Romney is worse than I thought!

I never thought much of Mitt Romney. He has always come across to me as an opportunist with no principles, and worst, a man who has embraced the worst excesses of the extreme Right.

But I, along with many others, including Cory Booker, the distinguished mayor of Newark, felt the attacks on Bain and Romney’s association with it, were misplaced. Booker said: 

“I’m not about to sit here and indict private equity... If you look at the totality of Bain Capital’s record, they’ve done a lot to support businesses — to grow businesses. And this to me, I’m very uncomfortable.”

I bought into this view when I published my commentary entitled "In Defense of Romney" and said:

But what Mitt Romney did at Bain Capital is quintessentially good, beneficial capitalism. It is the essence of “Creative Destruction” so ably described by Joseph Schumpeter, the conservative Austrian economist. See here. Its essence is that inefficient entities must be made efficient or be eliminated, and in the long run the economy as whole will benefit, and while some jobs may be lost in the process, in the long run more will be created.

Booker and I were right about “private equity“ but we ignored the fact that while private equity does, in many cases, practice, “Creative Destruction“ not all do, and it appears that Bain was and is one that was bent on rapacious behavior, getting profits out of “creative accounting“ and very little creative building.

This was driven home to me when I received an e-mail from a Republican former colleague of mine who became interested when one of the subjects of Bain’s creative plunder turned out to be a former subsidiary of our common former employer Schering-Plough Corporation, Wesley-Jessen. In his e-mail my colleague quoted from a recent Daily Beast article by David Stockman, Ronald Reagan’s Budget Director.

My colleague quoted from the article as follows:

Wesley-Jessen was a small specialist firm that did reasonably well in cosmetic eye-color lenses and toric lenses to correct astigmatism. In mid-1995, when Schering-Plough Corp. put it on the block, Bain Capital invested $6 million and reaped a $300 million profit for itself by 1999—making nearly 50X its investment in the same number of months. On an apples-to-apples basis, however, the company’s operating income rose by only 2X during the same period, by my calculations. The rest of the gain was due to massive leverage, the Greenspan bubble, and accounting moves that can fairly be called myopic. 

Bain employed a hoary old dodge—having its accountants write off every dime of plant, equipment, and intangible know-how, reassigning roughly $40 million to the inventory accounts, and then charging it to income in the immediate two or three quarters. This trick eliminated all future depreciation, thereby magically adding $14 million to the pro forma operating income on Wesley-Jessen’s $100 million of sales. Investors were promptly told to ignore the resulting losses, of course, since these inventory charges were “non-recurring”! In fact, savings from pre-deal “restructuring” actions by the seller, plus the accounting magic, generated $24 million of freshly minted “operating income” before Bain’s turnaround squad even showed up at the company’s headquarters. The alleged “turnaround” of Wesley-Jessen was thus largely an artifact of Bain’s PR machine.

In the fourth quarter of 1996, the company borrowed $70 million to acquire a competitor, Barnes-Hind, from Pilkington plc. Before the ink was dry on the merger contract, Bain filed an IPO prospectus. While Barnes-Hind had an operating loss of $17 million the year before the merger, its results for that period were improved by $23 million owing to Bain’s pro forma adjustments—creating the appearance of another dramatic turnaround. 

During the 12 months ending at the merger date, the combined companies had actually incurred a net loss of $27 million, but it vanished with the help of $50 million in pre-tax adjustments for merger accounting and prospective savings. So its pro forma earnings took on a decisively improved aura; it would have booked a $14 million profit, or about $0.73 per share.  

  

Not surprisingly, the stock market eagerly scooped up $45 million of new shares at $15, or 20X these gussied-up earnings, just in time for the Fed to begin a new round of goosing in March 1997. And that proved propitious for Bain. Almost to the day on which its 180-day IPO lockup expired, it sold its first batch of shares in a secondary offering in a now red-hot stock market at a red-hot price that was up 60 percent from the IPO. 

Wesley-Jessen had not then filed financial statements with even $1 of GAAP (generally accepted accounting principles) net income. But when Bain’s underwriters wired the proceeds in August 1997 the selling price was $23.50 per share. That’s 52X the $0.43 per share it had paid for the stock 25 months earlier. At the end of the day, massive leverage, fancy accounting, and bubble finance, not entrepreneurial prowess, were the source of Bain’s 50-bagger.

