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Monday, January 30, 2012

Mitt Watch - Everything But The Monocle

Jan 30th, 2012
by F. Grey Parker

It's still, and for the umpteenth time, not the fact that Mitt Romney is among the richest people in the world that bothers large swaths of the American electorate.

What concerns them is how he got the money, why he fails to see that his tax rate is unfair and whether or not he actually possesses any empathy for the people who, to paraphrase Capra's George Bailey, "do most of the working and living and dying" in this country.

Just before the release of his single year's worth of tax papers last week (which raised more questions than they answered), John Hayward was stunned by Romney's disposition on these issues:

"Now he’s got the worst of all worlds, as the information he formerly guarded closely is made public, for the most obviously desperate of reasons. He looks both disingenuous and weak. The only way he could have made this worse would have been appearing on Fox News Sunday wearing a top hat and monocle."

This isn't some writer at the Nation or ThinkProgress; This is John Hayward of hyper-conservative Human Events magazine.

Martin Peretz poses a question:

"Will there be some sort of political crisis in the Republican party? It isn't that the G.O.P. delegates or voters are allergic to zillionaires. They may be their heroes. But a large part of the party base is in the working class, unionized and non-unionized, service laborers and folk who toil in the fields, local store tenders, people who work for Walmart or Family Dollar, etc. Many of these people are, to say the least, underemployed or underpaid or both. That is the culture of their toil. They must believe in capitalism even though it hasn't made them rich or comfortable. They also seem to have accepted the truism that capital gains taxes are inimical to national growth, which means inimical to the growth of business, which means inimical to the growth of personal portfolios, and on and on.

I am persuaded by some of this. That is, I am persuaded that people who invest in risky businesses need to have some assurance that, if their investments are successful and have been smartly husbanded, they will retain a goodly share of the profits. And, as the narrative would go, invest some of that in new ventures and enterprises. But a decent society needs an ethos of solidarity between those who "have lots" because they've invested sagely and those who "have not." Frankly, I cannot put myself into the mental set of those who resent subventions to ordinary folk and think it perfectly alright to devise a tax code that protects investors from the vicissitudes of the markets and protects also descendants of the initial investors down to the umpteenth generation."

After 30 years of trickle down mantras failing to result in much substantive benefit to them, the GOP base has every reason to turn on their masters. After all, they are ordinary people... that doesn't make them stupid. Exactly how many more generations have to wait for this philosophy's practical application to bear sweeter fruit?

Over at The National Review, Reihan Salam can't even muster a defense of Mitt Romney's business career without admitting to some terrible truths:

"The plaintiffs against free enterprise are not just a handful of politicians, but a growing number of American voters who think corporate elites have jeopardized a social contract that once guaranteed, as Bill Clinton put it, that “if you work hard and play by the rules, you ought to have a decent life and a chance for your children to have a better one.”

There is some reason to believe that in the 21st century, that contract has expired. Over the last decade, job destruction has outpaced job creation in the private sector."

Again, this is from Salam's argument in favor of creative destruction as practiced by Bain Capital.

From left to right and for the first time in many years, the very nature of our version of capitalism is a matter of debate. A majority of registered Republicans now see income inequality as a major issue.

This is a start. Still, the public is not working with the information that they need. One of the great errors in coverage of Mitt Romney's private sector career has been the media's willingness to conflate private equity with venture capitalism. What Romney was really skilled at was not venture capitalism. Most observers seem not to realize that these are not the same things.

A few weeks ago, noted investor Robert Finkel had heard enough:

"Having spent my 25 year career investing private equity and venture capital, I could not stay silent to the persistent mischaracterizations of venture capital and private equity.

While the electorate, congress and some portion of the Presidential debate are pre-“occupied” with Wall Street, the more protest worthy issue is the misinformation being spread about those who do and may create jobs.

Agree or disagree, we all know something isn’t right with both our capitalist system, and our system of representative government. If our society is to be judged by the prospects of its least successful, we should not be proud."

These are the words of an insider; a 'one-percenter' if you will.

Pema Levy explained the difference last week and noted:

"Bain Capital does dip its toe into venture capital as well — but it only represents a fraction of the total business. Through a venture capital arm of the company called Bain Capital Ventures, Bain has investments in dozens of companies for a total portfolio of $1.5 billion — accounting for 2.5% of Bain Capital’s $60 billion portfolio, according to Bain’s website (Bain Capital did not respond to requests for comment on the size of Bain Capital Ventures). The Wall Street Journal’s assessment of Bain Capital found that “after its initial focus on small firms needing capital,” Bain “later shifted toward the potentially more lucrative business of leveraged buyouts — acquiring control of businesses by using investors’ money amplified by debt."

Where venture capital is the stuff of start-ups and corporate investment in nascent enterprises, private equity is about taking control of existing companies and injecting cash flow into their revenue stream in order to take out huge loans. It not just the manipulation of debt that is questionable, it is the fact that it is essentially publicly underwritten.

James Suroweiki writes:

"Debt is also valuable to private-equity firms because the government subsidizes their borrowing—corporate interest payments on debt are tax-deductible, while dividend payments (which you can think of as payments on equity) are not. And this tax-subsidized borrowing has been a key part of their success over the years." 

Yesterday, Rep. Paul Ryan (R-WI), in classic form, defended the manner in which Romney acquired his wealth because it's "legal." That, in his mind, is all the justification anyone should need.

Wendy Gittleson is righteously pissed:

"This is an argument I hear often. “Romney’s not breaking any laws, so shut up,” or something like that. With what I know now, I can’t argue that Romney has broken the law, but that’s not the point. The very fact that Romney’s not breaking any laws is precisely the point. Romney, whether or not he becomes President, is in the economic bracket that makes the laws..."

"Paul Ryan is a lawmaker. It is his job to try to correct injustices. The fact that Mitt Romney pays less than 14% in taxes is legal, but it is unjust. The fact that Bain Capital killed off thousands of jobs to appease a few shareholders is legal, but it is unjust. To sit back and shrug his shoulders and say, “It’s moral cause it’s legal,” is both a copout and proof that Ryan is not doing the job that the taxpayers pay him to do."

Let's face it, this is the real argument our nation has only just begun to have. This is not the "free market" at work. This is the very wealthy buying favorable treatment in the form of regulation. 

Even pundits on the right have been unable to resist making Mitt Romney/Gordon Gekko analogies. I would go further. What Bain and other private equity firms are engaged in looks less like Oliver Stone's "Wall Street" than it does Scorsese's "Goodfellas." 
Uncle Paulie gets a piece of the restaurant and runs up bills on their credit. Uncle Paulie takes his cut. If a point is reached when there is no more to squeeze? Uncle Paulie burns the joint to the ground. It's rigged. It's a fix. 
However, in the case of private equity... it's legal.

And, it's Mitt Romney's Bain.

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