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The True Story of Mitt Romney and Bain Capital

August 31st, 2012 · No Comments

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Greed and Debt: The True Story of Mitt Romney and Bain Capital
How the GOP presidential candidate and his private
equity firm staged an epic wealth grab, destroyed jobs
– and stuck others with the bill

By Matt Taibbi

Rolling Stone
August 29, 2012
This story is from the September 13, 2012 issue of Rolling


The great criticism of Mitt Romney, from both sides of the
aisle, has always been that he doesn’t stand for anything.
He’s a flip-flopper, they say, a lightweight, a cardboard
opportunist who’ll say anything to get elected.

The critics couldn’t be more wrong. Mitt Romney is no tissue-
paper man. He’s closer to being a revolutionary, a backward-
world version of Che or Trotsky, with tweezed nostrils instead
of a beard, a half-Windsor instead of a leather jerkin. His
legendary flip-flops aren’t the lies of a bumbling opportunist
– they’re the confident prevarications of a man untroubled by
misleading the nonbeliever in pursuit of a single, all-
consuming goal. Romney has a vision, and he’s trying for
something big: We’ve just been too slow to sort out what it
is, just as we’ve been slow to grasp the roots of the radical
economic changes that have swept the country in the last

The incredible untold story of the 2012 election so far is
that Romney’s run has been a shimmering pearl of perfect
political hypocrisy, which he’s somehow managed to keep
hidden, even with thousands of cameras following his every
move. And the drama of this rhetorical high-wire act was
ratcheted up even further when Romney chose his running mate,
Rep. Paul Ryan of Wisconsin – like himself, a self-righteously
anal, thin-lipped, Whitest Kids U Know penny pincher who’d be
honored to tell Oliver Twist there’s no more soup left. By
selecting Ryan, Romney, the hard-charging, chameleonic
champion of a disgraced-yet-defiant Wall Street, officially
succeeded in moving the battle lines in the 2012 presidential

Like John McCain four years before, Romney desperately needed
a vice-presidential pick that would change the game. But where
McCain bet on a combustive mix of clueless novelty and
suburban sexual tension named Sarah Palin, Romney bet on an
idea. He said as much when he unveiled his choice of Ryan, the
author of a hair-raising budget-cutting plan best known for
its willingness to slash the sacred cows of Medicare and
Medicaid. “Paul Ryan has become an intellectual leader of the
Republican Party,” Romney told frenzied Republican supporters
in Norfolk, Virginia, standing before the reliably jingoistic
backdrop of a floating warship. “He understands the fiscal
challenges facing America: our exploding deficits and crushing

Debt, debt, debt. If the Republican Party had a James
Carville, this is what he would have said to win Mitt over, in
whatever late-night war room session led to the Ryan pick:
“It’s the debt, stupid.” This is the way to defeat Barack
Obama: to recast the race as a jeremiad against debt,
something just about everybody who’s ever gotten a bill in the
mail hates on a primal level.

Last May, in a much-touted speech in Iowa, Romney used
language that was literally inflammatory to describe America’s
federal borrowing. “A prairie fire of debt is sweeping across
Iowa and our nation,” he declared. “Every day we fail to act,
that fire gets closer to the homes and children we love.” Our
collective debt is no ordinary problem: According to Mitt,
it’s going to burn our children alive.

And this is where we get to the hypocrisy at the heart of Mitt
Romney. Everyone knows that he is fantastically rich, having
scored great success, the legend goes, as a “turnaround
specialist,” a shrewd financial operator who revived moribund
companies as a high-priced consultant for a storied Wall
Street private equity firm. But what most voters don’t know is
the way Mitt Romney actually made his fortune: by borrowing
vast sums of money that other people were forced to pay back.
This is the plain, stark reality that has somehow eluded
America’s top political journalists for two consecutive
presidential campaigns: Mitt Romney is one of the greatest and
most irresponsible debt creators of all time. In the past few
decades, in fact, Romney has piled more debt onto more
unsuspecting companies, written more gigantic checks that
other people have to cover, than perhaps all but a handful of
people on planet Earth.

By making debt the centerpiece of his campaign, Romney was
making a calculated bluff of historic dimensions – placing a
massive all-in bet on the rank incompetence of the American
press corps. The result has been a brilliant comedy: A man
makes a $250 million fortune loading up companies with debt
and then extracting million-dollar fees from those same
companies, in exchange for the generous service of telling
them who needs to be fired in order to finance the debt
payments he saddled them with in the first place. That same
man then runs for president riding an image of children
roasting on flames of debt, choosing as his running mate
perhaps the only politician in America more pompous and self-
righteous on the subject of the evils of borrowed money than
the candidate himself. If Romney pulls off this whopper,
you’ll have to tip your hat to him: No one in history has ever
successfully run for president riding this big of a lie. It’s
almost enough to make you think he really is qualified for the
White House.

