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Jim Hightower
NationofChange / Op-Ed
Published: Wednesday 25 April 2012
“Mitt Romney piled up a quarter-billion-dollar personal fortune through his Wall Street equity outfit, Bain Capital, and he now claims that, because of his success in that business, he knows how to ‘fix’ our economy.”

The Inequity of Private-equity Hustlers

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What are these phantasmagoric money machines that they call "private-equity firms?"  They're much in the news these days, because a fellow who was a private-equity magnate is presently running for president.  Mitt Romney piled up a quarter-billion-dollar personal fortune through his Wall Street equity outfit, Bain Capital, and he now claims that, because of his success in that business, he knows how to "fix" our economy.

Before you cheer that, note that private equity whizzes are all about The Fix — not necessarily a good thing.  They operate by borrowing big piles of cash at high interest rates from rich speculators to buy out XYZ Corp.  Then, to meet the interest payments owed to the speculators (and to siphon off a financial killing for themselves), the fixers do two things: One, they plunder XYZ's assets, selling the profitable chunks of the corporation; and two, they severely downsize the XYZ workforce, firing as many workers as possible and demanding deep wage cuts and benefit givebacks from the employees they keep.

It's a raw redistribution-of-wealth scheme, shifting XYZ's wage payments from its many workers to a handful of wealthy high rollers.  The process downsizes America's middle class, while creating no real economic value.  Nothing equitable about it.

But the fix also includes a set of very special partners, few of whom are even aware that they're in on the deal: taxpayers.  The private-equity business model is not structured on old-fashioned, free enterprise principles, but on a skewed system of tax loopholes punched into federal law by these financiers' lobbyists and the lawmakers who do Wall Street's bidding.

For example, the equity funds are able to load up on such heavy debt to finance their corporate takeovers only because all of the interest they must pay to speculators for that borrowed money is tax-deductible.  In other words, our government directly subsidizes private-equity plundering by covering their huge interest payments.

To add to their fun, many of these tax-code scammers grab such big debt deductions each year that they end up paying zero corporate income taxes, even though they rake in millions in profit.

To put a name to this financial flimflammer, let me tell you a corporate morality tale that I call "The Shame of Shamu."

Actually, Shamu is not the cause of the shame.

After all, that's just the generic name given to the killer whales kept in captivity as the star attraction at all three theme parks operated by SeaWorld, Inc.  The shame belongs to the corporation, which not only profits from its exploitation of the whales, but also manages to dodge paying even a penny in national or state income taxes.  Based in Orlando, Fla., this sprawling entertainment conglomerate pocketed record profits of $380 million last year but paid zero taxes on it.

This is because SeaWorld is owned by Blackstone Group, a multibillion-dollar private equity giant that specializes in acrobatic accounting and spectacular twistings of our tax laws.

For example, Blackstone structured its 2009 takeover of SeaWorld so that it could immediately begin grabbing tax deductions under the law's convoluted depreciation rules. Also, the Wall Street group paid 60 percent of the $2.5 billion purchase price with high-level-interest loans from wealthy speculators — yes, that makes the huge interest payments on that debt totally deductible from Blackstone's tax bill.

Thus — Shazam Shamu! — This bit of Wall Street hocus-pocus let's SeaWorld pull big profits out of its hat, while the taxes owed by SeaWorld's private equity owner — Poof! — Disappear.  Well, admitted a corporate spokesman, that's true, but the group "operates entirely within the letter and spirit" of the law.

Of course they do!  That's an easy trick for them.  Blackstone is a whale in America's political pool, funneling millions of dollars a year into lobbyists and politicians to rig the law.  It has already spent $7.3 million lobbying the current Congress and another $1.3 million (so far) on campaign donations for this year's elections.

Those donations include $173,000 to back Mitt Romney — who promises if elected to make tax laws even more favorable to money manipulators like Blackstone.  The moral is that you don't need magic if you're wired to power.

Copyright Creators.com


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ABOUT Jim Hightower
National radio commentator, writer, public speaker, and author of the book, Swim Against The Current: Even A Dead Fish Can Go With The Flow, Jim Hightower has spent three decades battling the Powers That Be on behalf of the Powers That Ought To Be - consumers, working families, environmentalists, small businesses, and just-plain-folks.

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9 comments on "The Inequity of Private-equity Hustlers"

d1125reil

April 26, 2012 9:10pm

Inequity or iniquity...practically interchangeable with this lot.,

wildthang

April 25, 2012 4:17pm

It seem like I've heard of lots of big ex-presidents and cabinet members being in this group along with oil countries and also Carlyle Group and I seee they have partenered on some thing with Bain too.

ronruthnik

April 25, 2012 3:45pm

I like Jim's writings. He often has the same conclusions I have, and we're doing this very independently. I do hope he keeps up the good work, and I PRAY people are reading what he has to say.

Jefffrey Hill

April 25, 2012 3:43pm

There was a time in the not-too-distant-past that an influence-peddling, bribe- taking Congressperson and the bribe-paying, influence-buying corproate lobbyist would end up in federal prison for doing what is done openly today in the US Capitol offices of Congresspeople and elsewhere.

There is nothing like buying a public office for an influence-peddling whore politician and owning them -- the investment pays an obscenely wonderful return on a modest investment.

MONEY TALKS!

EndTheIllusion

April 25, 2012 3:38pm

Unfortunately, our society accepts the fact that holders and owners of money are more important than those who work to produce true value.

Riconui

April 25, 2012 1:56pm

You know it's completely unethical when their lawyer tells you "it's all perfectly legal".

palsimon

April 25, 2012 1:55pm

I remember a time when raising my children in the 50s I could deduct all my child care payments and all my medical bills from my taxes. Times have changed on that. Another problem is that labor and office workers cannot deduct their auto expenses and other necessities to get to work, but business can. I am sick and tired of our government favoring business with tax exemptions that ordinary people can't get, but expenses which are extremely painful for them to bear given low wages.

planckbrandt

April 25, 2012 12:46pm

Don't forget the Private Equity firms merely provide ANONYMITY for the Family Offices who own everything else in this country, and much of the world.

Their "clients" aka Bosses and Masters are the whatever <1% who are really the ones behind ALEC, social engineering, "Rockefeller Drug Laws", Prop 13, etc. today just like they were behind Jim Crow and John Birch Society 100 years ago.

They are also behind de-regulation of banks because they know that market Bubbles followed by Crashes followed by Bubbles again is how they get to "buy low" and "sell high", First-In-First-Out over and over again in this capital gains game so well described here. The real capital gains income goes to them! And, selling off non-controlling stakes to the public and the falsely hopeful and gullible "retail investor" has always been the source of all their profits!

And, has been for generations in this bogus market manipulation system using banking credit bubbles. Capital gains income requires big dips and swings in asset prices. How is that engineered to arise every few years? All by itself...???

The real job of Mitt Romney at Bain and Pete Peterson at Blackstone et al is to keep their bosses' famous names out of the papers while taking all the arrows. Diddo the stooges like Brown and Hayward of "BP"...now which Family Offices really own and control that?

teabagged2Death

April 25, 2012 12:34pm

Sadly for us all, "fixing" the system to benefit those who have no shame or morals that allows predatory capitalism to thrive will only be ended when oppressed peoples realize that system's total lack of spiritiualism, and then stop buying, not only into that corrupt system, but also stop purchasing their endless supply of crap. John Trudell calls consumerism a disease and we must all heed his warning.

Organized religions are the worst offenders especially when one considers the immense wealth of the Vatican, not to mention all religions that are spiritually strong-arming their flocks for 10% and more. If they want to be like Jesus Christ as they claim, they must donate all stolen money from us, as well as their other ill-gotten gains, to poor starving people, then wear rags instead of fine clothes.

Since they crossed that line separating church and state long ago, let us pray that the IRS collects its proper dues, not to mention these corporate hustlers who have "fixed" our economy to the point that we are merely prey for them.

Unfortunately, our Supreme Court has "fixed" the law in their favor again. They "have", but we, the people, "have not". This corrupt system will remain in place until we, the people, "fix" it.

In the words of notorious Tammany Hall "fixer" George Washington Plunkitt, "Money is the mother's milk of politics."