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» Ship of Fools   »   » Oblivion   » Mitt Romney: sanity check (Page 2)

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Source: (consider it) Thread: Mitt Romney: sanity check
Bullfrog.

Prophetic Amphibian
# 11014

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Mormons are also, on average, wealthier. That does a lot for family stability, or so I've read.

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Some say that man is the root of all evil
Others say God's a drunkard for pain
Me, I believe that the Garden of Eden
Was burned to make way for a train. --Josh Ritter, Harrisburg

Posts: 7522 | From: Chicago | Registered: Feb 2006  |  IP: Logged
Porridge
Shipmate
# 15405

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There's also the Rolling Stone article which claims that, just prior to the rescue of one arm of Bain by its other arm, which involved bringing Romney back on board, his first effort at rescuing the relevant arm nearly bankrupted it.

Romney only managed to pull that chestnut out of the fire by borrowing $10 million in a deal which left the FDIC (and all its little depositors, like those of us lucky enough to have savings accounts) holding the debt. The article claims that was biz-as-usual for the Bains:

1. Borrow $$ for a takeover or buyout;

2. Take over or buy out, writing the deal so that the taken-over or bought-out firm is saddled with the debt;

3. Sell firms off if/when they start making profits, with debt still attached, OR take a write-off if/when they sink.

Either way, Bain walks off with any money made, leaving the company to go belly-up over inability to pay the debt they got saddled with.

Neat game: heads I win, tails you lose.

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Spiggott: Everything I've ever told you is a lie, including that.
Moon: Including what?
Spiggott: That everything I've ever told you is a lie.
Moon: That's not true!

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Mockingale
Shipmate
# 16599

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quote:
Originally posted by tclune:
Obama uses that fact to claim that Bain willfully destroys jobs, which is equally absurd.

I think it might be fair to say, though, that Bain recklessly destroys jobs. I don't think that Mitt Romney and his business associates huddled in a board room and cackled gleefully about all the people that were going to be fired as they shoveled caviar and blinis in their faces.

On the other hand, if it is your standard practice to buy up successful small businesses through leveraged buyouts and wring all of the cash, leaving a bankrupt husk, the end result is the same and it doesn't really matter that you secretly wished that people would not lose their jobs at the companies you destroyed for profit.

Posts: 679 | From: Connectilando | Registered: Aug 2011  |  IP: Logged
tclune
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# 7959

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quote:
Originally posted by Mockingale:
On the other hand, if it is your standard practice to buy up successful small businesses through leveraged buyouts and wring all of the cash, leaving a bankrupt husk, the end result is the same and it doesn't really matter that you secretly wished that people would not lose their jobs at the companies you destroyed for profit.

Were that the "standard practice" of Bain, I suppose you'd be right. But this strikes me more as a fantasy of opposition researchers than the business strategy of Bain or any other VC that I have encounterred. I am certainly not a fan of VCs -- they are typically way too anxious to get their money back out of a venture to actually be good partners for start-ups.

For example, the big problems that I am familiar with (I have worked at start-ups for most of my career) are that they want to staff up on employees to make a company seem later-stage than it actually is, so they can sell out to the next round of suckers and get out, instead of "right-sizing" for the actual growth of the business. Often, this leaves a business saddled with too many VPs with too little to do yet. You can call that "job creation" if you like, but before you can put those folks to productive use, they are just unneeded overhead, and thus a drag on the business. A surprising number of start-ups go under because they can't support the infrastructure that was created to make them look successful so that the VCs could sell off the company. FWIW.

--Tom Clune

[ 17. October 2012, 18:20: Message edited by: tclune ]

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Posts: 8013 | From: Western MA | Registered: Jul 2004  |  IP: Logged
Crœsos
Shipmate
# 238

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Except that Bain wasn't interested in funding start-ups. ("There's a lot greater risk in a startup than there is in acquiring an existing company", as Mitt Romney once said.) Its business model revolved around leveraged buyouts of mature-but-floundering firms. From the article:

quote:
Here's how Romney would go about "liberating" a company: A private equity firm like Bain typically seeks out floundering businesses with good cash flows. It then puts down a relatively small amount of its own money and runs to a big bank like Goldman Sachs or Citigroup for the rest of the financing. (Most leveraged buyouts are financed with 60 to 90 percent borrowed cash.) The takeover firm then uses that borrowed money to buy a controlling stake in the target company, either with or without its consent. When an LBO is done without the consent of the target, it's called a hostile takeover; such thrilling acts of corporate piracy were made legend in the Eighties, most notably the 1988 attack by notorious corporate raiders Kohlberg Kravis Roberts against RJR Nabisco, a deal memorialized in the book Barbarians at the Gate.

