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Related: About this forumHow Did Mitt Romney Get So Obscenely Rich? Robert Reich Explains
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ProudProgressiveNow
(6,129 posts)zbdent
(35,392 posts)you'd be hearing about all the businesses which went bankrupt after Mitt & Bain pulled their profits out, than the handful of successes ...
JHB
(37,161 posts)...not just now thanks to a political figure making it partly-unavoidable.
IADEMO2004
(5,556 posts)I'm saving it with the Pete Kotz column "Mitt Romney, American Parasite" from last week.
http://www.seattleweekly.com/content/printVersion/1728681/
Cut:
His formula was simple: Bain would purchase a firm with little money down, then begin extracting huge management fees and paying Romney and his investors enormous dividends.
The result was that previously profitable companies were now burdened with debt. But much like the Enron boys, Romney's battery of MBAs fancied themselves the smartest guys in the room. It didn't matter if a company manufactured bicycles or contact lenses; they were certain they could run it better than anyone else.
Bain would slash costs, jettison workers, reposition product lines, and merge its new companies with other firms. With luck, they'd be able to dump the firm in a few years for millions more than they'd paid for it.
But the beauty of Romney's thesis was that it really didn't matter if the company succeeded. Since he was yanking out cash early and often, he would profit even if his targets collapsed.
End Cut
JHB
(37,161 posts)Last edited Tue Apr 24, 2012, 06:46 AM - Edit history (1)
From the 1992 book America: What Went Wrong by journalists Donald Barlett and James Steele:
As it turned out, Interco failed to be a textbook model for the wonders of corporate debt. Instead of encouraging efficiency, it compelled management to make short-term decisions that harmed the long-run interests of the corporation and its employees. Within two weeks of taking on the debt, Interco closed two Florsheim shoe plants-and sold the real estate. Interco announced that the shutdowns would save more than $2 million. That was just enough to pay the interest on the company's new mountain of debt for five days.
***
It was a model of stability for the town and one of the manufacturing jewels of the International Shoe Company, later Interco, its owner. Because of the factory's efficient work force, whenever Florsheim wanted to experiment with new technology or develop a new shoe, it did so at Hermann. The plant had a long history of good labor relations. And it operated at a profit. So why, then, did Interco choose to close the factory? Listen to Perry D. Lovett, who was city administrator of Hermann when the plant shut down and who discussed the closing with Interco officials: "We talked to the senior vice president who was selling the property and he told me this was a profitable plant and they were pleased with it. The only thing was, this plant and the one in Kentucky they actually owned. The other plants they had, they had leased. The only place they could generate cash was from the plant in Hermann and the one in Kentucky.
"He said it was just a matter that this was one piece of property in which they could generate revenue to pay off the debt. And that was it. That brought it down." In short, a profitable and efficient plant was closed because Interco actually owned-rather than leased-the building and real estate. And the company needed the cash from the sale of the property to help pay down the debt incurred in the restructuring that was supposed to make the company more efficient.
Remember, that book is from before Clinton, and the pattern was already underway. Excerpts from the book can be read at:
http://americawhatwentwrong.org/stories/excerpt-america-what-went-wrong/
and
http://www.politicalindex.com/wrong1.htm
Authors' site at:
http://americawhatwentwrong.org/
tclambert
(11,087 posts)and what they did to Davey Scatino (Robert Patrick). They forced him to borrow so much through his sporting goods store that it went bust. All the stuff borrowed and bought on credit the mobsters stole and sold on the side. They called this maneuver a "bust out." I'm not clear now on whether the Mafia invented the concept or if it came from private equity firms.