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Arraya.
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August 30, 2012 at 8:08 PM #20094August 31, 2012 at 1:59 AM #750976
CA renter
ParticipantAnother excellent contribution, Arraya.
More about Bain Capital and Mitt Romney:
“According to the government records obtained by Rolling Stone, Bain & Company “defaulted on its debt obligations” at nearly the same time that “W. Mitt Romney . . . stepped in as managing director (and later chief executive) in 1990 and led the financial restructuring intended to get the firm back on track.”
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Almost as soon as the FDIC agreed to the loan restructuring, however, Romney’s rescue plan began to fall apart. “The company realized early on that it would be unable to hit its revenue targets or manage the debt structure,” the documents reveal. By the spring of 1992, Bain’s decline was perilous: “If Bain goes into default,” one analyst warned the FDIC, “the bank group will need to decide whether to force Bain into bankruptcy.”With his rescue plan a bust, Romney was forced to slink back to the banks to negotiate a new round of debt relief. There was only one catch: Even though Bain & Company was deep in debt and sinking fast, the firm was actually flush with cash – most of it from the looted money that Bill Bain and other partners had given back. “Liquidity is strong based on the significant cash balance which Bain is carrying,” one federal document reads.
Under normal circumstances, such ample reserves would have made liquidating Bain an attractive option: Creditors could simply divvy up the stockpiled cash and be done with the troubled firm. But Bain had inserted a poison pill in its loan agreement with the banks: Instead of being required to use its cash to pay back the firm’s creditors, the money could be pocketed by Bain executives in the form of fat bonuses – starting with VPs making $200,000 and up. “The company can deplete its cash balances by making officer-bonus payments,” the FDIC lamented, “and still be in compliance with the loan documents.”
What’s more, the bonus loophole gave Romney a perverse form of leverage: If the banks and the FDIC didn’t give in to his demands and forgive much of Bain’s debts, Romney would raid the firm’s coffers, pushing it into the very bankruptcy that the loan agreement had been intended to avert. The losers in this game would not only be Bain’s creditors – including the federal government – but the firm’s nearly 1,000 employees worldwide.
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The next month, when the banks balked at the deal, Romney decided to prove he wasn’t bluffing. “As the bank group did not accept the proposal from Bain,” the records show, “Bain’s senior management has decided to go forth with the distribution of bonuses.” (Bain’s lawyers redacted the amount of the executive payouts, and the Romney campaign refused to comment on whether Romney himself received a bonus.)Romney’s decision to place executive compensation over fiscal responsibility immediately put Bain on the ropes. By that July, FDIC analysts reported, Bain had so little money left that “the company will actually run out of cash and default on the existing debt structure” as early as 1995. If that happened, Bain employees and American consumers would take the hit – an alternative that analysts considered “catastrophic.”
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About the only assets left would be Bain’s office equipment. The records show FDIC analysts pathetically attempting to assess the value of such items, including an HP LaserJet printer, before concluding that most of the gear was so old that the government’s “portion of any liquidation proceeds would be negligible.”How had Romney scored such a favorable deal at the FDIC’s expense? It didn’t hurt that he had close ties to the agency – the kind of “crony capitalism” he now decries. A month before he closed the 1991 loan agreement, Romney promoted a former FDIC bank examiner to become a senior executive at Bain. He also had pull at the top: FDIC chairman Bill Seidman, who had served as finance chair for Romney’s father when he ran for president in 1968.
The federal documents also reveal that, contrary to Romney’s claim that he returned full time to Bain Capital in 1992, he remained involved in bailout negotiations to the very end. In a letter dated March 23rd, 1993, Romney reassured creditors that his latest scheme would return Bain & Company to “long-term financial stability.” That same month, Romney once again threatened to “pay out maximum bonus distributions” to top executives unless much of Bain’s debt was erased.
In the end, the government surrendered. At the time, The Boston Globe cited bankers dismissing the bailout as “relatively routine” – but the federal documents reveal it was anything but. The FDIC agreed to accept nearly $5 million in cash to retire $15 million in Bain’s debt – an immediate government bailout of $10 million. All told, the FDIC estimated it would recoup just $14 million of the $30 million that Romney’s firm owed the government.
It was a raw deal – but Romney’s threat to loot his own firm had left the government with no other choice. If the FDIC had pushed Bain into bankruptcy, the records reveal, the agency would have recouped just $3.56 million from the firm.
The Romney campaign refused to respond to questions for this article…
This story is from the September 13, 2012 issue of Rolling Stone.”
August 31, 2012 at 7:22 AM #750981enron_by_the_sea
ParticipantHow dare you you question “success” Arraya? America was “built” by “success” of businessmen and people come from all over the world here because of our system that rewards success. You should just work harder and accept personal responsibility for your lack of “success” rather than asking questions about ” success” of another great american who should be either be saint or should be given even more tax breaks for his “success”!
August 31, 2012 at 7:23 AM #750982ParticipantDuplicate
August 31, 2012 at 7:24 AM #750983ParticipantTriplicate
August 31, 2012 at 9:36 AM #750992briansd1
Guest“Private Equity” used to be called “Leverage Buyout.” It’s all about debt and using other people’s money, not your own equity.
They changed the name back in the 80s because of all the scandals. “Private equity” sounds so harmless.
August 31, 2012 at 12:19 PM #751000SK in CV
Participant[quote=briansd1]”Private Equity” used to be called “Leverage Buyout.” It’s all about debt and using other people’s money, not your own equity.
They changed the name back in the 80s because of all the scandals. “Private equity” sounds so harmless.[/quote]
No Brian. There has always been private equity. There has always been leveraged buyouts. The two are not the same, however leveraged buyouts sometimes use private equity. Private equity is not always leveraged. Facebook, for instance, raised a lot of private equity prior to it’s IPO. None of it was leveraged. Bain did it both ways.
August 31, 2012 at 1:20 PM #751003GuestI know, sk.
Whereas LBO was the general name in the 80’s, private equity is what it’s generally all called now.
Bain Capital at first borrowed money from wealthy investors to buy out companies. As Bain partners became wealthy on their own, they used their own money.
My point is that the term “private equity” is just so innocuous.
Maybe “venture capitalist” is a better all encompassing term. Or perhaps “vulture capitalist” is more fitting because it’s not about creating jobs, but circling for opportunities.
BTW, for those who don’t know, Al Gore has become a great venture capitalist, greater than Mitt Romney. We should admire Al Gore for that. The best revenge is to become richer than your detractors. Gore invested in and sits on the board of successful and innovative companies such as Apple and Nest.com.
Imagine how great America would be today if Al Gore had become president. We would not have gone to war in Iraq; and America would have a booming tech and green sector.
August 31, 2012 at 4:07 PM #751008Participant[quote=briansd1]I know, sk.
Whereas LBO was the general name in the 80’s, private equity is what it’s generally all called now.
[/quote]
No Brian. While the press has given all kinds of names to the type of investment that Bain does and did, LBO and private equity have never been interchangable. They are not now, or have they ever been the same thing. Public companies do leveraged buyouts with no private equity. Private equity can include zero leverage. Bain has done leveraged buyouts, and they’ve also done private equity deals that didn’t include leverage.
September 1, 2012 at 6:16 AM #751013Anonymous
GuestWow. Borrowing Other People’s Money to make money… Sounds kind of like most real estate buyers in America.
But of course, I would NEVER do that!
September 1, 2012 at 9:29 AM #751023urbanrealtor
Participant[quote=Brutus]Wow. Borrowing Other People’s Money to make money… Sounds kind of like most real estate buyers in America.
But of course, I would NEVER do that![/quote]
And that’s the question of where to draw the line.
Without the ability to secure large amounts of consumer debt (granted much of it is collateralized), economic development takes a huge step back.
This is the same problem with the arguments against fractional interest banking.
Primitive economies are…well…primitive.
Not a lot of consumer debt in Oaxaca or rural Michoacan.
Heavily leveraged economies tend to do well (eg: the US after WWII) but it requires proper risk management.
Dysfunctionally leveraged actors can shrink a whole economic ecosystem (as with the US in 2008 or with the US in 1913 or with the EU today) if they exist in sufficient numbers.
September 1, 2012 at 9:57 AM #751026Participant[quote=urbanrealtor][quote=Brutus]Wow. Borrowing Other People’s Money to make money… Sounds kind of like most real estate buyers in America.
But of course, I would NEVER do that![/quote]
And that’s the question of where to draw the line.
Without the ability to secure large amounts of consumer debt (granted much of it is collateralized), economic development takes a huge step back.
This is the same problem with the arguments against fractional interest banking.
Primitive economies are…well…primitive.
Not a lot of consumer debt in Oaxaca or rural Michoacan.
Heavily leveraged economies tend to do well (eg: the US after WWII) but it requires proper risk management.
Dysfunctionally leveraged actors can shrink a whole economic ecosystem (as with the US in 2008 or with the US in 1913 or with the EU today) if they exist in sufficient numbers.
http://www.youtube.com/watch?v=r0HX4a5P8eE%5B/quote%5D
That’s a great comment. It’s not black and white. All debt bad or all debt good. Neither is true.
September 2, 2012 at 11:10 AM #751051davelj
Participant[quote=CA renter]
In the end, the government surrendered. At the time, The Boston Globe cited bankers dismissing the bailout as “relatively routine” – but the federal documents reveal it was anything but. The FDIC agreed to accept nearly $5 million in cash to retire $15 million in Bain’s debt – an immediate government bailout of $10 million. All told, the FDIC estimated it would recoup just $14 million of the $30 million that Romney’s firm owed the government.
I think Romney’s kind of a d-bag, but… let’s recall that this particular *bailout* by the FDIC is really a bailout by… the banking industry itself, as it’s the banks that pay a portion of their profits (based on total deposits) to the FDIC to capitalize the insurance fund. So, while I agree that Romney’s maneuverings here are sleazy… I’m curious as to why folks care about how the 1% go about screwing each other – here Romney simply outfoxed his Banksters, and the industry as a whole plugged the hole.
This applies to the money lost in Bain’s failed LBOs as well – it’s the banks and other creditors that took the hits, not taxpayers. Again, who cares how the 1% goes about screwing each other?
The job destroyer/job creator issue is much more complicated. Personally, I think that net/net most LBOs are destroyers of jobs, but… it’s probably not as insidious as it appears on the surface.
Take the KB Toys example. Yeah, they screwed that up bigtime. Lots of jobs lost… at KB Toys. But I’m pretty sure all of the toys no longer sold by KB were sold by someone else, so jobs were created at those other companies. And some of the folks who lost their KB Toys job were probably happier in their new jobs and/or started small businesses themselves. Again, net/net jobs were almost certainly lost and in many cases the new job sucked worse than the KB Toys job – I’m not an apologist for the LBO industry. But… the industry’s not quite as evil as it’s portrayed although clearly the “value added” is questionable, at best. Generally, piling debt onto a company simply because you can – or think you can – is a dubious business strategy. But it has certainly served the 1% well!!
September 2, 2012 at 12:03 PM #751053Participant[quote=davelj]
I think Romney’s kind of a d-bag, but… let’s recall that this particular *bailout* by the FDIC is really a bailout by… the banking industry itself, as it’s the banks that pay a portion of their profits (based on total deposits) to the FDIC to capitalize the insurance fund. So, while I agree that Romney’s maneuverings here are sleazy… I’m curious as to why folks care about how the 1% go about screwing each other – here Romney simply outfoxed his Banksters [/quote]
Isn’t FDIC back stopped by Us taxpayers? Doesn’t markets treat FDIC like the arm of the federal govt.? Doesn’t govt./congress appoint FDIC members?
Saying FDIC is separate from taxpayers is about as true as saying that Fannie and Freddie were separate from taxpayers!
September 2, 2012 at 12:34 PM #751054Participant[quote=enron_by_the_sea]
Isn’t FDIC back stopped by Us taxpayers? Doesn’t markets treat FDIC like the arm of the federal govt.? Doesn’t govt./congress appoint FDIC members?
Saying FDIC is separate from taxpayers is about as true as saying that Fannie and Freddie were separate from taxpayers![/quote]
Thats true but not the entire story.
The FDIC is also funded heavily by banks.
While the banks have been (occasionally) subsidized by the gov’t, they are not state properties.Ergo, there is some taxpayer money there but its not the same as a taxpayer insurance fund.
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