Dismantling Romney

The field of Republican hopefuls this cycle appears among the very worst in history. Mitt Romney, who failed in a nomination bid in 2008, this time looks like the odds-on bet to win the race to the ticket. The story this time has been the reluctance with which Republican party members have regarded him, thinking perhaps that his "moderate" stance on certain issues makes him unacceptably mild. The Republican sentiment has been drifting right for several years, but its failure to find a decent candidate may be a symptom of its political isolation. There are few politicians who will will admit publicly to the sort of radical policy positions the Tea Party movement supports.

But of course Romney's views, though not intended to be seen as far right, are in fact extremely conservative. His sole claim to suitability, aside from the fact that he's a devout Mormon (going several generations back), stems from his successful participation in the corporate buy-out firm Bain Capital, a firm he started and ran from 1984 to 1999. Romney has boasted about his success at Bain, and used that to promote himself as a business-savvy manager, as "America's CEO" able to husband the country through its current debt crisis and restore American prosperity and jobs. His business experience is offered as the proof and promise of this potential Presidential fulfillment.

Most Americans were unfamiliar with the kind of financial dealings Romney's firm engaged in. But the recent financial crisis on Wall Street, fueled by shady dealings and inflated salaries, has made it clear that regulation is needed in a number of areas, to prevent the irresponsible activity which led to the collapse. The traditional model for capitalist entrepreneurial spirit is to start new businesses, using investment capital to feed into expansion. But there is another side to capital investment, and that involves engineering declines and bankruptcies in areas which are under pressure or experiencing temporary periods of decline.

Americans have been given dramatizations of the negative side of capital investment in two very popular movies:

Pretty Woman, a 1990 "romantic comedy" starring Richard Gere as the corporate raider, and Julia Roberts, as the Los Angeles hooker he hooks up with. Gere plays Edward Lewis, who buys ailing companies, selling off their assets, and closing them down, leaving their employees out in the cold.

Wall Street [1987] was a dramatic portrayal of the involvement of young Bud Fox (Martin Sheen), a stock trader, with Gordon Gekko (Michael Douglas), a ruthless corporate shark. At first compliant with Gekko's fraudulent schemes and inside trading, eventually Bud rebels against his plan to buy Bud's father's (Charlie Sheen) airline company and break it up for cash, liquidating the employees' pension fund and leaving them unemployed.

Generally speaking Hollywood usually portrays making fast money as the sexiest fun of all, though there is a deep undercurrent of guilt and remorse in most get rich quick movies. Mitt Romney hardly looks the part of the unscrupulous corporate raider, seducing unsuspecting investors and company managements into unseemly alliances and risky schemes, but that's exactly what he did with Bain Capital during his tenure. He made millions and millions of dollars in profits and "compensation" there, and sent much of it to Caribbean havens to avoid American taxation.

For those who may still be unfamiliar with how private equity firms conduct leveraged buyouts and "ailing company acquisitions" it's roughly like this: the "investment" firm (such as Bain) drums up cash from ambitious (and unscrupulous) investors who want to make a fast buck, and don't care how it's done. The firm identifies ailing companies which are experiencing hard times, but which may have underlying assets which are "untapped." These assets may take the form of (real) properties, licenses and copyrights and exclusive patents, employee compensation funds, or manufacturing materiel (machinery etc.). When a firm is in trouble, its management may be under fire; if there's a board of directors, there may be conflict over what the best course of action may be; the company is vulnerable to influence. The "investment" firm (corporate raiders) comes in with cash and either begins to acquire an increasing stake in the firm's stock holdings, or makes an outright offer to take the firm over. Ostensibly, the purpose of such take-over is to reorganize and realign the company so that it prospers and finds new life in the marketplace. Doing it this way would be an honest attempt at saving something worth saving, and preserving the livelihood it gives to its employees (and investors).

But it seldom works that way, because there's little potential profit in coming in to save a company on purely altruistic grounds, because the risk isn't repaid by the potential. Smart, but unscrupulous, private equity raiders know that the quickest way to make a fast buck is to come in to a company, acquire control, cut expenses, and "streamline" its operation. Faking financial reports and gutting the underlying obligations and securing huge overhanging loans against the equity the company represents, are all tools in this process. The investors take out large allocations of cash as the company is being "turned around." Then, when things seem marginally viable, the investors get out, either dumping all their stock, or selling the company outright to some gullible patsy, leaving a huge debt load. Most companies which have been infected with the private equity virus, unable to pay off the debt, experience a bankruptcy within a few years, or are forced to downsize. In most cases, their temporary "prosperity" was a sham, designed to facilitate liquidation by the investors.

The potential profit to firms like Bain Capital is huge. Once in control of a board, they can allocate to themselves huge payouts in stock or cash--money, in effect, stolen from the company. This isn't "healthy capitalism"--it's legalized fraud and theft. A company with a valuable product or idea may have a real future life of decades of moderate productivity, supporting hundreds or thousands of people, while it serves its customer base loyally and reliably. That potential value--both to the people who make up the company, and to the customers who depend upon them--is what is wiped out for quick profits by corporate raiders.

Romney, a graduate of Harvard Business School, knew where the quick money was, and that's why he got into the "private equity" business in the first place. The interesting thing about Mormons is that no matter how devout and pious they may be inside the church, there's no secular or profane act they may not perform in the real world to support their religious piety. At least with Catholics, you get to confess and be absolved for your sins in the world. But with Mormons, you can be a corporate raider and there's no problem. You can lie, and cheat, and steal, and deceive--and it's all perfectly fine, you're still a good little Mormon after it's said and done.

Listening to Romney, I think to myself that he looks and sounds like a fool. But that's just an illusion of image. He's an ineffective public speaker, and maybe he has trouble keeping his categories straight. You have to lie to the right people at the right time, or you'll get your wires crossed. Who knows what he tells his supporters in private? When your whole modus operandi in business is to deceive everyone--your investors, your buyout targets, and everyone whom you come into contact with, who wants to believe you're honest and fair and above-board--with a straight face, lying may become so familiar, that you literally forget where you've left it. The truth, that is.

Hopefully, America will reject Romney the Corporate Raider. But I've said it many times before: Americans are stupid. Or maybe their credulity is so deep they can't help believing that people can be so evil that they will lie about anything to get ahead. The desire to believe--it's a religious tendency. But Romney's no saint. He's the wolf in sheep's clothing.