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Growing Up Romney

Mitt, Tagg, and the Romney family’s myth of self-reliance.

• Noam Scheiber
• October 19, 2012 | 12:00 am

THIS WAS SUPPOSED to be the race that Tagg Romney took easy. When his father ran for governor of Massachusetts in 2002, Tagg signed on as a full-time staffer and even served as the campaign manager for Mitt’s running mate. Four years later, when Mitt began to run for president, Tagg moved his family back to Boston from Los Angeles so he could man a desk at campaign headquarters.

But by the beginning of this campaign season, Tagg had a daughter in high school and twins on the way. He’d recently started a private-equity firm called Solamere. He was in his early forties and gave the impression of someone who had better things to do than hole up in a cubicle piled high with pizza boxes. A new arrangement was struck: He would schlep off to any ballroom or spin-room where he could help as a surrogate. He would be on call to sweet-talk donors and buck up supporters. And, of course, he would always be available for late-night calls with his dad. But he wouldn’t take a job with the campaign or linger around the office. He would continue to run his firm.

It didn’t quite work out that way. This summer, staffers noticed Tagg turning up at Romney headquarters. By September, he had mostly put his day job on hold. When David Wright, a longtime family friend, recently asked how he could tend to the firm while scrambling for his dad, Tagg more or less conceded he couldn’t. “I’ve fortunately got great partners,” he said.
Earlier this month, Politico outed him as the leader of a family “intervention” that resulted in the kinder, gentler, more moderate Mitt Romney on display at the first debate. Though Tagg insists the story is pure fantasy—“News to me,” he cracked when I saw him at a recent event—his own stump speech acknowledges his ever-escalating involvement. “A few months ago, I told the campaign that, at crunch time, I’d be willing to do whatever it takes,” he told an audience of well-wishers. “I kind of thought they would have me on the road a day or two a week. Well, it turns out they put me on the road seven days a week.”

The punishing schedule—one friend compares it to “coughing blood”—is especially curious in light of how badly Tagg wants to be seen as more than his father’s son. Indeed, if all families have their own myths, a kind of founding narrative that’s passed down through the generations, for the Romneys it’s about personal initiative. George Romney’s family fled the Mexican revolution destitute when he was five years old, heightening his pride in the wealth and power he attained later in life. Mitt Romney speaks often about giving away his inheritance so that whatever he achieved would be his alone. “Everything that Ann and I have, we earned the old-fashioned way, and that’s by hard work,” he said at the notorious Boca Raton fund-raiser in May. For his part, Tagg “has a high desire to make Solamere a big success,” says one close friend, adding that he’s determined to “create his own name.”

What’s so strange about the Romney myth is that its grip hasn’t weakened even as it has become less true. The affluence Mitt was born into paid for his elite education and financed his first home. The wealth Tagg stands to inherit has given him the freedom to pursue any career and take any professional risk he wants.

That’s not to say he set out to trade on his pedigree. Not long after graduating from Harvard Business School, he turned down offers from several prominent firms to join an obscure start-up called eGrad, whose meager resources gave it a kind of grunge aesthetic: secondhand furniture and heating so erratic he brought in blankets to keep warm. When Tagg wasn’t cold calling would-be corporate partners, he could sometimes be found packaging merchandise and mailing it. But making it on your own is never so clear-cut when you’re a Romney. Some of the biggest meetings he landed were with Staples, which his father had funded at Bain Capital, and General Motors, a company where his last name still carried weight.

Tagg’s biography is littered with similar stories—short cuts he couldn’t have taken without his last name, obstacles that melted away before he was even aware of them. And yet, thanks to the Romney myth, he and his family believe that most of what he has achieved comes from old-fashioned industriousness, not older-fashioned status and wealth.

Tagg’s blind spots, however, are largely forgivable. Everyone looks in the mirror on occasion and sees a taller, thinner, more virtuous version of himself. The problem is that Tagg’s blind spots are also Mitt’s. And Mitt’s peculiar version of reality doesn’t just drive him personally; it skews his politics and shapes his policies. It distorts his entire vision of how a president should govern.

THE HOME WHERE Tagg Romney grew up in the Boston suburb of Belmont was large but hardly extravagant. There were no full-time maids or butlers, certainly no car elevators. His father preferred to live below his means and, until Tagg was 14, Mitt was just a moderately affluent consultant, not the private-equity titan he would become. If Mitt so much as saw an overpriced item at the supermarket, he’d grumble—and in some cases even bolt. He’d get especially peeved about the cost of movie tickets. “We’d be like, ‘Dad, you can afford it,’” explains Tagg’s younger brother Josh. “And he’d say, ‘That’s not the point. These guys are charging an unfair price.’ It would get embarrassing.” The sense of modesty was so ingrained that when Tagg, then serving in France on his Mormon mission, heard that his family was buying a five-bedroom, $1.25 million villa, he suddenly became queasy. “How can you afford that house?” he asked his dad, according to The Boston Globe.

Tagg wasn’t known around Belmont as a rich kid; he was known as the kid with the cool, if slightly eccentric, parents. For breakfast, the Romney sons subsisted on sugary cereals. After school, classmates would stop by for cookies Ann Romney had baked. Like many prepubescent wise guys in the 1980s, the Romney boys were fanatical about “Saturday Night Live.” Even though the show didn’t come in for many endorsements in Mormon parenting guides, Mitt and Ann would be sure to watch it, then let the kids see a recording if the jokes weren’t too raunchy. The Romneys were, in fact, unusually tight-knit. One visitor recalls a family ritual: Every night at around 9:30 or 10:00, Mitt and Ann would meet at the foot of their staircase, clasp hands, and escort each other upstairs to the bedroom, in full view of their brood.

At the Belmont Hill School, the tony prep academy that he and his brothers attended, Tagg didn’t play a varsity sport or turn up at parties. He never dominated class discussions. Between his acne and his middling grades, he seemed timid and unsure of himself. “I didn’t have a lot of friends until my sophomore or junior year, when I got more self-confident,” he says.

His most distinctive feature was his Mormonism. Schoolmates remember Tagg as the only Latter Day Saint in a graduating class of about 70, which sometimes made him hard to relate to. His responsibilities as a Mormon teenager included attending a daily seminary class at 6:15 in the morning, a time the typical high school student is either asleep or catatonic. While classmates were frantically applying to Ivy League schools, Tagg had all but settled on Brigham Young University (BYU).

The featured speaker at graduation was Tagg’s grandfather George, ever the distinguished-looking statesman even in his early eighties. But the speech itself was a shock—a jeremiad about the importance of chastity and the false god of evolution. “My wife isn’t a descendant of orangutans,” George thundered. “It was pretty offensive,” says Tony Maws, a classmate and admirer of Tagg’s, who recalls his friend slinking down in his chair. It was a perfect illustration of the Romney paradox: Being the grandson of such a prominent figure was a telltale sign of Tagg’s establishment credentials. And yet the speech was a reminder that he was still something of an outsider, part of a community that aroused suspicion.

