Tuesday, May 22, 2012

Bailing on Bain Capital

The Pension Benefit Guaranty Corporation (PBGC) is a Unites States Government Agency that protects the retirement incomes of retirees in the private-sector. It is financed by insurance premiums that it collects from companies that have defined benefit pension plans. Of course, it has investment income and assets from pension plans entrusted to it, as well as recoveries from the companies formerly responsible for the plans. You can think of it as an FDIC for pension funds.

Suppose you are a company that is struggling to stay alive, say, because you manufacture buggy-whips, and your business plan is out of date. One thing you can do is close up shop, and sell your assets. With the proceeds, you can pay off your debts, and purchase annuities to pay for the retirement of your employees. Then you can walk away with your head held high.

Another way out of the situation is to find a white knight to rescue your company. The white knight could be a company like Bain Capital. Bain could give your company an infusion of capital with which to upgrade your product line. Let’s say their consultants suggest that you get out of buggy whips and into remote starters for automobiles, and change your name from Acme Buggy-Whips to Detroit Autostart. With the new capital, you can borrow a ton of money, and buy some robots to make remote starters. The gains in efficiency allow you to cut costs by firing workers. The cost savings allow you to pay a nice consulting fee to those Bain Capital consultants who had the wisdom and insight to see the problems of the buggy whip business.

When I say a nice consulting fee, I mean a fee that is so generous that it sucks all of the liquid capital out of your company. Uh-oh. Where are you going to get the money to pay off those debts? Here’s an idea: screw the debtors. The bankruptcy courts are at your beck and call. And, as Mitt Romney famously said, “Let Detroit go bankrupt.”

Shed no tears for the creditors who sold you robots to make auto-starters. They knew what they were doing. They looked at your books and decided that your company had a place in their portfolio. They assessed the risks, and charged an interest rate that was commensurate with those risks. If they made 500 loans like the one to you, and yours is the only one to go south, they will be okay.

The employees are another story. They actually earned those benefits with their labor. They went to work on the assumption that you would fund their retirements. They can’t hedge with 500 other pensions, and that’s why the PBGC exists. The government will pick up the pension liability and the worker’s will not have to live out their retirements in poverty and despair.

When you made obscene amounts of money on “consulting fees,” laid off a bunch of workers, and skipped out on their retirements, you really can’t walk away with your head held high. After all, insurance – which is what the PBGC is – usually doesn’t insure against losses that the insured causes. So some shame is appropriate. Unless you have no conscience, in which case, you can get the Republican nomination for the Presidency of the United States of America. After all, it’s the United States of America who sucked up your obligations to your workers.

One question remains. How much did the United States government pay to bail out the companies that Bain Capital led into bankruptcy?

“…and tell ’em Big Mitch sent ya!”

Sunday, May 20, 2012

Originally Appeared FRIDAY, MAY 11, 2007

Mitt Romney’s religion

According to Time Magazine, 29% of American voters say they would not vote for a Mormon presidential candidate. Back in November, a Rasmussen poll, had 43% saying they would never consider voting for a Mormon and only 38% said they would even consider casting such a vote. Nineteen per cent were not sure.

This is disgusting in a country founded on religious liberty and bound together by a Constitution which states “no religious Test shall ever be required as a Qualification to any Office or public Trust under the United States.”

Growing up in New York, I had never met a Mormon, until I happened to sit next to one on the bus from my upstate college town to New York City. I continued in ignorance of what the LDS church believes and practices for many years, and it was not until the mid-1970’s that I got to count a member of the church among my friends.

When Jimmy Carter became President, there was a sudden upsurge of interest in the Southern Baptist church, which theretofore had been vaguely foreign to most northerners like me. Perhaps we will see a similar spurt of interest in the Church of Jesus Christ of the Latter-day Saints with the ascendancy of Mitt Romney and Senate Majority leader Harry Reid. For example, the Frontline/American Experience shows on PBS aired a four-hour series on The Mormons.

There is much to be admired in the culture of the Mormons, and plenty that is troubling in the history of this uniquely American church. (In the latter category consider the Mountain Meadows massacre and polygamy.)

But let us focus on that which is to be praised. One cannot learn about the Mormons and not be impressed with their devotion to the family. Consider the advertisements that the Mormons run on TV. The tagline is, “Family: isn’t it about time?” It is a Mormon practice to set aside Monday evenings for family home activities. The Mormon attitude to family is also reflected in the practice of genealogy and posthumous baptism. Mormons don’t get married “until death do us part,” but rather, for all eternity.

I am all in favor of family values and I love my family. But when I watched the Frontline series on The Mormons I realized that they have a different appreciation of the role of family. If I may be forgiven my presumptuousness, I would say that Mormons believe that the family provides for the individual and the individual should look primarily to the family to have his or her material and spiritual needs met.

It is insulting to Mitt Romney to acknowledge that he is a Mormon but deny that he is moved by the basic values of Mormonism. In any event, he gives us no reason to doubt that he is guided by his faith. For example, on his website he states: Americans are “a purpose-driven people founded on the family unit.” (Union Leader, March 19, 2006)

As I say, this may be laudable in a person’s personal life. Clearly, family is a great source of strength to the members of the LDS church. But what does it mean for a candidate for the office of the presidency?

It means that government doesn’t need to help people: that’s what families are for.

It means that government doesn’t need to provide a safety net for individuals because they can and should rely on their families when life deals them a harsh hand.

It means that government doesn’t need to create opportunity for individuals because people have unlimited opportunities in the context of their families.

It means that people who don’t share in the values of the conventional family don’t share in the values our national government, and therefore, it is not the role of government to protect their civil rights.

Mitt Romney is a conservative and as that term has come to be understood in the 21st century that means he is openly hostile to the institutions of government. Of course, he won’t come out and say that in so many words. He would like to see the role of government reduced as far as possible. And the way he sells this idea is to propose that the functions of government be performed by “the family.”

I take a back seat to no one when it comes to love of my family. But we are part of a greater society. Which is why I would never vote for Mitt Romney, or for that matter any of the buffoons I saw standing on the podium at the Reagan Library last week.

“… and tell ’em Big Mitch sent ya!”