Bain to the rescue? It’d be more pleasant to hang yourself.

Someone I’ve debated economics with in the past made the frightening suggestion in the comment section of my last story that Bain Capital could be hired by the federal government to manage spending and find an arbitrary 10% ($350 billion or so) in spending to cut without the government “experiencing any effective changes in capability.”

Although he was talking about total spending, in reality that’d have to come out of non-defense discretionary spending because Bain would never act against the military industrial complex, and Social Security and Medicare would require changes by Congress to cut benefits, and there’s no support for that. That rules out $2.1 trillion of a $3.5 trillion budget.

A 10% cut in total spending then would mean a staggering 25% drop in discretionary spending, which would mean permanently closing dozens of federal agencies that would make it impossible for the government to do things like keep Wall Street from running Ponzi schemes, keeping the food supply reasonably safe, keeping drugs from killing you, and keeping planes from crashing because it’s cheaper to do safety checks once per year instead of every few days or weeks.

That wouldn’t just significantly degrade the federal government’s capabilities in public safety, it would cripple them.

Romney/BainFor those who heard about Bain Capital last year but never learned what that company does, or for those who are wondering why it’s been suggested that Bain could step in and serve this function, you have to go back to the 2012 election. Bain Capital was the private equity firm that Mitt Romney worked for fresh out of college, and eventually ran. It’s the only private sector job he’s ever held.

Bain used to do what’s called venture capital, essentially giving big loans to new startup companies that they could use to safely grow before they became profitable. That money was converted to equity — partial ownership — which the VC firm would then sell once the startup went public (or the VC firm would get a big chunk of a buyout check).

Romney did that for a while but then turned turned Bain towards a model that better resembles rape and murder than it does investing in economic growth:

Here’s how Romney would go about “liberating” a company: A private equity firm like Bain typically seeks out floundering businesses with good cash flows. It then puts down a relatively small amount of its own money and runs to a big bank like Goldman Sachs or Citigroup for the rest of the financing. (Most leveraged buyouts are financed with 60 to 90 percent borrowed cash.) The takeover firm then uses that borrowed money to buy a controlling stake in the target company, either with or without its consent. When an LBO is done without the consent of the target, it’s called a hostile takeover; such thrilling acts of corporate piracy were made legend in the Eighties, most notably the 1988 attack by notorious corporate raiders Kohlberg Kravis Roberts against RJR Nabisco, a deal memorialized in the book Barbarians at the Gate.

Romney and Bain avoided the hostile approach, preferring to secure the cooperation of their takeover targets by buying off a company’s management with lucrative bonuses. Once management is on board, the rest is just math. So if the target company is worth $500 million, Bain might put down $20 million of its own cash, then borrow $350 million from an investment bank to take over a controlling stake.

But here’s the catch. When Bain borrows all of that money from the bank, it’s the target company that ends up on the hook for all of the debt.

Now your troubled firm – let’s say you make tricycles in Alabama – has been taken over by a bunch of slick Wall Street dudes who kicked in as little as five percent as a down payment. So in addition to whatever problems you had before, Tricycle Inc. now owes Goldman or Citigroup $350 million. With all that new debt service to pay, the company’s bottom line is suddenly untenable: You almost have to start firing people immediately just to get your costs down to a manageable level.

“That interest,” says Lynn Turner, former chief accountant of the Securities and Exchange Commission, “just sucks the profit out of the company.”

Fortunately, the geniuses at Bain who now run the place are there to help tell you whom to fire. And for the service it performs cutting your company’s costs to help you pay off the massive debt that it, Bain, saddled your company with in the first place, Bain naturally charges a management fee, typically millions of dollars a year. So Tricycle Inc. now has two gigantic new burdens it never had before Bain Capital stepped into the picture: tens of millions in annual debt service, and millions more in “management fees.” Since the initial acquisition of Tricycle Inc. was probably greased by promising the company’s upper management lucrative bonuses, all that pain inevitably comes out of just one place: the benefits and payroll of the hourly workforce.

Once all that debt is added, one of two things can happen. The company can fire workers and slash benefits to pay off all its new obligations to Goldman Sachs and Bain, leaving it ripe to be resold by Bain at a huge profit. Or it can go bankrupt – this happens after about seven percent of all private equity buyouts – leaving behind one or more shuttered factory towns. Either way, Bain wins. By power-sucking cash value from even the most rapidly dying firms, private equity raiders like Bain almost always get their cash out before a target goes belly up.

This business model wasn’t really “helping,” of course – and it wasn’t new. Fans of mob movies will recognize what’s known as the “bust-out,” in which a gangster takes over a restaurant or sporting goods store and then monetizes his investment by running up giant debts on the company’s credit line…

What my reader was suggesting is that a person who would do the things that Mitt Romney did at Bain would be good for America by managing about a third of federal government. The idea, once you understand what Romney did at Bain and what vulture raiders like Bain do for a living, is absurd.