What Tagg shared least of all with other teenagers was their preoccupation with the opposite sex. Though he dated casually in high school, it wasn’t until he arrived at college that he expressed serious interest in women. “The year we lived together at BYU,” says Kurt Christensen, “if you were to ask me what Tagg was most interested in, it was finding his Ann.” He found her pretty quickly. Christensen was staying with the Romneys the week before Tagg got married to Jennifer Thomas, and he happened to be in earshot when Mitt spoke to his son, then age 22 and alert to the wonders of human physiology, about the birds and the bees. “We had been two Mormon boys who had remained relatively naïve about sexual matters,” Christensen says. “Obviously, Mitt felt it was probably important he talk to Tagg.”

Tagg had always been the most Mitt-like of the five Romney boys. Matt, two years his junior, was athletic and popular. Josh, who is five years younger, had a gift for working a room. Both were laid back while Tagg was high strung. Tagg also inherited his father’s earnest hokiness— a kind of camp-counselor enthusiasm. Except for a few years during early adolescence when Mitt got on his eldest son’s nerves—“It bothered me that he would be so nice,” he later told Michael Kranish and Scott Helman in The Real Romney—Tagg has long admired his dad and sought to emulate him. Like Mitt, Tagg worked at a managementconsulting firm and set his sights on business school. He was the only Romney child who interned at Bain Capital.
More so than his brothers, whose childhood circumstances were cushier, Tagg soaked up the earn-everything-you-have ethos that animated his father and grandfather—flinty, hard-driving figures with little tolerance for slacking. “If I drown in a stream, look for me upstream,” George used to quip.
Mitt would wake his sons up early on Saturday mornings with a bulky list of chores. When he created a trust fund for his children, valued at some $100 million, he made the disbursements discretionary rather than have them pay out at regular intervals or when the kids reached a certain age. He wanted to send the message that Romneys don’t join the leisure class. “Look, he would like to make sure his family always has the money for the health care and education they need, or if they decide they want to be missionaries,” says one person familiar with the trust. “But you’ve got to work hard. The trust is not going to support them so they can be trust-fund kids.”

That was never a worry with Tagg. While at eGrad, his colleagues noticed him carrying around a very Romneyesque totem: the beat-up, brown leather briefcase that Mitt used for his first job out of grad school. “The hardworking aspect is what that symbolized to me,” recalls John Fees, the company’s co-founder. “He could have afforded whatever he wanted, looked cool if he wanted. But he carried his dad’s briefcase.”

A FEW YEARS out of business school, there was nothing exactly wrong with Tagg’s career—he’d worked for a major pharmaceutical company as well as a start-up. But he gave little indication of being the next Romney overachiever.

Then, around his thirtieth birthday, inspiration struck. Tagg was a lifelong sports fan who treasured his Red Sox season tickets. But he hated how time-consuming it was to unload his seats when he couldn’t make the games. So he conceived of a company that would buy up tickets people couldn’t use and sell them to other fans—kind of like StubHub. When he shared the notion with his dad, Mitt half-jokingly said, “That’s the first good business idea you’ve had,” according to Greg Davis, a friend from business school. Tagg abruptly quit eGrad and launched Season Perks, Inc.

He felt as if he was on the cusp of something big. After merging with two rivals to form Season Ticket Solutions in 2001, the new business signed contracts with the Boston Celtics and the Colorado Avalanche and was exploring major deals with the National Basketball Association and the National Hockey League. But that September, Ticketmaster pulled out of an agreement to purchase the company for $12.5 million. The corporate giant seemed determined to replicate Season Ticket’s software and muscle it out of existence. Tagg abandoned the company shortly afterward.

When Mitt returned to Massachusetts to run for governor in early 2002, he found his son in transition. Tagg’s first business hadn’t quite panned out, and his plan B wasn’t much beyond the cocktail-napkin stage. “He was living in Boston, was in between jobs,” says Josh Romney. Tagg began serving as an aide to his dad.

It was the first time since his Bain Capital internship that Mitt was essentially his boss, and it seemed like a violation of his do-it-yourself code. But the operation had a start-up feel, which played to Tagg’s organizational strengths. Working out of his parents’ basement, Tagg secured office space, purchased I.T. equipment, and helped recruit personnel.

There were other reasons to take the assignment, not least Tagg’s devout sense of loyalty. “He’s pretty intense about his father, in the sense of defending him, getting upset if people aren’t one hundred percent followers,” says Tony Kimball, a family friend. Mitt had long been skeptical of political professionals, so part of Tagg’s function was to keep a close eye on the help. He was anointed one of six deputy managers and sat in the campaign war room. “No question that his primary role was to watch his father’s back, watch the money,” says one Romney adviser. “Mitt put in six million bucks [for the race]. I think he wanted to trust but verify that he was getting a full day’s work out of people.”

Tagg was widely liked nonetheless. He drove a beat-up green Camry and took pains to play down his sway with his father. By the fall, he’d even established some chops as an operative, having run the lieutenant governor campaign of Kerry Healey—a first-time statewide candidate who could have embarrassed Mitt by losing her September primary.

When the campaign ended and Romney prevailed, Tagg was keen to join him at the state capitol. But if the son had suspended his need for independent success, the father emphatically had not. One evening during the gubernatorial transition in late 2002, the family invited a reporter from Boston Magazine to dinner. The Romneys were still giddy from the campaign, and none more so than Tagg:

“I loved it,” Tagg says, seated at his father’s right hand at the dinner table. But while Tagg nods at a visitor’s suggestion that he might play a role in the new administration, his father frowns. We campaigned aggressively against the patronage and nepotism culture on Beacon Hill, says Mitt to Tagg’s silent but obvious dismay. Adding Tagg to the payroll “wouldn’t look right.”

After sitting in on some early transition meetings, Tagg spent the next several months tending to administrative scut work—settling up with campaign venders, completing Federal Election Commission filings—while figuring out his next move.

IN LATE 2005, after a few years with Reebok, Tagg landed a dream job: head of marketing for the Los Angeles Dodgers. He got to hobnob with Tommy Lasorda, the World Series-winning ex-manager, and was officially the boss of Vin Scully, the team’s legendary broadcaster. Having tried to crash the sports industry as an outsider, he was now on track to run it from the inside.

Perhaps more importantly, it looked as if he’d left the family business behind. At the time he took the job, Mitt was nearing the end of his term as governor, and there were indications he would seek higher office. “I remember our conversation vividly,” says one close friend. “I said, ‘Tagg, your dad’s going to run for president, ... you’re going to have to work on your dad’s campaign. Why move to L.A. for a year?’ He said, ‘Look, I’ve got to do my own thing. I’ve got to focus on business.’”

