“Rich American Exceptionalism”: Whose Swiss Bank Account Hedges Against The American Dollar?
No, that’s not a trick question. Yes, the answer is that easy. Of course, it’s Mitt Romney.
According to the manager of his trust, Mitt Romney’s Swiss bank account wasn’t an exercise in tax avoidance—rather, it was a hedge against a decline in the dollar. I’m not qualified to say whether or not his explanation is the full truth, but it certainly doesn’t provide evidence that Mitt Romney hates America. Obviously, an investment that bets on the decline of the dollar might not sound good, but when you have as much money as he does, you’re going to end up placing bets that might not be great soundbites for a campaign. In substantive terms, Romney is going to have a much bigger problem explaining why Bain profited from destroying companies than he will have explaining this.
But while the mere existence of the Swiss bank account doesn’t by itself raise questions about Mitt Romney’s loyalty to America, it provides one hell of a way to respond to Romney when he engages his his now-familiar attacks on President Obama’s loyalty. Despite all the attention paid to Newt Gingrich’s “food-stamp” line, Mitt Romney himself is no stranger to the hate card. His preferred formulation: that President Obama doesn’t believe in American exceptionalism, that he seeks to “poison the American spirit”, and that he wants to turn America into Europe and “keep us from being one nation under God.”
Of course, Mitt Romney is nothing like that at all. He’s just the kind of guy who bets on America’s decline to protect his own ass.
“Influence-Peddlers”: How Bain’s Lobbying Saved Mitt Romney Millions
Private equity titans like Bain Capital used K Street to preserve the GOP front-runner’s favorite—and most lucrative—tax loophole.
With the sting of defeat in the South Carolina primary still fresh at last week’s Republican presidential debate in Tampa, Mitt Romney slammed Newt Gingrich for his record as a consultant—or “historian,” in Newt-speak—for government mortgage-backer Freddie Mac.
But perhaps Romney should think twice before setting his sights on the former speaker’s lobbying-related past. That’s because the ex-governor has benefited handsomely from the influence-peddling of Bain Capital, the private equity firm he cofounded in 1983. Though he’s been gone from Bain for over a decade, Romney continues to rake in millions from accounts with the firm—and in 2007, he took Bain’s side in a key lobbying battle with Washington—one that saved him millions of dollars.
2007, as it turns out, was something of a watershed for private equity lobbying: In that year, lobbying expenditures for the industry practically tripled. The spike was the result of an industry-wide effort to preserve a number of tax giveaways for the finance industry and its CEOs—including the carried interest rule, a tax loophole that allows Romney and other private equity mavens to reduce their taxes by millions of dollars. Carried interest refers to the commission that private equity and hedge fund executives receive for managing investors’ money. Although commissions may seem like ordinary income to the rest of us, the carried interest loophole allows some money managers to claim this income as long-term capital gains, which are taxed at a rate much lower (15 percent) than the top tax rate for normal income (35 percent).
After Democrats won control of both the House and the Senate in the 2006 midterm elections, they advanced several pieces of legislation that threatened to end this lucrative quirk of the tax code and other tax policies that favor the rich. Mitt Romney, who made just over $20 million in investment income in 2010, wasn’t having any of it. During an August 2007 appearance on Kudlow & Company, Romney was asked what he thought of the effort to close the loophole. He wasn’t happy. “I want people to be able to save their money and invest in America’s economy tax-free,” Romney said. “I want to lower taxes. I want to lower marginal rates across the board. I want to lower taxes for corporations,” he told Kudlow.
Bain was doing its part to make Romney’s vision a reality. The firm spent $300,000 between August of 2007 and April of 2008 lobbying the House and Senate on bills that threatened the carried interest loophole. Along with other private equity titans like Kohlberg Kravis Roberts and Apollo Management, Bain and its ilk paid lobbying shops, public relations firms, and trade groups like Ogilvy and the Private Equity Growth Capital Council an estimated $15 million between January 2009 and April 2010 to convince lawmakers to keep the loophole alive. The force of those combined lobbying efforts kept the carried interest loophole wedged open, denying the federal government some $10 billion in revenues in the process. “Everyone who has looked at this boondoggle [of carried interest] thinks it’s an egregious giveaway,” Jacob Hacker, the co-author (with Paul Pierson) of Winner-Take-All Politics, says. “It still lives because of the lobbying of the industry, and in particular the PEGCC.”
