Mitt Romney is staking his presidential candidacy on his long business career and the values reflected in the photograph below, taken from a Bain Capital Christmas card in the 1980s. If recent polls are any indication, a majority of American voters might be ready to buy in.
But what does Romney’s career in private equity—a career that earned him an estimated $250 million, plus hundreds of millions more for his associates—signal about a possible Romney presidency?
Bain Capital made its money via leveraged buyouts and recapitalizations. Romney and his associates would seek out struggling companies and bid to restructure them. They would borrow tens of millions of dollars at high interest rates, purchase the stock of the companies they estimated to be undervalued, then load them with debt from borrowed bonds or bank notes. Next, they would cut the payrolls of those companies by laying people off, sell off the assets, and, on occasion, subdivide the firms.
Bain then resold the raided company to the public at a higher share price and made massive profits—profits that went directly to the firm and its private investors. It was never in the business of job destruction, per se. But it wasn’t especially interested in job creation, either.
According to the Wall Street Journal, of the 77 companies that Bain Capital invested in under Romney’s leadership, 22 percent either shuttered their doors within a decade or else filed for bankruptcy. The more severe the restructuring, the bigger the profit Bain was apt make. And since the profits were paid in the form of capital gains for Bain’s partners, they were taxed at a low rate of 15 percent – as opposed to the 35 percent payroll tax rate paid by most Americans.
Of all the means that Bain uses to generate profit, overextending a company with debt and increasing the risk on its success is by far the worst practice. It’s also a leading indicator of what a Romney White House might look like. According to John Surowiecki of The New Yorker, the principal means for Bain Capital to leverage a company and earn money for investors and managers is as follows:
Leveraged-buyout firms like Bain Capital, which Mitt Romney ran between 1984 and 1999, routinely borrow massive sums in order to make their acquisitions, leaving companies with debt loads equal to twice their annual sales or more. (Last year, for instance, the L.B.O. firm Apex Capital borrowed five billion dollars to acquire the medical-technology firm Kinetic Concepts, a company with annual revenues of around two billion dollars.) And they do so while borrowing at much higher interest rates than the federal government has to pay.
Surowiecki adds this ironic point: The “same party that loves to inveigh against the dangers of excessive borrowing is now likely to nominate for President a man whose entire career, and entire fortune, was built on debt.”
Benefiting the privileged is the goal of Romney’s proposed tax policy as well. Compared to Ronald Reagan’s 1981 tax cuts and George W. Bush’s 2001 tax cuts, Romney’s proposed cut is the most regressive. He not only would raise taxes on working Americans, he would eliminate the estate tax and the corporate tax, as well as extend the Bush tax cuts for the wealthiest Americans.
How does Romney propose to pay for this tax cut, which, according to the International Monetary Fund, might equal 3 percent of GDP? According to Romney, it won’t come from cutting defense or raising other revenue. He proposes to pay for it the Bain way: “reducing payroll” by laying off federal workers, “selling off assets” in the form of cuts to services for seniors and low-income Americans, and “subdividing the firm” by privatizing essential government services. Romney argues that “We’re going to eliminate or cut programs that are not absolutely essential — even when we like them.” The result would be an increase in the deficit of over $500 billion and cuts in domestic programs that could exceed 20 percent across the board.
A president must be able to balance the needs of both free enterprise and public enterprise. Are a majority of Americans ready to elect a candidate who believes that the government should be run like a business—say, a private equity business that earned hundreds of millions of dollars through hostile leveraging? Are a majority of Americans ready to accept Romney’s notion that every activity can be mined for private financial gain, and that all public activity is open for private business?
It may be ungenerous to say that if you support Romney’s idea of an America run like a private business then you must be in love with bloated greed. But it is fair to say that an America run like a private equity business would be antithetical to democracy and progressive governance.
Consider the recent news about Freddie Mac. Last month Pro Publica and NPR News reported that Freddie Mac earned profits by betting against homeowners who were attempting to refinance their mortgages at today’s lower interest rates. One arm of the independent federal agency was making it almost impossible for those homeowners to secure lower interest loans while the other arm was investing and profiting off the failure.
Freddie Mac’s profiteering looks a lot like the private equity ethos Romney used at Bain Capital, an ethos he plans to establish in Washington, D.C. His promises – to extend the Bush tax cuts, cut taxes on wealthy investors and corporations, while at the same time letting tax breaks for the poor expire – would bring the Bain way to the federal government through aggregation, debt, leveraging, and profiteering. He would align the interests of the country with protecting, preserving, and defending the wealthy at the expense of middle and working class Americans. In this kind of America, the national motto might cease to be e pluribus unum – out of the many, one – and will instead become its polar opposite, paucos ex multis ad utilitatem – taken from the many for the benefit of the few.