NC Fields Progressive Candidate Against Rove's Foxx, Tea Party-Favored Rethug Govs Refuse Medicaid Expansion, How Much Rmoney Got From Taxpayers and Why He Still Has $$$$$ Offshore

(Please consider making even a small contribution to the Welcome to  Pottersville2 Quarterly Fundraiser happening now ($5.00 is suggested for those on a tight budget) or at least sending a link to your friends if you think the subjects discussed here are worth publicizing. Thank you for your support. We are in a real tight spot financially right now and would sincerely appreciate any type of contribution. Anything you can do will make a huge difference in this blog's ability to survive in these difficult economic times.)


Good news for North Carolina from our friend at Down With Tyranny!

Surry County, North Carolina is the heart of the 5th congressional district. While narrowly winning the state in 2008, Obama lost Surry to John McCain, 34-64%. Democrat Kay Hagen beat GOP incumbent Elizabeth Dole that year, 53-44% but she lost Surry as well, 43-54%. Of course, long time far right Congresswoman Virginia won Surry County in 2008, 61-39%. And 2 years later she beat Billy Kennedy with 66% of the vote, while Sen. Richard Burr beat Elaine Marshall with 67%. In other words, Surry hasn't been a mecca for Democrats. Which was a lifelong tragedy for lifelong progressive Democrat, Surry County's most beloved favorite son, Andy Griffith.

Andy, who died Tuesday in his home on Roanoke Island, NC (age 86). Andy was born and raised in Surry County though - in Mt. Airy, the model for Mayberry. The population is just over 10,000 now, but when Andy was growing up it was less than half that. The not so fictional restaurant Snappy Lunch is still serving its famous pork chop sandwich there and there is a barbershop - albeit a renamed one - called Floyd's. Mt. Airy also boasts the Andy Griffith Museum.

Andy Griffith, who is revered across the South - probably more for his roles as Sheriff Andy Taylor and Ben Matlock - than for who he actually was as a person - and everyone took his passing personally, even the reactionary wingnut who represents Surry County and whose backward, bigoted ideas are as far from Andy Griffith's as you could possibly get. This year another intrepid progressive Democrat will take on Virginia Foxx, Eisabeth Motsinger, longtime community activist and six-year member of the Winston-Salem/Forsyth County Board of Education. She's as progressive and forward thinking as Foxx is reactionary and backward. I asked her to introduce herself to DWT readers and to tell us how a progressive can win in a red-leaning district like NC-5. She sent me a few lines by renowned American writer and pacifist William Stafford, the Library of Congress' 20th Poet Laureate:

Allegiances

It is time for all the heroes to go home
if they have any, time for all of us common ones
to locate ourselves by the real things
we live by.

-William Stafford

And then her guest post:

I am running this year to represent the people of North Carolina’s 5th District in the United States Congress because our country desperately needs “common” people who will represent the interests of ordinary citizens. The above poem reminds us that as progressives we will succeed not by insisting on new heroes, but because we understand that the change we ALL want will come only when we join hearts and hands and make it happen. The world we want has room for everyone, and the “real things” we live by are a livable world, a just economy, healthcare for all citizens and a commitment to the future we will never see, but that we will leave to posterity.

Good candidates have previously run for this seat. I know and applaud them all. I worked on their campaigns. Winning this seat depends on several factors entirely out of our control: the mood of the country going into election day; the events that unfold over the next 4 months; the effect of Super-PAC money on voters. That does not mean we can’t make a difference! My campaign is making a clear moral argument for progressive policies. We are willing to talk to ALL Americans in every venue. We will make thousands of phone calls. We will engage with the many college students in the 5th District. And we will be explicitly connecting dots everywhere we go.

I currently serve on the Winston-Salem/Forsyth County Board of Education, a position I have held for six years. I have been elected and re-elected as a progressive in a fairly conservative county. I was initially elected in 2006, for a seat not held by a Democrat for 16 years. I was re-elected in 2010, a tough year for Democrats. I have worked well with other board members while staying true to my progressive values. I initially ran for office after years of being an activist because I believe that change in policy requires sitting at the table where decisions are being made. There is much that can be accomplished only from inside the system.

