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post #1 of 9 (permalink) Old 08-31-2012, 10:16 AM Thread Starter
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Bain Capital

Greed and Debt: The True Story of Mitt Romney and Bain Capital | Politics News | Rolling Stone

Grammar: The difference between knowing your shit and knowing you're shit.
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post #2 of 9 (permalink) Old 08-31-2012, 10:56 AM
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In a legitimate rape companies have ways to try to shut that whole thing down...
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post #3 of 9 (permalink) Old 08-31-2012, 11:44 AM
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Great read, the author really compiled everything you need to know and used good journalism to make it engaging to normal people.

What a tragedy that these destructive capitalists have hoodwinked the very people who stand to the loose the most from them taking office, into directly supporting them.

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post #4 of 9 (permalink) Old 09-01-2012, 09:25 PM
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Oh man, another piece of lazy ass writing by Matt Taibbi. Sometimes I wonder whether he really is that economically illiterate or whether he just keeps churning out this non-sense because he knows that his target audience will lap it up - he is to print 'journalism' (using that term loosely) what Rush Limbaugh is to the radiowaves...
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post #5 of 9 (permalink) Old 09-02-2012, 09:05 AM
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Fact checking (1/2)

Originally Posted by Snowolf View Post
I have done a fair bit of reading about Bain and how Mittens ran it. This author is not inaccurate in his opinion about Mittens' business ethos. Sorry if historical facts conflict with your narrative. Maybe you might want to provide some factual evidence to show us all where he is inaccurate. And why is he called "lazy" for writing an op ed that you happen to disagree with? I detest Limbaugh but I wouldn't call him "lazy". All of these guys on both sides put a lot of effort into their schtick.....
Look, I do not care for Romney as a politician (I did like him quite a bit when he worked Bain Capital because we were investors with them and received some very nice returns) and I have no issues with people examining his track record, criticizing his management or 'leadership style, pointing out his inconsistencies and/or hipocracies, etc.
However, the article does not do this - it is mostly just an incoherent rant against Romney playing on people's misgivings for certain groups (e.g., "Wall Street"). The few valid points are buried among all the inaccuracies, incorrect factual statements, etc.

Here are just a few points:

what most voters don't know is the way Mitt Romney actually made his fortune: by borrowing vast sums of money that other people were forced to pay back. This is the plain, stark reality that has somehow eluded America's top political journalists for two consecutive presidential campaigns: Mitt Romney is one of the greatest and most irresponsible debt creators of all time. In the past few decades, in fact, Romney has piled more debt onto more unsuspecting companies, written more gigantic checks that other people have to cover, than perhaps all but a handful of people on planet Earth.
Misleading - ignores (deliberately?) the fact that public sector/government borrowing is fundamentally different from private sector debt.

Mitt Romney, it turns out, is the perfect frontman for Wall Street's greed revolution."
Never mind that Rommey was never a Wall Street guy...

But Mitt believes the same things those guys believe: He's been right with them on the front lines of the financialization revolution, a decades-long campaign in which the old, simple, let's-make-stuff-and-sell-it manufacturing economy was replaced with a new, highly complex, let's-take-stuff-and-trash-it financial economy. Instead of cars and airplanes, we built swaps, CDOs and other toxic financial products.
Wrong. Romney was not really been involved with CDOs, swaps, etc. Banks might have used such 'financial innovations' when they arranged lending and bonds for PE transactions (such as Bain Capital's) but the PE shops themselves were hardly involved in this - they just took the money that was offered to them by the banks (just like individuals signing up for mortgages - ironically a comparison that Taibbi makes later on in the article).

Instead of building new companies from the ground up, we took out massive bank loans and used them to acquire existing firms, liquidating every asset in sight and leaving the target companies holding the note.
The reality is that toward the middle of his career at Bain, Romney made a fateful strategic decision: He moved away from creating companies like Staples through venture capital schemes, and toward a business model that involved borrowing huge sums of money to take over existing firms, then extracting value from them by force. He decided, as he later put it, that "there's a lot greater risk in a startup than there is in acquiring an existing company."
Wrong. A significant portion of Bain Capital's business was and still is growth capital and even some early stage/VC investing.

