Editor's
note: The following is a transcript of a Democracy Now! interview with
Rolling Stone contributing editor Matt Taibbi, whose recent article in
the magazine gets to the bottom of Mitt Romney's enormous wealth.
A new
article by reporter Matt Taibbi in
Rolling Stones sheds
light on the origin of his fortune, revealing how Romney’s former firm,
Bain Capital, used private equity to raise money to conduct corporate
raids. Matt Taibbi writes, quote, "what most voters don’t know is the
way Mitt Romney
actually made his fortune: by borrowing vast
sums of money that other people were forced to pay back. This is the
plain, stark reality that has somehow eluded America’s top political
journalists for two consecutive presidential campaigns: Mitt Romney is
one of the greatest and most irresponsible debt creators of all time,"
Taibbi writes. He goes on to say, "In the past few decades, in fact,
Romney has piled more debt onto more unsuspecting companies, written
more gigantic checks that other people have to cover, than perhaps all
but a handful of people on [planet] Earth."
Well, Matt Taibbi joins us now, contributing editor for
Rolling Stone magazine.
His most recent in-depth piece called "Greed and Debt: The True Story
of Mitt Romney and Bain Capital," author of the book also,
Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History.
AMY GOODMAN: Lay it out for us. Excellent piece, investigative piece, on Mitt Romney’s wealth. Where did it start?
MATT TAIBBI: Well,
you know, for me, it started when I had to cover this campaign earlier
this year, and I was listening to Romney’s stump speech about debt. You
know, he came up with this whole image of a prairie fire of debt raging
across America that was literally going to burn children alive in the
future. And I kept thinking to myself, does nobody know what this guy
did for a living and how he made his money? You know, Mitt Romney is
unabashedly a leverage buyout artist. And a leverage buyout artist is a
guy who borrows lots of money that other companies have to pay back. And
that’s the simple formula.
He started out—his most famous deals,
of course, are essentially venture capital deals like the Staples
situation, where he built a company from the ground up. But after
Staples, he switched to a different model, that he preferred for the
rest of his professional career, in which he took over existing
companies by putting down small amounts of his own cash, borrowing the
rest from—typically from a giant investment bank, taking over
controlling stakes in companies, and then forcing those companies to pay
him either through management fees or through dividends. And that’s his
business formula.
AMY GOODMAN: Explain what private equity is.
MATT TAIBBI: Well,
that is what a private equity fund does. They’re essentially—it’s a
synonym for what in the '80s we called the leverage buyout business.
It's a small group that raises capital and then goes and leverages
takeovers of companies using borrowed money. In the '80s, these—this
sort of business was glamorized through a couple of things, in
particular, in pop culture. One was the movie
Wall Street,
where Gordon Gekko, the famous Michael Douglas character from the Oliver
Stone movie, was essentially a private equity guy. He was a leverage
buyout takeover artist. And the other one was a book called
Barbarians at the Gate,
which was a true story of the takeover of RJR Nabisco by a company
called KKR, which was another Bain Capital-like takeover company. And
that's what they are. They’re essentially guys who borrow money to take
over companies and extract wealth from those companies to pay off their
investors.
AMY GOODMAN: Matt, you say that Mitt Romney is not the flip-flopper that critics say he is.
MATT TAIBBI: Yeah.
I mean, this is a sort of a subtle point about Mitt Romney. It’s funny.
I don’t want to stretch this comparison too much, but, you know,
there’s—it’s almost like he has a kind of a religious conviction about
being able to lie to people outside of the tent, so to speak. You know,
there’s that tenet of some forms of extreme Muslim religions where it’s
OK to lie to the infidel. And I think Mitt Romney has a little bit of
that. He seems to believe that it’s OK, that there’s nothing
particularly wrong with changing one’s mind about things, and he does it
repeatedly in a way that I think is different from other politicians.
For him, it’s just changing a business strategy, and he doesn’t see why
everybody should get so upset about it.
AMY GOODMAN: You say that Mitt Romney has a vision, that he’s trying for something big. Lay out what that vision is.
MATT TAIBBI: Well,
Mitt Romney is really the representative of an entire movement that’s
taken over the American business world in the last couple of decades.
