The Roots Of Bain Capital In El Salvador’s Civil War
A significant portion of the seed money that created Mitt Romney’s private equity firm, Bain Capital, was provided by wealthy oligarchs from El Salvador, including members of a family with a relative who allegedly financed rightist groups that used death squads during the country’s bloody civil war in the 1980s
Bain, the source of Romney’s fabulous personal wealth, has been the subject of recent attacks in the Republican primary over allegations that Romney and the firm behaved like, in Rick Perry’s words, “vulture capitalists.”One TV spot denounced Romney for relying on “foreign seed money from Latin America” but did not say where the money came from. In fact, Romney recruited as investors wealthy Central Americans who were seeking a safe haven for their capital during a tumultuous and violent period in the region.
Like so much about Bain, which is known for secrecy and has been dubbed a “black box,” all the names of the investors who put up the money for the initial fund in 1984 are not known. Much of what we do know was first reported by the Boston Globe in 1994 when Romney ran for U.S. Senate against Ted Kennedy.
In 1984, Romney had been tapped by his boss at Bain & Co, a consulting firm, to create a spin-off venture capital fund, Bain Capital.
A Costa Rica-born Bain official named Harry Strachan invited friends and former clients in Central America to a presentation about the fund with Romney in Miami. The group was impressed and “signed up for 20% of the fund,” according to Strachan’s memoir. That was about $6.5 million, according to the Globe. Bain partners themselves were putting up half the money, according to Strachan. Thus the Central American investors had contributed 40 percent of the outside capital.
Back in 1984, wealthy Salvadoran families were looking for safe investments as violence and upheaval engulfed the country. The war, which pitted leftist guerrillas against a right-wing government backed by the Reagan administration, ultimately left over 70,000 people dead in the tiny nation before a peace deal was brokered by the United Nations in 1992. The vast majority of violence, a UN truth commission later found, was committed by rightist death squads and the military, which received U.S. training and $6 billion in military and economic aid. The Reagan administration feared that El Salvador could become a foothold for Communists in Central America.
The notorious death squads were financed by members of the Salvadoran oligarchy and had close links to the country’s military. The death squads kidnapped, tortured, and killed suspected leftists in urban areas fueling an insurgency that retreated to rural areas and waged war on the government from the countryside. The war, which lasted 12 years, triggered an exodus that brought more than 1 million Salvadorans to the United States.
There is no evidence that any of Bain Capital’s original investors were involved in these sorts of activities. But the identities of some of the investors remain secret, and there are family names that raise questions.
Four members of the de Sola family were among the original Bain investors, or “limited partners” in the company, the Globe reported. Their relative and “one-time business partner,” Orlando de Sola, was an important figure in El Salvador. A well-known right-wing coffee grower with an (in his words) “authoritarian” vision for the country, de Sola spent time living in Miami but was also a founding member of the right-wing Arena party, lead by a U.S.-trained former intelligence officer named Roberto D’Aubuisson.
Craig Pyes, an investigative reporter then with the Albuquerque Journal, wrote a series on the rightist death squads based on extensive on-the-ground reporting in El Salvador in the early 1980s with Laurie Becklund of the Los Angeles Times, while the death squads were still active.
Pyes, who has since won two Pulitzer Prizes and is now a private investigator in California, says that no one has produced any proof that de Sola directly funded death squads.
“However,” Pyes says, “he was in the inner circle of the group around D’Aubuisson at the time that D’Aubuisson was well known to be involved in the death squads. De Sola’s name appears in a December 1983 FBI cable as one of 29 people suspected by State Department officials of furnishing funds and weapons to Salvadoran death squads.”
De Sola’s name also turned up in a notebook, seized from an aide to D’Aubuisson named Saravia, that detailed the finances of D’Aubuisson’s terrorist network, according to Pyes.
The Saravia notebook, reviewed by U.S. officials, listed weapons purchases, payments, and what appear to be descriptions of violent plots by rightists, including the assassination of El Salvador’s Archbishop Oscar Arnulfo Romero in 1980. Asked about the notebook by the New York Times in the late 1980s, de Sola denied that he had ever helped finance political violence. De Sola could not be reached for comment for this story.