Most leveraged buyouts are financed with 60 to 90 percent borrowed cash.
Wrong. The vast majority of transactions has less than 60% of borrowing. Very few buyouts these days get financed with 70% (or more) of debt and 90% is almost unheard of.

When an LBO is done without the consent of the target, it's called a hostile takeover; such thrilling acts of corporate piracy were made legend in the Eighties, most notably the 1988 attack by notorious corporate raiders Kohlberg Kravis Roberts against RJR Nabisco, a deal memorialized in the book Barbarians at the Gate.
Misleading/wrong. The RJR Nabisco deal was not really a hostile takeover. In fact, it started with the RJR Nabisco CEO at the time (Ross Johnson) seeking out private equity backers/partners to take the company private in friendly transaction. He turned against the idea when it became apparent that the investors would take control away from him and curtail his lavish personal spending at the company's expense. The board of RJR Nabisco did, in fact, support the transaction and did approve the buy-out.

Romney and Bain avoided the hostile approach, preferring to secure the cooperation of their takeover targets by buying off a company's management with lucrative bonuses. Once management is on board, the rest is just math.
Wrong. It is the shareholders and (to a lesser extent) the board of directors of the target that have to agree/approve any buy-out. Management has a role but does not make the ultimate decision.

With all that new debt service to pay, the company's bottom line is suddenly untenable: You almost have to start firing people immediately just to get your costs down to a manageable level.
two gigantic new burdens it never had before Bain Capital stepped into the picture: tens of millions in annual debt service, and millions more in "management fees." Since the initial acquisition of Tricycle Inc. was probably greased by promising the company's upper management lucrative bonuses, all that pain inevitably comes out of just one place: the benefits and payroll of the hourly workforce.
Wrong. This suggested cause-and-effect relationship simply does not exist. Yes, the company will spend more on debt service but needs to spend less cash on payments to equity - it is just a re-balancing of the capital structure. Furthermore, the cash for debt service does not have to come from cost cutting (let alone firing people) - in many cases it comes from revenue increases, margin improvements, reduction of waste and inefficiencies, sales of executive toys (like the infamous corporate jet in the RJR Nabisco case), etc.

Or it can go bankrupt – this happens after about seven percent of all private equity buyouts – leaving behind one or more shuttered factory towns.
Really, one company going bankrupt results in entire factory towns being shuttered!? Nobody is buying the real estate, facilities, equipment, etc. to put them to other uses?

This business model wasn't really "helping," of course – and it wasn't new. Fans of mob movies will recognize what's known as the "bust-out," in which a gangster takes over a restaurant or sporting goods store and then monetizes his investment by running up giant debts on the company's credit line. (Think Paulie buying all those cases of Cutty Sark in Goodfellas.) When the note comes due, the mobster simply torches the restaurant and collects the insurance money. Reduced to their most basic level, the leveraged buyouts engineered by Romney followed exactly the same business model. "It's the bust-out," one Wall Street trader says with a laugh. "That's all it is."
Wrong. This essentially suggests that PE funds plan for their investee companies to go bankrupt. Nothing could be further from the truth - the reason is that as shareholder the PE fund (and its investors) are the last ones in line for any money (unlike the mobsters who take the assets of the 'bust up' company before it collapses).

"I believed he was making a mistake by framing himself as a job creator," said Wolpow. "That was not his or Bain's or the industry's primary objective. The objective of the LBO business is maximizing returns for investors." When it comes to private equity, American workers – not to mention their families and communities – simply don't enter into the equation.
Misleading. It is correct that the creation of jobs is not a primary objective for most PE companies. But neither is it for pretty much any other company. Rather, job creation is a side effect of a successful business - whether private equity backed or not.

