The election of 2012 raises two perplexing questions. The first is how the GOP could put up someone for president who so brazenly epitomizes the excesses of casino capitalism that have nearly destroyed the economy and overwhelmed our democracy. The second is why the Democrats have failed to point this out.
The White House has criticized Mitt Romney for his years at the helm of Bain Capital, pointing to a deal that led to the bankruptcy of GS Technologies, a Bain investment in Kansas City that went belly up in 2001 at the cost of 750 jobs. But the White House hasn't connected Romney's Bain to the larger scourge of casino capitalism. Not surprisingly, its criticism has quickly degenerated into a "he said, she said" feud over what proportion of the companies that Bain bought and loaded up with debt subsequently went broke (it's about 20 percent), and how many people lost their jobs relative to how many jobs were added because of Bain's financial maneuvers (that depends on when you start and stop the clock). And it has invited a Republican countercharge that the administration gambled away taxpayer money on its own bad bet, the Solyndra solar panel company.
But the real issue here isn't Bain's betting record. It's that Romney's Bain is part of the same system as Jamie Dimon's JPMorgan Chase, Jon Corzine's MF Global and Lloyd Blankfein's Goldman Sachs -- a system that has turned much of the economy into a betting parlor that nearly imploded in 2008, destroying millions of jobs and devastating household incomes. The winners in this system are top Wall Street executives and traders, private-equity managers and hedge-fund moguls, and the losers are most of the rest of us. The system is largely responsible for the greatest concentration of the nation's income and wealth at the very top since the Gilded Age of the 19th century, with the richest 400 Americans owning as much as the bottom 150 million put together. And these multimillionaires and billionaires are now actively buying the 2012 election -- and with it, American democracy.
The biggest players in this system have, like Romney, made their profits placing big bets with other people's money. If the bets go well, the players make out like bandits. If they go badly, the burden lands on average workers and taxpayers. The 750-people at GS Technologies who lost their jobs thanks to a bad deal engineered by Romney's Bain were a small foreshadowing of the 15 million who lost jobs after the cumulative deal-making of the entire financial sector pushed the whole economy off a cliff. And relative to the cost to taxpayers of bailing out Wall Street, Solyndra is a rounding error.
Connect the dots of casino capitalism, and you get Mitt Romney. The fortunes raked in by financial dealmakers depend on special goodies baked into the tax code such as "carried interest," which allows Romney and other partners in private-equity firms (as well as in many venture-capital and hedge funds) to treat their incomes as capital gains taxed at a maximum of 15 percent. This is how Romney managed to pay an average of 14 percent on more than $42 million of combined income in 2010 and 2011. But the carried-interest loophole makes no economic sense. Conservatives try to justify the tax code's generous preference for capital gains as a reward to risk-takers -- but Romney and other private-equity partners risk little, if any, of their personal wealth. They mostly bet with other investors' money, including the pension savings of average working people.
Another goodie allows private-equity partners to sock away almost any amount of their earnings into a tax-deferred IRA, while the rest of us are limited to a few thousand dollars a year. The partners can merely low-ball the value of whatever portion of their investment partnership they put away -- even valuing it at zero -- because the tax code considers a partnership interest to have value only in the future. This explains how Romney's IRA is worth as much as $101 million. The tax code further subsidizes private equity and much of the rest of the financial sector by making interest on debt tax-deductible, while taxing profits and dividends. This creates huge incentives for financiers to find ways of substituting debt for equity and is a major reason America's biggest banks have leveraged America to the hilt. It's also why Romney's Bain and other private-equity partnerships have done the same to the companies they buy.
These maneuvers shift all the economic risk to debtors, who sometimes can't repay what they owe. That's rarely a problem for the financiers who engineer the deals; they're sufficiently diversified to withstand some losses, or they've already taken their profits and moved on. But piles of debt play havoc with the lives of real people in the real economy when the companies they work for can't meet their payments, or the banks they rely on stop lending money, or the contractors they depend on go broke -- often with the result that they can't meet their own debt payments and lose their homes, cars and savings.
It took more than a decade for America to recover from the Great Crash of 1929 after the financial sector had gorged itself on debt, and it's taking years to recover from the more limited but still terrible crash of 2008. The same kinds of convulsions have occurred on a smaller scale at a host of companies since the go-go years of the 1980s, when private-equity firms like Bain began doing leveraged buyouts -- taking over a target company, loading it up with debt, using the tax deduction that comes with the debt to boost the target company's profits, cutting payrolls and then reselling the company at a higher price.