Change is essential. Without changing the status quo we will not survive as a country or as a species.

What has changed in the 5th District that leads me to believe I can win? Ms. Foxx has never had a female opponent or one from the biggest county in the district (43% of voters). Redistricting has made the district a bit more competitive. The district now includes more of Winston-Salem (where I am known and trusted), several more colleges and universities, and the urban core of three small cities. My husband grew up in a rural part of the district, where his family is well-known and well-loved. We own land there and his brother continues to grow Christmas trees. I am a Physician Assistant and have a lot of support in the medical community. I am an environmentalist and was arrested in Washington while protesting the Keystone pipeline Tar Sands.

If you'd like to hear more about Elizabeth's campaign, you can visit her website or her Facebook page and if you'd like to contribute to her campaign, you can do so at our own special page dedicated to replacing Congress' most virulent and toxic homophobes.

And as for another fraudulent "peoples' " candidate . . .

Romney's Paycheck

More than any other in the history of the United States, this election is about money.

When I say that, your mind probably goes to the Citizens United ruling, where the Supreme Court determined that corporations and millionaires would have the ability to spend "limitless" amounts of money getting a pro-corporation candidate elected.

If you're slightly more radicalized (either to the right or to the left), that first sentence might have made you think of the Occupy movement (a.k.a., "the 99%"). But that isn't it, either.

Why do you think Mitt Romney is running for president? It's not like he needs the money: he isn't just in the "Top 1%" - best guesses at his personal net worth place him comfortably in the Top 0.001%.

For Mitt, it's strictly a business decision. He may not need more money, any more than he needs a car elevator installed in his La Jolla mansion. He just wants it.

That's why Mittens has set up a tax plan that is so heavily slanted in his favor that he would have paid almost $3 million less in taxes if his plan had been in effect in 2010.

Click to embiggen

That's also why Mittens has been raising record amounts of money from his billionaire friends. If his tax plan passes, the amount that they'll make in the first year alone will usually offset whatever donation they've made. And every year after that is pure profit. Millions and millions of dollars in pure profit.

Because these greedy motherfuckers don't give a damn about Americans starving in what is arguably the richest nation on earth. They don't care if people are dying in the streets, as long as the wine keeps flowing and the caviar is properly chilled.

The idea of a dystopian future for America doesn't bother them in the slightest, as long as they can have walled compounds and armed guards.

Mitt Romney could give up his presidential paycheck of $400,000 without even missing it. (He wouldn't, of course. The man would give blowjobs to vagrants if you paid him enough.) Because his plan, developed by his advisors, would earn him, at absolute minimum, more than seven times that every year. Which is pretty damned close to stealing money directly from the pockets of the American people.

Remember, it's only "class warfare" when the poor fight back. When the rich are metaphorically standing on the necks of the poor, when Ann Romney is saying "Let them eat cake" and installing car elevators in Versailles, that isn't class warfare. That's just business as usual.

Which is why Mitt Romney is running for president. It's just business.

And as for the fraudulent Rethug Governors who have already indicated that they are opting out of Medicaid coverage just so they don't have to pretend to care about their poor citizens . . .

Pure Spite

July 3, 2012 by James Kwak | 30 Comments

 

In my Atlantic column on Thursday, I wrote the following about the Roberts Court’s decision to allow states to opt out of Medicaid expansion without losing their existing Medicaid funding:

“What we are going to see is Republican-controlled state governments refusing to expand Medicaid out of bitter hatred toward President Obama and spite for the working poor who need access to health care.”

For those who aren’t up to speed, the deal is basically this. Medicaid is administered by states (which often outsource it to third parties), but the federal government sets certain minimum coverage requirements that states must meet in order to receive federal funding. Those requirements are pretty low, states can choose not to cover able-bodied adults without children, regardless of their income.

