“Invisible And Untaxed”: How Mitt Romney Made A Fortune Off The Auto Bailout
Faced with the hard facts that “bin Laden is dead and General Motors is alive,” as Vice President Biden always says, Mitt Romney has resorted to claiming that Obama followed his lead on the auto industry bailout. “I know [Obama] keeps saying, you wanted to take Detroit bankrupt,” he said during this week’s debate at Hofstra University. “Well, the president took Detroit bankrupt.” Romney’s right, in a way — both his plan and Obama’s plan envisioned the auto companies going through a period of bankruptcy restructuring. But there’s a key difference: Obama’s approach was to use government dollars to prop up the auto companies until they could stand on their own again — something that Romney, like other Republicans in the Tea Party’s anti-spending thrall, adamantly opposed as dangerous government intervention in private industry.
But it turns out that Romney should know firsthand that this kind of intervention can be successful, as a new report shows that he and his wife made at least $15.3 million courtesy of Obama’s auto bailout. According to a Greg Palast, who followed the paper trail for the Nation, Romney and his wife made the money via an investment in a hedge fund that saw astronomical returns on its investments in an auto parts maker that would have gone under absent the president’s rescue operation.
Delphi, the auto parts company, was once part of General Motors but was spun off in 1999. It foundered on its own and declared bankruptcy in 2005, at which point hedge funds came in and bought up the company’s old debt. Among them was Elliott Management, a giant in the industry run by GOP mega-donor Paul Singer. Romney was an investor. Elliott and the other hedge funds were able to buy Delphi’s toxic debt for a fraction of their face value, around 20 cents on the dollar. In 2009, as bailout negotiations were underway, Elliott used their bonds to buy large shares in the company, again for pennies (this time for about 67 cents per share). Not only would Delphi have gone out of business along with its largest customer, GM, but the parts maker got at least $2.8 billion directly from the taxpayer-funded Troubled Assets Relief Program (TARP). In 2011, Elliott and the other hedge funds took Delphi public at $22 a share, making a whopping 3,000 percent return on their investment of less than 70 cents a share.
So how much did Romney make? His personal financial disclosure forms say he and Ann Romney had at least $1 million invested, but the disclosure rules are so vague that it could be far more. Palast sketches out the possible windfall:
It is reasonable to assume that Singer treated the Romneys the same as his other investors, with a third of their portfolio invested in Delphi by the time of the 2011 initial public offering. This means that with an investment of at least $1 million, their smallest possible gain when Delphi went public would have been $10.2 million, plus another $10.2 million for each million handed to Singer — all gains made possible by the auto bailout.
But that’s just the beginning. Since the November 2011 IPO, Delphi’s stock has roared upward, boosting the Romneys’ Delphi windfall from $10.2 million to $15.3 million for each million they invested with Singer… The Romneys’ exact gain, however, remains nearly invisible—and untaxed—because Singer cashed out only a fragment of the windfall in 2011.
By: Alex Seitz-Wald, Salon, October 19, 2012
“One Is A No-Risk Racket”: Why The Bain-Solyndra Comparison Is Terrible Strategy
Is asking voters to compare Romney’s vulture capitalism to Solyndra a good idea? The Romney campaign and its cohorts seem to think so. Within the past few days, American Crossroads, Karl Rove’s super PAC, released an ad that counters Obama’s attacks on Bain by highlighting Solyndra, a bankrupt solar panel company that had been given a government-backed loan guarantee, as well as the auto industry bailout. George Will made the Bain-Solyndra comparison on This Week; Paul Ryan did the same on Fox News Sunday; Michael Barone piled on in National Review Online.
The underlying argument is that the White House has been making the same risky bets as a private equity firm, bets that produced their own failures. (The grim-voiced narrator of the Crossroads ad, which is captioned, “President Obama is playing Wall Street games with our money,” asks, “Obama’s attacking private equity. But what’s his record on public equity investing?”)
It’s not the smartest response in the world. First off, Romney allies typically explain away Bain’s failures as just the way capitalism works—sometimes, bad companies are swallowed by the market. Solyndra, whose solar technology was priced out of the market by cheaper Chinese solar panels, is a pretty classic example of this, and by citing its Adam Smithian demise in response to attacks on Bain, Romney allies have diminished their ability to dismiss Bain’s loser companies as just the natural cycle of capitalism.
But the larger risk of this approach is that comparing any of Bain’s failures to Solyndra asks voters to examine private equity alongside public stimulus. The former is a game in which a tiny group of stakeholders set out to create as much value as possible for themselves: buying companies, often loading them up with debt they can’t bear, and extracting exorbitant fees for themselves before they reintroduce the company to the public and it either fails or succeeds. It’s essentially a no-risk racket, one Timothy Noah describes in fuller detail here.
