Being naturally skeptical and impulsively contrary, my suspicions are aroused by secrecy, something that abounds in a new Vanity Fair article about candidate Mitt Romney’s finances. I am indebted to fellow blogger Pied Type for bringing to my attention the most insightful report I have yet read on how the rich and powerful handle their personal investments, how companies like Bain Capital actually work, and which illuminates Mr. Romney’s personality and manner of thinking.
The article is a little long for bloggers I think. Even Pied Type admits that she didn’t read beyond the introductory summary. When I first started reading it I first thought it was only one page, but then noticed the links to three more pages at the bottom. It is however, in my opinion, first-rate investigative reporting. I urge the reader to persist in reading all of it. It is enlightening as to the mindset of the rich. It causes me to recall Martha Stewart praising her broker for insider trading tips and Leona Helmsley saying that taxes are only for the little people. Such sound-bites were memorable because they were glimpses into a private mind-set that is usually hidden from the hoi polloi, thinking which takes a disingenuous stance about how finances work for insiders.
The article begins with an anecdote about Romney from a former Bain and Co. employee, one that occurred when Romney was only two years out of Harvard Business School:
A person who worked for Mitt Romney at the consulting firm Bain and Co. in 1977 remembers him with mixed feelings. “Mitt was … a really wonderful boss,” the former employee says. “He was nice, he was fair, he was logical, he said what he wanted … he was really encouraging.” But Bain and Co., the person recalls, pushed employees to find out secret revenue and sales data on its clients’ competitors. Romney, the person says, suggested “falsifying” who they were to get such information, by pretending to be a graduate student working on a project at Harvard. (The person, in fact, was a Harvard student, at Bain for the summer, but not working on any such projects.) “Mitt said to me something like ‘We won’t ask you to lie. I am not going to tell you to do this, but [it is] a really good way to get the information.’ … I would not have had anything in my analysis if I had not pretended.
“It was a strange atmosphere. It did leave a bad taste in your mouth,” the former employee recalls.
There is no evidence of lawbreaking in this article. I believe Romney’s repeated assertions that he broke no laws in his operations, but the secrecy involved does raise moral issues for me. It is apparent from the article that he has hidden his wealth well and has disclosed only the minimum of detail about it, mostly with the aid of foreign laws tailored to protect all scrutiny. The tax havens he has used include not just Switzerland but the Cayman Islands and Bermuda, a place I have written about before in this context. In discussing the Romney wealth the article says (emphasis added),
It is hard to know the size of these investments. Romney’s financial disclosure form lists 25 of them in an open-ended category, “Over $1 million,” including Solamere and Elliott, and they are not broken down further. Romney hides behind a disclaimer that the fund managers “declined to provide such information” about their underlying assets. Many of these funds are set up in tax havens such as the Cayman Islands, where a confidentiality law states that you can be jailed for up to four years just for asking about such information.
Financial firms like Bain take pride in deriving wealth from the clever use of investment leverage and knowledge of arcane laws. As the article says, companies like Bain,
. . . take pride in pushing the leverage envelope [i.e., use of borrowed money, which magnifies returns, while off-loading the risks onto others] more than their peers,” he says. “I have heard that from limited partners in Bain’s funds. I have heard that from bankers who lend money to finance their leveraged buyouts. Bain always prided itself on ‘We’ll push leverage more than the others.’ They brag about that, behind closed doors.”
Is there not a moral difference between companies like Bain and others like, say, Apple? Apple’s success derives from making a superior product and using superior marketing strategies. Bain and others like it, on the other hand, succeed by clever manipulation of legal and tax loopholes, including foreign laws and regulations designed in secrecy for the purpose served. One might well observe that some of Apple’s products are made with cheap Chinese labor, but its operations are at least done in full public view.
I leave it to the individual reader of course to draw his or her own conclusions about what this means relative to the presidential race. As Americans we all admire “success” and by the measure of mere money, Mr. Romney is a big success. But the principal question to be answered in the political context is, should the ability to amass enormous wealth through the clever use of arcane laws, bankruptcies, financial manipulations, and offshore accounts be considered adequate qualification for running the most powerful government in the world?
And if he is elected President, will Mitt Romney use his special insider know-how to promote or discourage financial reform of the vast arcane network of laws, rules and regulations that protect and leverage his business and those of the other financiers of the world? Will he of the 1% move to protect the interests of the 99% at the expense of his colleagues? And with what style would he then run the Executive Branch, the disingenuous one with which he is so familiar? Or would he etch himself into a new and transparent Romney?
- Romney Still Gets Money from Bain Through Offshore Accounts (theatlanticwire.com)