Rolling Stone: The Federal Bailout that Save Mitt Romney

Carl Herrera · Aug 30, 2012

Mitt Romney likes to say he won't "apologize" for his success in business. But what he never says is "thank you" – to the American people – for the federal bailout of Bain & Company that made so much of his outsize wealth possible.

According to the candidate's mythology, Romney took leave of his duties at the private equity firm Bain Capital in 1990 and rode in on a white horse to lead a swift restructuring of Bain & Company, preventing the collapse of the consulting firm where his career began. When The Boston Globe reported on the rescue at the time of his Senate run against Ted Kennedy, campaign aides spun Romney as the wizard behind a "long-shot miracle," bragging that he had "saved bank depositors all over the country $30 million when he saved Bain & Company."

In fact, government documents on the bailout obtained by Rolling Stone show that the legend crafted by Romney is basically a lie. The federal records, obtained under the Freedom of Information Act, reveal that Romney's initial rescue attempt at Bain & Company was actually a disaster – leaving the firm so financially strapped that it had "no value as a going concern." Even worse, the federal bailout ultimately engineered by Romney screwed the FDIC – the bank insurance system backed by taxpayers – out of at least $10 million. And in an added insult, Romney rewarded top executives at Bain with hefty bonuses at the very moment that he was demanding his handout from the feds.

With his selection of Paul Ryan as his running mate, Romney has made fiscal stewardship the centerpiece of his campaign. A banner at MittRomney.com declared, "We have a moral responsibility not to spend more than we take in." Romney also opposed the federal bailout for Detroit automakers, famously arguing that the industry should be forced into bankruptcy. Government bailouts, he insists, are "the wrong way to go."

But the FDIC documents on the Bain deal – which were heavily redacted by the firm prior to release – show that as a wealthy businessman, Romney was willing to go to extremes to secure a federal bailout to serve his own interests. He had a lot at stake, both financially and politically. Had Bain & Company collapsed, insiders say, it would have dealt a grave setback to Bain Capital, where Romney went on to build a personal fortune valued at as much as $250 million. It would also have short-circuited his political career before it began, tagging Romney as a failed businessman unable to rescue his own firm.

"None of us wanted to see Bain be the laughingstock of the business world," recalls a longtime Romney lieutenant who asked not to be identified. "But Mitt's reputation was on the line."
The trouble began in 1984, when Bain & Company spun off Bain Capital to engage in leveraged buyouts and put Romney in charge of the new operation. To free up money to invest in the new business, founder Bill Bain and his partners cashed out much of their stock in the consulting firm – leaving it saddled with about $200 million in debt. (Romney, though not a founder, reportedly profited from the deal.) "People will tell you that Bill raped the place clean, was greedy, didn't know when to stop," a former Bain consultant later conceded. "Did they take too much out of the firm? You bet."

The FDIC documents make clear what happened next: "Soon after the founders sold their equity," analysts reported, "business began to drop off." First came scandal: In the late 1980s, a Bain consultant became a key figure in an illegal stock manipulation scheme in London. The firm's reputation took a hit, and it fired 10 percent of its consulting force. By the time the 1989 recession began, Bain & Company found itself going broke fast. Cash flows weren't enough to service the debt imposed by the founders, and the firm could barely make payroll. In a panic, Bill Bain tapped Romney, his longtime protégé, to take the reins.

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Read more: http://www.rollingstone.com/politic...that-saved-mitt-romney-20120829#ixzz24ywhV8Mi

Seems to me that some hay will be made out of this story.

rocketsjudoka · Aug 30, 2012

mateo · Aug 30, 2012

To be fair, i dont think the average American is financially literate enough to understand that article.

SamFisher · Aug 30, 2012

mateo said: ↑

To be fair, i dont think the average American is financially literate enough to understand that article.
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Course not. Nor would anybody appreciate the irony of Mitt whose fortune is entirely due to debt and super low taxes and various loopholes running a campaign based on the evils of debt and how taxes are too high and how loopholes need to be closed. Though to be fair that's merely one of about a zillion contradictory things about Mitt and his various identities (health care,social issues,etc)

That's why the Obama campaign uses the simpler message of "he's a big rich jerk who doesn't care about you" instead as a proxy for these more complex arguments. Time will tell if it works.

larsv8 · Aug 30, 2012

Yikes, thats just embarrassing.

Air Langhi · Aug 30, 2012

Whenever I think of republicans I think of Bob McNair. Public/Private partnership - The public pays the private profits.

larsv8 · Aug 30, 2012

This article dissagrees:

http://www.nationalreview.com/exchequer/287927/no-bain-did-not-get-bailout

Air Langhi · Aug 30, 2012

larsv8 said: ↑

This article dissagrees:

http://www.nationalreview.com/exchequer/287927/no-bain-did-not-get-bailout
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Does that guy know how the FDIC works. The only reason it works is because it has the full faith and guarantee of the US government behind otherwise it couldn't exist as insurance company. Its reserved are just too small for the amount of exposure it has.

TL · Aug 30, 2012

So, a bunch of banks made a bad loan to pay the old owners a fat dividend / cash them out. Once the old partners left, Bain didn't perform as forecasted.

Romney took it over, got cash back from the old partners and had it injected into Bain. He then put in retention programs in place to keep the new parters around, basically guaranteeing them a bonus if the firm failed so they didn't feel the need to go get a new job. Keeping them around helped make sure they maintained a revenue pipeline. Then he gave the banks a 66ish cent recovery on a loan to a failed business services company.

And then he went back to his old job.

I don't see what he did wrong...maybe I'm just too tired to see it, but it sounds like he made the best of a bad situation.

Edit: the only real problem to me is how much money Romney made in the original dividend transaction as an old partner. I wonder what that number was

thadeus · Aug 31, 2012

Socialize the costs, privatize the profits. It's been the American way for a long time now, and we're all paying for it.

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Rolling Stone: The Federal Bailout that Save Mitt Romney

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