You know, America used to be—especially the American economy was built
upon this brick-and-mortar industrial economy, where we had factories,
we built stuff, and we sold it here in America, and we exported it all
over the world. That manufacturing economy was the foundation for our
wealth and power for a couple of centuries. And then, in the '80s, we
started to transform ourselves from a manufacturing economy to a
financial economy. And that process, which, you know, on Wall Street we
call financialization, was really led that—sort of this revolution,
where instead of making products, we made transactions, we made
financial products, like credit default swaps and collateralized debt
obligations. We created money through financial transactions rather than
building products and selling them around the world. And that
revolution was really led by people like Mitt Romney. And the advantage
of financialization, from the point of view of the very rich and the
people who run the American economy, is that it was extremely efficient
at extracting wealth and kicking it upward, whereas the old
manufacturing economy had the sort of negative effect of spreading
around to the entire population. In the financialization revolution, you
can take all of the money, and you don't have to spread it around with
anybody. And Mitt Romney was kind of a symbol of that fundamental shift
in our economy.
AMY GOODMAN: Yesterday,
Democracy Now!'s
Mike Burke caught up with the Texas governor, Rick Perry, and asked him
about his comment about Mitt Romney, calling him a vulture capitalist.
Let's take a listen.
MIKE BURKE: You
described Mitt Romney, compared him to a vulture. What did you mean by
that? And you said his work with Bain Capital was indefensible.
GOV. RICK PERRY: How are you?
MIKE BURKE: Those were your words during the primary season, Governor. Do you have any comment at all?
AMY GOODMAN: What
you were just listening to was the silence of Governor Perry not
responding to Mike’s question. Yes, Governor Perry called Mitt Romney a
"vulture capitalist." Matt Taibbi, what does that mean?
MATT TAIBBI: Well,
look, again, this is what—how companies like Bain made their money. And
a great example was a company that I went and visited—well, the place
where it used to exist—KB Toys, which used to be headquartered out in
Pittsfield, Massachusetts. They took over the company with like $18
million down. They financed the other $302 million. So that’s borrowed
money that subsequently became the debt of KB Toys. This is an important
distinction for people to understand. When they borrowed that money to
take over that company, they didn’t have to pay it back, KB had to pay
it back. Once they took over the company, they induced it to do a $120
million, quote-unquote, "dividend recapitalization," which essentially
means that the company had to cash in a bunch of shares and pay Bain and
its investors a huge sum of money. And in order to finance that, they
had to take out over $60 million in bank loans. So, essentially, you
take over the company, you force them to make enormous withdrawals
against their credit card, essentially, and pay the new owners of the
company. And that’s essentially what they did. They took over a
floundering company that was sort of in between and faced with
threatening changes in the industry, and they forced them to cash out
entirely and pay all their money to the new owners.
AMY GOODMAN: You
know, just for the record, Governor Perry’s comment about Mitt Romney
was very interesting. He said, "They’re vultures that sitting out there
on the tree limb waiting for the company to get sick, and then they
swoop in, they eat the carcass, they leave with that, and they leave the
skeleton."
MATT TAIBBI: That’s exactly right.
That’s exactly what they do. Again, they borrow money, they take over
the company, the company now has this massive new debt burden. So, if
the couple was already in trouble, if it was already having trouble
meeting its bottom line, suddenly, not only does it have its old
problems, now it has, you know, $300 million in new debt service that it
has to pay. So it might be, you know, paying millions and millions of
dollars every month.
A great example is Dunkin’ Donuts, whose
parent company was taken over a couple years ago by a combination of
Bain Capital and the Carlyle Group. Dunkin’ was induced to do one of
those dividend recapitalizations. They had to pay half-a-billion dollars
to their new masters. And just to pay the debt service on the loan they
took out to make that payment to Bain and Carlyle, they’re going to
have to sell like two-and-a-half million cups of coffee every month just
to pay the debt service. So, that’s extraordinary. They are—they’re
essentially vultures who hang out waiting for companies to get sick,
then they forcibly take them over, and they extract fees, commissions
and dividends, by force, essentially.
