While reading Matt Taibbi’s piece on Mitt Romney’s outrageous Bain Capital career I was reminded of a different period, one in which citizens took matters into their own hands to punch capitalism in its big, fat mouth. Our radical history never appears in students’ textbooks, although Howard Zinn’s A People’s History of the United States includes many references to the violent acts of the oppressed against their oppressors.
This Monday, we should remember, is Labor Day. But few of us take the time to recall struggles of another era, one marked by bombings, shootings, strikes, riots, and Pinkerton guards. I’ll mention one incident.
The year before the birth of my grandfather— who would become active in labor’s causes for most of his adult life—a peaceful rally took place in Chicago’s Haymarket Square. Workers and their families were demonstrating for an eight-hour day. Imagine that. Someone threw a bomb. Gunshots were fired. Police and civilians died. (You can read about it here.)
Perhaps we can call upon Zinn to give us a brief background. He’s writing about Albert Parsons and August Spies, described by Zinn as anarchist leaders of the International Workers of the World, to which my grandfather briefly belonged (from pp. 264-265 of the paperback People’s).
On May 3 , a series of events took place which were to put Parsons and Spies in exactly the position that the Chicago Mail had suggested (“Make an example of them if trouble occurs”). That day, in front of the McCormick Harvester Works, where strikers and sympathizers fought scabs, the police fired into a crowd of strikers running from the scene, wounding many of them, and killed four. Spies, enraged, went to the printing shop of the Arbeiter-Zeitung [Workers’ Newspaper] and printed a circular in both English and German:
Workingmen, to Arms!!!
…You have for years endured the most abject humiliations…you have worked yourself to death…your Children you have sacrificed to the factory lord—in short: you have been miserable and obedient slaves all these years. Why? To satisfy the insatiable greed, to fill the coffers of your lazy thieving master? When you ask them now to lessen your burdens, he sends his bloodhounds out to shoot you, kill you!
…To arms we call you, to arms!
Well, one thing led to another, including the aforementioned bomb. But as Wikipedia suggests, “The Haymarket affair is generally considered significant as the origin of international May Day observances for workers.” We could add Labor Day to this. Could, but we won’t.
Now, we would judge Spies’s circular inflammatory and hyperbolic. Not only have we rid our vocabularies of such rhetoric, we generally regard ourselves as more civil these days. We also put up with a lot more pervasive, yet sophisticated shit, dispensed by “the great malefactors of wealth,” as Teddy Roosevelt called his oligarchs. Perhaps we’ve become inured to the abuse. Or, certainly, the stakes are different. We don’t, as a rule, sacrifice our children to “factory lords,” though migrant children toil hours in white farmers’ fields. Nor do Wall Street barons sic their “bloodhounds” on us. There’s no need, since we’re probably sitting in front of the television watching American Idol.
I should offer a little of Taibbi so that you can gain some flavor for what prompted this post. Let’s start at the beginning:
The great criticism of Mitt Romney, from both sides of the aisle, has always been that he doesn’t stand for anything. He’s a flip-flopper, they say, a lightweight, a cardboard opportunist who’ll say anything to get elected.
The critics couldn’t be more wrong. Mitt Romney is no tissue-paper man. He’s closer to being a revolutionary, a backward-world version of Che or Trotsky, with tweezed nostrils instead of a beard, a half-Windsor instead of a leather jerkin. His legendary flip-flops aren’t the lies of a bumbling opportunist – they’re the confident prevarications of a man untroubled by misleading the nonbeliever in pursuit of a single, all-consuming goal. Romney has a vision, and he’s trying for something big: We’ve just been too slow to sort out what it is, just as we’ve been slow to grasp the roots of the radical economic changes that have swept the country in the last generation.
And what is Romney’s grand vision?
Mitt Romney – a man whose own father built cars and nurtured communities, and was one of the old-school industrial anachronisms pushed aside by the new generation’s wealth grab – has emerged now to sell this make-nothing, take-everything, screw-everyone ethos to the world. He’s Gordon Gekko, but a new and improved version, with better PR – and a bigger goal. A takeover artist all his life, Romney is now trying to take over America itself. And if his own history is any guide, we’ll all end up paying for the acquisition.