Then there’s government stimulus, which is aimed at benefitting the public, and which the Obama administration has distributed with considerable success. Take the Department of Energy loan guarantee program through which the administration backed Solyndra. That program has been hugely effective for shoring up projects that the private market underinvested in. A recent, independent audit (pdf) by the former national finance chairman for John McCain found that it was due to come in about $2 billion under budget, and had subsidized mainly low-risk, critical electricity projects. The American Crossroads ad goes a step further and offers, as a comparison with Bain Capital’s failures, the government’s auto bailout, which an independent group found saved 1.45 million jobs, when no private equity dollars could be found to do the same.
On balance, the White House seems to be playing Wall Street games—if that’s what you want to call massive investment in underfunded public infrastructure—pretty decently, and in a manner that produces more value for the public than private equity firms. Bain and Solyndra are really nothing alike. And by insisting that they are, Romney boosters have given Obama’s campaign an opening to brag about what American Crossroads is calling Obama’s public equity presidency—and all its successes.
BY: Molly Redden, The New Republic, May 30, 2012
“Creative Destruction Of Capitalism”: Mitt Romney Is No Economic Savior
Republicans say they’re eager for the presidential campaign to turn away from “distractions” and focus instead on the economy. Someone should warn them that if they’re not careful, they might get their wish.
It is true that voters’ unhappiness with high unemployment and slow growth poses a challenge for President Obama as he seeks reelection. But for Mitt Romney and the GOP to take advantage of this potential opening, they’ll have to do more than chant the word “economy” like a mantra. They have to make the case that their policies will work better than Obama’s.
And what might Romney’s proposed economic policies be? Why, they’re basically the same as those of George W. Bush, only worse.
Just as Obama owns the recession and the slow recovery, Bush owns the financial crisis that sent the slumping economy over a cliff. But for all his sins — the gratuitous tax cuts, the off-budget wars, the defiance of basic arithmetic — Bush at least demonstrated a certain empathy for Americans who struggle to make ends meet. One of his budget-busting initiatives, for example, was expanding Medicare to cover prescription drugs without worrying about how this much-needed new benefit would be paid for.
It’s safe to predict that Romney would never make such a gesture out of compassion for the beleaguered middle class. To this day, he refuses to take back his criticism of Obama for bailing out General Motors and Chrysler — even though letting the companies fail would have meant the extinction of the U.S. auto industry and the elimination of hundreds of thousands of jobs.
It is a measure of Romney’s ideological stubbornness that, even with Chrysler rebounding under new ownership and GM reporting record profits, he still insists that his view — let the companies go bankrupt so the “creative destruction” of capitalism could work its magic — was correct.
Romney is something of an expert on creative destruction, I guess, having orchestrated a good deal of it while running the private-equity firm Bain Capital. The Obama campaign recently released an ad about one of Bain’s less successful acquisitions, a small steel mill in Kansas City called GST Steel.
The company, which was more than 100 years old, failed after a decade under Bain’s ownership; GST’s 750 employees lost their jobs, pensions and health benefits. Bain, however, made money, investing $8 million in the company and taking out $4 million in profits and $4.5 million in management fees. The Romney campaign contends that GST, with its unionized workforce, could not compete with cheap foreign steel being dumped on the market. The Obama campaign alleges that Bain burdened GST with crushing debt while sucking the company’s coffers dry.
Is this the genius of free markets at work, or is it “vulture capitalism” run amok? Let’s have that argument. Please.
Let’s also have a long, detailed discussion of Romney’s economic plans versus Obama’s. Romney wants to make tax rates for the wealthy even lower than they are now; Obama wants a small increase for those making more than $1 million a year, whom he challenges to pay “their fair share.” Romney’s entire economic plan, basically, involves tax cuts and deregulation — in other words, a repeat of the Bush-era policies that led to the crisis.
Does Romney have any fresh ideas? Well, when he was governor of Massachusetts, he was smart enough to see that universal health coverage would not only improve the lives of the uninsured but also help rein in runaway medical costs. He found the solution in an innovative idea developed in Republican-leaning think tanks: an individual health insurance mandate.
It worked. In fact, it was Romney’s greatest policy success as a public official. But now he doesn’t talk about it much.
My guess is that Republicans won’t want to talk about the past or the future in much detail. They’d like to keep things blurry, so that we only see Romney in broad outline: a successful businessman who’ll put us back in business. For details, we’ll mail you the prospectus.