Romney and Bain avoided the hostile approach, preferring to secure the cooperation of their takeover targets by buying off a company's management with lucrative bonuses. Once management is on board, the rest is just math. So if the target company is worth $500 million, Bain might put down $20 million of its own cash, then borrow $350 million from an investment bank to take over a controlling stake.

But here's the catch. When Bain borrows all of that money from the bank, it's the target company that ends up on the hook for all of the debt.

Now your troubled firm – let's say you make tricycles in Alabama – has been taken over by a bunch of slick Wall Street dudes who kicked in as little as five percent as a down payment. So in addition to whatever problems you had before, Tricycle Inc. now owes Goldman or Citigroup $350 million. With all that new debt service to pay, the company's bottom line is suddenly untenable: You almost have to start firing people immediately just to get your costs down to a manageable level.

"That interest," says Lynn Turner, former chief accountant of the Securities and Exchange Commission, "just sucks the profit out of the company."

Fortunately, the geniuses at Bain who now run the place are there to help tell you whom to fire. And for the service it performs cutting your company's costs to help you pay off the massive debt that it, Bain, saddled your company with in the first place, Bain naturally charges a management fee, typically millions of dollars a year. So Tricycle Inc. now has two gigantic new burdens it never had before Bain Capital stepped into the picture: tens of millions in annual debt service, and millions more in "management fees." Since the initial acquisition of Tricycle Inc. was probably greased by promising the company's upper management lucrative bonuses, all that pain inevitably comes out of just one place: the benefits and payroll of the hourly workforce.



[ 17. October 2012, 17:40: Message edited by: Crœsos ]

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Humani nil a me alienum puto

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tclune
Shipmate
# 7959

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quote:
Originally posted by Crœsos:
Except that Bain wasn't interested in funding start-ups.

Tell that to Staples. Stop drinking the Kool-Aid.

--Tom Clune

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Posts: 8013 | From: Western MA | Registered: Jul 2004  |  IP: Logged
Josephine

Orthodox Belle
# 3899

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Tom, Romney never expressed any desire to build businesses. He talked about "harvesting companies." He wanted to pull everything of value out of them, and leave an empty, barren field.

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I've written a book! Catherine's Pascha: A celebration of Easter in the Orthodox Church. It's a lovely book for children. Take a look!

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IngoB

Sentire cum Ecclesia
# 8700

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Well, Obama has 99 problems, but Mitt is not one.

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They’ll have me whipp’d for speaking true; thou’lt have me whipp’d for lying; and sometimes I am whipp’d for holding my peace. - The Fool in King Lear

Posts: 12010 | From: Gone fishing | Registered: Oct 2004  |  IP: Logged
chicklegirl
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# 11741

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quote:
Originally posted by Bullfrog.:
Mormons are also, on average, wealthier. That does a lot for family stability, or so I've read.

Sorry, Bullfrog--this is a generalization. In fact, we Mormons are a representative cross-section of the economic pie, where ever we happen to live. Most wards I've lived in may have one or two well-to-do families, but most of them are blue-collar or lower. Most likely that is because my family of origin was lower-middle class, barely above the poverty line sometimes.

That said, our ward members and leaders were always concerned about our situation, provided help when we needed it, and gave us ample opportunities to help those in worse circumstances than our own.

My childhood was a big motivator for me to attend college and improve my own economic circumstances as an adult. Even when my family didn't have much money, we tried to do the best with what we had, and then improve on it where and when we could--and I've found the idea of making the most of one's stewardship is prevalent in the Mormon faith, where ever I've gone.

To address the issue of family stability: yes, overall our demographic does have a lower divorce rate, but my own parents divorced when I was 16 (though as a close observer, this had less to do with our economic situation and more to do with their difficulty communicating and working out their personal differences).

[ 22. October 2012, 20:58: Message edited by: chicklegirl ]

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If you want to be happy, be.
~ Henry David Thoreau

Posts: 916 | From: Sixth Circle of Hell | Registered: Aug 2006  |  IP: Logged
Pigwidgeon

Ship's Owl
# 10192

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Welcome back, Chicklegirl! Good to hear from you again, and your input is appreciated.

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"...that is generally a matter for Pigwidgeon, several other consenting adults, a bottle of cheap Gin and the odd giraffe."
~Tortuf

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chicklegirl
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# 11741

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Thanks, Pigwidgeon--it's nice to be back. [Cool]

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If you want to be happy, be.
~ Henry David Thoreau

Posts: 916 | From: Sixth Circle of Hell | Registered: Aug 2006  |  IP: Logged



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