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The “Bain” of American Wage Earners: Romney’s Way (A Homework Assignment for Listeners)


COMMENT: The 2012 Pres­i­den­tial race will like­ly be decid­ed by the econ­o­my, or the elec­torate’s per­cep­tion of same. Observ­ing the medi­a’s treat­ment of the can­di­dates is rem­i­nis­cent of the grotesque media bias to which Al Gore was sub­ject­ed in 2000. (Robert Par­ry, among oth­ers, has not­ed the overt bias of the main­stream media toward Dubya dur­ing that elec­tion.)

A recent arti­cle in The Vil­lage Voice high­light­ed the man­ner in which Rom­ney’s Bain Cap­i­tal oper­at­ed. It is the sup­posed “suc­cess” of Bain Cap­i­tal that has been tout­ed by Rom­ney and the flacks in the media run­ning inter­fer­ence for him as proof that this “busi­ness­man” has the nec­es­sary exper­tise to run the U.S. econ­o­my.

The fact of the mat­ter is that Bain Cap­i­tal and Rom­ney epit­o­mize the very worst aspects of preda­to­ry pri­vate equi­ty busi­ness. If a Pres­i­dent Rom­ney runs the Amer­i­can econ­o­my the way that he oper­at­ed at Bain, it bodes very poor­ly for Amer­i­can work­ers.

It is to be not­ed that, after can­ni­bal­iz­ing busi­ness­es and screw­ing work­ing folks for fun and a great deal of prof­it, Rom­ney parked a great deal of mon­ey in off­shore bank accounts in the Cay­man Islands, one of the most noto­ri­ous tax havens.

I am charg­ing the lis­ten­ers (and read­ers) to do a lit­tle home­work. I want them to dis­trib­ute this arti­cle, and the infor­ma­tion about Rom­ney’s off­shore bank accounts. In the Inter­net age, it should be pos­si­ble for a rel­a­tive­ly small num­ber of lis­ten­ers to gen­er­ate a great deal of buzz in this regard. If Rom­ney gets in, you are going to be very, very sor­ry.

“Dri­vers, start your engines!”

“Mitt Rom­ney, Amer­i­can Par­a­site” by Peter Kotz; The Vil­lage Voice; 4/18/2012.

EXCERPT: It was the ear­ly 1990s, and the 750 men and women at George­town Steel were pump­ing out wire rods at peak per­for­mance. They had an abid­ing trust in man­age­men­t’s abil­i­ty to run a smart com­pa­ny. That alle­giance was reward­ed with fat prof­it-shar­ing checks. In the base­ment-wage econ­o­my of George­town, South Car­oli­na, Sander­son and his co-work­ers were blue-col­lar aris­toc­ra­cy.

“We were doing very good,” says Sander­son, pres­i­dent of Steel­work­ers Local 7898. “The plant was mak­ing mon­ey, and we had good prof­it-shar­ing checks, and every­thing was going well.”

What he did­n’t know was that it was about to end. Hun­dreds of miles to the north, in Boston, a future pres­i­den­tial can­di­date was siz­ing up George­town’s books.

At the time, Mitt Rom­ney had been run­ning Bain Cap­i­tal since 1984, mint­ing a rep­u­ta­tion as a prince of pri­vate invest­ment. A future prospec­tus by Deutsche Bank would reveal that by the time he left in 1999, Bain had aver­aged a shim­mer­ing 88 per­cent annu­al return on invest­ment. Rom­ney would use that suc­cess to launch his polit­i­cal career.

His spe­cial­ty was flip­ping companies—or what he often calls “cre­ative destruc­tion.” It’s the age-old the­o­ry that the new must con­stant­ly attack the old to bring effi­cien­cy to the econ­o­my, even if some com­pa­nies are destroyed along the way. In oth­er words, peo­ple like Rom­ney are the wolves, culling the herd of the weak and infirm. . . .

. . . . Bain would slash costs, jet­ti­son work­ers, repo­si­tion prod­uct lines, and merge its new com­pa­nies with oth­er firms. With luck, they’d be able to dump the firm in a few years for mil­lions more than they’d paid for it.

But the beau­ty of Rom­ney’s the­sis was that it real­ly did­n’t mat­ter if the com­pa­ny suc­ceed­ed. Because he was yank­ing out cash ear­ly and often, he would prof­it even if his tar­gets col­lapsed.

Which was pre­cise­ly the fate await­ing George­town Steel.

