It was politics as practiced by Karl Rove: (1) Define your opponent before he defines himself and (2) Turn his greatest asset into a liability.
Framing Mitt Romney as a vulture capitalist engaged in creative destruction of American jobs began early—in May, while Romney was shifting from the primary to the general election. The Obama campaign and its Priorities USA Action Super PAC ran two-minute ads featuring steelworkers who lost their livelihoods when Bain Capital acquired and shuttered a steel mill in Kansas City.
Romney was swiftboated, with a slight variation on the term as it has come to be used. Where Vietnam evaders Rove, Cheney, and Bush fabricated their own account of the story behind the medals John Kerry earned for his service in the Mekong Delta, the Obama campaign and its super PAC swiftboated Romney with the truth. It was remarkably effective.
Obama now has six weeks to close the deal before the country elects a president possessed of private wealth befitting one of the 1 percent in a Second Gilded Age. The campaign and super PAC have moved on from their swiftboat attacks. Yet Romney’s record in the private sector still reads like a perfect campaign script, and the public dissection of Bain Capital shouldn’t end until the election is over.
The larger contours of the story are already understood. The pain that private equity firms inflict to produce their only product, money, occurs when they buy companies, load them with debt, bust unions, and wipe out pension funds. (See “Who Built It?”) This is capitalism guided by the first rule of hedge-fund management: Investors always get paid, while losses that result from acquisitions and leveraging are moved down the food chain to the shareholders and workers.
Yet Bain Capital was a bad actor before it acquired its first property. Romney was not amoral but immoral when he traveled to Miami in 1984 to meet with the investors who provided Bain’s startup capital.
The story first came to light in 1994, when Romney was running for the U.S. Senate. The Boston Globe reported that he had raised $6.5 million of Bain’s original $37 million startup capital from expatriate oligarchs, who fled El Salvador when the civil war began in 1980 and stayed in the game by funding the violent and extremist ARENA Party— which was directly linked to paramilitary groups and death squads that savaged the country until the war burned itself out in 1992.
Bain & Co. founder Bill Bain had brought Romney back into the Bain family by offering him the opportunity to create Bain Capital, which initially required raising the funds that would be needed to acquire new businesses.
“Because they were Latin American, we immediately wanted to check out sources of their capital,” Romney told the Globe in August 1994. “So we tried to do as thorough an evaluation as we could.”
That thorough evaluation was outsourced to Harry Strachan, the Bain & Co. employee based in Costa Rica who had invited the Salvadoran families to invest with Bain and worried that Bill Bain and Mitt Romney were “terrified of bringing in Central Americans because they were afraid of drug money.”
Concern about drug money, yet not a worry about the shadowy protagonists of the most violent civil war in the hemisphere? Among Romney’s investors were the Dueñas family, who were entangled in a protracted dispute with agrarian reformers over control of the 800-hectare El Espino coffee plantation on the outskirts of San Salvador.
Family patriarch Francisco Dueñas had become El Salvador’s largest landowner while he held the presidency of the country five times during the mid-19th century. The El Espino coffee plantation was one of his, and later his family’s, many holdings. Until it was expropriated by the government in 1986 for $2.7 million, the absurdly low valuation the Dueñas clan had declared to lower their property taxes (according to Spectator contributor Andrew Wheat, writing in the Multinational Monitor).
On the edge of El Salvador, the plantation was both a symbol and a cause of the dispossession, poverty, and unequal distribution of wealth that spawned a decade-long civil war. It was expropriated by the government of U.S.-backed President José Napoleón Duarte in 1986 and turned into an agricultural cooperative.
Romney said he had never heard of El Espino.
Perhaps not. He never admitted knowing much about the Salvadoran investors who provided Bain’s startup funding. He should have paid closer attention.
Strachan, the Costa Rica connection to whom Romney had outsourced the due diligence on investors, told the Globe that he warned Romney about Orlando de Sola, one of many Salvadoran expats in Miami who supported paramilitary groups in El Salvador (a connection de Sola denied). Yet 10 years after his fundraising trip to Miami, Romney said he had never heard of de Sola, although the de Sola family was included among the investors in Bain’s initial capital fund.
Bain, through Strachan, had investigated the investors’ integrity, Romney said, and had looked for signs of illegal activity but found none.
Romney tried to rationalize his lax due diligence with a reference to Whitey Bulger, the Boston mobster who evaded authorities until he was arrested last year. “When Billy Bulger says something, is he a front for Whitey Bulger?” Romney told the Globe. “I mean, did he get some money from Whitey? I mean, I don’t believe so.”
Billy Bulger was at the time the Democratic president of the Massachusetts Senate and the brother of fugitive Whitey Bulger.
Romney also recalled talking to someone at the State Department at the time, but could not recall who.
When the right-wing ARENA Party won the Salvadoran presidential election in 1989, the government returned the El Espino tract to the Dueñas family, which, according to Wheat’s reporting in the Multinational Monitor, sold 60 percent of the land to the government for $12.2 million four years after the entire parcel had been expropriated at the declared taxation value of $2.7 million.
The Dueñas family also sold a small parcel of the land to the Poma family, owners of El Salvador’s largest financial-service and land-development companies. The Pomas were among the Miami expatriates who provided the startup funds for Bain Capital.
It all worked out for Romney, as the Dueñas and Pomas families made modest $2,000 contributions to his 1994 Senate campaign. But they had already given at the office. Their initial investments in Bain Capital got the company off the ground when Romney responded to Bill Bain’s directive to build a new private equity firm.
Direct links to death squads are hard to prove, although anyone providing support to ARENA in the early ’80s was underwriting paramilitary forces, death squads, and Roberto d’Aubuisson, the party’s violent leader who was linked to the assassination of Salvadoran Archbishop Arnulfo Romero and others.
What is indisputable is at the midpoint in a cataclysmic civil war that cost 70,000 Salvadorans their lives, Mitt Romney, riding on a smile and a shoeshine (and a corporate jet), traveled to Miami to raise money from the oligarchs who had run El Salvador as if it were their plantation until the country erupted in anger. His only apparent concern was their possible connection with drug traffic.
Thirteen years later, during his first run for the presidency, Romney described his Latin American bona fides to Miami Herald reporter Andres Oppenheimer.
“The investments for the company I started, Bain Capital, came largely from Latin America,” Romney said. “My largest single investors came from El Salvador, Ecuador, Columbia, and Guatemala. And so I feel a deep kinship to the people in Latin America.”
Also in this issue: Bain Capital didn’t build that.