American politics is something that rarely interests Europeans, not least because of its simplistic tenets and absolute belief in itself. But as long as its 300m people constitute the biggest consumer market and source of innovation on the planet, who runs it matters.
On November 6th, they will (among a myriad of other posts) elect a new President—the incumbent Democrat Barack Obama or the Republican contender Mitt Romney. Given the rather right-wing slant of most American politics, it is hard to find objective commentary but Rolling Stone magazine, by being left-wing in a right-wing world, quite often hits the bulls-eye in balancing things. While not being objective, they are astute and insightful in a way that Time, Newsweek and their ‘quality’ papers seldom manage.
On September 12th they published a piece by Matt Taibbi Greed and Debt: The True Story of Mitt Romney and Bain Capital. If you are a subscriber, read it. If not, I attempt to distill the gist of his 8,000 insightful words into those below.
How the GOP presidential candidate and his private equity firm staged an epic wealth grab, destroyed jobs – and stuck others with the bill
The great criticism of Mitt Romney, from both sides of the aisle, has always been that he doesn’t stand for anything. He’s a flip-flopper, they say, a lightweight, a cardboard opportunist who’ll say anything to get elected. The critics couldn’t be more wrong. Mitt Romney is no tissue-paper man. He’s closer to being a revolutionary, a backward-world version of Che or Trotsky. His legendary flip-flops aren’t the lies of a bumbling opportunist – they’re the confident prevarications of a man untroubled by misleading the nonbeliever in pursuit of a single, all-consuming goal. Romney has vision, and is trying for something big.
The incredible untold story of the 2012 election so far is that Romney’s run has been a shimmering pearl of perfect political hypocrisy, which he’s somehow managed to keep hidden, even with thousands of cameras following his every move.
Like John McCain four years before, Romney desperately needed a vice-presidential pick that would change the game. But where McCain bet on a combustive mix of clueless novelty and suburban sexual tension named Sarah Palin, Romney bet on an idea. He said as much when he unveiled his choice of Ryan, the author of a hair-raising budget-cutting plan best known for its willingness to slash the sacred cows of Medicare and Medicaid.
Last May, in a much-touted speech in Iowa, Romney used language that was literally inflammatory to describe America’s federal borrowing. “A prairie fire of debt is sweeping across Iowa and our nation,” he declared. “Every day we fail to act, that fire gets closer to the homes and children we love.”
And this is where we get to the hypocrisy at the heart of Mitt Romney. Everyone knows that he is fantastically rich, having scored great success, the legend goes, as a “turnaround specialist,” a shrewd financial operator who revived moribund companies as a high-priced consultant for a storied Wall Street private equity firm. But what most voters don’t know is the way Mitt Romney actually made his fortune: by borrowing vast sums of money that other people were forced to pay back.
By making debt the centerpiece of his campaign, Romney was making a calculated bluff of historic dimensions. The result has been a brilliant comedy: A man makes a $250 million fortune by loading up companies with debt and then extracting million-dollar fees from those same companies, in exchange for the generous service of telling them who needs to be fired in order to finance the debt payments he saddled them with in the first place.
That same man then runs for president riding an image of children roasting on flames of debt, choosing as his running mate perhaps the only politician in America more pompous and self-righteous on the evils of borrowed money than the candidate himself. Four years ago, the Mitt Romneys of the world nearly destroyed the global economy with their greed, shortsightedness and wildly irresponsible use of debt in pursuit of personal profit. Mitt Romney, it turns out, is the perfect frontman for Wall Street’s greed revolution.
Instead of building new companies from the ground up, massive bank loans are used to acquire existing firms, liquidating every asset in sight and leaving the target companies holding the note. Mitt Romney – a man whose own father built cars, nurtured communities and was one of the old-school industrial anachronisms pushed aside – has emerged now to sell this make-nothing, take-everything, screw-everyone ethos to the world.
Like John F. Kennedy and George W. Bush, Mitt Romney’s career has been both a tribute to and a repudiation of a famous father. George Romney in the 1950s became CEO of American Motors Corp., made a modest fortune betting on energy efficiency in an age of gas guzzlers and ended up governor of Michigan. Mitt made an odd career choice after his top-notch education: Already married and a father of two, he left Harvard and eschewed both politics and the law to enter the at-the-time unsexy world of financial consulting.
Romney started off at the Boston Consulting Group, where he showed an aptitude for crunching numbers and glad-handing clients. Then, in 1977, he joined a young entrepreneur named Bill Bain at a firm called Bain & Company, where he worked for six years before being handed the reins of a new firm-within-a-firm called Bain Capital. Romney made a fateful strategic decision: he moved away from creating companies through venture capital schemes, and toward a business model that involved borrowing huge sums of money to take over existing firms, then extracting value from them by force. This form of financial piracy became known as a ‘leveraged buyout’, and it achieved iconic status, thanks to Gordon Gekko in Wall Street.
Romney and Bain avoided the hostile approach, preferring to secure the cooperation of their takeover targets by buying off company management with lucrative bonuses. With management is on board, the rest was just numbers. Say the target company is worth $500 million, Bain might put down $20 million of its own cash, then borrow $350 million from an investment bank to take over a controlling stake. The catch? When Bain borrows all of that money from the bank, it’s the target company that ends up owning all the debt.
Once in such debt, one of two things can happen. The company can fire workers and slash benefits to pay its new obligations (debt + Bain fees + management bonuses), leaving it ripe to be resold by Bain at a huge profit. Or it can go bankrupt, leaving behind one or more shuttered factory towns. Either way, Bain wins. Within the cult of Wall Street that forged Mitt Romney, making money justifies any behavior, no matter how venal. Romney’s face when asked to apologise said it all: Hey, I’m trying to win an election. We’re all grown-ups here.
In the old days, making money required sharing the wealth: with assembly-line workers, with middle management, with schools and communities, with investors. Even the Gilded Age robber barons, despite their unapologetic efforts to keep workers from getting any rights at all, built America in spite of themselves, erecting railroads and oil wells and telegraph wires. Under Romney’s business model, leveraging other people’s debt means you carve out big profits for yourself but leave everyone else holding the bag.
Romney is a perfect representative of one side of the ominous cultural divide that will define the next generation, not just in America but all over the world. That divide will be between people who consider themselves citizens of actual countries, to which they have patriotic allegiance, and people to whom nations are meaningless, living in a stateless global archipelago of privilege – a collection of private schools, tax havens and gated communities and minimal connection to the rest.
Obama ran on “change” in 2008, but Mitt Romney represents a far more real and seismic shift in the American landscape. Romney is the frontman and apostle of an economic revolution, in which transactions are manufactured instead of products, wealth is generated without accompanying prosperity, and Cayman Islands partnerships are lovingly erected and nurtured while communities fall apart.
—Matt Taibbi, Rolling Stone, September 12th 2012