What Mitt Romney did at Bain Capital is, so far as I know, perfectly legal.
It is legal, though, only because of the difficulty of crafting a law that criminalizes intentionally taking advantage of loopholes in the bankruptcy system to suck public money into private pockets. (Any such law would probably be unconstitutionally overinclusive. I've tried to draft them; it's nasty.) Punishing that sort of behavior is not the job of the criminal justice system, but of the political system.
Consider this analogy: it would be perfectly legal for Mitt Romney to use his wealth to buy up every animal in every animal shelter in the country, hire a team of veterinarians on retainer, and put them all to death on his birthday. It's just not the kind of thing that someone running for office would normally do. The electorate, if it knew, would frown on it.
The same would be true for the politician who cornered the market on critical vaccines and then demanded an extortionate price from society for helping people stay alive from preventable illnesses. You can do it -- plenty of capitalists and cronies have done things like it. But you have to expect to hate you for it.
Now it is time for Mitt Romney to step into the dock of public opinion and answer for what he did. I'll focus on just one example: Bain Capital's profit model depended in part on the ability to, after sucking all of the good "juice" from a company, declare bankruptcy and thus void all of the companies contracts -- including its pension obligations.
This is about as cruel as it gets in commerce. And the questions to ask Mitt Romney are: When did he know that this was what he could do through Bain Capital, and when did he decide to do it?
Think about it: you have workers who put in 40 years or more working for a company, whose plans for retirement are bound up in the expectation of its honoring its commitments, and then you pull the rug out from underneath them. This is so ugly, in fact, then when it happens the government will in some cases take over a portion of that pension obligation.
That, of course, means that an unscrupulous -- not "corrupt," but merely unscrupulous -- businessman can bankrupt a company and void its pension obligations, secure in the knowledge that the workers won't really bear the full brunt of its actions. Instead, the financial pain will be spread out among the public. In similar circumstances, ones where criminal law does apply, we have another name for this sort of action: "insurance fraud." But a big corporation can get away with things in a bankruptcy court that an individual can't get away with in normal life.
(What, by the way, is supposed to prevent people from doing this sort of thing? Shame. Sadly, Mitt Romney is completely shameless. If he sees a path to a fortune, he doesn't ask whether it's right, he asks whether it will lead to profit, no matter what the costs to others. He's not only proud of that, but he apparently honestly can't understand why everyone else doesn't feel the same way. Maybe this amorality is a good trait for a money manager -- although I find it disgusting and have specifically avoided it in making investments. But this shamelessness is, or ought to be, a terrible trait for a politician -- who is supposed to serve the many rather than the few. This is why Mitt Romney would be an especially terrible President. Seeking economic fairness from him would be like seeking mercy from a jackal.)
A good -- meaning "proficient" (meaning shameless) -- "vulture capitalist" like Mitt Romney is in part out to look for things to loot. Usually this means companies, but it can also mean government agencies that will cover one's losses. In the case of Bain Capital, one pot of money to loot was found in the Pension Benefit Guaranty Corporation, or PBGC.
As explained at the link, the PBGC exists to
encourage the continuation and maintenance of voluntary private defined benefit pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at the lowest level necessary to carry out its operations. Subject to other statutory limitations, the PBGC insurance program pays pension benefits up to the maximum guaranteed benefit set by law to participants who retire at age 65 ($54,000 a year as of 2011). The benefits payable to insured retirees who start their benefits at ages other than 65, or who elect survivor coverage, are adjusted to be equivalent in value.
In other words, if you bust your pension program -- something that was envisioned when the PBGC was set up in 1974 as being a result of a good faith commercial effort that failed, not as an intentional scheme to divert free money from others into one's own pockets -- your workers will still get at least a share of their pension due.
Sucking the profit out of a company because you know that the PBGC will cover its pension obligation is not illegal, but morally it's the equivalent of not getting car insurance because you know that anyone you hit would be covered by an "uninsured motorist" payout. See, no one really gets hurt, right? Only "everybody" gets hurt.
Now you will probably heard slimy, smarmy Romney spokespersons proclaim loudly that Bain Capital never tapped into tax dollars to cover its pension. This is both true and enormously, ridiculously, hideously misleading.
You see, the PBGC is not funded by taxpayers. It's funded by:
- Insurance premiums paid by sponsors of defined benefit pension plans
- Assets held by the pension plans it takes over
- Recoveries of unfunded pension liabilities from plan sponsors' bankruptcy estates
- Investment income
Now, if you have a vulture capitalist that was really good at sucking the value out of a targeted company, you're not going to have much left in company assets and bankruptcy estates, and you're actually sucking profits from investments out of the PBGC. (There are also technical issues, discussed at the link, on the PGBC's priority among creditors, which is not necessarily high enough to get a dime.) That means that -- unless the taxpayers have to subsidize the PBGC, and as more companies do what Bain did we can watch for this to happen before long -- all of the money that ended up in Bain Capital's pockets came from insurance premiums paid by sponsors of defined benefit pension plans.
That right -- Bain was sucking the money out of other businesses, big and small. (Don't cry for them; they passed the costs off to us -- or maybe they too went bankrupt and shunted the costs to their creditors.) That's what "Mr. Capitalist" was up to at Bain -- without shame. "The pension fund was just sitting there." Mitt Romney is Doonesbury's Uncle Duke -- who uttered that phrase -- without the drug use. (That just leaves more mental energy for rapaciousness.) When you hear Romney talking about helping business, spare a few thoughts for the poor PBGC.
