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Buyout of America: How Private Equity Is Destroying Jobs and Killing the American Economy

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This site is intended to pick up where the Buyout of America book leaves off.

We would like it to be a forum where we tell you what is presently going on with private equity companies and the private equity debate.

A bid rigging case involving many of the biggest private equity firms, including Bain Capital, and $270 billion of leveraged buyouts is reaching a critical juncture. The charge is the firms teamed to buy businesses paying prices that were artificially low. If the plaintiffs prevail in getting class-action status in Dec. 2012 they might be able to extract billions in damages.

Please read my Oct.2 Salon op-ed about how Mitt Romney says on his web-site that he helped build Sealy, and how that does not square with upstart Tempur-Pedic agreeing to buy Sealy in September for only $2.20 per share.

Here is a great story about how Rommey has an investment with big Republican fund-raiser Paul Singer, and Singer made his most money by reposessing auto parts supplier Delphi Corp. and moving all production to Asia. This was the private solution for struggling Detroit auto makers and resulted in the loss of thousands of jobs.

Former Reagan Budget Director, and private equity investor, David Stockman writes a scathing Newsweek feature revealing that Romney did not make money by building businesses but instead from financial manipulation. He follows several Bain Capital deals and makes a convincing case.

Hilarious, and largely accurate, video on how private equity firms hurt small business owners.

ProPublica does a nice job in September showing how Romney often bought profitable businesses that could handle debt, not companies needing turnarounds. The article also highlights how Bain often used outside brokers to find companies to buy and then did not pay them after it bought those businesses.

Corporate interest deductibility presently allows companies to take the interest they pay on loans, even if used to finance LBOs, off their taxes. Without this loophole, many LBOs would be unprofitable. Several key Republicans are open to the bill, which may be voted on after the Presidential elections, including Republican Vice Presidential Nominee Paul Ryan!

President Obama on Feb. 22 also unveiled plans to reform the tax code including reducing corporate interest tax deductibility.

A big political question is whether Mitt Romney ran Bain Capital from 1999 to 2001, when several companies from which it made profits went bankrupt. Bain during Nov. 1999 also bought Stericycle, which handled medical waste including allegedly aborted fetuses. Geoffrey Rehnert, who helped start Bain Capital and is now co-CEO of PE firm Audax Group, told me in the book that Romney controlled Bain Capital between 1999 and 2001.

Great new documentary CorporateFM reveals how Bain Capital, and other private equity firms, killed the radio industry. The film is making the festival circuit, and I am featured in the following trailer.

I appeared on CNBC’s Squawk Box August 6 explaining why I believe private equity firms hurt the economy to Andrew Ross Sorkin.

Raleigh News & Observer does nice investigative piece on how Bain Capital impacted local companies. Report reveals mixed picture.

The New York Times in August did great investigative reporting revealing how private equity owned HCA, the largest hospital chain in the country, put profits over patients to pay debt and performed unnecessary heart surgeries. A second story showedexactly how it boosted profits. That is consistent with what I found in my book when examining the private equity owned Iasis hospital chain. It is also similar to what ProPublica found in examining private equity owned dental chains. Then, Salon in Julywrote an investigative story about how Bain owned CRC Health Group, the largest provider of residential troubled teen and drug recovery centers, neglects and abuses patients. Very scary pattern.

Also, private equity and health care shows the dangers of privatizing public sectors.

In May, President Obama aired his first ad criticizing Romney’s Bain Capital experience focusing on his 1993 buyout of GS Technologies, which in 1992 earned $10 million in operating profit by making steel balls and rods used in mining. I find the ad to be largely accurate. Bain and co-investors put only $24 million down, and had the company borrow $56 million to finance the $80 million deal. After quickly raising profits, they had the company less than one year after the buyout borrow another $61 million to pay themselves a dividend.

This left little room for error as operating profit, $32 million in 1995, could barely cover the increased interest expenses, rising from $9 million to $24 million. And steel is a commodity industry. Romney did not have the patience to see if that profitability level was sustainable. It wasn’t.

Even when profits fell below interest payments in 1998 and 1999 due to cheap imports, there was enough operating profit to survive if not for the interest expense. Former CEO Roger Regelbrugge told me “a better capitalized GS could have ridden out the currency crisis and been a gold mine.” GS instead filed for bankruptcy in 2001.