AMY GOODMAN: Earlier this week,
Democracy Now! spoke to
two workers from
what’s now Sensata Technologies, which Bain Capital is majority owner. A
hundred seventy workers there at the Sensata plant in Freeport,
Illinois, are calling on Romney to help save their jobs from being
shipped to China. The plant manufactures sensors and controls that are
used in aircraft and automobiles. This is Tom Gaulrapp, a former—well,
he’s a Sensata worker now, talking about the response that they’ve
received.
TOM GAULRAPP: We’re there
trying to save our jobs, and we were called communists. For trying to
save our jobs from going to China from the United States, we were called
communists. They—if there hadn’t been a large police group in there,
I’m sure we would have been more threatened. They started this "U.S.A."
chant. It’s like, yes, we’re all for the U.S.A., too. That’s what we’re
trying to do here. We’re trying to keep well-paying manufacturing jobs
from being moved out of this country to China. And they make it sound
like we’re not patriotic. And it boggles the mind as to what they’re
thinking.
AMY GOODMAN: That’s Tom
Gaulrapp, and he’s describing going to an Iowa Romney campaign event
last week—Romney was maybe seven rows in front of him—and asking about
their jobs, their company owned by Bain, being sent to China. In fact,
some of them went to China, the workers, to train the workers in China,
so that they could take over their jobs. Their last day will be the
Friday before the elections. They’ll be on the unemployment line to
apply for unemployment on Monday. On Tuesday, they vote. Can you comment
on this situation, Matt?
MATT TAIBBI: Yeah, no,
it’s absolutely typical of a private equity transaction. I think one of
the glaring misconceptions about this kind of business that’s persisted
throughout Mitt Romney’s campaign for the presidency is that what these
companies do is turn around and fix companies, that they’re in the
business of helping these companies. Romney constantly uses this term,
that he—that, you know, "help." "I’m either helping this firm, or I’m
helping it turn around." He wrote a book called
Turnaround. But
they are not in the business of turning companies around and creating
jobs. That is a complete mischaracterization. What they’re in the
business of doing is repaying the investors who lent them the money to
take over those companies. The workers are completely irrelevant in this
scheme.
Romney is—you know, the old-school industrialists, like
Mitt Romney’s father, they were men and women who built communities.
They had factory towns. They were very anxious to leave, you know, hard
legacies that people could see: hospitals, churches, schools—you know,
the Hersheys of the world, the Kelloggs. But these new owners have
absolutely no allegiance to American workers, American places, American
communities. Their only allegiance is to the investors and to
themselves. And so, it’s not at all uncharacteristic to have these
situations where people are pleading for their jobs or they’re saying,
you know, "We’ll tighten our belts, if you just make this concession and
keep us." That’s irrelevant to the Mitt Romney-slash-Bain
Capital-slash-Carlyle Groups of the world. They’re entirely about making
profits. And if that means shipping jobs to China or eliminating jobs,
that’s what they’re going to do. And that’s the new generation of
corporate owners in this country.
AMY GOODMAN: Matt,
last month, Mitt Romney gave a series of TV interviews defending his
role at Bain Capital. This is Mitt Romney speaking to CNN’s Jim Acosta.
MITT ROMNEY: There’s
nothing wrong with being associated with Bain Capital, of course. But
the truth is that I left any role at Bain Capital in February of '99.
And that's known and said by the people at the firm. It’s said by the
documents, offering documents that the firm made subsequently about
people investing in the firm. And I think anybody who knows that I was
out full time running the Olympics would understand that’s where I was. I
spent three years running the Olympic Games. And after that was over,
we worked out our retirement program, our departure official program for
Bain Capital, and handed over the shares I had. But there’s a
difference between being a shareholder, an owner, if you will, and being
a person who’s running an entity. And I had no role whatsoever in
managing Bain Capital after February of 1999.
AMY GOODMAN: That
was Mitt Romney on CNN. Matt Taibbi, he’s referring to the—that time
gap, 1999, when he said he left, to 2000, 2001, 2002. The significance
of this?