Only a few months into the new gig, however, Tagg was backsliding. He joined several family members urging his father into the presidential race, and when Mitt took their advice, Tagg moved his family back into the same house in Belmont—down the street from his parents—that he had put on the market a year earlier but hadn’t sold. As in 2002, Tagg took a paid job on the campaign and served as an intermediary between his father and the consultants Mitt didn’t entirely trust.

Since Tagg had walked away from a career as a sports executive to help elect his father, he faced a choice when Mitt stumbled in the primaries. Another corporate job could be a letdown after the Dodgers. And while founding a company still appealed to him, he was in his late thirties, with three children to feed, and he had just spent a year on sabbatical. Starting from scratch was suddenly less practical. He kicked around ways to parlay his campaign experience into a business venture and settled on launching a private-equity firm with his father’s 28-year-old fund-raising chief, Spencer Zwick.

It was hardly an obvious move. The sum total of their private-equity experience was Tagg’s two summers interning at Bain Capital. But they did have at least one qualification any money manager needs: the ability to scare up money. “They met a lot of people doing the national campaign, wealthy families,” says Greg Davis, part of a group of business school friends who meet each year to discuss their careers and families.

It didn’t hurt that the Romneys themselves were backing the fund. Solamere Capital—named after an exclusive neighborhood in Utah where the family had a vacation home—was incorporated in February of 2008, only weeks after the campaign ended. Its first office address was the Romney campaign headquarters in Boston’s North End. One of its first big commitments was $10 million from Ann Romney’s blind trust.

Solamere’s business model is perfectly legitimate but only available to people who are exceptionally well-connected, even by Wall Street standards. Most private-equity firms raise money from investors so they can buy up companies or stakes in companies. But Solamere invests most of its money with other private-equity firms, acting as what’s known as a fund of funds. It takes a high-powered Rolodex to enter this business, for the simple reason that the most profitable private-equity funds are extremely choosy about the money they accept. “Tagg being who he is, it helps him get into funds others wouldn’t be able to get into,” says Davis.

As it happens, most of the game is simply getting in the door. Once that’s accomplished, it’s a pretty foolproof way of earning millions of dollars each year: Solamere collects money from wealthy investors, pools it together, and places it in a group of brand-name funds, like Bain and Kohlberg Kravis Roberts. “They’re not choosing funds you’ve never heard of,” says one person who gave them money. (They nonetheless took on a third partner with private equity experience.)

Predictably, Zwick and Tagg have not been shy about touting their connections when pitching investors. According to a copy of the Solamere prospectus that The Boston Globe obtained, they promised “unique access” to lucrative deals that the partners would land thanks to their “close personal and business relationships.” The New York Times reported that the firm ultimately raised money from a variety of Romney donors and fund-raisers, including John Miller, a longtime family friend and former corporate CEO, and Meg Whitman, the former head of eBay.

Tagg insists that only a fraction of the money he raised came from his father’s network, and that most Solamere investors “are people I or Spencer have known in other areas of life.” But given Mitt’s prominence, even investors outside his orbit must find the name reassuring. In January of 2010, Mitt addressed Solamere’s first investor conference, presumably to vouch for the company’s prospects, at least implicitly.

It’s no shock, then, that the Romney network and the Solamere network are highly intermingled. It’s part of what makes it possible for Tagg to stay put at the firm while giving over increasing amounts of time to his father’s campaign. One friend who is both a partner at a private-equity firm that Solamere invests in as well as a top Romney fundraiser, describes the relationship this way: “When I’m on the phone with Tagg, or we’re at a meeting together, we inevitably talk about Solamere investments—and also how much money we have working for the next campaign event.” A few beats later, he added, “There are a lot of guys like me.”

GIVEN THAT Tagg and his father place so much stock in making their own way, you might think this path to success would be a source of mild embarrassment, or at least sheepishness. This is not the case. “There are lots of people out there with connections having similar meetings, but we’re able to close the deal because we built a pretty good model,” Tagg says. A close friend puts it this way: “Tagg is too self-aware and too honest to not admit that there’s been some benefits professionally from his dad’s fund-raising network.” But this friend insists Tagg would be successful no matter what: “With or without that pedigree, Tagg works hard.”

There is no doubt about that. On the day of the vice presidential debate in October, I caught Tagg just past noon in the Washington exurbs, where he was addressing a crowd of his father’s supporters. In person, he looked remarkably like his mother, with her toothy smile and bird-like eyes. He spoke winningly about his family, including what he described as the one credential he had over his father: a daughter. Roughly nine hours and four stops later, I saw Tagg turn up at the University of Virginia, a good 100 miles from Dulles airport, where he was flying out early the next morning. When I left, around 11 p.m., he was still shaking hands and posing for photos, looking just as put together as ever, with a line of waiting admirers snaking through the room.

But the question isn’t whether Tagg works hard. It’s whether hard work accounts for as much of the Romneys’ achievements as he and his father assume. “Tagg likes to talk about advice my grandfather gave each of us and Dad,” says his younger brother Josh. “That is, success comes when luck meets preparation. He talks about that a lot. He wants to be in position to achieve success.” But capitalizing on the kind of break Tagg got—being born into the right family—requires a lot less preparation than most.

In any other circumstance, the Romney myth would be innocuous enough, even constructive. The danger arises when a family myth intersects with a governing vision, when the stories a presidential candidate tells himself shape the policies he favors for everyone else. Though he has always been generous with his fellow worshipers and neighbors, Mitt has supported a budget that would likely slash programs people without his means depend on, such as child care and food stamps. He has endorsed cuts to Medicaid that could leave seniors unable to pay for nursing homes and middle-class families unable to fully provide for disabled children. His advice to aspiring entrepreneurs is to borrow money from their parents, even though most parents can’t oblige, however much they’d like to. Once you understand the Romney ethos, it makes sense that Mitt coolly dismissed nearly half the electorate as entitled takers.

Romney recently said that “ninety-five percent of life is set up for you if you’re born in this country,” implying that his sons have had only marginally greater opportunities than those of his secretaries. It’s what allows him to believe that his family has earned every dollar they’ve accumulated, unlike the underachieving masses, who would rather accept government goodies than shape their own destinies.

The disdain Romney seems to feel for those who need government help, the condescension toward people who aren’t as privileged or successful, is jarring enough in its own right. But it’s even more jarring when you consider that almost all of us—Mitt and Tagg very much included—have needed help at some point in our lives. It’s just a matter of where that help comes from. That Mitt Romney would roll it back for those who have no place else to turn but government isn’t an act of virtue or tough love. It’s an act of hypocrisy.

Noam Scheiber is a senior editor at The New Republic. This article appeared in the November 8, 2012 issue of the magazine under the headline “We Built That: Fathers, sons, and the Romney family’s myth of self-reliance.”

How Corporations and Local Governments Use the Poor As Piggy Banks

The poor, in aggregate, provide a juicy target for anyone depraved enough to make a business of stealing from them.

