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How Mitt Romney got his millions: a high-stakes con man

2012-05-31

Mitt Romney spent a reported 25 years working in the world of “high finance.”  He specialized in venture capital and private equity (leveraged buyouts.)  In that period he earned a large amount of money (in addition to that which he inherited from his father) and he now reportedly has a net worth of 250 million dollars.  He retired from “high finance” many years ago and has been employed as a governor of Massachusetts as well as gaining the reputation of having saved the 2000 Olympics.  During his retirement he has continued to receive large amounts of money from his financial firm based on contracts he was given when he was Chief Executive Officer; reportedly he is presently receiving ten million dollars a year.

What did Mr Romney do when he worked in “high finance”?  He helped to arrange funding to start a big box retailer that became successful and made a big profit.  He also bought out a number of companies through the magic of “leveraged buyouts.”  What happens when you do a leveraged buyout is that you buy a company (successful or not) and pay for it with about 1/4 to 1/10 of your own money (capital) and a about 60-90% in the form of a loan that is written in such a way that the payments of interest and principal on the loan are said to come from the operations of the company itself (in effect, taking out a loan on the value of the company and putting the responsibility for paying on the company (since you’ve just bought control of the company, you can do that.))

The magic of a “leveraged buyout” is invoked in the creation of a loan based on the ability of a company to pay.  Once you control the company, you can do anything you want with it.  In order to create profits that can be stripped out, parts of the company that have more value can be sold off and their functions outsourced.  It is not hard to make one employee do the work of two, reducing payroll costs.  Theoretically, you could create improvements in the company that would increase its profitability and viability, but in most cases, the changes are made with the primary motivation of stripping profits and reducing costs.  The kicker comes when you have stripped the company of tangible assets and laid off any extra employees, creating a company that appears to be profitable, you can sell the whole thing for a large profit, especially if the stock market is going up at the time.

The con in the “leveraged buyout” is the loan paid by the victim company’s profits.  Naturally some people object to this, whence we get the term “hostile takeover.”

Unfortunately (and Mitt Romney has nothing to do with this)  the private equity markets came to a standstill in late 2007, after the real estate market and before the election of Barack Obama.

The point I am trying to make is that Mitt Romney inherited a lot of money, then spent most of his working life buying out companies and stripping them of assets before selling them again.  If you read my previous post, you will, I hope, put two and two together:  Willard Mitt Romney is a sociopath who made an enormous amount of money destroying vulnerable companies.   The best part is that his enormous income was taxed at a total of 15% instead of the 30-50% rate that the average salaryman has to fork over to the government.

(if you don’t believe me, go to Wikipedia and read the entries on private equity and venture capital.)

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