Hello, Matt Taibbi, how are you making us hate Mitt Romney even more today than we did, say, yesterday (which is saying a lot since we had to sit through his forty minute speech about himself yesterday and also a slide show about him and his kids, blagh). But as you will soon discover, making us hate Mitt Romney even more isn’t terribly difficult! You just begin by explaining the nuts and bolts of how Bain Capital destroyed several companies by loading them up with debt, and then you go into detail about how Bain partners made tons of money, much of it off government “handouts” even while laying off thousands of workers, and then you top it all off by pointing out that political and financial journalists have been unwilling or unable to explain any of this to the American public. Thank you, Matt Taibbi, for exposing not only the incompetence of the American pundit class, but also the features–rather than bugs–of the corporate tax code that allow people like Mitt Romney and Incorporated Americans like Bain Capital to happen to all of us.
We should first say that we love Taibbi’s entire article and encourage you to trot on over to Rolling Stone and read the whole thing (and then come back here, of course). But the main point of it can probably be extracted from these gems:
[When taking over a company] 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. So if the target company is worth $500 million, Bain might put down $20 million of its own cash, then borrow $350 million from an investment bank to take over a controlling stake.
But here’s the catch. When Bain borrows all of that money from the bank, it’s the target company that ends up on the hook for all of the debt. Now your troubled firm – let’s say you make tricycles in Alabama – has been taken over by a bunch of slick Wall Street dudes who kicked in as little as five percent as a down payment. So in addition to whatever problems you had before, Tricycle Inc. now owes Goldman or Citigroup $350 million. 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. “That interest,” says Lynn Turner, former chief accountant of the Securities and Exchange Commission, “just sucks the profit out of the company.”
“The thing about it is, nobody gets hurt,” says [former KB toys employee] Lenny Patnode. “Except the people who worked here.”
Luckily, Mitt likes firing people who provide services to him, so this isn’t a big deal. HA! HA! HA! Seriously though, it does underscore the fact that Mitt’s primary private sector experience has been in an industry where he takes none of the risks and reaps all of the gains. Also, it should be worth nothing that even though he was a Job Creator, there is no mention of Job Creating in Bain’s mission statement. But that’s ok! Because Mitt didn’t so much make his fortune off firing people; he made it off evading avoiding taxes:
But the way Romney most directly owes his success to the government is through the structure of the tax code. The entire business of leveraged buyouts wouldn’t be possible without a provision in the federal code that allows companies like Bain to deduct the interest on the debt they use to acquire and loot their targets. This is the same universally beloved tax deduction you can use to write off your mortgage interest payments, so tampering with it is considered political suicide – it’s been called the “third rail of tax reform.” So the Romney who routinely rails against the national debt as some kind of child-killing “mortgage” is the same man who spent decades exploiting a tax deduction specifically designed for mortgage holders in order to bilk every dollar he could out of U.S. businesses before burning them to the ground.
Because minus that tax break, Romney’s debt-based takeovers would have been unsustainably expensive. Before Lynn Turner became chief accountant of the SEC, where he reviewed filings on takeover deals, he crunched the numbers on leveraged buyouts as an accountant at a Big Four auditing firm. “In the majority of these deals,” Turner says, “the tax deduction has a big enough impact on the bottom line that the takeover wouldn’t work without it.”
Oh how nice. So basically, this tax deduction means that the government incentivizes the kinds of leveraged takeovers that made Romney into a millionaire and costs thousands of people their jobs. But don’t worry! Given that debt is such a pressing concern for people who aren’t Mitt Romney or in the business of private equity, he has a running mate with a plan. And the plan is that you people all retire a few years later and give up your Medicare, and people like Mitt will plug on ahead, job creating.Related