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Member since: 2001
Number of posts: 21,168

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How Uncle Sam Helped Mitt Romney Build His Fortune

...or, "How I made millions and millions and millions by gaming the system (corporate debt interest tax deduction edition)".

Via Crooks and Liars
Private equity owes its success in no small part to that uniquely American provision of the corporate tax code. The New York Times recently helped explain why:
Companies can finance investment from either debt or equity. Companies can finance investment from either debt or equity. But profit on an investment financed with equity -- stock issued by the company -- is taxed. In contrast, if the project is financed with debt, then only the profit after interest payments are made is taxed. This means debt-financed investments are cheaper than equity.

And not just a little cheaper. As the Treasury Department recently explained, "The effective corporate marginal tax rate on new equity-financed investment in equipment is 37 percent in the United States. At the same time, the effective marginal tax rate on the same investment made with debt financing is minus 60 percent--a gap of 97 percentage points." The result:
This creates a bias by corporations toward debt.

Or, for the likes of Mitt Romney, a business model.

For the leveraged buyout (LBO) kings of the 1970's and 1980's, that was the pot of the gold at the end of the rainbow. Because the same interest deduction applied whether debt was taken on for a new factory or just to pay investors, Josh Kosman detailed in The Buyout of America, the early corporate raiders and their private equity successors could almost mint money as they bought firms for a fraction of the overall deal size:
Kohlberg saw a way to make debt far less onerous for the company being acquired. He would have the company treat its debt the way businesses handle capital expenditures--as operating expenses deduced from profits through the depreciation tax schedules, thereby greatly reducing taxes. With far less to pay the government, his companies could use the money that formerly went to Uncle Sam to retire these huge loans at an unusually fast rate. Bear's equity would rise with every dollar the companies paid back in debt, even if the value of the businesses only remained the same. The final step in the plan was to sell these companies, usually within four to six years.

This isn't just about Mitt. Everything I've read about this sort of financial wheeling and dealing notes that much of it wouldn't have made financial sense without obscure provisions like this. And it's not as if this problem was unrecognized: once upon a time ordinary could deduct for credit card debt. Once everyone started getting cards and people discovered that by maxing out their cards they could cut their taxes, that was ended. Not so for other (corporate) forms of the same rule-exploitation.

This isn't about "punishing success", and never was. It's about re-aligning incentives with desired outcomes.

Mitt's Salt Lake City Olympics pins: why does his chin...

...have a bustline?

Pics via Digby's Hullabaloo. Post on the pins (first executive to be on a pin!):

Stay classy, Mitt

The man Mitt is running against (as rendered by the Daily Show)

Fella's been around for years. Reagan ran against him, Newt spent his career protecting Cobb Country Georgia from him, and he's the Rupert Murdoch of the left:

Thomas Jefferson proposed putting Anglo-Saxon brother-kings on the Great Seal of the United States

On July 6, 1776, the first committee for the production of the Great Seal of the United States convened. One of three members of the committee, Thomas Jefferson proposed that one side of the seal feature Hengist and Horsa, "the Saxon chiefs from whom we claim the honor of being descended, and whose political principles and form of government we assumed."

Obviously, Jefferson did not prevail, so we got the ol' Sam the Eagle here:

Now, if our Anglo-Saxon heritage is as strong as Mitt's people claim, where is Hengist Romney? Horsa Romney?
Why don't those names ever show up on "most popular baby name" lists? The only people I know of named Hengist are from Scandinavia. You know, the cesspit of socialism.

And would Horsa Romney get tax breaks for his dressage?

The Historia Brittonum records that, during the reign of Vortigern in Britain, three vessels that had been exiled from Germania arrived in Britain, commanded by Hengist and Horsa. The narrative then gives a genealogy of the two: Hengist and Horsa were sons of Guictglis, son of Guicta, son of Guechta, son of Vouden, son of Frealof, son of Fredulf, son of Finn, son of Foleguald, and Foleguald son of Geta. The Historia Brittonum details that Geta was said to be the son of a god, yet "not of the omnipotent God and our Lord Jesus Christ," but rather "the offspring of one of their idols, and whom, blinded by some demon, they worshipped according to the custom of the heathen."

Note that Jefferson proposed we be represented by the great (x9) grandsons of a pagan god. How's that for the "faith of our Founding Fathers" crowd?

"Do you think that is the kind of person that is trying to hide things, or do things?"

While it doesn't get as much attention as the "you people" part of the interview with Ann Romney, this part jogs a thought:

"You know, you should really look at where Mitt has led his life, and where he’s been financially. He’s a very generous person. We give 10 percent of our income to our church every year. Do you think that is the kind of person that is trying to hide things, or do things? No. He is so good about it. Then, when he was governor of Massachusetts, didn’t take a salary in the four years."

Charles Keating

Keating is best known as the man behind Lincoln Savings and Loan back during the S&L crisis, a high flyer who was swindling retirees by selling them "secure investments" that were actually junk bonds, and used the political influence of The Keating Five (four Democrats and John McCain) to keep it going.

Before that, in the 70's, he had a some dubious dealings too:
Keating left his law practice in 1972 and formally joined American Financial Corporation, by now a $1 billion enterprise, as executive vice president. Keating became Lindner's hatchet man, in charge of firing employees from newly acquired companies. Within business circles Keating gained a reputation for aggressiveness and arrogance. Keating also took on an operational involvement in The Cincinnati Enquirer, the town's only morning newspaper. To some on the paper, he interfered in editorial decisions, such as adding coverage to high school sports that he or Lindner's sons were involved in. The paper was then sold to a group including his brother William, who had been a Republican congressman from Ohio's 1st congressional district in the early 1970s. Keating was involved in American Financial's 1974 sale of Bantam Books and its decision that year not to enter the investment banking field.

