The Great Recession was a stick in the eye, a screaming naked nut in the highway median, the biggest garish neon sign in history saying that conservatives really really hate capitalism. That may sound shrill or hyperbolic, but anyone to the left of conservatives should get used to saying so. It is the truth. They and their policies – along with help from some Democrats as usual, created the vulture economy, the crony capitalism society or the corporate collectivist society. An economy that makes sure wealth and the power that goes with it, is concentrated in the hands of 10% of the people. Where Marxism concentrated power in the hands of a government collective, Republicans have done much the same thing, except replacing the Marxist collective with a corporate one. On the surface it even looks to some people like we still live in a free market society. Capitalism or a free markets economy is good stuff. Well known historical experiments have tried to do better and been colossal failures. The text-book definition is something like an economic model where business creates products and services, and competes in selling goods and services. Workers are provide the labor which creates capital, and have certain rights which employers should respect despite some unequal distribution of power. Workers are entitled to respect and dignity. That may seem simplistic, but workers literally struggled to have those rights for couple of thousand years. Government has a role to play in protecting both workers and business. David Brooks, the resident conservative intellectual at the NYT writes, The Capitalism Debate
Romney is going to have to define a vision of modern capitalism. He’s going to have to separate his vision from the scandals and excesses we’ve seen over the last few years. He needs to define the kind of capitalist he is and why the country needs his virtues.
Let’s face it, he’s not a heroic entrepreneur. He’s an efficiency expert. It has been the business of his life to take companies that were mediocre and sclerotic and try to make them efficient and dynamic. It has been his job to be the corporate version of a personal trainer: take people who are puffy and self-indulgent and whip them into shape.
That’s his selling point: rigor and productivity. If he can build a capitalist vision around that, he’ll thrive. If not, he’s a punching bag.
Brooks and Romney are continuing the conservative movement’s quest to redefine reality to fit the conservative vision. The immoral becomes the new morality. Greed, sleaze, cheating, short cuts, laziness – become virtues. Brooks, Romney and Romney sycophants are in fact defining greed, sleazy business tactics and crony capitalism as the way things should be in the USA. These are the things we should stand for. If such redefining sounds impossible, thank back to the Bush 43 years in which that administration started counting fast food jobs as manufacturing jobs. Suddenly its manufacturing job record did not look so bad. How is or has Romney practiced this corporate socialism, Romney’s Bain Yielded Private Gains, Socialized Losses
What’s clear from a review of the public record during his management of the private-equity firm Bain Capital from 1985 to 1999 is that Romney was fabulously successful in generating high returns for its investors. He did so, in large part, through heavy use of tax-deductible debt, usually to finance outsized dividends for the firm’s partners and investors. When some of the investments went bad, workers and creditors felt most of the pain. Romney privatized the gains and socialized the losses.
What’s less clear is how his skills are relevant to the job of overseeing the U.S. economy, strengthening competitiveness and looking out for the welfare of the general public, especially the middle class.
Thanks to leverage, 10 of roughly 67 major deals by Bain Capital during Romney’s watch produced about 70 percent of the firm’s profits. Four of those 10 deals, as well as others, later wound up in bankruptcy. It’s worth examining some of them to understand Romney’s investment style at Bain Capital.
In 1986, in one of its earliest deals, Bain Capital acquired Accuride Corp., a manufacturer of aluminum truck wheels. The purchase was 97.5 percent financed by debt, a high level of leverage under any circumstances. It was especially burdensome for a company that was exposed to aluminum-price volatility and cyclical automotive production.
Forty-to-one leverage is casino capitalism that hugely magnifies gains and losses. Bain Capital wisely chose to flip the company fast: After 18 months, it sold Accuride, converting its $2.6 million sliver of equity into a $61 million capital gain. That deal, which yielded a 1,123 percent annualized return, was critical to Bain Capital’s early success and led the firm to keep maximizing the use of leverage.
In 1992, Bain Capital bought American Pad & Paper by financing 87 percent of the purchase price. In the next three years, Ampad borrowed to make acquisitions, repay existing debt and pay Bain Capital and its investors $60 million in dividends.
As a result, the company’s debt swelled from $11 million in 1993 to $444 million by 1995. The $14 million in annual interest expense on this debt dwarfed the company’s $4.7 million operating cash flow. The proceeds of an initial public offering in July 1996 were used to pay Bain Capital $48 million for part of its stake and to reduce the company’s debt to $270 million.
