Did Mitt Romney Get Bailed Out at Bain?

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Renegotiate his debt, or this man will bust your ass.Photo: David L Ryan/Boston Globe/via Getty Images

Today, Rolling Stone rolled out a blockbuster story by Tim Dickinson, who purports to have discovered — via a Freedom of Information Act request —  that in the early nineties, when Bain & Company was struggling to stay afloat, Mitt Romney orchestrated a secret, lucrative last-minute "federal bailout" that allowed the firm's executives to reap millions of dollars in bonuses while leaving taxpayers on the hook.

Romney has characterized his return to Bain & Company, the consulting firm from which Bain Capital was spawned, as the first step in a successful turnaround. But Dickinson says that Romney was no white knight. The Bain bailout was actually "a disaster," he writes, and Romney "rewarded top executives at Bain with hefty bonuses at the very moment that he was demanding his handout from the feds.

The documents Dickinson's FOIA request turned up are a good read, and there is much to be learned from studying Romney's behavior during Bain's darkest days. For example, Romney almost lost his cool when a Goldman Sachs banker dropped some un-Mormon language:

[W]hen a banker from Goldman Sachs urged Bain to consider bankruptcy as the obvious solution to the firm's woes, Romney's desperation began to show. He flatly refused to discuss it — and in the ensuing argument, one witness says, Romney almost ended up in a brawl when the Goldman banker advised him to "go fuck yourself."

F-bombs aside, the problem with Rolling Stone's report is that it's misleading about who, exactly, paid for the Bain bailout.

Essentially, here's what happened at Bain & Company in the early nineties. As a consulting firm that relied on corporations having enough money to hire them for important and lucrative projects, Bain was hurt badly by the stock market crash of 1987. In addition, there were some scandals at the company, and a heavy debt load that became harder to service as business dried up.

Romney, who was running Bain Capital at the time, was called back home to Bain & Company to play Mr. Fix-It and get the company out of debt. So he restructured Bain's debt, and renegotiated contracts with its creditors. One of those contracts was an IOU for roughly $30 million, which Bain owed to a failing bank that had been taken over by a government agency known as the FDIC.

In renegotiating Bain's agreement with the FDIC, it appears that Romney played hardball, threatening to pay out millions of dollars in Bain's cash to executives in the form of bonuses to top firm executives unless the FDIC agreed to forgive the firm's debt.

If you're Dickinson, this looks like "a perverse form of leverage" employed by Romney that, in the end, led to Bain getting a cozy bailout that "wound up being paid by the American people."

Here's the sticky point: Bain's debt negotiation was nothing like the taxpayer-funded Wall Street bailouts of 2008 and 2009. In fact, it wasn't funded by taxpayers at all.

It's confusing, because the FDIC is a government agency. And government agencies tend to be funded by taxpayers. But the FDIC is a special case. Essentially, it's a bank guarantor that is funded by the banks it guarantees. Every year, banks write a proverbial check to the FDIC for the equivalent of life insurance, and in return, the FDIC promises to backstop them if they're ever about to go out of business. The agency gets no funding — as in, zero dollars — from the government's coffers.

So while Romney's deal may have been unseemly (Dickinson points out that the FDIC chairman at the time was an adviser to George Romney during his 1968 run for president), it didn't screw taxpayers, at least directly.

Dickinson is smart enough to know this, which is why he gives the hair-splitting proviso that "while taxpayers did not finance the bailout, the debt forgiven by the government was booked as a loss to the FDIC – and then recouped through higher insurance premiums from banks. And banks, of course, are notorious for finding ways to pass their costs along to customers, usually in the form of higher fees."

That could be true, but it's a bit of a stretch.

If you're going to claim in your headline that Bain & Company got a "Federal Bailout" (or, claim that, as Gawker's headline originally read, before they changed it and issued a clarification, that Romney "Looted a Dying Company for Executive Bonuses While [Bain] Owed Taxpayers Millions"), you'd better have proof that taxpayers were, in fact, on the hook.

The more accurate explanation of what happened at Bain & Company, according to the actual text of Dickinson's article, is that Romney's tactics screwed the banks that paid into the FDIC's insurance fund, and that taxpayers may or may not have been indirectly affected by passed-along fees from those banks.

That's still not a great story, and there's still plenty to take issue with given Romney's general debt aversion. But it's far from meaning, as Gawker said, that the episode brands the Bain bailout as "AIG lite."