I like the scene in Goodfellas where Paulie, the crew boss, becomes a silent partner in the Bamboo Lounge, a legitimate business. The original owner is appealing to Paulie because certain other mobsters are disrespecting the place and he hopes, by having Paulie as part of the ownership group, that the disrespect will stop - and it does, but at a terrible cost. Paulie uses the Lounge as collateral and begins charging up all kinds of costs for liquor, food, etc. Then he sells that stuff at bottom-line prices. When the bill comes due he torches the place and collects on the insurance. It's win-win for Paulie, but not for the original owner who opines, somberly, that it was a great bar.
I can't see this movie without thinking of Mitt Romney these days. Thanks, Mitt, for ruining one of my favorite films. However even a casual reader of Romney's time at Bain Capital can't help but seeing the parallels. Consider Bain's modus operandi with an old, family owned manufacturing business called Ampad that Bain got its mitts on in 1992:
"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."
This is the man who calls himself a "Job Creator"? Looks more like an officially sanctioned mafioso to me. Use other people's money to buy into an undervalued company. Saddle that company with the loan debt you just took out. Then begin looting the company for assets you can sell to pay off the debt you yourself have created, sending middle management wage-earners out into the cold. At the same time bill this company for millions as your "consulting" fee while you destroy it. Then cash out and leave. No loss to you, no real risks.
And what do you do with the money? Hide it overseas where it can't be taxed and, therefore, reinvested in the country you're looting.
Romney learned early in his career that it was better to operate this way than deal with start-ups. The potential for enormous profits was unprecedented - and it went on and on and on, right up until 2000 when Romney was about to bid goodbye to his pirate empire. Nearly his last acquisition was the old family-owned toy company KB Toys, built from the ground up the old-fashioned way with lots of sweat and know-how and risk to the entrepreneur.
" In a typical private-equity fragging, Bain put up a mere $18 million to acquire KB Toys and got big banks to finance the remaining $302 million it needed. Less than a year and a half after the purchase, Bain decided to give itself a gift known as a "dividend recapitalization." The firm induced KB Toys to redeem $121 million in stock and take out more than $66 million in bank loans – $83 million of which went directly into the pockets of Bain's owners and investors, including Romney. 'The dividend recap is like borrowing someone else's credit card to take out a cash advance, and then leaving them to pay it off,' says Heather Slavkin Corzo, who monitors private equity takeovers as the senior legal policy adviser for the AFL-CIO.
Bain ended up earning a return of at least 370 percent on the deal, while KB Toys fell into bankruptcy, saddled with millions in debt. KB's former parent company, Big Lots, alleged in bankruptcy court that Bain's "unjustified" return on the dividend recap was actually "900 percent in a mere 16 months."
What happened to the people who worked for KB toys? They joined the stunned millions of Americans who saw this new economy for what it was: not a manufacturing economy that put people to work, creating an affluent middle class and healthy tax base - this is the New Way. It became clear to everyone everywhere that Bain didn't buy KB toys to turn it around, as Mitt would phrase it. There was never a plan for keeping KB competitive.
Today's economy, championed by Romney and the Right, is built not on creating jobs but on cannibalizing companies and squirreling their money away overseas, tax free. No jobs are built - the only people making any kind of profit in this economy are the educated, skilled financial class. Everybody else is doomed. Just as Bain is dismantling the Sensata auto parts factory and sending it piece by piece to China, so too our whole economy will follow. Currently the employees of Sensata are being paid to train the Chinese workers who will replace them at half their salaries. The employees could walk off in disgust, of course, but people need work - even when it's serving the devil.
This is the Market that the Libertarians speak of with such religious reverence. Without regulation (that dirty word to the Tea Party!), that's the way the money funnels - in one direction, with nothing going back in. The Market is without morality, it is driven by profit.
Is it any wonder that Romney doesn't want us to see his tax returns? Paulie the mafioso in Goodfellas wouldn't want you to see his tax returns either.
