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Robert Reich
NationofChange / Op-Ed
Published: Thursday 12 January 2012
“According to the Wall Street Journal, of 77 companies Bain invested in during Romney’s tenure there, 22 percent either filed for bankruptcy or closed their doors by end of eighth year after Bain’s investment.”

The Bain of Capitalism

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It’s one thing to criticize Mitt Romney for being a businessman with the wrong values. It’s quite another to accuse him and his former company, Bain Capital, of doing bad things. If what Bain Capital did under Romney was bad for society, the burden shifts to Romney’s critics to propose laws that would prevent Bain and other companies from doing such bad things in the future.

Don’t hold your breath.

Newt Gingrich says Bain under Romney carried out “clever legal ways to loot a company.” Gingrich calls it the “Wall Street model” where “you can basically take out all the money, leaving behind the workers,” and charges that “if someone comes in, takes all the money out of your company and then leaves you bankrupt while they go off with millions, that’s not traditional capitalism.”

Where has Newt been for the last thirty years? Leveraged buyouts became part of traditional capitalism in the 1980s when enterprising financiers began borrowing piles of money, often at high interest rates, to buy up the stock of ongoing companies they believe undervalued. They’d back the loans with the company assets, then typically sell off divisions and slim payrolls, and resell the company to the public at a higher share price – pocketing the gains.

It’s a good deal for the financiers (the $25 billion buyout of RJR-Nabisco in 1988 netted the partners of Kohlberg, Kravis, and Roberts around $70 million each – and most of Mitt Romney’s estimated $200 million fortune comes from the same maneuvers), but not always for the company or its workers.

Some workers lose their jobs when the company downsizes. Others, when the company, now laden with debt, can’t meet its payments to creditors and has to go into bankruptcy. According to the Wall Street Journal, of 77 companies Bain invested in during Romney’s tenure there, 22 percent either filed for bankruptcy or closed their doors by end of eighth year after Bain’s investment.

But, hey, this is American capitalism – at least as it’s been practiced for the past three decades. Is Newt proposing to ban leveraged buyouts? Or limit the amount of debt a company can take on? Or prevent financiers – or even CEOs and management teams – from taking a public company private and then reselling it to the public at a higher price?

None of the above.

Rick Perry criticizes Romney and Bain pushing the quest for profits too far. “There is nothing wrong with being successful and making money,” says Perry. “But getting rich off failure and sticking someone else with the bill is indefensible.”

Yet getting rich off failure and sticking someone else with the bill is what Wall Street financiers try to do every day. It’s called speculation – and at least since the demise of the Glass-Steagall Act, investment bankers have been allowed to gamble with commercial bank deposits, other people’s money.

So is Perry proposing to resurrect Glass-Steagall? Not a chance.

Gingrich, Perry, and others are putting particular focus on the people who lost their jobs as a result of Romney’s Bain Capital. Gingrich’s Super PAC will be running $3.5 million of ads featuring emotional interviews with some of them.

But what, exactly, are Romney’s opponents proposing to do about layoffs that harm so many people? Millions of Americans have lost their jobs over the last four years – and as a result have often lost their health insurance, their homes, and their savings.

Are Gingrich, Perry, and others proposing to expand health insurance coverage for jobless Americans and their families? All I hear from the Republicans is their determination to repeal the law that President Obama championed – which still leaves millions of Americans uninsured. Do Romney’s opponents have plans to keep people in their homes even when they’ve lost their jobs and can’t pay their mortgages? No. Do they propose expanding unemployment insurance? If memory serves, most of them were opposed to the last extension.

I’m all in favor of reforming capitalism, but you’ll permit me some skepticism when it comes to criticisms of Bain Capital coming from Romney’s Republican opponents. None of these Republican candidates has exactly distinguished himself with new ideas for giving Americans more economic security. To the contrary — until the assault on Romney and Bain Capital — every one of them has been a cheerleader for financial capitalism of the most brutal sort.

The party that has repeatedly saved capitalism from its own excesses and thereby preserved capitalism is the Democratic Party. So the only serious question here is what kind of serious reforms Obama will propose when, assuming Romney becomes the Republican nominee, Obama also criticizes Bain Capitalism.

This article was originally posted on Robert Reich's blog.



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ABOUT Robert Reich

 

ROBERT B. REICH, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including his latest best-seller, “Aftershock: The Next Economy and America’s Future;” “The Work of Nations,” which has been translated into 22 languages; and his newest, an e-book, “Beyond Outrage.” His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at www.robertreich.org. Robert Reich's new film, "Inequality for All" is available on DVD
and blu-ray, and on Netflix in February.

This is economic terrorism

This is economic terrorism within our country. Economic treason - putting ones profit or economic gain before the safety and well being our of our nation. The mortgage banking crisis collapsed our economy - not any different in my mind than a war on our society to gain profit and wealth.

What about RESPONSIBLE capitalism? doing business in "GOOD FAITH"; what happened to "Good Faith" buisness? I never see that in contracts anymore?

The term "Profiteering" was used in the late 1800's to describe this type of business behavior.

Dylan Ratigan in his new book

Dylan Ratigan in his new book "Greedy Bastards", lays out a great analogy: Successful control of capitalism is like operating a nuclear power plant. As long as the coolant systems operate perfectly, excellent electricity is produced at an attractive cost. The moment anything in the coolant systems fails, the process can spin out of control, and catastrophic events leading to meltdown can occur.