The Affordable Care Act required states to dramatically increase their Medicaid coverage, with the federal government kicking in 90 percent of the additional funding required (100 percent in the early years).

So, you’re a Republican state governor. (Assume that your party controls the legislature.) You have some working class households in your state that make, say, $25,000 and don’t get health insurance through work. Currently many of them are uninsured. As governor, you have some obligation to look after their interests, even if it’s not a technical legal obligation. You could buy all of them health insurance (not very good health insurance, mind you, but it’s far better than nothing) at a 90 percent discount because the federal government will pick up the rest of the tab.*

On economic grounds, the decision is obvious: you expand Medicaid. And this is why various commentators have said that, when all the brouhaha dies down, most states will do it.

But the politics are equally clear. Medicaid expansion is the one part of “ObamaCare” that the Supreme Court specifically excused you from. If you expand Medicaid, in your next primary, the Tea Party candidate — buoyed by millions of dollars from Karl Rove and the Koch Brothers, who want Medicaid to be as small as possible — will say that you supported ObamaCare. And, frankly, she will be right: you supported ObamaCare because it was good for the people of your state. But you can’t say that, because that sounds even worse.

It comes down to this: whom do you care about more, the working poor or the Tea Party?

So far, conservative darlings like Scott Walker of Wisconsin and Rick Scott of Florida have been very clear where they stand. They are willing to turn down oodles of federal money on the grounds that they need to kick in ten cents on the dollar to cover people who would otherwise go without health insurance.

You really have to hate poor people a lot to make that decision.

* If you don’t cover them, you are saving the federal government money, but only a small fraction of that money will go to the citizens of your state.

Oh yes, and Vanity Fair tells us where Rmoney's is located offshore.

Finally!

You probably should keep in mind while reading the essay that Mitt claims to be a very moral Mormon. Since reading it, I've been wondering how Mormon morals vary from other morals.  Certainly very few Christian virtues are exhibited here.

I also can't help wondering how the release of this type information now will affect his nomination at the Republican Convention in August.

Where the Money Lives

For all Mitt Romney’s touting of his business record, when it comes to his own money the Republican nominee is remarkably shy about disclosing numbers and investments. Nicholas Shaxson delves into the murky world of offshore finance, revealing loopholes that allow the very wealthy to skirt tax laws, and investigating just how much of Romney’s fortune (with $30 million in Bain Capital funds in the Cayman Islands alone?) looks pretty strange for a presidential candidate.

 

By Nicholas Shaxson

© Ruth Tomlinson/Robert Harding World Imagery/Corbis (beach); by Justin Sullivan/Getty images (inset).

BURIED TREASURE Grand Cayman, where Bain Capital maintains at least 138 funds. Inset, Mitt Romney tries to spot his La Jolla home from the campaign plane.

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.

This unsettling account suggests the young Romney — at that point only two years out of Harvard Business School — was willing to push into gray areas when it came to business. More than three dec­ades later, as he tried to nail down the Republican nomination for president of the United States, Romney’s gray areas were again an issue when he repeatedly resisted calls to release more details of his net worth, his tax returns, and the large investments and assets held by him and his wife, Ann. Finally the other Republican candidates forced him to do so, but only highly selective disclosures were forthcoming.

Even so, these provided a lavish smorgasbord for Romney’s critics. Particularly jarring were the Romneys’ many offshore accounts. As Newt Gingrich put it during the primary season, “I don’t know of any American president who has had a Swiss bank account.” But Romney has, as well as other interests in such tax havens as Bermuda and the Cayman Islands.

To give but one example, there is a Bermuda-based entity called Sankaty High Yield Asset Investors Ltd., which has been described in securities filings as “a Bermuda corporation wholly owned by W. Mitt Romney.” It could be that Sankaty is an old vehicle with little importance, but Romney appears to have treated it rather carefully. He set it up in 1997, then transferred it to his wife’s newly created blind trust on January 1, 2003, the day before he was inaugurated as Massachusetts’s governor. The director and president of this entity is R. Bradford Malt, the trustee of the blind trust and Romney’s personal lawyer.

