Why Mitt Romney Means ‘Business’
Posted Wednesday, May 23, 2012 5:41 PM
Willard Mitt Romney has emerged as the most winsome debutante of this season’s corporate cotillion, a quadrennial bash sponsored by Wall Street tycoons, right-wing entrepreneurs, K Street lobbyists, golfers, and industrial polluters. Every four years since 1928, the big bucks boys of amalgamated power rally around some beau of the ball who agrees to insist that business acumen is the paramount qualification for election to the office of president.
Herbert Hoover, the country’s first actual CEO sent to the White House, got the ball rolling back in ’28. Later would come H. Ross Perot, the Texarkana whizbang who promised in ’92 to “tinker under the hood” of America’s economic engine. And who can forget Harvard School of Business alumnus George W. Bush in 2000 (again in 2004), the failed oil magnate who said he was “gonna run this country like a business?”
It is useful to remember that Hoover’s rigid economic theories brought on the Great Depression of the 1930s. And that Perot finally let up on the cracker barrel encomiums to Main Street capitalism, shortly before hosting a black-tie farewell ball, where he danced with his wife to the Patsy Cline ballad, “I’m Crazy.” Or that Mr. Bush’s principal accomplishments—tax relief for fellow millionaires, abandonment of the last shreds of restraint on Wall Street’s penchant for innovative swindles, and dubious foreign wars charged to the nation’s credit card--were the chief causes of what Princeton University economist Paul Krugman terms the “Lesser Depression,” which he further suggests is hardly over.
Indeed, all should be useful remembrance. But the American sense of history is historically shallow, and a large chunk of the electorate, if not the majority, seems permanently suckered by the political idée fixe of amalgamated corporate interest: men grown fabulously rich from private sector commerce are, ipso facto, greatly wise in matters of statecraft.
Never mind that decades of evidence belie the Wise Man meme--as recently demonstrated by disgraced one-time Goldman Sachs CEO Jon Corzine and JP Morgan Chase CEO Jamie Dimon. This Wall Street duo share Democratic Party affiliations and the evaporation of billions of dollars. Never mind. Amalgamated power may always count on nearly half the presidential vote, at a minimum, and hedges the bet by sweetening coffers on both sides of the aisle.
And never mind the clear, common sense of a University of Denver political scientist, quoted in an article in Forbes Magazine:
“To say that governments should be run like businesses is to reveal ignorance about what either governments or businesses are,” said Professor Seth Masket. “Businesses exist to turn a profit. They provide goods and services to others only insofar as it is profitable to do so, and they will set prices in a way that ends up prohibiting a significant sector of the population from obtaining those goods and services. …Governments, conversely, provide public goods and services—things that we have determined are people’s right to possess. This is inherently an unprofitable enterprise. Apple would not last long if it had to provide every American with an iPad.”
To which the Harvard graduate and political blogger Matthew Yglesias added, “[A] state is fundamentally an ethical enterprise aimed at promoting human welfare. A business isn’t like that.” Yglesias, who is undoubtedly familiar with Jonathan Swift’s social satire, suggested that Washington might solve the federal deficit problem in a businesslike way by getting rid of old people.
Be that as it may, now comes Mitt Romney, openly and/or secretly supported by ultra-rich, anonymous super PAC types, whose gushing wallets were liberated by last year’s Supreme Court decision in the matter of Citizens United v. Federal Election Commission. The proud founder of Bain Capital, a buy-out operation, offers us the old voodoo-that-you-do-so-well.
“I worked at one company, Bain, for 25 years,” says Romney, constantly. (YouTube counts some 168,000 hits on that particular line.) “I’m a businessman who understands the real economy.”
Only when pressed does Romney speak of his tenure as Massachusetts’ governor, from 2003-07. Although he describes his single-term gubernatorial stewardship as “severely conservative,” Romney’s signature policy accomplishment is seen by many of his Republican co-religionists as the work of a wild-eyed liberal. Namely, the creation of mandated universal health insurance for all Bay Staters, under a corporate system that provided a template for the national Affordable Care Act, signed into law by President Obama in March 2010. If elected president, Romney promises to kill the scheme he derides as “Obamacare,” right after he cuts off federal funding for Planned Parenthood, rescinds all instances of Obama “apologizing for America” during his trips abroad, and reverses the incumbent president’s attempts to make America a “less Christian nation.”
