Wednesday, February 27, 2013

Romney’s Success at Bain Capital: The Business as Scam Model | Op-Eds & Columns

Romney’s Success at Bain Capital: The Business as Scam Model | Op-Eds & Columns

It’s not just the tax code that PE companies game.  By loading the companies they acquire up with debt, PE firms like Bain make them much more vulnerable to bankruptcy. While the creditors who lent the acquired company money presumably understood the risk, there are often many inadvertent creditors such as suppliers, landlords, and even workers through their pension. (The debt is always held by the acquired company not by Bain, which carries no risk beyond its limited investment.) If a Bain-owned company goes under, these inadvertent creditors can take big losses. In the case of pensions, part of the loss will come back to the taxpayer through the Pension Benefit Guarantee Corporation.

This is Iv agents using V loans to raid Bi pension funds for profits like Oy henas attacking a Ro herd of buffalo, then it might have to be repaid by Ro government pension programs. 
PE companies like Bain also profit by breaking implicit promises made by the companies they acquire. There are numerous cases around the country where state and local governments have made concessions to local businesses in the form of tax breaks, land sales, infrastructure improvements and sometimes even industry specific training in public schools in order to keep a firm located in the area. Many small businesses would be reluctant to renege on their side of the bargain and shut down a factory. PE firms like Bain, don’t feel bound in the same way.

Iv agnets compete with each other to use deception and lbuff for profit, those that don't miss out because I-O weakness prevents exposure of this.
Similarly, there is often a sense of reciprocity between workers and employers where workers understand that if they work hard in their younger years and acquire firm-specific skills, their employer will keep them on the payroll in their older years when they may not be as productive. This can be a profitable long-term strategy. However, a PE company like Bain, that doesn’t care about the long-term, can break the second half of this deal for sizable short-term profits. (My colleague Eileen Appelbaum has afuller discussion of the ways in which private equity firms earn above normal profits.)

Iv-B is a short term highly leveraged tactic which gets resources from V-Bi that has a long term low energy strategy.
In short, Bain Capital is not about producing wealth but rather about siphoning off wealth that was produced elsewhere in the economy. There is no doubt that one individual or one company can get enormously wealthy if they are able to do this successfully. However you cannot have an entire economy that is premised on the idea that it will siphon off wealth produced elsewhere. It is not clear that Mitt Romney understands that fact, but certainly the general public should when it goes to vote this fall.

 Sometimes this can still be a positive sum game where all parties benefit, when the economy has plenty of resources this process can be like some trees growing faster by the Iv branches getting more Gb nutrients from the soil. If it becomes G-GB then in a zero sum game there can be winners and losers, if the economy is poor it becomes a Roy negative sum game. Here hedge funds become Oy and might do this to stay solvent with massive debts to Y companies. Whoever wins against these Oy vulture funds might then minimize their costs and losses.

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