From 1998 to 2006, private equity and investment firms spent $3 million a year lobbying Congress, according to the Center for Responsive Politics. Bain got into the game in 2007, registering with prominent Washington lobbying firms Public Strategies, Inc. and Akin Gump Strauss Hauer & Feld. To date, Bain has paid some $3 million to these firms to make sure corporate taxes stay low and CEOs remain fat and happy.
As the New York Times reported several weeks ago, Bain was a member of the Private Equity Growth Capital Council up until last year, when it abruptly ended its $1-million-a-year membership with the powerful trade group. Its reasons for doing so remain unclear. (PEGCC did not respond to a request for comment.)
Investment fund managers and former CEOs like Mitt Romney suggest that taxing their carried interest as income would crimp investments, and, ultimately, kill jobs. But as Howard Gleckman, a tax policy expert at the Urban Institute, has found, there is little evidence to support that claim. “Losing a couple percentage points off your returns isn’t going to change things very much,” Gleckman says. “Taxing carried interest as if it were wages…wouldn’t really affect these deals very much.”
Now that a small sample of Romney’s tax returns is out in the open, voters may be asking more questions about how policies like the carried interest rule work. Josh Kosman, author of The Buyout of America: How Private Equity Is Destroying Jobs and Killing the American Economy, says that’s terrifying for the private equity world. “The private equity industry exists because of tax gimmicks,” Kosman argues. “They want to convince people they create value because if anyone started looking at it, the tax rates don’t make any sense, and they cost the government a lot of money.”
As Hacker explains, today’s favorable tax treatment towards capital gains dates back to the late 1970s, when the lobbying might of business groups like the US Chamber of Commerce successfully sliced the tax on capital gains in half. The Tax Reform Act of 1986 brought the rate back into line with the rate on ordinary income, but business lobbies spent the next decade knocking it back down. “For an industry that’s held up as a paragon of individual entrepreneurship, private equity is strikingly dependent on favorable tax policies,” Hacker said.
Of course, private equity isn’t the exclusive terrain of one party or the other. As Hacker and Pierson outlined in their book, Sen. Charles Schumer (D-N.Y.) has been one of the carried interest loophole’s most ardent defenders. And as Kosman points out, four of the past eight Treasury secretaries have direct ties to the private equity industry.
All of this, of course, could pose a huge a problem for Romney—so much so that his campaign recently suggested that he might be open to reconsidering the carried interest loophole if he were to be elected president. Although Bain did not start lobbying until some eight years after Romney left, his just-released tax records indicate that he still collects significant investment income from the firm. Bain’s gain, then, has clearly been Romney’s as well—and the candidate has publicly endorsed the same policies the company has backed.
So when Bain’s lobbyists have tried to sway the political system in Washington, Romney has gained. Maybe he ought to be careful when denigrating the influence peddlers in the nation’s capital.
By: Siddhartha Mahanta, Editorial Fellow, Mother Jones, January 30, 2012
Mitt Romney’s Newest “Hardship”: Mom-And-Pop Bain Capital
Mitt Romney casts himself as a small-business owner on the stump in Florida.
Mitt Romney just can’t drop his phony everyman act, and he added a new spin on it Friday night: the struggling young businessman.
By this point anyone with even the slightest interest in politics is well aware of Romney’s extreme wealth. Criticism from his rivals finally forced Romney to enter his most recent tax returns into the public record, and the figures were astounding. He earned $21.7 million in 2010; he earns the average median household income in less than a single day.