Romney, for his part, who was much more accessible to the press in 1994, told the Globe that year that “we investigated the individuals’ integrity and looked for any obvious signs of illegal activity and problems in their background, and found none. We did not investigate in-laws and relatives.” He also said that Bain had checked the names of the Bain investors with the U.S. government. Given the policy of the Reagan administration at the time, though, it’s not clear going to the government would have been the most effective vetting mechanism.
It’s impossible to fully explore the backgrounds of the original Bain investors because we don’t know all their identities, including the names of the four members of the de Sola family mentioned by the Globe. Neither the Romney camp, Bain Capital, nor Strachan — the Bain executive who recruited the Central Americans — responded to requests for comment.
During his first presidential bid in 2007, Romney more than once touted the Central American investors in Bain while trying to woo Hispanic voters. In a speech in March of that year to the Miami-Dade Lincoln Day Dinner, Romney actually specified five of the original “partners” in Bain Capital — but the de Sola family was not among those he named.
And that August he told the Miami Herald, “The investments for the company that I started, Bain Capital, came largely from Latin America. My largest single investors came from El Salvador, Ecuador, Colombia and Guatemala. And so I feel a deep kinship to people in Latin America.”
By: Justin Elliott, Salon, January 20, 2012
Newt Gingrich Exploits Politics Of Class And Culture
Conservatives may denounce class warfare, yet by shrewdly combining the politics of class with the politics of culture, Newt Gingrich won his first election in 14 years, humbled Mitt Romney and upended the Republican Party.
He also exposed profound frailties in Romney as a candidate, throwing him badly off-balance on questions related to his personal wealth, business career and income taxes. Unless Romney finds a comfortable and genuine way of talking about his money, he will present President Obama’s team a weakness that they’ll exploit mercilessly. The country is thinking more skeptically about wealth and privilege in the wake of the Occupy Wall Street protests. Romney has not adjusted.
Gingrich skillfully set up his opponent to step on the landmine of class by transforming Romney from his self-cast role as a successful businessman into a heartless financier more interested in profits than in job creation.
The conventional view is that Gingrich’s critique of Bain Capital, Romney’s old company, didn’t work because Republicans dislike assaults on “free enterprise,” a phrase Romney still hopes to use as a self-protective mantra. But while Gingrich softened his attacks on Bain, he did so only after creating the context in which Romney was forced to answer query after query about his financial status, and he repeatedly fumbled questions about releasing his tax returns. Romney finally announced Sunday he’d make public his 2010 return and a 2011 estimate this week.
All this allowed Gingrich to draw a class line across South Carolina. Exit polls showed Romney carrying only one income group, voters earning more than $200,000 a year. Voters earning less than $100,000 a year went strongly for Gingrich.
Yet conservative class politics is always inflected by culture and ideology, the potent mix that Pat Buchanan brought to Richard Nixon’s attention four decades ago. South Carolina’s two debates offered Gingrich a showcase for his war on those elites whom the conservative rank-and-file despise.
There was also the matter of race. Gingrich is no racist, but neither is he naive about the meaning of words. When Fox News’ Juan Williams, an African-American journalist, directly challenged Gingrich about the racial overtones of Gingrich’s staple reference to Obama as “the food-stamp president,” the former House speaker verbally pummeled him, to raucous cheers. As if to remind everyone of the power of coded language, a supporter later praised Gingrich for putting Williams “in his place.”
Then came the rebuke to CNN’s John King, who asked about the claim from Gingrich’s second wife that her former husband had requested an “open marriage.” By exploding at King and the contemporary journalism, Gingrich turned a dangerous allegation into a rallying point. Past sexual conduct mattered far less to conservatives than a chance to admonish the supposedly liberal media. Gingrich won evangelicals by 2-1, suggesting, perhaps, a rather elastic definition of “family values” — or a touching faith in Gingrich’s repentance.
With unremitting attacks on Romney as a “Massachusetts moderate,” Gingrich created yet another link between his opponent and elite Yankees loathed by the Southern right. He reaped landslide margins among conservative groups, marginalizing the buttoned-down, less electric Rick Santorum.