PE raiders fire people and run up massive amounts of debt by borrowing massive amounts of money that they stick with other people for a living. What people like Romney would do with the federal government is run up even more debt that tax payers are on the hook for, while enriching corporations and making the government even less useful than it already is.

Don’t forget that Romney hasn’t shown an ounce of regret for the lives and companies he’s ruined. He hasn’t shown in all these years that he even understands that what he did for most of his adult life is morally reprehensible and economically damaging.

I’m sure spending can be cut in some places to minimize the economic impacts of austerity, but Mitt Romney and the vultures at Bain would be the last people that would know where to cut. And they wouldn’t care who got hurt, even if they did know. They’ve made their fortunes “cutting” things in the most painful possible areas — just not painful for themselves — in order to extract maximum profit with no concern at all about who they harm in the process.

American Pad and Paper is an example of this:

Take a typical Bain transaction involving an Indiana-based company called American Pad and Paper. Bain bought Ampad in 1992 for just $5 million, financing the rest of the deal with borrowed cash. Within three years, Ampad was paying $60 million in annual debt payments, plus an additional $7 million in management fees. A year later, Bain led Ampad to go public, cashed out about $50 million in stock for itself and its investors, charged the firm $2 million for arranging the IPO and pocketed another $5 million in “management” fees. Ampad wound up going bankrupt, and hundreds of workers lost their jobs, but Bain and Romney weren’t crying: They’d made more than $100 million on a $5 million investment.

To recap: Romney, who has compared the devilish federal debt to a “nightmare” home mortgage that is “adjustable, no-money down and assigned to our children,” took over Ampad with essentially no money down, saddled the firm with a nightmare debt and assigned the crushing interest payments not to Bain but to the children of Ampad’s workers, who would be left holding the note long after Romney fled the scene. The mortgage analogy is so obvious, in fact, that even Romney himself has made it. He once described Bain’s debt-fueled strategy as “using the equivalent of a mortgage to leverage up our investment.”

On a side note, this is one of the reasons Wall Street nearly sent America into another Great Depression. It cooked up fraud schemes like this which are highly profitable to replace traditional lending. Rather than “building” wealth through investing in company growth, like Bain used to do as a venture capital firm, they’ve been inventing one new scheme after another that simply rapes other segments of the economy of their value. And they’re doing it far quicker than Washington can criminalize these crazy schemes, and that’s only in years when Washington actually cares. Most of the time it doesn’t. Some times it actually helps create these fraud schemes.

The credit default swaps at the heart of the lending crisis were schemes like PE raiding cranked up by a factor of a thousand. And the amazing thing is that not only haven’t we done anything serious to regulate and criminalize this insanity, we’ve got people advocating putting these “barbarians” in charge of the government.

* * *

Paul Ryan is floating the latest GOP demands to end the shutdown and raise the debt limit in the Wall Street Journal today. Short version: Obamacare can stay until the next shutdown, Social Security benefits get cut, Medicare gets cut, and taxes for the rich and corporations cut.

It’s basically everything Ryan promised as VP nominee last year that he couldn’t provide this year because he and his team lost an election based on that agenda. That’s why everyone is calling this shutdown extortion. What the GOP couldn’t attain through winning elections, they are trying to get through threats of harm.

Things like this are why I wasn’t laughing, but was actually upset, that the “liberal media” let Romney-Ryan get away with saying they were trying to save Medicare with their plan that would have ended it, while accusing Obama-Biden of trying to cut benefits. It wasn’t just a lie about their opposition, it was a lie about themselves as well — the literal opposite of reality.

Republicans regularly try to scale back or gut the social safety net, whether it be Medicare or Social Security, and that’s one of the reasons they’ve fought so viciously against Obamacare — it’s the third pillar. It was absurd for the GOP to run a campaign on a platform of saving all of that from Democrats when Democrats are the reason we have it all in the first place.

It’s one of the reasons the 2012 election shouldn’t have been as close as it was. If the media did its job and told people what the GOP actually believes and wants to do, rather than just repeating their campaign rhetoric, the Republican Party wouldn’t be a viable national party anymore.

Speaking of the Journal, one of their top stories today has this teaser: “Yellen’s Challenge: Finding a Safe Exit. David Wessel looks at the uncharted monetary-policy territory that Yellen would enter if confirmed as Fed chairwoman.” If you want biased reporting in media, you can begin with that. The reason that progressives wanted Janet Yellen over Larry Summers is because Yellen will almost certainly continue the Fed’s quantitative easing program well into the future, whereas Summers was expected to follow Ben Bernanke and end it far too soon.

What the WSJ is doing is fantasizing about what it wishes Yellen would do that it knows she won’t, which in and of itself is amazing. The business side of the paper loves QE and wants more of it. It’s the politically infected opinion side, carrying water for the GOP, that wants it to end.

It’s bad enough that one of the nation’s two largest political parties is manic, displaying no fewer than three distinct personalities fighting for dominance. Now one of the nation’s most influential papers is showing two faces fighting for opposite sides of the same policy.

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