The unlikeliness of Romney’s gambit isn’t simply a reflection
of his own artlessly unapologetic mindset – it stands as an
emblem for the resiliency of the entire sociopathic Wall
Street set he represents. Four years ago, the Mitt Romneys of
the world nearly destroyed the global economy with their
greed, shortsightedness and – most notably – wildly
irresponsible use of debt in pursuit of personal profit. The
sight was so disgusting that people everywhere were ready to
drop an H-bomb on Lower Manhattan and bayonet the survivors.
But today that same insane greed ethos, that same belief in
the lunatic pursuit of instant borrowed millions – it’s dusted
itself off, it’s had a shave and a shoeshine, and it’s back
out there running for president.

Mitt Romney, it turns out, is the perfect frontman for Wall
Street’s greed revolution. He’s not a two-bit, shifty-eyed
huckster like Lloyd Blankfein. He’s not a sighing, eye-
rolling, arrogant jerkwad like Jamie Dimon. But Mitt believes
the same things those guys believe: He’s been right with them
on the front lines of the financialization revolution, a
decades-long campaign in which the old, simple, let’s-make-
stuff-and-sell-it manufacturing economy was replaced with a
new, highly complex, let’s-take-stuff-and-trash-it financial
economy. Instead of cars and airplanes, we built swaps, CDOs
and other toxic financial products. Instead of building new
companies from the ground up, we took out massive bank loans
and used them to acquire existing firms, liquidating every
asset in sight and leaving the target companies holding the
note. The new borrow-and-conquer economy was morally
sanctified by an almost religious faith in the grossly
euphemistic concept of “creative destruction,” and amounted to
a total abdication of collective responsibility by America’s
rich, whose new thing was making assloads of money in ever-
shorter campaigns of economic conquest, sending the proceeds
offshore, and shrugging as the great towns and factories their
parents and grandparents built were shuttered and boarded up,
crushed by a true prairie fire of debt.

Mitt Romney – a man whose own father built cars and nurtured
communities, and was one of the old-school industrial
anachronisms pushed aside by the new generation’s wealth grab
– has emerged now to sell this make-nothing, take-everything,
screw-everyone ethos to the world. He’s Gordon Gekko, but a
new and improved version, with better PR – and a bigger goal.
A takeover artist all his life, Romney is now trying to take
over America itself. And if his own history is any guide,
we’ll all end up paying for the acquisition.

Willard “Mitt” Romney’s background in many ways suggests a man
who was born to be president – disgustingly rich from birth,
raised in prep schools, no early exposure to minorities
outside of maids, a powerful daddy to clean up his missteps,
and timely exemptions from military service. In Romney’s bio
there are some eerie early-life similarities to other recent
presidential figures. (Is America really ready for another
Republican president who was a prep-school cheerleader?) And
like other great presidential double-talkers such as Bill
Clinton and George W. Bush, Romney has shown particular
aptitude in the area of telling multiple factual versions of
his own life story.

“I longed in many respects to actually be in Vietnam and be
representing our country there,” he claimed years after the
war. To a different audience, he said, “I was not planning on
signing up for the military. It was not my desire to go off
and serve in Vietnam.”

Like John F. Kennedy and George W. Bush, men whose way into
power was smoothed by celebrity fathers but who rebelled
against their parental legacy as mature politicians, Mitt
Romney’s career has been both a tribute to and a repudiation
of his famous father. George Romney in the 1950s became CEO of
American Motors Corp., made a modest fortune betting on energy
efficiency in an age of gas guzzlers and ended up serving as
governor of the state of Michigan only two generations removed
from the Romney clan’s tradition of polygamy. For Mitt, who
grew up worshipping his tall, craggily handsome, politically
moderate father, life was less rocky: Cranbrook prep school in
suburban Detroit, followed by Stanford in the Sixties, a
missionary term in which he spent two and a half years trying
(as he said) to persuade the French to “give up your wine,”
and Harvard Business School in the Seventies. Then, faced with
making a career choice, Mitt chose an odd one: Already married
and a father of two, he left Harvard and eschewed both
politics and the law to enter the at-the-time unsexy world of
financial consulting.

“When you get out of a place like Harvard, you can do anything
– at least in the old days you could,” says a prominent
corporate lawyer on Wall Street who is familiar with Romney’s
career. “But he comes out, he not only has a Harvard Business
School degree, he’s got a national pedigree with his name. He
could have done anything – but what does he do? He says, ‘I’m
going to spend my life loading up distressed companies with

Romney started off at the Boston Consulting Group, where he
showed an aptitude for crunching numbers and glad-handing
clients. Then, in 1977, he joined a young entrepreneur named
Bill Bain at a firm called Bain & Company, where he worked for
six years before being handed the reins of a new firm-within-
a-firm called Bain Capital.

