In 1928 Republicans advanced millionaire businessman Herbert Hoover as their nominee. Shortly after Hoover’s election as President, Americans confronted the Great Depression. In 2012 Republicans will nominate the multi-millionaire Mitt Romney as their presidential candidate.

 

Mitt and Herbert are two peas in a pod.

Both multi-millionaires

Both businessmen

Both pledged lower taxes

Both oppose governmental involvement in business

Both anti-union

Both favor bank bailouts with public money

Both opposed using public money to house or feed the poor and the homeless.

 

Herbert was a Quaker and Mitt is a Mormon, neither of which is a “mainstream” religion, a fact which is irrelevant, at least to the voters who elected Hoover. Hoover’s religion is said to have provided him an ethical foundation and to have fostered his interest in charities and famine relief. Mitt has so far not embraced philanthropy.  Both men were married. Hoover’s wife worked at a job and was a successful businesswoman and author in her own right. Mitt’s wife rides expensive horses that cost more than a Ferrari.

 

I fear that in drawing the comparison between Mitt and Hoover that I have insulted Herbert Hoover.

 

First, Hoover was a mining engineer and a true entrepreneur who built businesses throughout the world. The mines he developed were not exercises in financial restructuring but were true businesses that created 175,000 real jobs. Hoover and his wife worked together in the mining fields, and Hoover and his wife authored and translated technical books in their areas of expertise. Mitt and his Bain employees (nearly 100% men) bought struggling companies, closed some, liquidated too many others and restructured a few. In the process Mitt siphoned off funds that were needed to keep his businesses afloat, and outsourced American jobs “overseas.” His financial engineering made Mitt wealthy, but he did not create a single business from scratch.

 

Hoover’s experiences in the mining fields gave him insight into the plight of labor, and he founded multiple successful companies from the ground up.

 

Second, Hoover thought independently and creatively, while Romney is hampered by cow-towing to far right money and evangelical religious interests, and sucking up to billionaires. As part of Mitt’s vast billionaire appeasement program he proposes that billionaires pay less in taxes. By comparison, while Hoover favored lower taxes he also closed tax loopholes for the wealthy. Hoover increased the top tax bracket from 25% to 63%. Romney favors lower taxes for the ultra wealthy and will defend to the death the loopholes that benefit his wealthy hedge fund friends who are in hiding in gated mansions on the back roads of Greenwich, protected by private security forces.

 

Third, farm subsidies to wealthy corporate farms continue to burden all attempts at a balanced budget. Hoover rejected farm subsidies, while Obama and Romney seek corporate donations from the fat pigs (political donors) that own the corporate farms. Hoover’s relationship to farmers and price controls is rather complex, but it is worth noting that he encouraged farming in order to feed starving families both in the United States and overseas.

 

As far as the Supreme Court goes, Hoover believed that the political make-up of the Justices should to some extent be balanced between Republicans and Democrats, and Hoover appointed jurists purely on merit. Romney has not been asked to comment on the role the Court should play, but prior Republican appointments (or rejected Republican nominees to the Court) suggest that Romney will follow the Republican party line and make further attempts to pack the Court with activist right wing hacks, who have abandoned any pretense at independent judicial/judicious thinking.

 

Hoover was blind to the mistreatment of blacks and used the Southern Strategy to get block votes from the South, a strategy later adopted by Democrats and now adopted by Romney and his Rovish advisors. While Hoover ignored blacks, Romney and  his Republican surrogates are aggressively trying to strip minorities (and the elderly) in the South of their right to vote. Sadly, there is no modern day Martin Luther King to expose Romney’s racism. There is no suggestion in Romney’s life that he has any interest in social justice for minorities or the poor.

 

Throughout his career as a sterling, money grubbing businessman, Romney has avoided philanthropy. In contrast, Hoover was widely acclaimed for his humanitarian leadership, efforts that he often undertook in opposition to Republican party leadership.

 

Sadly, Romney is channeling the worst aspects of Herbert Hoover, with none of  the intelligence, judgment and compassion that Hoover practiced in his public and private life. If I have insulted Herbert Hoover acolytes, then I apologize. If I have insulted Romney, then he can set the record straight and provide some facts and policies that demonstrate that he is compassionate and respects all Americans.