From 1993 to 1999, Bain Capital charged Ampad about $18 million in various fees. By 1999, the company’s debt was back up to $400 million. Unable to pay the interest costs and drained of cash paid to Bain Capital in fees and dividends, Ampad filed for bankruptcy the following year. Senior secured lenders got less than 50 cents on the dollar, unsecured lenders received two- tenths of a cent on the dollar, and several hundred jobs were lost. Bain Capital had reaped capital gains of $107 million on its $5.1 million investment.
This is what Brooks calls whipping a company into shape. No valuable goods or services were produced. There was no net gain in jobs. There was no competing for who could produce the best of something. There was no income gain for the employees who became mere pawns in this little game. It was all about people with money and power exploiting the system to exploit the value created by labor for easy profits and socialized losses. Obviously some people think this is a great way, even a patriotic way to run an economy and a country. They feel so strongly about the virtues of corporate socialism, free market vulturism, that there is no name which opponents have not been called. I can understand the cynical self-absorbed Mitt Romneys of America thinking this is all great, but you have blue-collar Americans at anti-Obama rallies hoping that Romney and a conservative Congress can take us even deeper in the abyss of corporate collectivism. They do not care about outsourcing jobs, they do not care about the finer points of free trade, they do not care if the average workers loses even more economic and political power. They do not care that this shift in power is destroying the middle-class, leaving jobs for the extreme ends of the job spectrum – janitors and well trained specialists. They worship at the altar of Romneyism. Conservatives and Romney is no exception claim that too many Americans are lazy, yea that’s the problem. The big gov’mint is handing out all kinds of freebies. Pay no attention to the thieves in four thousand dollar suits, The Republican’s Social-Darwinist Budget Plan
So what’s the guiding principle here? Pure social Darwinism. Reward the rich and cut off the help to anyone who needs it.
Ryan says too many Americans rely on government benefits. “We don’t want to turn the safety net into a hammock that lulls able-bodied people into lives of dependency.”
Well, I have news for Paul Ryan. Almost 23 million able-bodied people still can’t find work. They’re not being lulled into dependency. They and their families could use some help. Even if the economy continues to generate new jobs at the rate it’s been going the last three months, we wouldn’t see normal rates of unemployment until 2017.
And most Americans who do have jobs continue to lose ground. New research by professors Emmanual Saez and Thomas Pikkety show that the average adjusted gross income of the bottom 90 percent was $29,840 in 2010 — down $127 from 2009 and down $4,842 from 2000 — and just slightly higher than it was forty-six years ago in 1966 (all figures adjusted for inflation).
They could use better schools, access to higher education, lower-cost health care, improved public transportation, and lots of other things Ryan and his colleagues are intent on removing.
Meanwhile, America’s rich continue to grow richer — and many of them (and their heirs) are being lulled into lives whose hardest task is summoning the help.
Ryan, Romney and Republicans have been creating this alternate version of reality for decades. That we live in a society that rewards able-bodied Americans for being lazy is as much a myth as Tolkien’s Lord of the Rings. Who is the biggest recipient of welfare in the U.S. Who benefits most from taxes and infrastructure? Who is utterly reliant on government for their survival and historic levels of prosperity? Corporate America and the wealthy, Five Reasons the Super-Rich Need Government More Than the Rest of Us
Wealthy individuals and corporations want us to believe they’ve made it on their own, without the help of government or the American people. Billionaire financier Sanford Weill blustered, “We didn’t rely on somebody else to build what we built.” He was echoing the words of his famous predecessor, the formidable financier J. P. Morgan, who spouted, “I owe the public nothing.”
That’s the bull of Wall Street. There are at least five good reasons why the wealthiest Americans need government as much as the rest of us, and probably more.
In his “People’s History,” Howard Zinn described colonial opposition to inequality in 1765: “A shoemaker named Ebenezer Macintosh led a mob in destroying the house of a rich Boston merchant named Andrew Oliver. Two weeks later, the crowd turned to the home of Thomas Hutchinson, symbol of the rich elite who ruled the colonies in the name of England. They smashed up his house with axes, drank the wine in his wine cellar, and looted the house of its furniture and other objects. A report by colony officials to England said that this was part of a larger scheme in which the houses of fifteen rich people were to be destroyed, as part of ‘a war of plunder, of general levelling and taking away the distinction of rich and poor.'”
That doesn’t happen much anymore. Of course, the super-rich aren’t taking any chances, with panic shelters and James Bond cars and personal surveillance drones. But the U.S. government will be helping them by spending $55 billion on Homeland Security next year, in addition to $673 billion for the military. The police, emergency services, and National Guard are trained to focus on crimes against wealth.
