We have had 30 years of what has turned out to be horrible economic policy. All of the facts, when reviewed, will show that the system is failing the majority of Americans. But instead of admitting that failure, we are told that we need to double down. We have not been faithful enough to the system. We were bad capitalists who strayed into the arms of government hooch. Coming to save us is businessman, Mitt Romney. He has made his very profitable career with Bain Capital. Bain Capital specializes in private equity and venture capital. Mitt Romney is a man of the finance world. He has made decisions on a level of business that you or I could never begin to imagine. Mitt Romney has repeatedly touted his business experience as an asset towards reviving the U.S. economy. In recent weeks, Romney has been put on the defensive over Bain’s use of tax havens, as well as causing thousands of layoffs through buyouts and restructuring. Romney is also being exposed for helping to offshore jobs to places like China and India, which stands in stark contrast to his statements promising to stop the exact same practice if he is elected president.
Now, there is also controversy over when he left Bain Capital as CEO. Mitt Romney wants to run for president and not disclose his exact role at Bain Capital. This is an important debate because it may show that Mitt Romney has lied, but in the end, it is irrelevant what date he left. Bain Capital is Mitt Romney's brainchild. Economist Steven Kaplan said in 2011 that the firm "came up with a model that was very successful and very innovative and that now everybody uses." Regardless of when Mitt Romney left, Bain is still using the business model and business relationships that Romney created. The fact also remains that Romney continues to receive millions of dollars from Bain. He does not want to disclose more than one year of his tax returns, something that is expected of presidential nominees. He does not want to be open about his career, or what taxes he paid (or didn't pay). We don't know exactly how Mitt Romney is still making money from Bain Capital. We do know that he still receives income. We know his livelihood is tied up in Bain investment funds. If elected, Mitt Romney will be the most powerful man in the world. Bain Capital is tied to many corporations. His policies will affect these corporations' bottom lines. If Romney is elected, we will be breaking new ground in what is called the revolving door of government and business. While there are many holes in our knowledge of Mitt Romney's taxes and Bain, there are things we do know. It's worth taking a look at not only what we know about how Bain does business, but whom Bain does business with.
In 1989, Bain bought Damon Corp., a medical testing company based in Needham, Mass. Mitt Romney served on its board of directors. Shortly after, Bain Capital took Damon Corp. public. Then, in 1993, Bain orchestrated a sale of the company to Corning Inc. In October 1996, federal prosecutors announced that Damon Corp. was agreeing to pay $119 million in both civil and criminal fines after pleading guilty to defrauding Medicare. According to The Boston Globe's summary, the company was providing doctors with forms that didn’t make clear what tests included, so doctors were checking off additional tests that weren’t necessary. The over billing went from 1988 through 1993. The Globe reported that court records showed fraudulent activity occurred under Bain’s watch, and that prosecutors gave the credit to Corning for stopping the fraud. The investment earned, for Romney, $473,000. After the sale, Corning closed the main facility in Needham, laying off 115 people. It proved a profitable deal for both the firm and Romney, however tainted by legal troubles and layoffs it was.
In January, Andy Sullivan and Greg Roumeliotis published a story in Reuters1 on how Bain drove a Kansas City steel plant, Worldwide Grinding Systems, into bankruptcy. The piece is a must read. It has many aspects of our current political debate: lost jobs, health insurance, pensions, labor unions, government bailouts, and the phenomenon of “profitable failures.” To summarize, in October 1993, Bain Capital became majority shareholder in the steel mill that had been operating since 1888. Armco wanted to sell the Kansas City plant. Jack Stutz and other Armco managers were looking for backers to help them buy it. They spoke to GE Capital, which, in turn, contacted Bain Capital. Bain merged the Kansas City mill with another in South Carolina before the new entity declared bankruptcy in 2001. This led to some 750 layoffs and a $44 million federal bailout. Bain walked away with $12 million on its $8 million initial investment and at least $4.5 million in consulting fees.
In 2008, Bain Capital partnered with NBC Universal to buy The Weather Channel. GE owns 49 percent of NBC Universal. Yes, Mitt Romney was no longer at Bain Capital in 2008, but it shows that Mitt Romney's business structure and contacts remain. GE Capital referred the Armco managers to Bain Capital. Now Bain is working with GE as a partner. GE Capital just so happens to be the focus of a new Matt Taibbi piece, “The Scam Wall Street Learned From the Mafia.”2 There are a few more facts about GE worth pointing out. In 2011, The New York Times reported that, despite earning $14.2 billion in worldwide profits, including more than $5 billion from U.S. operations, General Electric did not owe taxes in 2010. In fact, General Electric had a tax benefit of $3.2 billion. The Times also pointed out that GE has reduced its American workforce by one fifth since 2002. Also, the six reactors in the 2011 Fukushima 1 Nuclear Power Plant had been designed by General Electric; the design of which had been criticized for years. On August 4, 2009, the SEC fined General Electric $50 million for breaking accounting rules in two separate cases, misleading investors into believing GE would meet or beat earnings expectations. GE was convicted in 1990 of defrauding the U.S. Department of Defense and again in 1992 on charges of corrupt practices in the sale of jet engines to Israel.