There were also hints in exit polling that hostility to Romney’s Mormon’s faith may have added to his troubles, without help from Gingrich. About a quarter of South Carolina’s voters said a candidate’s religious beliefs mattered a “great deal” to them, and Romney secured a scant 10 percent of their ballots.
If there is solace for Romney, it is in the experience of an earlier front-runner. In late March 1992, the day before the Connecticut primary, I found myself standing with a colleague next to Bill Clinton in a coffee shop in Groton. Clinton surprised us by suggesting he would lose the next day to Jerry Brown, now California’s governor. Voters were in an ornery mood, he said, and many of them wanted to declare: “I don’t want this to be over.”
Clinton was right. He lost Connecticut. Yet two weeks later, he swept a series of primaries, including a decisive contest in New York.
Florida, which votes next on Jan. 31, is Romney’s New York. But there is a difference. Clinton was a master campaigner with what has quaintly been called the common touch. Romney has so far proved himself to be more a master of discomfort and unease, especially with his own wealth. Unless he learns how to navigate the country’s new etiquette about financial privilege, Romney will continue to be plagued by the now twice-resurrected Gingrich — and, if he survives Gingrich’s challenge, by a freshly minted populist named Barack Obama.
By: E. J. Dionne, Opinion Writer, The Washington Post, January 22, 2012
What “Not Very Much” Income Is To Mitt Romney
In all things economic, the former Massachusetts governor is a veritable gaffe machine.
Up until now, Mitt Romney has refused to release his tax returns, something that he surely knew would eventually become an issue. And it isn’t too hard to figure out why. When you’re struggling to get past your image as an out-of-touch rich guy, having front-page stories about the millions you’re pulling in isn’t something you’d look forward to. And in Mitt’s case, there are really two problems.
The first is his income, which we can be pretty sure is in the seven figures. And this is despite the fact that he hasn’t actually held a job in years. Unlike people who work for a living, Romney makes money when his money makes him more money. Which leads us to the second problem: the tax rate he pays. Because our tax system treats investment income more favorably than wage income, Romney probably pays the capital gains tax rate of 15 percent on most of his income, as opposed to the 33 percent marginal rate he’d be paying if that money were wages. Which is what Romney was forced to admit yesterday, when he said, “It’s probably closer to the 15 percent rate than anything.” But here’s where Mitt’s tone-deafness on these kinds of issues comes, once again, to bite him:
The vast majority of the income Mr. Romney reported over 12 months in 2010 and ‘11 was dividends from investments, capital gains on mutual funds and his post-retirement share of profits and investment returns from Bain Capital, the firm he once led. And Mr. Romney also noted that he made hundreds of thousands of dollars from speaking engagements.
“I got a little bit of income from my book, but I gave that all away,” Mr. Romney told reporters after an event here. “And then I get speakers’ fees from time to time, but not very much.”
Financial disclosure forms that candidates are required to file annually shows that Mr. Romney earned $374,327.62 in speakers’ fees from February of 2010 to February of 2011, at an average of $41,592 per speech.
Oh Mitt, you really are the gift that keeps on giving. A smarter candidate would say, “I’ve been very fortunate to make significant amounts of money from giving speeches.” But Mitt describes $374,327 in speaking fees in one year as “not very much.” If you put that amount into the Wall Street Journal‘s handy calculator, it turns out that if those speaking fees were the only income Mitt had, he’d still be richer than 98 percent of Americans. But those speaking fees, apparently, are “not very much” to him.
Just to be clear, I don’t think that the fact that Romney considers an amount of income that most of us will never dream of earning “not very much” doesn’t mean he’d be a bad president, in and of itself. But like all Republicans, Romney thinks there’s nothing wrong with the fact that money you get for working gets taxed at a higher rate than money you make for selling a stock or having your grandfather die and leave you a few million, and he’d like to make that disparity even more extreme.
Romney now says he’ll probably release his 2011 returns in April. Which guarantees that there will be plenty of time for the Obama campaign to keep talking about it in anticipation of the big event. At the current rate, he should commit about one head-shaking gaffe per week on economic issues between now and then.
