"Romney’s Bain Yielded Private Gains, Socialized Losses" By Anthony Luzzatto Gardner

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Romney’s Bain Yielded Private Gains, Socialized Losses

By Anthony Luzzatto Gardner at Bloomberg

http://www.bloomberg.com/news/2012-07-15/romney-s-bain-yielded-private-gains-socialized-losses.html

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What’s less clear is how his skills are relevant to the job of overseeing the U.S. economy, strengthening competitiveness and looking out for the welfare of the general public, especially the middle class.

Thanks to leverage, 10 of roughly 67 major deals by Bain Capital during Romney’s watch produced about 70 percent of the firm’s profits. Four of those 10 deals, as well as others, later wound up in bankruptcy. It’s worth examining some of them to understand Romney’s investment style at Bain Capital.

In 1986, in one of its earliest deals, Bain Capital acquired Accuride Corp., a manufacturer of aluminum truck wheels. The purchase was 97.5 percent financed by debt, a high level of leverage under any circumstances. It was especially burdensome for a company that was exposed to aluminum-price volatility and cyclical automotive production.

Casino Capitalism

Forty-to-one leverage is casino capitalism that hugely magnifies gains and losses. Bain Capital wisely chose to flip the company fast: After 18 months, it sold Accuride, converting its $2.6 million sliver of equity into a $61 million capital gain. That deal, which yielded a 1,123 percent annualized return, was critical to Bain Capital’s early success and led the firm to keep maximizing the use of leverage.

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1. A good brief explanation of why Romney embodies the problem. (nt)

[blm]

2. When he banked the assets including the pension funds, then filed bankruptcy and pensions had to be

covered by a federal insurance program with the taxpayer footing the bill, I see a clear case of insurance fraud. And I would bet he did it in other companies, too. How much of all these schemes were our tax dollars paying for all these years? Time for payback to Treasury. Time for jail.