Skip to comments.Bain used legalized theft (bankruptcy) to privative profit and socialize loss.
Posted on 01/27/2012 8:40:26 PM PST by liberty2all
Im so tired of the refrain that a critique of Mitt Romneys work at Bain is an attack on capitalism. Capitalism means that you RISK capital, so that you will profit if things go well and you will incur a loss if things go poorly.
Private equity firms, like Bain, are in the business of maximizing profit for investors (not to create jobs as characterized by Romney supporters), which is perfectly reasonable and legal. To do that, private equity firms often make investments then extract consulting fees and special dividends in excess of the original investment to ensure that no loss is incurred by the private equity firm. Their ability to extract those fees and dividends was often accomplished through over-leveraging of the target company or through liquidation of company assets. If Bain was able to turn a target company around financially, great. If not, Bain could default on the debt of the company through bankruptcy. In one such example, Bain extracted $120 million and then defaulted through bankruptcy on the debt of the business (which included employee pension debt). In the case of one company, I believe that the pension debt of approximately $40 million was even absorbed by the federal government - - in other words, taxpayers!
Fundamentally, bankruptcy is legalized theft from creditors. It has been accepted as part of our legal framework in the United States, primarily because we dont want to see fellow citizens toiling away in debtors prisons. Today, financiers and investors on Wall Street (including billionaires such as Donald Trump) use cheap federal reserve currency and bankruptcy laws in a cynical way to take risks for which profit is privatized and losses are socialized (through bankruptcy). This is entirely legal, but it is NOT the free market, free enterprise or capitalism.
Romney is not a Henry Ford or Bill Gates capitalist who created a product or process that creates wealth, jobs and benefits peoples lives. Romney worked on Wall Street, using the cheap money of the federal reserve, maximized profit for investors, and defaulted on debt through bankruptcy when things went south. Even when Bain turned businesses around, they were largely able to extort creditors into accepting lesser payment than owed through the threat of bankruptcy (legalized theft). Dan Henninger penned a column in the Wall Street Journal, through which he asserted that this process helped American businesses become more efficient and profitable in the long run. Admittedly, this is a desirable outcome. However, the fact that it was achieved through threats of legalized theft should raise questions about the morality of this practice.
Romneys only claim to fame is his experience in the private sector. Interesting that his experience relied significantly on statutorily sanctioned theft.
Anything to say? Or just slanderous guilt by association?
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“privatize profit” sounds like commie code words
What we need is the end of public funding of corporations such as bailouts and subsidies.
Well at least Mitt was not teaching an American history class. He would be really ethically challenged if that was his job. s/ Mitt says his work was just as important as BamBamKennedy bailing out the auto industry.... ‘cash for clunkers’ was the dividend for US.
What the heck is going on around here?
What’s next, calling for stronger federal government to reign in out-of-control capitalism?
Or just supporting an academic whose only other jobs have been in government?
Like any tool, when properly used, it works just fine and does the job.
Bain Capital was set up in the 80’s and was the reason for the growth during Reagan’s time. Companies at that time with double digit inflation and high interest rates sat on a lot of cash. Fear leads to inaction so when they had enough of that pain Romney’s firm came in and force them to be profitable. Need sone of that private dynamism.
If you had the least bit of understanding of business, economics and finance you would know that bankruptcy and capital investment are a vital part of an economic system.
Look, I understand that you don’t like Romney. However, this is getting real stupid real fast.
Your logic is not logical. If these companies were sitting on cash they would not be bankrupt nor in need of Bains Capital.
I’m not privy to the ins and outs of Bain’s capital manipulations but I am a party as a stockholder to one situation a number of years ago. The company I had stock in had been sitting on a big cash reserve , paying regular dividends, waiting to finance projects when economic situations warranted. Seeing the situation some ‘capital’ investors invested their funds in taking over the majority of the board. In no time at all the original company was split and the reserve funds were taken away and I was left with two much lower level of investments. Granted the original company faltered somewhat but the large reserve was gone. I suspect Bain has been involved in similar shenanigans. At the time it was not called capitalization but called corporate raiding and looting.
Well thank you for your ignorant and uninformed opinion nOOb.
You mind giving me that shovel you been using where there ain’t no dirt?
I’d like to pit it to use profitably moving this pile of crap from here to the mushroom farm I invested in.
You said real stoopid “real fast” to a slug. LOL
Through the 1980s, 1990s and into this century it has been true that companies who behaved responsibly and kept cash to a maximum were taken over by those who dashed to the loan window. These purchases were then financed on the backs of employees, creditors and taxpayers. I believe that when the money center banks and investment brokers were allowed to merge this process accelerated. This devalued the skills of industrial organization and engineering and brought us to the reign of the arbitrageurs and attorneys. This is a societal shift which I believe was probably the result of legislation and regulation designed for the repair of some perceived problem and shows the law of Unintended Consequence.
but lay off bankruptcy, it is simply a tool to recycle wealth back into the capitalistic system when businesses fail.
Like any tool, when properly used, it works just fine and does the job.
And when misused it provides the means to commit rape and murder. Capitalism involves the risk of capital. Letting the incompetent and corrupt off the hook does no one any good. If business owners want to profit from business, they must also risk loss. The same standard should apply to the management of corporations. The idea that a CEO can take home millions while making decisions that will screw others out of much more is a joke.
Actually, it's the heart of national socialism: public expense/private profit.
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