I urge the reader to read at least portions of the article because it is replete with other similar rapacious examples. See here.

One comment in the article particularly calls for quoting as follows:

...Mitt Romney was not a businessman; he was a master financial speculator who bought, sold, flipped, and stripped businesses. He did not build enterprises the old-fashioned way—out of inspiration, perspiration, and a long slog in the free market fostering a new product, service, or process of production. Instead, he spent his 15 years raising debt in prodigious amounts on Wall Street so that Bain could purchase the pots and pans and castoffs of corporate America, leverage them to the hilt, gussy them up as reborn “roll-ups,” and then deliver them back to Wall Street for resale—the faster the better.

There is more that no one seems to have focused on. We are constantly told that we must work hard and play by the book. But what about people like Romney? He may have worked hard while he was the head of Bain Capital, but he was there from 1983 to February 1999. For the past thirteen years he has not expended any effort on the firms behalf. He isn’t 65 so he is not entitled to a pension, but without working he received $3,012,775 in salary, $3,649,567 in dividends and another $6,810,176 in Capital Gains, for a total $13,709,606 in income. Not bad for not working.

But the tax code allows him to pay a tax of 15%. Poor Romney, he thinks it is too high.

But there is more that comes from Romney’s released tax return. G-d knows what may be in the hidden ones. The assumption is that he gave most of his charitable contribution to the Mormon Church. But in fact he gave substantial contributions to family trusts. $89,000 to one family trust. One of his charities was The Tyler Charitable Foundation, an anti-gay group. 

The following is a quote from a website whose URL I have lost. I state this to avoid being accused of plagiarism.

He donated Appreciated Low-Basis Stock to a Private Charitable Foundation. Mitt and Ann donated about $1.5 million appreciated low-basis stock (mostly stock in Domino’s Pizza Inc.) to their private charitable foundation (The Tyler Charitable Foundation). This donation provided Mitt and Ann with five interrelated tax benefits:

Legally Excluded 2010 Capital Gains. Mitt and Ann legally excluded from their 2010 capital gains income the appreciation in the value of their donated stock. This legally excluded capital gain must be added back to Mitt’s and Ann’s 2010 reported income to arrive at their total 2010 income. I note that this exclusion saved Mitt and Ann as much as $225,000 in income taxes, assuming that the donated stock was worth $1.5 million and had close to a zero tax basis (tax cost). I used the 15 percent long-term capital gains rate to compute the tax savings on $1.5 million of gain since that is the long-term capital gains rate for both the regular tax and the alternative minimum tax.

Deductions in Excess of Tax Basis. Mitt and Ann deducted the full value of the stock – even though it is likely that their tax basis in the stock was far LESS than the value of the stock at the time they donated it to their private charitable foundation.

Donation Offsets Highly Taxed Income/Computation of Tax Benefit. The $1.5 million charitable donation offsets income that otherwise would been taxed at the 28 percent maximum alternative minimum tax rate. The tax savings associated with the charitable contribution deduction is approximately $420,000, or 28 percent of $1.5 million. This tax savings is in addition to the approximately $225,000 in tax savings arising from legally excluding the $1.5 million gain from income. Thus, the total tax savings is $645,000, as follows:

Exclusion of Gain on Disposition of Stock    $225,000

Charitable Contribution Deduction            $420,000

Total Estimated Tax Savings                  $645,000

Delayed Contribution to Final Recipients. Mitt’s and Ann’s private charitable foundation contributed $648,500 to various charities, including $145,000 to the Church of Jesus Christ, Latter Day Saints. The foundation held the balance of the $1.5 cash contribution – over $800,000 – at the end of calendar year 2010. Thus, although Mitt and Ann received a charitable contribution deduction of $1.5 million, less than half of that money was contributed to final recipients by the end of calendar year 2010. In contrast, Americans who cannot afford to set up private foundations must complete their contributions to final recipients by the end of the calendar year to take their charitable contribution deductions.