—By Barbara Ehrenreich

| Fri May. 18, 2012 3:00 AM PDT

48 Comments

Thomas Hawk/Flickr

This story first appeared on the Tom Dispatch website.

Individually the poor are not too tempting to thieves, for obvious reasons. Mug a banker and you might score a wallet containing a month's rent. Mug a janitor and you will be lucky to get away with bus fare to flee the crime scene. But as Business Week helpfully pointed out in 2007, the poor in aggregate provide a juicy target for anyone depraved enough to make a business of stealing from them.

The trick is to rob them in ways that are systematic, impersonal, and almost impossible to trace to individual perpetrators. Employers, for example, can simply program their computers to shave a few dollars off each paycheck, or they can require workers to show up 30 minutes or more before the time clock starts ticking.


Lenders, including major credit companies as well as payday lenders, have taken over the traditional role of the street-corner loan shark, charging the poor insanely high rates of interest. When supplemented with late fees (themselves subject to interest), the resulting effective interest rate can be as high as 600 percent a year, which is perfectly legal in many states.

It's not just the private sector that's preying on the poor. Local governments are discovering that they can partially make up for declining tax revenues through fines, fees, and other costs imposed on indigent defendants, often for crimes no more dastardly than driving with a suspended license. And if that seems like an inefficient way to make money, given the high cost of locking people up, a growing number of jurisdictions have taken to charging defendants for their court costs and even the price of occupying a jail cell.

The poster case for government persecution of the down-and-out would have to be Edwina Nowlin, a homeless Michigan woman who was jailed in 2009 for failing to pay $104 a month to cover the room-and-board charges for her 16-year-old son's incarceration. When she received a back paycheck, she thought it would allow her to pay for her son's jail stay. Instead, it was confiscated and applied to the cost of her own incarceration.

Government Joins the Looters of the Poor
You might think that policymakers would take a keen interest in the amounts that are stolen, coerced, or extorted from the poor, but there are no official efforts to track such figures. Instead, we have to turn to independent investigators, like Kim Bobo, author of Wage Theft in America, who estimates that wage theft nets employers at least $100 billion a year and possibly twice that. As for the profits extracted by the lending industry, Gary Rivlin, who wrote Broke USA: From Pawnshops to Poverty, Inc.—How the Working Poor Became Big Business, says the poor pay an effective surcharge of about $30 billion a year for the financial products they consume and more than twice that if you include subprime credit cards, subprime auto loans, and subprime mortgages.

These are not, of course, trivial amounts. They are on the same order of magnitude as major public programs for the poor. The government distributes about $55 billion a year, for example, through the largest single cash-transfer program for the poor, the earned income tax credit; at the same time, employers are siphoning off twice that amount, if not more, through wage theft.

And while government generally turns a blind eye to the tens of billions of dollars in exorbitant interest that businesses charge the poor, it is notably chary with public benefits for the poor. Temporary Assistance to Needy Families, for example, our sole remaining nationwide welfare program, gets only $26 billion a year in state and federal funds. The impression is left of a public sector that's gone totally schizoid: on the one hand, offering safety-net programs for the poor; on the other, enabling large-scale private-sector theft from the very people it is supposedly trying to help.

At the local level though, government is increasingly opting to join in the looting. In 2009, a year into the Great Recession, I first started hearing complaints from community organizers about ever more aggressive levels of law enforcement in low-income areas. Flick a cigarette butt and get arrested for littering; empty your pockets for an officer conducting a stop-and-frisk operation and get cuffed for a few flakes of marijuana. Each of these offenses can result, at a minimum, in a three-figure fine.

And the number of possible criminal offenses leading to jail and/or fines has been multiplying recklessly. All across the country—from California and Texas to Pennsylvania—counties and municipalities have been toughening laws against truancy and ratcheting up enforcement, sometimes going so far as to handcuff children found on the streets during school hours. In New York City, it's now a crime to put your feet up on a subway seat, even if the rest of the car is empty, and a South Carolina woman spent six days in jail when she was unable to pay a $480 fine for the crime of having a "messy yard." Some cities—most recently, Houston and Philadelphia—have made it a crime to share food with indigent people in public places.

Being poor itself is not yet a crime, but in at least a third of the states, being in debt can now land you in jail. If a creditor like a landlord or credit card company has a court summons issued for you and you fail to show up on your appointed court date, a warrant will be issued for your arrest. And it is easy enough to miss a court summons, which may have been delivered to the wrong address or, in the case of some bottom-feeding bill collectors, simply tossed in the garbage—a practice so common that the industry even has a term for it: "sewer service." In a sequence that National Public Radio reports is "increasingly common," a person is stopped for some minor traffic offense—having a noisy muffler, say, or broken brake light—at which point the officer discovers the warrant and the unwitting offender is whisked off to jail.

Local Governments As Predators
Each of these crimes, neo-crimes, and pseudo-crimes carries financial penalties as well as the threat of jail time, but the amount of money thus extracted from the poor is fiendishly hard to pin down. No central agency tracks law enforcement at the local level, and local records can be almost willfully sketchy.

According to one of the few recent nationwide estimates, from the National Association of Criminal Defense Lawyers, 10.5 million misdemeanors were committed in 2006. No one would risk estimating the average financial penalty for a misdemeanor, although the experts I interviewed all affirmed that the amount is typically in the "hundreds of dollars." If we take an extremely lowball $200 per misdemeanor, and bear in mind that 80 to 90 percent of criminal offenses are committed by people who are officially indigent, then local governments are using law enforcement to extract, or attempt to extract, at least $2 billion a year from the poor.

And that is only a small fraction of what governments would like to collect from the poor. Katherine Beckett, a sociologist at the University of Washington, estimates that "deadbeat dads" (and moms) owe $105 billion in back child-support payments, about half of which is owed to state governments as reimbursement for prior welfare payments made to the children. Yes, parents have a moral obligation to their children, but the great majority of child-support debtors are indigent.

Attempts to collect from the already-poor can be vicious and often, one would think, self-defeating. Most states confiscate the drivers' licenses of people owing child support, virtually guaranteeing that they will not be able to work. Michigan just started suspending the drivers' licenses of people who owe money for parking tickets. Las Cruces, New Mexico, just passed a law that punishes people who owe overdue traffic fines by cutting off their water, gas, and sewage.

Once a person falls into the clutches of the criminal-justice system, we encounter the kind of slapstick sadism familiar to viewers of Wipeout. Many courts impose fees without any determination of whether the offender is able to pay, and the privilege of having a payment plan will itself cost money.
In a study of 15 states, the Brennan Center for Justice at New York University found 14 of them contained jurisdictions that charge a lump-sum "poverty penalty" of up to $300 for those who cannot pay their fees and fines, plus late fees and "collection fees" for those who need to pay over time. If any jail time is imposed, that too may cost money, as the hapless Edwina Nowlin discovered, and the costs of parole and probation are increasingly being passed along to the offender.

