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    Pure Speculation on Bain and Romney

    By Michael Maiello on Fri, 07/13/2012 - 12:51pm | Politics

    To me, one of the most amusing parts of the Mitt Romney/Bain story is that it took between early 1999 and late 2002 to transfer ownership of the company from Romney to his 26 managing directors.

    Now, after 2000, when funding dried up because of the tech crash and recession (made worse in 2001 by the terrorist attacks), this might be understandable.  But in 1999, deals were getting done.

    I can only conclude that Bain's 26, no doubt highly paid executives, had a little problem with the 1% in their midst.  Romney was the sole shareholder and his net worth was, at the time, likely defined by his illiquid ownership of a private equity company.  His executives, well paid as they were, did not have the cash to buy him out.

    There's an irony here.  Part of Bain's business was, of course, to help management teams buy out their companies and generally speaking, even well-heeled managers don't have enough money to just pay off the owners.  Owning capital beats doing work, even at the upper echelons.  Lloyd Blankfein and his team are rich.  They cannot afford to buy Goldman Sachs.

    This is what banks are for.  The executives take a loan to fund the buyout and, like a mortgage borrower, they use the asset they intend to buy as the collateral.  So, I have to wonder if back in 1999, when banks were lending freely, would nobody make a loan to Bain's managing directors so that they could buy out Romney over the course of months, rather than years?  Or, and this is what I suspect, were Bain's managing directors not willing to eat their own dog food?

    I'm betting that they didn't want to take out a loan to buy the thing because they didn't want the pressure of running a levered up Bain.  They would have been forced, in good and bad markets, to generate fees and returns that would service their debts. So I'm guessing that what they did is they bought Bain on something of an installment plan, paying Romney more over a longer period of time, but freeing themselves from the pressures endured by the managers around the country who had taken Bain's advice.

    This is just a hunch.  It's also possible that they did use a bank loan but somehow took so long to secure it that they ran smack into the recession and things got delayed.  But if they didn't need financing, the deal shouldn't have taken nearly 3 years to close.

    Another possibility, perhaps simpler, is that Romney didn't want to sell and chose to keep the company in his back pocket so that he could return to power if the political thing didn't pan out.  That has the glint of Occam's Razor to it, but it would also make both Romney and Bain appear dishonest, so I'm going with my more involved thesis because I'm a heckofaguy.

    Topics: 
    Politics

    Comments

    That's a subtle and thoughtful point, destor. Thanks.

    On a simpler, crudely populist note, I think that saying, "I didn't work there any more! I just owned the company!" is really not a winner.


    by Doctor Cleveland on Fri, 07/13/2012 - 1:49pm

    Destor,

    Fun read, nothing like pure speculation in a political season!  Of course, your speculation has the advantage of making sense, and certainly is justified in response to the explanations coming from Bain and the Romney campaign respectively.  Bain's explanation, as I understand it, is that Romney remained a titular head so that the transaction could be completed.  But, as you point out, at least implicitly, there has to be a reason that ownership gets transferred in stages over several years (and Romney holding onto his interest as collateral makes sense).  And the campaign's argument, that he remained titular head but was not involved in running the business, even if true, belies their principal argument that Romney didn't benefit from Bain after February of 1999 or so.

    Seems to me this is another example of the cover-up being far worse than any crime.  I  mean if the guy was helping to effect a leveraged buyout of his interest in Bain after 1999, or if there was another reason why his ownership interest remained the same after 1999, then why didn't he just admit that from the get-go.  Take your lumps about "vulture" capitalism and move on; your base wouldn't care, and the press would have been bored of this story by now.   

     

     


    by Bruce Levine on Fri, 07/13/2012 - 2:47pm

    Another possibility, more damaging -- it took him 3 years of conniving to design a tax strategy around his liquidity event.


    by Michael Maiello on Fri, 07/13/2012 - 2:52pm

    I found this statement interesting ...

    " ... were Bain's managing directors not willing to eat their own dog food ... "

    Given what we've been reading and hearing about Romney, I wonder if all the subtle hinting he plays both ends against the middle for personal gain and profit are in fact honest to the point where those managing director's knew Romney kept aces up his sleeves and would turn on a dime against them if there was a dollar to be made in the transaction, thus leaving them high, dry and deeply in debt.

    I'm saying, he sells the businsness to them, which they go into hock to purchase using the business as colateral, only to discover a few months later there were issues they never knew about that only Romney handled and never told them or included them in on it, which hits them hard in the pocketbook requiring they off load the busines and there's Romney waiting to buy it back at a cut-rate firesale.

     


    by Beetlejuice on Fri, 07/13/2012 - 3:27pm

    The Romney Proxy!


    by Michael Maiello on Fri, 07/13/2012 - 3:42pm

    The NYT says Romney has been banking millions from Bain at least through 2009, if the 'nail ladies' don't 'get' it, it may be because they no longer get paid when they quit a job. I suppose he could also deny he knew he was part of an investment group making money disposing of dead fetuses, a medical waste company called Stericycle, see David Corn at Motherjones.

    It is quite possible that Romney might have to spend 3 years 24/7 to supervise a two week long Olympics, you can't 'fire' nations or Olympic athletes, or outsource them to China.  But with his obsession for Bain and his fortune it seems unlikely. I would wager Jimmy Carter could have handled the Olympics, Bain AND have gotten bin Laden without breaking a sweat.

    A Venn diagram at Tumblr sums up a lot of facts about Romney and some personalities in the movies:

     

     


    by NCD on Fri, 07/13/2012 - 11:38pm