Taibbi goes on to chronicle how Romney made his fortune, not by weeding out weak businesses or turning them around, all the while putting people to work. Rather, Romney and Bain Capital parlayed a little of their own money along with massive debt to simply extract millions of dollars from companies before they almost inevitable ran aground. He and his minions got out before the axe fell on thousands of workers. Taibbi:
Here’s how Romney would go about “liberating” a company: A private equity firm like Bain typically seeks out floundering businesses with good cash flows. It then puts down a relatively small amount of its own money and runs to a big bank like Goldman Sachs or Citigroup for the rest of the financing. (Most leveraged buyouts are financed with 60 to 90 percent borrowed cash.) The takeover firm then uses that borrowed money to buy a controlling stake in the target company, either with or without its consent…
Romney and Bain avoided the hostile approach, preferring to secure the cooperation of their takeover targets by buying off a company’s management with lucrative bonuses. Once management is on board, the rest is just math. So if the target company is worth $500 million, Bain might put down $20 million of its own cash, then borrow $350 million from an investment bank to take over a controlling stake.
But here’s the catch. When Bain borrows all of that money from the bank, it’s the target company that ends up on the hook for all of the debt.
Taibbi captures the disturbing irony of the man named ‘Mitt.’ Despite the candidate’s rebuke of Obama for creating a “prairie fire of debt,” debt was what made Romney rich. Not his debt, of course. He made it his business to saddle others with so much that they could not possibly get out from under it. Taibbi offers an example of Bain’s modus operandi:
Take a typical Bain transaction involving an Indiana-based company called American Pad and Paper. Bain bought Ampad in 1992 for just $5 million, financing the rest of the deal with borrowed cash. Within three years, Ampad was paying $60 million in annual debt payments, plus an additional $7 million in management fees. A year later, Bain led Ampad to go public, cashed out about $50 million in stock for itself and its investors, charged the firm $2 million for arranging the IPO and pocketed another $5 million in “management” fees. Ampad wound up going bankrupt, and hundreds of workers lost their jobs, but Bain and Romney weren’t crying: They’d made more than $100 million on a $5 million investment.
Taibbi believes that Romney’s end game looks something like this:
Romney is the frontman and apostle of an economic revolution, in which transactions are manufactured instead of products, wealth is generated without accompanying prosperity, and Cayman Islands partnerships are lovingly erected and nurtured while American communities fall apart. The entire purpose of the business model that Romney helped pioneer is to move money into the archipelago from the places outside it, using massive amounts of taxpayer-subsidized debt to enrich a handful of billionaires. It’s a vision of society that’s crazy, vicious and almost unbelievably selfish, yet it’s running for president, and it has a chance of winning.
I think that Taibbi may be on to something in his discussion of debt. It may be no coincidence that the Great Divergence, in addition to increasing the gulf between the Have’s and Have-nots, saddled us with rising debt.
I’ve included the following graph in prior posts. It shows income gains by “fractile.”
Since the late 70s the U.S. economy has shifted away from manufacturing toward financialization. We used to build things.
Now we finance—whatever. Financing is all about debt. I want to buy a house, so I borrow money. I’m Mitt Romney and I want to buy a company. I borrow money.
The first chart above shows government debt. What about private, or consumer, debt?
Fifty thousand billion equals $50 trillion. Now that’s a lot of money. Keep in mind that our GDP is about $13.6 trillion. Let’s look at GDP and consumer debt.
Wow! We can then compare the ratio of debt to GDP.
Before 1983, the ratio of consumer debt to GDP was less than one. Today, for every dollar of GDP our economy incurs four dollars of debt.
The financial sector is populated by people like Mitt Romney and, of course, Wall Street barons. The piles of debt, to my simple mind, represent giant Ponzi schemes, with the need for increasing inputs (debt) for any given output (unit of GDP).
Our whole economy, now, is about leveraging, borrowing money to do what? It’s not to put people to work. It’s not to build better roads and schools. It’s not about improving the living standards of the Rest of Us. No, it’s all about making rich people richer.
Do you get this? Well, let’s start printing some circulars.