Sometimes these maneuvers work, sometimes they end in disaster; but they always generate giant rewards for the dealmakers while shifting the risk to workers and taxpayers. In 1988 drugstore chain Revco went under when it couldn't meet its debt payments on a $1.6 billion leveraged buyout engineered by Salomon Brothers. In 1989 the private-equity firm of Kohlberg, Kravis, Roberts completed the notorious and ultimately disastrous buyout of RJR Nabisco for $31 billion, much of it in high-yield ("junk") bonds. In 1993 Bain Capital became a majority shareholder in GS Technologies and loaded it with debt. In 2001 it went down when it couldn't meet payments on that debt load. But even as these firms sank, Bain and the other dealmakers continued to collect lucrative fees -- transaction fees, advisory fees, management fees--sucking the companies dry until the bitter end. According to a review by the New York Times of firms that went bankrupt on Romney's watch, Bain structured the deals so that its executives would always win, even if employees, creditors and Bain's own investors lost out. That's been Big Finance's MO.
By the time Romney co-founded Bain Capital in 1984, financial wheeling and dealing was the most lucrative part of the economy, sucking into its Gordon Gekko-like maw the brightest and most ambitious MBAs, who wanted nothing more than to make huge amounts of money as quickly as possible. Between the mid-1980s and 2007, financial-sector earnings made up two-thirds of all the growth in incomes. At the same time, wages for most Americans stagnated as employers, under mounting pressure from Wall Street and private-equity firms like Bain, slashed payrolls and shipped jobs overseas.
The 2008 crash only briefly interrupted the bonanza. Last year, according to a recent Bloomberg Markets analysis, America's top 50 financial CEOs got a 20.4 percent pay hike, even as the wages of most Americans continued to drop. Topping the Bloomberg list were two of the same private-equity barons who did the RJR Nabisco deal a quarter-century ago -- Henry Kravis and George Roberts, who took home $30 million each. According to the 2011 tax records he released, Romney was not far behind.
We've entered a new Gilded Age, of which Mitt Romney is the perfect reflection. The original Gilded Age was a time of buoyant rich men with flashy white teeth, raging wealth and a measured disdain for anyone lacking those attributes, which was just about everyone else. Romney looks and acts the part perfectly, offhandedly challenging a GOP primary opponent to a $10,000 bet and referring to his wife's several Cadillacs. Four years ago he paid $12 million for his fourth home, a 3,000-square-foot villa in La Jolla, Calif., with vaulted ceilings, five bathrooms, a pool, a Jacuzzi and unobstructed views of the Pacific. Romney has filed plans to tear it down and replace it with a home four times bigger.
We've had wealthy presidents before, but they have been traitors to their class -- Teddy Roosevelt storming against the "malefactors of great wealth" and busting up the trusts, Franklin Roosevelt railing against the "economic royalists" and raising their taxes, John F. Kennedy appealing to the conscience of the nation to conquer poverty. Romney is the opposite: he wants to do everything he can to make the superwealthy even wealthier and the poor even poorer, and he justifies it all with a thinly veiled social Darwinism.
Not incidentally, social Darwinism was also the reigning philosophy of the original Gilded Age, propounded in America more than a century ago by William Graham Sumner, a professor of political and social science at Yale, who twisted Charles Darwin's insights into a theory to justify the brazen inequality of that era: survival of the fittest. Romney uses the same logic when he accuses President Obama of creating an "entitlement society" simply because millions of desperate Americans have been forced to accept food stamps and unemployment insurance, or when he opines that government should not help distressed homeowners but instead let the market "hit the bottom," or enthuses over a House Republican budget that would cut $3.3 trillion from low-income programs over the next decade. It's survival of the fittest all over again. Sumner, too, warned against handouts to people he termed "negligent, shiftless, inefficient, silly, and imprudent."
When Romney simultaneously proposes to cut the taxes of households earning over $1 million by an average of $295,874 a year (according to an analysis of his proposals by the nonpartisan Tax Policy Center) because the rich are, allegedly, "job creators," he mimics Sumner's view that "millionaires are a product of natural selection, acting on the whole body of men to pick out those who can meet the requirement of certain work to be done." In truth, the whole of Republican trickle-down economics is nothing but repotted social Darwinism.