Romney failed to list this entity on several financial disclosures, even though such a closely-held entity would not qualify as an “excepted investment fund” that would not need to be on his disclosure forms. He finally included it on his 2010 tax return. Even after examining that return, we have no idea what is in this company, but it could be valuable, meaning that it is possible Romney’s wealth is even greater than previous estimates. While the Romneys’ spokespeople insist that the couple has paid all the taxes required by law, investments in tax havens such as Bermuda raise many questions, because they are in “jurisdictions where there is virtually no tax and virtually no compliance,” as one Miami-based offshore lawyer put it.

That’s not the only money Romney has in tax havens. Because of his retirement deal with Bain Capital, his finances are still deeply entangled with the private-equity firm that he founded and spun off from Bain and Co. in 1984. Though he left the firm in 1999, Romney has continued to receive large payments from it — in early June he revealed more than $2 million in new Bain income. The firm today has at least 138 funds organized in the Cayman Islands, and Romney himself has personal interests in at least 12, worth as much as $30 million, hidden behind controversial confidentiality disclaimers. Again, the Romney campaign insists he saves no tax by using them, but there is no way to check this.

Bain Capital is the heart of Romney’s fortune: it was the financial engine that created it. The mantra of his campaign is that he was a businessman who created tens of thousands of jobs, and Bain certainly did bring useful operational skills to many companies it bought. But his critics point to several cases where Bain bought companies, loaded them with debt, and paid itself extravagant fees, thereby bankrupting the companies and destroying tens of thousands of jobs.

Come August, Romney, with an estimated net worth as high as $250 million (he won’t reveal the exact amount), will be one of the richest people ever to be nominated for president. Given his reticence to discuss his wealth, it’s only natural to wonder how he got it, how he invests it, and if he pays all his taxes on it.

Ironically, it was Mitt’s father, George Romney, who released 12 years of tax returns, in November 1967, just ahead of his presidential campaign, thereby setting a precedent that nearly every presidential candidate since has either willingly or unwillingly been subject to. George, then the governor of Michigan, explained why he was releasing so many years’ worth, saying, “One year could be a fluke, perhaps done for show.”

But his son declined to release any returns through one unsuccessful race for the U.S. Senate, in 1994, one successful run for Massachusetts governor, in 2002, and an aborted bid for the Republican Party presidential nomination, in 2008. Just before the Iowa caucus last December, Mitt told MSNBC, “I don’t intend to release the tax returns. I don’t,” but finally, on January 24, 2012 — after intense goading by fellow Republican candidates Newt Gingrich and Rick Perry — he released his 2010 tax return and an estimate for 2011.

These, plus the mandatory financial disclosures filed with the Office of Government Ethics and released last August, raise many questions. A full 55 pages in his 2010 return are devoted to reporting his transactions with foreign entities. “What Romney does not get,” says Jack Blum, a veteran Washington lawyer and offshore expert, “is that this stuff is weird.”

The media soon noticed Romney’s familiarity with foreign tax havens. A $3 million Swiss bank account appeared in the 2010 returns, then winked out of existence in 2011 after the trustee closed it, as if to remind us of George Romney’s warning that one or two tax returns can provide a misleading picture.

Ed Kleinbard, a professor of tax law at the University of Southern California, says the Swiss account “has political but not tax-policy resonance,” since it — like many other Romney investments — constituted a bet against the U.S. dollar, an odd thing for a presidential candidate to do. The Obama campaign provided a helpful world map pointing to the tax havens Bermuda, Luxembourg, and the Cayman Islands, where Romney and his family have assets, each with the tagline “Value: not disclosed in tax returns.”