By 1975 and 1976, several stockholder lawsuits were filed against American Financial, and Keating was under fire for aspects involving unsecured loans, stock warrants, and the sale of the Enquirer. The Securities and Exchange Commission launched a major investigation of the company and charged Lindner, Keating, and others with having defrauded investors for their own benefit and filing false SEC reports. At particular issue was a $14 million loan that the SEC said was made on preferential terms.

How did a guy with such dubious dealings get in charge of an S&L (aside from deregulation)? He acquired a reputation as an upstanding citizen.

Keating was (and is, he's not dead) a very moralizing Catholic, and when he had money he donated to Catholic charities, including a million dollars to Mother Theresa's organization.

Going back to the mid-50's, he was a crusader against smut and pornography (and defined it broadly).
"At a time when the spread of pornography has reached epidemic proportions in our country and when the moral fiber of our nation seems to be rapidly unraveling, the desperate need is for enlightenment and intelligent control of the poisons which threaten us – not the declaration of moral bankruptcy inherent in the repeal of the laws which have been the defense of decent people against the pornographer for profit." Keating also wrote, "One can consult all the experts he chooses, can write reports, make studies, etc., but the fact that obscenity corrupts lies within the common sense, the reason, and the logic of every man."

So yes, Mrs. Romney. Of course plenty of honest, honorable people donate to their church, but the fact that someone does so is no proof at all that they're not a swindler or have some other agenda.

By the way, I notice your husband plans to crack down on pornography. Please excuse me while I find an MP3 of the theme from The Twilight Zone.

43 Years ago today, we created a symbol that anything was possible

To insert a break into today's sad news and toxic politics

We used to build great things, achieve accomplishments that once had only been flights of fancy, and chose enduring words like "we came in peace for all mankind" rather than chest-thumping bravado.

And if you describe our economy and policies back then to today's Republicans, we were a bunch of "socialists".

Where Have I heard Mitt's explanations before? Hmmm...

Demand a full and accurate prospectus from the Business Leader

Mitt should fully disclose everything. Period.

All the tax returns he gave John McCain, plus the ones since then.

All the documents related to his relationship with Bain and its associated companies and other organizations (whatever their actual name and category might be).

Full accounting of his offshore accounts. And any in his wife's name.

Not merely what the law requires. Not "more than this, less than that". Not just the minimum he can get away with revealing. Everything.

Sure, usually that information is considered private. This isn't usual.

How much he made and how he made it has a direct bearing on his potential presidency, because that's supposed to be his strength: that his monetary success gives him expertise and vision to lead the country as a whole.

If keeping it private is that important to him, then let him stay a private citizen. If he wants to be president, if he wants the broad public to "invest" in him with their votes, then he needs to put forth a compete and accurate prospectus. He can monkey around all he wants, but nobody is obligated to vote for him.

(well, nobody except the guys the Republican Party made sign loyalty oaths)

David Brooks misses Chris Hayes point, offers own, then refutes himself by not committing seppuku...

...or becoming a monk with a vow of silence, or just putting himself out to pasture.

Brooks focuses on one part of Chris Hayes' book Twilight of the Elites, where Hayes argues that even under ideal circumstances meritocracy leads to circumstances where it's not merely merit or performance that determine outcomes, that even when working as advertised it builds up hurtles against those outside the elite to show their merit and thus join their ranks.

In making this point Hayes uses examples he's seen in real life in New York City's magnet schools. (The NYC school system is large enough that it can support a number of schools with more specialized curricula, e.g., for mathematics and science, or for the performing arts, etc.). Brooks focuses on this to the exclusion of all else, and decries a general lack of integrity.

It’s a challenging argument but wrong. I’d say today’s meritocratic elites achieve and preserve their status not mainly by being corrupt but mainly by being ambitious and disciplined. They raise their kids in organized families. They spend enormous amounts of money and time on enrichment. They work much longer hours than people down the income scale, driving their kids to piano lessons and then taking part in conference calls from the waiting room.

The corruption that has now crept into the world of finance and the other professions is not endemic to meritocracy but to the specific culture of our meritocracy. The problem is that today’s meritocratic elites cannot admit to themselves that they are elites.

Everybody thinks they are countercultural rebels, insurgents against the true establishment, which is always somewhere else. This attitude prevails in the Ivy League, in the corporate boardrooms and even at television studios where hosts from Harvard, Stanford and Brown rail against the establishment. As a result, today’s elite lacks the self-conscious leadership ethos that the racist, sexist and anti-Semitic old boys’ network did possess. If you went to Groton a century ago, you knew you were privileged. You were taught how morally precarious privilege was and how much responsibility it entailed. You were housed in a spartan 6-foot-by-9-foot cubicle to prepare you for the rigors of leadership.


The difference between the Hayes view and mine is a bit like the difference between the French Revolution and the American Revolution. He wants to upend the social order. I want to keep the current social order, but I want to give it a different ethos and institutions that are more consistent with its existing ideals.

Hayes does not, in fact, argue for upending the social order, just argues for why a messy system like democracy works better despite the way it offends the sensibilities of elites and technocrats.

Brooks also mentions that in the LIBOR scandal "they have no sense that they are guardians for an institution the world depends on; they have no consciousness of their larger social role." This from a guy who in two NY Times columns a week and numerous TV talking head appearances does exactly the same thing in regard to journalism.

The seppuku option would be the one most cathartic for the rest us, methinks.

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