Rolling Stone must-read articles

Posted by AzblueMeanie:

Rolling Stone magazine has for some time now had some of the best political reporting in the business, which is kind of odd since the magazine is primarily about the music entertainment business.

Then again, the news media which is supposed to be primarily about political reporting spends much of its time on the entertainment business. As the Kinks once sang, "It's a mixed up muddled up shook up world."

Josh Kosman has a preview of his upcoming book 'The Buyout of America: How Private Equity Is Destroying Jobs and Killing The American Economy', in Why Private Equity Really Is the Worst of Capitalism:

By placing his career at Bain Capital at the center of his presidential campaign, former buyout artist Mitt Romney has put the private equity industry on trial.

About time.

Romney wants us to believe that critics of private equity are against capitalism. They’re not. They’re against a predatory system created and perpetuated by Wall Street solely to pump its own profits.

* * *

Romney’s whole election pitch turns on the story he tells about his time at Bain, which goes like this: I, Mitt, have a record of building businesses and creating jobs, and what I did for floundering companies, I'll do for the U.S. economy.

There's only one problem with Romney's story: It doesn’t describe most of what private equity firms actually do. The companies Romney holds up as successes – Staples, Sports Authority et al. – were not Bain private equity deals; they were venture capital investments in companies that Bain neither owned nor ran. All well and good: Venture capital is a good thing – essential for funding the growth of new and developing companies. But Romney didn't make his fortune through venture capital­; he made it through private equity – and private equity, as President Obama pointed out this week, is a very different proposition. "Their priority is to maximize profits," the president said of PE firms, and "that’s not always going to be good for businesses or communities or workers."

Here’s what private equity is really about: A firm like Bain obtains cheap credit and uses it to acquire a company in a "leveraged buyout." "Leverage" refers to the fact that the company being purchased is forced to pay for about 70 percent of its own acquisition, by taking out loans. If this sounds like an odd arrangement, that's because it is. Imagine a homebuyer purchasing a house and making the bank responsible for repaying its own loan, and you start to get the picture.

And that's when the fun starts. Once the buyout is completed, the private equity guys start swinging the meat axe, aggressively cutting costs wherever they can – so that the company can start paying off its new debt – by laying off workers and cutting capital costs. This process often boosts operating profit without a significant hit to the business, but only in the short term; in the long run, the austerity approach makes it difficult for companies to stay competitive, not least because money that would otherwise have been invested in expansion or product development – which might increase revenue down the line – is used to pay off the company's debt.

It takes several years before the impacts of this predatory activity – reduced customer service, inferior products – become fully apparent, but by that time the private equity firm has generally resold the business at a profit and moved on.

Then there are the predatory private equity guys and banksters of Wall Street who are massively funding the Romney campaign. They want a return to the free-wheeling, no regulations, casino capitalism of the last decade in which they nearly destroyed the world's financial system and economy with their unbridled avarice and greed — only to be bailed out for their sins by taxpayers (capitalist gains, socialized risk – they never lose).

"They're trying to buy a presidency – and they expect a big payoff on their investment." Mitt Romney's Billionaire Backers (read the artlcle, I will summarize the list):

Here are the 16 donors who have given at least $1 million each to elect Romney – and what they expect in return for their investment:

1. William Koch, the "other" Koch brother, Koch Industries

2. Harold Simmons, pioneered the leveraged buyout, now owns a nuclear waste dump in Texas

3. Bob Perry, Perry Homes

4. Jim Davis, New Balance Shoes

5-6. Richard and Bill Marriott, Marriott Hotels

7. Edward Conard, Bain Capital, a private equity firm

8. Frank VanderSloot, Melaleuca Inc.

9. Steven Lund, Nu Skin enterprises aka the "Mormon Amway"

10.Julian Robertson, Jr., hedge fund mamager of Tiger Management Corp.

11. John Paulson, hedge fund mamager of Goldman Sachs

12. Paul Singer, hedge fund manager of Elliot Management

13. Robert Mercer, Renaissance Technologies, a pioneer of the high-frequency "quantitative" trading

14. Kenneth Griffin, hedge fund manager of Citadel, LLC (and owner of the Chicago Cubs)

15. L. Francis Rooney III, Rooney Holdings, a contracting firm that builds sports stadiums

16. Steven Webster, Avista Capital, a private equity firm

And if "Mittens" Romney had any luck in Las Vegas on Tuesday night, he may have landed a "whale" in Sheldon Adelson, Newt Gingrich's casino tycoon, who is willing to spend up to a $100 million of his own money (your gambling losses, actually). Adelson has already speny $25 million this year.