(By the way, Republicans have argued that the PBGC should be destroyed because it is a socialistic program -- as you'll see from the description of its keeping retirees alive. So this just "heightens the contradictions in the system," from their right-wing-Leninst viewpoint. Of course, they don't recognize that the two things that their plans rely upon -- corporate bankruptcy law and the limited liability inherent in the corporate form, are no less artificial and no less perversions of the natural economic order. In the natural economic order, Mitt Romney ends up being eaten by starving and angry peasants.)
This next quote is a bit technical, so feel free to skip it:
In National Labor Relations Bd. v. Bildisco, 465 U.S. 513 (1984), the U.S. Supreme Court ruled that Bankruptcy Code section 365(a) "includes within it collective-bargaining agreements subject to the National Labor Relations Act, and that the Bankruptcy Court may approve rejection of such contracts by the debtor-in-possession upon an appropriate showing." The ruling came in spite of arguments that the employer should not use bankruptcy to breach contractual promises to make pension payments resulting from collective bargaining.
(And that is how pensions become a "bait and switch" for companies wrecking unions.)
Conservatives are yelping these days that the criticism of Romney as regards Bain Capital and PBGC is illegitimate. Here, check this out from the National Review Online, to whose disingenuous story "No, Bain Did Not Get a Bailout" I'll offer a rare link:
The Pension Benefit Guaranty Corporation ... charges pension funds a fee and guarantees pension benefits in the event that a fund becomes insolvent. That was the case with GS Technologies, a failed steel mill in which Bain was a major shareholder. When the company collapsed in 2001 (after Romney had left Bain, incidentally), its pension fund was severely underfunded, and the PBGC ponied up $44 million to make sure that pension checks got cut. Which is to say, the PBGC did what the PBGC was there to do. The PBGC is a less well-run organization than the FDIC, and its standards probably ought to be higher than they are, but those facts do not tell us anything about Bain’s investment in GS Technologies.
One might argue that the PBGC creates a moral hazard, encouraging managements to intentionally underfund pensions while offloading the risk onto the federal agency, but it would be difficult to make the case that this describes Bain’s actions in the GS Technologies case. Simply put, the U.S. steel industry got wiped out by lean and wily foreign competitors in those years: Half of the U.S. steel industry went belly-up around the turn of the century. Bain had both good luck and bad luck with its steel investments. Some of the firms thrived, and some did not. That is the nature of investing, which is another word for risk-taking.
Yeah, but it's not "risk-taking" if you deliberately take advantage of the fact that someone else is going to pick up the tab. The author, Kevin D. Williamson, says it would "be difficult to make the case" that Bain succumbed to the "moral hazard" of free availability of a subsidy on a deal in which Bain made $10 million, but I find it to be not difficult at all. Here, we can do it with a few questions, if Mitt will sit still for them:
(1) Mr. Romney, did you know as CEO of Bain Capital that the PBGC would cover the costs of the failed pension plan if GS Technologies went bankrupt?
(1A) If so, when? (1B) If not, why?
(2) Did the availability of the PBGC coverage play any role in the decision of Bain Capital to make risky investments?
(3) Did you have any moral qualms about using money from a government program to turn your own losses into profits?
(4) Was this the sort of business maneuver that justified your high compensation?
That may not make an airtight case, but it will do for a start.
If you want to know more, you can start with Pat Garofalo's story from Think Progress, which brings up yet another example of this activity and points towards more:
Bain’s modus operandi was to invest in companies, leverage them up with debt, and then sell them off for scrap, allowing Bain’s investors to walk away with huge profits while the companies in which Bain invested wound up in bankruptcy, laying off workers and reneging on benefits.
Last week, Reuters profiled one company, Worldwide Grinding Systems, that went belly up after Bain invested in it. The company not only lost 750 jobs, but the federal government had to come in to bail out its pension fund, while Bain walked away with millions in profits.
And according to an analysis by the Wall Street Journal, this was far from an isolated incident. In fact, 22 percent of the companies in which Bain invested wound up either in bankruptcy or shutting their doors entirely, while Bain itself has made billions of dollars for its investors.
Mitt Romney is still more than a year away from his inauguration, if that day ever comes, and yet regarding looting the PBGC we can already roll out a version those famous "Watergate" questions to ask him:
What did the Aspiring President know? And when did the Aspiring President know it?
I'd add one other: "And why did he think that this was OK?"
10:31 AM PT: I'm going to port up an entire comment from We Shall Overcome below:
"But why Gordon, why wreck Blue Star?"
"Because it was wreckable, alright!! I took another look and changed my mind ..."
That's an exchange between Bud Fox (Charlie Sheen) and Gorden Gekko (Michael Douglass) in Oliver Stone's Wall Street, a story about a company with an overfunded pension targeted by a leveraged buyout artist who with promises of turning around a failing company tricks an unsuspecting and ambitious son into serving up his father's union and their pensions as dinner for the Wall Street money machine.
If the diarist is right, then Gordon Gekko is EXACTLY who Mitt Romney is.
Self-proclaimed free-marketeers still sometimes quote Gekko for his aphorism: "Greed is good. Greed works." They forget that that moral justification was for show, for public consumption. By the end, we viewers find out the actual truth:
Gordon Gekko was a crook.
6:25 PM PT: Commenter Upper West is being pushy and wants me to explain this:
I think you should explain clearly and thoroughly how Bain makes the money:
1. Bain borrows, e.g., $10B from banks, uses it to buy the Co. and is paid, e.g., a $50M fee from the loan.
2. The Co. pledges all of its assets as Collateral for that loan.
3. The Co. fails and files bankruptcy.
4. The Co. rejects the pension agreements and CB agreements.
5. The Banks take the pledged assets.
6. Bain keeps the 50M fee.