Next, there is the issue of offshoring jobs. The Washington Post recently published an article3 detailing how Bain capital invested in firms that specialized in relocating jobs to new facilities in low-wage countries like China and India. The piece juxtaposes Mitt Romney's business record with his campaign promises, and it's a must read. From the story, “During the nearly 15 years that Romney was actively involved in running Bain, it owned companies that were pioneers in the practice of shipping work from the United States to overseas call centers and factories making computer components, according to filings with the Securities and Exchange Commission.” Now Mitt Romney on the campaign trail, “They’ve been able to put American businesses out of business and kill American jobs,” he told workers at a Toledo fence factory in February. “If I’m president of the United States, that’s going to end.”
Next, Vanity Fair's Nicholas Shaxson helps give us a peek into Mitt Romney's tax ethics. The article4 is an “Investigation into Mitt Romney's Offshore Accounts, Tax Loopholes, and Mysterious I.R.A.” There are many notable aspects of this piece. It is another must read. One of the many interesting discussions is of an entity called Sankaty. Sankaty High Yield Asset Investors Ltd. is a “Bermuda corporation wholly owned by W. Mitt Romney.” He tells us how Romney set it up in 1997, and then transferred it to his wife’s newly created blind trust on January 1, 2003, the day before he was inaugurated as Massachusetts’s governor. The director and president of this entity is R. Bradford Malt, the trustee of the blind trust and Romney’s personal lawyer. Shaxson discusses the many offshore accounts Bain holds. In June, Romney revealed more than $2 million in new Bain income. The firm today has at least 138 funds organized in the Cayman Islands, and Romney himself has personal interests in at least 12. There are also mysteriously high yield I.R.A's and a Swiss bank account. Here is a great quote from the piece, “What Romney does not get,” says Jack Blum, a veteran Washington lawyer and offshore expert, “is that this stuff is weird.” A particularly interesting part of this piece is that the Romneys have invested at least $1 million in Elliott Associates, L.P., a hedge fund specializing in “distressed assets.” From the piece, “Elliott buys up cheap debt, often at cents on the dollar, from lenders to deeply troubled nations such as Congo-Brazzaville, then attacks the debtor states with lawsuits to squeeze maximum repayment.” Debtor nations are a huge issue, especially in Africa. These nations are strapped with debt that they will never be able to pay back while their nation’s people bear the consequences and remain in poverty. The piece goes on to discuss how the United States has turned itself into a giant tax haven for foreigners. It is a very long and in depth piece, much more than I could hope to summarize here, so I suggest you read it for yourself. Then, I suggest you watch Democracy Now!'s interview with the author.5
Lastly, there is the issue of the Romneys' blind trusts. He assures us that his assets are held in a “blind trust” over which he exerts no control. But just how blind is this trust? In 1994, when he was running for the Senate, Romney attacked Kennedy for disclaiming any responsibility for his investments: “The blind trust is an age-old ruse.” So, there you have it from the mouth of Romney himself. Romney's trust is controlled by his personal lawyer and longtime friend, Bradford Malt. From this trust, more than $10 million of Romney’s money was put into an investment fund managed by Romney’s son, Tagg. To contrast with Obama, when he was senator, he set up a blind trust. Most of his wealth comes entirely from his book royalties. He later sold all of his stocks and closed the trust because he decided the arrangement could not protect him from the appearance of a conflict. Most of his wealth is now invested in U.S. Treasury bonds and diversified funds.
If there is one thing that even the most polarized people can agree on, it is that there is too much corporate influence over our government. A large majority of Americans do not believe that government has their best interests at heart. Corporations are running the show. So how does it happen that a man that epitomizes all that Americans fear and loath is running for president? If Mitt Romney says that we should elect him because of his business experience, we should take a look at his business experience. If he says he wants to run our government like a business should be run, we should be able to see what his idea of running a business looks like. We should be able to examine his tax forms. Yes, but he didn't seem to break the law. Does it matter? Is the better question; is this in the best interests of society? If the way that he ran Bain capital is morally bankrupt, does that mean that Mitt Romney will then run our government with those same horrible ethics? The way that you spend and invest your money shows where your priorities are. When the government brings in tax money and then chooses where to invest it into society, how are those decisions formed? What outcomes are you hoping for?
Looking at Mitt Romney's business records and tax forms is a huge window into being able to answer those questions. If he believes people like him are perfectly okay sheltering their money away in tax havens, then won't he make his policy as such? His proposed budget involves closing tax loopholes, but he himself benefits from these loopholes. If he believes that it is a good idea for his business to invest money in companies actively trying to move jobs to other countries, why should his policy be any different once he is running the government? If he is making money from these investments while he is president, are there conflicting interests? The holes in Mitt Romney's business dealings and taxes need to be addressed. Even George Will is now urging Mitt Romney to disclose his tax forms. “The costs of not releasing the returns are clear; therefore, he must have calculated there are higher costs to releasing them.” This is a hugely important issue. Are we really going to put this man in control? If we can't figure out exactly where Mitt Romney's ethics lie, what are we judging him on? It doesn't matter what side you come down on, we need to at least be able to make an informed decision.
It is now estimated that the total amount of money being hidden in tax havens is somewhere between $21 trillion and $32 trillion. The size of the US and Japanese economy combined.
1 - http://www.reuters.com/article/2012/01/06/us-campaign-romney-bailout-idUSTRE8050LL20120106
2 - http://www.rollingstone.com/politics/news/the-scam-wall-street-learned-from-the-mafia-20120620
3 - http://www.washingtonpost.com/business/economy/romneys-bain-capital-invested-in-companies-that-moved-jobs-overseas/2012/06/21/gJQAsD9ptV_story_1.html
4 - http://www.vanityfair.com/politics/2012/08/investigating-mitt-romney-offshore-accounts