I have been (and continue to be) critical of both president Obama and Mitt Romney. As stated multiple times previously, I will not vote for either of them.

Obamacare will be a disaster for jobs as noted in Prepping for Obamacare, Olive Garden and Red Lobster Cut Workers’ Hours; Are Other Companies Doing the same? Tip Sharing Lowers Minimum Wage; Like One, Like All?.

I still plan a followup on that post. Would Romneycare be any different? If so why?

More importantly, as a businessman, does Romney have any history of creating jobs? If you think so, I invite you to read what Ronald Reagan’s budget director, David Stockman, has to say about the claims.

Please consider Mitt Romney: The Great Deformer.

Bain Capital is a product of the Great Deformation. It has garnered fabulous winnings through leveraged speculation in financial markets that have been perverted and deformed by decades of money printing and Wall Street coddling by the Fed. So Bain’s billions of profits were not rewards for capitalist creation; they were mainly windfalls collected from gambling in markets that were rigged to rise.

The fact that Bain’s returns reputedly averaged more than 50 percent annually during this period is purportedly proof of the case—real-world validation that Romney not only was a striking business success but also has been uniquely trained and seasoned for the task of restarting the nation’s sputtering engines of capitalism.

Except Mitt Romney was not a businessman; he was a master financial speculator who bought, sold, flipped, and stripped businesses. He did not build enterprises the old-fashioned way—out of inspiration, perspiration, and a long slog in the free market fostering a new product, service, or process of production. Instead, he spent his 15 years raising debt in prodigious amounts on Wall Street so that Bain could purchase the pots and pans and castoffs of corporate America, leverage them to the hilt, gussy them up as reborn “roll-ups,” and then deliver them back to Wall Street for resale—the faster the better.

That is the modus operandi of the leveraged-buyout business, and in an honest free-market economy, there wouldn’t be much scope for it because it creates little of economic value. But we have a rigged system—a regime of crony capitalism—where the tax code heavily favors debt and capital gains, and the central bank purposefully enables rampant speculation by propping up the price of financial assets and battering down the cost of leveraged finance.

So the vast outpouring of LBOs in recent decades has been the consequence of bad policy, not the product of capitalist enterprise. I know this from 17 years of experience doing leveraged buyouts at one of the pioneering private-equity houses, Blackstone, and then my own firm. I know the pitfalls of private equity. The whole business was about maximizing debt, extracting cash, cutting head counts, skimping on capital spending, outsourcing production, and dressing up the deal for the earliest, highest-profit exit possible.

No Debate

There is no possible debate on what Stockman said above. He did not write anything above I would not have. However, Stockman has numerous details of exact transactions that I did not have.

For example, Stockman points out Bain’s returns on the overwhelming bulk of the deals — 67 out of 77 — were actually lower than what a passive S&P; 500 indexer would have earned even without the risk of leverage or paying all the private-equity fees. Based on its average five-year holding period, the annual return would have computed to about 12 percent—well below the 17 percent average return on the S&P; in this period.

Loaded with debt, four of Bain’s investments ended in bankruptcy. Bain however, got out at the top.

Is any value created in that? There was for Bain and Romney but not for the employees of those companies. Counting bankruptcies, Bain and Romney destroyed jobs.

The article is worth a good look from start to finish.

Stockman concludes …

The Bain Capital investments here reviewed accounted for $1.4 billion or 60 percent of the fund’s profits over 15 years, by my calculations. Four of them ended in bankruptcy; one was an inside job and fast flip; one was essentially a massive M&A; brokerage fee; and the seventh and largest gain—the Italian Job—amounted to a veritable freak of financial nature.

In short, this is a record about a dangerous form of leveraged gambling that has been enabled by the failed central banking and taxing policies of the state. That it should be offered as evidence that Mitt Romney is a deeply experienced capitalist entrepreneur and job creator is surely a testament to the financial deformations of our times.

Piranha-Like Asset Stripping

Results at Bain were made possible by fractional reserve lending and leverage to the extreme. As I have stated before, Fed policies are for the benefit of the banks and the already wealthy, in other words, the 1%, not the 99%.

Indeed, close scrutiny of Romney’s “job creation” track record shows it is nothing more than piranha-like asset stripping for the benefit of the piranhas. Everyone else involved was likely cleaned to the bones.

Mike “Mish” Shedlock

“Wine Country” Economic Conference Hosted By Mish
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