Yet he continues to uncomfortably wear his regular-guy jeans over his Brooks Brothers suits, trying his hardest to convince voters that he can relate to their economic woes. When he was here in Florida last year he told a group of voters that he was also unemployed and, in New Hampshire, the Harvard MBA/JD said he had also had moments where he was concerned about getting a pink slip
Romney included a new narrative of hardship at a rally hosted inside a pant factory plant in Orlando on Friday night. He began by railing against the government before discussing the early parts of his career as a vulture venture capitalist:
“Let me tell you the difference between what happens in the real economy—the private sector—and when government is practicing crony capitalism, playing by their own set of rules. You see, when we first helped Staples (the office superstore) get started, we raised about $5 or $10 million, to get that first store going. The government put in $500 million into Solyndra. And our offices, by the way, were in the back of a shopping center, an abandoned shopping center. We had all old furniture. I remember these chairs we had for the board meetings; they were these mahogany hide chairs. We sunk so deeply you had to have an athletic body to get out of them.”
That must have only seemed like roughing it compared to the throne Romney sat on at Bain Capital. When consulting firm Bain & Company tasked Romney with spinning off a new private equity venture in 1983, he raised $37 million in funds to launch the new group the next year, hardly the type of budget to describe a group meeting in back alleys and sitting on leftover furniture purchased from Goodwill.
It’s mystifying why Romney continues to push this persona. America loves the idea of a self-made millionaire, and while that’s a bit of a hard sell given his father’s prominence in business and politics, it’s surely closer to reality than his current guise of a typical suburban small business owner.
By: Patrick Caldwell, The American Prospect, January 28, 2012
Mitt Romney, “Hero of Finance”
Romney’s backers say he did the tough work needed to restructure the economy. Actually, he seized opportunities that the tax, securities, and bankruptcy laws should never have given him.
“Creative destruction” is Mitt Romney’s best defense for his career in private equity and the trail of displaced workers some of his ventures left behind. The idea comes from the economist Joseph Schumpeter, who argued that capitalism generates economic growth through “gales of creative destruction” that sweep away obsolete technologies and products. As Romney’s advocates have it, that’s what his firm, Bain Capital, has advanced—painful economic changes that are essential to a rising standard of living.
If Romney made his fortune that way, he deserves the praise that some conservatives have lavished on him for contributing to American competitiveness. But that isn’t the whole story. Much of the work of Bain and other private—equity firms has little to do with the kind of wrenching Schumpeterian change that contributes to growth, still less to the job creation for which Romney claims credit.
Technological innovation was at the heart of Schumpeter’s vision, and no one today objects to the role of venture capital in financing tech start-ups or to the re-engineering of businesses to take advantage of new technology. Reorganizing firms to exploit special provisions in tax, securities, and bankruptcy laws is a different proposition. That kind of restructuring can be immensely profitable, transferring wealth to investors while making no positive contribution to growth and employment.
The standard operating procedure for private equity has been to buy firms, take them private, and load them up with debt. By taking them private, the new owners escape from the securities laws, which apply only to publicly traded companies. By loading them with debt, they cut the companies’ taxes because the interest is fully deductible from profits, and they use those tax savings to pay themselves generous fees and dividends. If an overleveraged enterprise then fails, they take it into bankruptcy, firing workers and stiffing creditors even though their own firm has already pocketed large gains. And because private-equity partners can receive those gains as “carried interest” (taxed only at 15 percent), they benefit from special legal advantages in yet one more way.
This kind of restructuring doesn’t just siphon off wealth; it can also interfere with genuine innovation because debt-burdened companies are sometimes starved for capital to invest in new technologies and products. Private equity has generally sought a high return with a quick exit instead of providing patient capital for long-term gains. That’s great for those who are in on the deal, but not for the national economy.
Private equity has also contributed to a broader change related to rising economic inequality. Instead of corporations serving a complex of interests—owners, workers, and communities—they have increasingly become wholly dedicated to maximizing returns to owners. This “shareholder-value revolution” has helped to drive the overexpansion of the financial sector and to funnel the gains from economic growth into fewer hands—Romney’s, for example.
That Romney served investors well at Bain, no one doubts. That’s not a credential, however, for solving the nation’s problems. We ought to be reducing the incentives for the maneuvers that enriched Romney—for example, by cutting the deductibility of interest on debt incurred in acquiring companies and raising taxes on “carried interest” so that financiers pay no lower a tax rate than the rest of us. Good luck with that in a Romney presidency.