 

Howling Patriot

 

           

Mitt Romney’s detractors accuse him of destroying jobs or creating low paying jobs. Mitt’s defenders argue that he brought free market discipline to the companies that he and Bain Capital purchased and that by restructuring these companies he saved jobs and created new ones.

Lost in the political jousting is a discussion of the complex business of restructuring and refinancing failing businesses. Business begin to fail because they mistime investments, deploy capital unwisely, misjudge markets, fail to adapt to changing markets and demand and because they are undercapitalized. Management is too often inadequate and too frequently overpaid. Structural costs weigh down profit potential.

Every job in a failing business is at risk if the business cannot be turned around.

Mitt was and is a turnaround expert, skilled in analyzing whether distressed companies can be saved. He brought management savvy and fresh capital needed for essential investments, like technology needed to make companies efficient and competitive.

Of course, underperforming and redundant employees were fired because their very presence made the company unprofitable.  Other employees got clearly defined job responsibilities and a chance to prosper as the reorganized business prospered. So, some were fired and others were hired. Big deal. Anyone running a small business knows the drill.

Mitt’s critics conveniently ignore that he and his partners at Bain Capital provided new risk capital to rescue and restructure the businesses that they purchased. By providing essential capital that preserved the jobs worth preserving they created the opportunity for new jobs filled by new employees with appropriate skills. It is perhaps understandable that politicians used to filling jobs with unqualified cronies and family members are stupiefied by Mitt’s business like approach to job creation.

Restructure or Die

A financially distressed business that is unable to change or obtain adequate working capital in the financial markets has few choices: restructure in an out of court workout; restructure by swapping debt for equity or new debt; and restructure in Chapter 11. None of the restructuring options are viable without new capital, and none work without drastic changes to how the business has been run. Companies that do not restructure are liquidated.

Management changes, union concessions, revisions of contracts always take place in a restructuring—just look at the chapter 11 cases of GM and Chrysler. Mitt criticized and still criticizes the secured loans to GM and Chrysler on philosophical grounds because the loans were made by theUSA. As a distressed debt guy, Mitt may feel a tad jealous that he and his private equity friends did not have enough capital to make the $100 billion of profitable secured loans to GM and Chrysler that got priority in repayment in the bankruptcy court proceeding. In predicting the failure of the government loan package, Mitt missed the business point which was that GM and Chrysler (and their employees) were able to change and that they could be reorganized with the right lender. And, Mitt missed the point that hundreds of thousands of decent jobs inAmerica’s heartland were at stake.

By sticking to his guns during his campaign, Mitt appears to lack concern for workers in America’s core manufacturing industries.

 

Mitt also argues that using the bankruptcy courts was inappropriate and that the holders of the bonds (many his friends in the world of private equity and restructuring) were treated unfairly. Mitt is naïve. His finance friends surely know that in every Chapter 11 case the lender making a dominant secured loan that has a first priority lien on all the assets of a Chapter 11 company like GM, has considerable influence and control on how the company is reorganized and who and how creditors are paid. GM’s sophisticated bondholders knew the bankruptcy strategies; this time they were outmaneuvered, so they should stop Mitt from his surrogate whining about the result. Putting aside the legal jargon and jockeying for priority, bankruptcy laws are a framework for settlement of disputes, and Mitt’s insistence on some non-existent principle of bankruptcy law makes him look inexperienced. If Mitt and his advisors can’t understand the bankruptcy laws, how will they possibly be able to lead the country in the next decade in solving far more complex matters of finance and social conscience?

It is time for Mitt to admit that his abstract principles were worth formulating, but that he was wrong about the practical merits of lending money to Chrysler and GM.

 

Conclusion

As a restructuring expert Mitt had to be smart, intuitive and decisive, and he had to make hard decisions. As a leader at Bain he needed to be well-informed and forward thinking. Our next President will be restructuring the military, restructuring Social Security and trying to reorganize Congress so that our elected officials stop acting like packs of snarling wolves. Maybe the country needs a restructuring expert like Mitt?