Sometimes, it meant laying off people. Workers pink-slipped at an Indiana paper plant came back to cost him his bid to be U. Today, when jobs is the No. But Romney's former Bain colleague Rehnert considers that unfair. Rehnert says the Rust Belt is now riddled with manufacturers and companies that have bit the dust — without Romney touching them. Private equity actually saved a lot of those companies from going bankrupt.
Romney has been selling his private equity pedigree on the presidential campaign trail. We have a moral responsibility to keep America the strongest nation on Earth. They say running a country is not like running a company. To him, the U. In the old days, making money required sharing the wealth: with assembly-line workers, with middle management, with schools and communities, with investors.
Even the Gilded Age robber barons, despite their unapologetic efforts to keep workers from getting any rights at all, built America in spite of themselves, erecting railroads and oil wells and telegraph wires. The only ones who profited in a big way from all the job-killing debt that Romney leveraged were Mitt and his buddies at Bain, along with Wall Street firms like Goldman and Citigroup. Just so you know. I feel bad even asking Patnode about Romney. The debacle that followed serves as a prime example of the conflict between the old model of American business, built from the ground up with sweat and industry know-how, and the new globalist model, the Romney model, which uses leverage as a weapon of high-speed conquest.
Bain ended up earning a return of at least percent on the deal, while KB Toys fell into bankruptcy, saddled with millions in debt. At the time of the KB Toys deal, Romney was a Bain investor and owner, making him a mere beneficiary of the raping and pillaging, rather than its direct organizer.
And what did Bain bring to the table in return for its massive, outsize payout? KB Toys had built a small empire by targeting middle-class buyers with value-priced products. These were people who had been in the specialty toy business since ; collectively, they had millions of man-hours of knowledge about how the industry works and how toy customers behave.
To make matters worse, former employees say, Bain deluged them with requests for paperwork and reports, forcing them to worry more about the whims of their new bosses than the demands of their customers.
R omney was a prime mover in the radical social and political transformation that was cooked up by Wall Street beginning in the s. In fact, you can trace the whole history of the modern age of financialization just by following the highly specific corner of the economic universe inhabited by the leveraged buyout business, where Mitt Romney thrived. In the Eighties, when Romney and Bain were cutting their teeth in the LBO business, the primary magic trick involved the junk bonds pioneered by convicted felon Mike Milken, which allowed firms like Bain to find easy financing for takeovers by using wildly overpriced distressed corporate bonds as collateral.
Junk bonds gave the Gordon Gekkos of the world sudden primacy over old-school industrial titans like the Fords and the Rockefellers: For the first time, the ability to make deals became more valuable than the ability to make stuff, and the ability to instantly engineer billions in illusory financing trumped the comparatively slow process of making and selling products for gradual returns.
Romney was right in the middle of this radical change. After what must have been a lengthy and agonizing period of moral soul-searching, however, Romney decided not to kill the deal, despite its shady financing. Firms like Bain even have a colorful pirate name for the pools of takeover money they raise in advance from pension funds, university endowments and other institutional investors.
When Hertz was conquered in by a trio of private equity firms, including the Carlyle Group, the interest payments on its debt soared by a monstrous 80 percent, forcing the company to eliminate a third of its 32, jobs.
The new owners of American industry are the polar opposites of the Milton Hersheys and Andrew Carnegies who built this country, commercial titans who longed to leave visible legacies of their accomplishments, erecting hospitals and schools and libraries, sometimes leaving behind thriving towns that bore their names. The men of the private equity generation want no such thing. The jail sentence will be worth it. The taxpayer-funded subsidies that Romney has received go well beyond the humdrum, backdoor, welfare-sucking that all supposedly self-made free marketeers inevitably indulge in.
Treasury as head of the Winter Olympics in Salt Lake — a sum greater than all federal spending for the previous seven U. Olympic games combined. But the way Romney most directly owes his success to the government is through the structure of the tax code.
