Victims, Bullies and Bozos

Truth can be ignored

Unless it comes as a thief

And takes away our floor

Of childish belief

So now we chide the victim

In a chorus with the bully

Who professed a dictum

Of goodness more fully

Achieved without assistance

From man or government

By Mitt’s unique insistence

That he is heaven sent

           

           

We have all been immersed in a drama of sudden truth with Mitt Romney blaming the “47%” for his woes as a candidate for president.  All this is not without irony, because Mitt spoke from his heart that had remained hidden until the “secret” video was made public.  This is the same Mitt who exercised leadership by getting his prep school friends to hold down a gay classmate while Mitt forcibly cut his hair.  While Mittens complained that 47 per cent of voters acted as victims and were dependent upon government, he ignored the fact that he had actually caused the creation of victims at Bain and that Mitt depended on the largess of that same government to allow him to grab the pensions of those victims and to secure a lower tax rate for himself by doing so.

I will relate some specifics about Bain and Mitts bullying that seems consistent over the years, but first, I need to illustrate, by example, what happens in Free Enterprise when Bullies and Bozos run businesses.  During the 1970s and early 1980s, I headed a training department for a bank in Connecticut.  Things went so well, that we began to do training for correspondent banks.  I had a skilled and dynamic group.  My staff and I recommended that we become a profit center by charging other banks enjoying the service.  We were rebuffed because management felt that it was a good will gesture to provide training and not an item of direct income.  All this was fine until some senior management bozos decided that our bank could not live without entering foreign investment.  They established a lending office in London with 29 locals and quickly built a portfolio of all shipping: all oil, all tankers, all of Greek registry.  There was no equivalent of the loan committees we used as policy in the United States.  Soon, the oil market went bad and all the tankers were anchored in Athens harbor.  All the loans went sour.  Who needs loan committees that might veto stupid loans?  Not my bank.  Within a few months, we were purchased by Bank of Boston who a few years later repeated similar management blunders.

What were the results in Connecticut?  There were victims.  The entire training department was eliminated.  Some might call this downsizing; others might call it trimming expenses, but for the training department, it was a loss of work, pride, self-esteem and dignity.  When VP “Earl the Pearl” informed me, of course, his opening line was:  “George, this is nothing personal.”  What can be more personal than losing your job when you know that you did well at it?  Lindsey (not her real name) ran Teller Training.  She was masterful at training and evaluating tellers; held a Masters Degree; she was brilliant, warm, humorous and personable where, at times, I could be confrontational and challenging (to be kind to myself).  She beat me hands down on the interpersonal scale.  Bozos cause victims including nice people who know what they are doing.  I found work in California.  Lindsey found work in Connecticut. My family survived on my wife Louise’s income as a teacher, savings, and my severance money until we moved to California.  Lindsey used her severance and survived between jobs.  I don’t agree with the charge by Romney that paycheck people are not responsible or motivated.  Victims don’t want to be victims and they work to find work.

In California, a major aerospace company seemed to be a good match for my engineering background and my training skills, but after I agreed to work for this firm, it was acquired by a larger firm with no record in high technology.  Soon, this company of 85,000 employees announced a stock price goal of (memory) $65.00 and waves (spasms) of reductions-in-force began.  I used my experience and skill to help the transition where I could, but the layoffs had no aerospace basis.  Workers with higher salaries were generally fired first and then those of lower salaries until the workforce dwindled to 28,000 and the stock price was achieved.  The firm could no longer bid on government contracts because it had lost most of its talent.  At that point “X,” having met Wall Street goals, sold off the remaining pieces.  This big company provided a small example of how a bully proceeds in business decisions.  Engineers, as they were laid off, were told that they would get severance if and only if they signed to never work for the company again.  Unless you met very strict rules, you could not retire early and your severance depended on being compliant with tough conditions.  I counseled an engineer who worked for “X” for 32 years.”  “Sam” had known no other employer and was crushed that the company simply threw him away without the possibility of retirement.  He had never written a resume.  He, like all the others, was fired and unceremoniously escorted out of his workspace by security because “X” did not trust him.  “Company X” truly feared sabotage after 32 years?  This was Hollywood without the film.  Victimhood?  Well, there were heart attacks and strokes and lawsuits, but this is business and corporations are people, right?  I talked with another engineer who had created a hundred patents for the firm.  His reward was severance.

Let’s examine the issue of Romney’s 47% through the same lens of personal experience.  When managerial incompetence caused the bank to fail, what did Lindsey and I do?  We pumped out resumes and interviewed like crazy to find work just like 99+% of people you know.  Lindsey completed a second Masters.  I renewed my job-hunting skills but was not one of the remaining 28,000 selected by the bullies at “X.”  What happened was clear. Just as happened at Bain, the business decision had no human component in the decision to fire employees.  There may be a negative component of greed in some transactions, but blindness and numbness to another’s pain is more likely.  Ultimately, I opened my own business and worked 7 days a week to build it.  Clearly, that put me in the 47%.

