Still, there's a clear line for Romney and investment bankers to take too: this is how private equity is supposed to work. The company's former executives say they worked with renewed urgency when Romney and Bain Capital got involved. The firm's value and assets ballooned. And while its cost-cutting was painful (one former employee attempted suicide, others moved from Puerto Rico to Florida, where they were fired and then told to pay back their moving costs to the company), Romney and Bain can defend their efforts with the convincing argument that preserving the status quo of a small-time medical device maker in Illinois wouldn't have prevented job losses in the long run.
The most interesting part of the story comes, though, at the very end. Bain Capital maximized its profits in part by orchestrating a buyout, by Dade, of half of its investment, using borrowed money. That meant $242 million for Bain, but an unsustainable level of debt for Dade, which went bankrupt. Romney by then was already ensconced in a new job, as the savior of the Salt Lake City Olympics.
But the bankruptcy wasn't permanent. The debts were cleared off — some threatened to sue Romney's former company for, in essence, wringing cash out of the business in a way that doomed it to fail — and Dade emerged as a growing, effective company. Siemens bought it, Barbaro writes, for $7 billion in 2007.
In hindsight, executives tell Barbaro they shouldn't have been so quick to strip cash from the company, since that seemed to hasten its collapse. But in the long run, they also see a success story. Here's that last line:
The bankruptcy “does muddy the story,” said Mr. Wolsey-Paige, the former Dade executive. “Over all,” he said, “it was very positive.”
In a way, he's right. The company sold for $7 billion! All that manipulation worked. But there's a striking tone-deafness here, in the difference between corporations and people (something Romney has already had to confront
on the campaign trail). Does the middle-class family facing foreclosure or bankruptcy in Ohio get to consider such a step — the shedding of all that debt, a game-reset of good and bad financial decisions — as a muddy patch in the road? Not likely. Bankruptcy for those people (as opposed to corporations and investment firms) is a ruinous event. Devastating and very hard to recover from.
Maybe Romney thinks this is the way business acumen can beneficially inform government. When he proposes to allow foreclosures to "hit bottom," maybe he believes it will enable a Phoenician rebirth for upside-down homeowners and real estate investors. But it's doubtful that the dilemma now faced by millions of Americans will be as easy to leave behind as that medical device maker was for the bright-eyed men from Bain Capital.
This article is from the archive of our partner The Wire.