I've read that article before and am not a big fan of it.
There are three cases of bailouts. The first is where Romney defaulted on a bank loan (that turned into a FDIC loan) to the tune of 10 million dollars. THAT IS A BAILOUT. The FDIC is quite brutal (not a bad thing) and most often the case will just wipe out your equity and sell your assets to bigger fish. The FDIC could have also instead of canceling the debt just pushed back the interest and principal payments into a balloon payment. Mitt got hugely lucky that the FDIC didn't threaten full payment or liquidated equity (of which Mitt did lobby for despite the claims otherwise). The author's excuse that this is a perfectly acceptable renegotiation of debt is nonsense.
Second case is where Romney runs a steel firm into the ground with huge debt...among the victims was a hugely underfunded pension that Romney was warned about. Romney and Bain profited big time because they pumped this steel firm with debt and used that debt to buy other companies and issue massive dividends that quickly paid back their initial investment at a 3 to one ratio I believe. He also extracted 4-5 million from the company in 'consulting fees'. In bankruptcy the government pension insurance ponied up 44 million dollars to cover this. This is absolutely a bailout. Taking more out of a company then you put in when financed by all the liabilities you create and defaulting on these liabilities (like the Pension) while hiding behind a corporate shell to protect from lawsuits is very dishonest. The author seems to be like..'ho hum...this is what government insurance is for'.
The third case which the author neglects to mention was the same steel company getting a massive 50 million dollar loan guarantee from the federal government. Loan guarantees are bailouts because they are free insurance. Insurance has a market value that the company could have purchased on its own so this is corporate welfare. Thankfully bankruptcy took care of GSI before the passed loan guarantees could kick in. Granted Romney wasn't running Bain directly at that exact time in 91 when the company went officially bankrupt, but he was still closely tied to it and was a good reason GSI was put in the position they were.
Then this doesn't even factor in the direct forms of corporate welfare Romney benefited from:
http://clawback.org/tag/bain-capital/
Too many people are defending Romney as just being a good little capitalist, but this is not the case. He was playing shell games and committing fraud with investors. I think we all agree the government should punish somebody selling watered gas...so why not dishonest debt instruments? I think we all agree if a minority shareholder uses company money to issue himself a big paycheck this is embezzlement from the other shareholders. When Romney does this with his multi-million dollar consulting fees this isn't different?
Now a big part of the problem is the government. Their limited liability laws unfairly rip up contracts between creditors and debtors. Making debt financing tax deductible but not equity financing has seriously messed up corporate structure. And lastly, the federal reserve creating so much debt (mostly indirectly) and then bailing out so much debt (creating moral hazards) is a huge problem that is a indirect cause of so much private equity crazyness.
Here is specifically how the system works... A bank overflowing with money they created from low federal reserve interest rates meets with a private equity firm to talk about taking over firm. The bank provides probably about 80/20 the money and they together purchase the take over target. The PE firm immediately loads up the acquired firm with debt for the bank to get their money. The debt is structured as a huge balloon payment set to self-destruct in about 5 years. The bank realizes this is ticking time bomb so unloads this debt ASAP to other banks, hedge funds, insurance companies and pension funds. The smarter investors realize this is a hot potato and keep passing it around. Recently they've been hiding this bad debt in CLOs (almost identical in concept to real estate CDOs). Hidden amongst other debt, people have no idea the mess they purchased. The PE firm on the other hand wastes no time in borrowing HEAVILY again to finance corporate mergers (they don't want to do it from the PE firm directly because they could be liable for the debt). They also borrow heavily to finance huge dividends that more than make up for what they paid for the firm. They justify the dividend legally by jacking up short term profits (price increases, job cuts, quality reductions) that threaten the long term health of the company and by money saved from tax deduct interest as well. If possible, the PE firms tries to dump their acquired firm before the balloon payment comes up...but even if they are stuck with the firm they usually do very well because of all the consulting fees they charge and the huge dividends they give themselves. People need to wake up...this is the next subprime mess that dwarf the real estate mess and Romney was at the heart of it.
I highly recommend anybody interested in the subject to read by Josh Kosman, "The Buyout of America - How Private Equity Will Cause the Next Great Credit Crisis".