Romney’s personal tax rate is a particular point of interest. In 2010 and 2011, Mitt and Ann paid $6.2 million in federal tax on $42.5 million in income, for an average tax rate just shy of 15 percent, substantially less than what most middle-income Americans pay. Romney manages this low rate because he takes his payments from Bain Capital as investment income, which is taxed at a maximum 15 percent, instead of the 35 percent he would pay on “ordinary” income, such as salaries and wages.

Many tax experts argue that the form of remuneration he receives, known as carried interest, is really just a fee charged by investment managers, so it should instead be taxed at the 35 percent rate. Lee Sheppard, a contributing editor at the trade publication Tax Notes, whose often controversial articles are read widely by tax professionals, is nonplussed that the Obama campaign has been so listless on the issue of carried interest. “Romney is the poster boy, the best argument, for taxing this profit share as ordinary income,” says Sheppard.

In the face of such arguments, Romney’s defense is that he never broke the rules: if there is a problem, it is in the laws, not in his behavior. “I pay all the taxes that are legally required, not a dollar more,” he said. Even so. “When you are running for president, you might want to err on the side of overpaying your taxes, and not chase every tax gimmick that comes down the pike,” says Sheppard. “It kind of looks tacky.”

The assertion that he broke no laws is widely accepted. But it is worth asking if it is actually true. The answer, in fact, isn’t straightforward. Romney, like the superhero who whirls and backflips unscathed through a web of laser beams while everyone else gets zapped, is certainly a remarkable financial acrobat. But careful analysis of his financial and business affairs also reveals a man who, like some other Wall Street titans, seems comfortable striding into some fuzzy gray zones.

The Caped Avoider!

One might perhaps accept an explanation by Romney’s campaign spokeswoman, Andrea Saul, that the candidate’s failure to include his Swiss account in earlier financial disclosures was merely a “trivial inadvertent issue.” But deeper questions do emerge.

All the assets on Mitt’s financial disclosures are in blind trusts or retirement accounts held by him and Ann. Blind trusts are designed to avoid conflicts of interest for those in public office by having politicians’ assets managed by independent trustees. The Romneys’ blind trust was created when Mitt was elected governor of Massachusetts. Curiously, the Romneys appointed Bradford Malt as their trustee.

It’s certainly true that under Malt the trusts don’t appear to be as blind as they might be: for instance, in 2010 the Romneys invested $10 million in the start-up of the Solamere Founders Fund, co-founded by their eldest son, Tagg, and Spencer Zwick, Romney’s onetime top campaign fund-raiser; Solamere is now in the Ann Romney blind trust. Malt has said he invested in Solamere without consulting Mitt or Ann and explained he liked Solamere because of its diversified approach and because he knew the founders and had confidence in them.

Likewise, the Romneys were reported to have invested at least $1 million in Elliott Associates, L.P., a hedge fund specializing in “distressed assets.” Elliott buys up cheap debt, often at cents on the dollar, from lenders to deeply troubled nations such as Congo-Brazzaville, then attacks the debtor states with lawsuits to squeeze maximum repayment.

Elliott is run by the secretive hedge-fund billionaire and G.O.P. super-donor Paul Singer, whom Fortune recently dubbed Mitt Romney’s “Hedge Fund Kingmaker.” (Singer has given $1 million to Romney’s super-pac Restore Our Future.)

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.

Andrea Saul said of these investments, “Everything … was reported correctly.” Joseph Sandler, a Democratic lawyer who has worked with candidates on disclosures for more than two dec­ades, is skeptical. “The law is the law,” Sandler says. “[Romney] says, ‘Well, you know, they won’t tell me.’ But when you run for office in the U.S. and are not prepared to comply with disclosure requirements, you should either divest yourself of the assets or don’t run.” The Washington Post summarized the opinions of experts across the political spectrum by saying Romney’s disclosures were “the most opaque they have encountered.”

Mysteries also arise when one looks at Romney’s individual retirement account at Bain Capital. When Romney was there, from 1984 to 1999, taxpayers were allowed to put just $2,000 per year into an I.R.A., and $30,000 annually into a different kind of plan he may have used. Given these annual contribution ceilings, how can his I.R.A. possibly contain up to $102 million, as his financial disclosures now suggest?

