Sunday, July 8, 2012

Bain Capital or the Mob?

So an article published today http://www.vanityfair.com/politics/2012/08/investigating-mitt-romney-offshore-accounts,discussed the complicated finances of the Romney family. There was a considerable amount of linguistic dancing about the Bain Capital model of business acquisition. Bain bought companies by teaming with partners like Goldman Sachs to cook the books of companies to be acquired. Bain and its cohorts would use inappropriate assumptions to publish financial documents that would then be used to support borrowing from unsuspecting lenders. Then Bain would pay out the money it had the acquired company's borrow as "dividends" and "fees" and let the company whose assets secured the loan die by bankruptcy. Bain made its money and left lenders with the task of working out the debt clearing process in the courts. This was legal? Technically it was probably couched as "business decisions" and not fraudulent misrepresentation. But fraud is what it was. This is exactly the model used by the mafia when it is owed money. Please see the book "Mob Rules" by Louis Ferrante. If the borrower does not pay, or is otherwise obligated, the mob takes over the borrower's business, borrows all it can to put in its pockets, buys all the sellable merchandise it can on the business's vendor credit lines and then leaves the wrung out husk for the bankruptcy courts to dismantle. This wasn't said in the article but it should be made clear. Bain and Romney bought businesses with other people's money, then made the purchased company borrow more other people's money, then put that money in their pockets as dividends and fees. They knowingly did this. It was fraud and misrepresentation that Wall Street and K Street made sure wasn't characterized that way. Please, someone, tell me how the models are different. I challenge you.