In Romney’s version of the tale, Bain Capital – which evolved
into what is today known as a private equity firm –
specialized in turning around moribund companies (Romney even
wrote a book called Turnaround that complements his other
nauseatingly self-complimentary book, No Apology) and helped
create the Staples office-supply chain. On the campaign trail,
Romney relentlessly trades on his own self-perpetuated
reputation as a kind of altruistic rescuer of failing
enterprises, never missing an opportunity to use the word
“help” or “helped” in his description of what he and Bain did
for companies. He might, for instance, describe himself as
having been “deeply involved in helping other businesses” or
say he “helped create tens of thousands of jobs.”

The reality is that toward the middle of his career at Bain,
Romney made a fateful strategic decision: He moved away from
creating companies like Staples through venture capital
schemes, and toward a business model that involved borrowing
huge sums of money to take over existing firms, then
extracting value from them by force. He decided, as he later
put it, that “there’s a lot greater risk in a startup than
there is in acquiring an existing company.” In the Eighties,
when Romney made this move, this form of financial piracy
became known as a leveraged buyout, and it achieved iconic
status thanks to Gordon Gekko in Wall Street. Gekko’s business
strategy was essentially identical to the Romney-Bain model,
only Gekko called himself a “liberator” of companies instead
of a “helper.”

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

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

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.”

Private equity firms aren’t necessarily evil by definition.
There are many stories of successful turnarounds fueled by
private equity, often involving multiple floundering
businesses that are rolled into a single entity, eliminating
duplicative overhead. Experian, the giant credit-rating
tyrant, was acquired by Bain in the Nineties and went on to
become an industry leader.

But there’s a key difference between private equity firms and
the businesses that were America’s original industrial
cornerstones, like the elder Romney’s AMC. Everyone had a
stake in the success of those old businesses, which spread
prosperity by putting people to work. But even private
equity’s most enthusiastic adherents have difficulty
explaining its benefit to society. Marc Wolpow, a former Bain
colleague of Romney’s, told reporters during Mitt’s first
Senate run that Romney erred in trying to sell his business as
good for everyone. “I believed he was making a mistake by
framing himself as a job creator,” said Wolpow. “That was not
his or Bain’s or the industry’s primary objective. The
objective of the LBO business is maximizing returns for
investors.” When it comes to private equity, American workers
– not to mention their families and communities – simply don’t
enter into the equation.

Take a typical Bain transaction involving an Indiana-based
company called American Pad and Paper. Bain bought Ampad in
1992 for just $5 million, financing the rest of the deal with
borrowed cash. Within three years, Ampad was paying $60
million in annual debt payments, plus an additional $7 million
in management fees. A year later, Bain led Ampad to go public,
cashed out about $50 million in stock for itself and its
investors, charged the firm $2 million for arranging the IPO
and pocketed another $5 million in “management” fees. Ampad
wound up going bankrupt, and hundreds of workers lost their
jobs, but Bain and Romney weren’t crying: They’d made more
than $100 million on a $5 million investment.

To recap: Romney, who has compared the devilish federal debt
to a “nightmare” home mortgage that is “adjustable, no-money
down and assigned to our children,” took over Ampad with
essentially no money down, saddled the firm with a nightmare
debt and assigned the crushing interest payments not to Bain
but to the children of Ampad’s workers, who would be left
holding the note long after Romney fled the scene. The
mortgage analogy is so obvious, in fact, that even Romney
himself has made it. He once described Bain’s debt-fueled
strategy as “using the equivalent of a mortgage to leverage up
our investment.”

Romney has always kept his distance from the real-life
consequences of his profiteering. At one point during Bain’s
looting of Ampad, a worker named Randy Johnson sent a
handwritten letter to Romney, asking him to intervene to save
an Ampad factory in Marion, Indiana. In a sterling
demonstration of manliness and willingness to face a difficult
conversation, Romney, who had just lost his race for the
Senate in Massachusetts, wrote Johnson that he was “sorry,”
but his lawyers had advised him not to get involved. (So much
for the candidate who insists that his way is always to “fight
to save every job.”)

This is typical Romney, who consistently adopts a public
posture of having been above the fray, with no blood on his
hands from any of the deals he personally engineered. “I never
actually ran one of our investments,” he says in Turnaround.
“That was left to management.”

