In this post we show that Mitt Romney is a serial killer.
First, we quickly have to understand the business model behind private equity and leveraged buyouts. Dean Baker has published a free book: The End of Loser Liberalism: Making Markets Progressive and explains the key facts very well.
It’s standard practice that they buy a firm, they borrow against the firm, so it’s not their own borrowing… then they pay themselves back from the borrowing. The basic story of private equity is that they leverage firms to the hilt and then they hope that they have something viable to sell off at the end of the day. But very often, they’ve already gotten their money out either way.
So a private equity company buys a firm with borrowed money, however the debtor is the firm itself. The idea is then that the management is exchanged, the company “streamlined” and made more efficient. After this process, the company is sold back to the stock market. There is not much explanation needed regarding what “streamlining” means and how the private equity company will treat the workers in the firm they just bought.
At the end of that, if they still have a company they can sell off, they’re golden. If they don’t, well, they just go into bankruptcy, and they tell the creditors: ‘Hey, too bad, you’re out of luck.’ And if they’ve already gotten their money out, the private equity company’s OK. So what they manage to do is create a heavily leveraged bet where they pretty much could only win. It’s a one-sided bet.
This is a huge difference to venture capital since they have much less risk. But it gets even worse:
A lot of what’s going on is that interest is tax-deductible, whereas dividends are not. So a lot of their gains are simply replacing dividend payments with interest payments. Which comes from the taxpayers. You’re not creating value. Mitt Romney - if he loads up a company with debt - he hasn’t created value, he’s just basically found a way to bilk the taxpayers. You can get rich, but that’s not creating value for the economy.
Since they bought the company, the money they are getting out of it, is in form of dividends and not interest. The latter is taxed, the former is not, at least in the USA. However, if one looks at the business model it should actually be regarded as interest rate, so basically the tax payer subsidizes this without that actual value for the economy is created.
Moreover, the private equity company is just interested in making the company sellable on wall street, they do not care about the workers or the long term future of the company. Let’s have a look at Mitt Romneys record:
So: If companies are regarded as people after the ruling of Citizens United, then Mitt Romney is a serial killer. qed