OK, I continue being a complete doofus in what concerns the economy. I see numbers and I fall asleep but I try to fight against this unhelpful tendency. So let’s try to figure this out together.
A reader sent me an article where Matt Taibbi describes the way Mitt Romney made his fortune as “indefensible.” Here is how Taibbi describes Bain’s activities:
Well, look, again, this is what-how companies like Bain made their money. And a great example was a company that I went and visited-well, the place where it used to exist-KB Toys, which used to be headquartered out in Pittsfield, Massachusetts. They took over the company with like $18 million down. They financed the other $302 million. So that’s borrowed money that subsequently became the debt of KB Toys. This is an important distinction for people to understand. When they borrowed that money to take over that company, they didn’t have to pay it back, KB had to pay it back. Once they took over the company, they induced it to do a $120 million, quote-unquote, “dividend recapitalization,” which essentially means that the company had to cash in a bunch of shares and pay Bain and its investors a huge sum of money. And in order to finance that, they had to take out over $60 million in bank loans. So, essentially, you take over the company, you force them to make enormous withdrawals against their credit card, essentially, and pay the new owners of the company. And that’s essentially what they did. They took over a floundering company that was sort of in between and faced with threatening changes in the industry, and they forced them to cash out entirely and pay all their money to the new owners.
I’m sorry for a longish quote but I think this needs to be read in full if we have a chance at understanding what happened. Note the repeated use of the word “force” that is not followed by any explanation about the nature of the forcing.
Here is the most confusing passage (which, at least, is blissfully short) that, again, introduces the idea of force into the description of the situation:
They are-they’re essentially vultures who hang out waiting for companies to get sick, then they forcibly take them over, and they extract fees, commissions and dividends, by force, essentially.
Again, a very short sentence that repeats “forcible” and “by force” like a mantra. I don’t get what this is supposed to mean. I always feel suspicious of such rhetorical devices because they make me think that the author believes that repeating something many times will make it true. What is a “forcible” takeover in this context? I don’t think Bain Capital stormed into a company’s headquarters with guns blazing and made the owners sign paperwork against their will. Surely, there would have been legal recourse available to the victims if that had happened? Did the owners get fake paperwork to sign without understanding what was being proposed to them?
I put the rest under the fold because not everybody wants to read such a long post on the economy.