By: Paul Waldman, The American Prospect, January 17, 2012
“Cayman Baining”: Mitt Romney Invests In Several Bain Funds That Use Offshore Tax Havens To Boost Profits
Mitt Romney yesterday admitted for the first time that his tax rate is about 15 percent, lower than the rate paid by millions of middle class families. Romney is able to pay such a low rate (even though the top income tax rate is 35 percent) because his income comes overwhelmingly from investments and he is able to use a pernicious loopholeavailable to wealthy money managers.
Romney has been refusing to release his tax returns, finally conceding to releasing his 2011 return after he files it in April. However, only releasing his 2011 returns would give Romney the opportunity to keep under wraps some of the financial engineering he may have done to avoid taxes before the last calendar year. As Reuters noted, those returns “could shed light on how Romney and Bain use offshore strategies to avoid taxes.” In fact, ABC News reported today that Romney has millions of dollars parked in several Bain funds that are set up in tax shelters in order to help their investors avoid U.S. taxes:
Although it is not apparent on his financial disclosure form, Mitt Romney has millions of dollars of his personal wealth in investment funds set up in the Cayman Islands, a notorious Caribbean tax haven…As one of the wealthiest candidates to run for president in recent times, Romney has used a variety of techniques to help minimize the taxes on his estimated $250 million fortune. In addition to paying the lower tax rate on his investment income, Romney has as much as $8 million invested in at least 12 funds listed on a Cayman Islands registry. Another investment, which Romney reports as being worth between $5 million and $25 million, shows up on securities records as having been domiciled in the Caymans.
Even if these funds don’t help Romney directly dodge U.S. taxes, which the campaign claims they don’t, they convey a host of advantages to Bain and Romney, including “higher management fees and greater foreign interest” from investors looking to avoid U.S. taxes. As the Washington Post’s Suzy Khimm noted, “just one of these offshore-linked funds — Bain Capital Fund VIII, based in the Cayman Islands — generated $1 million for the Romneys in 2010.”
Offshore funds are attractive to investors, since they help with tax evasion, and more investor interest translates into more profit for Bain and Romney. As we’ve noted, Romney has a lucrative retirement deal with Bain that is paying him millions each year.
In contrast to Romney’s steadfast refusal to release his tax returns, George Romney (Mitt’s father) released 12 years worth of tax returns when he ran for president in 1968. Those returns showed that the elder Romney paid a 37 percent effective tax rate.
By: Pat Garofalo, Think Progress, January 18, 2012
“Bait-And-Switch”: When Mitt Romney Ran Bain Capital, His Word Was Not His Bond
America has been learning a lot lately about “the Bain way.” The damning 28-minute video “When Mitt Romney Came to Town,” put out by a pro-Newt Gingrich super PAC, and the new book “The Real Romney,” by Boston Globe reporters Michael Kranish and Scott Helman, have shed light on the strategies that Mitt Romney’s old private-equity firm, Bain Capital, used to generate outsize returns for its investors.
Make no mistake: Under Romney’s leadership in the 1980s and 1990s, Bain was a top-performing private-equity fund. According to an internal 2000 estimate, the fund achieved annualized returns of an astounding 88 percent from 1984 to 1999 for its institutional investors, including state and corporate pension funds that invest the savings of millions of American workers. It also made a fortune for Romney, whose net wealth reportedly exceeds $250 million.
For Kranish and Helman, the Bain way is an “intensely analytical and data-driven” approach to studying companies, what makes them successful or not, and how to boost their competitiveness.
The video “When Mitt Romney Came to Town” is understandably less sympathetic. To the filmmakers, bankrolled by the Winning Our Future super PAC, the Bain way is nothing less than “turning the misfortunes of others into . . . enormous financial gains.” The film spends most of its time interviewing people who lost their jobs and much of their savings after working at various companies that Bain bought, milked and sold to generate those huge profits.
Yet, there is another version of the Bain way that I experienced personally during my 17 years as a deal-adviser on Wall Street: Seemingly alone among private-equity firms, Romney’s Bain Capital was a master at bait-and-switching Wall Street bankers to get its hands on the companies that provided the raw material for its financial alchemy. Other private-equity firms I worked with extensively over the years — Forstmann Little, KKR, TPG and the Carlyle Group, among them — never dared attempt the audacious strategy that Bain partners employed with great alacrity and little shame. Call it the real Bain way.
