Bain Capital did NOT create wealth. It moved it. (x-post)

[bleever]

Watching these poor folks on Ed Schultz from Freeport, Illinois, who are losing their jobs because Bain management is closing their plant and moving the production to China really drives home a point for me:

We are told that Bain Capital created wealth. It's more accurate to say that Bain specializes in moving wealth.

Yes, some people (overwhelmingly people who were already wealthy) got wealthier. But what about the wealth of the workers whose jobs go overseas? Their loss of employment and their meager wealth is exactly what turned into the wealth that flowed up to Bain investors.

All the dollars that cascade into the accounts of Bain investors directly corresponds to wealth and opportunity lost by "overpaid" U.S. workers, and to their lost equity in homes they can't afford, and lost opportunities for a decent and dignified retirement, and lost opportunities for their children and grandchildren.

And don't forget that the U.S. government, through tax incentives, pension guarantees, etc. also contributed to the flow of wealth from taxpayers to the fortunes of Romney and his cohorts.

So let's stop letting them get away with saying, "At least Romney was successful at creating wealth in his business career". He wasn't; he specialized in moving it from other, weaker people and institutions to those with the money and power to make the system work in their favor, at the cost to the rest of us.

[Historic NY]

1. Bain also raised taxes...

all those companies that the shelved paid into the local economy via their employees, school & local taxes, supported the community. Bain removed all that dumping it on the local community. I imagine the tax loss from shut down companies was very costly. So in their zeal to make profits they actually contributed to tax increases.

[bleever]

18. VERY well said. They sucked the lifeblood out of American towns.

I'm sorry I didn't acknowledge your point earlier, because it goes directly to the corrosive effect of Romney's allegiance to capital over country.

[dkf]

2. So if the Mom and Pop store that employs you can no longer afford to keep you

Have they taken your wealth if they lay you off?

If you are a successful sales person and leave your firm for another have you taken their rightful wealth?

Who is entitled to what here?

[reformist2]

3. The problem arises when companies like Bain pit our workers against 50c-per-hour labor overseas.

There is no way to compete against that.

[bleever]

5. Excellent distinction, and add the fact that they had taxpayers assume the risk

at every turn possible.

And: the analogy doesn't work. There's no analogue to the "wealth creation" in there.

[dkf]

9. Maybe that's why Bain has to move because they can't compete either

[JDPriestly]

16. Bain is one of the companies that created the race to the bottom that is hurting our entire country.

They were among the early companies to outsource work and then sell our jobs to overseas companies.

Apparently, Bain was outsourcing already in the 1990s.

http://www.bloomberg.com/news/2012-07-15/romney-s-bain-yielded-private-gains-socialized-losses.html

[dkf]

19. Funny thing is its now cheaper to manufacture in Mexico but they are still going to China.

It's a global competition. The way we win is by automating so that one US worker can do the job of 20 Chinese and we need to make it conducive to build plants here.

[reformist2]

21. That is insane. And I think you know it.

[JDPriestly]

31. How would you solve the problem of unemployment and the poverty that is spreading across the US?

It isn't a matter of increasing productivity. That won't make us a healthy economy. That will just make us more divided than every between the prosperous who have the hard-to-get jobs and the impoverished who can't get work.

How do you think we could create more jobs?

Education is not the answer. We have many, many well educated young graduates who can't find work. I've known of PhDs in science areas who spent a couple of years trying to get a job. Insufficient productivity and lack of education are not the problems -- at least not in California. Outsourcing and importing are the problems in my opinion.

[treestar]

13. So where do you draw the line?

Right wingers basically say, "I created wealth, so I get to keep it all and decide to what degree I let the little people have enough to survive by working for me."

And at corporate level it gets much more complex than that.

Should people who inherited wealth get to be in charge of what happens to it? The "work for it" theme doesn't work for them.

What about people who work very hard jobs but a low pay and in bad conditions? Are you saying the miner deserves it, since he wasn't born a Rmoney?

There's a moral tale here somewhere. BTW, the job market lately has been such that your reference to leaving for a better job doesn't really resonate. There are always enough workers.

I don't think anyone laid off due to their job going offshore is thinking that the company has some moral right to use its wealth in China instead due to the upper management's virtues of working harder.

[Scuba]

20. A false equivalency, and exactly what I'd expect from you.

[Ganja Ninja]

23. The Mom and Pop store doesn't go out and leverage their business to the hilt and then ...

pocket the money and use employees pension funds to pay the creditors.

[HiPointDem]

4. bain capital follows in the well-trodden footsteps of mike milken. same kind of 'wealth creation'.

milken at least got indicted for fraud and racketeering. but he's still fabulously wealthy. pirates make good money.

[JDPriestly]

32. I have heard (Ian Masters I think on KPFK in Los Angeles) that Milken helped fund Romney when he

began his leveraged buy-out career.

[yourout]

6. I prefer the term....."Extracted"

[freshwest]

12. +1

[lonestarnot]

7. And he won't make change for a $20.

[bleever]

8. I'm missing the reference.

I hate that. What is it?

[lonestarnot]

11. Have change for a $20?

Yes your hand to mine. But now that he has all the dough, he won't make change for a $20.00. And his richer cronies are still making change. Our hands to theirs.