Former Bain Managing Director Ed Conard promoting his book defended Bain’s actionssaying its successful deals are not the ones in the Obama ads. Actually, Bain made more than 20 percent of its money in its 1987 to 1995 funds from five companies, including GS, that borrowed money to pay it dividends or buy back shares that later collapsed. He also says this dividend destruction was very rare, yet I cite five prominent examples which represented 20 percent of profits.

Bain even made money the few times when its businesses collapsed, and its investors lost because of the enormous fees it charged, according to a June NY Times story. Bain kept the fees for themselves, not sharing the haul with its investors.

While the President strikes a harsh tone, I wrote about how the co-finance chair of his campaign, former Denver Mayor Federico Pena, has led his own Romney-like leveraged buyout.

Vanity Fair in its August issue discloses how Romney evaded taxes, and pushed tax laws to the point he might have broken them. The reporter, Nicholas Shaxson, quotes me speaking about how Bain brags about how it uses more leverage in its buyouts than other private equity firms.

Romney, like other private equity titans, buys overseas companies, strips them dry and collects profits for mainly US investors without paying local taxes. Italy knows the score and the country’s residents are angry at Mitt.

At home, Bloomberg writes an insightful feature showing how Romney’s kids avoid taxes by getting Bain Capital profits in trusts.

Ralph Nader cites my book in a June op-ed about Romney’s insane campaign where he continually speaks out of both sides of his mouth (saying the Government does not create jobs, and then blaming Obama for job losses).

My Rolling Stone May 22 op-ed on “Why Private Equity Firms Like Bain Are The Worst of Capitalism”.

I debate University of Maryland Professor Peter Morici May 22 on MSNBC . He argues that private equity firms buy companies in need of help; while I maintain they typically buy profitable businesses and cripple them.

Village Voice Media in an April 24 cover story interviews me about Romney’s Bain record. Powerful feature.

There is a good question and answer segment I had Jan. 12 on how Bain makes money from tax gimmicks, and how our tax laws should be changed. The New Yorkerweighs in with a good analysis.

The Daily Show with Jon Stewart Jan. 31 references the book (and shows the cover) in an excellent segment on how Romney and Bain Capital made money by cutting spending at companies they owned.

On the Jan. 18 PBS NewsHour I debate a partner at a private equity firm about how the PE industry impacts the economy.

Appearing Jan. 13 on Fox Business, I reveal what Romney considered when buying companies and criticize Steve Rattner’s op-ed defending Romney and Bain Capital.

I explain to Lou Dobbs Jan. 12 how Mitt Romney’s claim of creating 100,000 jobs makes little sense since he is combining venture capital investments in which he did not control the businesses, with companies he controlled through leveraged buyouts. TPM has a nice story explaining the difference between private equity and venture capital.

MSNBC’s UP With Chris Hayes interviewed me Jan. 7 to learn about how Mitt Romney made money by hurting businesses (my segment is at the bottom of link).

A Huffington Post columnist says Dec. 30, 2011 that Obama advisor David Axelrod is using the Buyout of America as the basis for his Romney attacks.

I explain in a Washington Post Dec. 14, 2011 article investigating Mitt Romney’s record at Bain Capital how he did not buy troubled businesses, as he claims, but companies with consistent earnings, in which he could extract dividends.

The influential Daily Kos web-site Nov. 25, 2011 said what The Buyout of America reveals about Mitt Romney makes him unelectable.

Nationally syndicated columnist Robyn Blumner Nov. 13, 2011 said the Buyout of America showed that Mitt Romney made money by plundering companies.

A Los Angeles Times article does a very good job focusing on Bain’s 10 biggest investments during Romney’s time at the firm. Four of those companies went bankrupt.

The same reporter, Tom Hamburger, then leaves for the Washington Post and reports that Romney’s Bain bought companies that helped other companies outsource operations to foreign countries, hurting American employment.

A Boston Consulting Group partner in a Los Angeles Times op-ed captures what Romney did at Bain and explains how few would benefit if he ran the country in a similar manner.

Private equity investor Leo Hinderey Jr. says an honest assessment of the private equity industry shows it has plenty of warts.

My February 2011 story in the New York Post revealed how Mitt Romney’s past made him a Working Class Zero.

The book is about more than Romney’s Bain Capital. We ask you to send in reflections on your experiences with private equity owned companies, which will be shared with readers, and thoughts on the subject.

Portfolio published the paperback of the Buyout of America Nov. 30, 2010.
There are new updates throughout the book, which is more timely than ever with the public concerned about how Wall Street impacts Main Street.

http://www.buyoutofamerica.com/



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