In the cities, business interests keep the police focused on the homeless and unemployed. And on drug users. A “Broken Windows” mentality, which promotes quick fixes of minor damage to discourage large-scale destruction, is being applied to human beings. Wealthy Americans can rest better at night knowing that the police are “stopping and frisking” in the streets of the poor neighborhoods.
2. Laws and Deregulations
The wealthiest Americans are the main beneficiaries of tax laws, property rights, zoning rules, patent and copyright provisions, trade pacts, antitrust legislation, and contract regulations. Tax loopholes allow them to store over $1 trillion in assets overseas.
Their companies benefit, despite any publicly voiced objections to regulatory agencies, from SBA and SEC guidelines that generally favor business, and from FDA and USDA quality control measures that minimize consumer complaints and product recalls.
The growing numbers of financial industry executives have profited from 30 years of deregulation, most notably the repeal of the Glass-Steagall Act. Lobbying by the financial industry has prolonged the absurdity of a zero sales tax on financial transactions.
Big advantages accrue for multinational corporations from trade agreements like NAFTA, with international disputes resolved by the business-friendly World Bank, International Monetary Fund, and World Trade Organization. Federal judicial law protects our biggest companies from foreign infringement. The proposed Trans-Pacific Partnership would put governments around the world at the mercy of corporate decision-makers.
The euphemistically named JOBS Act further empowers business, exempting startups from regulatory accounting requirements.
There are even anti-antitrust measures, such as the licensing rules that allow the American Medical Association to restrict the number of doctors in the U.S., thereby keeping doctor salaries artificially high. Can’t have a free market if it hurts business.
3. Research and Infrastructure
A publicly supported communications infrastructure allows the richest 10% of Americans to manipulate their 80% share of the stock market. CEOs rely on roads and seaports and airports to ship their products, the FAA and TSA and Coast Guard and Department of Transportation to safeguard them, a nationwide energy grid to power their factories, and communications towers and satellites to conduct online business. Private jets use 16 percent of air traffic control resources while paying only 3% of the bill.
Perhaps most important to business, even as it focuses on short-term profits, is the long-term basic research that is largely conducted with government money. Especially for the tech industry. Taxpayer-funded research at the Defense Advanced Research Projects Agency (the Internet) and the National Science Foundation (the Digital Library Initiative) has laid a half-century foundation for technological product development. Well into the 1980s, as companies like Apple and Google and Microsoft and Oracle and Cisco profited from the fastest-growing product revolution in American history, the U.S. Government was still providing half the research funds. Even today 60% of university research is government-supported.
Public schools have helped to train the chemists, physicists, chip designers, programmers, engineers, production line workers, market analysts, and testers who create modern technological devices. They, in turn, can’t succeed without public layers of medical support and security. All of them contribute to the final product.
As the super-rich ride in their military-designed armored cars to a financial center globally connected by public fiber optics networks to make a trade guided by publicly funded data mining and artificial intelligence software, they might stop and re-think the old Horatio Alger myth.
The traditional image of ‘welfare’ pales in comparison to corporate welfare and millionaire welfare. Whereas over 90% of Temporary Assistance for Needy Families goes to the elderly, the disabled, or working households, most of the annual $1.3 trillion in “tax expenditures” (tax subsidies from special deductions, exemptions, exclusions, credits, and loopholes) goes to the top quintile of taxpayers. One estimate is $250 billion a year just to the richest 1%.
Senator Tom Coburn’s website reports that mortgage interest and rental expense deductions alone return almost $100 billion a year to millionaires. (Americans that make $30k a year subsidize mansions for millionaires. Your kid’s college costs more because some people just have to have four bathrooms)
The most profitable corporations get the biggest subsidies. The Federal Reserve provided more than $16 trillion in financial assistance to financial institutions and corporations. According to Citizens for Tax Justice, 280 profitable Fortune 500 companies, which together paid only half of the maximum 35 percent corporate tax rate, received $223 billion in tax subsidies.
Even the conservative Cato Institute admitted that the U.S. federal government spent $92 billion on corporate welfare during fiscal year 2006. Recipients included Boeing, Xerox, IBM, Motorola, Dow Chemical, and General Electric.
In agriculture, most of the funding for commodity programs goes to large agribusiness corporations such as Archer Daniels Midland. For the oil industry, estimates of subsidy payments range from $10 to $50 billion per year.
5. Disaster Costs
Exxon spokesperson Ken Cohen once said: “Any claim we don’t pay taxes is absurd…ExxonMobil is a leading U.S. taxpayer.” Added Chevron CEO John Watson: “The oil and gas industry pays its fair share in taxes” But SEC documents show that Exxon paid 2% in U.S. federal taxes from 2008 to 2010, Chevron 4.8%.
As if to double up on the insult, the petroleum industry readily takes public money for oil spills. Cleanups cost much more than the fines imposed on the companies. Government costs can run into the billions, or even tens of billions, of dollars.
Another disaster-prone industry is finance, from which came the encouraging words of Goldman Sachs chairman Lloyd Blankfein: “Everybody should be, frankly, happy…the financial system led us into the crisis and it will lead us out.”
Estimates for bailout funds from the Treasury and the Federal Reserve range between $3 trillion and $5 trillion. That’s enough to pay off both the deficit and next year’s entitlement costs. All because of the irresponsibility of the super-salaried CEOs of our most profitable corporations.
Where is that old old fashioned free market capitalism at work. The wealthy are taking few risks and as we all know when they fail they get a bail-out so the rest of us do not go down the toilet. What did Obama get for basically continuing the policies that Republicans voted for with TARP, Wall Street is now giving most of its cash to Romney. Mostly because Obama hurt their feelings and the very modest Frank-Dodd reforms might be enforced in Obama’s second term. Real capitalist know that something really awful might happen if the big banks were broken up, they would have to compete and no one wants that, or at least no conservative wants that. So which political movement is closer, based on what they actually do, to practicing some kind of collectivism? Republican by a mile.
A couple of Democratic bloggers have made the case that all this Bain stuff does not matter with most voters. Certainly the radical right made up its mind before the Republican primaries were even finished. Short of video of Romney beating a disabled man in a wheel chair with a bat ( though even that will not change the mind of many far right conservatives) changes in the polls will come in small degrees and they are changing, CHART: Americans’ Interest In Bain Capital Spikes On Google, Twitter
But independent polling finds otherwise. A Washington Post/ABC News poll found last week that voters in eight battleground states saw Romney’s business experience negatively. “Compared with February, more people in the eight states identified as ‘tossups’ by The Washington Post now say Romney did more to cut than create jobs in the United States when he worked as a corporate investor before entering politics,” according to the Post. “And twice as many swing-state voters consider Romney’s work in buying and restructuring companies a reason to oppose, rather than to support, his candidacy.”
A June 26 NBC/Wall Street Journal poll found that 33 percent of swing-state voters see Romney’s business experience negatively versus just 18 percent who see it as an asset.
When they’re running against Romney even conservatives can smell the moral corruption, John McCain (R-AZ) directly attacked Romney over Bain, arguing that “as head of his investment company he presided over the acquisition of companies that laid off thousands of workers.” “The idea that you’ve got private equity companies that come in and take companies apart so they can make profits and have people lose their jobs, that’s not what the Republican Party’s about.” — Rick Perry(R) [New York Times, 1/12/12]
The Hypocrisy Report: Democrats Mock GOP For Protecting Own Health Care In Repeal Vote
Democrats are mocking Republicans in the House of Representatives for voting to repeal the health care reform law and keep their own enhanced medical care.
When Congress passed the health care law, it required members of Congress to get their insurance on exchanges with the rest of the public. But in voting to repeal that law, Republicans and a handful of Democrats were also voting to go back to the old system where the lawmakers get a sweeter deal than most of the rest of the country.
They also voted against a Democratic motion that said members of Congress who support repealing the health care law must also repeal the good stuff they get, such as lifetime care and insurance regardless of pre-existing conditions.
Democrats tried to demonstrate how Republicans distanced themselves from voting to protect their own deal by capturing a slew of GOP members on video saying they didn’t vote to protect their own care, as seen below. The clip features a number of Republicans in tight races this year, as well as GOP budget guru, Rep. Paul Ryan of Wisconsin.
“House Republicans refuse to admit they voted to give themselves taxpayer funded lifetime guaranteed health care instead of having the same health care as their constituents,” said Jesse Ferguson, spokesman for the Democratic Congressional Campaign Committee, referring to the fact that members of Congress are eligible for retirement benefits after just five years.
“House Republicans didn’t just vote to protect insurance company campaign donor profits this time, they’re even helping themselves to lifetime taxpayer-funded government health care and now they need to be honest with their constituents and admit it,” Ferguson said.
And to top that off. Tea bagger conservatives were going to return old the old plastic roots of conservatism, Seven Tea Party Freshmen Spent More Than $100,000 In Taxpayer Money On Personal Cars. A special shout-out to Sean Duffy (R-WI) who had previously whined about getting by on his $174,000 a year congressional salary. Anyone have a photo of someone twisting Duffy’s arm forcing him to run for Congress or using taxpayer funds for a new car?