Mitt Romney made his millions as a leveraged buyout artist. His company, Bain Capital, did what many rich individuals and corporations do: they bought up companies, many of them profitable and doing just fine. They used borrowed money which then was added to that company's debt. Then they broke up the company, laying off workers, sending jobs overseas, selling off the profitable parts, making millions. Finally, they took the company into bankruptcy, washing their hands of the whole business. The workers were left jobless to fend for themselves. This is how wealthy individuals "create" jobs. The Republican mantra that the rich are job creators and, therefore, must be given "encouragement" in the form of more tax breaks is just not true. Their goal is to make money, and they do this by destroying companies and jobs and going overseas for what labor they do need. Then they import products back into the American market. They don't care a fig about Americans as workers, but they do want them as consumers.
This is from the Los Angeles Times:
From 1984 until 1999, Romney led Bain Capital, a Boston-based private equity group that earned jaw-dropping profits through leveraged buyouts, debt hedge funds, offshore tax havens and other financial strategies. In some cases, Romney’s team closed U.S. factories, causing hundreds of layoffs, or pocketed huge fees shortly before companies collapsed.
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Making his first bid for elected office, Romney boasted that he had helped create more than 10,000 jobs at companies he had retooled. But Kennedy painted him as someone “who puts profits over people,” and an ugly labor dispute soon helped sink Romney’s campaign.
Bain Capital had bought a controlling interest in a paper products company called Ampad for $5 million in 1992. Two years later, after Ampad bought a factory in Marion, Ind., the new management team dismissed about 200 workers, slashed salaries and benefits, and hired strikebreakers after the union called a walkout.
“We were just fired,” Randy Johnson, a former worker and union officer at the Marion plant, recalled in a telephone interview. “They came in and said, ‘You’re all fired. If you want to work for us, here’s an application.’ We had insurance until the end of the week. That was it. It was brutal.”
In October 1994, Johnson and other striking workers drove to Massachusetts to protest Romney’s Senate campaign. “We chased him everywhere,” Johnson recalled. “He took good jobs with benefits, and created low-wage, part-time, no-benefit jobs. That’s what he was creating with his investments.”
At first, Romney tried to justify the Indiana layoffs as necessary in “the real world.” He then sought to distance himself, arguing that he took a leave of absence from Bain Capital before Ampad bought the factory. The dispute proved potent, however, and Kennedy trounced him in the election.
Leveraged buyout firms are also called private equity firms. They are all the same. They buy a company with borrowed money, then cannibalize it, first borrowing against, then selling off the assets and laying off workers. They borrow as much money as they can overloading the company with debt. Finally, they take it into bankruptcy.
Simmons Mattress was a very fine and very profitable company until it was bought by a private equity firm. It had furnished mattresses for Air Force 1 and the Lincoln bedroom. It had been in business for over 100 years. This is from my blog on October 5, 2009:
Simmons says it will soon file for bankruptcy protection, as part of an agreement by its current owners to sell the company — the seventh time it has been sold in a little more than two decades — all after being owned for short periods by a parade of different investment groups, known as private equity firms, which try to buy undervalued companies, mostly with borrowed money.
For many of the company’s investors, the sale will be a disaster. Its bondholders alone stand to lose more than $575 million. The company’s downfall has also devastated employees like Noble Rogers, who worked for 22 years at Simmons, most of that time at a factory outside Atlanta. He is one of 1,000 employees — more than one-quarter of the work force — laid off last year.
But Thomas H. Lee Partners of Boston has not only escaped unscathed, it has made a profit. The investment firm, which bought Simmons in 2003, has pocketed around $77 million in profit, even as the company’s fortunes have declined. THL collected hundreds of millions of dollars from the company in the form of special dividends. It also paid itself millions more in fees, first for buying the company, then for helping run it. Last year, the firm even gave itself a small raise.
Wall Street investment banks also cashed in. They collected millions for helping to arrange the takeovers and for selling the bonds that made those deals possible. All told, the various private equity owners have made around $750 million in profits from Simmons over the years.
How so many people could make so much money on a company that has been driven into bankruptcy is a tale of these financial times and an example of a growing phenomenon in corporate America.