The Romneys won’t say, but Mark Maremont, writing in The Wall Street Journal, uncovered a likely explanation. When Bain Capital bought companies, it would create two classes of shares, named A and L. The A shares were risky common shares, to which they would assign a very low value. The L shares were preferred shares, paying a high dividend but with the payoff frozen, and most of the value was assigned to them. Bain employees would then put the exciting A shares in their I.R.A. accounts, where they grew tax-free. With all the risk of the deal, the A shares stood to gain a lot or collapse.

But if the deal succeeded, the springing value could be stunning: Bain employees saw their A shares from one particularly fruitful deal grow 583-fold, 16 times faster than the underlying stock.

The Romneys won’t tell us how, or even if, they assigned super-low values to the A shares, but there are a couple of ways to do it. One is to use standard options models to price the shares — then feed inappropriate assumptions into those models. Romney could alternatively have used a model called liquidation valuation, which Kleinbard says would have been “completely inappropriate.” Without seeing the assumptions used on Romney’s tax returns from the years when those lowball A shares were squirted into his I.R.A., we cannot know how he did it. Whatever methods he used, however, the valuations were, according to Andrew Smith, of Houlihan Capital in Chicago, “pushing the envelope.” (Andrea Saul retorts, “Why should successful investments be criticized?”)

Mitt’s and Ann’s I.R.A.’s have also been receiving profit interest from (mostly Cayman Island–based) Bain Capital funds that were set up long after he had left the company, in 1999. For example, the 2010 return reveals a profits interest in a Cayman-based fund called Bain Capital Partners (AM) X LP, which was transferred to the Ann D. Romney trust in October 2010. An attachment to the return says the Ann D. Romney trust is “performing services” to the partnership, which is boilerplate language for these kinds of filings. Her blind trust could receive lightly taxed income from Bain Capital for years to come, well into the presidential term her husband hopes to win.

But administrative guidance says you can do this kind of thing only if the compensation is in recognition of past services you have provided. “This should not mean retired from the mother ship 10 years out and getting profits you had nothing to do with,” Sheppard says, adding that Romney can get away with it because of excessive “administrative indulgences” that have allowed a “perversion of the law in favor of a small class of overcompensated investment managers.”

Romney’s I.R.A. also appears to have invested in so-called blocker corporations in the Cayman Islands and elsewhere. U.S. pension funds, foundations, and even I.R.A.’s routinely use offshore blocker corporations to avoid something called the Unrelated Business Income Tax, which was designed to keep nonprofits from competing with ordinary companies in areas outside their core purpose: if you invest directly you get hit with the tax, but if you invest in a blocker, which then invests in the U.S. business, you escape it. 

 Romney’s I.R.A. appears to have employed this lawful escape route, and his campaign has used language suggesting that it has. But that would mean the Romney camp’s claim that Mitt’s tax consequences of investing via the Cayman Islands is “the very same” as it would have been had he invested directly at home is simply not true. (Romney spokesperson Andrea Saul says Romney “gets the same benefit anyone would get from an I.R.A.,” but she did not respond to questions on whether his I.R.A. had used blockers or avoided taxes by investing via tax havens.)

A Deutsche Bank analysis of 68 Bain deals Romney was involved in calculated an internal rate of return—a standard private-equity benchmark—at a staggering 88 percent annually (though after fees and inflation, investor performance may have been little more than half that). It is substantially on this stellar rec­ord that Romney is now running for president. His work at Bain was unquestionably good for himself and for Bain, but was it also good for the businesses he acquired, for their workers, and for the economy, as he claims?

A report by Bain and Co. itself, looking at the period from 2002 to 2007, concluded that there is “little evidence that private equity owners, overall, added value” to the companies they took over: nearly all their returns are explained by broad economic growth, rising stock markets, and leverage. Josh Kosman, who researched the subject of private equity for his book The Buyout of America, singles out Bain Capital in particular. “They 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.”

