Pinocchio and the capitalists that shall not be named for fear of the spam filter

the Conster points to an article by Anthony Luzzatto Gardner on Bloomberg.

Mitt Romney touts his business acumen and job-creation record as a key qualification for being the next U.S. president.

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.

Gardner mercilessly lays out an increasingly horrifying list of Bain deals.

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 ca$in0 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.

Go read it.

It’s a fine piece with well stated opinion, references to actual facts and a killer ending that would have Glenn Kessler pooping himself.

[Gaston-Theodore Melingue (1840-1914) – Jean Bart In The Galerie Des Glaces At Versailles.]

58 replies
  1. 1
    Yutsano says:



  2. 2
    Steeplejack says:

    FYWP screws the pooch again.

    ETA: But Cole added “[Commenter Name] Says” in the last site upgrade, so it all balances out.

  3. 3
    PeakVT says:


    ETA: Hello!

    ETAA: The post lays out quite clearly what leveraged buyout firms like Bain do. The problem is getting more people to understand what it was that Romney did. To most people the word “business” implies doing something positive. So when they hear that Romney was a businessman, the assume he did something positive, even if they don’t understand what it was. But Romney has engaged mostly in destruction, and not of the creative type. He’s never headed a company that changed an industry with a new idea or product. He’s only strip-mined what others have built.

  4. 4
    patrick II says:

    So, instead of creating value, Romney used debt to pay early investors and himself big time while leaving everyone else in the lurch. Isn’t that close to what Bernie Madoff is in jail for?

  5. 5

    Thank Crist for that.

    Cole would set that fucking cat on me if I borked his blog by mentioning the C-word.

  6. 6
    PurpleGirl says:

    How do facts work?

    Rmoney thinks he’s a MotU. He and his supporters don’t need no facts.

  7. 7
    Violet says:

    Yay! It’s working!

    I tried to post before that I feel like I need a cigarette after reading that. And I don’t even smoke.

  8. 8



    Are you having a siezure?

  9. 9
    Violet says:

    @Steeplejack: I think the “Says” with the capital ‘S’ is ridiculous.

  10. 10
    freelancer says:

    At least vampires feed for survival reasons. Mitt and his awkward fucking grin did it all for the wealth and power at the expense of real people. (C.R.E.A.M.)

  11. 11
    PurpleGirl says:

    Has something been happening to the site in the last few hours? I’ve been occupied elsewhere and not following any thread.

  12. 12


    I think the “Says” with the capital ‘S’ is ridiculous.


    ETA: I think you should all email him to complain about it.

    That would make me very happy.

  13. 13
    El Cid says:

    @PeakVT: I’ve explained in clear detail to co-workers what a ‘leveraged buyout’ is — even though such a transaction spawned the company we work for.

    At first, they really can’t believe such things are possible.

    They can’t accept that people ‘buying up’ a company don’t have any money to do so. They imagine that these are people with money in the bank who want to go down to the local, I dunno, business buyin’ store, and place a nice order for a troubled business looking for an adopter to turn it around.

    They have no idea that people who have no money to do so are getting enormous ‘loans’ in order to capture a business — ill or healthy — and then run it with the purpose of paying off themselves and those who fronted the leverage.

    They’d much rather have the coloring book version of capitalists with shades and eyeglasses closely examining the bookkeeping and pointing somewhere in the distance of a factory to indicate where things could be made more efficient.

    They don’t like the idea of ‘Hey, I borrowed a shit-ton of money to buy you fuckers out, and I promised all sorts of shit as we negotiated, but that dotted line is now signed, and you’re mine mofo’s, so everything you got and everything you owe and everything you promised your workers is mine, baby, and you exist to pay back my funders with interest… What’s that? Your business? Your business model? Your long-term plan? Yah, about that, I’d say, um, Fuck You.’

  14. 14
    Yutsano says:

    @Sarah, Proud and Tall: A Teutonic one. Amir will have more information.

    @Sarah, Proud and Tall: I so appreciate your devilish side.

  15. 15
    David Koch says:

    drip, drip, drip, drip

    Just this morning George Will was saying being connected to banking is toxic because “hardly a day goes by, the LIBOR scandal, TARP, that conditioned the country to believe that we’re allowing the banks to keep profits private and socializing losses.” And now this article.


  16. 16
    freelancer says:


    HOLY SHIT, talk about change blindness. I never even remembered.

    Also, check out this card trick.

  17. 17
    scav says:

    @Yutsano: ERFOLGNUNG!!

