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.
