Privatized Yields and Socialized Losses: How Bain and Romney Gave to the Rich what they Robbed from the Poor

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    Aug 10, 2012 5:19 AM GMT
    Romney’s Bain Yielded Private Gains, Socialized Losses

    Mitt Romney touts his business acumen and job-creation record as a key qualification for being the next U.S. president.

    What’s clear from a review of the public record during his management of the private-equity firm Bain Capital from 1985 to 1999 is that Romney was fabulously successful in generating high returns for its investors. He did so, in large part, through heavy use of tax-deductible debt, usually to finance outsized dividends for the firm’s partners and investors. When some of the investments went bad, workers and creditors felt most of the pain. Romney privatized the gains and socialized the losses.

    Is Mittens a "Modern Day Robin Hood In Reverse"?

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    Aug 10, 2012 5:32 AM GMT
    I don't think Obama is a great president, but I think electing Mitt would be a terrible decision. He is going to cater to the super wealthy, and carve a larger gap between the socioeconomic classes. The people of the United States. EVERYONE, needs to drop the arrogant act, and reembody what got us on top in the first place, unselfish, fearless, innovation and aspirations for progress. Also, the food industry needs to stop allowing so much junk to be put in our food.

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    Aug 10, 2012 6:17 AM GMT
    It's just more Romney Hood.
    Stealing from the poor to give to the rich.

    That's exactly the kind of thing that's been screwing the middle class for years.

    Putting Romney Hood in the White House would be a disaster for average Americans.
  • maxferguson

    Posts: 322

    Aug 10, 2012 6:48 AM GMT
    Not to say that "privatized yields, socialized losses" doesn't apply to Romney (and they do), I think that is a more fitting description of Ben Bernanke. Some presidents leaned into the nation's borrowing power to make their campaign promises happen. Inevitably, any president on either side of the aisle will promise more than government can afford to deliver on its own tax revenue if there is any capacity to borrow - generally speaking, the public at large receives more (and politicians even more) and that's the easiest way to win an election.

    When Obama took office, the debt capacity, which credit ratings agencies define as the debt load at which the central gov't spends no more than 10% of central gov't tax revenue on debt service and interest charges, had well been breached. They are still very capable of paying and borrowing more, but not in perpetuity. In short, the Obama administration leaned into the USD instead of (in addition to...) borrowing. The goal was to stimulate private sector credit demand, a condition necessary for growth. But consumers are so over indebted already that demand will not increase until consumer/household debt is either defaulted on (via bankruptcy) or paid down. The interest rate is the price of money, and no matter how low Bernanke pushes it, if people are already spending (or should be spending) most of their income on paying down debt, then banks simply won't lend to them, and rightly so.

    Given all of that, QE1 and QE2 were supposed to reduce the value of the dollar and make exports more attractive and lending more feasible by banks. However, it only benefited banks, as they were not able to lend much of it out - hence, only the price of financial assets went up. Not to mention that China has pegged their currency to the greenback, making their exports cheaper no matter what the value of the dollar was. In the end, when consumers start delevering, their will be inflation in non-financial assets and people with minimal savings will bear the brunt of it. As Milton Friedman put it, "Inflation is taxation without legislation."

    Now for Romney --- I'm all for strategic planning to minimize a tax bill, but what he did in Italy with Bain and the equivalent of Italy's "Yellowpages" shows how he thinks. Another good Friedman quote: "The government doesn't have any money, only people have money." What he did was buy the directory business, flip it two years later for about 25x what it paid, and funneled the profits through Luxembourg. Total taxes = $0. The phone company that bought the directory business from Romney (after he bought it from the government) now has a market capitalization less than what they paid for the directory business.

    Here's the article on Bloomberg: