Wednesday, September 05, 2012

Rolling Stone shows Romney's elite twist in his poison pill

Rolling Stone has lays it on the line about how Romney solved a fiscal crisis involving the parent Bain Company to his own Bain Capital - he let taxpayers take the hit via FDIC to rescue the company while his spinoff walked off with $4 million for providing that "service".  Two points struck me about the piece.

First, Romney proved he's Bush when Romney faced his own little fiscal crisis.  In the global fiscal crisis with strong American roots, several options were on the table:

1. Nationalize failing banks and other institutions, leaving creditors with the haircuts while maintaining a functioning credit and liquidity system, and then sell them off.  Similar to what Obama did with the auto industry, and what Sweden did with its banking industry.

2. Rescue failing banks and other institutions, and include modest reforms of the system through Dodd-Frank legislation that make the crisis somewhat, but only somewhat, less likely to be as bad in the future.  In other words, what Obama did.

3. Rescue failing banks and other institutions, and do nothing substantial to fix the system that created the crisis.  What Bush did.

4. Let them all fail, do nothing in response.  What the Tea Party originally wanted before they became a wing of the Republican Party.  I'm cheating by including this option, it was never realistic or on the table.

The Republican elite is really about Option 3, while pretending some level of sympathy to support for Option 4 among its base, especially because supporters of Option 4 oppose Dodd-Frank only on the belief that financial institutions should just be allowed to fail.  Romney showed where he stood - it's the taxpayers who should pick up the tab.

Second, it's how he made sure the taxpayers got stuck with the tab that shows the elitism:

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..... 
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....
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. 
In March 1992, according to the FDIC documents, Romney approached the banks and played the bonus card. Allow Bain to pay off its debt at a deep discount, he demanded – just 35 cents on the dollar. Otherwise, the "majority" of the firm's "excess cash" would "be available for the bonus pool to its officers at a vice president level and above."
So the plan was to rescue the elite at Bain through bonuses while pushing everyone else out the door.  My question - why bonuses for just the vice presidents and higher, and not for everyone at Bain? It's meaningful that even as Romney played chicken with the debt owed to others, he designed a poison pill that would benefit only the topmost players at Bain.  Not that the other 1,000 employees were all secretaries - they were pretty elite too, just not enough.

This falls in the same category as the estate tax debate.  the Romney elite aren't even about the class interest of the wealthiest 10 percent - it's a much smaller group that they represent.


bluegrue said...

While the FDIC is backed by the US federal government it is funded by premiums paid banks and thrift institutions, as the WaPo points out. These costs will be passed on to the customers, most of whom would also happen to be tax-payers. WaPo awarded 3 Pinochios as the customers were screwed over, but not in their capacity as taxpayers. Doesn't change the old observation: Privatise gains, sozialise losses. The Bain story looks to me like a case of increasing private gains by actively increasing sozialised losses.

Brian said...

Yeah, I'm unimpressed by the differential between bank customers and the taxpayers.

J Bowers said...

IIRC, Bain Capital were paid handsomely for loaning Romney to Bain & Co. If the loan was $30m, the FDIC accepted $5m to retire $15m, was the remaining $15m used to pay the bonuses and Bain Capital?

david lewis said...

Democracy Now! has a video clip up entitled The Romney-Koch Hanshake: Network TV Misses Revealing Moment Between Nominee and Billionaire at RNC

The video is a split screen: on one side of the screen is the US network TV pool feed camera everyone following events on network TV saw, which followed Romney on his way up to the podium, which would pan away periodically for 'context' shots, such as delegates or the convention center. When footage from the Democracy Now! camera is placed in a window on the other side of the split screen, you can see what it was panning away from. It is shown that just before Romney pauses to enthusiastically meet and greet David Koch, the network TV pool camera suddenly had to cut away to more important things, such as a young woman in red waving her body back and forth and a shot of the convention center. Just when it would be safe to show Romney again, i.e. when Koch would be safely off camera, funny thing, the network pool camera switched back to show Romney walking through the convention on his way up to the podium again.

bluegrue said...

Brian, I'm not impressed with the distinction either. Even if it were not the public being screwed over I would still not be impressed by this sort of behaviour. However, I think this kind of inaccuracy can and will be used to dismiss the entire story by people who need to hear it.

Jeffrey Davis said...

Basically I'm impressed by the capacity of modern man to be worse than even my misanthropy expects. If people -- even Tea Partiers -- understood how Romney has used "rich people perks" to rip them off, he'd be in wooden stocks, trying to dodge rotten tomatoes and dead cats. I'd thought W was a weasel for the way he got rich. The partnership W was in used eminent domain to build a sports stadium. W had to borrow money to buy into the partnership, but after the partnership sold the team, W's silent partner gave W his profit from the sale! Sweet. The silent partner had come into the deal at first on the stipulation that W have NOTHING to do with running the team. Sweeter. Imagine making money from nothing. Less than nothing: W was forbidden from making any substantive contribution at all! There was a man who understood the menace of George W. Bush.

Romney trumped that for weaselity by a) actively harming the people whose companies he destroyed and then b) sticking the country with the bill for the evaporated pension funds. It's as if Dracula had billed Van Helsing for blood transfusions.

cynthia said...

Yep, same old giving money away is bad business unless it's for me and my pals. Helping the poor is bad. Helping the rich that raped and pillage companies for financial gains with bailouts is good. I wonder how much of bonuses the top of Bain received for a company that almost fell into bankruptcy. Helping GM, a company that made a product in the good old USA, was bad. Helping Bain, a company that would outsource jobs to other countries, good. I guess the Dems have compiled a whole bunch of these types of issues against Romney and now that the GOP convention is over they'll release the hounds to expose Romney and his hypocrisy.

But I'm not holding my breath on it. Mittwit and his sociopathic bankster friends are holding a gun to the head of both parties.