Rachel Maddow marvels at the ability of Mitt Romney to tell plain, checkable lies, without being called on those lies by the media assigned to cover his candidacy.
EJ Dionne, columnist for the Washington Post and author of "Our Divided Political Heart," talks with Rachel Maddow about the challenge facing the media in dealing with politicians like Mitt Romney who employ the context of an artificial reality to lie with impunity.
Romney unmoved to change ad despite fact-check smackdown
The Rachel Maddow Show June 4, 2012
Rachel Maddow credits mainstream media outlets with catching Mitt Romney's lie in his recent Solyndra speech and extends the further challenge that Romney be held accountable for continuing the run the lie in a campaign ad even after he's been called out so publicly.
Once caught, Romney not interested in correcting lies
The Rachel Maddow Show June 7, 2012
Noam Scheiber, senior editor at The New Republic and author of "The Escape Artists: How Obama's Team Fumbled the Recovery," talks with Rachel Maddow about Mitt Romney's shameless and repeated lying about the contents of his book in attacks on President Obama.
Or as Rachel explained just last night [Maddow segment just above embedded], "Mr. Romney gets caught saying things that are factually wrong, and the thing that is different about him is that he does not mind; he doesn't fix it; he doesn't even try to worm out of it. He doesn't appear to feel any shame about it at all -- and he's happy to keep telling the lie once he knows it is a lie."
As has become painfully clear, Romney's reliance on "deception" has practically become an addiction. To help appreciate the scope of the dishonesty, consider the 21st installment of my weekly series, chronicling Mitt's mendacity.
1. Campaigning in Texas, Romney argued, "[W]ith America in crisis, with 23 million people out of work or stopped looking for work, [President Obama] hasn't put forth a plan to get us working again. Now I know we're getting close to an election so he'll come out with one soon, but three and a half years later, we're waiting."
2. Referencing Noam Scheiber's book, "The Escape Artists," told a remarkable tale about Obama and his aides, saying, "[T]here was discussion about the fact that Obamacare would slow down the economic recovery in this country." He added that the administration "knew" the health care reform package would hurt the economy, "but they concluded that we would all forget how long the recovery took once it had happened, so they decided to go ahead."
4. In the same speech, Romney said the Affordable Care Act includes a "job-killing mandate."
The individual mandate in the law does not undermine job creation, and more importantly, Romney championed the same mandate policy for years.
5. In the same speech, Romney rhetorically asked, "Did the trillion-dollar deficits make it more likely for people to invest in America?"
First, the drivers behind the deficits are Bush-era policies, so blaming Obama for them is dishonest. Second, the deficits have not adversely affected investors' willingness to invest in America.
6. Romney also argued that Obama isn't really for an "all the above" energy policy: "All of the above means that you like oil and gas and coal and nuclear and renewables. And yet he has made it harder and harder to take advantage of some of those."
8. Romney also said of the president, "His idea is to make America more like Europe."
As it turns out, that's backwards. Europe is trying (and failing) to grow through austerity measures, which is what Romney, not Obama, intends to do here.
9. Romney went on to argue, "If [Obama's] president, you're going to see more trillion-dollar deficits. And they're going to put us on a path to becoming like Greece."
10. Romney also said, "If I'm president, I'm going to put America on a track to get a balanced budget. It's immoral and wrong for us to pass on these obligation to our kids."
11. In a campaign ad, Romney claims, in reference to the federal loan guarantee Solyndra received, "The inspector general said contracts were steered to friends and family."
12. In St. Louis, Romney claimed the Recovery Act "left us with record unemployment."
Actually, millions of Americans owe their jobs to the Recovery Act, and the unemployment rate isn't at a "record" high -- it's lower now than when Obama took office, and it didn't get as high as it did in Reagan's first term.
13. He also argued, "Over the last three and a half years, record numbers of Americans have lost their jobs or simply disappeared from the work force."
16. Romney also argued, "Today, government at all levels consumes 37 percent of the total economy or G.D.P. If Obamacare is allowed to stand, government will reach half of the American economy."
