Robert Reich: Mitt Romney IS the Economic Crisis

Wed Jul 04, 2012     by Dartagnan

Robert Reich says the attacks on Romney's tenure at Bain Capital miss the larger point, one which even the White House is not prepared to acknowledge: Mitt Romney is not simply a callous vulture capitalist, he is the living embodiment of the financial catastrophe that brought this country to the edge of ruin.

[T]he real issue here isn’t Bain’s betting record. It’s that Romney’s Bain is part of the same system as Jamie Dimon’s JPMorgan Chase, Jon Corzine’s MF Global and Lloyd Blankfein’s Goldman Sachs—a system that has turned much of the economy into a betting parlor that nearly imploded in 2008, destroying millions of jobs and devastating household incomes. The winners in this system are top Wall Street executives and traders, private-equity managers and hedge-fund moguls, and the losers are most of the rest of us.

The thousands of job losses caused by Bain's "bad bets," while providing rich fodder for the Administration's campaign ads, are really just a microcosm of a self-perpetuating, labyrinthine tax system geared to rewarding the wealthiest with the privilege of betting their fortunes on money they've neither earned nor done anything to deserve, with little or no personal risk. Reich calls it "casino capitalism:"

The biggest players in this system have, like Romney, made their profits placing big bets with other people’s money. If the bets go well, the players make out like bandits. If they go badly, the burden lands on average workers and taxpayers.

The fortunes raked in by financial dealmakers depend on special goodies baked into the tax code such as “carried interest,” which allows Romney and other partners in private-equity firms (as well as in many venture-capital and hedge funds) to treat their incomes as capital gains taxed at a maximum of 15 percent. This is how Romney managed to pay an average of 14 percent on more than $42 million of combined income in 2010 and 2011. But the carried-interest loophole makes no economic sense. Conservatives try to justify the tax code’s generous preference for capital gains as a reward to risk-takers—but Romney and other private-equity partners risk little, if any, of their personal wealth. They mostly bet with other investors’ money, including the pension savings of average working people.

    So when Romney touts his business acumen, he's really bragging about his ability to take advantage of a tax code rigged by himself and others like him to skew the playing field in such a way that in reality poses very little personal risk to himself.  For example, another "loophole" in the Tax Code permitted Romney, as a private equity partner, to place virtually unlimited amounts into a tax-deferred IRA by allowing Romney and his partners to grossly underestimate the "value" of their contributions, because the Code only considers a partnership interest in terms of its "future value."   You and I (and ninety-nine percent of Americans who did not have the good fortune and connections to work for a private equity firm) are limited to deferring a few thousand dollars per year from taxes. Mitt Romney's IRA, according to Reich, approaches 100 million dollars.

The Tax Code also makes interest on debt tax-deductible, fostering a huge incentive to substitute debt for equity, leading to debt-fueled bets made by banks and financial institutions intent on "leveraging America to the hilt," and culminating in the economic catastrophe that the Bush Administration was forced to finally confront in 2008, and that we still find ourselves mired in today.

But for the banks, private equity firms, hedge funds and other financial institutions who brought on the crisis--and for Mitt Romney-- there was no catastrophe.  Two-thirds of all income gains realized between the mid-1980's and 2007 were in the financial sector, showered on the people who made their livelihood playing with other people's money.  People like the folks at Bain Capital, who structured their deals so they would always profit, even though some of the companies they funded ultimately collapsed under the weight of excessive debt.  And when the collapse ultimately occurred, the same people who had profited mightily from leveraging the rest of the country were given a massive bailout. The fact is that the economic crisis directly felt by nearly all "ordinary" Americans was never really felt by the people who caused it. That's the benefit of playing with other people's money.

The Tax code is an opague behemoth, unfathomable to most Americans. When Americans think of tax issues, they think of income tax rates, they think of how their tax money is spent.  They generally don't think in terms of whether interest on debt obligations may be deductible, because your average American doesn't have the wherewithal to get his hands other people's mortgages.  But the folks who are attempting to buy the election for Mitt Romney think of nothing else.  While people like Sheldon Adelson and the Koch Brothers have their pet social issues to amuse themselves, the real issue here is and has always been taxes, or, more correctly, ways to avoid paying taxes.