Contributions to Final Recipients Equals Approximate Tax Savings. I note that the $648,500 in total grants made by Mitt’s private charitable foundation in 2010 approximately equals the estimated tax savings of $645,000.12

Foreign Tax Credit. About 8 percent (about $1.5 million) of Mitt’s and Ann’s income came from sources outside the United States. To avoid double taxation, Mitt and Ann received dollar-for-dollar reductions in their United States tax liability for income taxes paid to foreign countries. In 2010, Mitt and Ann used the foreign tax credit to reduce their income taxes on foreign income by $129,000. They did this (1) by paying $67,000 in income taxes to foreign countries in 2010 and (2) by utilizing $62,000 of unused foreign tax credit carryforwards from prior years.

END OF QUOTE

It appears to all be legal. But that is the disgrace. WHY IS IT LEGAL!!! WHY DOESN’T ROMNEY TALK ABOUT ELIMINATING THESE EXEMPTIONS! All we hear about is lowering tax rates. DOES ANYONE REALLY BELIEVE THAT HE WILL ADVOCATE ELIMINATING THESE WONDERFUL MEANS FOR ESCAPING TAXES? BUT HE HAS ALREADY MADE CLEAR THAT HE DOESN’T PROPOSE TO INCREASE CAPITAL GAINS TAXES AND DIVIDENDS, EXCEPT FOR LOW INCOME PEOPLE WHO RARELY HAVE THEM.

YES, WE HAVE PEOPLE WHO ESSENTIALLY DON’T PAY TAXES. BUT IT IS NOT THE POOR OR THE ELDERLY!!!

And worse of all, these ill-gotten-gains then start an aristocratic dynasty through inheritance tax laws, which not only allow most of the ill gotten gains to be passed on to their heirs for generation after generation, but even forgive the few capital gains taxes incurred by the decedent.

We are Americans!

In my post I entitled "The Media in General and the New York Times in Particular" I decried the tendency on the part of the media and in that case PBS to “create an artificial or false equivalence…”

That is even truer as between the parties. As I watch the present campaign rhetoric and compare it to history I am struck by the fact that Democrats, as a group tend to be more American first and Democrats second, while the reverse is true about Republicans.

This came to me quite by accident as I was reviewing some old material on my computer. I found the following first person description of one who was in the World Trade Center on 9/11. It is very dramatic and I urge the reader to read it here. 

But the point that struck me most of all was the ending of that piece. Allow me to quote it here:

Today the images that people around the world equate with power and democracy are gone but “America” is not an image it is a concept. That concept is only strengthened by our pulling together as a team. If you want to kill us, leave us alone because we will do it by ourselves. If you want to make us stronger, attack and we unite. This is the ultimate failure of terrorism against The United States and the ultimate price we pay to be free, to decide where we want to work, what we want to eat, and when & where we want to go on vacation. The very moment the first plane was hijacked, democracy won.

Compare that to the long running smears against Democrats that I related in my post: "The Election (Discussion)" Allow me to quote:

… for some reason Democrats have always been held to a much higher standard than Republicans. You will remember Joe McCarthy's charge during the Truman Administration of "twenty years of treason." What was worse is that when the Democratic led Tydings Committee "concluded that the individuals on McCarthy's list were neither Communists nor pro-communist, and said the State Department had an effective security program" and "labeled McCarthy's charges a "fraud and a hoax". Republicans responded in kind, with William E. Jenner stating that Tydings was guilty of "the most brazen whitewash of treasonable conspiracy in our history.” The full Senate voted three times on whether to accept the report, and each time the voting was precisely divided along party lines.”

But that is not even ancient history. Ann Coulter, a darling of Republicans recently, wrote: "Twenty years of treason hasn't slowed them down." and charged "50 years of treason.” 

Now compare that to the reaction as shown in the quote above. In response to 9/11 Democrats rallied around the President. They did so even though there were many questions about Bush’s negligence in not stopping the attack. The outgoing Clinton Administration had warned the President that a major attack on the US was a serious threat. It was ignored.

The hijackers were training for the attack in American flight schools, and agencies of the Bush Administration knew about it, but they did not “connect the dots.” The Bush Administration was clearly negligent in a major and dangerous way. But this was not the time for recriminations. Democrats held their fire. The said we are Americans first and partisans second. This was a time for unity.

Contrast that with the way Republicans are treating the attack in Ben Gazi, Libya, (Which by the way is not the capital of Libya and is not where our Embassy is located. What was attacked was a Consulate. The Embassy is in Tripoli.) Again we have been attacked. A time for unity? Not for Republicans! It is, as it has always been, a chance for divisiveness. Not for patriotism. Not for unity. A chance to divide the country on National Security.