MATT TAIBBI: You know, I don’t think
it’s terribly important whether he was actively sitting at the helm
during that time or whether he was just passively accepting the vast
amounts of money that were sent his way as the result of the deals that
were concluded at that time. Again, Mitt Romney—well, I’m sorry, Bain
Capital took over KB Toys during that disputed time period and made an
enormous profit. I think their profit was something like $100 million
out of that deal. And Mitt Romney shared in that, in that largesse, even
whether he was, you know, actively strategizing or not. You know, the
groundwork for deals like that had been laid in the decades before that
where he was actively involved in deals like taking over a company like
Ampad, which was a very similar deal to the KB deal. So, it’s irrelevant
to me, and I think it should be irrelevant to everybody, whether he was
actually working there or not. He shared in the profits and clearly
didn’t have a problem with any of those deals.
AMY GOODMAN: Matt
Taibbi, you have said that Mitt Romney’s fortune would not have been
possible without the direct assistance of the U.S. government.
MATT TAIBBI: Yes,
there’s a tax deduction for all that borrowed money. So, when Mitt
Romney or Bain Capital, when they want to go take over a company like KB
Toys and they borrow $300 million to do it, and that new debt becomes
the debt of KB Toys, when KB pays the debt service, the monthly service
on that debt, that service is deductible. And if that were not true, if
they did not have that deduction, these deals would not be economically
feasible. They wouldn’t be possible. I spoke to one former regulator
from the SEC, who worked both in theSEC and as an accountant at a Big
Four accounting firm, and he reviewed a number of these deals in both a
public and private capacity. And he said, without that deduction, he’s
never seen a deal that would have been economically—a private equity
deal that would have been economically feasible. So, this entire
business model depends upon a tax break.
AMY GOODMAN: Talk about Romney’s role in Bealls Brothers and Palais Royal. And how is Michael Milken involved with this?
MATT TAIBBI: Sure.
And just generally speaking, these private equity deals, they’re made
possible by these sort of get-rich-quick, easy-money schemes that
started appearing on Wall Street in the '80s. Again, in the old days,
the real power in the American economy was—belonged to the
industrialists, the guys who—men and women who actually made things,
because they had—they were the primary sources of cash and revenue. But
in the ’80s, we started to develop all these new methods of simply
creating money out of thin air. And the first great one in the ’80s was
Mike Milken's junk bonds. And this ability to conjure instant millions
gave people, like the fictional Gordon Gekko, the power to take over,
you know, mighty companies—airlines, you know, industrial
companies—whereas 10, 15, 20 years ago, somebody who didn’t have his own
fortune would never have been able to take over those companies.
And
that’s what happened with this transaction with Bealls. Romney used
Mike Milken’s junk bonds to take over a couple of department store
chains, which he subsequently merged. And even after finding out that
Milken was under investigation and would shortly have to go to court to
defend himself on fraud charges, Romney pressed ahead with the deal
anyway and ended up making, you know, another tidy profit on that deal.
AMY GOODMAN: Matt,
finally, what do you feel reporters here at the Republican National
Convention should be asking Mitt Romney about his time at Bain?
MATT TAIBBI: Well, I just think that the—
AMY GOODMAN: And what his plans are for the presidency?
MATT TAIBBI: Sure.
I just think the one unanswered question that reporters just don’t ask
either of these people is—they’re making their entire platform about
debt. Paul Ryan, his entire political profile is based on this idea that
he’s an enemy of debt and a, you know, budget slasher. And Mitt Romney
has—again, he’s banked his entire campaign rhetoric on the sort of
prairie fire of debt theme. And yet, this is a guy who spent—who made
his fortune creating debt. Somehow, this question has not been asked to
him. How is that not hypocritical? It hasn’t been asked of either of
them, and I would like to see the mainstream press at least ask that
question. I think it’s an ideal debate question that should be asked
somewhere down the line.
AMY GOODMAN: Matt Taibbi, I want to thank you very much for being with us, contributing editor for Rolling Stone magazine. His most recent article in Rolling Stone is "Greed and Debt: The True Story of Mitt Romney and Bain Capital." Matt Taibbi is author of the book Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History. This is Democracy Now! When we come back, we go to the floor of the convention. Stay with us.
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