There is a larger point about Romney’s career and good public policy. The turmoil in the private economy, whether generated by creative destruction or financial manipulation, is a reason we need progressive government. Individual firms cannot be counted on to retrain workers for new jobs or to provide them with long-term security; the very instability of private employment is why workers need to be able to count on government when they get displaced to help them obtain the education and skills to adapt. The best “national innovation systems” minimize the harms to workers while advancing technological progress.
Schumpeter’s 1942 classic, Capitalism, Socialism and Democracy, was a dour book. A true believer in capitalism, Schumpeter nonetheless thought it was doomed because people wouldn’t put up with creative destruction, and businessmen lacked the heroic qualities to become effective political leaders. He was wrong on both counts. Instead of resisting innovation, we welcome it, and some business leaders, like Steve Jobs, have become popular heroes.
But Romney is no Jobs, and even his most successful investments—Domino’s Pizza, Staples, and Sports Authority—don’t quite make him a Schumpeterian hero. There is one good thing about his candidacy, though. It highlights the inequities that have helped make people like Romney so wealthy and powerful.
Mitt Romney: Goldman Sachs Guy
Mitt says he’s “not a Wall Street guy.” But in one key way, he’s pure Wall Street.
“I am not a Wall Street guy, classically defined,” said Mitt Romney in a December interview with the Huffington Post. Private equity firm Bain Capital, Romney’s longtime employer and the company that made him rich, he seemed to say, was a different breed from JPMorgan Chase, Goldman Sachs, and the other Wall Street financial titans. It was as if he was distancing himself from the unpopular Wall Streeters who helped cause the 2008 economic collapse.
But in one key way, Romney is pure Wall Street. A review of his personal financial disclosure records shows that a chunk of Romney’s wealth—he’s worth an estimated $190 million to $250 million—comes from investments in an array of Wall Street banks and investment houses, none more so than Goldman Sachs.
Romney and his wife, Ann, have investments in nearly three-dozen various Goldman funds together valued at between $17.7 million to $50.5 million, according to a financial disclosure form (PDF) filed in August 2011. Those investments appear in the blind trusts and individual retirement accounts belonging to the Romneys. Romney’s been a loyal Goldman Sachs client. His 2007 disclosure, filed before his first presidential run, showed Goldman investments valued at between $18.2 million and $51.5 million.
No other Republican presidential candidate comes to close to matching the size and breadth of Romney’s investment portfolio. Nor do any of the other candidates’ personal financial disclosures list any investments in Goldman-run funds. Romney’s big bet on Goldman’s financial wizardry could give more ammo to his critics who attack him as a out-of-touch corporate elite who profited by flipping companies and laying off workers, and who has little in common with average Americans. (A Romney spokeswoman did not respond to a request for comment.)
Goldman Sachs is considered by many one of the villains of the 2008 financial crisis. In 2010, Rolling Stone‘s Matt Taibbi acidly described Goldman as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” After a lengthy investigation into the firm’s activities, Sen. Carl Levin (D-Mich.) accused Goldman last year of deceiving its clients by selling them complex investments that the firm’s own traders predicted would fail—a charge Goldman vehemently denied. Levin also accused Goldman brass of misleading Congress about its trading activities, referring the matter to the Justice Department and the Securities and Exchange Commission.
The Goldman investments in Romney’s 2011 disclosure are spread across a variety of portfolios and investment funds. A private, Goldman-managed stock portfolio in Mitt Romney’s blind trust worth between $1,000,001 and $5,000,000 contains stock holdings in 32 companies, including Bank of America, McDonald’s, Staples, and Occidental Petroleum. Another Goldman fund, also worth between $1,000,001 and $5,000,000, invests in (PDF) everything from junk bonds to US Treasuries, derivatives to futures, foreign currencies to the government housing corporation Fannie Mae.