In reality, though, Romney was unquestionably the decider at
Bain. “I insisted on having almost dictatorial powers,” he
bragged years after the Ampad deal. Over the years, colleagues
would anonymously whisper stories about Mitt the Boss to the
press, describing him as cunning, manipulative and a little
bit nuts, with “an ability to identify people’s insecurities
and exploit them for his own benefit.” One former Bain
employee said that Romney would screw around with bonuses in
small amounts, just to mess with people: He would give $3
million to one, $3.1 million to another and $2.9 million to a
third, just to keep those below him on edge.

The private equity business in the early Nineties was
dominated by a handful of takeover firms, from the spooky and
politically connected Carlyle Group (a favorite subject of
conspiracy-theory lit, with its connections to right-wingers
like Donald Rumsfeld and George H.W. Bush) to the equally
spooky Democrat-leaning assholes at the Blackstone Group. But
even among such a colorful cast of characters, Bain had a
reputation on Wall Street for secrecy and extreme weirdness –
“the KGB of consulting.” Its employees, known for their
Mormonish uniform of white shirts and red power ties, were
dubbed “Bainies” by other Wall Streeters, a rip on the
fanatical “Moonies.” The firm earned the name thanks to its
idiotically adolescent Spy Kids culture, in which these
glorified slumlords used code names, didn’t carry business
cards and even sang “company songs” to boost morale.

The seemingly religious flavor of Bain’s culture smacks of the
generally cultish ethos on Wall Street, in which all sorts of
ethically questionable behaviors are justified as being
necessary in service of the church of making money. Romney
belongs to a true-believer subset within that cult, with a
revolutionary’s faith in the wisdom of the pure free market,
in which destroying companies and sucking the value out of
them for personal gain is part of the greater good, and
governments should “stand aside and allow the creative
destruction inherent in the free economy.”

That cultlike zeal helps explains why Romney takes such a
curiously unapologetic approach to his own flip-flopping. His
infamous changes of stance are not little wispy ideological
alterations of a few degrees here or there – they are perfect
and absolute mathematical reversals, as in “I believe that
abortion should be safe and legal in this country” and “I am
firmly pro-life.” Yet unlike other politicians, who at least
recognize that saying completely contradictory things presents
a political problem, Romney seems genuinely puzzled by the
public’s insistence that he be consistent. “I’m not going to
apologize for having changed my mind,” he likes to say. It’s
an attitude that recalls the standard defense offered by Wall
Street in the wake of some of its most recent and notorious
crimes: Goldman Sachs excused its lying to clients, for
example, by insisting that its customers are “sophisticated
investors” who should expect to be lied to. “Last time I
checked,” former Morgan Stanley CEO John Mack sneered after
the same scandal, “we were in business to be profitable.”

Within the cult of Wall Street that forged Mitt Romney, making
money justifies any behavior, no matter how venal. The look on
Romney’s face when he refuses to apologize says it all: Hey,
I’m trying to win an election. We’re all grown-ups here. After
the Ampad deal, Romney expressed contempt for critics who
lived in “fantasy land.” “This is the real world,” he said,
“and in the real world there is nothing wrong with companies
trying to compete, trying to stay alive, trying to make

In the old days, making money required sharing the wealth:
with assembly-line workers, with middle management, with
schools and communities, with investors. Even the Gilded Age
robber barons, despite their unapologetic efforts to keep
workers from getting any rights at all, built America in spite
of themselves, erecting railroads and oil wells and telegraph
wires. And from the time the monopolists were reined in with
antitrust laws through the days when men like Mitt Romney’s
dad exited center stage in our economy, the American social
contract was pretty consistent: The rich got to stay rich,
often filthy rich, but they paid taxes and a living wage and
everyone else rose at least a little bit along with them.

But under Romney’s business model, leveraging other people’s
debt means you can carve out big profits for yourself and
leave everyone else holding the bag. Despite what Romney
claims, the rate of return he provided for Bain’s investors
over the years wasn’t all that great. Romney biographer and
Wall Street Journal reporter Brett Arends, who analyzed Bain’s
performance between 1984 and 1998, concludes that the firm’s
returns were likely less than 30 percent per year, which
happened to track more or less with the stock market’s average
during that time. “That’s how much money you could have made
by issuing company bonds and then spending the money picking
stocks out of the paper at random,” Arends observes. So for
all the destruction Romney wreaked on Middle America in the
name of “trying to make money,” investors could have just
plunked their money into traditional stocks and gotten pretty
much the same returns.

The only ones who profited in a big way from all the job-
killing debt that Romney leveraged were Mitt and his buddies
at Bain, along with Wall Street firms like Goldman and
Citigroup. Barry Ritholtz, author of Bailout Nation, says the
criticisms of Bain about layoffs and meanness miss a more
important point, which is that the firm’s profit-producing
record is absurdly mediocre, especially when set against all
the trouble and pain its business model causes. “Bain’s
fundamental flaw, at least according to the math,” Ritholtz
writes, “is that they took lots of risk, use immense leverage
and charged enormous fees, for performance that was more or
less the same as [stock] indexing.”