The predatory activities of local governments give new meaning to that tired phrase "the cycle of poverty." Poor people are more far more likely than the affluent to get into trouble with the law, either by failing to pay parking fines or by incurring the wrath of a private-sector creditor like a landlord or a hospital.

Once you have been deemed a criminal, you can pretty much kiss your remaining assets goodbye. Not only will you face the aforementioned court costs, but you'll have a hard time ever finding a job again once you've acquired a criminal record. And then of course, the poorer you become, the more likely you are to get in fresh trouble with the law, making this less like a "cycle" and more like the waterslide to hell. The further you descend, the faster you fall—until you eventually end up on the streets and get busted for an offense like urinating in public or sleeping on a sidewalk.

I could propose all kinds of policies to curb the ongoing predation on the poor. Limits on usury should be reinstated. Theft should be taken seriously even when it's committed by millionaire employers. No one should be incarcerated for debt or squeezed for money they have no chance of getting their hands on. These are no-brainers, and should take precedence over any long term talk about generating jobs or strengthening the safety net. Before we can "do something" for the poor, there are some things we need to stop doing to them.

Markey releases report listing undrilled offshore leases

WASHINGTON, DC, Oct. 23

10/23/2012

By Nick Snow
OGJ Washington Editor

More than 100 oil and gas producers hold—but are not drilling—nearly 3,700 leases in the Gulf of Mexico covering an area about the size of North Carolina, a new report by the US House Natural Resources Committee’s minority staff concluded.
The report noted that the five largest oil companies—BP PLC, ExxonMobil Corp., Chevron Corp., ConocoPhillips, and Royal Dutch Shell PLC—hold 8 million acres, or almost 40% of the total.
“The oil companies are sitting on huge reserves of oil they’re not even using, and they come back asking for more areas to be opened up for them to drill,” said Rep. Edward J. Markey (D-Mass.), the committee’s ranking minority member who requested the Oct. 22 report.
“President Obama is right: When it comes to the oil drilling leases these companies hold on America’s public land, they need to use it or lose it to a company that will drill,” he maintained.
A spokesman for the American Petroleum Institute said on Oct. 23 that the report is “an attempted distraction by those who are looking to save face for failing to present sound energy policy to the American people who want more development of our own energy resources (over 70%) and those who recognize that it creates more American jobs (over 90%).”


Use It or Lose It Report 10 12

Greed and Debt: The True Story of Mitt Romney and Bain Capital

How the GOP presidential candidate and his private equity firm staged an epic wealth grab, destroyed jobs – and stuck others with the bill