Here’s a list of the Romneys’ most recent Goldman investments:
| Investment | Lowrange | Highrange | Holder | Type |
|---|---|---|---|---|
| GS Financial Square Federal Fund – FST Shares | $5,000,001 | $25,000,000 | Mitt | IRA |
| GS Private Client Portfolio | $1,000,001 | $5,000,000 | Mitt | Blind trust |
| GS Strategic Income Fund Class 1 | $1,000,001 | $5,000,000 | Mitt | Blind trust |
| Goldman Sachs Small Cap Value Class 1 | $500,001 | $1,000,000 | Mitt | Blind trust |
| GS Financial Square Federal Fund – FST Shares | $1,000,000 | $1,000,000 | Ann | Blind trust |
| The Goldman Sachs Group Inc. Linked to GP GSCI Agriculture, structured note | $500,001 | $1,000,000 | Ann | Blind trust |
| Goldman Sachs Trust GS Inflation Protected Securities Funds – INSTL SHS | $1,000,000 | $1,000,000 | Ann | Blind trust |
| The Goldman Sachs Group Inc. Linked to MSCI EAFE Structured Note | $500,001 | $1,000,000 | Ann | Blind trust |
| GS Local Emerging Mkts Debt FD Mutual Fund | $500,001 | $1,000,000 | Ann | Blind trust |
| GS Strategic Income Fund CL 1 | $500,001 | $1,000,000 | Ann | Blind trust |
| The Goldman Sachs Group Inc Linked to DJIA Structured Note | $500,001 | $1,000,000 | Ann | Blind trust |
| The Goldman Sachs Group Inc Linked to DJIA Structured Note | $500,001 | $1,000,000 | Ann | Blind trust |
| GS 2002 Exchange Place Fund LP | $1,000,000 | $1,000,000 | Ann | Blind trust |
| GS Capital Partners Fund 2000 LP | $500,001 | $1,000,000 | Ann | Blind trust |
| Goldman Sachs Global Opportunities Fund LLC | $1,000,000 | $1,000,000 | Ann | Blind trust |
| Goldman Sachs Hedge Fund Partners LLC | $1,000,000 | $1,000,000 | Ann | Blind trust |
| Goldman Sachs Hedge Fund Partners II LLC | $1,000,000 | $1,000,000 | Ann | Blind trust |
| Goldman Sachs Trust GS Inflation Protected Securities Fund – INSTL SHS | $250,001 | $500,000 | Mitt | Blind trust |
| The Goldman Sachs Group Inc Linked to Russell 2000 Index Structured Note | $250,001 | $500,000 | Ann | Blind trust |
| Cash – GS Account | $100,001 | $250,000 | Ann | Blind trust |
| Cash – GS Account | $50,001 | $100,000 | Mitt | Blind trust |
| GS Emerging Markets Opportunities Fund LLC | $50,001 | $100,000 | Mitt | Blind trust |
| GS Capital Partners III LP | $15,001 | $50,000 | Ann | Blind trust |
| GS Financial Square Federal Fund – FST Shares | $1,001 | $15,000 | Ann | IRA |
| Goldman Sachs Core Fixed-Inc Mutual Fund | $1,001 | $15,000 | Ann | IRA |
| The Goldman Sachs Group CMN (Sold) | $0 | $1,001 | Mitt | Blind trust |
| Goldman Sachs Investment Grade Credit Fund – Inst (Sold) | $0 | $1,001 | Mitt | Blind trust |
| GS Global Equity Partners I, LLC (Sold) | $0 | $1,001 | Mitt | Blind trust |
| Cash – GS Account | $0 | $1,001 | Mitt | IRA |
| Goldman Sachs Ultra-Short Duration Government FD (Sold) | $0 | $1,001 | Mitt | IRA |
| Goldman Sachs Short Duration Government FD (Sold) | $0 | $1,001 | Mitt | IRA |
Here’s a list of Goldman investments in Romney’s 2007 disclosure:
| Investment | Lowrange | Highrange | Holder | Type |
|---|---|---|---|---|
| Goldman Sachs Financial Square (Sold) | $0 | $1,001 | Mitt | Blind trust |
| Goldman Sachs Institutional LI (Sold) | $0 | $1,001 | Mitt | Blind trust |
| Goldman Sachs Bank Deposit | $500,000 | $1,000,000 | Mitt | Blind trust |
| Goldman Sachs Emerging Equity Fund | $1,000,001 | $5,000,000 | Mitt | Blind trust |