‘I’m not a Romney guy, because I’m not a Bain guy,” says Lenny
Patnode, in an Irish pub in the factory town of Pittsfield,
Massachusetts. “But I’m not an Obama guy, either. Just so you

I feel bad even asking Patnode about Romney. Big and burly,
with white hair and the thick forearms of a man who’s stocked
a shelf or two in his lifetime, he seems to belong to an era
before things like leveraged debt even existed. For 38 years,
Patnode worked for a company called KB Toys in Pittsfield. He
was the longest-serving employee in the company’s history,
opening some of the firm’s first mall stores, making some of
its canniest product buys (“Tamagotchi pets,” he says,
beaming, “and Tech-Decks, too”), traveling all over the world
to help build an empire that at its peak included 1,300
stores. “There were times when I worked seven days a week, 16
hours a day,” he says. “I opened three stores in two months

Then in 2000, right before Romney gave up his ownership stake
in Bain Capital, the firm targeted KB Toys. The debacle that
followed serves as a prime example of the conflict between the
old model of American business, built from the ground up with
sweat and industry know-how, and the new globalist model, the
Romney model, which uses leverage as a weapon of high-speed

In a typical private-equity fragging, Bain put up a mere $18
million to acquire KB Toys and got big banks to finance the
remaining $302 million it needed. Less than a year and a half
after the purchase, Bain decided to give itself a gift known
as a “dividend recapitalization.” The firm induced KB Toys to
redeem $121 million in stock and take out more than $66
million in bank loans – $83 million of which went directly
into the pockets of Bain’s owners and investors, including
Romney. “The dividend recap is like borrowing someone else’s
credit card to take out a cash advance, and then leaving them
to pay it off,” says Heather Slavkin Corzo, who monitors
private equity takeovers as the senior legal policy adviser
for the AFL-CIO.

Bain ended up earning a return of at least 370 percent on the
deal, while KB Toys fell into bankruptcy, saddled with
millions in debt. KB’s former parent company, Big Lots,
alleged in bankruptcy court that Bain’s “unjustified” return
on the dividend recap was actually “900 percent in a mere 16
months.” Patnode, by contrast, was fired in December 2008,
after almost four decades on the job. Like other employees, he
didn’t get a single day’s severance.

I ask Slavkin Corzo what Bain’s justification was for the
giant dividend recapitalization in the KB Toys acquisition.
The question throws her, as though she’s surprised anyone
would ask for a reason a company like Bain would loot a firm
like KB Toys. “It wasn’t like, ‘Yay, we did a good job, we get
a dividend,'” she says with a laugh. “It was like, ‘We can do
this, so we will.’?”

At the time of the KB Toys deal, Romney was a Bain investor
and owner, making him a mere beneficiary of the raping and
pillaging, rather than its direct organizer. Moreover, KB’s
demise was hastened by a host of genuine market forces,
including competition from video games and cellphones. But
there’s absolutely no way to look at what Bain did at KB and
see anything but a cash grab – one that followed the business
model laid out by Romney. Rather than cutting costs and
tightening belts, Bain added $300 million in debt to the
firm’s bottom line while taking out more than $120 million in
cash – an outright looting that creditors later described in a
lawsuit as “breaking open the piggy bank.” What’s more, Bain
smoothed the deal in typical fashion by giving huge bonuses to
the company’s top managers as the firm headed toward
bankruptcy. CEO Michael Glazer got an incredible $18.4
million, while CFO Robert Feldman received $4.8 million and
senior VP Thomas Alfonsi took home $3.3 million.

And what did Bain bring to the table in return for its
massive, outsize payout? KB Toys had built a small empire by
targeting middle-class buyers with value-priced products. It
succeeded mainly because the firm’s leaders had a great
instinct for what they were making and selling. These were
people who had been in the specialty toy business since 1922;
collectively, they had millions of man-hours of knowledge
about how the industry works and how toy customers behave.
KB’s president in the Eighties, the late Saul Rubenstein, used
to carry around a giant computer printout of the company’s
inventory, and would fall asleep reading it on the weekends,
the pages clasped to his chest. “He knew the name and number
of all those toys,” his widow, Shirley, says proudly. “He
loved toys.”

Bain’s experience in the toy industry, by contrast, was
precisely bupkus. They didn’t know a damn thing about the
business they had taken over – and they never cared to learn.
The firm’s entire contribution was $18 million in cash and a
huge mound of borrowed money that gave it the power to pull
the levers. “The people who came in after – they were never
toy people,” says Shirley Rubenstein. To make matters worse,
former employees say, Bain deluged them with requests for
paperwork and reports, forcing them to worry more about the
whims of their new bosses than the demands of their customers.
“We took our eye off the ball,” Patnode says. “And if you take
your eye off the ball, you strike out.”

