...or rather, being a focus, on revisiting exactly what "go go economics" meant for millions of ordinary people trying to make a decent living.
A focus for highlighting the bait-and-switch rationalizations for giving financial wheeler-dealers an ever-freer hand, and how all the glorious benefits never really pan out for people just trying to get ahead.
A focus for underscoring just how long this happy-face predation has been going on. Just take a look:
LA Times, Tuesday 1/3/2011:
Either way, Bain investors typically profited.
That was true in the case of GS Industries, the 10th-biggest Bain investment in the Romney years. Bain formed GSI in the early 1990s by spending $24 million to acquire and merge steel companies with plants in Missouri, South Carolina and other states. Company managers cut jobs and benefits almost immediately. Meanwhile, Bain and other investors received management fees from GSI and a $65-million dividend in the first years after the acquisition, according to interviews with company employees.
In 1999, as economic challenges mounted, GSI sought a federal loan guarantee intended to help steel companies compete internationally. The loan deal was approved, but in 2001, before it could be used, the company went bankrupt, two years after Romney left Bain. More than 700 workers were fired, losing not only their jobs but health insurance, severance and a chunk of their pension benefits. GSI retirees also lost their health insurance and other benefits. Bain partners received about $50 million on their initial investment, a 100% gain.
From the 1992 book America: What Went Wrong by journalists Donald Barlett and James Steele:
As it turned out, Interco failed to be a textbook model for the wonders of corporate debt. Instead of encouraging efficiency, it compelled management to make short-term decisions that harmed the long-run interests of the corporation and its employees. Within two weeks of taking on the debt, Interco closed two Florsheim shoe plants-and sold the real estate. Interco announced that the shutdowns would save more than $2 million. That was just enough to pay the interest on the company's new mountain of debt for five days.
It was a model of stability for the town and one of the manufacturing jewels of the International Shoe Company, later Interco, its owner. Because of the factory's efficient work force, whenever Florsheim wanted to experiment with new technology or develop a new shoe, it did so at Hermann. The plant had a long history of good labor relations. And it operated at a profit. So why, then, did Interco choose to close the factory? Listen to Perry D. Lovett, who was city administrator of Hermann when the plant shut down and who discussed the closing with Interco officials: "We talked to the senior vice president who was selling the property and he told me this was a profitable plant and they were pleased with it. The only thing was, this plant and the one in Kentucky they actually owned. The other plants they had, they had leased. The only place they could generate cash was from the plant in Hermann and the one in Kentucky.
"He said it was just a matter that this was one piece of property in which they could generate revenue to pay off the debt. And that was it. That brought it down." In short, a profitable and efficient plant was closed because Interco actually owned-rather than leased-the building and real estate. And the company needed the cash from the sale of the property to help pay down the debt incurred in the restructuring that was supposed to make the company more efficient.
Remember, that book is from before Clinton, and the pattern was already underway. Excerpts from the book can be read at:
Authors' site at:
And more fun facts from the past:
While 23% is still a little over twice what the stock market returned over the period, Blackstone used a lot of borrowed money. If youd borrowed half the money you had invested in the stock market, a legal and reasonably prudent thing to do, then your returns would be close to what Blackstones outside investors got. The real juice in this game is for the partners. Oh, and theyre going to take almost $4 billion of the IPOs proceeds for themselves. Theyll also hold considerable blocks of the new Blackstone stock, but considering all theyve taken out of the firm already, theyll be sitting a lot prettier than the new public shareholders.
After going public, Blackstone will keep some cut of the profitsa presumably large cut, but theres no number in the prospectus. Stockholders will have only limited voting rights and will have no right to elect our general partner or its directors, which will be elected by our founders.
Blackstone confesses to a long and scary set of risks: the financial markets could turn ugly; going public could drive away the talent responsible for all those years of splendid returns; lifting the veil of secrecy that comes with going public could ruin the magic; Congress or the regulators could come crashing down (e.g., they pay taxes on fee income at the favorable capital gains rate, which makes little sense to anyone not earning the fees); outside investors could demand their money back, which could leave Blackstone high and dry; losses could wipe the firm out completely and then some; shareholders have no recourse if the management team screws up; the inner circle has interests different from the shareholders, and reserves the right to think only of itself; an unspecified share of the proceeds of the stock offering will go into the pockets of the founders, and wont be available for the business; shareholders could have to pay taxes on Blackstones income even though it didnt distribute any of it as cash to shareholders.
Doug Henwood, Left Business Observer #115, May 2007
and from today:
In story after story, the same formula is repeated over and over again: after wondrous boasts of forthcoming prosperity, the wheeler-dealers at the top make out royally, investors do well (when they're not left holding the bag, that is), and everyone outside that top tier, who are just trying to have a normal life, get squeezed, screwed, and sent scrambling. All so that the already wealthy want to get more wealthy. It's a hell of a lot easier and safer (investment-wise) than actually innovating.
Or to put it in terms "pro-business" people understand: there's a mismatch of incentives between financial players and benefits for the real economy.
So thanks, Mitt. Now go away.
...by the national Republican party?
...with absolutely no sense of irony.
I'm thinking in 5, 4, 3, 2....
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