17. Romney promised, "[F]or every government-spending proposal, I will ask the following question: 'Is this program so important that it is worth borrowing more money from China to pay for it?'"
18. Describing President Obama's economic vision, Romney said, "There is nothing fair about a government that favors political connections over honest competition."
This is a serious allegation of corruption, which Romney has backed up with literally no facts of evidence at all.
20. And finally, the Romney campaign argued this week that the taxpayer investment in Konarka Technologies during Romney's tenure as governor "was approved by the prior administration. The governor made it clear that his philosophy was that government should not be in the business of venture investing."
Here's the trend in coverage of Mitt Romney. The solid line means "positive" stories (in Romney's case, about his business record or primary-election successes); the dotted line means "negative" stories (for Romney, about Bain-related layoffs or campaign-trail gaffes); and "neutral" stories are left out.
Main theme: Romney endured slightly-to-somewhat more negative-than-positive coverage in much of 2011, during the intense primary debates and negative ads, but has had much more positive-than-negative coverage through this year.
Now, here is comparable coverage of President Obama:
Main point: President Obama has always had more negative-than-positive coverage through the past year.
Here is how the two charts look when combined:
Main point: At no time in the past year has coverage of President Obama been as positive as that of Governor Romney. Indeed, at no time in the past year has it been on-balance positive at all.
You can argue that negative coverage of the administration is justified. You can argue that incumbents are -- and should be -- held to a tougher standard, since they have a record to defend. But you can't sanely argue that the press is in the tank for Obama, notwithstanding recent "false equivalence" attempts [ http://dyn.politico.com/printstory.cfm?uuid=2FD8EE3E-C775-472B-BF06-BB7BBCA92508 ] to do so.
Romney warns of Obama's 'government-run economy' in St. Louis
Republican presidential candidate Mitt Romney speaks during a campaign [appearance]. (Whitney Curtis / Getty Images)
By Seema Mehta June 07, 2012
ST. LOUIS -- Arguing that growing government control of the economy threatens the country's freedom, Mitt Romney on Thursday said President Obama is trying to transform the United States into a nation that is starkly at odds with its founding.
"America is on the cusp of having a government-run economy. That's where he’s taking us. President Obama is transforming America into something very different than the land of the free and the land of opportunity, and we know where that transformation leads," Romney told several hundred supporters gathered in a factory that produces equipment that protects soldiers from chemical, biological and nuclear threats.
"There are other nations that have chosen that path," Romney said. "It leads to high unemployment, crushing debt, and stagnant wages, and, yeah, Greece. I don't want to transform America. I want to restore to America the principles that made us the hope of the Earth."
Romney made the remarks in Missouri, which has 10 electoral votes and is a state that Sen. John McCain won over Obama by 0.12% in 2008.
Romney's speech was new -- instead of a collection of vignettes of suffering Americans he has met on the campaign trail and stories about his time leading Massachusetts and the Olympics, the remarks were more sweeping about the stark differences between his and the president's worldviews. But Romney offered no new policy, a fact seized on by Obama's campaign.
"In yet another in a long line of 'major' economic speeches, Mitt Romney offered no new ideas and no new policies that would actually grow the economy and strengthen the middle class," said spokeswoman Lis Smith. "Mitt Romney has promised to use his experience to turn around the economy, but all he has offered to date are negative and dishonest speeches tearing down President Obama."
In his remarks, Romney argued that the government under Obama has breached faith with and morally failed Americans because of its inability to right the nation's economy. The president, Romney said, puts more faith in government bureaucrats than Americans, leading to a world in which citizens are reliant on the government for permission on how they live their lives, from what they can buy to who they can hire.
Romney painted himself as a champion of the free-enterprise system who would turn around the economy by lowering taxes, relaxing regulations, increasing trade and energy production and issuing waivers to states concerning Obama's healthcare law.
