Not Every Queen Is An Aaron Schock Or A Lindsay Graham Or A Mark Foley Queen

Over the weekend I wrote a funny throwaway piece about an excursion with Digby and Amato to see a new film about a family of trashy billionaires from Orlando, The Queen of Versailles. In the course of the documentary, the male protagonist, David Siegel, declared it "a riches to rags story," as their fortunes plummeted from billionarity to mere multimillionairity. The Queen worried that the money was evaporating so rapidly that her 7 children might be forced to go to college so they could get jobs someday. Heart rending? No, but I'm such a coldhearted beast when it comes to elites; I had the same response to the film Farewell, My Queen earlier this summer, which endeavored to make the end of the absolute monarchy in France and of the Ancien Régime itself into a reality show, a classy Real Housewives of Versailles. As Siegel was savvy enough to point out when he sued the film maker recently-- total frivolous suit-- it was like a pilot for a completely déclassé Real Housewives of Orlando. And was it ever!

Not that I was immune to the humor or the human drama, but what fascinated me most about the film was the delicious irony of a guy bragging about having personally cheated to elect George Bush in 2000 then being laid low by Bush's bungled economic agenda while he and his wife personalized the economic collapse at the hands of the banksters. The banksters are the unseen villains in the film. From my Sunday post:

I'll never forget the shopping and spending addicted Mrs. Siegel's plaintive cry about how the Wall Street bailout money should have gotten to the "common people"... like them. She was upset because their planes had been repossessed and the banksters were pressuring them to sell Versailles, the 90,000 square feet home they were building for a hundred and something million dollars, the largest home in America. And David Siegel was just full of the same kinds of ironies, complaining bitterly throughout the film that greedy banksters tempted him with cheap money to take out loans he couldn’t repay-- which is exactly what he has trained his sales force to do to their pathetic time-share customers, who are uncharitably referred to as "the moochers."

Well since the film was finished, Siegel's back in business and making bigger profits than ever before and work has resumed on Versailles and they're back to billionairity again and the kids won't have to worry about going to college after all. Not sure if he's contributing any cash to the Romney campaign or not. But, speaking of Romney, Daniel Gross has an interesting post at the Daily Beast about the Romney business model, Bankruptcy for Billionaires. "On Aug. 29," he writes, "Contec Holdings, a Schenectady, N.Y., company that repairs cable boxes, filed a prepackaged bankruptcy plan-- a court-sanctioned deal with lenders in which the firm will reorganize, wipe out up to $300 million in debt, and move on under new ownership." It's not uncommon and in 2011, 9,772 businesses filed for Chapter 11 bankruptcy protection. The Romney model is right out there for everyone to see-- and he says, or used to say, he was running on it for whatever office he was running for. But he's certainly counting on the voting public to not kick the tires or look any further than all the money he's made for himself and imagine-- somehow-- that he can make that money for them if he's elected.

Contec was acquired by Bain Capital in 2008, years after Mitt Romney had left the private-equity firm. But the timing of the bankruptcy filing-- coming a day before he was poised to accept the Republican nomination for president-- was inconvenient. It also highlighted a larger issue. We’ve heard about “strategic defaults” in housing: when the current value of a home is hopelessly below the total mortgage, some owners stop making payments on their loans even though they could afford to.

Corporate gunslingers do the same thing. When a debt-laden company (like Contec) owned by a private-equity firm (like Bain) runs into trouble, the bespoke-suited bankers have a few options. They can roll up their Thomas Pink shirtsleeves and attempt a turnaround, deploy idle money in their funds to shore up the company, or sell profitable investments in the fund to raise new cash. Or the guys who own the private-equity firm-- hell-bent on salvaging the investment and preserving jobs-- could use part of their vast fortunes to pay the debt.

They rarely do. In fact, companies owned and effectively managed by billionaires routinely fall behind or default on their obligations, all for want of a few million dollars. LifeCare Holdings, a hospital chain owned by the Carlyle Group, missed a $5.5 million interest payment due Aug. 15 on $119.3 million in notes. It’s worth mentioning that Carlyle’s top three executives earned a combined $400 million in 2011.

Walking away from bad debts is a feature-- not a bug-- of the industry. This year Standard & Poor’s has tallied 29 major debt defaults by large U.S. companies. By my count, at least 14 were backed by private-equity firms.

The big players rarely suffer professional, legal, or social repercussions if they fail to bail out debt-laden companies in their portfolio. For individuals of more modest means, of course, it’s a different story. Thanks to a change in the bankruptcy law in 2005, credit-card debt is no longer easily discharged in bankruptcy. “If you have any ability to pay any of your debt from the point you file bankruptcy forward, you’ll be on the hook for it,” says Tamara Draut, vice president for policy and research at Demos, the New York–based progressive think tank. Likewise, student loans can’t be easily shucked in bankruptcy court.

When a company files for Chapter 11, bankers and bondholders get stiffed. But so do vendors, landlords, service providers, employees-- and, sometimes, the public. In 2008, Chrysler and the auto lender GMAC, then both owned by private-equity firm Cerberus, hurtled toward messy bankruptcies when their well-heeled owners decided they were better off walking away. The government controversially stepped in and took ownership of the companies. Taxpayers have taken a $1.2 billion loss on the Chrysler bailout and are still saddled with GMAC. In May, Hawker Beechcraft, the aircraft company owned by Goldman Sachs’s private-equity fund and Onex Corp., went tapioca. Over the years, the company had underfunded its workers’ pensions by $600 million. So in late August the Pension Benefit Guaranty Corporation, a self-funding agency that is backstopped by taxpayers, agreed to pour in $390 million of its own cash to shore up the pensions.

Is it any coincidence that the first private-equity baron to run for president is proposing something similar? The Ryan plan-- now largely the Ryan-Romney plan-- is an exercise in walking away. Medicare and Social Security, we are told, are in danger of going bankrupt. That’s because these enterprises’ wealthy backers-- i.e, Washington politicians--have chosen not to fund the levels of expenditures promised to America’s rapidly aging population. Rather than raise new funds or reallocate existing resources, Republicans propose to turn Medicare into a voucher program and to consider raising the retirement age for Social Security. Across the country, governors and legislators who repeatedly refused to fund the retirement and health-care benefits promised to state employees are also trying to walk away.

Just like private-equity bosses, political leaders are choosing not to afford financial commitments-- and betting they won’t suffer any sanctions as a result.

Back to David Siegel for a momento. Like I said, he's rolling in good fortune again and "sales are roaring back inside the timeshare gates, and the mood of the company is as positive as it's been since Westgate was generating $1 billion in annual revenue five years ago."

"We're feeling extremely good," said David Siegel, founder/president and CEO of one of the largest privately owned timeshare companies in the world. "At the first of this year, we gave pay raises to our employees for the first time in a while and we're enhancing our employee benefit programs. This is a great time to be at Westgate because we have a great future.

"We have a very supercharged and energized sales team. They're very excited because they are seeing a lot of new and upgraded amenities at many of our resorts. When you see that kind of activity going on and you're making more money. ... It really puts a lift in the step of our team. Morale right now is at an all-time high within Westgate."

"Our customer is the Walmart customer," Siegel proudly said at last year's high-profile Shared Ownership Investment Conference panel. "They pay their credit card on time. It's the truck driver from Iowa who is treated like a king. We make Middle America feel like a Rockefeller."

Even if they don't have their own 90,000-square-foot Versailles palace to one day call home.

In the film they're referred to as "the Moochers" and the business model is based on selling them an empty, wretched, glitzy dream they can't afford. Apparently Siegel's brush with financial catastrophe hasn't reformed him one bit and his business model is still his business model... just like Mitt's.