Last edited by hktrdr; 09-02-2012 at 09:08 AM.
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post #6 of 9 (permalink) Old 09-02-2012, 09:06 AM
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Fact checking (2/2)


Take a typical Bain transaction involving an Indiana-based company called American Pad and Paper. Bain bought Ampad in 1992 for just $5 million, financing the rest of the deal with borrowed cash. Within three years, Ampad was paying $60 million in annual debt payments, plus an additional $7 million in management fees. A year later, Bain led Ampad to go public, cashed out about $50 million in stock for itself and its investors, charged the firm $2 million for arranging the IPO and pocketed another $5 million in "management" fees. Ampad wound up going bankrupt, and hundreds of workers lost their jobs, but Bain and Romney weren't crying: They'd made more than $100 million on a $5 million investment.

To recap: Romney, who has compared the devilish federal debt to a "nightmare" home mortgage that is "adjustable, no-money down and assigned to our children," took over Ampad with essentially no money down, saddled the firm with a nightmare debt and assigned the crushing interest payments not to Bain but to the children of Ampad's workers, who would be left holding the note long after Romney fled the scene.
Wrong and misleading in many respects:
- Ampad was not a typical transaction for Bain Capital.
- Without the Bain Capital involvement Ampad would have likely gone bankrupt much earlier.
- The "children of Ampad's workers" were never "left holding the note" or "assigned the crushing interest payments". That is factually simply wrong.
- Again, likening corporate debt to government borrowing is just non-sense.

This is typical Romney, who consistently adopts a public posture of having been above the fray, with no blood on his hands from any of the deals he personally engineered. "I never actually ran one of our investments," he says in Turnaround. "That was left to management."
In reality, though, Romney was unquestionably the decider at Bain.
Misleading. Those statements are not inconsistent at all - Pretty fundamental difference between ownership and management of a company... I might be the decider whether to invest the family savings in GE (or whatever other company) but I certainly am not involved in the management of GE.

The private equity business in the early Nineties was dominated by a handful of takeover firms, from the spooky and politically connected Carlyle Group (a favorite subject of conspiracy-theory lit, with its connections to right-wingers like Donald Rumsfeld and George H.W. Bush) to the equally spooky Democrat-leaning assholes at the Blackstone Group. But even among such a colorful cast of characters, Bain had a reputation on Wall Street for secrecy and extreme weirdness – "the KGB of consulting."
Conflates Bain & Co. and Bain Capital - two separate companies.

Its employees, known for their Mormonish uniform of white shirts and red power ties, were dubbed "Bainies" by other Wall Streeters, a rip on the fanatical "Moonies." The firm earned the name thanks to its idiotically adolescent Spy Kids culture, in which these glorified slumlords used code names, didn't carry business cards and even sang "company songs" to boost morale.
Again, mixes up Bain & Co. and Bain Capital. Other than that, what is described is not unusual at many other companies (e.g., Apple).

The seemingly religious flavor of Bain's culture smacks of the generally cultish ethos on Wall Street
Still not clear whether the author is talking about Bain & Company or Bain Capital - but neither are Wall Street firms anyway...

Despite what Romney claims, the rate of return he provided for Bain's investors over the years wasn't all that great. Romney biographer and Wall Street Journal reporter Brett Arends, who analyzed Bain's performance between 1984 and 1998, concludes that the firm's returns were likely less than 30 percent per year, which happened to track more or less with the stock market's average during that time. "That's how much money you could have made by issuing company bonds and then spending the money picking stocks out of the paper at random," Arends observes. So for all the destruction Romney wreaked on Middle America in the name of "trying to make money," investors could have just plunked their money into traditional stocks and gotten pretty much the same returns.
Wrong. The return on "traditional stocks" during that period was in the mid-teens - returns on Bain Capital's PE funds during that period were much higher. The analysis also ignores that not all Bain Capital funds in equity and, more specifically, high risk leveraged equity - in reality a large proportion of the assets under management are in relatively low risk debt funds.

