Why Is Romney Still in the Race?

One month before the election, most polls have the president leading by a narrow popular-vote margin, which the Romney campaign seems incapable of closing. And Obama’s lead in high-population states provides an advantage over a challenger whose support lies in the South, Midwest, and inland West, where lower population is equated with lower electoral votes.

A divided popular vote in this election is a symptom of a system in crisis. An informed electorate in a functioning democracy would turn its back on Romney. The Republican made his fortune as a predator, buying and flipping companies in the United States. Now he keeps much of it beyond the reach of the federal agency that pays for national defense, Medicaid, food safety, college grants, and the space program (not to mention the salary, transportation, and security for the president).

That money has an insidious history. Bain Capital executives Orit Gadiesh and Hugh MacArthur explain the Romney-led company’s model in their 2008 book, Lessons From Private Equity Any Company Can Use: Acquire a company, load it up with debt, and count on the pressure of paying interest on the debt to keep company managers and employees on task.

A brilliant strategy: Managers and workers double down on their efforts in order to pay off the loans that cover the salaries and bonuses of Bain partners. Gadiesh and MacArthur describe the method of using debt to make managers and employees work harder as “making equity sweat.”

Bain also collects commissions on the loans made to the companies it acquires—and the fees to administer those loans.

When debt becomes unsustainable, the equity-fund capitalists loot the company in question, then move on to another acquisition. They do this with little risk because, as the primary debtor, they are paid first. When a Bain acquisition goes south, loan and bondholders get paid, then preferred stockholders, then—if anything is left—the common stockholders. Workers get pink slips.

Romney uses a medical metaphor to justify what he did at Bain. “Sometimes the medicine is a little bitter but it is necessary to save the life of the patient,” he told The New York Times in 2007. “My job was to try and make the enterprise successful, and in my view the best security a family can have is that the business they work for is strong.”

MIT business school professor Howard Anderson used a less clinical metaphor to describe the private equity business. “It’s like the joke about sex,” Anderson told The Los Angeles Times in 2007. “When it’s good it’s very, very good. And when it’s bad, it’s still pretty good.”

Workers who lost everything in failed Bain acquisitions use their own sex metaphor: We got screwed.

All three metaphors apply to the account of Bain’s acquisition of American Pad & Paper, or Ampad.

In 1992, Bain put $5 million of its own money in the acquisition and set out to “make equity sweat” by borrowing money—to acquire other paper-goods companies and pay dividends and bonuses to Bain partners. In 1995, Bain bought a plant in Marion, Illinois, fired its union workers, and slashed pay and benefits for a new non-union workforce. “Bain had borrowed against Ampad’s assets to buy the new plant—and to pay $60 million to Bain executives and investors,” according to The Boston Globe. Ampad also paid management fees to Bain, which totaled $7 million by 1995.

In 1996, when Ampad became a publicly traded company, Bain made $2 million running the initial public offering and $45 million selling Ampad shares.

By 1999, the company was on life support and Ampad was shuttering a plant in Buffalo, where 185 workers lost their jobs. Yet by the time Ampad filed for bankruptcy in 2000, Bain had made more than $100 million off the company.

Eighteen years ago, I sat in a 225-square-foot house less than a mile from the Texas border town of Brownsville and listened to a young Mexican woman who had been laid off by an American-owned factory describe what she had become: “Soy una mujer desechable.”

For me, the phrase “disposable woman” remains a frozen moment in a windowless shack shared by four women living on the ragged edge of our modern manufacturing economy.

Mitt Romney’s work at Bain Capital moved that border north, to Cleveland, Atlanta, and other American cities where disposable workers were a byproduct of Bain takeovers.

Romney made $250 million in a business that produces one product—money—often playing a zero-sum game in which his gains were derived from the losses of shareholders and workers. He continues to pay taxes at a maximum rate of 15 percent on capital gains or carried interest. Were he taxed on “income,” he would be paying more than 35 percent.

And as Matt Taibbi writes in the September issue of Rolling Stone, Romney shelters his money in at least 12 Bain funds in the Cayman Islands and has used an esoteric “blocker corporation” to cheat the U.S. Treasury out of $100 million. His wife keeps $3 million in a Swiss bank account.

Italy elected Silvio Berlusconi, but don’t laugh. Half of the voters in the world’s greatest democracy are prepared to go to the polls and vote for Romney.

Also in this issue: Genetically Modified Mitt.