A Bankrupt Bankruptcy System

Mitt Romney talks a lot about being a "job creator," but he's destroyed a lot of jobs in his career as a private equity capitalist. A recent article in the New York Times details his adventures with Dade International, a Florida medical company.

Bain Capital bought Dade International  in 1994 with mostly borrowed money. They then bought two competitors, including a German company, and laid off more than 1700 American employees.

After mucking around with Dade for five years, closing plants, relocating workers to other plants and then closing those, eliminating the pension plan, and so on, Bain decided to cash out:

Bain settled on a common tactic in private equity: In April 1999, it pushed Dade to borrow hundreds of millions of dollars to buy half of Bain’s shares in the company — and half of those of its investment partners. 

Bain pocketed the $242 million. Goldman received $121 million. Top Dade executives got $55 million, records show. The total payout to shareholders reached $420 million — nearly as much as the purchase price for Dade.

Romney and Bain essentially milked Dade for hundreds of millions of dollars, saddling Dade with billions in debt. Then interest rates rose, the euro's value slid, and Dade got into trouble.

Creditors, unsettled by deteriorating finances and high debts, began to pounce. More layoffs followed. And in August of 2002, Dade filed for bankruptcy protection.

The creditors threatened litigation against Bain and its investment partners, accusing them of “professional negligence” and “unjust enrichment,” according to bankruptcy documents. 

Bain and the other investors argued that the claims were baseless, but agreed to forgo about $68 million owed to them by Dade. And seven years after buying the company, Bain forfeited its remaining ownership stake. 

Dade emerged from bankruptcy two months later and the stock soon began trading publicly.
Over the next four years, its revenues and share price surged, and in 2007, Siemens, the German conglomerate, paid $7 billion to buy Dade Behring. The Dade name disappeared, but the company survived.

Romney and Bain drove Dade into bankruptcy. They essentially stole money from Dade's creditors, laundering it through Dade and the bankruptcy court. (Romney had already ditched Bain to work on the Olympic Games when Dade went belly up, but he profited handsomely from the deal.)

In 2005 the Republican Congress passed a new bankruptcy law making it much harder for consumers to declare bankruptcy. This was supposed to reduce interest rates because creditors would have fewer losses. That didn't pan out, but credit card company profits have soared. More money is flowing to fewer people.

On the one hand wealthy people like Romney and Bain are able to use the bankruptcy system to make big scores by forcing acquired companies to fail. On the other hand, when regular folks got into trouble, giant credit card companies snapped their fingers and George Bush and the Republican Congress did their bidding to make it harder for the little people to get out of financial hardship.

When corporations go bankrupt there are really no consequences for the guys who are at fault. The entire purpose of a corporation is to remove any kind of personal liability for their actions. Unless they commit actual crimes, they don't have to pay for their mistakes. None of their personal property is at risk, and all the cash they ripped off -- excuse me, their lavish salaries and profits from stock sold before the company nosedived -- is untouchable. If they use borrowed money, like Romney and Bain did with Dade, there are almost no financial consequences for them. But the people who loaned them the money, for example, pension funds or 401K funds, lose everything.

When regular folks go bankrupt they are completely hosed. They lose their house, car, life savings, child's college funds, stereo, TV. Everything that can be sold off for cash is lost. And one of the most common causes of bankruptcy is medical costs, which means these people are often sick and can't work, so it's impossible to get back on their feet and get medical insurance again.

In the worst case, takeover artists who've bankrupted a company like Dade themselves have to declare bankruptcy. But then they can incorporate under a new name, buy up another company, force production into foreign countries, trash the American subsidiary, then milk the company for all it's worth and bail, leaving another few thousand Americans out of work.

This double standard of rich vs. poor in the bankruptcy system is yet another example of class warfare being waged on the poor and middle class.