Dade Behring is a cause célèbre for Romney’s and Bain’s critics, and it illustrates the leverage problem clearly. In 1994, Bain bought Dade International, a medical-diagnostics company, then added the medical-diagnostics division of DuPont in 1996 and a German medical-testing company called Behring in 1997. Former Dade president Bob Brightfelt says the operation started well: the Bain managers were “pretty smart guys,” he recalls, and they did well cutting out overlap, and exploiting synergies.

Then brutal cost cutting began. Bain cut R&D spending to an average of 8 percent of sales, a little more than half what its competitors were doing. Cindy Hewitt, Dade’s human-resources manager, remembers how the firm closed a Puerto Rico plant in 1998, a year after harvesting $7.1 million in local tax breaks aimed at job creation, and relocated some staff to Miami, then the company’s most profitable plant. Based on re­a­ssur­ances she had received from her superiors, she told those uprooting themselves from Puerto Rico that their jobs in Miami were safe for now — but then Bain closed the Miami plant. “Whether you want to call it misled, or lied, or manipulated, I do not believe they provided full information about what discussions were under way,” she says. “I would never want to be part of even unintentionally treating people so poorly.”

Bain engaged in startling penny-pinching with the laid-off employees. Their contracts stipulated that if they left early they would have to pay back the costs of relocating to Miami — but in spite of all that Dade had done to them, it refused to release the employees from this clause. “They said they would go after them for that money if they left before Bain was finished with them,” Hewitt recalls. Not only that, but the company declined to give workers their severance pay in lump sums to help them fund their return home.

In 1999, generous pensions were converted into less generous benefits, wages were cut, and more staff members were laid off. Some employees contacted Norman Stein, then the director of the pension-counseling clinic at the University of Alabama law school, with a view to challenging the conversions. Stein says the employees were “extraordinarily nervous,” so fearful, in fact, that they refused to let lawyers even make copies of pension documents. “I have been dealing with pensions issues for over 25 years and I never saw anything like this,” recalls Stein. The spooked employees did not go to court. Stein says that, while breaking pension contracts like this was not unheard of, the practice at that time was “questionable,” adding that Dade may have saved $10 to $40 million from converting its pensions.

The beauty — or savagery — of leverage is that it can magnify any and all cash-flow boosts, such as this one. Take $10 to $40 million squeezed from a pension pot, then use that to create new, rosier financial projections to borrow several times that amount, and then pay yourself a big special dividend from the borrowed funds, many times the size of the pension savings. That is just what Bain Capital did: the same month it converted the pensions, it created new financial projections as a basis to borrow an extra $421 million — from which Bain, its co-investor Goldman Sachs, and top Dade management extracted $365 million in dividends. According to Kosman, “Bain and Goldman — after putting down only $85 million … made out like bandits — a $280 million profit.” Dade’s debt rose to more than $870 million. Romney had left operational management of Bain that year, though his disclosures show that he owned 16.5 percent of the Bain partnership responsible for the Dade investment until at least 2001.

Quite soon, however, a fragile Dade faced adverse conditions in the currency markets, and it had to start in effect cannibalizing itself, cutting into the core of its business. It filed for bankruptcy in August 2002 and Bain Capital departed. When Dade emerged from bankruptcy, its new owners invested in long-term R&D, and it flourished again.

Nor was this an isolated incident: Kosman lists five other “formerly healthy” companies — Stage Stores, Ampad, GS Technologies, Details, and KB Toys — Bain helped drive into bankruptcy, while making big profits. (Despite numerous entreaties from Vanity Fair to Bain Capital to address on the record points in this article with which it might disagree, the firm refused to do so and instead provided this statement: “When politics overwhelm fact, some will distort or cherry-pick our record and launch unfounded allegations and insinuations. The truth and the full record show that Bain Capital operates with high standards of integrity and excellence in compliance with all laws. Any suggestion to the contrary is baseless.”)