The Gilded Age was also the last time America came close to becoming a plutocracy -- a system of government of, by and for the wealthy. It was an era when the lackeys of the very rich literally put sacks of money on the desks of pliant legislators, senators bore the nicknames of the giant companies whose interests they served ("the senator from Standard Oil"), and the kings of finance decided how the American economy would function.
The potential of great wealth in the hands of a relative few to undermine democratic institutions was a continuing concern in the 19th century as railroad, oil and financial magnates accumulated power. "Wealth, like suffrage, must be considerably distributed, to support a democratick republic," wrote Virginia Congressman John Taylor as early as 1814, "and hence, whatever draws a considerable proportion of either into a few hands, will destroy it. As power follows wealth, the majority must have wealth or lose power." Decades later, progressives like Louis Brandeis saw the choice starkly: "We may have democracy, or we may have wealth concentrated in the hands of a few, but we can't have both."
The reforms of the Progressive Era at the turn of the 20th century saved American democracy from the robber barons, but the political power of great wealth has now resurfaced with a vengeance. And here again, Romney is the poster boy. Congress has so far failed to close the absurd carried-interest tax loophole, for example, because of generous donations by Bain Capital and other private-equity partners to both parties.
In the 2012 election, Romney wants everything Wall Street has to offer, and Wall Street seems quite happy to give it to him. Not only is he promising lower taxes in return for its money; he also vows that, if elected, he'll repeal what's left of the Dodd-Frank financial reform bill, Washington's frail attempt to prevent the Street from repeating its 2008 pump-and-dump. Unlike previous elections, in which the Street hedged its bets by donating to both parties, it's now putting most of its money behind Romney. And courtesy of a Supreme Court majority that seems intent on magnifying the political power of today's robber barons, that's a lot of dough. As of May, 31 billionaires had contributed between $50,000 and $2 million each to Romney's super-PAC, and in June another -- appropriately enough, a casino magnate -- gave $10 million, with a promise of $90 million more. Among those who have contributed at least $1 million are former associates from Romney's days at Bain Capital and prominent hedge-fund managers.
To be sure, Romney is no worse than any other casino capitalist of this new Gilded Age. All have been making big bets -- collecting large sums when they pay off and imposing the risks and costs on the rest of us when they don't. Many have justified their growing wealth, along with the growing impoverishment of much of the rest of the nation, with beliefs strikingly similar to social Darwinism. And a significant number have transformed their winnings into the clout needed to protect the unrestrained betting and tax preferences that have fueled their fortunes, and to lower their tax rates even further. Wall Street has already all but eviscerated the Dodd-Frank Act, and it has even turned the so-called Volcker Rule -- a watered-down version of the old Glass-Steagall Act, which established a firewall between commercial and investment banking -- into a Swiss cheese of loopholes and exemptions.
But Romney is the only casino capitalist who is running for president, at the very time in our nation's history when these views and practices are a clear and present danger to the well-being of the rest of us -- just as they were more than a century ago. Romney says he's a job-creating businessman, but in truth he's just another financial dealmaker in the age of the financial deal, a fat cat in an era of excessively corpulent felines, a plutocrat in this new epoch of plutocrats. That the GOP has made him its standard-bearer at this point in American history is astonishing.
So why don't Democrats connect these dots? It's not as if Americans harbor great admiration for financial dealmakers. According to the newly released 25th annual Pew Research Center poll on core values, nearly three-quarters of Americans believe "Wall Street only cares about making money for itself." That's not surprising, given that many are still bearing the scars of 2008. Nor are they pleased with the concentration of income and wealth at the top. Polls show a majority of Americans want taxes raised on the very rich, and a majority are opposed to the bailouts, subsidies and special tax breaks with which the wealthy have padded their nests.
Part of the answer, surely, is that elected Democrats are still almost as beholden to the wealthy for campaign funds as the Republicans, and don't want to bite the hand that feeds them. Wall Street can give most of its largesse to Romney this year and still have enough left over to tame many influential Democrats (look at the outcry from some of them when the White House took on Bain Capital).
But I suspect a deeper reason for their reticence is that if they connect the dots and reveal Romney for what he is -- the epitome of what's fundamentally wrong with our economy -- they'll be admitting how serious our economic problems really are. They would have to acknowledge that the economic catastrophe that continues to cause us so much suffering is, at its root, a product of the gross inequality of income, wealth and political power in America's new Gilded Age, as well as the perverse incentives of casino capitalism.
