Posted on 15-10-2012
Filed Under (Politics) by Rashtrakut

St. Ronald Reagan’s former budget director David Stockman has an absolutely brutal take down of Romney’s self proclaimed strongest qualification for the Presidency – deep insights gleaned in the economy from his career as a LBO specialist.  With only 4 years in public office and a record he ran from until the last debate that part of the resume is thin.

Bain Capital is a product of the Great Deformation. It has garnered fabulous winnings through leveraged speculation in financial markets that have been perverted and deformed by decades of money printing and Wall Street coddling by the Fed. So Bain’s billions of profits were not rewards for capitalist creation; they were mainly windfalls collected from gambling in markets that were rigged to rise.

Nevertheless, Mitt Romney claims that his essential qualification to be president is grounded in his 15 years as head of Bain Capital, from 1984 through early 1999. According to the campaign’s narrative, it was then that he became immersed in the toils of business enterprise, learning along the way the true secrets of how to grow the economy and create jobs. The fact that Bain’s returns reputedly averaged more than 50 percent annually during this period is purportedly proof of the case—real-world validation that Romney not only was a striking business success but also has been uniquely trained and seasoned for the task of restarting the nation’s sputtering engines of capitalism.

Except Mitt Romney was not a businessman; he was a master financial speculator who bought, sold, flipped, and stripped businesses. He did not build enterprises the old-fashioned way—out of inspiration, perspiration, and a long slog in the free market fostering a new product, service, or process of production. Instead, he spent his 15 years raising debt in prodigious amounts on Wall Street so that Bain could purchase the pots and pans and castoffs of corporate America, leverage them to the hilt, gussy them up as reborn “roll-ups,” and then deliver them back to Wall Street for resale—the faster the better.

That is the modus operandi of the leveraged-buyout business, and in an honest free-market economy, there wouldn’t be much scope for it because it creates little of economic value. But we have a rigged system—a regime of crony capitalism—where the tax code heavily favors debt and capital gains, and the central bank purposefully enables rampant speculation by propping up the price of financial assets and battering down the cost of leveraged finance.

Stockman follows up with specific examples of the financial engineering and tax arbitrage that enabled Bain’s success.

It is an analysis that I tend to agree with.  Mitt Romney keeps preaching (including in the debate two weeks ago) that he was a job creator.  Yet as his business partners have noted, Bain was not in the business of job creation.  They were there to make their investors money.  Most of the jobs Romney claims arise from a minor and short lived investment in Staples, with a lot of the Staples job growth happening after Bain cashed out.

Now Romney obviously was very good at what he did.  But whether a tax arbitrage speculator gets any special insight in the macro economy is an open question.  He is obviously more comfortable talking about economic issues (as opposed to foreign policy), but the policies he has issued (with little detail) are largely supply side nonsense – perhaps because saying anything else will be political suicide in his party.

The other thing that bothers me about Bain, is that they represent some of the worst parasitic forms of capitalism that has infected American industry in the last 30 years.  Many of these acquisitions were accompanied by slashing benefits for workers to make sure the speculators got their dough.  So while compensation at the top has ballooned, middle-class incomes have stagnated or in some cases declined.  To this blogger it is a recipe for a slow decline into stratified oligarchy and likely social unrest in the future.  This country needs a long hard discussion whether the preferential tax treatment for the gamblers of capital is actually justified.

 

 

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