    I’d not seen that spelling of it before, but now that you explain it’s the Teutonic one, well, exactly, I couldn’t agree more.

  18. 18
    scav says:

    @David Koch: Do you mean the Goldman Sachs Dragon one?

  19. 19
    Steeplejack says:


    SP&T had “Pinocchio and the Casino Capitalists” as the original title of this post, and FYWP wouldn’t let anyone post a comment because of the forbidden word casino.

  20. 20

    My troll filter script gets rid of the “Says:” after everyone’s name for a technical reason, but it’s nice to have it gone regardless.

  21. 21
    PeakVT says:

    @PurpleGirl: Just SP&T posting while sober. She’s tossed back a couple of highballs now and everything is better.

  22. 22
    Anoniminous says:




  23. 23
    Schad says:

    Perhaps posted before, but bears posting again…Jennifer Rubin’s idea of bipartisanship:

    The outrage is bipartisan. Speaker of the House Rep. John Boehner (R-Ohio) released a furious statement

    Sen. Orrin Hatch (R-Utah), ranking member of the Senate Finance Committee, was likewise incensed, sending a letter together with Rep. Dave Camp (R-Mich.), head of the House Ways and Means Committee

    So, that’s three Republicans expressing outrage. Who’s the token Democrat going to be?

    Pro-reform Democrats are also stunned and dismayed. Mickey Kaus writes, objecting to dilution of the work requirements

    Mickey. Kaus. Mickey fucking Kaus is what makes this bipartisan. God have mercy on us all.

  24. 24
    Ash Can says:

    Bloomberg is pretty much what the Wall Street Journal used to be — all business, with minimal extraneous crap. It’s a serious business news source for serious business readers. If this is the treatment Bain’s operations are getting in Bloomberg’s commentary, then even I cringe at what the treatment his absentee-CEO song-and-dance (and its defenders) would get.

    @Sarah, Proud and Tall:

    Cole would set that fucking cat on me if I borked his blog by mentioning the C-word.

    At your age, your bones would not endure Tunch sitting in your lap, that’s for sure.

  25. 25
    Yutsano says:

    @Schad: Link no work. U fix please and thank you.

  26. 26
    PurpleGirl says:

    @Steeplejack: @PeakVT:

    Ah, now I understand. Thanks.

  27. 27
    Schad says:

    Failed to edit in time, apparently. Link, take two: pleeeease work

  28. 28
    Geoduck says:


    Link no work. U fix please and thank you.

    Here it is
    without the extra “http” attached.

    EDIT: Too slow.. never mind.

  29. 29
  30. 30
    mdblanche says:

    It doesn’t really matter if people understand why what Bain did is bad. Why? Because they know whatever it is, it must be bad. How do they know? Because when the Obama campaign says he was running the place, the Romney campaign responds by denouncing that as a vile accusation and a new low in American politics.

    So Bain is finished a positive for Romney. Wherever this goes between now and November, Romney can no longer say vote for me because of Bain. He’s already disowned his only previous experience in political office, rescuing the Salt Lake Olympics is nice but not enough, so that just leaves… not being Obama. That gives him the votes of his own base, but it won’t let him poach any of the President’s base nor will it do him much good with undecideds. You can’t beat something with nothing. And that’s about all Romney has left.

  31. 31
    Amir Khalid says:

    Er, did you mean to say “ERFOLG!” (success!) ?

  32. 32
    Kristine says:

    Very good.

    Tweeting and FB’ing link because good stuff should be spread around.

  33. 33
    Joel says:

    Great article, short and to the point.

  34. 34
    NonyNony says:

    @Steeplejack: Jeebus freaking Christ. There aren’t any jobs.

    Tell the Federal Reserve to start pushing policies to get the unemployment rate down to 3% again, and then maybe we can talk.

  35. 35
    Gozer says:

    What Bain was doing sounds most like a Mafia bust-out.

  36. 36
    FuriousPhil says:

    A while ago, I managed to actually get a degree in such things as finance, so I’m fully into my ‘fuck this rotten system, I’m going to go live on some land in the country’ phase which started sometime around, oh Enron. Boy, those were the days.

    These soulless folks have been doing this for years, ever since they’ve been whispering sweet nothings in Saint Ronnie’s ears. And every time you take down a Boesky or a Millikin, or that guy in Texas, or a Madoff, there’s always new guys popping up, because: money.

