Do you think this is how Romney will create jobs?

Question

"Here's how Romney would go about "liberating" a company: A private equity firm like Bain typically seeks out floundering businesses with good cash flows. It then puts down a relatively small amount of its own money and runs to a big bank like Goldman Sachs or Citigroup for the rest of the financing. (Most leveraged buyouts are financed with 60 to 90 percent borrowed cash.) The takeover firm then uses that borrowed money to buy a controlling stake in the target company, either with or without its consent. When an LBO is done without the consent of the target, it's called a hostile takeover; such thrilling acts of corporate piracy were made legend in the Eighties, most notably the 1988 attack by notorious corporate raiders Kohlberg Kravis Roberts against RJR Nabisco, a deal memorialized in the book Barbarians at the Gate.

Romney and Bain avoided the hostile approach, preferring to secure the cooperation of their takeover targets by buying off a company's management with lucrative bonuses. Once management is on board, the rest is just math. So if the target company is worth $500 million, Bain might put down $20 million of its own cash, then borrow $350 million from an investment bank to take over a controlling stake.

But here's the catch. When Bain borrows all of that money from the bank, it's the target company that ends up on the hook for all of the debt.

Now your troubled firm – let's say you make tricycles in Alabama – has been taken over by a bunch of slick Wall Street dudes who kicked in as little as five percent as a down payment. So in addition to whatever problems you had before, Tricycle Inc. now owes Goldman or Citigroup $350 million. With all that new debt service to pay, the company's bottom line is suddenly untenable: You almost have to start firing people immediately just to get your costs down to a manageable level.

"That interest," says Lynn Turner, former chief accountant of the Securities and Exchange Commission, "just sucks the profit out of the company."

Fortunately, the geniuses at Bain who now run the place are there to help tell you whom to fire. And for the service it performs cutting your company's costs to help you pay off the massive debt that it, Bain, saddled your company with in the first place, Bain naturally charges a management fee, typically millions of dollars a year. So Tricycle Inc. now has two gigantic new burdens it never had before Bain Capital stepped into the picture: tens of millions in annual debt service, and millions more in "management fees." Since the initial acquisition of Tricycle Inc. was probably greased by promising the company's upper management lucrative bonuses, all that pain inevitably comes out of just one place: the benefits and payroll of the hourly workforce.

Once all that debt is added, one of two things can happen. The company can fire workers and slash benefits to pay off all its new obligations to Goldman Sachs and Bain, leaving it ripe to be resold by Bain at a huge profit. Or it can go bankrupt – this happens after about seven percent of all private equity buyouts – leaving behind one or more shuttered factory towns. Either way, Bain wins. By power-sucking cash value from even the most rapidly dying firms, private equity raiders like Bain almost always get their cash out before a target goes belly up.

This business model wasn't really "helping," of course – and it wasn't new. Fans of mob movies will recognize what's known as the "bust-out," in which a gangster takes over a restaurant or sporting goods store and then monetizes his investment by running up giant debts on the company's credit line. (Think Paulie buying all those cases of Cutty Sark in Goodfellas.) When the note comes due, the mobster simply torches the restaurant and collects the insurance money. Reduced to their most basic level, the leveraged buyouts engineered by Romney followed exactly the same business model. "It's the bust-out," one Wall Street trader says with a laugh. "That's all it is."

Read more: http://www.rollingstone.com/politics/news/greed-and-debt-the-true-story-of-mitt-romney-and-bain-capital-20120829#ixzz26flVnDKa

Answer 1

No. Bain financed Staples which created jobs at all levels of the organization from the private sector.



DTG

Answer 2

Things are not that bad when Obama govt' created some temporary jobs (road fixing) recently to bring the unemployment rate down by 0.2%. Forget about the Obama govt' had cut down so many hours to the govt' departments, laid off many polices and fire fighters. Forget about the national debt has doubled in the last 4 years. Banks and corporations bankrupted after receiving Obama stimulus bailout. Forget the gas price shot sky high above $4/gallon. Forget about raising tax next year and the penalty that the poor need to pay if can't afford to buy medical insurance. Forget about Obama reducing the nuclear weapons without other countries doing so which makes our country vulnerable. It's actually not that bad.

Answer 3

U R giving a rough description of what corp raiders do. YES THAT IS WHAT MITT HAS DONE 4 OVER A DECADE! Now where R the jobs, well if the Co actually mfgs something Mitt sends that overseas. Hey Mitt still needs French maids, coffee baristas etc. He never said your job should be fulfilling or mentally challenging.

Answer 4

I work at a hedge fund (kinda like a PE firm) and I can tell Romney's business experience doesn't translate into government.



Mitt Romney, 47th in job creation as governor of Massachussetts.



Did you hear that? 47th.

Answer 5

"I have a plan," Romney said.



"My plan calls for action that will get America working again and create good jobs, both near-term and long-term.



"It includes finally taking advantage of our energy resources, building the Keystone pipeline, making sure we create energy jobs, and we convince manufacturers that energy will be available and low cost in America.



"It means opening up new markets for American trade, particularly in Latin America where the opportunities are extraordinary. It means cracking down on China when they cheat and making sure they don't steal our jobs unfairly.



"It means bringing our tax rates down—our marginal tax rates down—and cutting out the exemptions and deductions and loopholes that are unfair in many cases.



"In other cases, we’re going to limit those deductions and exemptions, so that we maintain our revenue through growth and through limiting of these special deals, but bring our tax rates down so they’re competitive and attractive for jobs to come back to America."

Answer 6

This serves to explain why Romney had no sympathy for bailing out GM. It would have been a prized carcass.

Answer 7

Oh, and where is Obama's plan? You Obama drones keep whining about Romney's plan. Romney's 59 point plan is on his website.

Answer 8

(R)omney has no plan for creating jobs.