I can’t help but think of the “prosperity theology” movement, or scam, in which preachers persuade congregants that God’s will is for Christians to be rich — and that the way to become rich is to put lots of money in the collection plate. It’s not believable unless the preacher looks and acts the part. Maybe he lives in a mansion. Maybe his wife drives “a couple of Cadillacs.”
Actually, it’s not believable even then.
BY: Eugene Robinson, Opinion Writer, May 14, 2012
“Rewriting History, Again”: No, Mitt Romney Didn’t Save The Auto Industry
One might think that presumptive GOP nominee Mitt Romney would be a little more careful on two fronts: thinking about how his comments will come across before he says them, and being sensitive to concerns about him changing his views on things. So what would lead a smiling Romney to take credit for the resurgence of the automobile industry?
Somewhat incredibly, Romney, campaigning recently in auto industry-reliant Ohio, told a Cleveland radio station:
I’ll take a lot of credit for the fact that this industry’s come back. My own view is that the auto companies needed to go through bankruptcy before government help. And frankly, that’s finally what the president did. He finally took them through bankruptcy.
Forget about the auto industry turnaround; Romney’s remarkable statements represent a turnaround in either policy or memory that makes the stunning new success of GM pale in comparison. This is a candidate who, in 2008, penned a New York Times op-ed entitled “Let Detroit Go Bankrupt.” And while the headline (which Romney did not write) was a tad provocative, Romney was very clear in the piece in saying that if the auto bailout went ahead, “you can kiss the American automotive industry goodbye.”
It’s hard to imagine Romney forgot about that op-ed, which has been resurrected many times in the media. It’s a weakness for Romney in the industrial Midwest. But purporting to be the source of Obama’s strategy (as if the president was taking advice from Romney) is a metaphorical shaking of the Etch A Sketch that requires a bodybuilder to achieve.
A lot of conservatives are unhappy with Romney, and it’s not just because they don’t think he’s conservative enough, it’s because they aren’t confident he means what he says about conservative issues. The man who promised to be more pro gay rights than late Sen. Ted Kennedy has a hard time convincing social conservatives he will be the opposite. The man who once supported abortion rights has a tough task in convincing the GOP base that he feels differently now. It’s one of the reasons primary foe Rick Santorum took so long to endorse Romney, and then did so in a long E-mail to Santorum supporters—an E-mail in which he delivered the most tepid of endorsements to Romney. So attempting to rewrite history for voters in Michigan, Ohio, and Pennsylvania doesn’t help with his image.
Romney’s argument in 2008 would look smarter if Obama’s strategy didn’t work. But it did, and even if Romney has a sincere free-market opposition to industry bailouts, he could acknowledge that happy development without endorsing government ownership of private industry. He could say, Gosh, I’m glad things are looking up. But we’re going down a dangerous road if we let the federal government tinker with private companies that way. It undermines the principles of the free market and entrepreneurship, and it exposes the government to private-sector losses if the companies don’t rebound. That’s a less powerful argument to make now that the auto industry is coming back, but at least it’s sincere and consistent.
It’s also possible that this is all about Obama, and the refusal by some of his opponents to give him credit for anything, even if there’s a clear success. Obama gave the order to kill Osama bin Laden, and it worked—the most hated man in America is dead, and not a single Navy SEAL died in the mission. But many Republicans first blasted Obama for not crediting Bush’s work on the effort, and now are mad because Obama is touting the major success as some proof that, well, he’s done some good things in office. No one can credibly argue that it’s bad that bin Laden is dead, so Obama critics—who still can’t seem to accept the fact that he’s actually the president—want to argue that Obama had little to do with it.
That makes Romney’s “I take a lot of credit” comment especially jarring. If it’s “spiking the ball” for Obama to take credit for killing bin Laden, how do we characterize the words of a candidate who takes credit for something he opposed, but which turned out to be successful? The campaign, like most campaigns, will erase some of the past with a symbolic Etch A Sketch. But you can’t Etch A Sketch away history.
By: Susan Milligan, Washington Whispers, U. S. News and World Report, May 9, 2012
“Trying To Rewrite History”: Mitt Romney’s Views On The Detroit Bailout
Over the weekend, a top GOP aide said President Obama got the idea from Romney. A look at his past positions shows that’s not true.
Over the weekend, top Romney adviser Eric Fehrnstrom made an audacious claim:
“[Romney’s] position on the bailout was exactly what President Obama followed. I know it infuriates them to hear that…. The only economic success that President Obama has had is because he followed Mitt Romney’s advice.”
As Fehrnstrom predicted, liberals are reacting with irritation and incredulity. They point out — not for the first time — that Romney published a New York Times op-ed in November 2008, even before Obama had taken office, headlined, “Let Detroit Go Bankrupt.”