Every step along the way, the buyers put Simmons deeper into debt. The financiers borrowed more and more money to pay ever higher prices for the company, enabling each previous owner to cash out profitably.
But the load weighed down an otherwise healthy company. Today, Simmons owes $1.3 billion, compared with just $164 million in 1991, when it began to become a Wall Street version of “Flip This House.”
In many ways, what private equity firms did at Simmons, and scores of other companies like it, mimicked the subprime mortgage boom. Fueled by easy money, not only from banks but also endowments and pension funds, buyout kings like THL upended the old order on Wall Street. It was, they said, the Golden Age of private equity — nothing less than a new era of capitalism.
These private investors were able to buy companies like Simmons with borrowed money and put down relatively little of their own cash. Then, not long after, they often borrowed even more money, using the company’s assets as collateral — just like home buyers who took out home equity loans on top of their first mortgages. For the financiers, the rewards were enormous.
Twice after buying Simmons, THL borrowed more. It used $375 million of that money to pay itself a dividend, thus recouping all of the cash it put down, and then some.
Republicans are pulling the wool over the public's eyes calling the rich "job creators" when in actuality, they are job destroyers. Their demands for tax breaks for the wealthy are a naked attempt to accrue more economic power for themselves and their sponsors. They are just shills for the wealthy, and their goal is to subjugate the working class and shred the social safety net. In this environment why would anyone aspire to becoming an "employee." It's like entering the henhouse after the fox has already been there and is in the process of devouring the chickens. You're putting yourselves at the mercy of financial vultures. It's much better to become your own employee. Let the 600,000 college educated white males who are out of work be a lesson! If you are self-employed, then at least you can't be laid off. Is a college diploma and a mound of student loan debt really worth it?
Romney, of course, is not the only one who has laid off American workers and sent jobs overseas. There's "Chainsaw" Al Dunlop who drove Sunbeam into the ground. This is from Slate:
A holy terror of a CEO, Dunlap has emerged as the mascot of a new kind of capitalism. Dunlapism begins and ends at Wall Street. Its sole credo is: "How can we make our stock worth more?" Nothing that is valued by less steely businessmen--loyalty to workers, responsibility to the community, relationships with suppliers, generosity in corporate philanthropy--matters to Dunlap. Business ethics professors tout "stakeholder capitalism." Dunlap sneers at the phrase. Dunlapism is the perfect religion for the Mutual Fund Age. As the AMA discovered, everyone who deals with Dunlap loses--except his stockholders.
Other executives share his creed, but none matches Dunlap's methods. In the past two decades, the 60-year-old executive has run nine companies in the United States, Australia, and England. He served as right-hand man/enforcer for both Australian media magnate Kerry Packer and recently deceased British billionaire Sir James Goldsmith. In the process, he has earned a reputation as the most merciless turnaround artist in the world. To wit: As CEO of struggling cup manufacturer Lily Tulip Corp. in the '80s, Dunlap fired most of the senior managers, sold the corporate jet, closed the headquarters and two factories, dumped half the headquarters staff, and laid off a bunch of other workers. The stock price rose from $1.77 to $18.55 in his two-and-a-half-year tenure. At Scott Paper--his pre-Sunbeam tour of duty--he fired 11,000 employees (including half the managers and 20 percent of the company's hourly workers), eliminated the corporation's $3-million philanthropy budget, slashed R&D spending, and closed factories. Scott's market value stood at about $3 billion when Dunlap arrived in mid-1994. In late 1995, he sold Scott to Kimberly-Clark for $9.4 billion, pocketing $100 million for himself--a modest payoff, he says, for the $6 billion in increased shareholder value.
Dunlapping continues at Sunbeam, a stagnant consumer-products company. Dunlap has fired 3,000 of 12,000 workers since taking over in July 1996; sold off subsidiaries employing another 3,000; eliminated corporate charity; and shuttered 18 of 26 factories. The payoff: Sunbeam's stock has climbed from $12 to $44 in barely a year.
