Wednesday, October 17, 2012

Job Creation Isn't The Same As Vulture Capitalism


Romney is an experienced businessman

I doubt that former Reagan Budget Director David Stockman wrote the headline, but the Newsweek article he penned is titled Mitt Romney: The Great Deformer. And if Stockman didn't write the headline, he sure wrote all the reasoning behind it. Last we touched bases with Mr. Stockman was in March when he appeared with Bill Moyers to announce that we've learned no lessons about the dangers of crony capitalism. As every Republican running for office continues to pledge undying fealty to Ronald Reagan, they are willfully forgetting the uncomfortable lesson Reagan found out when he tried the trickle down economics being pushed again today by Paul Ryan and the rest of the GOP hierarchy-- charlatans and flimflam men whose electoral careers are being underwritten by the banksters, the oil companies, the Military Industrial Complex and the insurance companies. When Stockman talks about the financialization of the economy-- and how that produces nothing of value at all-- he sounds almost like David Korten, the economist who most represents the ideas behind the Occupy/99% Movement.

Stockman, a former congressman from Michigan, talked with Moyers about the problems inherent in a Congress financed by special interests. He advocates banning corporate contributions entirely-- and putting a $100 cap on individual contributions. A different kind of Republican than the kind we're hearing about these days, huh? He was very candid with Moyers about how money dominates politics, distorting free markets and endangering democracy: “As a result we have neither capitalism nor democracy. We have crony capitalism.” He shared details on how the courtship of politics and high finance have turned our economy into a private club that rewards the super-rich and corporations, leaving average Americans wondering how it could happen and who’s really in charge. “We now have an entitled class of Wall Street financiers and of corporate CEOs who believe the government is there to do… whatever it takes in order to keep the game going and their stock price moving upward,” Stockman told Moyers.

So when I saw the "Great Deformer" article he had done for Newsweek I was eager to read it. And he didn't disappoint me. "Bain Capital," he wrote, "is a product of the Great Deformation. It has garnered fabulous winnings through leveraged speculation in financial markets that have been perverted and deformed by decades of money printing and Wall Street coddling by the Fed. So Bain’s billions of profits were not rewards for capitalist creation; they were mainly windfalls collected from gambling in markets that were rigged to rise." They use a model of antisocial predation that Romney set up and Romney boasts that his experience at Bain is what qualifies him to be president. He claims to have been an incredibly successful "businessman" and that that someone will make him a great president.
Except Mitt Romney was not a businessman; he was a master financial speculator who bought, sold, flipped, and stripped businesses. He did not build enterprises the old-fashioned way-- out of inspiration, perspiration, and a long slog in the free market fostering a new product, service, or process of production. Instead, he spent his 15 years raising debt in prodigious amounts on Wall Street so that Bain could purchase the pots and pans and castoffs of corporate America, leverage them to the hilt, gussy them up as reborn “roll-ups,” and then deliver them back to Wall Street for resale-- the faster the better.

That is the modus operandi of the leveraged-buyout business, and in an honest free-market economy, there wouldn’t be much scope for it because it creates little of economic value. But we have a rigged system—a regime of crony capitalism-- where the tax code heavily favors debt and capital gains, and the central bank purposefully enables rampant speculation by propping up the price of financial assets and battering down the cost of leveraged finance.

So the vast outpouring of LBOs in recent decades has been the consequence of bad policy, not the product of capitalist enterprise. I know this from 17 years of experience doing leveraged buyouts at one of the pioneering private-equity houses, Blackstone, and then my own firm. I know the pitfalls of private equity. The whole business was about maximizing debt, extracting cash, cutting head counts, skimping on capital spending, outsourcing production, and dressing up the deal for the earliest, highest-profit exit possible. Occasionally, we did invest in genuine growth companies, but without cheap debt and deep tax subsidies, most deals would not make economic sense.

In truth, LBOs are capitalism’s natural undertakers-- vulture investors who feed on failing businesses. Due to bad policy, however, they have now become monsters of the financial midway that strip-mine cash from healthy businesses and recycle it mostly to the top 1 percent.

The waxing and waning of the artificially swollen LBO business has been perfectly correlated with the bubbles and busts emanating from the Fed-- so timing is the heart of the business. In that respect, Romney’s tenure says it all: it was almost exactly coterminous with the first great Greenspan bubble, which crested at the turn of the century and ended in the thundering stock-market crash of 2000-02. The credentials that Romney proffers as evidence of his business acumen, in fact, mainly show that he hung around the basket during the greatest bull market in recorded history.

Needless to say, having a trader’s facility for knowing when to hold ’em and when to fold ’em has virtually nothing to do with rectifying the massive fiscal hemorrhage and debt-burdened private economy that are the real issues before the American electorate. Indeed, the next president’s overriding task is restoring national solvency-- an undertaking that will involve immense societywide pain, sacrifice, and denial and that will therefore require “fairness” as a defining principle. And that’s why heralding Romney’s record at Bain is so completely perverse. The record is actually all about the utter unfairness of windfall riches obtained under our anti-free market regime of bubble finance.
Stockman goes on, in great depth, to prove that Bain's record of self-proclaimed greatness is about "a dangerous form of leveraged gambling that has been enabled by the failed central banking and taxing policies of the state. That it should be offered as evidence that Mitt Romney is a deeply experienced capitalist entrepreneur and job creator is surely a testament to the financial deformations of our times." And that anyone is buying it-- other than the Republican base-- is an even worse testament to the health of our democracy.

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At 3:24 PM, Anonymous runfastandwin said...

It's called the "bustout" and you can see a fictional example in the movie "Goodfellas" when the mob takes over a restaurant, steals everything in sight, borrows all the money they possibly can with no intention of ever paying it back, then torch the place for the insurance.

At 4:36 PM, Anonymous me said...

Fuck Ronald Reagan. He was a moron, a corporate whore, a warmonger, and a religious whackjob who believed in astrology but not in evolution.

Reagan supported apartheid in South Africa, death squads in Central America, and violent far-right dictators all over the world. Hoping to kill Russians, he practically invented the taliban.

Time and time again, he lied and lied and lied. Did NOTHING about AIDS for years and years ("Those people won't vote for us anyway" was heard around the White House.) Couldn't tell the difference between real life and movies.

Reagan was a piece of shit, by far the worst president of my lifetime (until Bush, of course). Fuck Ronald Reagan.

At 11:25 PM, Anonymous Anonymous said...

You're right. Fuck Ronald Reagan!


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