Saturday, September 15, 2012

Rolling Stone shows Romney's elite twist in his poison pill

Rolling Stone has lays it on the line about how Romney solved a fiscal crisis involving the parent Bain Company to his own Bain Capital - he let taxpayers take the hit via FDIC to rescue the company while his spinoff walked off with $4 million for providing that "service".  Two points struck me about the piece.

First, Romney proved he's Bush when Romney faced his own little fiscal crisis.  In the global fiscal crisis with strong American roots, several options were on the table:

1. Nationalize failing banks and other institutions, leaving creditors with the haircuts while maintaining a functioning credit and liquidity system, and then sell them off.  Similar to what Obama did with the auto industry, and what Sweden did with its banking industry.

2. Rescue failing banks and other institutions, and include modest reforms of the system through Dodd-Frank legislation that make the crisis somewhat, but only somewhat, less likely to be as bad in the future.  In other words, what Obama did.

3. Rescue failing banks and other institutions, and do nothing substantial to fix the system that created the crisis.  What Bush did.

4. Let them all fail, do nothing in response.  What the Tea Party originally wanted before they became a wing of the Republican Party.  I'm cheating by including this option, it was never realistic or on the table.

The Republican elite is really about Option 3, while pretending some level of sympathy to support for Option 4 among its base, especially because supporters of Option 4 oppose Dodd-Frank only on the belief that financial institutions should just be allowed to fail.  Romney showed where he stood - it's the taxpayers who should pick up the tab.

Second, it's how he made sure the taxpayers got stuck with the tab that shows the elitism:
With his rescue plan a bust, Romney was forced to slink back to the banks to negotiate a new round of debt relief. There was only one catch: Even though Bain & Company was deep in debt and sinking fast, the firm was actually flush with cash – most of it from the looted money that Bill Bain and other partners had given back..... 
Under normal circumstances, such ample reserves would have made liquidating Bain an attractive option: Creditors could simply divvy up the stockpiled cash and be done with the troubled firm. But Bain had inserted a poison pill in its loan agreement with the banks: Instead of being required to use its cash to pay back the firm's creditors, the money could be pocketed by Bain executives in the form of fat bonuses – starting with VPs making $200,000 and up....
What's more, the bonus loophole gave Romney a perverse form of leverage: If the banks and the FDIC didn't give in to his demands and forgive much of Bain's debts, Romney would raid the firm's coffers, pushing it into the very bankruptcy that the loan agreement had been intended to avert. The losers in this game would not only be Bain's creditors – including the federal government – but the firm's nearly 1,000 employees worldwide. 
In March 1992, according to the FDIC documents, Romney approached the banks and played the bonus card. Allow Bain to pay off its debt at a deep discount, he demanded – just 35 cents on the dollar. Otherwise, the "majority" of the firm's "excess cash" would "be available for the bonus pool to its officers at a vice president level and above."
So the plan was to rescue the elite at Bain through bonuses while pushing everyone else out the door.  My question - why bonuses for just the vice presidents and higher, and not for everyone at Bain? It's meaningful that even as Romney played chicken with the debt owed to others, he designed a poison pill that would benefit only the topmost players at Bain.  Not that the other 1,000 employees were all secretaries - they were pretty elite too, just not enough.

This falls in the same category as the estate tax debate.  the Romney elite aren't even about the class interest of the wealthiest 10 percent - it's a much smaller group that they represent.