Quick Thought on Unemployment Benefits

All of us have our pet peeves, and one of mine is the “carried interest” loophole, which lets those who get their income from venture capital, private equity, hedge funds, and real estate limited partnerships pay their taxes at capital gains rates (20%) rather than ordinary income rates (39.6%).

With about 1.3 million people (plus the people who depend on them) losing their unemployment benefits as of today, I went back to check what carried interest costs the Treasury, to see if it would have covered extending those benefits for three months.

Carried interest costs the government between $11 and 13 billion a year*, while the unemployment benefits would have cost $6 billion.

So score one for the caviar and Champagne crowd, and nothing for the Ramen noodle and tap water crowd.

See “A Costly and Unjust Perk for Financiers,” Lynn Forester de Rothschild, NYT, February 24, 2013

The Phony Patriots of “Fix the Debt”

The NYT has a terrific take-down on the front page today* of that “Fix the Debt” group.  They’re not high-minded at all, just a front for high-value tax benefits and defense contracts.

It’s a bunch of lobbyists trying to protect stuff like the “carried interest” loophole for private equity, tax breaks for multinationals, military spending, etc.  They want to fix the debt on the backs of others while keeping their goodies.

For example, their core principles argue that we should cut entitlements dramatically, but don’t say a word about cutting even a penny from the defense budget.

The story links “Fix the Debt” leaders to specific companies:  Sam Nunn to General Electric;  Erskine Bowles to Morgan Stanley; Judd Gregg to Goldman Sachs, Honeywell, and International Exchange.

The article is sickening, but a must read.  They pretend to be about patriotism, but really it’s all about their perks.

* “Public Goals, Private Interests in Debt Campaign,” Nicholas Confessore

Mitt Is LBO, Not VC, and Why It Matters

Mitt keeps trying to portray himself as a venture capital guy, but we need to remember that he was a leveraged buyout guy and the difference between them when it comes to job creation.

From “Mitt Romney:  The Man Without a Past,” Michael Hirsh, The Atlantic:

“Mitt Romney has an identity problem.  He is running for president by making promises about America’s future, but as a man who is largely without a past.  Not only has Romney renounced many of his previous positions — on abortion, immigration, gun control, climate change, and the individual mandate he once championed as Massachusetts governor.  He also refuses to divulge many details about what even he has said is his main qualification for the White House in a faltering economy:  his successful career in ‘private equity’ from 1984 to 1999 (or thereabouts).

“What is it about the private equity world that Romney doesn’t appear eager to bring up? … The term ‘private equity’ sounds respectable, but it is a euphemism for the old leveraged buyout deals we remember from the 1980s, the era of corporate raiders like T. Boone Pickens and Henry Kravis.  After junk-bond king Michael Milken, who funded a lot of those takeovers [and whom Mitt worked with], went to jail, the industry decided to rename itself in order to remove the taint.

This is Mitt Romney’s true world.  As the founder of Bain Capital, Romney became a brilliant LBO buccaneer who specialized in buying up firms by taking on a lot of debt, using the target firm as collateral, and then trying to make the firm profitable — often by breaking up or slashing jobs — to the point where Bain and its investors could load up the firm with even more debt, which Bain would then use to pay itself off.  That would ensure a profit for Bain investors whether or not the companies themselves succeeded in the long run. 

But job creation is irrelevant to Bain’s business model, which is all about paying back investors.  Nor does the long-term fate of the companies that private-equity firms buy up matter crucially to Bain’s bottom line (though of course success is better).  The only real risk for Bain is that these companies fail to make enough initial profit in order to permit Bain to pile on more debt and extract a payout, so that it can make back its investment quickly.”  Emphasis added.

If people understand what Mitt did, and they want to vote for him anyway, that’s fine.  I just hate to think of all the people who will vote for him without really getting the Bain business model and the source of Mitt’s extraordinary wealth.

Both Obama and Mitt Face “Friendly Fire”

When you’re running for president, you focus on winning each day by getting your message out and trying to knock your opponent off his message.  If you win enough days, you win the election.  Every distraction is a day (or days) lost.

It’s one thing to take hits from your opponent, that’s going to happen, but it’s inexcusable to take hits from your own side, and we’re seeing that with both candidates.

President Obama has had to waste valuable time dealing with pundit Hilary Rosen’s reigniting of the “mommy wars” when she said Ann Romney hadn’t worked a day in her life.  Rosen is an obnoxious  loudmouth, a slightly more refined version of Rosie O’Donnell.  Obama has had to waste valuable time dealing with Newark Mayor Corey Booker’s defense of Bain and private equity, Booker’s effort to feather his own nest for a statewide run with Wall Street money.

Now Mitt is going through the same thing with Donald Trump and his birtherism, which takes the spotlight off of Mitt and puts it on the Donald, which is all Trump really cares about.  Every day wasted talking about where Obama was born is a day Mitt loses lying talking about how Obama is handling the economy.  Like Booker, Trump is out for himself, he is not a team player.

If you lose control of your message, you lose control of your campaign.  If you lose control of your campaign, you lose the election.

If they hope to win, both Obama and Mitt need to lose the surrogates who are sabotaging them.

When Mitt Says to Borrow From Your Parents, He’s Talking $10 Million

Campaigning in front of college students, Mitt told them to borrow from their parents to get an education or start a business.  It didn’t seem to occur to Mitt that some of their parents may have lost their homes or jobs or both, or might be helping care for their own elderly parents, or might be trying to scrape a couple of nickels together for their retirement.

It turns out, according to a front-page story in today’s NYT,* that Mitt puts his money where his mouth is.  When Mitt’s son Tagg wanted to start a private equity firm after Mitt’s last presidential campaign, even though Tagg had no private equity experience, Mitt gave him $10 million to help start Solamere Capital.

Actually, Ann Romney’s blind trust gave Tagg $10 million.  And here’s the really amazing part — “Brad Malt, a Boston lawyer who administers the trust, said he invested in Solamere without consulting Mr. Romney.”

Anybody believe that?  Me either.

The article focuses on the interlocking relationships between Mitt’s campaign/leadership PAC and the fund.  The fund sought a minimum of $10 million from very rich people who had backed Mitt’s 2008 run and were giving to his PAC.  Basically they used Mitt’s Rolodex to raise money. The same guy, Spencer Zwick, who was raising money for the PAC, was Tagg’s business partner and was raising money for Solamere — maybe in the same phone call!

And guess who was the main speaker at Solamere’s first investor conference?  Why Mittens himself, who also gave Solamere “strategic advice.”

The whole article is absolutely nauseating, but everyone should read it. It offers a glimpse into how the world of the 1% works.

All together now — “There’s nothing surer, the rich get richer, and the poor get poorer.”

*  “Ties to Romney ’08 Run Fueled an Equity Firm,” Michael Luo and Julie Creswell

Right Message, Wrong Messenger

Newt is the wrong guy to bash Mitt for Bain Capital.  Paul Levy, a managing partner at JLL Partners, a firm like Bain, told Bloomberg TV of how Newtie loves him some private equity:

“Newt Gingrich spoke at my annual meeting two years ago, we paid him $40,000, and [he] praised private equity more fulsomely than I could ever do it. … He was great.  He gave a great evening. … Everybody had fun.  … But nobody praised private equity, risk taking, capital more fulsomely than Newt Gingrich.”  Emphasis added.

Update — Other media reports say Newt was paid $60,750, which included the cash equivalent of two first-class tickets, five-star hotel, etc.