by: Matt Taibbi

Mitt Romney illustration

Illustration by Robert Grossman

The great criticism of Mitt Romney, from both sides of the aisle, has always been that he doesn't stand for anything. He's a flip-flopper, they say, a lightweight, a cardboard opportunist who'll say anything to get elected.
The critics couldn't be more wrong. Mitt Romney is no tissue-paper man. He's closer to being a revolutionary, a backward-world version of Che or Trotsky, with tweezed nostrils instead of a beard, a half-Windsor instead of a leather jerkin. His legendary flip-flops aren't the lies of a bumbling opportunist – they're the confident prevarications of a man untroubled by misleading the nonbeliever in pursuit of a single, all-consuming goal. Romney has a vision, and he's trying for something big: We've just been too slow to sort out what it is, just as we've been slow to grasp the roots of the radical economic changes that have swept the country in the last generation.
The incredible untold story of the 2012 election so far is that Romney's run has been a shimmering pearl of perfect political hypocrisy, which he's somehow managed to keep hidden, even with thousands of cameras following his every move. And the drama of this rhetorical high-wire act was ratcheted up even further when Romney chose his running mate, Rep. Paul Ryan of Wisconsin – like himself, a self-righteously anal, thin-lipped, Whitest Kids U Know penny pincher who'd be honored to tell Oliver Twist there's no more soup left. By selecting Ryan, Romney, the hard-charging, chameleonic champion of a disgraced-yet-defiant Wall Street, officially succeeded in moving the battle lines in the 2012 presidential race.
Like John McCain four years before, Romney desperately needed a vice-presidential pick that would change the game. But where McCain bet on a combustive mix of clueless novelty and suburban sexual tension named Sarah Palin, Romney bet on an idea. He said as much when he unveiled his choice of Ryan, the author of a hair-raising budget-cutting plan best known for its willingness to slash the sacred cows of Medicare and Medicaid. "Paul Ryan has become an intellectual leader of the Republican Party," Romney told frenzied Republican supporters in Norfolk, Virginia, standing before the reliably jingoistic backdrop of a floating warship. "He understands the fiscal challenges facing America: our exploding deficits and crushing debt."
Debt, debt, debt. If the Republican Party had a James Carville, this is what he would have said to win Mitt over, in whatever late-night war room session led to the Ryan pick: "It's the debt, stupid." This is the way to defeat Barack Obama: to recast the race as a jeremiad against debt, something just about everybody who's ever gotten a bill in the mail hates on a primal level.
Last May, in a much-touted speech in Iowa, Romney used language that was literally inflammatory to describe America's federal borrowing. "A prairie fire of debt is sweeping across Iowa and our nation," he declared. "Every day we fail to act, that fire gets closer to the homes and children we love." Our collective debt is no ordinary problem: According to Mitt, it's going to burn our children alive.
And this is where we get to the hypocrisy at the heart of Mitt Romney. Everyone knows that he is fantastically rich, having scored great success, the legend goes, as a "turnaround specialist," a shrewd financial operator who revived moribund companies as a high-priced consultant for a storied Wall Street private equity firm. But what most voters don't know is the way Mitt Romney actually made his fortune: by borrowing vast sums of money that other people were forced to pay back. This is the plain, stark reality that has somehow eluded America's top political journalists for two consecutive presidential campaigns: Mitt Romney is one of the greatest and most irresponsible debt creators of all time. In the past few decades, in fact, Romney has piled more debt onto more unsuspecting companies, written more gigantic checks that other people have to cover, than perhaps all but a handful of people on planet Earth.
By making debt the centerpiece of his campaign, Romney was making a calculated bluff of historic dimensions – placing a massive all-in bet on the rank incompetence of the American press corps. The result has been a brilliant comedy: A man makes a $250 million fortune loading up companies with debt and then extracting million-dollar fees from those same companies, in exchange for the generous service of telling them who needs to be fired in order to finance the debt payments he saddled them with in the first place. That same man then runs for president riding an image of children roasting on flames of debt, choosing as his running mate perhaps the only politician in America more pompous and self-righteous on the subject of the evils of borrowed money than the candidate himself. If Romney pulls off this whopper, you'll have to tip your hat to him: No one in history has ever successfully run for president riding this big of a lie. It's almost enough to make you think he really is qualified for the White House.
The unlikeliness of Romney's gambit isn't simply a reflection of his own artlessly unapologetic mindset – it stands as an emblem for the resiliency of the entire sociopathic Wall Street set he represents. Four years ago, the Mitt Romneys of the world nearly destroyed the global economy with their greed, shortsightedness and – most notably – wildly irresponsible use of debt in pursuit of personal profit. The sight was so disgusting that people everywhere were ready to drop an H-bomb on Lower Manhattan and bayonet the survivors. But today that same insane greed ethos, that same belief in the lunatic pursuit of instant borrowed millions – it's dusted itself off, it's had a shave and a shoeshine, and it's back out there running for president.
Mitt Romney, it turns out, is the perfect frontman for Wall Street's greed revolution. He's not a two-bit, shifty-eyed huckster like Lloyd Blankfein. He's not a sighing, eye-rolling, arrogant jerkwad like Jamie Dimon. But Mitt believes the same things those guys believe: He's been right with them on the front lines of the financialization revolution, a decades-long campaign in which the old, simple, let's-make-stuff-and-sell-it manufacturing economy was replaced with a new, highly complex, let's-take-stuff-and-trash-it financial economy. Instead of cars and airplanes, we built swaps, CDOs and other toxic financial products. Instead of building new companies from the ground up, we took out massive bank loans and used them to acquire existing firms, liquidating every asset in sight and leaving the target companies holding the note. The new borrow-and-conquer economy was morally sanctified by an almost religious faith in the grossly euphemistic concept of "creative destruction," and amounted to a total abdication of collective responsibility by America's rich, whose new thing was making assloads of money in ever-shorter campaigns of economic conquest, sending the proceeds offshore, and shrugging as the great towns and factories their parents and grandparents built were shuttered and boarded up, crushed by a true prairie fire of debt.
Mitt Romney – a man whose own father built cars and nurtured communities, and was one of the old-school industrial anachronisms pushed aside by the new generation's wealth grab – has emerged now to sell this make-nothing, take-everything, screw-everyone ethos to the world. He's Gordon Gekko, but a new and improved version, with better PR – and a bigger goal. A takeover artist all his life, Romney is now trying to take over America itself. And if his own history is any guide, we'll all end up paying for the acquisition.
Willard "Mitt" Romney's background in many ways suggests a man who was born to be president – disgustingly rich from birth, raised in prep schools, no early exposure to minorities outside of maids, a powerful daddy to clean up his missteps, and timely exemptions from military service. In Romney's bio there are some eerie early-life similarities to other recent presidential figures. (Is America really ready for another Republican president who was a prep-school cheerleader?) And like other great presidential double-talkers such as Bill Clinton and George W. Bush, Romney has shown particular aptitude in the area of telling multiple factual versions of his own life story.
"I longed in many respects to actually be in Vietnam and be representing our country there," he claimed years after the war. To a different audience, he said, "I was not planning on signing up for the military. It was not my desire to go off and serve in Vietnam."
Like John F. Kennedy and George W. Bush, men whose way into power was smoothed by celebrity fathers but who rebelled against their parental legacy as mature politicians, Mitt Romney's career has been both a tribute to and a repudiation of his famous father. George Romney in the 1950s became CEO of American Motors Corp., made a modest fortune betting on energy efficiency in an age of gas guzzlers and ended up serving as governor of the state of Michigan only two generations removed from the Romney clan's tradition of polygamy. For Mitt, who grew up worshipping his tall, craggily handsome, politically moderate father, life was less rocky: Cranbrook prep school in suburban Detroit, followed by Stanford in the Sixties, a missionary term in which he spent two and a half years trying (as he said) to persuade the French to "give up your wine," and Harvard Business School in the Seventies. Then, faced with making a career choice, Mitt chose an odd one: Already married and a father of two, he left Harvard and eschewed both politics and the law to enter the at-the-time unsexy world of financial consulting.
"When you get out of a place like Harvard, you can do anything – at least in the old days you could," says a prominent corporate lawyer on Wall Street who is familiar with Romney's career. "But he comes out, he not only has a Harvard Business School degree, he's got a national pedigree with his name. He could have done anything – but what does he do? He says, 'I'm going to spend my life loading up distressed companies with debt.' "