And that's where Romney's self-touted reputation as a turnaround specialist is a myth. In the Bain model, the actual turnaround isn't necessary. It's just a cover story. It's nice for the private equity firm if it happens, because it makes the acquired company more attractive for resale or an IPO. But it's mostly irrelevant to the success of the takeover model, where huge cash returns are extracted whether the captured firm thrives or not.
Wrong. Until the invested capital is recovered and the preferred return is paid to the PE fund's investors, the PE companies themselves generally get no/very little money. The real gravy for them (and how Romney got really rich) is through the carried interest, which essentially requires a successful exit/sale of the investee company at a premium to the acquisition price. Such an exit is unlikely or impossible if the investee company has not been turned around or otherwise increased in value.

Junk bonds gave the Gordon Gekkos of the world sudden primacy over old-school industrial titans like the Fords and the Rockefellers: For the first time, the ability to make deals became more valuable than the ability to make stuff, and the ability to instantly engineer billions in illusory financing trumped the comparatively slow process of making and selling products for gradual returns.
Utter non-sense. What these financial innovations did was to put financial investors on par with "the Fords and Rockefellers" - the latter group always had preferential access to bank financing and investor money. As a result of things like high yield bonds, CDOs, etc. financial investor like PE funds finally were put on a level playing field with the "old-school industrial titans" and, as result, were in position to keep them honest.

But here's the interesting twist: Romney made the Bealls-Palais deal just as the federal government was launching charges of massive manipulation and insider trading against Milken and his firm, Drexel Burnham Lambert. After what must have been a lengthy and agonizing period of moral soul-searching, however, Romney decided not to kill the deal, despite its shady financing. "We did not say, 'Oh, my goodness, Drexel has been accused of something, not been found guilty,' " Romney told reporters years after the deal. "Should we basically stop the transaction and blow the whole thing up?"
Wrong. The financing of the deal was in no way "shady". Bain Capital and Romney were simply customers of Drexel/Milken in the transaction - to suggest that they should have backed out is akin to advocating that people should have stopped buying Windows or Office products when Microsoft was found guilty of abusing its market power. Moreover, at the time of the transaction Drexel/Milken had not even been found guilty of anything at all - they had just been accused.

In an even more incredible disregard for basic morality, Romney forged ahead with the deal even though Milken's case was being heard by a federal district judge named Milton Pollack, whose wife, Moselle, happened to be the chairwoman of none other than Palais Royal. In short, one of Romney's first takeover deals was financed by dirty money – and one of the corporate chiefs about to receive a big payout from Bain was married to the judge hearing the case.
Wrong - actually, complete and utter non-sense. In what way was it Romney's responsibility that Moselle Pollack was the judge for this case? If anything, the onus was on her to recuse herself or on the government to have another judge as chair. Also to repeat, the money for the transaction was in no way "dirty".

Firms like Bain even have a colorful pirate name for the pools of takeover money they raise in advance from pension funds, university endowments and other institutional investors. "They call it dry powder," says Slavkin Corzo, the union adviser.
Wrong. Dry powder is an old military term, not a "pirate" one.

Once again, storied companies with long histories and deep regional ties were descended upon by Bain and other pirates, saddled with hundreds of millions in debt, forced to pay huge management fees and "dividend recapitalizations,"
Wrong. Nobody "forced" these companies to do anything - it is what their owners chose to do, acting of their own free will.

That is just what I came up with in 5 minutes or so.

Again, none of this in any way a defense of Romney, but it illustrates just how poorly written this piece of polemic really is.
And what is up the inflammatory remarks (really "people everywhere were ready to drop an H-bomb on Lower Manhattan and bayonet the survivors"?) and all the silly comparisons to Gordon Gekko (slight problem with those: Aside from obviously being fictional, Gekko was a criminal whose 'business' activities were fundamentally illegal (by breaking insider trading laws and regulation). Has anybody accused Romney of any criminal offenses?).

It really is the equivalent of the bullshit that people like Limbaugh or Glenn Beck spout (albeit at a different point of the political spectrum - if one believes that there actually is a spectrum).

Last edited by hktrdr; 07-27-2013 at 07:54 AM.
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