[bleever]

14. Makes me think of a favorite scene from an ooold Popeye cartoon, where Wimpy

says, "Come on in for a duck dinner! You bring the duck."

[lonestarnot]

29. LOL. Sound about like the Wimpy dude.

[calimary]

10. GOOD one, bleever! Should be said, read, and SPREAD.

They didn't create wealth, they just moved it.

[bleever]

15. I'd send it to Axelrod, but I think he's pretty darn on top of this.

to Axe, Gibbs, and Plouffe, who are giving the master class in how to play offense in such a way that the opponent's reactions are the REAL weapon.

[calimary]

30. Never mind. Send it to Axelrod anyway.

They need good material. It's a long time and a long uphill struggle against that mountain of money threatening to drown us all. Our side needs all the good material it can get. No big league stand-up steps an inch toward the spotlight without lots of good stuff from a whole team of comedy writers. Presidents don't even risk that on Correspondents Dinner night.

[SunSeeker]

17. They used to call them "robber barons."

But at least the robber barons of the 1900s kept their money in the U.S. and actually built stuff.

[Ganja Ninja]

22. Bain stole it is the proper term.

Lets be frank. When you load up a company with debt by borrowing then pocket the money and use the sale of assets like other people's pension funds to pay the creditors, it's stealing.

[Patiod]

24. The while financialization of the US economy is just about moving money around

Time to re-read Krugman

http://www.nytimes.com/2009/07/17/opinion/17krugman.html

The business of moving money around, of slicing, dicing and repackaging financial claims, has soared in importance compared with the actual production of useful stuff.

[bleever]

25. .

[riverbendviewgal]

26. That is excellent...and the truth

they didn't do any kind of creating.....They did destroying jobs and the people who had them and the towns they the jobs were in while moving money and profits to the investors of bain and having the US taxpayers foot the bill for the workers pensions. .

That is GREED.

[upaloopa]

27. If I understand some of the actions of Bain correctly, they legally stole wealth from other people.

I read that in some cases Bain took over a company by purchasing majority interest. They then borrowed in that company's name and paid dividends with the borrowed money. That had the effect of increasing the share price even without any increase in net income.

When the share price was high enough Bain sold their interest at a profit right after it paid itself management fees.

Then the company defaulted on the loan and went bankrupt.

[Turbineguy]

28. That's the new American business model.

Move other peoples money into your pocket. Preferably money they actually worked for. Retirements are the best! In the case of Romney it's probably called "shoveling" other peoples money into your pocket.

You don't have to actually create anything people would buy.

[flyguyjake]

33. Wealth through IPO's

Bain is famous for taking companies public and then selling off the shares within a few months. This is what they've done time and time again. After they sell all of their shares the company's value is in the toilet. They also load up the acquired companies with debt.

Capitalism at it's best!

[polly7]

34. Romney’s Success at Bain Capital: The Business as Scam Model

Romney’s Success at Bain Capital: The Business as Scam Model

http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/romneys-success-at-bain-capital-the-business-as-scam-model

It’s not just the tax code that PE companies game. By loading the companies they acquire up with debt, PE firms like Bain make them much more vulnerable to bankruptcy. While the creditors who lent the acquired company money presumably understood the risk, there are often many inadvertent creditors such as suppliers, landlords, and even workers through their pension. (The debt is always held by the acquired company not by Bain, which carries no risk beyond its limited investment.) If a Bain-owned company goes under, these inadvertent creditors can take big losses. In the case of pensions, part of the loss will come back to the taxpayer through the Pension Benefit Guarantee Corporation.

PE companies like Bain also profit by breaking implicit promises made by the companies they acquire. There are numerous cases around the country where state and local governments have made concessions to local businesses in the form of tax breaks, land sales, infrastructure improvements and sometimes even industry specific training in public schools in order to keep a firm located in the area. Many small businesses would be reluctant to renege on their side of the bargain and shut down a factory. PE firms like Bain, don’t feel bound in the same way.

Similarly, there is often a sense of reciprocity between workers and employers where workers understand that if they work hard in their younger years and acquire firm-specific skills, their employer will keep them on the payroll in their older years when they may not be as productive. This can be a profitable long-term strategy. However, a PE company like Bain, that doesn’t care about the long-term, can break the second half of this deal for sizable short-term profits. (My colleague Eileen Appelbaum has a fuller discussion of the ways in which private equity firms earn above normal profits.)

In short, Bain Capital is not about producing wealth but rather about siphoning off wealth that was produced elsewhere in the economy. There is no doubt that one individual or one company can get enormously wealthy if they are able to do this successfully. However you cannot have an entire economy that is premised on the idea that it will siphon off wealth produced elsewhere. It is not clear that Mitt Romney understands that fact, but certainly the general public should when it goes to vote this fall.

I just happened on this and thought it was interesting, but what are the odds Romney doesn't completely understand how Bain profited. He doesn't seem all that naive, to me.

[bleever]

35. That's a nice concise summary of Bain's modus operandi.

Tax avoidance as a science, and borrowing money to buy companies and leave them with the debt, while siphoning off cash in the form of bonuses and management fees.

I don't think he's naive. After all, this is a guy who will cheat his own family to win in the family sports contests.

He just thinks that winning is everything.