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.
According to Taibbi:
Romney has piled more debt onto more unsuspecting companies, written more gigantic checks that other people have to cover.
I don’t understand how come the companies who accepted Bain’s money were “unsuspecting.” Was there no paperwork signed when these deals were made? Was there no contract in place? This is a crucial bit of information that Taibbi avoids mentioning. If two companies entered into a binding agreement of their own free will, then I don’t see how we can talk of forcing unsuspecting folks to do anything. The owners of an ailing company could have chosen not to involve Bain at all? Or am I wrong? If I am, do tell me.
Taibbi proceeds to say the following:
You know, America used to be-especially the American economy was built upon this brick-and-mortar industrial economy, where we had factories, we built stuff, and we sold it here in America, and we exported it all over the world. That manufacturing economy was the foundation for our wealth and power for a couple of centuries. And then, in the ’80s, we started to transform ourselves from a manufacturing economy to a financial economy.
Again, I think this is ridiculous. In a capitalist system that has any hope of functioning, you cannot possibly prescribe to people that they need to build instead of finance. You want to build? Go build. But if you don’t, then feel free not to.
One of the things that bothers me a lot (and we all know why) is this old and tired idea of the grass that used to be greener in the good ole times:
And so, it’s not at all uncharacteristic to have these situations where people are pleading for their jobs or they’re saying, you know, “We’ll tighten our belts, if you just make this concession and keep us.” That’s irrelevant to the Mitt Romney-slash-Bain Capital-slash-Carlyle Groups of the world. They’re entirely about making profits. And if that means shipping jobs to China or eliminating jobs, that’s what they’re going to do. And that’s the new generation of corporate owners in this country.
Yes, the capitalists of the former generations were SO not about making profits. They were good, nice capitalists who built stuff and cared about workers. I mean, seriously? Are we back to Michael Moore’s belief in the ideal 1950s where every worker had a car and a happy housewife to boot?
Capitalism is, indeed, about making profits. And nothing but making profits. The root of the word is “capital” and nothing but capital. It is a grievously problematic and cruel system that has still not been challenged by any better system ever put into existence anywhere on Earth. (And if anybody starts telling me once again that France and Swede are not capitalist countries, I will die of boredom). Everything else the world has experienced has turned out much worse. We can sit here and sigh over some completely imaginary capitalists of the olden times who were so much better than the ones we have today but I don’t see this as a productive position.
I also want to share with you the following quote from Taibbi that made me lose all respect for him:
Again, in the old days, the real power in the American economy was-belonged to the industrialists, the guys who-men and women who actually made things, because they had-they were the primary sources of cash and revenue.
Oh, all those female captains of the industry of the pre-1980 era! Where did they all go all of a sudden? Maybe Romney “forcibly” overtook them and drove them into debt.
Taibbi concludes by saying:
Mitt Romney has-again, he’s banked his entire campaign rhetoric on the sort of prairie fire of debt theme. And yet, this is a guy who spent-who made his fortune creating debt. Somehow, this question has not been asked to him. How is that not hypocritical?
I find this position to be very disingenuous. According to this logic, everybody who is worried by the government budget deficit yet has a mortgage, a credit car, or a car loan is a hypocrite. If there is reason to believe that if Romney gets elected, he will engage in greater government spending than what he promises, then by all means let’s discuss that.
I’m not trying to defend Romney or suggest he will make a good president. I just want to see texts that address his activities in a way that will make sense. This article makes some pretty huge claims but, to me, all that it managed to prove is that Romney can function well within the capitalist system. Well, it isn’t like he ever claimed otherwise. I see that Taibbi wants his readers to feel outraged but I can’t fathom what the outrage is supposed to be about.
P.S. I don’t want a discussion that runs along the lines of “I hate Romney, ergo anything he did in life is indefensible by definition.” I don’t think this is a valuable position. I want to enlighten myself about this, so only specific responses that address this issue are welcome. I can’t see how a conversation about whether Romney is evil by nature or whether Romney walks on water is likely to enrich my understanding of anything.