Bain Capital was in the business of creating wealth and not creating jobs.  There is no support for Romney’s claim for creating 100,000 jobs, and when you examine Bain’s method of loading purchased companies with debt and then liquidating them, the standard result is fewer jobs.  Wealth accumulation through ploys such as absorbing pension funds earmarked for employees were then grasped by Bain for profit.  Ampad, Kaybee Toys, a steel company and a medical equipment company, etc. were essentially leveraged buyouts where Bain cashed in loans of purchased companies, absorbed pensions, took management fees and cut staff in order to maximize profit.  These transactions were about 10% of the total number of buyouts, but it was a 100% disaster for employees at these firms.  The Human Side of Enterprise as discussed by Douglas McGregor was never part of the process.  Yet there is a deep human toll.  We are each measured by our jobs and that includes our self-measurement.  Except perhaps for a death, there is no more severe blow to anybody’s psyche and health than the loss of a good job.  It matters not whether the job is physical or intellectual, it is a crushing loss.  Still, people are resilient and the Romney accusation that 47% of people are too lazy or dependent on the government is simply not supported by the facts.  The list of folks that do not pay income taxes includes many my age the infirm, and those temporarily out of work or earning so little that income taxes do not accrue.  Payroll taxes do accrue and most pay these taxes while the 4,000 or so millionaires on the 47% list pay neither. For decades, now, one role of government has been to help choose winners and losers through tax policy.  I can hear the murmuring already.  Redistribution of wealth…socialism…well, not exactly.  If you can understand that any policy for tariffs, subsidies or taxes automatically favors one group and not another, then you begin to understand the issue.  To place a tariff on tea disproportionately affects tea drinkers and does little to coffee drinkers.  To provide Big Oil some $ 4 Billion in subsidies each year assists Big Oil and does not assist start up companies in competing energy industries.  So is the case with corn for ethanol and Big Pharma (recall the drug donut hole in the Bush drug law).  Granting investors a lower income tax rate than wage earners favors investment and Wall Street and does not help people on salary or wages.  The direction of the redistribution reflects the values of our society and the power of lobbyists to create the supporting laws.  For example, Romney has stated that he pays only as much income tax as required by law, but he has personally lobbied Congress (with others) to favor investment income including generous investment tax credits that can accumulate and “carried interest” that is a specific grant to people like Romney and Wall Street.  (For 2011, he instructed his accounting firm not to use all his deductions so that he could match his word that he pain at least 14%, otherwise his tax would have been at 9.6%.  If he loses the election, he can amend that return and get the cash back.)  Bain was also able to convert management fees into “investments” to avoid taxes altogether.  Individuals cannot do that.  Of course, they were merely taking advantage of the law.  Please don’t look behind the curtain to see how the law was created.  From Politicofact, 21 September 2012.

 “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."

Romney has stated that his role at Bain was inactive after 1999 despite SEC filings to the contrary.  He appears to have lied.  That is important because his 2010 tax returns show that he took a 35% write off on Bain investments.  The IRS only allows that for ACTIVE and not PASSIVE investors.  Maybe God would want it that way, but the IRS does not.  When he wins, it is at only a 15% tax rate, but when he loses, he gets to write it off at 35%.  No, you cannot do that.  You are in the 47%.  Don’t try this at home or the IRS will have you on a poster as a law-breaker.  Well, maybe Mittens has different definitions of Active for the IRS than for you and me.  Maybe he was Active for the IRS and Inactive for campaigning.

That brings me to the final observation.  God rewards the blessed and punishes those having the stain of sin, even if that sin was handed down from an earlier generation.  The predestination element of Calvinism remains in our culture.  Some people are simply blessed by God and they deserve the riches of this life and the next.  If you are in the 47% or even in the 98%, tough luck, amigo.  You should have been born to better parents.  It is interesting that Mittens claims that he succeeded all by himself and had no inheritance while his wife claims that Mitt had a million dollars in stock as his inheritance that they lived on while attending college.  Maybe Mitt forgot, or has a higher threshold for calling an inheritance an inheritance.  Then again, it could be that Mittens invested while in the womb and can take personal credit.  These mysteries are complex and way beyond me.  All these phenomena are something like the genes that you inherit from your parents except that these are spiritual genes (no, not jeans).  This explains why some of us prosper and others do not.  It also explains why some folks seem arrogant and haughty.  It is a corollary gift from God.

Peace,

George Giacoppe

24 Sep 2012