Posted on 01/13/2012 4:34:26 PM PST by JediJones
Thanks, that’s great information. It pretty much explains that the primary loophole Romney and co. found was cheap, easily available credit. I have some questions though.
How does Bain escape liability in the bankruptcy? Is it like the stuff I hear on the radio where once you declare a business those funds are separate from your personal funds? Was Bain safe because the companies they bought were still declared as separate companies from Bain itself?
Why was credit so readily available even though this appeared to be a pattern for Bain that creditors should have recognized? Or is there some sort of you-scratch-my-back deal going on here?
Have any of the recent financial regulations done anything to prevent this from happening again in the future if the PE firms can get the credit?
Do we have any knowledge of who absorbed the losses from the bankruptcies? Did any of these lenders eventually go under or get bailed out by the government through FDIC or TARP?
While Romney’s job accounting has been the stuff of imagination and nice, round numbers, here’s something else I believe people are missing. This has been bugging me all day, and I finally decided that he’s a fraud - no matter how many jobs he claims he ‘created.’ Unless they were in the Bain office where he worked, and he made the decision to open a position and set the compensation, he didn’t create the job.
Romney and Bain Capital didn’t run the companies they bought on a day-to-day basis. They provided a) capital and b) “consulting expertise.”
Now, let’s say that we want to use the heroic Venture Capitalist facade that Romney and Friends would like to put up - ie, where Romney and Bain invested capital in some company and enabled them to grow and flourish, la-dee-dah, cue the swelling violin music.
I’ve met a bunch of real VC’s in Silly Valley in my days, and none of them ever tried to claim that they “created X jobs” in their target investments. None. They did brag about their ROI’s, the change in company growth or sales as a result of their advice or injection of capital, but jobs? Those were the responsibility and authority of the management of the target investment company. The VC’s didn’t make calls on that other than “Well, your burn rate is showing us that if you keep hiring at this rate, you’ll need another round in Y sooner months... and you’re not going to be ready for that milestone then... you’d better slow down your [cash] burn...”
Let’s take Staples as the example: Bain & Romney weren’t running that company, they weren’t making the hiring/firing decisions at that company. They put in a wad of early money and they got a ROI on their investment. OK, that’s nice... Anyone can write a check. Takes only minutes. His involvement is not like that of a startup founder who gets big - eg, Steve Jobs and The Woz started a company that became huge and employed a whole bunch of people. They were directly responsible for the decisions that increased or decreased employment. Likewise with guys like Bill Gates, or TJ Rogers, etc. Cisco today employs over 30K people around the world. You don’t hear Sequoia claiming credit for creating those jobs, do you? No. They’re on to their next investment.
An investor claiming that he “created jobs” by mere injection of money into a company is about as dishonest to me as a banker claiming that he produced “X bushels of wheat” because he made a farmer an operating loan to enable the farmer to buy fuel, seed and fertilizer for the season. The damn banker wasn’t out there in the tractor, pulling an air seeder across the plains in the mud of April, and they weren’t sitting in a combine for 40 hours straight as they got the crop off the field ahead of a storm. All the bankers did is sign some papers, punch some buttons on a keyboard and then demand the payments to be made on time.
The “job” that outfits like Bain do is maximize ROI on client funds. That’s it. They can do it buy buying and strip-mining companies, they can do it by spotting up-n-coming startups, they could do it by speculating or investing in markets. Hedge funds make large, levered-up investments in various companies... and I don’t hear hedgies claiming they created “100K jobs” at any point.
Romney is being dishonest here when he’s talking about jobs other people created. Contrapositively, I won’t hang the jobs that were eliminated by Schumpeterian destruction around Romney’s neck either. I will state again that I think his MO (and the MO of many PE/LBO firms) are unethical. They’re using clever accounting and “financial engineering” tricks to maximize their gain and leave others holding the bag. It’s legal, but then so was making mortgage loans to people who had no ability to repay, wrapping the crap paper into a CDO and getting a AAA hung on it.
You nailed it Dave!
This is just another episode of the dishonesty of Myth “Shape-Shifter” Romney on display.
Read post #25 to fully understand what is going on with this episode concerning Romney and Bain and his lie about creating 100,000 jobs.
Yes, when you use corporation formations, the only thing that a creditor to a corporation can grab are assets inside that corporate formation.
When the assets being protected from a BK filing are your personal assets from creditors to a corporate entity which you wholly own, your accounting and business practices had better be very, very clean. You should run the company as tho your personal assets don’t exist, and that you’re just another employee or customer.
Example: If you take something from the company (eg, you produce widgets and you need two widgets for your own private use), you’d better pay for them and pay market rates for them - ie, just what any other customer would have paid. And your purchase and payment better go through your inventory tracking just as tho it were another sale - and if there is sales tax, you’d better pay that too.
Likewise, the pay the corporation pays you should be in line with what such positions pay for a manager or director or whatever. If you’re using clever accounting to take profits out of the company without paying withholding taxation, you’re opening yourself to lawyers “piercing the corporate veil” if you have a liability judgement or BK creditor come after the company.
Bain and every other PE firm, makes sure that the targets of their purchases are all corporations in their own right. They might not be public companies (ie, available to invest in by the general public), but they are corporations.
Nothing I know of in recent financial legislation will do anything to PE firms other than possibly change accounting issues.
You’re not talking about a situation analogous to what PE firms do. When they do a LBO, they’re not starting a company. You’re talking about a startup, which are responsible for the majority of job creation in the US economy.
LBO’s and PE firms buy into existing companies with “misallocated assets” that they can “re-allocate” - namely, to themselves.
On the whole, a recent study makes it sound as tho they’re not all that good at creating jobs:
http://faculty.chicagobooth.edu/steven.davis/pdf/privateequityandemployment.pdf
The summary on job creation is on p. 32.
bookmark. Great post.
His latest ad simply says "thousands". Ok fine. I'm sure if someone took an honest look, they'd find any jobs created were comparable in expense to jobs created by Obama.
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