly easily snowed.)

So I agree with Ken Houghton in his post below that John Roberts is not the friend of progressives.  I disagree with Ken, though, that Roberts has set up some trap through which he will later orchestrate the striking down of the ACA as a violation of equal protection because of the way in which the Medicaid expansion is administered (if I understand Ken correctly) is nil.  Roberts ended his opinion with a statement saying that the proper manner in which to determine the ultimate fate of the ACA is through the political process, not the judicial process—and I think he means it.  There are two parts of Roberts’ opinion—the part concerning Congress’s regulatory powers under the Commerce Clause and the part concerning Congress’s power to enact federal-state partnership legislation a la Medicaid—that raise serious concerns about the impact on otherlegislation.  I wrote separate posts yesterday about each of these, and I’ll be writing another one on Medicaid issue later today. 

But any lawsuits concerning some aspect of how the law is working in practice, once it gets underway, would result in the possible tweaking of an HHS regulation or in the manner in which a particular state is implementing the Act, but I just don’t foresee a successful attack on the constitutionality of some provision in the Act itself. 

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Thank you, Judge Posner

The chief justice, echoing Justice Scalia’s “broccoli” comment at the oral argument, rejected (as did the four dissenters, and so that is now the view of a majority of the justices) the Commerce Clause ground for the mandate, saying that to accept that ground would mean that “Congress could address the diet problem by ordering everyone to buy vegetables.” This argument, reassuring though it is to our obese population, confuses separate constitutional provisions. The Commerce Clause would empower Congress to order everyone to buy vegetables, because the market for most vegetables is interstate, but the “liberty” protected against the federal government by the Fifth Amendment would doubtless be interpreted to forbid such an imposition, just as it would be interpreted to forbid a federal law requiring everyone to be in bed with the lights out by 10 p.m. in order to economize on the use of electricity and, by doing so, reduce carbon emissions from electrical generating plants.

— Judge Richard A. Posner, on Slate, 5:38 p.m. today

Amen. 

Justices Ginsburg, Breyer, Sotomayor and Kagan also made that point, in their concurrence today.

I’m thrilled to be in such exalted company.

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My opinion: Almost no practical limiting effect on Congress’s regulatory powers

Some people think Roberts cleverly used this case to severely limit Congress’s regulatory powers.  Others strongly disagree.

I’m with the others.

I think that as a practical matter, this will have almost no limiting effect at all on Congress’s regulatory powers.  I can’t think of any circumstance in which this limitation would apply and in which there would be no other enumerated power under which Congress could enact the law.  In this case, the other enumerated power is the taxing power.  In the case of, say, the Selective Service Act, the enumerated power is the power to provide for the national defense.  Etc.

The reason that this limitation is insignificant is that the Commerce Clause argument was really a disguised Fifth Amendment due process (liberty! broccoli!) argument, and Roberts flatly rejected that.  He said, no, the Commerce power doesn’t allow this but the taxing power does—and, no, it doesn’t violate fundamental constitutional concepts of freedom, of liberty!  There may be other things that could be compelled under the taxing power—broccoli purchases, maybe—that would violate Fifth Amendment due process concepts (freedom! liberty!) and thus be unconstitutional on that basis, just as there are things that could be compelled under the Commerce power that would violate that concept of due process and thus be unconstitutional on that basis.  But this does not violate that concept of due process (freedom! liberty!). 

No, Roberts didn’t specifically separate the two concepts—Commerce Clause limitations and Fifth Amendment due process—and, yes, he does almost seem to conflate them the language Scocca quotes.  But the bottom line is that he found no due process (freedom! liberty!) problem with the mandate and penalty, and therefore no slippery slope to broccoli in this instance, even though he says the Commerce power isn’t broad enough to authorize the statute.  

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Sorta Interesting … (Updated!)*

Thought y’all would enjoy this post, on one of THE BIG DEAL law-profs’ blogs.  It’s bloggers are right- to center-right libertarians, all (or at least most) of them former law clerks to one of the conservative Supreme Court justices.

Ah. And this is even moreinteresting.  Woo-hoo!

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UPDATE: Welll.  Hmmm.  As I said earlier today in a comment in response to JackD’s comment about my post, I was surprised to read the original law-prof blogger’s interpretation of Ginsburg’s weekend comments, because on Monday I had concluded the opposite after reading a quote from Ginsburg’s speech. 

The quote was:

As one may expect, many of the most controversial cases remain pending. So it is likely that the sharp disagreement rate will go up next week and the week after.