Romney asks that we focus not on his time in the Massachusetts statehouse, but rather his counting house years at Bain Capital. The latter, he insists, more than qualifies Mitt Romney for White House tenancy.
In a recently published article, this is how the Los Angeles Times focused on Romney’s quarter-century at the helm of Bain Capital: “Romney and his team…maximized returns by firing workers, seeking government subsidies, and flipping companies quickly for large profits. Bain investors gained even when companies slid into bankruptcy.”
Another of Romney’s constantly mentioned bona fides is jobs he “helped create,” as he carefully puts it. Sometimes it’s “thousands of jobs,” sometimes it’s “tens of thousands of jobs,” and often it’s “almost a hundred thousand jobs,” and lately it’s been “well over 100,000 jobs.” Whatever. During the G.O.P. primary season, Romney found it especially illustrative to declare, expansively, “I started Staples, for gosh sakes.” (Perhaps the inflated remark was a rhetorical foreshadowing of what Romney said of the auto industry’s recovery, by way of the federal rescue he opposed, “I’ll take a lot of credit.”)
In truth, according to research by Boston Globe editors Michael Kranish and Scott Helman for their book, The Real Romney, two men named Leo Kahn and Thomas Stemberg founded Staples. Early on, Messrs. Kahn and Stemberg pitched a growth plan for Staples to Bessemer Venture Partners. Bessemer, in turn, approached Bain to proffer the shared risk of investing in a young company. Romney rejected Bessemer’s invitation—three times—but was eventually pressured by his partners at Bain to kick in a modest $650,000, with increments over a few years adding up to a total investment of $2.5 million. In the venture capital universe, a few million dollars of loans with many strings attached does not earn an investor the tag “big whale.”
Romney sat on the Staples board for a short time, according to the book, but was absent from meetings more often than he was present. As soon as the company went public, Romney dumped Bain’s share and was out, and that was that.
In his own 2004 autobiography, Turnaround, Romney said of his time with companies that Bain either acquired or financed, Staples included, “I never actually ran one of our investments; that was left to management.”
Mako Yamakura, a financial blogger for the Detroit News, characterized Bain Capital as a “corporate pawnbroker” in his column of January 14, 2012. He also codified Bain’s tried-and-true formula: “They take all the assets of a company in a tight cash-flow, then leverage 70-plus percent of the company in order to realize their closed investment goal…[and] bonuses on the backs of thousands of workers who had no choice but to accept the leveraged buyout.”
The term “leveraged buyout” is not known to be part of the typical pawnbroker’s vocabulary, certainly not the cigar-chomping sort portrayed in film noir. But it could be said that there is a fundamental similarity in management pattern between pawnbrokers and Bain Capital.
Average Joes go to pawnshops for loans on everything from costume jewelry to cars. These are their assets. Pawnbrokers collateralized them in return for loans tendered at a fraction of fair asset value. To redeem the pawned item, in accordance with contractual loan periods, financially strapped customers must pony up the standard vigorish, which is to say a monthly interest rate of 20 percent--or 240 percent a year, all perfectly legal since there are no more usury statutes. If Average Joe fails to make good on the loan, the pawnbroker then takes ownership of the collateral and sells the asset at practically full value, with attendant recoup of his small loan outlay. Either way, the pawnbroker makes a handsome profit. One man’s 240 percent vigorish is another man’s million-dollar bonus for engineering a leveraged buyout. Only the respective grade of cigars may differ.
When Romney talks of the “real economy,” the subtext is as deep into the American bone as the Wise Man gag. Business is efficiently upstanding, so it goes; government is slipshod and corrupt.
“I’m always surprised to hear people tout the efficiency of the private sector,” Professor Masket was quoted further in the Forbes article. “There’s a great deal of inefficiency, of course. How many CEOs end up hiring dim, unqualified brothers-in-law, or grandkids taking time off college? That’s not considered a big deal as long as it doesn’t noticeably hurt the bottom line. If a member of Congress does that, it becomes a major scandal.”
He added, “This isn’t to say that government is a paragon of efficiency and thrift…but there’s a whole subfield in journalism and several citizen activist groups devoted to rooting out waste in the public sector. There’s not much interest in rooting out waste in the private sector, unless a business is seen as misusing public money.”
The list of corporate honchos duly incarcerated is far too long for this article. But a partial count would include Albert Stanley, CEO of Halliburton subsidiary Kellogg Brown & Root, locked up for bribing Nigerian officials in a deal for natural gas exploration; Thomas Joseph Petters, serving a 50-year federal sentence for turning Petters Group Worldwide into a $3.65 billion Ponzi scam; Sholam Weiss, serving an 845-year sentence for bilking customers of National Heritage Life Insurance Company out of $500 million; and Danny Pang, the CEO of Private Management Equity Group who died behind bars while serving time as a Ponzi artist, soon after his ex-stripper wife, Janie Louise Pang, was murdered upon serving him with divorce papers.
Unmentioned in the foregoing are the marquee felonious tycoons Bernie Madoff, Joseph P. Nacchio, Richard Scrushy, Dennis Kozlowski—and Bush’s dear friend from Enron, the late Kenneth “Kenny Boy” Lay.
There is a cozy, unseemly public-private collusion underlying America’s counterintuitive notion about the likes of Herbert Hoover, H. Ross Perot, George W. Bush, and now Mitt Romney, the latest cheerleader for the conflation of private business and public governance. It is this: political candidates’ dependence on corporate cash.
Simon Johnson, the former chief economist of the International Monetary Fund, spoke of such collusion in the context of the recently revealed loss of $3 billion (and counting) in trading losses at JP Morgan Chase, due to what CEO Jamie Dimon said in a press conference was a “stupid” investment risk that “never should have happened.” It nevertheless did, due to what Dimon’s public relations staff suggested was the boss’s trust in a subordinate executive who quickly resigned. That would be Ina R. Drew, the nation’s highest-paid female investment banker; last year, she hauled in $14 million of salary and bonuses, according to The New York Times.
In a recently aired interview on PBS Television, Simon told host Bill Moyers, “A huge part of our fiscal problems today, and in the future, are due to these risks within the financial system that are allowed because the people running the biggest banks hand out massive campaign contributions across the political spectrum.
“Chase and other huge banks have been using their enormous wealth for years to, in effect, buy off our politicians and regulators,” said Simon, nowadays a professor at the Sloan School of Management at the Massachusetts Institute of Technology and senior fellow at the Peterson Institute for International Economics. “Chase just had to pay almost three-quarters of a billion dollars in settlements and surrendered fees to settle one case alone, that of bribery and corruption in Jefferson County, Alabama.”
Further on the topic of Chase, and Dimon, whose salary and bonus last year amounted to $23 million, Simon said, “It’s also paid out billions of dollars to settle other cases of perjury, forgery, fraud and sale of unregistered securities. And these charges were for actions that took place while Dimon was the CEO.”
On the day the Times broke the news of a stupid risk that never should have happened, readers might have been surprised to learn, deep into the article, that Dimon has a seat on the New York Federal Reserve, the agency responsible for warding banks off stupid risks that should never happen. At this writing, Dimon retains his seat.
“Why does Mr. Dimon, a very busy man, take time out of his day to be on the board of the New York Fed?” Simon asked in the PBS interview. “He is getting something from this. It’s a trade, just like everything else on Wall Street.”
Jamie Dimon is the banker ballyhooed by President Obama as the best and brightest of the ilk. The presidency could do no worse were straight-up pawnbrokers to form one of those hush-hush super PACs to launch the candidacies of their own favorite sons.
Thomas Adcock, a Highbrow Magazine contributor, is an independent journalist and novelist based in New York City.
Photos: Mitt Romney (Creative Commons, Flickr); President Obama (Whitehouse.gov); Albert Stanley (AP).