What distinguishes Dunlap from his colleagues is that he takes pride in his toughness, expressing only cursory regret for having cashiered thousands of his workers. When Newsweek ran a cover story about corporate layoffs, Dunlap contributed a gleeful column about how wonderful such firings are for stockholders. Then he savaged AT&T CEO Robert Allen publicly for not sacking enough people. He posed as Rambo on the cover of USA Today. And he titled his 1996 best seller Mean Business: How I Save Bad Companies and Make Good Companies Great. (In it, he likens himself to Michael Jordan and Bruce Springsteen, fellow "superstars.")
It's easy to hate Dunlap for the wrong reason, which is that he is a brutal, heartless, arrogant bastard. According to Business Week, Dunlap skipped the funerals of both his parents, failed to support (or even pay attention to) the child from his first marriage, and refused to help pay for his niece's cancer treatments. But to criticize Dunlap for his cruelty is akin to scolding a lion for killing an antelope. Dunlap lacks conscience? Well, so does the market. If Wall Street were a CEO, it would skip its parents' funerals, too. And there is logic to Dunlap's cruelty. Struggling companies do need to shed workers in order to recover. Dumping 35 percent of your employees, as Dunlap did at Scott, may save the jobs of the other 65 percent. Stockholder profits should not necessarily be squandered on the CEO's favorite charity.
Although there are some benign CEOs, Mitt Romney and Chainsaw All Dunlop are not two of them. And these are the kinds of people that the Republicans want to give tax breaks? Not only do they not deserve them, their ill-gotten profits as job destroyers need to be taxed at an even higher rate. They are reponsible for offshoring American workers' jobs in order to reap higher profits for themselves and their shareholders. That's why dividends and capital gains which are taxed at a historically low 15% need to be taxed at a much higher rate. And a financial transaction tax needs to be implemented on every transaction. Instead of lowering corporate tax rates, the loopholes in the tax system, which allow many corporations to get away with paying nothing in taxes, need to be closed. Corporate subsidies need to be done away with. Social Security and Medicare need to be means tested. The rich should be made to pay for their own retirement and health care. God knows they can afford it. They don't need a voucher. But they should pay into it because if they should happen to go bankrupt they will need the safety net at that point, but, God knows, not before! They want private health care? Give it to them and make them pay for it but don't take Medicare and Social Security away from poor and middle class people. The social safety net shouldn't be for everybody, but only for those who need it. The mega-rich don't need it yet they collect Social Secuirty and are allowed to avail themselves of Medicare.
The rich say that if you tax corporations more they will just move their operations overseas. I say, "Let them, but then charge them and all others for the privilege of selling into the US consumer market, the largest in the world." How do you do this? With a VAT tax. This is the only kind of tax that they couldn't get out of no matter how much they and their army of tax accountants try to finagle. The VAT is how Germany manages to keep a healthy export economy and create high paying jobs within Germany. It's the only tax corporations could not get out of and would produce enough revenue to eliminate deficits. So let them move their operations overseas. Many of them pay no taxes and supply no American jobs now, so what good are they? They could be taxed sufficiently no matter where they are registered with a VAT if they want to continue to import into the American market. The same goes for the race to the bottom exemplified by many states and municipalities who give tax breaks to corporations to get them to build plants in their jurisdictions. If they have to pay a VAT, there is no incentive to locate a plant in any particular location so they will have to use other, more rational criteria for their plant locations.
Corporate subsidies need to be eliminated. That's mainly oil and agricultural subsidies that go to large corporations or to farmers in Texas that don't grow anything. Everything should be means tested. Means testing should be the mantra before any government money is given to anybody. Instead armies of corporate lobbyists roam Capitol Hill demanding favors for the job destroying rich people and corporations. Right wing talk show hosts engage in an elaborate shell game in which the poor and middle class are duped into watching the left hand of social issues while the right hand is stealing their pocketbook. The Defense Department is also largely a gigantic corporate welfare scheme. Let's make government smaller by reducing the size of the Defense Department and ending two wars. Government should be there to provide a safety net for the poor, not for the rich, as it is presently constituted. And all those demagoguing southern Republican Governors who don't want anything to do with Big Government in Washington - let them not come to Washington for a bailout then when their states are destroyed by tornadoes!