Yet this admission would require that they propose ways of reversing these trends -- proposals large and bold enough to do the job. Time will tell whether today's Democratic Party and this White House have the courage and imagination to do it. If they do not, that in itself poses almost as great a challenge to the future of the nation as does Mitt Romney and all he represents.
ROBERT B. REICH, Chancellor's Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers "Aftershock" and "The Work of Nations." His latest is an e-book, "Beyond Outrage." He is also a founding editor of the American Prospect magazine and chairman of Common Cause.
Follow Robert Reich on Twitter: www.twitter.com/RBReich
Rep. Gwen Moore: State Waivers for TANF Can Provide True Pathway Out of Poverty
 |
 |
|
| Obama | Romney | |
|---|---|---|
| Electoral Votes (270 to win) |
332 | 206 |
| Obama | Romney | |
|---|---|---|
| Total | 65,899,660 | 60,932,152 |
| Percent | 51.1% | 47.2% |
| Democrats* | Republicans | |
|---|---|---|
| Current Senate | 53 | 47 |
| Seats gained or lost | +2 | -2 |
| New Total | 55 | 45 |
| Democrats | Republicans | |
|---|---|---|
| Seats won | 201 | 234 |
"His (Sandy Weill's) achievement required political clout, and that, too, is on display. Soon after he formed Citigroup, Congress repealed a Depression-era law that prohibited goliaths like the one Mr. Weill had just put together anyway, combining commercial and investment banking, insurance and stock brokerage operations. A trophy from the victory — a pen that President Bill Clinton used to sign the repeal — hangs, framed, near the magazine covers. His achievement required political clout, and that, too, is on display. Soon after he formed Citigroup, Congress repealed a Depression-era law that prohibited goliaths like the one Mr. Weill had just put together anyway, combining commercial and investment banking, insurance and stock brokerage operations. A trophy from the victory — a pen that President Bill Clinton used to sign the repeal — hangs, framed, near the magazine covers. "
http://www.nytimes.com/2007/07/15/business/15gilded.html?_r=1&pagewanted=all
Romney was NOT in the derivatives market, creating personal wealth from fancy mathematical risk models, as were Obama donors and Democrat operatives at Goldman Sacs.
Romney ran a private equity company that provided capital and advice to struggling businesses to save them. If it weren't for Romney, the companies he invested in would have been out of business and their employees would have been unemployed. Romney's success rate was something like 85%.
Compare this to Obama, who is trying to run a government equity business:
- Chrysler -- Thanks to Obama, Chrysler is no longer part of the Detroit Big Three. Chrysler is now a foreign owned auto company.
- Fisker -- $529 million of tax money wasted on a company that builds cars in FINLAND that only rich people can afford (they cost $107,000 each).
- Solyndra -- $535 million of tax money wasted on a company with an expensive, unworkable solar technology in a very competitive imarket.
On and on...
Here are the three major differences between Romney's private equity firm and Obama's government equity follies:
1.) Romney attracted people who voluntarily invested their own money, while Obama has pilfered our tax money for his hair brained schemes.
2.) Romney invested money based on the market, financial and operational merits of the company, while Obama sent our tax money to companies based on political considerations -- Democrat Party contributors, bundlers, lawyers, and operatives got rich off us lowly taxpayers.
3.) Romney was wildly successful, while Obama
"To understand the confusing conditions under which Mitt Romney left Bain Capital, you need to understand the unusual deal he struck when he was hired to run it.
Bill Bain’s idea was simple. His firm, Bain & Co., was making lots of money by advising companies in exchange for fees. The fact that it was making money was proof that its staff understood what it took to make struggling companies successful. So why not eliminate the middleman? Rather than advising companies for a fee only to watch the current management reap the big profits, Bain Capital would take over troubled companies, manage them to profitability and reap the rewards itself. And Bill Bain knew exactly who he wanted to run this venture: Mitt Romney.
And then Romney stunned his boss by saying no."
http://www.washingtonpost.com/business/economy/romneys-risk-free-career-transitions/2012/07/16/gJQAVtJupW_story.html
Look, those who simply want to give this administration a pass after what happened, yes even after factoring in Republican obstructionism, have not fully appreciated the stakes. The President cannot win this election without coming clean about why he did us like this. Trust me, many people lost their homes as he watched. He could have stopped it. Only he could have, and he didn't. Americans are savvy, they are basically waiting till election day, unless Romney is discovered to be a masquerade, he has a shot at it. That's not what I prefer, that's calling it like it is.