Tax Haven U.S.A.

The term “financialization” describes two interlocking processes: a disproportionate growth in a country’s deregulated financial sector, relative to the rest of the economy, and the rising importance of financial activities with a focus on financial returns among industrial and other non-financial corporations, often at the expense of real innovation and productivity.

Some see the rising influence of finance and financial models in epochal terms. Author of Financialization and the U.S. Economy Özgür Orhangazi summarizes academic literature that sees financialization “as one of the indicators of the decline of the heg­e­mon­ic power”: imperial Venice, Genoa, Holland, and Britain all saw their power rise on the back of productive industrial capitalism, followed by domination by the financial sector, which eventually began to cannibalize the productive sector in pursuit of financial returns — a process that ended in weakness and collapse.

Little noticed in the academic discussions of financialization is the role of offshore tax havens, one of the big reasons the financial sector has become so powerful. In 1966, Michael Hudson, a young Chase Manhattan balance-of-payments economist, was in a company elevator when he was handed a memo by a former State Department operative. The memo came from the U.S. government, and Hudson was tasked with figuring out how much foreign money the U.S. might attract. “They were saying, ‘We want to replace Switzerland,’ ” Hudson explains. “All this money will come here if we make this the criminal center of the world. We wanted foreign criminal money, which was patriotic, but not American criminal money.”

In the years since then, almost unknown to most Americans, the United States has turned itself into a giant tax haven for foreigners, just as the memo suggested. Federal and state tax laws have been deliberately shaped to give foreigners special tax exemptions unavailable to Americans, plus financial secrecy and exemptions from regulatory restraints. “We have criticized offshore tax havens for their secrecy and lack of transparency,” said Senator Carl Levin. “But look what is going on in our own backyard.”

In this grand scenario, tax havens such as the Caymans serve as feeders of foreign savings into Tax Haven U.S.A. from abroad, providing foreign investors with additional ways to skip around tax, disclosure, and regulatory requirements that they might trigger if they invested directly.

The money sucked into Tax Haven U.S.A., often via the “feeder” tax havens, is frequently tax-evading and other criminal foreign money, in the spirit of Hudson’s 1966 memo, and it is predominantly channeled not into productive investment but into real estate and financial business.

One cannot properly understand Wall Street’s size and power without appreciating the central role of offshore tax havens. There is absolutely no evidence that Bain has done anything illegal, but private equity is one channel for this secrecy-shrouded foreign money to enter the United States, and a filing for Mitt Romney’s first $37 million Bain Capital Fund, of 1984, provides a rare window into this. One foreign investor, of $2 million, was the newspaper tycoon, tax evader, and fraudster Robert Maxwell, who fell from his yacht, and drowned, off of the Canary Islands in 1991 in strange circumstances, after looting his company’s pension fund.

The Bain filing also names Eduardo Poma, a member of one of the “14 families” oligarchy that has controlled most of El Salvador’s wealth for decades; oddly, Poma is listed as sharing a Miami address with two anonymous companies that invested $1.5 million between them. The filings also show a Geneva-based trustee overseeing a trust that invested $2.5 million, a Bahamas corporation that put in $3 million, and three corporations in the tax haven of Panama, historically a favored destination for Latin-American dirty money — “one of the filthiest money-laundering sinks in the world,” as a U.S. Customs official once put it.

Bain Capital has said it did everything required by the U.S. government to check that the investors were not associated with unsavory interests. U.S. law doesn’t require Bain to enforce the tax laws of its investors’ home countries, but the presence of Swiss trustees, Bahamas trusts, and Panama corporations would raise red flags with any tax authority.

Many Americans might react with a shrug to the idea of shady foreign money such as Robert Maxwell’s being invested here. But, says Rebecca Wilkins, of the Washington, D.C.–based nonprofit Citizens for Tax Justice, “It is shocking that a presidential candidate should think that is O.K.”