    Didn’t we have a bunch of idiots elected because everyone was concerned about the ‘debt’ boogeyman? And here we have Mr. Mammon himself, leveraging balls deep and pulling out just before he blows it. Or in some cases, he stayed in too long (three years or so) and we’ve got the paperwork to prove it.

  37. 37
    David Koch says:

    Batman hits theaters this week and the villain is named “Bane”

    So more yummy goodness branding Bain as evil with low-info voter.

  38. 38
    Yutsano says:

    @Amir Khalid: Erfolg is the root. The -nung makes it a noun. At least that’s my understanding. And auf Deutsch the more complex the word the more likely it is that it’s correct. I may be totally off however.


    Obama’s imperious use of executive orders and refusal to enforce the laws of the land fairly and completely is a constitutional disgrace.

    So you totes complained when Dubya used record number of executive orders am I right Jennifer? Huh? Maybe? Crickets? Dishonest fucking hack.

  39. 39
    freelancer says:

    After reading the Bloomberg article on Bain Capital’s leveraged buyout deals, I mean, is there any way that what Romney did to earn money is demonstrably or qualitatively different from mobsters?

  40. 40
    NonyNony says:


    Yes. What mobsters do is unethical, immoral and illegal.

    What Romney did was only unethical and immoral.

  41. 41
    freelancer says:


    Which has been Romney’s excuse over and over again.

    Cayman Islands bank account holdings? Stashing your funds overseas? Reported only 2 years of taxes?

    Hey, I did what was legally required. By the way, I want your vote for leader of the free world. Give me my due, won’t you?

  42. 42
    Petorado says:

    That tag line at the end of the Obama ad (“Romney’s not the solution, He’s the problem.”) rings ever truer after reading the article. The ‘graph that really laid out Mitt’s magic:

    “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.”

    So I guess Mitt’s solution for the US economy would be a highly-leveraged purchase of the continent of Africa. He’d charge high management fees for running things poorly, sell off its assets, have the continent file for bankruptcy, leave China holding all the bad debt, and walk away rich. What could go wrong?

  43. 43
    Amir Khalid says:

    You overthought this one just a wee bit. The -ung ending nouns a verb. The root in this case is indeed Erfolg, but that’s already the noun.

  44. 44
    Mnemosyne says:


    I was thinking of this exchange from Married to the Mob:

    Angela de Marco: God, you people work just like the mob! There’s no difference.
    Regional Director Franklin: Oh, there’s a big difference, Mrs. de Marco. The mob is run by murdering, thieving, lying, cheating psychopaths. We work for the President of the United States of America.

  45. 45
    scav says:

    My GSD, it’s actually a word. Snark lapped me.

  46. 46
    pseudonymous in nc says:

    I like this piece on leveraged buyouts by Michael Moritz, who is… a venture capitalist. He’s talking specifically about the Glazers’ takeover of Manchester Utd, which is now laden with about $800m of debt, but brings down the hammer on LBOs generally:

    If you buy something, use your own cash. Reward the people who have built the business. Put earnings in the bank or invest in the future. And, one final thing, never confuse borrowers with owners.

    @El Cid:

    They can’t accept that people ‘buying up’ a company don’t have any money to do so.

    That’s because they see infomercials with shiny-suited men talking about buying houses with NO MONEY DOWN!1!1 and think they’re a bunch of shysters, as opposed to the penny-ante version of the leveraged-buyout brigade.

  47. 47
    IM says:

    @Amir Khalid:

    There is erfolgreich, that is successful.

    On the other hand Erfolgnung could be a clever new portmanteau of Erfolg (success) and Verfolgung (persecution). Erfolgnung: A persecution of a successful man like Mitt Romney just because he is successful. Just like in Atlas shrugged.

  48. 48
    joel hanes says:

    Google translate gives “successful plan” for erfolgnung.

  49. 49
    SRW1 says:

    @joel hanes:

    There is no such word as Erfolgnung in German. Amir had it right, Erfolg is already a noun.

    Persecution is covered by Verfolgung, though that noun is entirely silent on the motive for the stalking.

  50. 50
    bob h says:

    I don’t know, but would be willing to bet, that some of Bain’s takeover practices are illegal in the EU. I really don’t think loading up commpanies with debt so you can take special dividends is legal there.

  51. 51
    bjacques says:

    Bain Capital are a LBO firm one step above the vultures who buy the written-off debt of African countries and then use the World Bank to shake them down for the full amount. They’re the aliens in “Independence Day.”

    But if you want to visually describe what Bain Capital has done, do something like this:

    Start with stock, public-domain footage of a factory assembly line and/or a large office. is your friend!
    FADE to an image of a factory or office building.
    FADE to an image of an orange.
    FADE to a cutaway showing the pulp and seeds.
    FADE back to an orange, then an orange tree and an orange grove. The single orange should still be visible.
    Abruptly show large, business executive’s hand snatching away apple. At the same time, the orange grove image must disappear as abruptly.
    CUT TO executive hands slicing the orange in half, grinding the orange halves into juice. If possible, the juicer should look industrial.
    SFX: Electric juice machine. Maybe mix in lion’s growl, human screams or squealing tires, like gunshots in a spaghetti western.
    CUT TO lower halves of 3 or 4 executive faces, drinking glasses of juice with obvious relish.
    CUT TO executive hands picking up orange rinds, tossing them onto a small pile of other rinds.
    PULL AWAY to reveal small pile of rinds is actually a large one.

    For extra awesomeness, do this in the style of a Coronet or Encyclopedia Britannica educational film, with a similar logo and catches in the film. Call it something like “Your Capital At Work.” Add at the bottom a fake copyright notice “c 1999 Bain Capital” with 1999 XXXX’ed out and replaced with 2002.

  52. 52
    NCSteve says:

    I knew what Bain did and how it did it. I knew about using OPM to buy a company, load the company up with debt, use the debt to “pay back” the PE investors and firm even though they used OPM, and pay the PE firm’s “management fees” and then passing the debt laden company on to a greater fool. I know how the PE scam works.

    But I was off on how brazenly awful Bain was about it by a full order of magnitude.

    So, despite knowing how the mofos roll, I’m still sickened because I underestimated the magnitude of the awful.

    Hadn’t had that feeling since the Bush Administration. I had forgotten how much I hated it.

  53. 53
    maya says:


    I think the “Says” with the capital ‘S’ is ridiculous.

    I prefer the biblical “sayeth”.

  54. 54
    SL says:

    I’m no econ guy, but this doesn’t make sense to me.

    Bain buys Ampad for 5 million in Bain’s own money, representing 13% of the purchase price. So the company is considered to be worth about 30 million.

    Here’s the part I don’t understand:
    Then Bain was able to get other people to lend them another 430 million dollars over two years. Who were these people shoveling piles of money into this company? Why am I supposed to be mad at Romney and not these dumb-asses who lent all this money to an insolvent company?

  55. 55
    tomvox1 says:

    Thanks for the link, Sarah! I think this is a particularly charming added bonus of Bain’s SOP:

    By the time the company [GS Industries] went bankrupt in 2001, it owed $554 million in debt against assets valued at $395 million. Many creditors lost money, and 750 workers lost their jobs. The U.S. Pension Benefit Guaranty Corp., which insures company retirement plans, determined in 2002 that GS had underfunded its pension by $44 million and had to step in to cover the shortfall.

    So not only did Bain lay waste to jobs & previously productive business but it then left the federal government holding the bag for some of the bankrupt businesses’ pension obligations! I could be wrong but I think this one is easy for people to understand…and hate.

  56. 56
    NCSteve says:


    Then Bain was able to get other people to lend them another 430 million dollars over two years. Who were these people shoveling piles of money into this company?

    Our Galtian Overlords in the oh-so-savvy banking industry. Same people who kept pouring cash into mortgage backed collateralized debt obligations long after the smart money figured out what Magnatar was up to and Greek treasuries because, hey, euros, and shopping centers in places where no people live, but might live some day because the housing boom is forever.

    Hey, if Bain is involved, it’s got to be a winner, right?

    When your bonus is calculated based upon the scale of the facially stupid investment and lending decisions you make, stupid decisions get made.

  57. 57
    SL says:


    Our Galtian Overlords in the oh-so-savvy banking industry.

    Well, sure. That part was assumed. I’m more interested in the answer to my second question. It’s the mortgage lending business on a larger scale. I have a lot more contempt for the person lending the money than I do the borrower when both parties know the money isn’t ever going to be paid back.

  58. 58
    bcinaz says:

    Admittedly, I don’t know squat about high finance, however, this seems to me to be the exact same thing the Republican Congress in cahoots with a Republican prez and VP did to finance massive tax cuts, two wars and the Part D expansion. So what now? Mitt comes in to add $5Trillion onto the debt then takes the country into a managed bankruptcy? Socialize the losses!

    Gee, what’s on those hard drives anyway?

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