Lazy? You bet. One thing that Reich isn't big on trumpeting is the lack of real effort by American citizens. Get rich quick, work little but be sneaky and fortunes are there to be had. Hard work and long term investment, money or effort, isn't glamorous and people in America aren't wanting to see the mirror that shows the fat lazy couch potatoes that the country has become.
Thanks for that great article.
The Gilded Age was a great time for workers. Real wages increased for labor, as did working conditions despite the harsh transition from a low-productivity agrarian society to a high-productivity industrialized society. With the increases in population densities and a spike in immigration, problems were sure to occur, but the welfare of the worker improved during those halcyon days. In fact, I think there has never been a greater increase in the wages and standards of living for as many Americans since. Thanks or pointing out that Mitt could bring us back to such a high-growth period that benefits labor as much as it does owners of capital.
A few other points:
You state, ‘
You state, ‘But the real issue here isn't Bain's betting record. It's that Romney's Bain is part of the same system as Jamie Dimon's JPMorgan Chase, Jon Corzine's’
TRANSLATION: ‘Meaning Romney and Bain have done nothing wrong so the only thing we can resort to is to blame them for being part of a ‘group’ that has done perceived harm to the US…kinda like blaming a Black person because he belongs to a group people in which a few in his group rob liquor stores and thus by association HE must rob liquor stores’
You state, ‘The biggest players in this system have, like Romney, made their profits placing big bets with other people's money. ‘
So again....in terms of better wage growth, no time beat the Gilded Age, And it was not because people were forcing them to work...they wanted to work and they did. Can you say the same now? People want work and the want wage growth....are they getting it form Obama and his policies?
Kai
You state, ‘Romney managed to pay an average of 14 percent on more than $42 million of combined income in 2010 and 2011.’
TRANSLATION: ‘Which is much higher than the 11% average for tax filers and is much higher than the 50% of tax filers that pay no federal income tax, thus we should be thanking him for being a productive American, creating jobs and paying taxes, while doing what we can to increase the tax rate for those Americans currently not paying their fair share, namely the two lowest economic quintiles of Americans.
You state, ‘It took more than a decade for America to recover from the Great Crash of 1929 after the financial sector had gorged itself on debt…’
TRANSLATION: Actually, the Fed caused Depression of the 1930’s, was the result of more bad monetary policies. As with the recession of 2008, consumers, not financial institutions, are who drove the gluttonous demand for debt. More importantly efforts to use Keynesian gimmicky in both the Great Depression and Great Recession ended in failure since no serious business person hires for long-term sustainable jobs based on short-term unsustainable Keynesian nonsense.
We need another Gilded Age, when incomes soared, and the economy roared…despite being a recession. Thanks for making the case to vote for Mitt Romney.
Kai
You might also point out that the money Mr Romney's company made bets with voluntarily given to that company by investors hoping to make a profit. On the other hand, the money Mr Obama made bets with was siezed by force in the form of taxes extorted under colour of law from citizens hoping to stay out of prison.
As to a business hiring that is caused by increased demand for the gods and services they produce not because of a tax cut or the anticipation of one.
why no mention of the continuing loss to the taxpayer due to the auto bailout...
guess your idea of profitable is different than mine...when you continue to lose money i call that failure not success...
Plus, GM is profitable and has paid back most of it's bailout.
gm is not profitable and never will be until it buys back the 500,000,000 shares the taxpayer holds and they buy them back at 60 dollars a share...
It's a strategy to take away the one thing that Romney that Obama lacks -- business experience.
Romney has had more success outside politics than Obama ever has. Obama's success is all political.
The criticisms coming out of the Obama campaign just demonstrate that Obama doesn't really understand business. No surprise there.
The likes of Rupert Murdoch and the Koch Brothers, to name a few of the infamous heroes of the Republican Party's reactionary right, would not have been viewed as such in Theodore Roosevelt's day. Perhaps this is why they yelp so loudly for less government. That light they see at the end of the tunnel is not daylight, but rather the headlight from an oncoming train. Of course, they're trying to stop it.
"TR frankly admitted that he was engaged in a 'campaign against privilege' that was 'fundamentally an ethical movement.' He targeted stock gamblers 'making large sales of what men do not possess,' writers who 'act as the representatives of predatory wealth' and 'men of wealth, who find in the purchased politician the most efficient instrument of corruption.' He reserved his strongest warnings for these multimillionaires."
Read more at
http://lifeamongtheordinary.blogspot.com/2012/07/unnatural-alliance-part-two.html