"I am absolutely convinced we can prosper again," he said. "... All this can be more than our hope, it can be our future. It can begin this year. We don't have to wait; it can begin this year on November 6th."
ST. LOUIS — Mitt Romney cast President Obama’s stewardship of the economy in moral terms here Thursday, delivering a broad speech about the free-market economy in which he said Obama’s first term has represented “a breach of faith with the American people.”
Romney said Obama “simply doesn’t understand” America’s free enterprise system and suggested that the president’s policies were effectively making government dependence a substitute for the dignity of hard work.
“We have waited, and waited, and waited for the recovery, and enough time has passed for us to pronounce judgment on the president’s economic policies,” Romney said. “They have failed. They have not worked.”
Romney added, “This is not just a failure of policy; it is a moral failure of tragic proportions. Our government has a moral commitment to help every American help himself — him and herself — and today, that fundamental commitment has been broken.”
Romney pledged to “end these days of drift and disappointment,” saying he would not be a “president of doubt and deception. I will lead us to a better place.”
The Obama campaign’s Chicago-based reelection team has been continuing its assault on Romney’s record as governor of Massachusetts. Yet while Obama’s team says he had a “failed economic performance” there, Romney made no mention of his governorship in his speech.
“In yet another in a long line of ‘major’ economic speeches, Mitt Romney offered no new ideas and no new policies that would actually grow the economy and strengthen the middle class," Obama campaign spokeswoman Lis Smith said in a statement. “Mitt Romney has promised to use his experience to turn around the economy, but all he has offered to date are negative and dishonest speeches tearing down President Obama.”
Romney also did not offer many specifics about what he would do in office or how his policies would revitalize the economy. But what his 18-minute speech lacked in details he tried to make up for with lofty rhetoric.
Reading from teleprompters and standing in front of a banner trumpeting his new slogan, “Putting Jobs First,” Romney used his visit to a St. Louis warehouse to frame what he considers the stark differences between his and Obama’s economic visions.
“Where our vision believes in the ingenuity of the American people, his vision trusts the wisdom of political appointees and boards and commissions and czars,” Romney said. “It’s one in which ordinary Americans have to get permission from people in Washington before they can buy something or build something or invest in something or hire someone.
“It’s a world of federal mandates and waivers, tax credits, subsidies, federal grants, loan guarantees,” he continued. “It’s an economy where a company’s lobbyists are more important than their engineers, and federal compliance lawyers will outnumber patent lawyers.”
While we all know stories of people who've moved up the social stratosphere, Stiglitz says the statistics tell a very different story. In the last 30 years the share of national income held by the top 1% of Americans has doubled; for to the top 0.1%, their share has tripled, he reports. Meanwhile, median incomes for American workers have stagnated.
Even more than income inequality, "America has the least equality of opportunity of any of the advanced industrial economies," Stiglitz says. In short, the status you're born into — whether rich or poor — is more likely to be the status of your adult life in America vs. any other advanced economy, including 'Old Europe'.
For example, just 8% of students at America's elite universities come from households in the bottom 50% of income, Stiglitz says, even as those universities are "needs blind" — meaning admission isn't predicated on your ability to pay.
"There's not much mobility up and down," he says. "The chances of someone from the top [income bracket] who doesn't do very well in school are better than someone from the bottom who does well in school."
Because the children of those at the top of society tend to do better than those at the bottom — thanks, in part, to better education, health care and nutrition — the income inequality that's slowly emerged over the past 30 years will only widen in the next 10 to 20 years.
If the root causes of income inequality go unaddressed, America will truly become a two-class society and look much more like a third world economy, Stiglitz warns. "People will live in gated communities with armed guards. It's a ugly picture. There will be political, social and economic turmoil." (Hence the book's subtitle: 'How Today's Divided Society Endangers Our Future')
The good news is Stiglitz believes this "nightmare we're slowly marching toward" can be avoided, citing Brazil's experience since the early 1990s as an example of a country that has reduced income inequality. Among other things, he recommends improving education and nutrition for those at the bottom of society, and eliminating "corporate welfare" and other policies which "create wealth but not economic growth."
For example, he cites the provision in Medicare Part D which forbids the federal government from negotiating prices with the drug companies. Over 10 years, that rule will generate approximately $500 billion for the industry, he estimates, but no tangible benefit for taxpayers or the economy as a whole.
Importantly, Stiglitz believes inequality of wealth and opportunity are hurting the overall economy, by limiting competition, promoting cronyism and keeping those at the bottom from reaching their potential.
"What I want is a more dynamic economy and a fairer society," he says, suggesting income inequality is ultimately detrimental to those at the top, too. "My point is we've created an economy that is not in accord with the principles of the free market."
WASHINGTON (AP) — Republicans are calling it "Taxmageddon," the big tax increase awaiting nearly every American family at the end of the year, when a long list of tax cuts is scheduled to expire unless Congress acts.
It would be, GOP leaders in Congress say again and again, "the largest tax increase in American history."
Except it wouldn't be, not when you take into account population growth, rising wages, and most importantly, the size of the U.S. economy. When those factors are taken into account, the largest tax increases were those imposed to help pay for World War II — back when the U.S. raised additional revenue to pay for wars instead of simply borrowing.
Nevertheless, it is an exaggeration that has proved too tempting for top Republicans in Congress:
— "Any sudden tax hike would hurt our economy, so this fall — before the election — the House of Representatives will vote to stop the largest tax increase in American history," House Speaker John Boehner, R-Ohio, said in a May 15 speech in Washington.
— "Before we leave for August, I expect to schedule a vote on legislation preventing the largest tax increase in history," House Majority Leader Eric Cantor, R-Va., wrote in a recent memo to fellow House Republicans.
— "Millions are unemployed and millions more are underemployed and the country is facing the largest tax hike in history at the end of the year," Senate Republican Leader Mitch McConnell said Thursday in a speech on the Senate floor.
— "This would be, without any exaggeration, the largest tax increase in American history," said a May 17 letter from 41 Republican senators to Senate Majority Leader Harry Reid.
Republican presidential candidate Mitt Romney gives the claim a different twist, applying it to President Barack Obama's budget proposal for next year. That's an even bigger exaggeration.
THE FACTS: A huge collection of tax cuts is scheduled to expire at the end of the year, affecting families at every income level and businesses of many stripes. Many of the tax cuts were first enacted under former President George W. Bush and extended under Obama.
If Congress does nothing, income tax rates would go up, estate taxes and investment taxes would increase and the alternative minimum tax would hit millions of middle-income people. A temporary payroll tax cut that has been of benefit to nearly every wage earner in 2011 and 2012 would expire, costing the average family an additional $1,000 a year.
In addition, dozens of other tax breaks for businesses and individuals that are routinely renewed each year already expired at the end of 2011. Congress was expected to renew many of them by January, so taxpayers could still claim them on their 2012 tax returns.
If Congress fails to act, businesses would lose a popular tax credit for research and development as well as generous tax breaks for investing in new plants and equipment. Individuals would lose federal tax breaks for paying local sales taxes, buying energy efficient appliances and using mass transit.
In all, federal taxes would increase by about $423 billion next year, according to figures from the nonpartisan Congressional Budget Office and the Joint Committee on Taxation, the official scorekeepers for Congress.
Combined with federal spending cuts scheduled to take effect next year, the one-two punch would probably send the U.S. economy back into recession, according to a recent CBO study.
Still, the tax increases would pale in comparison to those imposed to help finance World War II.
Before the 1940s, the individual income tax applied to only a small percentage of the population. By the end of war, the income tax was levied on most working people, with a top tax rate of 94 percent on income above $200,000.
By comparison, the current top rate is 35 percent, on taxable income above $388,350. If Congress does nothing, the top rate would return to 39.6 percent next year — the same rate that was in place for most of the 1990s.
In dollars, next year's tax hikes would be the biggest. But the population is more than twice as big as it was in the 1940s and the size of the U.S. economy is 80 times bigger. That's why economists usually measure taxes and government spending as a share of the economy.
The 1942 tax increase represented more than 5 percent of the U.S. economy, as measured by the gross domestic product, or GDP. The 1941 tax increase was 2.2 percent of GDP, according to a Treasury Department paper published in 2006.
Next year's looming tax increase would represent 2.6 percent of GDP — a huge tax hike but not the biggest.
Measured another way, the 1942 tax hike increased federal revenue by a whopping 71 percent, according to the Treasury Department paper. The 1941 tax hike increased federal revenue by 32 percent.
By comparison, next year's potential tax hike would increase federal revenues by 16 percent, according to CBO.
*
ROMNEY: "President Obama has failed to even pass a budget. In February, he put forward a proposal that included the largest tax increase in history, and still left our national debt spiraling out of control, and the House rejected it unanimously," Romney said in an April 4 speech to newspaper executives and editors.
ROMNEY AGAIN: "Rapidly rising federal spending and debt threatens our economic future, and the president has responded by proposing the largest tax increase in history," Romney said in a Feb. 22 release.
THE FACTS: Obama's budget proposal would represent one of the largest tax increases since World War II, if you count letting the payroll tax cut expire as a tax increase. But again, it wouldn't be the largest ever. Obama's 2013 budget proposal mixes tax cuts designed to improve the economy with long-term tax increases aimed at reducing the federal budget deficit.
Obama has proposed extending Bush-era tax cuts for families making less than $250,000 and ending them for families that make more. He would end tax breaks for oil and gas companies but make permanent the research and development tax credit.
In 2013, Obama's budget proposal would increase tax revenue by $195 billion over current policy — if you include the tax increase from letting the payroll tax cut expire. The tax increase would represent 1.2 percent of GDP. Or, measured a different way, it would increase tax revenue by 7 percent.
That would rank as the fourth-largest tax increase since World War II, behind tax hikes enacted in 1950, 1951 and 1968, according to the Treasury Department paper.
Further dousing Romney's claim, House Republicans have passed a budget for next year — which Romney has embraced — that would raise just $7 billion less in taxes than Obama's budget in 2013. That's the equivalent of a rounding error, when you're talking about revenues of $2.7 trillion.
Obama Wants More Police, Teachers, Romney Wants More Crime
Mitt Romney (from Creative Commons)
Posted by: Bridgette P. LaVictoire on June 8, 2012.
President Barack Obama may believe that, should the Republicans lose big this November, they will finally wake up and realize that they need to work for the good of the nation. Sometimes, it feels as if our President is a bit too naive; however, he is currently going after Congress with regards to the fact that they are unwilling to actually pass any jobs bill for the nation.
In the ad [ http://www.youtube.com/watch?v=70tav9QveOM (above)], the voice-over states “The president’s jobs plan would put teachers, firefighters, police officers and construction workers back to work right now. And it’s paid for by asking the wealthiest Americans to pay a little more. But Congress refuses to act. Tell Congress we can’t wait.”
Of course, the Republicans are responsible for doing things like firing large numbers of police, firefighters and teachers. This is because the GOP is heavily anti-government and would rather destroy the government than raise taxes on the top 1%. Romney even mocked the ad stating that “He wants another stimulus, he wants to hire more government workers. He says we need more firemen, more policemen, more teachers. Did he not get the message of Wisconsin? The American people did. It’s time for us to cut back on government and help the American people.”
Romney should keep in mind that the people of Wisconsin only barely kept Walker in place, and that Walker may have survived, but the Republican majority in the state Senate did not. He also ignores the fact that private sector job creation is doing fairly well while government jobs have been deliberately slashed by Republicans in order to depress the economy.
Amanda Henneberg, a Romney spokesman, even stated “Americans know we aren’t moving in the right direction today, and they can’t afford more of the same. As president, Mitt Romney will enact a pro-growth agenda that gets our economy back on track and allows our small businesses and job creators to thrive.”
By that, Henneberg means that Romney will impose heavy restrictions and taxes on small businesses so that they cannot actually grow, just like George W. Bush did, and lower taxes on megacorporations and the super rich, which will not create jobs at all, as we have seen time and time again.
Romney said of Obama, “he wants another stimulus, he wants to hire more government workers. He says we need more firemen, more policemen, more teachers. Did he not get the message of Wisconsin? The American people did. It’s time for us to cut back on government and help the American people.”
State and local governments have been forced to layoff mass amounts of teachers, firefighters, and police officers because budget crunches have led to school closures and the elimination [ http://thinkprogress.org/economy/2012/03/22/450114/kasich-budget-privatize-fire/ ] of public safety departments. That has hurt the unemployment situation (which Romney also criticizes), considering the unemployment rate would be a full point lower without the 700,000 layoffs.
The Boston headquarters of Bain Capital, a firm that usually found a way to make money from companies it controlled even when they ultimately went bankrupt.
By MICHAEL LUO and JULIE CRESWELL June 22, 2012
Cambridge Industries, an automotive plastics supplier whose losses had been building for three consecutive years, finally filed for bankruptcy in May 2000 under a mountain of debt that had ballooned to more than $300 million.
Yet Bain Capital, the private equity firm that controlled the Michigan-based company, continued to religiously collect its $950,000-a-year “advisory fee” in quarterly installments, even to the very end, according to court documents.
In all, Bain garnered more than $10 million in fees from Cambridge over five years, including a $2.25 million payment just for buying the company, according to bankruptcy records and filings with the Securities and Exchange Commission. Meanwhile, Bain’s investors saw their $16 million investment in Cambridge wiped out.
That Bain was able to reap revenue from Cambridge, even as it foundered, was hardly unusual.
The private equity firm, co-founded and run by Mitt Romney, held a majority stake in more than 40 United States-based companies from its inception in 1984 to early 1999, when Mr. Romney left Bain to lead the Salt Lake City Olympics. Of those companies, at least seven eventually filed for bankruptcy while Bain remained involved, or shortly afterward, according to a review by The New York Times. In some instances, hundreds of employees lost their jobs. In most of those cases, however, records and interviews suggest that Bain and its executives still found a way to make money.
Mr. Romney’s experience at Bain is at the heart of his case for the presidency. He has repeatedly promoted his years working in the “real economy,” arguing that his success turning around troubled companies and helping to start new ones, producing jobs in the process, has prepared him to revive the country’s economy. He has fended off attacks about job losses at companies Bain owned, saying, “Sometimes investments don’t work and you’re not successful.” But an examination of what happened when companies Bain controlled wound up in bankruptcy highlights just how different Bain and other private equity firms are from typical denizens of the real economy, from mom-and-pop stores to bootstrapping entrepreneurial ventures.
Bain structured deals so that it was difficult for the firm and its executives to ever really lose, even if practically everyone else involved with the company that Bain owned did, including its employees, creditors and even, at times, investors in Bain’s funds.
Bain officials vigorously disputed any notion that the firm had profited when its investors lost, arguing that a full accounting of their costs across their business would show otherwise. They also pointed out that Bain employees put their own money at risk in all of the firm’s deals.
“Bain Capital does not make money on investments when our investors lose money,” the company said in a statement. “Any suggestion to the contrary is based on a misleading analysis that examines the income of a business without taking account of expenses.”
To a large extent, however, this is simply the way private equity works, offering its practitioners myriad ways to extract income and limit their risk. Mr. Romney’s candidacy has helped cast a spotlight on an often-opaque industry.
In four of the seven Bain-owned companies that went bankrupt, Bain investors also profited, amassing more than $400 million in gains before the companies ran aground, The Times found. All four, however, later became mired in debt incurred, at least in part, to repay Bain investors or to carry out a Bain-led acquisition strategy.
Perhaps most revealing are the few occasions, like with Cambridge Industries, when Bain’s investors lost. Lucrative fees helped insulate Bain and its executives, records and interviews showed.
Piling On Debt
Having spun off from a management consulting firm, Bain has always been known for its data-driven, analytical approach. Under Mr. Romney, the firm scored some remarkable successes, enabling its investors — wealthy individuals and institutions like pension funds — to collect stellar returns.
The companies that fell into bankruptcy were clearly the exception, and the causes were also often multilayered. Some companies proved too troubled to rescue, and others were hit by broader economic or industrywide downturns.
In at least three of the seven bankruptcies, however, companies appear to have been made more vulnerable by debt taken on to return money to Bain and its investors in the form of dividends or share redemptions.
That was arguably the case with GS Industries, a troubled Midwest steel manufacturer that Bain acquired in 1993, investing $8.3 million. The private equity firm took steps to modernize the steelmaker. A year later, the company issued $125 million in debt, some of which was used to pay a $33.9 million dividend to Bain, securities filings show.
The private equity firm plowed an additional $16.2 million into the steelmaker, but when the industry experienced a downturn in the late 1990s, the company could not manage its heavy debt. It filed for bankruptcy in 2001, but Bain’s investors still earned at least $9 million.
Debt from acquisitions, usually part of a “roll-up” strategy of buying competitors, played a role in at least five of the seven bankruptcies The Times examined. In most of these cases, Bain investors garnered some initial gains before the companies faltered.
For example, after Bain acquired Ampad, a paper products company, in 1992, the company grew through a series of acquisitions. Sales jumped, but its debt climbed to nearly $400 million, and it found itself squeezed by “big box” office retailers. It filed for bankruptcy in 2000. Bain and its investors walked away with a profit of more than $100 million on their $5 million investment, on top of at least $17 million in fees for Bain itself, according to securities filings and investor prospectuses.
A similar phenomenon unfolded with DDi, a Bain-owned circuit board maker that expanded aggressively in the late 1990s. Sales soared, but so did its debt. The bursting of the tech bubble forced it to scale back. It filed for bankruptcy in 2003. The gains for Bain’s investors easily exceeded $100 million. Bain also collected more than $10 million in fees.
Substantial Fees
The numerous fees collected by private equity firms have been a frequent lightning rod for the industry. First, the firms charge their investors a percentage of the fund as a management fee, meant to cover its overhead. During Mr. Romney’s tenure, this was initially 2.5 percent and then dropped to 2 percent. Private equity firms also collect transaction or deal fees, ostensibly for advisory work, from companies they buy. These fees are generally collected for major transactions, like the purchase of another company, a public stock offering or even the initial acquisition of the company. A third fee stream comes from annual monitoring or advisory fees that portfolio companies typically pay to their owners, the buyout firms.
These fees can be substantial. In the case of Dade International, a medical supply company in which Bain acquired a stake in 1994, Bain and other investment firms piled up nearly $90 million in fees over seven years. The company filed for bankruptcy in 2003 but not before it had borrowed heavily to pay $420 million to Bain and other investors several years earlier.
In 1998 alone, Mr. Romney’s final full year at Bain, The Times was able to identify roughly $90 million in fees collected by the firm across its various funds, a figure that is probably low because most companies in Bain’s portfolio did not have to file financial disclosures.
These fees covered Bain’s expenses — like rent, salaries and lawyers — and the bulk of the remaining money was awarded to Bain employees as annual bonuses.
Bonuses were relatively small some years, like from 1989 to 1991, when the savings and loan crisis and other events slowed business. In that period, Bain managing directors made roughly $300,000 to $400,000 a year, mainly from their salaries, excluding gains from investments, according to an executive familiar with Bain’s compensation. By the mid-1990s, as Bain grew, managing directors’ annual incomes, again excluding investment returns, had swollen to $3 million to $5 million, mainly thanks to bonuses derived from fees.
Bonuses were not the main drivers of the immense wealth accumulated by Mr. Romney and other Bain executives. That came from their share of Bain’s “carried interest,” the firm’s cut of its funds’ investment profits, as well as the returns from personal investments in Bain deals.
Bain officials insist that fees were never a way for the company to garner much in the way of profits and pointed out fee structures for every fund are agreed-upon in advance by investors. They said fees supported the firm’s staff-intensive approach to managing companies. Totaling up the hours Bain employees put into deals at standard consulting rates, they said, would far exceed what the firm actually collected. They said fees also covered the costs of hundreds of deals researched every year and not pursued or completed.
Investors have succeeded in the past decade in pressing private equity firms for a greater share of these fees. In 2009, a trade group representing institutional investors issued guidelines it believed firms should follow, including turning over all advisory and deal fees to investors, also known as limited partners. “The battle over fees is right now going in the limited partners’ direction,” said Steven N. Kaplan, a University of Chicago finance professor.
Bain began splitting some fees with its investors in 2000. In the firm’s newest fund, Bain officials said they would funnel all deal fees to their limited partners.
Bain prides itself on the personal money its employees put into deals, saying its co-investment rate is among the highest in the industry. The percentage during Mr. Romney’s tenure sometimes ran to nearly 30 percent but was usually less, according to records and interviews.
“We are collectively the single largest investor in every portfolio company and every fund,” the company’s statement said. “When our portfolio companies grow and perform, investors and Bain Capital do well. In rare instances when a business fails, Bain Capital employees share in the negative economic consequences of those losses.”
Offsetting Losses
When deals sour, however, fees can provide a hedge.
Toward the end of Mr. Romney’s tenure, Bain bought Anthony Crane, a crane rental company, which then acquired a slew of smaller competitors, financed by debt. But a building slowdown hit the company hard, and it filed for bankruptcy in 2004, wiping out $25.6 million from Bain’s investors, along with $9.5 million from Bain employees. The firm, however, collected $12 million in fees over the life of the deal.
Bain officials maintained they still lost money on Crane because it also cost them $5.1 million in carried interest that they otherwise would have garnered from gains in the rest of the fund.
When Bain bought a troubled chain of maternity stores called Mothercare in 1991, its investors put $1.24 million into the deal. Bain repositioned the company and upgraded its merchandise, but the stores still struggled. Bain offloaded the chain in 1993 at a total loss, and the new owners put it into bankruptcy. Bain still collected $1.5 million in fees while it owned the company, bankruptcy records show.
In the case of Cambridge Industries, Bain first acquired a stake in the manufacturer of plastic automotive parts in 1995. Bain employees personally invested $2.2 million, according to bankruptcy records, alongside $15.7 million from outside investors.
Bain immediately collected $2.25 million from Cambridge as a transaction fee for investing in the company. Cambridge then acquired several companies in rapid succession, and each time, Bain earned 0.75 percent of the purchase price as a transaction fee. The rest of Bain’s $10 million in fees came through advisory fees and payments for a debt refinancing completed by Cambridge in 1997.
By then, interest payments from the company’s expansion were outstripping operating income. As part of the refinancing, aimed at lowering interest payments, Cambridge repaid $17 million it owed to a debt fund run by Bain. This involved paying it a $2 million prepayment penalty.
Cambridge was finally forced into bankruptcy in 2000, when Bain declined to provide the company with an infusion of capital needed to fulfill a major new order, according to former company officials. During bankruptcy proceedings, lawyers for some of Cambridge’s creditors leveled scathing criticism at Bain, zeroing in on the fees extracted while they said Cambridge was insolvent, as well as the prepayment to Bain’s debt fund.
Eventually, Bain settled the dispute by paying $1.5 million to the bankruptcy trustee.
“We have been unable to identify what, if any, ‘reasonably equivalent value’ the Company received in exchanges for these exorbitant fees,” Michael Stamer, a lawyer for the unsecured creditors committee, wrote to Bain’s lawyers. “It appears, instead, these fees were nothing more than a device used by Bain to provide a return on its equity.”
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