Here’s how it worked. Private-equity firms are always eager to find companies to buy, allowing them to invest chunks of the billions of dollars entrusted to them and from which they earn hundreds of millions in fees. One ready source of these businesses is Wall Street bankers hired to sell companies through private auctions. The good news is that when a banker puts together a detailed selling memorandum about a company, chances are very high that company will be sold; the bad news is that these private auctions tend to be very competitive, and the winning bidder, by definition, is most often the one willing to pay the most. By paying the highest price, you win the company, but you also may reduce the returns you can generate for your investors.
I never negotiated directly with Romney; he was too high-level for any interaction with me. Rather, I dealt often with other Bain senior partners, who were very much in his mold. In my experience, Bain Capital did all that it could to game the system by consistently offering the highest prices during the early rounds of bidding — only to try to low-ball the price after it had weeded out competitors.
By bidding high early, Bain would win a coveted spot in the later rounds of the auction, when greater information about the company for sale is shared and the number of competitors is reduced. (A banker and his client generally allow only the potential buyers with the highest bids into the later rounds; after all, you can’t have an endless procession of Savile Row-suited businessmen traipsing through a manufacturing plant if you want to keep a possible sale under wraps.)
For buyers, the goal in these auctions is to be one of the few selected to inspect the company’s facilities and books on-site, in order to make a final and supposedly binding bid. Generally, the prospective buyer with the highest bid after the on-site due-diligence visit is selected by the client — in consultation with his or her banker — to negotiate a final agreement to buy the company.
This is the moment when Bain Capital would become especially crafty. In my experience — which I heard echoed often by my colleagues around Wall Street — Bain would seek to be the highest bidder at the end of the formal process in order to be the firm selected to negotiate alone with the seller, putting itself in the exclusive, competition-free zone. Then, when all other competitors had been essentially vanquished and the purchase contract was under negotiation, Bain would suddenly begin finding all sorts of warts, bruises and faults with the company being sold. Soon enough, that near-final Bain bid — the one that got the firm into its exclusive negotiating position — would begin to fall, often significantly.
Of course, some haggling over price is typical in any sale, and not everything represented by sellers and their bankers is found to be accurate under close examination. But Bain Capital took the art of negotiation over price into the scientific realm. Once the competitive dynamics had shifted definitively in its favor, the firm’s genuine views about what it was willing to pay — often far lower than first indicated — would be revealed.
At such a late date, of course, the seller is more than a little pregnant with the buyer. Attempting to pivot and find a new buyer — which knew it had not been selected in the first place, but was now being called back — would be devastating to the carefully constructed process designed to generate the highest price. Once Bain’s real thoughts about the price were revealed, the seller either had to suck it up and accept the lower price, or negotiate with a new buyer, but with far less leverage.
Needless to say, this does not make for a very happy client (or a happy banker). By the end of my days on Wall Street in 2004, I found the real Bain way so counterproductive that I no longer included Bain Capital on my buyer’s lists of private-equity firms for a company I was selling.
The real Bain way may be nothing more than a clever tactic to eliminate competition from a heated auction in order to buy a business at an attractive price. After all, Bain Capital is seeking the highest returns for its investors. But Bain’s behavior also reveals something about the values it brings to bear in a process that requires honor and character to work properly. If a firm’s word is not worth the paper it is printed on, then its reputation for bad behavior will impair its ability to function in an honorable and productive way.
I don’t know if Bain Capital still uses the bait-and-switch technique when it competes in auctions these days (I’m told that it doesn’t). But that was the way the firm’s partners competed when Romney ran the place. This win-at-any-cost approach makes me wonder how a President Romney would negotiate with Congress, or with China, or with anyone else — and what a promise, pledge or endorsement from him would actually mean.
Would a President Romney, along with a Republican Congress, cut taxes for the wealthy even more than he has pledged to do? Would he not try to balance the federal budget, even though he has said he would? Would he protect defense spending, as he has indicated he would?
I have no idea how Romney might behave in office. I do believe, however, that when he was running Bain Capital, his word was not his bond.
By: William D. Cohan, The Washington Post, January 13, 2012
Share This Blog
Unknown Feed- An error has occurred; the feed is probably down. Try again later.
mykeystrokes.com 