In the end, Bain never bothered to come up with a plan for how
KB Toys could meet the 21st-century challenges of video games
and cellphone gadgets that were the company’s ostensible
downfall. And that’s where Romney’s self-touted reputation as
a turnaround specialist is a myth. In the Bain model, the
actual turnaround isn’t necessary. It’s just a cover story.
It’s nice for the private equity firm if it happens, because
it makes the acquired company more attractive for resale or an
IPO. But it’s mostly irrelevant to the success of the takeover
model, where huge cash returns are extracted whether the
captured firm thrives or not.

“The thing about it is, nobody gets hurt,” says Patnode.
“Except the people who worked here.”

Romney was a prime mover in the radical social and political
transformation that was cooked up by Wall Street beginning in
the 1980s. In fact, you can trace the whole history of the
modern age of financialization just by following the highly
specific corner of the economic universe inhabited by the
leveraged buyout business, where Mitt Romney thrived. If you
look at the number of leveraged buyouts dating back two or
three decades, you see a clear pattern: Takeovers rose sharply
with each of Wall Street’s great easy-money schemes, then
plummeted just as sharply after each of those scams crashed
and burned, leaving the rest of us with the bill.

In the Eighties, when Romney and Bain were cutting their teeth
in the LBO business, the primary magic trick involved the junk
bonds pioneered by convicted felon Mike Milken, which allowed
firms like Bain to find easy financing for takeovers by using
wildly overpriced distressed corporate bonds as collateral.
Junk bonds gave the Gordon Gekkos of the world sudden primacy
over old-school industrial titans like the Fords and the
Rockefellers: For the first time, the ability to make deals
became more valuable than the ability to make stuff, and the
ability to instantly engineer billions in illusory financing
trumped the comparatively slow process of making and selling
products for gradual returns.

Romney was right in the middle of this radical change. In
fact, according to The Boston Globe – whose in-depth reporting
on Romney and Bain has spanned three decades – one of Romney’s
first LBO deals, and one of his most profitable, involved Mike
Milken himself. Bain put down $10 million in cash, got $300
million in financing from Milken and bought a pair of
department-store chains, Bealls Brothers and Palais Royal. In
what should by now be a familiar outcome, the two chains –
which Bain merged into a single outfit called Stage Stores –
filed for bankruptcy protection in 2000 under the weight of
more than $444 million in debt. As always, Bain took no
responsibility for the company’s demise. (If you search the
public record, you will not find a single instance of Mitt
Romney taking responsibility for a company’s failure.)
Instead, Bain blamed Stage’s collapse on “operating problems”
that took place three years after Bain cashed out, finishing
with a $175 million return on its initial investment of $10

But here’s the interesting twist: Romney made the Bealls-
Palais deal just as the federal government was launching
charges of massive manipulation and insider trading against
Milken and his firm, Drexel Burnham Lambert. After what must
have been a lengthy and agonizing period of moral soul-
searching, however, Romney decided not to kill the deal,
despite its shady financing. “We did not say, ‘Oh, my
goodness, Drexel has been accused of something, not been found
guilty,’?” Romney told reporters years after the deal. “Should
we basically stop the transaction and blow the whole thing

In an even more incredible disregard for basic morality,
Romney forged ahead with the deal even though Milken’s case
was being heard by a federal district judge named Milton
Pollack, whose wife, Moselle, happened to be the chairwoman of
none other than Palais Royal. In short, one of Romney’s first
takeover deals was financed by dirty money – and one of the
corporate chiefs about to receive a big payout from Bain was
married to the judge hearing the case. Although the SEC took
no formal action, it issued a sharp criticism, complaining
that Romney was allowing Milken’s money to have a possible
influence over “the administration of justice.”

After Milken and his junk bond scheme crashed in the late
Eighties, Romney and other takeover artists moved on to Wall
Street’s next get-rich-quick scheme: the tech-Internet stock
bubble. By 1997 and 1998, there were nearly $400 billion in
leveraged buyouts a year, as easy money once again gave these
financial piracy firms the ammunition they needed to raid
companies like KB Toys. Firms like Bain even have a colorful
pirate name for the pools of takeover money they raise in
advance from pension funds, university endowments and other
institutional investors. “They call it dry powder,” says
Slavkin Corzo, the union adviser.