When Bain pur­chased the mill, Sander­son says, change was imme­di­ate. Equip­ment upgrades stopped. Main­te­nance became an after­thought. Man­agers were replaced by peo­ple who knew noth­ing about steel. The union’s prof­it-shar­ing plan was sliced twice in the first year—then whacked alto­geth­er.

“When Bain Cap­i­tal took over, it seemed like every­thing was being neglect­ed in our plant,” Sander­son says. “Noth­ing was being invest­ed in our plant. We did­n’t have the nec­es­sary time to main­tain our equip­ment. They had peo­ple here that did­n’t know what they were doing. It was like they were tak­ing mon­ey from us and putting it some­where else.”

His­to­ry would prove him cor­rect. While George­town was begin­ning its descent to bank­rupt­cy, Rom­ney was help­ing him­self to the com­pa­ny’s trea­sury. . . .

. . . . In the midst of that 1994 cam­paign [against Ted Kennedy], one of Rom­ney’s com­pa­nies, Amer­i­can Pad & Paper, bought a plant in Mar­i­on, Indi­ana. At the time, it was pros­per­ous enough to be run­ning three shifts.

Bain’s first move was to fire all 258 work­ers, then invite them to reap­ply for their jobs at low­er wages and a 50 per­cent cut in health care ben­e­fits.

“They came in and said, ‘You’re all fired,’ ” employ­ee Randy John­son told the Los Ange­les Times. “ ‘If you want to work for us, here’s an appli­ca­tion.’ We had insur­ance until the end of the week. That was it. It was bru­tal.”

But instead of reap­ply­ing, the work­ers went on strike. They also decid­ed the good peo­ple of Mass­a­chu­setts should know what kind of man want­ed to be their sen­a­tor. Sud­den­ly, Indi­ana accents were show­ing up in Kennedy TV ads, offer­ing tales of Rom­ney’s vil­lainy. He was sketched as a cor­po­rate Lucifer, one who would­n’t blink at crush­ing lit­tle peo­ple if it meant pret­ty­ing his port­fo­lio.

Need­less to say, this was­n’t a prop­er lead­ing man’s role for a labor state like Mass­a­chu­setts. Tak­ing just 41 per­cent of the vote, Rom­ney was pound­ed in the elec­tion. Mean­while, the Mar­i­on plant closed just six months after Bain’s pur­chase. The jobs were shipped to Mex­i­co. . . .

. . . . An exam­ple of Rom­ney’s cold-blood­ed approach is his 1994 pur­chase of Dade Inter­na­tion­al, an Illi­nois med­ical-equip­ment com­pa­ny. He soon merged it with two sim­i­lar firms, a move that tripled sales.

Once again, he could­n’t help but raid the vault, peel­ing away $100 mil­lion for him­self and investors at the same time Dade was lay­ing off 1,700 Amer­i­can work­ers.

After Bain closed a Dade plant in Puer­to Rico, human-resources man­ag­er Cindy Hewitt was asked to lure a dozen of those employ­ees to work in the com­pa­ny’s Mia­mi fac­to­ry.

But that plant soon closed as well. Although Rom­ney was gob­bling up mil­lions, Bain still want­ed those laid-off employ­ees to repay their mov­ing costs.

“They were treat­ed hor­ri­bly,” Hewitt told The New York Times. “There was absolute­ly no con­cern for the employ­ees. It was tru­ly and com­plete­ly prof­it-focused.”

Yet Bain’s molesta­tion was­n’t com­plete. It was try­ing to sell Dade but did­n’t like the offers it received on the open mar­ket. So it cre­at­ed an arti­fi­cial mar­ket of its own.

In 1999, it forced Dade to bor­row $242 mil­lion, which was used to buy back com­pa­ny stock from Bain, Dade exec­u­tives, and their banker, Gold­man Sachs.

Bain was again extract­ing prof­its with bor­rowed mon­ey. It had pushed Dade’s debt to a brac­ing $2 bil­lion. To help pay for the deal, the com­pa­ny laid off anoth­er 367 work­ers.

But that debt proved too much for Dade’s shoul­ders to car­ry. Three years lat­er, the com­pa­ny was bank­rupt.

Kos­man calls it stan­dard Rom­ney oper­at­ing pro­ce­dure. To pump short-term earn­ings, he would essen­tial­ly “starve a com­pa­ny,” whack­ing not just employ­ees, but also cus­tomer-ser­vice and research-and-devel­op­ment funding—the ingre­di­ents of long-term pros­per­i­ty. . . .

COMMENT: And where did this “busi­ness­man” put his mon­ey? He stashed it in the Cay­man Islands, where he won’t have to pay U.S. tax­es. What a guy!