I have personally experienced

I have personally experienced two vulture capitalism takeovers. This activity is about accumulating OPM - other people's money then using it to purchase then cannibalize businesses, destroy jobs and in some cases whole communities. The new owners use accounting tricks, reduction in research and development, mass firings to extract cash. Some force employees to put large portions of their 401K funds into company shares so they can maintain control, while they systematically loot the business; in some other cases they IPO at share prices huch higher than the value of the busienss, then cash out and let the shareholders, many of them empoyees, take the loss. The vultures extract value they never contributed to building. And these owners can act this way because they are not in the communities where they do their damage; they can act immorally and unethically without public reprecussion So much for the meritocracy Romney et all believe is their model.

Putting this ad - "Help us

Putting this ad - "Help us speak truth to power. Donate what you can afford to support NationofChange." - in the middle of this commentary is cheap capitalism. When I left my professional work with daily newspapers, it was because the editors were more concerned with graphic presentation of ads than getting the facts straight in the news stories.

Even if regulatory changes would lessen the impact of leveraged buyouts, the bigger problem is the damage done over the past 11 years to the rule of law. Violations by both the Bush-Cheney administration and the Obama administration have not been prosecuted. The socalled Obamacare only strengthens the profit margins of insurance companies and drug manufacturers while doing nothing about the rising costs of health care. Passing a law requiring a "living wage" would only drive more jobs overseas and weaken smaller companies and exclude work force expansion.

Maybe a constitutional amendment stripping personhood from corporations? A return to the tax brackets of the 1950s and the closing of tax loopholes and the end of subsidies to business owners? Including millionaires in payroll deductions for Social Security and Medicare? Extending the constitutional term limit on the presidency to Congress?

Shows the lack of morals

Shows the lack of morals prevalent in the Wall Street Model; basically cannabalism. So if there are no rules against cannabalism why not eat your fill, while the rest of us stand back in disgust. That's why some of them survive or succeed or get to the top; not becuase they're any brighter or gifted but because they're basic humanity is paper thin and easily brushed aside when it comes to their gain over another's grief. Regulate regulate regulate, it's the only way to protect the decent person.

Changing the laws -- the

Changing the laws -- the vulture culture -- ain't gonna happen, for simpler reasons that Reich and most others cannot see, will not see.

If America's schools insisted on much more literacy, with many more skilled in making human connections -- in many fields, in most all fields -- the society might be less driven to treat people as do the vulture capitalists. But U.S. schools dance to the tunes of corporate culture. Even now dear Arne Duncan at the federal department of ed is fiddling up more yet more schemes to "value" schools, to evaluate them and people in them, by numbers only -- more yet more standardized tests isolating more yet more in tracking.

And "higher" ed? How can any of that be "higher" when the impersonality conceits go naturally with the specialization posturing in all those mutually isolated departments? The human, and human decency, reduces in "higher" ed all to the convenience, again, of the corporate culture where most are aiming anyway.

It may be rare that U.S. marines go abroad to kill and piss on people there. It's not so rare that vulture culture does the same at home, thanks to schools dancing all to corporate habits.

As bad as the GOP is on these

As bad as the GOP is on these economic issues I believe you are giving the Democrats credit they have not deserved since FDR died. The repeal of the critical section of the Glass–Steagall Act was signed by Bill Clinton in 1999 and had the support of members of his economic team who were unfortunately rehired by Obama after it had become clear how wrong they were.

Right On, Bob!Instead of

Right On, Bob!Instead of looking for reforms and regulations, the Republicans are blaming over-regulation for our poor economy. This totally ignores the fact that it was the LACK of regulation (thanks to Reagan and Bush) that allowed the excesses that looted the economy and led to the depression/recession.

Actually "sticking someone

Actually "sticking someone else with the bill " was ESTABLISHED by Glass-Steagall, it's called FDIC and it's part of the glorious corporatist legacy of FDR. That part was of course not the part what was repealed by Gramm–Leach–Bliley. Since you are so keen on bankruptcy statistics can you tell me have commercial banks with a securities affiliate EVER been less safe than the ones without? Or is that just a myth made up to justify outlawing a competing business model?

WHEre have you been the last

WHEre have you been the last 4 years. The only reason the security associated banks are still here is because they were bailed out. Citygroup and Bof A are still floundering around on the precipiss

While some of Dr. Reich's

While some of Dr. Reich's ideas seem a bit unworkable (i.e. taking over BP in the middle of the gulf oil spill crisis), he's right on the money here. Capitalism, if we really want to keep it, needs more tempering, not less. It's really a process as old as human civilization, which marches on inexorably. Think of the "conservative" position during the middle ages, where indentured servitude, debt prisons, serfdom, and a host of economic (and human) chains were accepted as reasonable and good (at least for the elite). Even today's most extreme rightwing generally doesn't promote these practices, well at least on the surface.

I'm not saying the middle class won't have to revive (and more importantly coalesce around some type of reallocation of wealth, I think under the banner of investment in human resources) and fight for a more equitable future. But if the race survives, it will very likely continue the movement toward compassion, value of life and a way to provide more people with a chance to improve individually and as a whole. And yes, a day when capitalism itself is replaced by something that still rewards individual initiative, but perhaps pays more in being a contribution to the race than in cold, hard cash.

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