[...] by convincing the Federal Deposit Insurance Corp. to forgive roughly $10 million of the company’s debts, according to sources close to the deal and federal records obtained by The Boston Globe.
Republican Senate nominee Mitt Romney's rescue of a business consulting firm was achieved in part by convincing the Federal Deposit Insurance Corp. to forgive roughly $ 10 million of the company's debts, according to sources close to the deal and federal records obtained by The Boston Globe.
Romney, whose business acumen has been the cornerstone of his campaign, has said saving the Bain & Co. consulting firm from the brink of bankruptcy in 1991 was the accomplishment that most convinced him he had the mettle to be a US senator.
Bain & Co. and the FDIC agreed to the deal after months of intense negotiations. Moreover, bankers say debt forgiveness is relatively routine when a company is at risk of collapse.
But the $ 10 million cost to the FDIC raises the question of whether Romney's success, as well as the resurrection of Bain & Co., came partially at the expense of the federal agency that protects US bank deposits.
No doubt Mitt Romney would defend that $10 million in federal aid to Bain & Co. as having prevented the bankruptcy of his firm and as having saved hundreds of jobs. But the corollary of that argument is that Mitt Romney saved Bain & Co. with a $10 million bailout from the federal government—and given that fact, he's the last person on Earth who should be accusing anybody of crony capitalism.
It wasn’t really a TARP style bailout — worse — Romney‘s Bain placed a $10 million dollar liability with the taxpayers. All this while he benefited $4 million dollars directly.
Facing financial duress, Bain Capital partner Mitt Romney was asked to rejoin and lead Bain & Co. as interim CEO. Bringing along two lieutenants from Bain Capital, Romney began a traveling campaign to rally employees at all Bain offices globally. Romney also negotiated a complex settlement between the Bain partnership and the firm's lenders, including a $10 million reduction in the $38 million Bain owed the Bank of New England, which by that time had been seized by the FDIC and placed in Chapter 7 liquidation.
The Boston Globe pointed out that:
"Over several weeks, Romney managed negotiations with the banks and among the partners... The moment came when negotiations produced a package in which Bill Bain and the founding partners would give up control of the firm, turning back $30 million they had taken from the ESOP and $100 million in notes they held against the firm."
Bain & Company
Bain & Co. loans from Bank of New England date to the mid-1980s, when the economy, the bank and the consulting firm were booming….
Originally, Bain & Co. revenues were to have been used to repay the bank loans. But by 1990, with the economy slipping, it became clear Bain & Co. had overestimated its ability to repay its debts, which at that point had reached about $220 million. There also was widespread belief in the financial community that the company’s founders had overestimated the value of their firm….
With little hope for a turnaround, Bank of New England was seized by federal regulators in January 1991. Six months later, Providence-based Fleet Financial Group Inc. took possession of all the loans from Bank of New England that it believed would be repaid in full.
D]ocuments obtained by the Globe show that two Bain & Co. loans, originally made by the Bank of New England, remain on the FDIC’s books today with a combined balance of $12.8 million.
The roughly $10 million forgiveness by the FDIC occurred in 1993, when Romney was chairman and chief executive of Bain & Co.
The company offered the FDIC and its other bank creditors a deal to reduce the debt, all of which accepted. In the case of the FDIC, the agency agreed to take $5.7 million less in cash, out of the original $38 million. In addition, sources said the agency calculate that the loss of interest payments as a result of the restructuring would exceed $4 million.
This should go without saying, but criticizing Mitt Romney is not criticizing “capitalism” or “free enterprise.” Moreover, Mitt’s not the man any conservative should want out in the public arena, defending capitalism or free enterprise as a spokesman on our behalf. Going beyond that, let me note that everything that was done at Bain Capital wasn’t worthy of praise. Instituting a leveraged takeover of a business, loading it up with debt, and making a killing off looting its assets while you put a lot of people out of work may be part of capitalism, but it’s not something that conservatives should be madly applauding.
Setting that argument aside, Mitt made big profits more than once by sticking other people with the tab.
“Mitt Romney today stood with predatory lenders and Republicans in Congress over the middle class. He doubled down on his promise to eliminate the Wall Street watchdog and allow Wall Street to write its own rules again, leaving consumers vulnerable to hidden fees, financial traps and excessive risk taking that will hit their pocketbooks. Governor Romney has made clear he has not learned the lessons of the economic crisis, instead, he’s giving the most irresponsible financial actors a bright green light to pursue profit at any cost to communities across America.” DNC
Moreover, not only did Mitt support TARP, he has admitted during the debates that he’s open to EVEN MORE bailouts. Put it all together and even Barack Obama is to Mitt’s right on bailouts.
Though the Obama campaign has repeatedly attacked Mitt Romney for his career at Bain Capital, President Obama still accepted $7,500 in campaign contributions from two Bain executives. His campaign press secretary, Ben LaBolt told The Politicker the president has no intention of giving the money back.
As Katrina reports, Mitt Romney left Bain Capital in 1999 to manage the Winter Olympics, two years before GST Steel declared bankruptcy. But that hasn’t stopped President Obama from blaming him for the company’s 2001 collapse. In a new Obama campaign video, ex-steel workers criticize Romney for being “out of touch” with the “average working person.” Left unmentioned (and blameless) is Jonathan Lavine.
Last summer, Restore Our Future refused to identify the source of its first $1 million contribution. Controversy flared until the secretive donor, a retired executive from Romney's old firm, Bain Capital, stepped forward and acknowledged the donation.
In its latest financial reports listing more than $8.6 million in donations in March, the super PAC supporting Romney listed several large donations without donor identities, including the $400,000 donation and a $250,000 donation from a Montana firm, Fair Oaks Finance LLC.
Restore Our Future
What? A conservative group founded by several former Mitt Romney aides to help Romney's presidential campaign. The founders include Romney's former general counsel, Charles R. Spies; Carl Forti, political director for Romney's 2008 campaign; and Larry McCarthy, a member of Romney's 2008 media team.
Total Money Raised? $12.2 million
Donors? Many of the donors are CEOs or individuals affiliated with Bain Capital, the company where Romney was the former CEO. Recently the media has focused on W Spann LLC, a company that donated $1 million to the super PAC and then disbanded shortly thereafter. The donor behind the company turned out to be longtime Romney donor and former Bain Capital executive, Edward Conard. There have also been calls by watchdog groups Democracy 21 and Campaign Legal Center to investigate two other companies: Eli Publishing and F8 LLC. These two corporations, which also donated $1 million a piece to Restore Our Future, are reported ly linked to employees of Nu Skin, a skin care company based in Utah.
The issue with *some* VC firms is not that they are willing to risk their money in return for a big payoff if a. Company can take off, but that firms like Bain (look to the recent articles in Rolling Stone for details) put up a pittance of the value, borrowed the rest, take over the target (either in cooperation or via hostile tactics), transfer the acquired debt to the target, and eventually, because of the high cost of that acquired debt, are forced into liquidation Two Bain-related firms in New England that were shuttered that come to mind are Friendly's restaurants and K-B Toys.
VC's gamble on startups to get a 200:1 return ratio. Most do not take off, but a few startups do. If a startup fails, someone extracts the IP in the startup to cover some of their investment. Bain, however, takes viable businesses and pumps them up with debt, until they can be put on the stock market and the investors can exit and take their profits offshore. The lenders are making money along the way. The investors avoid paying taxes.