The case is actually a little more complex than that, although Fehnstrom’s claim is still hard to take seriously. To understand how we got here, here’s a brief history of Romney’s statements on the car industry.
During the 2008 primary campaign, Romney won Michigan, a victory that was in part attributed to his promises to save the Motor City’s main industry. “If I am president, I will not rest until Michigan is back,” he said. “Michigan can once again lead the world’s automotive industry.” His campaign contrasted that with John McCain, who said, “I’ve gotta look you in the eye and tell you that some of those jobs aren’t coming back.” Romney’s main policy prescription was a series of federal spending for retraining and green tech, to be doled out in $20 billion chunks over five years. The McCain campaign derided thisas a “$100 billion bailout of the auto industry.”
By November 2008, shortly after Obama’s election, the economy was in free-fall. Here’s an excerpt from Romney’s now-infamous column:
If General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed. Without that bailout, Detroit will need to drastically restructure itself …. Detroit needs a turnaround, not a check.
Romney called for a “managed bankruptcy,” in which company’s executives would be replaced and union contracts would be renegotiated with more favorable terms. Reversing his position during the Republican primary, he said shedding excess workers was now essential. He wanted the government to oversee the bankruptcy but for it be paid for with private-sector funding. But as former Obama administration “car czar” Steven Rattner and others have pointed out, there did not appear to be any private money on the sidelines. Markets were in disarray and credit was drying up fast — and so, they argue, the federal government’s coffers were the only thing standing between GM and the company’s total demise.
In May 2009, Romney appeared on Fox News Sunday with Chris Wallace, who pressed him on the issue:
WALLACE: Wouldn’t that, at a time when we were in the depths of the recession, when we were really right in the midst of what looked like a financial crisis — wouldn’t that have been disastrous for the economy?
ROMNEY: It’d have been precisely the right thing to do for the economy. To help General Motors at that point, before it had received tens of billions of dollars from the government, go through a structured process either in court or out of court to rid itself of its excessive union contract obligations, would have been the right course, and at that point the government could have helped with warranty guarantees and so forth, with debtor possession financing …. We wouldn’t have closed the business down or liquidated it, we instead would have helped it restructure. It was the right course to take, it’s being taken now, too late unfortunately, and as a result the government ends up with more than 70 percent of GM.
Already, we can see Romney struggling with the issue. But the gist of his main answer is already in place: The government funding was wrong, but the restructuring was right.
In June 2011, he reprised this point on the CBS Early Show: “When I wrote that the auto industry was asking for a bailout, we are unwise to send billions of dollars [to companies], instead — finally — the president recognized I was right, and finally took the company, in the case at General Motors, the company finally went through bankruptcy and went through a managed bankruptcy, came out of bankruptcy and is now recovering.”
With the Michigan primary looming in late February 2012, and his numbers sagging as Rick Santorum surged, Romney was again on the defensive. On February 14, he wrote an op-ed in the Detroit News (now paywalled online), writing, “The president tells us that without his intervention things in Detroit would be worse. I believe that without his intervention things there would be better.” He appeared with Wallace a few days later, and the host again pressed him. Romney once again insisted that GM could have gone through a managed bankruptcy without federal bailout funds.
That brings us to the present day, and Fehrnstrom’s comments. There have been two important shifts in Romney’s position. The first is from pre-recession, 2008 campaign Romney, who supported a $100 billion government investment in maintaining Detroit jobs, to recession-era Romney, who adopted the idea that the automakers needed pain — including potentially significant job loss — to survive. The major questions here are (1) whether it was feasible for the companies to find private financing to restructure and (2) whether the associated job loss and economic ripple effects would have been acceptable. While Romney is correct that the restructuring was what he suggested, his idea at the time was hardly unique; there was a consensus that the companies needed to be significantly reshaped. The question was how to do it, and he said the answer was without federal funds.
The second shift is from the the stance Romney has taken since his op-ed to Fehrstrom’s comments on Sunday. Fehrnstrom is overreaching in claiming that Obama adopted “exactly” what Romney recommended, given his longstanding opposition to the bailouts. It’s understandable that Romney would want to align himself with the successful rescue of the auto industry: While the bailouts are still unpopular with Americans overall, a plurality agree that they helped the economy. Moreover, the move is comparatively popular in Rust Belt states and among working-class white voters with whom Obama is otherwise weak.
Romney’s position on how to handle the carmakers may not have been realistic, but it was far less cartoonish than his liberal critics have suggested. Trying to rewrite history, however, won’t answer their attack.
By: David A. Graham, Associate Editor, The Atlantic, April 30, 2012
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