| Goldman Sachs Group, Inc | $1,000,001 | $5,000,000 | Mitt | Blind trust |
| Goldman Sachs Struct Intl Equity Fund | $1,000,001 | $5,000,000 | Mitt | Blind trust |
| GS Global Equity Partners | $1,000,001 | $5,000,000 | Mitt | Blind trust |
| The Goldman Sachs Group Inc 0% 9/25/08 (Sold) | $0 | $1,001 | Mitt | Blind trust |
| The Goldman Sachs Group Inc 0% Due 12/11/2009 (Sold) | $0 | $1,001 | Mitt | Blind trust |
| The Goldman Sachs Group Inc 0% Due 3/25/10 | $250,001 | $500,000 | Mitt | Blind trust |
| GS Emerging Markets Opportunities Fund, LLC | $1,000,001 | $5,000,000 | Mitt | Blind trust |
| Goldman Sachs Global Strategic Energy Fund, LLC | $1,000,001 | $5,000,000 | Mitt | Blind trust |
| Goldman Sachs GTAA Fund, LCC | $1,000,001 | $5,000,000 | Mitt | Blind trust |
| Goldman Sachs Financial Square Federal Fund | $1,000,000 | $1,000,000 | Ann | Blind trust |
| Goldman Sachs Intl Real Estate Secs Fund | $1,000,000 | $1,000,000 | Ann | Blind trust |
| GS 2002 Exchange Place Fund LP | $1,000,000 | $1,000,000 | Ann | Blind trust |
| GS Global Opportunities, LLC | $1,000,000 | $1,000,000 | Ann | Blind trust |
| GS Direct Strategies Fund LLC | $1,000,000 | $1,000,000 | Ann | Blind trust |
| GS Hedge Fund Partners II LLC | $1,000,000 | $1,000,000 | Ann | Blind trust |
| GS Hedge Fund Partners LLC | $1,000,000 | $1,000,000 | Ann | Blind trust |
| GS Quant and Active Direct Strategies Fund, LLC | $1,000,000 | $1,000,000 | Ann | Blind trust |
| GS Capital Partners Fund 2000, LP | $1,000,000 | $1,000,000 | Ann | Blind trust |
| GS Capital Partners III LP | $100,101 | $250,000 | Ann | Blind trust |
| Goldman Sachs Financial Square Federal Fund | $1,000,001 | $5,000,000 | Mitt | IRA |
| Goldman Sachs Emerging Markets Equity Fund | $250,001 | $500,000 | Mitt | IRA |
| GS Structured US Equity Institutional | $100,101 | $250,000 | Mitt | IRA |
| Goldman Sachs Japanese Equity Fund | $0 | $1,001 | Mitt | IRA |
| Goldman Sachs Financial Square Federal Fund | $0 | $1,001 | Ann | IRA |
| Goldman Sachs Core Fixed-Inc I Mutual Fund | $1,001 | $15,000 | Ann | IRA |
Romney has grappled with accusations in both of his presidential bids that he’s a lifelong member of the wealthy elite who can’t relate to blue-collar Americans. Romney has recently compounded his 1-percent problem by claiming that $374,000 in speaking fees is “not very much,” betting Rick Perry $10,000 during a nationally televised debate, and revealing that he pays roughly 15 percent in taxes. (A typical middle class family pays closer to 25 percent.)
Larry Sabato, director of the University of Virginia’s Center for Politics, says that while Romney isn’t the first very wealthy man to run for president (think John F. Kennedy and Franklin Delano Roosevelt), one of Romney’s basic problems is connecting with middle-class Americans. His many investments in Goldman could shape voters’ opinions of Romney. “The massive Goldman holdings would be another bit of the Romney mosaic,” Sabato says. “It’s another reason why Romney has to find ways to better connect with average people’s problems—because he doesn’t have any of the same problems on his plate.”
By: Andy Kroll, Mother Jones, January 23, 2012
Share This Blog
Unknown Feed- An error has occurred; the feed is probably down. Try again later.
mykeystrokes.com 