We’ve entered a new Gilded Age, of which Mitt Romney is the perfect reflection. The original Gilded Age was a time of buoyant rich men with flashy white teeth, raging wealth and a measured disdain for anyone lacking those attributes, which was just about everyone else. Romney looks and acts the part perfectly, offhandedly challenging a GOP primary opponent to a $10,000 bet and referring to his wife’s several Cadillacs. Four years ago he paid $12 million for his fourth home, a 3,000-square-foot villa in La Jolla, California, with vaulted ceilings, five bathrooms, a pool, a Jacuzzi and unobstructed views of the Pacific. Romney has filed plans to tear it down and replace it with a home four times bigger.

We’ve had wealthy presidents before, but they have been traitors to their class—Teddy Roosevelt storming against the “malefactors of great wealth” and busting up the trusts, Franklin Roosevelt railing against the “economic royalists” and raising their taxes, John F. Kennedy appealing to the conscience of the nation to conquer poverty. Romney is the opposite: he wants to do everything he can to make the superwealthy even wealthier and the poor even poorer, and he justifies it all with a thinly veiled social Darwinism.

So in response to the greatest Economic crisis since the Depression, the Republican Party has coalesced behind the crisis' own walking, talking, living embodiment. The mantra that such a person represents the class of "job creators" is just a newly packaged form of Social Darwinism: survival of the "fittest" at the expense of economic "inferiors." This philosophy was embraced and expanded by 19th Century "thinkers" such as William Graham Summer (cited by Reich), and now channeled by the Republican Party in foisting upon us its nominee for the Presidency:

In 1883, Sumner published a highly influential pamphlet entitled "What Social Classes Owe to Each Other", in which he insisted that the social classes owe each other nothing, synthesizing Darwin's findings with free enterprise Capitalism for his justification.[citation needed] According to Sumner, those who feel an obligation to provide assistance to those unequipped or under-equipped to compete for resources, will lead to a country in which the weak and inferior are encouraged to breed more like them, eventually dragging the country down. Sumner also believed that the best equipped to win the struggle for existence was the American businessman, and concluded that taxes and regulations serve as dangers to his survival.

It's hard to find a better description of the Republican Party platform or Mitt Romney's campaign, wouldn't you say?

When Romney simultaneously proposes to cut the taxes of households earning over $1 million by an average of $295,874 a year (according to an analysis of his proposals by the nonpartisan Tax Policy Center) because the rich are, allegedly, “job creators,” he mimics Sumner’s view that “millionaires are a product of natural selection, acting on the whole body of men to pick out those who can meet the requirement of certain work to be done.”

Reich believes too few in the Democratic Party are willing to acknowledge the obvious, either because they are similarly tethered to Wall Street's millions, or because to acknowledge that Romney is in fact the perfect face of the economic crisis would be to acknowledge the overwhelming pervasiveness of the problem.  And to acknowledge the scope of the problem would require them to come up with solutions.  Circling above all of this discussion, of course, is the haunting shadow of Citizen's United.   But for Reich, the "clear and present danger" facing this country is the plutocrat about to accept the Republican nomination for the Presidency--

at the very time in our nation’s history when these views and practices are a clear and present danger to the well-being of the rest of us—just as they were more than a century ago. Romney says he’s a job-creating businessman, but in truth he’s just another financial dealmaker in the age of the financial deal, a fat cat in an era of excessively corpulent felines, a plutocrat in this new epoch of plutocrats. That the GOP has made him its standard-bearer at this point in American history is astonishing.

The face of every foreclosure, of every job loss, of every dream of retirement or a secure future wiped out by what we euphemistically call the "financial crisis" will mount the stage at his Party's convention in Tampa Bay this August.

You can donate to President Obama's re-election campaign here.

Originally posted to Dartagnan on Wed Jul 04, 2012

Technorati Tags: Mitt Romney,Bain Capitol,Barack Obama,2012 Elections,Wall Street,Current Events,Politics,Vulture Capitalist