Romney started off at the Boston Consulting Group, where he showed an aptitude for crunching numbers and glad-handing clients. Then, in 1977, he joined a young entrepreneur named Bill Bain at a firm called Bain & Company, where he worked for six years before being handed the reins of a new firm-within-a-firm called Bain Capital.
In Romney's version of the tale, Bain Capital – which evolved into what is today known as a private equity firm – specialized in turning around moribund companies (Romney even wrote a book called Turnaround that complements his other nauseatingly self-complimentary book, No Apology) and helped create the Staples office-supply chain. On the campaign trail, Romney relentlessly trades on his own self-perpetuated reputation as a kind of altruistic rescuer of failing enterprises, never missing an opportunity to use the word "help" or "helped" in his description of what he and Bain did for companies. He might, for instance, describe himself as having been "deeply involved in helping other businesses" or say he "helped create tens of thousands of jobs."
The reality is that toward the middle of his career at Bain, Romney made a fateful strategic decision: He moved away from creating companies like Staples through venture capital schemes, and toward a business model that involved borrowing huge sums of money to take over existing firms, then extracting value from them by force. He decided, as he later put it, that "there's a lot greater risk in a startup than there is in acquiring an existing company." In the Eighties, when Romney made this move, this form of financial piracy became known as a leveraged buyout, and it achieved iconic status thanks to Gordon Gekko in Wall Street. Gekko's business strategy was essentially identical to the Romney–Bain model, only Gekko called himself a "liberator" of companies instead of a "helper."
Here's how Romney would go about "liberating" a company: A private equity firm like Bain typically seeks out floundering businesses with good cash flows. It then puts down a relatively small amount of its own money and runs to a big bank like Goldman Sachs or Citigroup for the rest of the financing. (Most leveraged buyouts are financed with 60 to 90 percent borrowed cash.) The takeover firm then uses that borrowed money to buy a controlling stake in the target company, either with or without its consent. When an LBO is done without the consent of the target, it's called a hostile takeover; such thrilling acts of corporate piracy were made legend in the Eighties, most notably the 1988 attack by notorious corporate raiders Kohlberg Kravis Roberts against RJR Nabisco, a deal memorialized in the book Barbarians at the Gate.
Romney and Bain avoided the hostile approach, preferring to secure the cooperation of their takeover targets by buying off a company's management with lucrative bonuses. Once management is on board, the rest is just math. So if the target company is worth $500 million, Bain might put down $20 million of its own cash, then borrow $350 million from an investment bank to take over a controlling stake.
But here's the catch. When Bain borrows all of that money from the bank, it's the target company that ends up on the hook for all of the debt.
Now your troubled firm – let's say you make tricycles in Alabama – has been taken over by a bunch of slick Wall Street dudes who kicked in as little as five percent as a down payment. So in addition to whatever problems you had before, Tricycle Inc. now owes Goldman or Citigroup $350 million. With all that new debt service to pay, the company's bottom line is suddenly untenable: You almost have to start firing people immediately just to get your costs down to a manageable level.
"That interest," says Lynn Turner, former chief accountant of the Securities and Exchange Commission, "just sucks the profit out of the company."
Fortunately, the geniuses at Bain who now run the place are there to help tell you whom to fire. And for the service it performs cutting your company's costs to help you pay off the massive debt that it, Bain, saddled your company with in the first place, Bain naturally charges a management fee, typically millions of dollars a year. So Tricycle Inc. now has two gigantic new burdens it never had before Bain Capital stepped into the picture: tens of millions in annual debt service, and millions more in "management fees." Since the initial acquisition of Tricycle Inc. was probably greased by promising the company's upper management lucrative bonuses, all that pain inevitably comes out of just one place: the benefits and payroll of the hourly workforce.
Once all that debt is added, one of two things can happen. The company can fire workers and slash benefits to pay off all its new obligations to Goldman Sachs and Bain, leaving it ripe to be resold by Bain at a huge profit. Or it can go bankrupt – this happens after about seven percent of all private equity buyouts – leaving behind one or more shuttered factory towns. Either way, Bain wins. By power-sucking cash value from even the most rapidly dying firms, private equity raiders like Bain almost always get their cash out before a target goes belly up.
This business model wasn't really "helping," of course – and it wasn't new. Fans of mob movies will recognize what's known as the "bust-out," in which a gangster takes over a restaurant or sporting goods store and then monetizes his investment by running up giant debts on the company's credit line. (Think Paulie buying all those cases of Cutty Sark in Goodfellas.) When the note comes due, the mobster simply torches the restaurant and collects the insurance money. Reduced to their most basic level, the leveraged buyouts engineered by Romney followed exactly the same business model. "It's the bust-out," one Wall Street trader says with a laugh. "That's all it is."
Private equity firms aren't necessarily evil by definition. There are many stories of successful turnarounds fueled by private equity, often involving multiple floundering businesses that are rolled into a single entity, eliminating duplicative overhead. Experian, the giant credit-rating tyrant, was acquired by Bain in the Nineties and went on to become an industry leader.
But there's a key difference between private equity firms and the businesses that were America's original industrial cornerstones, like the elder Romney's AMC. Everyone had a stake in the success of those old businesses, which spread prosperity by putting people to work. But even private equity's most enthusiastic adherents have difficulty explaining its benefit to society. Marc Wolpow, a former Bain colleague of Romney's, told reporters during Mitt's first Senate run that Romney erred in trying to sell his business as good for everyone. "I believed he was making a mistake by framing himself as a job creator," said Wolpow. "That was not his or Bain's or the industry's primary objective. The objective of the LBO business is maximizing returns for investors." When it comes to private equity, American workers – not to mention their families and communities – simply don't enter into the equation.
Take a typical Bain transaction involving an Indiana-based company called American Pad and Paper. Bain bought Ampad in 1992 for just $5 million, financing the rest of the deal with borrowed cash. Within three years, Ampad was paying $60 million in annual debt payments, plus an additional $7 million in management fees. A year later, Bain led Ampad to go public, cashed out about $50 million in stock for itself and its investors, charged the firm $2 million for arranging the IPO and pocketed another $5 million in "management" fees. Ampad wound up going bankrupt, and hundreds of workers lost their jobs, but Bain and Romney weren't crying: They'd made more than $100 million on a $5 million investment.
To recap: Romney, who has compared the devilish federal debt to a "nightmare" home mortgage that is "adjustable, no-money down and assigned to our children," took over Ampad with essentially no money down, saddled the firm with a nightmare debt and assigned the crushing interest payments not to Bain but to the children of Ampad's workers, who would be left holding the note long after Romney fled the scene. The mortgage analogy is so obvious, in fact, that even Romney himself has made it. He once described Bain's debt-fueled strategy as "using the equivalent of a mortgage to leverage up our investment."
Romney has always kept his distance from the real-life consequences of his profiteering. At one point during Bain's looting of Ampad, a worker named Randy Johnson sent a handwritten letter to Romney, asking him to intervene to save an Ampad factory in Marion, Indiana. In a sterling demonstration of manliness and willingness to face a difficult conversation, Romney, who had just lost his race for the Senate in Massachusetts, wrote Johnson that he was "sorry," but his lawyers had advised him not to get involved. (So much for the candidate who insists that his way is always to "fight to save every job.")
This is typical Romney, who consistently adopts a public posture of having been above the fray, with no blood on his hands from any of the deals he personally engineered. "I never actually ran one of our investments," he says in Turnaround. "That was left to management."
In reality, though, Romney was unquestionably the decider at Bain. "I insisted on having almost dictatorial powers," he bragged years after the Ampad deal. Over the years, colleagues would anonymously whisper stories about Mitt the Boss to the press, describing him as cunning, manipulative and a little bit nuts, with "an ability to identify people's insecurities and exploit them for his own benefit." One former Bain employee said that Romney would screw around with bonuses in small amounts, just to mess with people: He would give $3 million to one, $3.1 million to another and $2.9 million to a third, just to keep those below him on edge.
