by David Stockman • March 3, 2016

Now that’s a screaming case of the pot calling the kettle black if there ever was one. Mitt Romney has lashed out at The Donald for being a “phony and fraud”, but consider this. During his 16-years at Bain Capital, fully one-fourth or $600 million of the firms cumulative $2.5 billion of profits were scalped from companies which went bankrupt soon after Mitt and his partners got out of town with the loot.

No wonder the American voters did not believe him when he claimed to be the “job creator”!

Yes, the GOP establishment’s putative “jobs” candidate from 2012 was never really a businessman at all. He was an LBO strip-mining artist who rode the first Greenspan Bubble to riches between 1987 and 2000. Yet in the overwhelming share of the 77 investment deals he superintended during that period, he left behind financial cripples, zombies and Chapter Eleven bait.

I documented this in depth in a chapter of the Great Deformation called “Willard M. Romney And The Truman Show Of Bubble Finance”. The portion excerpted in Newsweek In October 2012 honed-in exactly on Romney’s phony claims and is reprinted below:

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…..


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……

The waxing and waning of the artificially swollen LBO business has been perfectly correlated with the bubbles and busts emanating from the Fed—so timing is the heart of the business. In that respect, Romney’s tenure says it all: it was almost exactly coterminous with the first great Greenspan bubble, which crested at the turn of the century and ended in the thundering stock-market crash of 2000-02. The credentials that Romney proffers as evidence of his business acumen, in fact, mainly show that he hung around the basket during the greatest bull market in recorded history.

So the jobs creator wasn’t all that, and as a politician he was far worse. Romney’s disastrous campaign in 2012 is exactly why the nation has had to endure four more years of the Obama White House’s feckless tampering with our already feeble economy; and why he bears the complete responsibility for the fact that since then Obama has further packed the Fed with even more extreme monetary cranks and Keynesian money printers.

Yet now Romney has the audacity to come out of the obscurity he so richly deserves in order to do it again. That is, to help insure that Hillary Clinton follows Obama into 1600 Pennsylvania Avenue.

Then again, maybe that is not so surprising. Romney is completely on board with the Imperial City’s conceit about its “indispensable” role in bringing security, stability, ballot boxes, Coca Cola and long pants to the backward peoples of the Middle East and other benighted lands.

When it comes to Hillary’s foreign policy agenda—– regime change in Libya, no fly zones in Syria, stumbling back into the Iraq quicksand, punching Putin in the nose, pivoting to China to rag about its sand bars in the Spratly Islands and much more—–Romney is completely in sync. He’s a neocon echo chamber who has not the slightest grasp that the Washington War Party is ransacking the world and bankrupting the nation.

Actually, Romney’s much worse. The Warfare State is burying the taxpayers of America in insuperable debts, but this fool campaigned four years ago for eliminating the sequester and enacting a dramatic increase in the already bloated Pentagon budget. At the same time, he refused to call for a sharp means test on social insurance entitlements for the affluent retirees and loudly declaimed he would not raise taxes.

But then there was no special reason to expect that Romney would excel in fiscal math. After all, when you make a fortune riding financial bubbles and scalping profits from failing and impaired companies you don’t need to be that sharp with the pencil.

And that gets us to the plain scandal of Romney’s record at Bain Capital. It’s laid out chapter and verse below. But the net of it was itemized in a detailed expose by the Wall Street Journal prior to the last election. During Romney’s 16-year tenure as head of the Fund, Bain invested $1.1 billion in 77 deals and generated the aforementioned profits of $2.5 billion.

But as the WSJ analysis documents, nearly 90% of these deals produced meager returns. And the ten deals that resulted in big time gains—-and nearly 75% of the profits—- have virtually nothing to do with business acumen. Actually, they stunk to high heaven.

As indicated, the overwhelming bulk of the deals—67 out of 77—were no great shakes. These 67 companies ended up leveraged to the hilt, but the returns to Bain and its investors 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.

Investor profits amounted to a prosaic 0.7X the original investment on these deals. 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 500 during this record bull market period.

By contrast, 10 of the deals appeared to be home runs on the surface. They generated profits of $1.8 billion on investments of only $250 million, yielding a bountiful return of 7X the original investment.

Yet it is this handful of windfalls that both make the Romney investment legend and also seal the indictment. To wit, they show that Bain Capital was a vehicle for leveraged speculation that was gifted immeasurably by the Greenspan bubble. It was a fortunate place where leverage got lucky, not a higher form of capitalist endeavor or training school for presidential aspirants.

The lucky part—or perhaps slimy would be a more accurate term—– was especially evident in four of the ten “winner deals”. Bain pulled profits of $600 million from them, but no sooner were the LBO boys from Boston out of Dodge City than these companies filed for bankruptcy.

For instance, Bain invested $10 million in a woebegone rural department store chain called Stage Stores Inc. that was being eaten for lunch by Wal-Mart. But Romney and his boys managed to pull out a $175 million profit—–18X their investment——just before the hammer came down and the company filed for Chapter Eleven, tossing several thousand employees onto the unemployment lines.

Likewise, Romney’s LBO outfit plunked down $5 million for American Pad and Paper (Ampad), which was a dying discard spun-out from the Mead Corporation on the eve of the on-line computer age and paperless office. In that case, Bain pulled out a $100 million profit or 20X its money before the company hit the Chapter 11 wall for want of customers for its eponymous “yellow pads”.

Next there was the Italian Job where Bain made $375 million or 15% of its profits. Bain and some partners bought Italy’s yellow pages monopoly from the Italian government to help gussy-up its budget results when it was seeking admission to the eurozone. This was essentially a “rent-a-balance-sheet” scam—–so when Italy was safely in the eurozone a few years later, and after Romney had attended a single meeting and Bain had done essentially nothing to improve the Yellow Page operations, the government bought back the shares for 22X what Romney and his Wall Street buddies had originally paid.

Since Bain had ponied up only $17 million for its piece of the LBO equity, its $375 million profit resulted in a pretty fulsome payday.
The secret was leverage, luck, inside baseball, and the peculiar asymmetrical dynamics of the leveraged gambling carried on by private-equity shops. LBO funds are invested as equity at the bottom of a company’s capital structure, which means that the lenders who provide 80 to 90 percent of the capital have no recourse to the private-equity sponsor if deals go bust. Accordingly, LBO funds can lose 1X (one times) their money on failed deals, but make 10X or even 50X on the occasional “home run.” During a period of rising markets, expanding valuation multiples, and abundant credit, the opportunity to “average up” the home runs with the 1X losses is considerable; it can generate a spectacular portfolio outcome.

In a nutshell, that’s the story of Bain Capital during Mitt Romney’s tenure. The Wall Street Journal examined 77 significant deals completed during that period based on fundraising documents from Bain, and the results are a perfect illustration of bull-market asymmetry. Overall, Bain generated an impressive $2.5 billion in investor gains on $1.1 billion in investments. But 10 of Bain’s deals accounted for 75 percent of the investor profits.

Accordingly, 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. Investor profits amounted to a prosaic 0.7X the original investment on these deals and, 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.

By contrast, the 10 home runs generated profits of $1.8 billion on investments of only $250 million, yielding a spectacular return of 7X investment. Yet it is this handful of home runs that both make the Romney investment legend and also seal the indictment: they show that Bain Capital was a vehicle for leveraged speculation that was gifted immeasurably by the Greenspan bubble. It was a fortunate place where leverage got lucky, not a higher form of capitalist endeavor or training school for presidential aspirants.

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http://davidstockmanscontracorner.com/mi...pter-and-verse/