Have they, or we, already forgotten how even after 9/11 Al Qaeda continued its terrorist attacks, if not on our territory on the territory of our allies. Have we forgotten the bombing of the London subway, or the attacks on our allies in other parts of the world? Obama put a stop to it even before he tracked down and killed Osama bin Laden. A decimated Al Qaeda staged they Libyan attack in order to seem relevant again. And Republicans, led by Romney and Ryan are giving them the stage they were, and are, seeking.

For shame! For shame!

They wave the flag! They wear flag pins! And they don’t know the meaning of patriotism. Only how to advance their agenda.

And what is their agenda? They accuse the President, “No Drama Obama” of being soft. He may have been in the first debate, but he sure isn’t when it comes to being what he was elected to do. He isn’t the best at blowing his own horn, or exposing the hypocrisy of his opponent, but as President, as Commander in Chief, he is always there.

Ryan during his Debate with the VP criticized Obama on Iran. He claimed that it took Republicans in Congress to toughen sanctions. Wow, we got a bipartisan bill through Congress 421-6 in the House and by voice vote in the Senate and it is promptly signed into law by “No Drama Obama” and Ryan claims this somehow reflects badly on the President and/or Democrats.

But of course no unilateral sanctions by the US has any meaning unless such sanction are imposed by a multiplicity of countries. That has been the genius of this Administration. They got something, that none of these unilateralist could have gotten! They got effective international sanctions against Iran.

Bloomberg news reports: 

Iran’s freefalling currency is turning meat into a luxury, sparking overnight price surges and spurring shoppers to stockpile goods…. Iran’s rial is in a tailspin, having lost more than half of its value against the dollar in street trading in the past two months as U.S. and European sanctions aimed at curbing the country’s nuclear program bite. Riot police yesterday fired tear gas and sealed off parts of downtown Tehran after the currency’s plunge triggered street protests.

Short of military action, whose effectiveness is problematic, and which Romney/Ryan do not advocate, (or maybe they do ---who knows, they make statement all over the map) what more could have been done. It has now been effective beyond any expectation or hope. It might end up bringing the regime down.

But how did we get here in the first place? 

It was Republican Secretary of State, Foster Dulles, and his brother Allen Dulles head of the CIA, in the Eisenhower administration who overthrew an Iranian Democratically elected government and installed the hated Shah, which in turn led directly to the Shah’s overthrow by the Ayatollah.

It isn’t just people. Parties matter. And while Democrats are not angels, (the system will not allow it) the differences between them are like night and day.

They (Republcians – Romney – Ryan) say Obama has not created enough jobs since he took office in January. They do this by counting the job losses the country sustained on the day the President took office. This is an absurd approach. Presidents don’t control events on the day and in the months immediately after they are sworn in. Obama acted fast! He got the stimulus bill signed into law on February 17, 2009 less than a month after being sworn in. It took until the end of March to have an effect. Look at the graph below: 

By April job losses had gone from 850,000 the day he took office to only 200,000 by May and except for a small spike in the middle of summer, the trend has been for the better every year. Republicans have been touting “Unemployment is still over 8%.” Well, it isn’t any more. This is a party that celebrates unemployment. It may not be good for the country, but it is good for the party.

But say Republicans through the mouth of Romney and Ryan does he (Obama) have any other plans. Well yes! On August 2, 2011 Business Insider had the headline “Congress AWOL ON Jobs.” They hold the country hostage and then blame our President. That is their patriotism.

And what of their nominee? He is the Invisible man*! Well, he may not be invisible, but his plans for the American people are top secret. He will cut $5 trillion in taxes, mostly for the rich, and make it up with ------ “it’s a secret.” He will find it in tax expenditures, but not of the most important kind, not the advantaged (for the rich) capital gains tax – that’s off limits. Dividends mostly earned by the rich – that’s off limits. Inheritance taxes, the means by which inherited aristocracies are built – that’s off limits. What’s left –it’s a secret.

           

What nefarious secrets are contained in his tax returns? We don’t know. It’s a secret.

This shouldn’t be a close election. Obama ought to win by a landslide and get a Congress that will work with him. But the American people, or about half of them, are deluded and deceived.

I pray for the future of my country, for I AM AN AMERICAN.

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*Borrowed from the book by that name by H.G. Wells

The Media in General and the New York Times in Particular

I have denounced our media again and again. I wish to God that such denunciations could be focused on the lying machines of Fox News and the vicious demagoguery of Rush Limbaugh, or other clearly Right Wing Media. Unfortunately, the so-called liberal media is failing us. Its editorials, more often than not are fine, but its more important feature articles leave much to be desired.

I have written about this time and time again. Please, please, read my blog posts "The Media III - Falsehoods about Kerry" and even more important "The Media II - Falsehoods about Gore."

The editorial pages of the New York Times and the Washington Post usually say the right things, but the news and feature stories are far more important, and they too often go for the sensational, or the just plain sloppy.

What has set up my ire today is a front page article in the New York Times entitled "Payroll Tax Cut Is Unlikely to Survive Into Next Year."

Here is what the article says at paragraph three: “Independent analysts say that the expiration of the tax cut could shave as much as a percentage point off economic output in 2013, and cost the economy as many as one million jobs.”

But at paragraph 10 it says: “independent economists say that the economy could shoulder the payroll tax increase without undue harm.”

Who are the independent analysts? Who are the independent economists? Is there a difference?

The author doesn’t say.

But that’s not all!!! The article goes on to say, “Many Republicans vehemently opposed its passage last year, as it would divert money from the Social Security program.”

Really? Since when do Republicans worry about diverting money from a program they have long wanted to gut and abolish. But in fact, the program doesn’t divert money from the Trust fund. Under its provisions any revenue lost to the Social Security Trust Fund must be, and is made up out of general revenue. See the applicable IRS Bulletin. 

But the New York Times article doesn’t tell us that. It leaves us believing that the reduction in the payroll tax negatively impacts the Social Security Trust Fund and the long-term viability of SS. This is simply not true.

But I don’t want to single out the New York Times. I focus on that paper because I read it more than any other and so its sins of omission and commission come to my attention more frequently.

But let us not overlook the highly regarded PBS Newshour, which was recently reprimanded by its ombudsman, for presenting a segment on global warming saying ” … it is wrong to create an artificial or false equivalence…”

But this is not the first time that the Newhour, a program I watch religiously, as being one of the few good news programs on the air, gave false information, or sought a false equivalency. While I have no proof, the fear of a funding cut-off from Republicans in Congress undoubtedly makes the program careful not to allow truth to offend those who hold the purse strings. What we need is for enough money to pour into PBS for it to be endowed with funds making it truly independent of outside pressures.

I could undoubtedly go on and on about our inadequate media, but neither my time nor my readers patience will allow that.

So let me close with a reference to Fareed Zakaria on CNN last Sunday and in the Washington Post on September 26 where Zakaria in effect assumes that Romney is so vague about his budgetary plans, that if he gave out more details he would offend his Tea Party base. Why does Zakaria assume that the real Romney is the centrist who governed Massachusetts, despite all evidence to the contrary? The evidence for those who choose to have their eyes and ears open is that he has in fact become the Tea Party acolyte he appears to be, and that he is vague about his plans, not because he is afraid of offending his Tea Party base, but because he is afraid that he would lose most of the centrist voters, and maybe many of those 47%, non-income tax-paying voters who amazingly still support him, if they knew of his real plans.

And so his plans are a secret, just as his tax returns are secret, for the more we know the fewer votes he would get.

But to me the attempted false equivalency infects the news media. If the Republican Party adopted the Flat Earth Society platform we would undoubtedly soon have debates in our media on the subject of whether the earth is flat.

But it is not only false equivalency. It is the echo chamber. Once a certain paradigm is set, no one questions it. Thus we hear again and again how “no sitting president facing an unemployment rate more than 8% has won another term since Franklin D. Roosevelt.” and this is repeated over and over again, often without mention of FDR’s re-election. The message becomes, intended or not, that no President deserves re-election with such an unemployment rate. But what is left out of this equation is that no President since FDR has inherited an economy as bad as this one, and somehow that is rarely if ever mentioned. If the one is constantly repeated, shouldn’t the other? But the media is stacked. Not the liberal way, as we keep hearing. But subtly, ever so subtly, in favor of the Right. But this is never enough. The attacks on the media as being too liberal will keep on coming, and the media ever craven will accommodate, and move further and further right to stop the attacks, which will never, ever, stop until all we get is clones of Fox.