Mitt Romney is boasting about his success behind Bain Capital – but is this really something he should be bragging about? Sure, he made millions – but in the style that mobsters made their money back in the day.
In the organized crime world, the business practice is known as a bust out. A group of investors — in Soprano’s case, an entire family — looks for companies that have a strong underlying business but are in distress thanks to heavy debt burdens. The investors then take over the company. In the mob’s case, the family presents the business with a very high-interest loan — an offer which, under the financial circumstances, is difficult to refuse — and effectively takes control of the company with the threat of physical violence. Private equity investors, by contrast, buy control of the company’s board by purchasing the firm’s stock. But for both private equity firms and the mafia, investors use their control of the firm to take on more debt, while at the same time cutting costs by laying off workers.
Tony Soprano Explains Bain Capital
Cash from the loans and cost savings are funneled back to the investors. This looting continues until the company can’t pay its debts. When it finally collapses, the company files for bankruptcy to extinguish the debt — but private equity investors, as well as mobsters, get to keep the gains they’ve already reaped.
At the very end of this video, we witness Romney stating, “That’s exactly what I said. Those companies needed to go through bankruptcy to shed those costs.”
This does not surprise me at all. The societal costs of corporate bankruptcy last much longer than personal bankruptcy and consumers usually end up paying for corporate bankruptcy in loss of jobs and higher prices of goods. This goes hand-in-hand with Mitt’s “philosophy” to give the wealthy more tax breaks, and increase the taxes on the [disappearing] middle class.
Romney only cares about one thing, well… two things. Money and profit.