“Rom­ney Parks Mil­lions in Cay­man Islands” by Matthew Mosk, Bri­an Ross and Megan Chuch­mach [ABC News]; yahoo.com; 1/19/2012.

EXCERPT: Although it is not appar­ent on his finan­cial dis­clo­sure form, Mitt Rom­ney has mil­lions of dol­lars of his per­son­al wealth in invest­ment funds set up in the Cay­man Islands, a noto­ri­ous Caribbean tax haven.

A spokesper­son for the Rom­ney cam­paign says Rom­ney fol­lows all tax laws and he would pay the same in tax­es regard­less of where the funds are based.

As the race for the Repub­li­can nom­i­na­tion heats up, Mitt Rom­ney is find­ing it increas­ing­ly dif­fi­cult to main­tain a shroud of secre­cy around the details about his vast per­son­al wealth, includ­ing, as ABC News has dis­cov­ered, his invest­ment in funds locat­ed off­shore and his abil­i­ty to pay a low­er tax rate.

“His per­son­al finances are a poster child of what’s wrong with the Amer­i­can tax sys­tem,” said Jack Blum, a Wash­ing­ton lawyer who is an author­i­ty on tax enforce­ment and off­shore bank­ing. . . .


16 comments for “The “Bain” of American Wage Earners: Romney’s Way (A Homework Assignment for Listeners)”

  1. Here is the great work of Lucy Komis­ar on some of Rom­ney’s oth­er shenani­gans, involv­ing this time the Mar­riott hotels chain.


    Posted by Claude | April 21, 2012, 10:19 am
  2. I work for a cor­po­ra­tion half owned by Bain Cap­i­tal Part­ners. I under­stand Mitt left in 1999 but I believe he still takes div­i­dend checks. And even though Mitt has moved on (not real­ly), the crum­my busi­ness and labor prac­tices con­tin­ue in his wake. It employs over 45,000 peo­ple, 75% of which are part time with no ben­e­fits. Most can bare­ly get the hours they need to live. If sales are down, even on a week­ly basis, then you can expect your hours to be cut. Even in a busi­ness sub­ject to the fluc­tu­a­tions of con­sumer spend­ing (what a way to make a liv­ing) this is degrad­ing treat­ment and unnec­es­sary unless you’re look­ing to nick­el-and-dime every pos­si­ble labor cost—which is the cost of peo­ple, nui­sances that they are. Some­times it feels more like a wage lot­tery than a job.

    Posted by GrumpusRex | April 21, 2012, 1:47 pm
  3. @GrumpusRex: Sor­ry about that. Last job I had did­n’t pay all that well either and the hours were kin­da crap­py but I was 17 and des­per­ate for cash......and then they dropped me after only a few months. Been out­ta luck ever since......hopefully my next job will be a decent one.

    Posted by Steven L. | April 22, 2012, 9:11 am
  4. [...] The “Bain” of Amer­i­can Wage Earn­ers: Romney’s Way [...]

    Posted by Mitt Romney: The art and science of corporatism at its finest | Lys-d'Or | April 22, 2012, 1:00 pm
  5. Rom­ney and Bain typ­i­fy the finan­cial par­a­sitism which dom­i­nates the US econ­o­my and its polit­i­cal rep­re­sen­ta­tives who pop­u­late the 2‑Par­ty-Sys­tem™.

    Be it Oba­ma (more than like­ly...) or Rom­noia post-Nov elec­tion the strat­e­gy is to con­tin­ue dec­i­mat­ing the gen­er­al work­ing pop­u­la­tion through destroy­ing social ben­e­fits won dur­ing the last cen­tu­ry.

    Look at La Pen in France, she just won almost 20% of the vote, rough­ly what Ron Paul would get here if he were allowed on the bal­lot.

    This is the case since no tru­ly pro­gres­sive alter­na­tive is allowed to man­i­fest. This is fer­tile ground for lumpen fas­cist move­ments to flour­ish.

    Posted by stu | April 25, 2012, 11:07 am
  6. @Stu: I’d be pret­ty con­cerned about Le Pen but here in the U.S. I still seri­ous­ly doubt RP would get close to 10% of the pop­u­lar vote, let alone 20%, not this late in the game(mainly because of his fail­ure in 2008, when his pop­u­lar­i­ty was at its peak with pro­gres­sives). I still main­tain that at least a slight(60%?) major­i­ty of RP vot­ers are like­ly going to be con­ser­v­a­tives and right-lean­ing cen­trists who think that Rom­ney is too main­stream and Oba­ma is too liberal......if any­thing at all, RP may actu­al­ly end up hurt­ing Rom­ney, so he may not be able to run......

    that said, though, I can’t dis­agree with Dav­e’s asser­tion that some dis­af­fect­ed pro­gres­sives may indeed be sucked into the RP vor­tex, though I feel more opti­mistic than he does in that regard. There were a LOT of them who were turned off when they found out about his past shenani­gans, from what I’ve seen, and right now, it seems to be the fringe con­ser­v­a­tives who are main­ly ignor­ing the evi­dence, and even try­ing to counter it with B.S.

    Posted by Steve L. | April 26, 2012, 4:45 am
  7. Beyond Rom­ney’s pil­lage and burn busi­ness mod­els, the guy is per­son­al­ly chill­ing. He is entire­ly a sur­face per­son­al­i­ty and there is an absence of real human­i­ty there. I get a bad feel­ing that there is no one in there. His prac­ticed folksy man­ner is too smooth and he is always ‘on’. Every hair in place, always smil­ing, he could be a pro­grammed video fig­ure with all the neu­ro-lin­guis­tic canned respons­es he pro­duces. He has obvi­ous­ly had inten­sive train­ing in dem­a­gogy tech­niques. I lis­ten care­ful­ly but there is no actu­al con­tent in what he says. Oba­ma tends this way also but Rom­ney is the mas­ter. Per­haps there is no real Rom­ney and we are about to elect a com­put­er pro­gram as chief exec­u­tive.

    Posted by Dwight | April 26, 2012, 3:22 pm
  8. @Dwight: At least Oba­ma’s been pret­ty good at mess­ing with the Repubs this last year or so. I do believe, though, that his great­est accom­plish­ments are like­ly to occur dur­ing his sec­ond term, because then, he’d have far less to lose by piss­ing them off.

    Posted by Steve L. | April 27, 2012, 3:14 am
  9. Mitt Rom­ney and his for­eign pol­i­cy team are hyp­ing the Russ­ian threat (think Sovi­et) as the biggest and bad­dest thing out there. It may be mere oppor­tunis­tic and reflex­ive right-wing pol­i­tick­ing, but I can’t be the first to real­ize it aligns Rom­ney with geo-strate­gic goals of Under­ground Reich vis-a-vis US/Russian rela­tions.

    I agree that there is some­thing fun­da­men­tal­ly dis­turb­ing and false about the man, and absolute­ly ghoul­ish in his well prac­ticed sophistry. It is real­ly chill­ing.

    Posted by GrumpusRex | April 27, 2012, 2:55 pm
  10. @GrumpusRex: I have to agree 100%.
    Putin, as incom­pe­tent as he may be, is no wannabe Stal­in. The Rus­sians aren’t look­ing for new worlds to conquer(if I may quote the 1990 WWIII clas­sic, “By Dawn’s Ear­ly Light”).
    Rom­ney’s for­eign pol­i­cy would be absolute­ly dis­as­trous if imple­ment­ed and could set back US/Russian rela­tions by per­haps as much as 25 years or so, maybe fur­ther!
    I don’t believe it would result in WWIII or anything(I don’t buy into that kind of fear­mon­ger­ing like some oth­ers on the ‘Net might), but cer­tain­ly some­thing would give.

    Posted by Steven L. | April 28, 2012, 6:53 am
  11. Mitt Rom­ney is relat­ed to George H. Bush, George W. Bush, Prescott Bush, the whole Bush group, along with oth­ers, to many to men­tion.
    They all are descen­dants of Anne Hutchin­son, and the Chart show­ing the tie-ins along with pho­tographs can be found in the Utah Ances­try Library locat­ed in Salt Lake City, Utah.
    So will we be under the Bushy Dynasty or what? George W. Bush authored the exec­u­tive order that cre­at­ed the “Home­land Secu­ri­ty Agency”. That EO merged the mil­i­tary and the civil­ian law enforce­ment sys­tems.

    Posted by Pat Owens | April 28, 2012, 7:34 am
  12. @Pat Owens: Very inter­est­ing stuff, indeed. I’m assum­ing that Anne Hutchin­son may have been the 17th cen­tu­ry Puri­tan who got boot­ed out of the Mass. Bay colony for oppos­ing the ‘ortho­doxy’, as it were? If so, that is one hell of an iron­ic revelation(since Rom­ney was once gov­er­nor of Mass. and George Bush, Sr. was born there, orig­i­nal­ly.).

    Posted by Steven L. | April 29, 2012, 4:39 am
  13. Anne Hutchin­son was Anne Mar­bury & her hus­band William Hutchin­son are list­ed from 1586 to 1642. The state­ments com­ing from that Rom­neys father and chil­dren that were born in Mex­i­co, well is sub­terfuge for the pub­lic. Let peo­ple learn they’ll be vot­ing indi­rect­ly for the Bush’s.

    Posted by Pat Owens | April 30, 2012, 9:13 am
  14. There’s a new book out by a for­mer Rom­ney col­league at Bain cap­i­tal that has the Rom­ney cam­paign a lit­tle uncom­fort­able, not because the book is say­ing things the Rom­ney cam­paign does­n’t nec­es­sar­i­ly agree with but, in pol­i­tics, words tend to speak loud­er than actions. So if you’re plans are to com­plete a class coup on behalf of the top 0.1%, you prob­a­bly don’t want want one of your obnox­ious old Bain bud­dies out there try­ing to ped­dle a book about how the poor should be more grate­ful for all the rich do for them and how we need to make things even bet­ter for the rich and worse for the poor in order to pro­vide prop­er ‘risk tak­ing’ incen­tives. Art His­to­ry majors in par­tic­u­lar, and their lack of go-get­ter moti­va­tions, appear to be one of the pri­ma­ry sources of this need for a more bil­lion­aire-friend­ly cul­ture. The whole thing is worth a read but I think the very end of the arti­cle real­ly cap­tures the essense of the mes­sage in book and why its pub­li­ca­tion might result in a few unin­tend­ed elec­toral con­se­quences:

    The Pur­pose of Spec­tac­u­lar Wealth, Accord­ing to a Spec­tac­u­lar­ly Wealthy Guy

    Ever since the finan­cial cri­sis start­ed, we’ve heard plen­ty from the 1 per­cent. We’ve heard them giv­ing defen­sive tes­ti­mo­ny in Con­gres­sion­al hear­ings or issu­ing ano­dyne state­ments flanked by lawyers and image con­sul­tants. They typ­i­cal­ly repeat plat­i­tudes about invest­ment, risk-tak­ing and job cre­ation with the veiled con­tempt that the nation doesn’t under­stand their con­tri­bu­tion. You get the sense that they’re afraid to say what they real­ly believe. What do the super­rich say when the cam­eras aren’t there?

    With that in mind, I recent­ly met Edward Conard on 57th Street and Madi­son Avenue, just out­side his office at Bain Cap­i­tal, the pri­vate-equi­ty firm he helped build into a multi­bil­lion-dol­lar busi­ness by buy­ing, fix­ing up and sell­ing off com­pa­nies at a prof­it. Conard, who retired a few years ago at 51, is not mere­ly a mem­ber of the 1 per­cent. He’s a mem­ber of the 0.1 per­cent. His wealth is most like­ly in the hun­dreds of mil­lions; he lives in an Upper East Side town house just off Fifth Avenue; and he is one of the largest donors to his old boss and friend, Mitt Rom­ney.

    Unlike his for­mer col­leagues, Conard wants to have an open con­ver­sa­tion about wealth. He has spent the last four years writ­ing a book that he hopes will for­ev­er change the way we view the superrich’s role in our soci­ety. “Unin­tend­ed Con­se­quences: Why Every­thing You’ve Been Told About the Econ­o­my Is Wrong,” to be pub­lished in hard­cov­er next month by Port­fo­lio, aggres­sive­ly argues that the enor­mous and grow­ing income inequal­i­ty in the Unit­ed States is not a sign that the sys­tem is rigged. On the con­trary, Conard writes, it is a sign that our econ­o­my is work­ing. And if we had a lit­tle more of it, then every­one, par­tic­u­lar­ly the 99 per­cent, would be bet­ter off. This could be the most hat­ed book of the year.

    Conard under­stands that many believe that the U.S. econ­o­my cur­rent­ly serves the rich at the expense of every­one else. He con­tends that this is large­ly because most Amer­i­cans don’t know how the econ­o­my real­ly works — that the super­rich spend only a small por­tion of their wealth on per­son­al com­forts; most of their mon­ey is invest­ed in pro­duc­tive busi­ness­es that make life bet­ter for every­one. “Most cit­i­zens are con­sumers, not investors,” he told me dur­ing one of our long, occa­sion­al­ly con­tentious con­ver­sa­tions. “They don’t rec­og­nize the ben­e­fits to con­sumers that come from invest­ment.”

    This is the usu­al defense of the 1 per­cent. Conard, how­ev­er, has laid out a tight­ly argued case for just how much con­sumers actu­al­ly ben­e­fit from the wealthy. Take com­put­ers, for exam­ple. A small num­ber of inno­va­tors and investors may have earned dis­pro­por­tion­ate bil­lions as the I.T. indus­try grew, but they got that mon­ey by com­pet­ing to con­stant­ly improve their prod­ucts and simul­ta­ne­ous­ly low­er prices. Their work has helped every­one get a lot more val­ue. Cheap, improved com­put­ing helps us do our jobs more effec­tive­ly and, often, earn more mon­ey. Count­less oth­er indus­tries (trav­el, tele­com, enter­tain­ment) use that com­put­ing pow­er to low­er their prices and enhance their prod­ucts. This gen­er­al­ly makes life more effi­cient and helps the econ­o­my grow.

    The idea that soci­ety ben­e­fits when investors com­pete suc­cess­ful­ly is pret­ty wide­ly accept­ed. Dean Bak­er, a promi­nent pro­gres­sive econ­o­mist with the Cen­ter for Eco­nom­ic and Pol­i­cy Research, says that most econ­o­mists believe soci­ety often ben­e­fits from invest­ments by the wealthy. Bak­er esti­mates the ratio is 5 to 1, mean­ing that for every dol­lar an investor earns, the pub­lic receives the equiv­a­lent of $5 of val­ue. The Google founder Sergey Brin might be very rich, but the world is far rich­er than he is because of Google. Conard said Bak­er was under­count­ing the social ben­e­fits of invest­ment. He looks, in par­tic­u­lar, at agri­cul­ture, where, since the 1940s, the cost of food has steadi­ly fall­en because of a con­stant stream of inno­va­tions. While the busi­ness­es that prof­it from that inno­va­tion — like seed com­pa­nies and fast-food restau­rants — have made their own­ers rich, the aver­age U.S. con­sumer has ben­e­fit­ed far more. Conard con­cludes that for every dol­lar an investor gets, the pub­lic reaps up to $20 in val­ue. This is cru­cial to his argu­ment: he thinks it proves that we should all appre­ci­ate the vast wealth of oth­ers more, because we’re ben­e­fit­ing, pro­por­tion­al­ly, from it.

    Google’s con­tri­bu­tion is obvi­ous. What about invest­ment banks, with their com­pli­cat­ed finan­cial deriv­a­tives and over­lever­aged bal­ance sheets? Conard argues that they make the econ­o­my more effi­cient, too. The finan­cial cri­sis, he writes, was not the result of cor­rupt bankers sell­ing dodgy finan­cial prod­ucts. It was a sim­ple, old-fash­ioned run on the banks, which, he says, were just doing their job. There are a huge num­ber of peo­ple in our econ­o­my who want ready access to their sav­ings — pen­sion-fund man­agers, insur­ance com­pa­nies and you and me with our bank accounts. And because eco­nom­ic growth comes from long-term invest­ments in things like hous­ing, fac­to­ries and research, the cen­tral role of banks, Conard says, is to turn the short-term assets of ner­vous savers into risky long-term loans that help the econ­o­my grow.

    Every once in a while, this sys­tem breaks down. For one rea­son or anoth­er, the savers pan­ic and demand all their mon­ey back. This caus­es a mas­sive prob­lem because the mon­ey isn’t sit­ting at the bank; it’s out in the world in the form of long-term loans. “A lot of peo­ple don’t real­ize that what hap­pened in 2008 was near­ly iden­ti­cal to what hap­pened in 1929,” he says. “Depos­i­tors ran to the bank to with­draw their mon­ey only to dis­cov­er, like the cit­i­zens of Bed­ford Falls” — refer­ring to the movie “It’s a Won­der­ful Life” — “that there was no mon­ey in the vault. All that mon­ey had been lent.”

    In 2008 it was large pen­sion funds, insur­ance com­pa­nies and oth­er huge insti­tu­tion­al investors that with­drew in pan­ic. Conard argues in ret­ro­spect that it was these with­drawals that led to the cri­sis — not, as so many oth­ers have argued, an orgy of irre­spon­si­ble lend­ing. He points to the fact that, accord­ing to the Finan­cial Cri­sis Inquiry Com­mis­sion, banks lost $320 bil­lion through mort­gage-backed secu­ri­ties, but with­drawals dis­pro­por­tion­ate­ly amount­ed to five times that. This stance, which large­ly absolves the banks, is not shared by many ana­lysts. Regard­less, Conard told me: “The banks did what we want­ed them to do. They put short-term mon­ey back into the econ­o­my. What they didn’t expect is that depos­i­tors would with­draw their mon­ey, because they hadn’t with­drawn their mon­ey en masse since 1929.”

    Conard con­cedes that the banks made some mis­takes, but the impor­tant thing now, he says, is to pro­vide them even stronger gov­ern­ment sup­port. He advo­cates cre­at­ing a new gov­ern­ment pro­gram that guar­an­tees to bail out the banks if they ever face anoth­er run. As for exot­ic deriv­a­tives, Conard doesn’t see a prob­lem. He argues that col­lat­er­al­ized-debt oblig­a­tions, cred­it-default swaps, mort­gage-backed secu­ri­ties and oth­er (now deemed tox­ic) finan­cial prod­ucts were fun­da­men­tal­ly sound. They were new tools that served a mar­ket need for the world’s most sophis­ti­cat­ed investors, who bought them in droves. And they didn’t cause the pan­ic any­way, he says; the with­drawals did.

    Even though these big con­clu­sions are at odds with most oth­er accounts, sev­er­al econ­o­mists said that they see Conard’s descrip­tion of the cri­sis as more than just an apolo­gia for the bank­ing class (though it cer­tain­ly is that, too). Andrei Shleifer, an influ­en­tial Har­vard econ­o­mist, told me that he thought Conard was “gen­uine­ly fan­tas­tic on finance.”

    “Unin­tend­ed Con­se­quences” only men­tions Rom­ney by name once (and in the acknowl­edg­ments, at that), but Conard hopes that the argu­ments detailed in his book will help read­ers under­stand why it’s so cru­cial that his for­mer boss — who believes the gov­ern­ment should help the investor class — win this Novem­ber. As I read “Unin­tend­ed Con­se­quences,” though, I won­dered if the book would have the oppo­site effect. Even staunch Repub­li­cans and many mem­bers of the Tea Par­ty might bris­tle at a world­view that cel­e­brates the coastal elite and says many tal­ent­ed peo­ple in the mid­dle class aren’t pulling their weight. Was Conard sad­dling his old boss with anoth­er exam­ple of how out of touch those with car ele­va­tors and mul­ti­ple Cadil­lacs can be? In this time of over­heat­ed argu­ments between oppo­nents who rarely lis­ten to one anoth­er, here was a rare mem­ber of the 1 per­cent open­ly try­ing to make his case. How con­vinc­ing is it?

    Conard and I even­tu­al­ly sat down at a cafe off Madi­son. His book is filled with a lot of abstrac­tion, so I asked him to show me how his ideas play out in the real world.

    Conard picked up a soda can and point­ed to the way the can’s side bent inward at the top. “I worked with the com­pa­ny that makes the machine that tapers that can,” he told me. That lit­tle taper allows man­u­fac­tur­ers to make the same size can with a tiny bit less alu­minum. “It saves a frac­tion of a pen­ny on every can,” he said. “There are a lot of soda cans in the world. That means the econ­o­my can pro­duce more cans with the same amount of resources. It makes every Amer­i­can who buys a soda can a lit­tle bit rich­er because their pay­check buys more.”

    It might be hard to get excit­ed about mil­ligrams of alu­minum, but Conard says that we live longer, health­i­er and rich­er lives because of count­less microim­prove­ments like that one. The peo­ple look­ing for them, Conard likes to point out, are not only com­put­er pro­gram­mers, engi­neers and sci­en­tists. They are also wealthy investors like him, who are will­ing to risk their own mon­ey to finance improve­ments that may or may not work. There is a huge mech­a­nism con­stant­ly try­ing to seek out and sup­port these new ideas — entre­pre­neurs, multi­na­tion­als and, cru­cial­ly for Conard, invest­ment firms and hedge funds and every­one down to indi­vid­ual bond traders. As Conard told me, one of the cru­cial lessons he learned at Bain is that it makes no sense to look for easy solu­tions. In a com­pet­i­tive mar­ket, all that’s left are the tru­ly hard puz­zles. And they require extra­or­di­nary resources. While we often hear about the great­est suc­cess­es — peni­cillin, the iPhone — we rarely hear about the count­less fail­ures and the peo­ple and com­pa­nies who financed them.

    A cen­tral prob­lem with the U.S. econ­o­my, he told me, is find­ing a way to get more peo­ple to look for solu­tions despite these ter­ri­ble odds of suc­cess. Conard’s solu­tion is sim­ple. Soci­ety ben­e­fits if the suc­cess­ful risk tak­ers get a lot of mon­ey. For proof, he looks to the mar­ket. At a near­by table we saw three young peo­ple with plaid shirts and flop­py hair. For all we know, they may have been plot­ting the next generation’s Twit­ter, but Conard felt sure they were mere­ly loung­ing on the side­lines. “What are they doing, sit­ting here, hav­ing a cof­fee at 2:30?” he asked. “I’m sure those guys are col­lege-edu­cat­ed.” Conard, who occa­sion­al­ly flashed a mean streak dur­ing our talks, start­ed call­ing the group “art-his­to­ry majors,” his deri­sive term for pret­ty much any­one who was lucky enough to be born with the tal­ent and oppor­tu­ni­ty to join the risk-tak­ing, inno­va­tion-hunt­ing mech­a­nism but who chose instead a less com­pet­i­tive life. In Conard’s mind, this includes, sur­pris­ing­ly, peo­ple like lawyers, who opt for sta­ble pro­fes­sions that don’t max­i­mize their wealth-cre­at­ing poten­tial. He said the only way to per­suade these “art-his­to­ry majors” to join the fierce­ly com­pet­i­tive eco­nom­ic mech­a­nism is to tempt them with extra­or­di­nary pay­offs.

    It’s not like the cur­rent pay­off is moti­vat­ing every­body to take risks,” he said. “We need twice as many peo­ple. When I look around, I see a world of unre­al­ized oppor­tu­ni­ties for improve­ments, an abun­dance of tal­ent­ed peo­ple able to take the risks nec­es­sary to make improve­ments but a short­age of peo­ple and investors will­ing to take those risks. That doesn’t indi­cate to me that risk tak­ers, as a whole, are over­paid. Quite the oppo­site.” The wealth con­cen­trat­ed at the top should be twice as large, he said. That way, the art-his­to­ry majors would feel com­pelled to try to join them.


    Are Conard’s views the uncen­sored, impolitic ver­sion of the man he hopes will be pres­i­dent? The Rom­ney cam­paign said they wouldn’t com­ment in any way on “Unin­tend­ed Con­se­quences,” and Conard wouldn’t share with me any­thing about his pri­vate con­ver­sa­tions with his old friend. Glenn Hub­bard said only that at a broad lev­el, Rom­ney and Conard share “beliefs about inno­va­tion and growth and respon­si­ble risk-tak­ing.”

    Conard and Rom­ney cer­tain­ly share views on numer­ous pol­i­cy mat­ters. Like many Repub­li­cans, they pro­mote low­er tax­es and less reg­u­la­tion for those who achieve finan­cial suc­cess. Rom­ney has also said that ris­ing inequal­i­ty is not a prob­lem and that the atten­tion paid to the issue is “about envy. I think it’s about class war­fare.” The dif­fer­ences between these two men are also strik­ing. Romney’s eco­nom­ic plat­form and his record as the gov­er­nor of Mass­a­chu­setts sug­gest that he is more of a cen­trist than Conard. Rom­ney wants to elim­i­nate cap­i­tal-gains tax­es for peo­ple earn­ing less than $200,000 a year but keep them in place for the 1 per­cent, which Conard says is a good start but doesn’t go far enough.

    The biggest dif­fer­ence is that Rom­ney is run­ning for pres­i­dent and needs more peo­ple to like him. Conard doesn’t have to wor­ry about that. “Peo­ple get very angry before they change their mind,” he said. “Eco­nom­ics is coun­ter­in­tu­itive. It just is.” I told him that sure­ly is true, but his ideas are coun­ter­in­tu­itive even to peo­ple well versed in eco­nom­ics. After we spoke for one of the last times, he sent me an e‑mail sum­ming up his argu­ment: At base, hav­ing a small elite with vast wealth is good for the poor and mid­dle class. “From my per­spec­tive,” he wrote, “it’s not a close call.”

    Posted by Pterrafractyl | May 3, 2012, 11:44 am
  15. I much enjoyed this dress down of Adam David­son, cour­tesy of Yves Smith. His ‘ben­e­fit of the doubt’ report­ing of the (rapa­cious) mon­eyed elite, and all of ‘Plan­et Mon­ey’ at NPR, is to be loathed.


    Posted by GrumpusRex | May 4, 2012, 1:25 pm
  16. This Vil­lage Voice arti­cle could become impor­tant again with Rom­ney being mulled for Trump’s Sec­re­tary of State. The hits just keep comin’.

    Amer­i­cans are bliss­ful­ly igno­rant of the turd stew we’ve just thrown our­selves into.

    Posted by Sampson | November 18, 2016, 6:17 am

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