Mitt Romney, Master Speculator

Andrew Sullivan —  Oct 15 2012 @ 11:01am


The former governor of Massachusetts claims experience in the private sector, building a business, making a profit, and touts these qualities as reasons to vote for him. All of which are good things in my book. And yet if your bullshit alarm goes off a bit when you try to figure out how Bain worked and works, you're not alone. In a four-star must-read, David Stockman, a longtime participant in the leveraged buy-out industry, spills the beans: Romney's entire business model was and is based on a rigged capitalist system, where the lobbyist-written tax code encourages unsustainable debt and quick capital gains:

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.

So the vast outpouring of LBOs in recent decades has been the consequence of bad policy, not the product of capitalist enterprise. I know this from 17 years of experience doing leveraged buyouts at one of the pioneering private-equity houses, Blackstone, and then my own firm. I know the pitfalls of private equity. The whole business was about maximizing debt, extracting cash, cutting head counts, skimping on capital spending, outsourcing production, and dressing up the deal for the earliest, highest-profit exit possible. Occasionally, we did invest in genuine growth companies, but without cheap debt and deep tax subsidies, most deals would not make economic sense.

In truth, LBOs are capitalism’s natural undertakers—vulture investors who feed on failing businesses. Due to bad policy, however, they have now become monsters of the financial midway that strip-mine cash from healthy businesses and recycle it mostly to the top 1 percent.

Mitt Romney is as much a creature of the corporate welfare state as anyone out of their luck is a creature of the actual welfare state. Except he uses it to make a fortune and funnel money from the poor to the rich; and they use food stamps to maintain basic nutrition. If I were cutting welfare-spending (and we need to) I'd start with the corporate kind first, wouldn't you?