The private equity business in the early Nineties was dominated by a handful of takeover firms, from the spooky and politically connected Carlyle Group (a favorite subject of conspiracy-theory lit, with its connections to right-wingers like Donald Rumsfeld and George H.W. Bush) to the equally spooky Democrat-leaning assholes at the Blackstone Group. But even among such a colorful cast of characters, Bain had a reputation on Wall Street for secrecy and extreme weirdness – "the KGB of consulting." Its employees, known for their Mormonish uniform of white shirts and red power ties, were dubbed "Bainies" by other Wall Streeters, a rip on the fanatical "Moonies." The firm earned the name thanks to its idiotically adolescent Spy Kids culture, in which these glorified slumlords used code names, didn't carry business cards and even sang "company songs" to boost morale.
The seemingly religious flavor of Bain's culture smacks of the generally cultish ethos on Wall Street, in which all sorts of ethically questionable behaviors are justified as being necessary in service of the church of making money. Romney belongs to a true-believer subset within that cult, with a revolutionary's faith in the wisdom of the pure free market, in which destroying companies and sucking the value out of them for personal gain is part of the greater good, and governments should "stand aside and allow the creative destruction inherent in the free economy."
That cultlike zeal helps explains why Romney takes such a curiously unapologetic approach to his own flip-flopping. His infamous changes of stance are not little wispy ideological alterations of a few degrees here or there – they are perfect and absolute mathematical reversals, as in "I believe that abortion should be safe and legal in this country" and "I am firmly pro-life." Yet unlike other politicians, who at least recognize that saying completely contradictory things presents a political problem, Romney seems genuinely puzzled by the public's insistence that he be consistent. "I'm not going to apologize for having changed my mind," he likes to say. It's an attitude that recalls the standard defense offered by Wall Street in the wake of some of its most recent and notorious crimes: Goldman Sachs excused its lying to clients, for example, by insisting that its customers are "sophisticated investors" who should expect to be lied to. "Last time I checked," former Morgan Stanley CEO John Mack sneered after the same scandal, "we were in business to be profitable."
Within the cult of Wall Street that forged Mitt Romney, making money justifies any behavior, no matter how venal. The look on Romney's face when he refuses to apologize says it all: Hey, I'm trying to win an election. We're all grown-ups here. After the Ampad deal, Romney expressed contempt for critics who lived in "fantasy land." "This is the real world," he said, "and in the real world there is nothing wrong with companies trying to compete, trying to stay alive, trying to make money."
In the old days, making money required sharing the wealth: with assembly-line workers, with middle management, with schools and communities, with investors. Even the Gilded Age robber barons, despite their unapologetic efforts to keep workers from getting any rights at all, built America in spite of themselves, erecting railroads and oil wells and telegraph wires. And from the time the monopolists were reined in with antitrust laws through the days when men like Mitt Romney's dad exited center stage in our economy, the American social contract was pretty consistent: The rich got to stay rich, often filthy rich, but they paid taxes and a living wage and everyone else rose at least a little bit along with them.
But under Romney's business model, leveraging other people's debt means you can carve out big profits for yourself and leave everyone else holding the bag. Despite what Romney claims, the rate of return he provided for Bain's investors over the years wasn't all that great. Romney biographer and Wall Street Journal reporter Brett Arends, who analyzed Bain's performance between 1984 and 1998, concludes that the firm's returns were likely less than 30 percent per year, which happened to track more or less with the stock market's average during that time. "That's how much money you could have made by issuing company bonds and then spending the money picking stocks out of the paper at random," Arends observes. So for all the destruction Romney wreaked on Middle America in the name of "trying to make money," investors could have just plunked their money into traditional stocks and gotten pretty much the same returns.
The only ones who profited in a big way from all the job-killing debt that Romney leveraged were Mitt and his buddies at Bain, along with Wall Street firms like Goldman and Citigroup. Barry Ritholtz, author of Bailout Nation, says the criticisms of Bain about layoffs and meanness miss a more important point, which is that the firm's profit-producing record is absurdly mediocre, especially when set against all the trouble and pain its business model causes. "Bain's fundamental flaw, at least according to the math," Ritholtz writes, "is that they took lots of risk, use immense leverage and charged enormous fees, for performance that was more or less the same as [stock] indexing."
'I'm not a Romney guy, because I'm not a Bain guy," says Lenny Patnode, in an Irish pub in the factory town of Pittsfield, Massachusetts. "But I'm not an Obama guy, either. Just so you know."
I feel bad even asking Patnode about Romney. Big and burly, with white hair and the thick forearms of a man who's stocked a shelf or two in his lifetime, he seems to belong to an era before things like leveraged debt even existed. For 38 years, Patnode worked for a company called KB Toys in Pittsfield. He was the longest-serving employee in the company's history, opening some of the firm's first mall stores, making some of its canniest product buys ("Tamagotchi pets," he says, beaming, "and Tech-Decks, too"), traveling all over the world to help build an empire that at its peak included 1,300 stores. "There were times when I worked seven days a week, 16 hours a day," he says. "I opened three stores in two months once."
Then in 2000, right before Romney gave up his ownership stake in Bain Capital, the firm targeted KB Toys. The debacle that followed serves as a prime example of the conflict between the old model of American business, built from the ground up with sweat and industry know-how, and the new globalist model, the Romney model, which uses leverage as a weapon of high-speed conquest.
In a typical private-equity fragging, Bain put up a mere $18 million to acquire KB Toys and got big banks to finance the remaining $302 million it needed. Less than a year and a half after the purchase, Bain decided to give itself a gift known as a "dividend recapitalization." The firm induced KB Toys to redeem $121 million in stock and take out more than $66 million in bank loans – $83 million of which went directly into the pockets of Bain's owners and investors, including Romney. "The dividend recap is like borrowing someone else's credit card to take out a cash advance, and then leaving them to pay it off," says Heather Slavkin Corzo, who monitors private equity takeovers as the senior legal policy adviser for the AFL-CIO.
Bain ended up earning a return of at least 370 percent on the deal, while KB Toys fell into bankruptcy, saddled with millions in debt. KB's former parent company, Big Lots, alleged in bankruptcy court that Bain's "unjustified" return on the dividend recap was actually "900 percent in a mere 16 months." Patnode, by contrast, was fired in December 2008, after almost four decades on the job. Like other employees, he didn't get a single day's severance.
I ask Slavkin Corzo what Bain's justification was for the giant dividend recapitalization in the KB Toys acquisition. The question throws her, as though she's surprised anyone would ask for a reason a company like Bain would loot a firm like KB Toys. "It wasn't like, 'Yay, we did a good job, we get a dividend,'" she says with a laugh. "It was like, 'We can do this, so we will.' "
At the time of the KB Toys deal, Romney was a Bain investor and owner, making him a mere beneficiary of the raping and pillaging, rather than its direct organizer. Moreover, KB's demise was hastened by a host of genuine market forces, including competition from video games and cellphones. But there's absolutely no way to look at what Bain did at KB and see anything but a cash grab – one that followed the business model laid out by Romney. Rather than cutting costs and tightening belts, Bain added $300 million in debt to the firm's bottom line while taking out more than $120 million in cash – an outright looting that creditors later described in a lawsuit as "breaking open the piggy bank." What's more, Bain smoothed the deal in typical fashion by giving huge bonuses to the company's top managers as the firm headed toward bankruptcy. CEO Michael Glazer got an incredible $18.4 million, while CFO Robert Feldman received $4.8 million and senior VP Thomas Alfonsi took home $3.3 million.
And what did Bain bring to the table in return for its massive, outsize payout? KB Toys had built a small empire by targeting middle-class buyers with value-priced products. It succeeded mainly because the firm's leaders had a great instinct for what they were making and selling. These were people who had been in the specialty toy business since 1922; collectively, they had millions of man-hours of knowledge about how the industry works and how toy customers behave. KB's president in the Eighties, the late Saul Rubenstein, used to carry around a giant computer printout of the company's inventory, and would fall asleep reading it on the weekends, the pages clasped to his chest. "He knew the name and number of all those toys," his widow, Shirley, says proudly. "He loved toys."
Bain's experience in the toy industry, by contrast, was precisely bupkus. They didn't know a damn thing about the business they had taken over – and they never cared to learn. The firm's entire contribution was $18 million in cash and a huge mound of borrowed money that gave it the power to pull the levers. "The people who came in after – they were never toy people," says Shirley Rubenstein. To make matters worse, former employees say, