The following essay was written by Terry Karney and posted on LiveJournal where he appears as Pecunium. It’s longer than our usual posts and well worth the length. For the larger context of this post, we provide a link back to the source at the end of this article.
Mitt Romney calls me a slave to dependency, because I get a check every month to compensate for the 80 percent disability rating I’ve got from the VA, from health problems acquired in the 2003 invasion of Iraq. I also have a job. I don’t make enough at it to pay income tax, but I do pay more on the money I earn in a year than he does on the money he just collects. I also pay a lot more of my income getting to and from work than he would; if he had a job.
So how did Mitt Romney get to the place he’s in now, the place that lets him spend years working up to running for president. The place he stands in when he tells me I’m a lazy bum, dependent on the gov’t, and that he’s not even going to try to convince me to vote for him, because I am too in love with being a slacker who sucks on the gov’t teat?
According to him, and his wife, he earned every penny of it.
“I could have stayed in Detroit like him and gotten pulled up in a car company. I went off on my own. I didn’t inherit money from my parents. What I have, I earned. I worked hard, the American way.”
He says he earned it. He did, sort of.
“They were not easy years. You have to understand, I was raised in a lovely neighborhood, as was Mitt, and at BYU, we moved into a $62-a-month basement apartment with a cement floor and lived there two years as students with no income.
“It was tiny. And I didn’t have money to carpet the floor. But you can get remnants, samples, so I glued them together, all different colors. It looked awful, but it was carpeting.
“We were happy, studying hard. Neither one of us had a job.”
They were paying $62 a month in rent. Adjusted for inflation they were doing pretty well. If it were today they’d be paying about $425. That wasn’t their only expense, of course. They were going to BYU, and they had a couple of kids. They had to eat, and pay the bills, and buy clothes, and see to it the kids were healthy.
They did all this without working, “neither one of us had a job.” They did it for five years.
Daddy Romney. He’d socked some money away in American Motors stocks, and it had done pretty well. It’s not clear just how much they had, but it was, converted to present day buying power, somewhere between $300,000-$500,000. They weren’t able to meet their expenses purely on the dividends, so they had to sell some of the shares, every now and again, to make ends meet.
The stock came from Mitt’s father. When he took over American Motors, the stock was worth nothing. But he invested Mitt’s birthday money year to year — it wasn’t much, a few thousand, but he put it into American Motors because he believed in himself. Five years later, stock that had been $6 a share was $96 and Mitt cashed it so we could live and pay for education.
The Elder Romneys would come to visit, and chuckle at how Mitt and Ann were living, ”“The funny thing is that I never expected help. My father had become wealthy through hard work, as did Mitt’s father, but I never expected our parents to take care of us. They’d visit, laugh and say, `We can’t believe you guys are living like this.’ They’d take us out to dinner, have a good time, then leave.”
They didn’t need to live like that. A house cost, on average, $25,000. It seems they didn’t buy one because they weren’t planning to stay in Utah. Tuition wasn’t a problem; a semester at BYU would have set them back about three shares. Mitt got himself into Harvard, for a double-degree program, Business and Law. He was strongly recruited out of Harvard.
When they got to Boston/Cambridge they discovered the rents there were a fair bit more than they were in Provo, “Remember, we’d been paying $62 a month rent, but here, rents were $400, and for a dump. This is when we took the now-famous loan that Mitt talks about from his father and bought a $42,000 home in Belmont, and you know? The mortgage payment was less than rent. Mitt saw that the Boston market was behind Chicago, LA and New York. We stayed there seven years and sold it for $90,000, so we not only stayed for free, we made money. As I said, Mitt’s very bright.
Got that… a $42,000 loan from his dad; terms unspecified, and they got to sell the house and walk away; when the median home price in the US was about 24,000: interest on a mortgage was about 7.5 percent. Must be nice to be able to tap the folks for that kind of change.
I don’t know quite what she means when she says, “we go to stay for free.” I am assuming she means that the profit they made offset the investment, and so she is discounting it. On the flip side, it’s possible the “loan” was more fictive than not. In any case I can’t say that slow-flipping a house in Boston in the middle-seventies was a sign of all that much in the way of bright. I think she’d better have served them by boasting of how well he did at Harvard Law/Business School.
So how did he make his millions? He extorted them from the federal gov’t.
Skip ahead 15 years. Mitt’s been making a decent living, working for Bain & Co., but Bain has a problem; Bain and Capital, it was losing money. According to Romney’s campaign,
In 1990, Mitt Romney’s former firm, Bain & Company, was in a dire situation. It was on the brink of collapse. The leaders of Bain & Co. asked Romney to come back to the firm to lead it out of the precipitous fall it was experiencing. His return to the company provided an instantaneous morale boost for the employees that recognized Romney’s leadership capabilities and his strong record of turning around companies. He reined in spending, made executives more financially accountable, and put the focus back on customer service.
Bain & Co.’s turnaround was an incredible success: In just a year, a company on the brink had returned to profitability.
Rolling Stone filed a Freedom of Information Act request for papers detailing the recovery of the from, ” the precipitous fall it was experiencing.”
Federal records obtained by Rolling Stone through a Freedom of Information Act request reveal that Bain & Company lost money in both 1991 and 1992 — with Romney at the helm.
This December 22, 1992 analysis for the FDIC lays out the truth about Bain & Company’s mounting losses (both “operating” and “net”) in a section called “Historical Operating Performance.” (FDIC was owed more than $30 million by Bain & Company after the 1991 failure of the Bank of New England.)
So how did he get it out from under? Out from under a mess he’d been one of the people responsible for causing?
The trouble began in 1984, when Bain & Company spun off Bain Capital to engage in leveraged buyouts and put Romney in charge of the new operation. To free up money to invest in the new business, founder Bill Bain and his partners cashed out much of their stock in the consulting firm – leaving it saddled with about $200 million in debt. (Romney, though not a founder, reportedly profited from the deal.) “People will tell you that Bill raped the place clean, was greedy, didn’t know when to stop,” a former Bain consultant later conceded. “Did they take too much out of the firm? You bet.”
… According to the government records obtained by Rolling Stone, Bain & Company “defaulted on its debt obligations” at nearly the same time that “W. Mitt Romney . . . stepped in as managing director (and later chief executive) in 1990 and led the financial restructuring intended to get the firm back on track.”
… Bain had inserted a poison pill in its loan agreement with the banks: Instead of being required to use its cash to pay back the firm’s creditors, the money could be pocketed by Bain executives in the form of fat bonuses – starting with VPs making $200,000 and up. “The company can deplete its cash balances by making officer-bonus payments,” the FDIC lamented, “and still be in compliance with the loan documents.”
What’s more, the bonus loophole gave Romney a perverse form of leverage: If the banks and the FDIC didn’t give in to his demands and forgive much of Bain’s debts, Romney would raid the firm’s coffers, pushing it into the very bankruptcy that the loan agreement had been intended to avert.
… The next month, when the banks balked at the deal, Romney decided to prove he wasn’t bluffing. “As the bank group did not accept the proposal from Bain,” the records show, “Bain’s senior management has decided to go forth with the distribution of bonuses.” (Bain’s lawyers redacted the amount of the executive payouts, and the Romney campaign refused to comment on whether Romney himself received a bonus.)
Romney’s decision to place executive compensation over fiscal responsibility immediately put Bain on the ropes. By that July, FDIC analysts reported, Bain had so little money left that “the company will actually run out of cash and default on the existing debt structure” as early as 1995. If that happened, Bain employees and American consumers would take the hit – an alternative that analysts considered “catastrophic.”
… In the end, the government surrendered. At the time, The Boston Globe cited bankers dismissing the bailout as “relatively routine” – but the federal documents reveal it was anything but. The FDIC agreed to accept nearly $5 million in cash to retire $15 million in Bain’s debt – an immediate government bailout of $10 million. All told, the FDIC estimated it would recoup just $14 million of the $30 million that Romney’s firm owed the government.
This is the guy who is saying I’m leeching off the gov’t, not earning my keep, “shirking responsibility. This is the guy who wants me to believe he knows how to run things.
So how did he do at Bain? The deals he managed, were money-makers about half the time. Credit where it’s due, the money-makers offset the money-losers more than enough to make the people who could afford to let Mitt Romney gamble with their money happy, but flipping a coin on the offerings he was pitching would have given the same sorts of results that his touted business acumen provided.
Rolling Stone has more on the subject, Greed and Debt, the true story of Mitt Romney and Bain Capital
Romney has spent decades doing the sorts of deals that made Wall Street rich, and that were being praised (until 2008, when there was a “market correction”). Which is no surprise, he came from Harvard Business School, just as so many of them did.
And he’s not modest about it.
They’ll probably be looking at what the polls are saying. If it looks like I’m going to win, the markets will be happy. If it looks like the president’s going to win, the markets should not be terribly happy. It depends of course which markets you’re talking about, which types of commodities and so forth, but my own view is that if we win on November 6th, there will be a great deal of optimism about the future of this country. We’ll see capital come back and we’ll see—without actually doing anything—we’ll actually get a boost in the economy.
In the very next breath he suddenly loses that crystal ball, If the president gets reelected, I don’t know what will happen. I can—I can never predict what the markets will do. Sometimes it does the exact opposite of what I would have expected. But my own view is that if we get a “Taxageddon,” as they call it, January 1st, with this president, and with a Congress that can’t work together, it’s—it really is frightening.
I can show you what the markets have been doing for the past four years, since Obama took office. The short form… more than doubling the Dow Jones.
For the context of this piece, we provide a link back to the source: click here.