After the Internet bubble burst and private equity started
cashing in on Wall Street’s mortgage scam, LBO deals ballooned
to almost $900 billion in 2006. Once again, storied companies
with long histories and deep regional ties were descended upon
by Bain and other pirates, saddled with hundreds of millions
in debt, forced to pay huge management fees and “dividend
recapitalizations,” and ridden into bankruptcy amid waves of
layoffs. Established firms like Del Monte, Hertz and Dollar
General were all taken over in a “prairie fire of debt” – one
even more destructive than the government borrowing that
Romney is flogging on the campaign trial. When Hertz was
conquered in 2005 by a trio of private equity firms, including
the Carlyle Group, the interest payments on its debt soared by
a monstrous 80 percent, forcing the company to eliminate a
third of its 32,000 jobs.

In 2010, a year after the last round of Hertz layoffs, Carlyle
teamed up with Bain to take $500 million out of another
takeover target: the parent company of Dunkin’ Donuts and
Baskin-Robbins. Dunkin’ had to take out a $1.25 billion loan
to pay a dividend to its new private equity owners. So think
of this the next time you go to Dunkin’ Donuts for a cup of
coffee: A small cup of joe costs about $1.69 in most outlets,
which means that for years to come, Dunkin’ Donuts will have
to sell about 2,011,834 small coffees every month – about $3.4
million – just to meet the interest payments on the loan it
took out to pay Bain and Carlyle their little one-time
dividend. And that doesn’t include the principal on the loan,
or the additional millions in debt that Dunkin’ has to pay
every year to get out from under the $2.4 billion in debt it’s
now saddled with after having the privilege of being taken
over – with borrowed money – by the firm that Romney built.

If you haven’t heard much about how takeover deals like
Dunkin’ and KB Toys work, that’s because Mitt Romney and his
private equity brethren don’t want you to. The new owners of
American industry are the polar opposites of the Milton
Hersheys and Andrew Carnegies who built this country,
commercial titans who longed to leave visible legacies of
their accomplishments, erecting hospitals and schools and
libraries, sometimes leaving behind thriving towns that bore
their names.

The men of the private equity generation want no such thing.
“We try to hide religiously,” explained Steven Feinberg, the
CEO of a takeover firm called Cerberus Capital Management that
recently drove one of its targets into bankruptcy after
saddling it with $2.3 billion in debt. “If anyone at Cerberus
has his picture in the paper and a picture of his apartment,
we will do more than fire that person,” Feinberg told
shareholders in 2007. “We will kill him. The jail sentence
will be worth it.”

Which brings us to another aspect of Romney’s business career
that has largely been hidden from voters: His personal fortune
would not have been possible without the direct assistance of
the U.S. government. The taxpayer-funded subsidies that Romney
has received go well beyond the humdrum, backdoor, welfare-
sucking that all supposedly self-made free marketeers
inevitably indulge in. Not that Romney hasn’t done just fine
at milking the government when it suits his purposes, the most
obvious instance being the incredible $1.5 billion in aid he
siphoned out of the U.S. Treasury as head of the 2002 Winter
Olympics in Salt Lake – a sum greater than all federal
spending for the previous seven U.S. Olympic games combined.
Romney, the supposed fiscal conservative, blew through an
average of $625,000 in taxpayer money per athlete – an
astounding increase of 5,582 percent over the $11,000 average
at the 1984 games in Los Angeles. In 1993, right as he was
preparing to run for the Senate, Romney also engineered a
government deal worth at least $10 million for Bain’s
consulting firm, when it was teetering on the edge of
bankruptcy. (See “The Federal Bailout That Saved Romney,” page

But the way Romney most directly owes his success to the
government is through the structure of the tax code. The
entire business of leveraged buyouts wouldn’t be possible
without a provision in the federal code that allows companies
like Bain to deduct the interest on the debt they use to
acquire and loot their targets. This is the same universally
beloved tax deduction you can use to write off your mortgage
interest payments, so tampering with it is considered
political suicide – it’s been called the “third rail of tax
reform.” So the Romney who routinely rails against the
national debt as some kind of child-killing “mortgage” is the
same man who spent decades exploiting a tax deduction
specifically designed for mortgage holders in order to bilk
every dollar he could out of U.S. businesses before burning
them to the ground.

Because minus that tax break, Romney’s debt-based takeovers
would have been unsustainably expensive. Before Lynn Turner
became chief accountant of the SEC, where he reviewed filings
on takeover deals, he crunched the numbers on leveraged
buyouts as an accountant at a Big Four auditing firm. “In the
majority of these deals,” Turner says, “the tax deduction has
a big enough impact on the bottom line that the takeover
wouldn’t work without it.”

Thanks to the tax deduction, in other words, the government
actually incentivizes the kind of leverage-based takeovers
that Romney built his fortune on. Romney the businessman built
his career on two things that Romney the candidate decries:
massive debt and dumb federal giveaways. “I don’t know what
Romney would be doing but for debt and its tax-advantaged
position in the tax code,” says a prominent Wall Street
lawyer, “but he wouldn’t be fabulously wealthy.”

Adding to the hypocrisy, the money that Romney personally
pocketed on Bain’s takeover deals was usually taxed not as
income, but either as capital gains or as “carried interest,”
both of which are capped at a maximum rate of 15 percent. In
addition, reporters have uncovered plenty of evidence that
Romney takes full advantage of offshore tax havens: He has an
interest in at least 12 Bain funds, worth a total of $30
million, that are based in the Cayman Islands; he has
reportedly used a squirrelly tax shelter known as a “blocker
corporation” that cheats taxpayers out of some $100 million a
year; and his wife, Ann, had a Swiss bank account worth $3
million. As a private equity pirate, Romney pays less than
half the tax rate of most American executives – less, even,
than teachers, firefighters, cops and nurses. Asked about the
fact that he paid a tax rate of only 13.9 percent on income of
$21.7 million in 2010, Romney responded testily that the
massive windfall he enjoys from exploiting the tax code is
“entirely legal and fair.”

Essentially, Romney got rich in a business that couldn’t exist
without a perverse tax break, and he got to keep double his
earnings because of another loophole – a pair of bureaucratic
accidents that have not only teamed up to threaten us with a
Mitt Romney presidency but that make future Romneys far more
likely. “Those two tax rules distort the economics of private
equity investments, making them much more lucrative than they
should be,” says Rebecca Wilkins, senior counsel at the Center
for Tax Justice. “So we get more of that activity than the
market would support on its own.”

Listen to Mitt Romney speak, and see if you can notice what’s
missing. This is a man who grew up in Michigan, went to
college in California, walked door to door through the streets
of southern France as a missionary and was a governor of
Massachusetts, the home of perhaps the most instantly
recognizable, heavily accented English this side of Edinburgh.
Yet not a trace of any of these places is detectable in
Romney’s diction. None of the people in any of those places
bled in and left a mark on the man.

Romney is a man from nowhere. In his post-regional attitude,
he shares something with his campaign opponent, Barack Obama,
whose background is a similarly jumbled pastiche of regionally
nonspecific non-identity. But in the way he bounced around the
world as a half-orphaned child, Obama was more like an
involuntary passenger in the demographic revolution reshaping
the planet than one of its leaders.

Romney, on the other hand, is a perfect representative of one
side of the ominous cultural divide that will define the next
generation, not just here in America but all over the world.
Forget about the Southern strategy, blue versus red, swing
states and swing voters Рall of those political clich̩s are
quaint relics of a less threatening era that is now part of
our past, or soon will be. The next conflict defining us all
is much more unnerving.

That conflict will be between people who live somewhere, and
people who live nowhere. It will be between people who
consider themselves citizens of actual countries, to which
they have patriotic allegiance, and people to whom nations are
meaningless, who live in a stateless global archipelago of
privilege – a collection of private schools, tax havens and
gated residential communities with little or no connection to
the outside world.

Mitt Romney isn’t blue or red. He’s an archipelago man. That’s
a big reason that voters have been slow to warm up to him.
From LBJ to Bill Clinton to George W. Bush to Sarah Palin,
Americans like their politicians to sound like they’re from
somewhere, to be human symbols of our love affair with small
towns, the girl next door, the little pink houses of
Mellencamp myth. Most of those mythical American towns grew up
around factories – think chocolate bars from Hershey, baseball
bats from Louisville, cereals from Battle Creek. Deep down,
what scares voters in both parties the most is the thought
that these unique and vital places are vanishing or eroding –
overrun by immigrants or the forces of globalism or both, with
giant Walmarts descending like spaceships to replace the
corner grocer, the family barber and the local hardware store,
and 1,000 cable channels replacing the school dance and the
gossip at the local diner.

Obama ran on “change” in 2008, but Mitt Romney represents a
far more real and seismic shift in the American landscape.
Romney is the frontman and apostle of an economic revolution,
in which transactions are manufactured instead of products,
wealth is generated without accompanying prosperity, and
Cayman Islands partnerships are lovingly erected and nurtured
while American communities fall apart. The entire purpose of
the business model that Romney helped pioneer is to move money
into the archipelago from the places outside it, using massive
amounts of taxpayer-subsidized debt to enrich a handful of
billionaires. It’s a vision of society that’s crazy, vicious
and almost unbelievably selfish, yet it’s running for
president, and it has a chance of winning. Perhaps that change
is coming whether we like it or not. Perhaps Mitt Romney is
the best man to manage the transition. But it seems a little
early to vote for that kind of wholesale surrender.

[Matt Taibbi is a contributing editor for Rolling Stone. He’s
the author of five books, most recently The Great Derangement
and Griftopia, and a winner of the National Magazine Award for

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