Before Lynn Turner became chief accountant of the SEC, where he reviewed filings on takeover deals, he crunched the numbers on leveraged buyouts as an accountant at a Big Four auditing firm. Thanks to the tax deduction, in other words, the government actually incentivizes the kind of leverage-based takeovers that Romney built his fortune on. Romney the businessman built his career on two things that Romney the candidate decries: massive debt and dumb federal giveaways.
As a private equity pirate, Romney pays less than half the tax rate of most American executives — less, even, than teachers, firefighters, cops and nurses. Asked about the fact that he paid a tax rate of only This is a man who grew up in Michigan, went to college in California, walked door to door through the streets of southern France as a missionary and was a governor of Massachusetts, the home of perhaps the most instantly recognizable, heavily accented English this side of Edinburgh.
None of the people in any of those places bled in and left a mark on the man. Romney is a man from nowhere. In his post-regional attitude, he shares something with his campaign opponent, Barack Obama, whose background is a similarly jumbled pastiche of regionally nonspecific non-identity. But in the way he bounced around the world as a half-orphaned child, Obama was more like an involuntary passenger in the demographic revolution reshaping the planet than one of its leaders.
Romney, on the other hand, is a perfect representative of one side of the ominous cultural divide that will define the next generation, not just here in America but all over the world. Romney agreed to sell his stake in the firm to his partners in , in a complicated agreement that gave him a declining share of firm profits over the next 10 years.
He successfully ran for Massachusetts governor in His presidential campaign has revealed Bain still provides a lucrative annual income stream from deals he invested in, which has caused political headaches aplenty.
The biggest asset he bequeathed, in retrospect: a track record that turned Bain Capital into a fundraising machine, as pension funds, endowments and rich families sought to capture some of those dazzling returns. With management of the firm passed on to a committee of nine long-serving partners, Bain raised ever larger and then digit funds with the regularity of a congressional campaign.
The three giant post-Romney funds, however, would be considered failures if liquidated right now, all succumbing to the same traps too many other firms fell into: The huge sums raised made generating returns difficult and forced them to chase deals at nearly any cost, creating an asset bubble in the process.
Fund IX has returned 2. Even against private equity peers, Fund X ranks in the bottom quartile. Some sophisticated investors disagree with this analysis. This so-called "cash on cash" return is higher because investors would have had their money with Bain during some of the market's steepest declines, when PE tends to outperform, partly because its investments aren't marked to market as often. Bain's model hasn't changed.
As in the Romney years, Bain assigns teams of analysts to study potential acquisitions, often for months, before mounting a takeover bid. If Bain wins, it has an internal group of some 70 consultants who take to the field to advise portfolio companies on everything from upgrading their computer systems to calculating the profitability of a two-for-one special on fast food.
The problem is that the rest of the industry has caught up to Bain: Blackstone, Carlyle and nearly every other large firm now deploy internal consultants to effect change among their acquisitions. Kaplan , a professor specializing in private equity at the University of Chicago's Booth School of Business.
Bain Capital's partners can obviously do the math. And while they've been almost uniformly silent this year, mutely watching as their firm's brand has been made synonymous with greed.
In the big picture, the two partners argue, their bubble-era purchases may have declined in value from the peak, but they will still generate solid returns for investors over time. Take Clear Channel. Bain executives declined to comment on pending litigation. But Connaughton says Clear Channel will pay off eventually because the company is gaining market share at the expense of its smaller competitors.
Bain has guided Clear Channel to add digital screens to its billboards and start an online broadcasting service, iHeartRadio, to expand the marketing reach of its domestic radio stations. HD Supply is not. Bain plunged into retail because the firm's executives think they understand it better than most, thanks to their early success with Staples. Bain figured it could use strategies it honed at Domino's Pizza, Burger King and Dunkin' Donuts to upgrade Skylark's marketing as well as an electronic tracking system that helps management improve the quality of the food and service.
Bain executives will push Skylark to adopt some of the aggressive discounts and advertising campaigns Bain used to increase sales at its Domino's Pizza operation in Japan.
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