As I noted in my comment to Jack, “Sharp disagreement,” in Supreme Court coverage, usually means 5-4 decisions, although sometimes it means “fractured,” as in, there were a zillion separate concurring and dissenting opinions, and no one can actually figure out what the hell the actual result was. 

As I also said, the ACA case, of course, isn’t the only high-profile case the Court will decide in the next 10 days or so.  But I still read that comment as suggesting a 5-4 result in the ACA case.  The CW is that if the ACA is stricken down, it will be 5-4, but that if it’s upheld it will be 6-3.  But Kerr could be right.  Ginsburg might have just been sending out a red herring.  Who knows?  Or: Oh, what the hell.

Ooooh.  This is more nerve-wracking than betting on your Kentucky Derby favorite, who’s no one else’s favorite; your odds are even worse. And there’s no “place” or “show” here.  Unless ….

As I also said in responding to comments to my post—JackD’s and run’s—the impact of the poll I linked to in the last sentence of my post is, I think, that it suggests that, contrary to the CW of the last two years, the healthcare-insurance issue could be a big positive, rather than a negative, for the Dems in November, if the Court does strike down the entire ACA or the mandate part of it.  (And even if it doesn’t, since by the election most people finally will actually know what’s in the law, what’s not in the law, and what the purpose of the mandate is and how it relates to the preexisting-conditions provision.)  The Repubs want the status quo.  The Dems and a substantial majority of the public don’t.

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*In response to a comment by Gary, in the Comments to this post, asking what “CW” is, I wrote:

Conventional wisdom.  I’m sorry.  I did exactly what I hate when other people do that.  Especially mainstream-media bloggers like Matthew Yglesias, who regularly drops names of people I’ve never heard of, and the like, on his blog on Slate.  I guess now I qualify to blog on Slate.    
 
Again, sorry.

Beverly, 6/21

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Paul Clement, In Appreciation

by Beverly Mann
originally posted at the Annarborist

Paul Clement, In Appreciation

Each year as the Supreme Court’s term ends in late June, Slate’s main legal-issues writer, Dahlia Lithwick joins with Walter Dellinger, head of mega law firm O’Mebeny & Meyers’ national appellate practice, and a former head of the Office of Legal Counsel in the Clinton administration, in a weeklong discussion about the Court’s recent opinions, their effects, and the apparent internal dynamics among the justices during the term. This year, they’re joined by Paul Clement, head of mega law firm King & Spaulding’s national appellate practice and solicitor general during George W. Bush’s second term.

Dahlia began the discussion last week by welcoming Clement to the group and expressing her deep admiration for him.

I share Dahlia’s admiration of Paul Clement, but not just because he is a brilliant legal analyst and has an uncanny ability to argue that analysis incredibly cogently—both traits he shares with my favorite Supreme Court litigator, Jeffrey Fisher—but also because as solicitor general he occasionally had the government take positions as an amicus that departed from robotic Republican ideology, and did so also in at least one case recently as a private practitioner.

I still recall vividly the elation that I and (I know) others felt in 2006 when as solicitor general he filed an amicus brief for the government urging the Court to grant a certiorari petition filed on behalf of an autistic child and his parents in a case called Winkelman v. Parma City School District. The case presented the issue of whether the parents of a handicapped child could serve as surrogate parties on behalf of their child in a lawsuit against a school board, claiming a violation of the Individuals with Disabilities Education Act, when the parents and child were not represented by an attorney because (although middle class) they could not afford one. Legal fees would have cost tens of thousands of dollars. The lower federal appeals court had threatened to dismiss the lawsuit unless the parents retained counsel to represent the child.

The Court did grant the certiorari petition. Clement then filed an amicus brief for government supporting the Winkelmans’ claim that they and their son were entitled to access to court without having to retain counsel first.

Justice Kennedy wrote an eloquent and unanimous opinion for the Court ruling in favor of the parents and the child.

Later Clement, as a lawyer in private practice, brought his very considerable personal prestige to a case called Perdue v. Kenny A, in which he represented Kenny A., one of 3,000 abused and neglected children in Georgia’s foster-care system, and the children’s lawyer, who a lower federal court had awarded a larger-than-normal attorney’s fee under a federal statute that provides for the award of attorneys’ fees in successful civil rights lawsuits such as that one. The Court effectively ruled against the Kenny A. petitioners, in an opinion that barely disguises that that is what the Court did.

So much of conservative Republican jurisprudence—far, far more than the general public is aware—centers around simply (very simply, actually) denying most people access to court at all in constitutional or statutory civil rights cases. Paul Clement obviously does not share the right’s affection for that agenda.

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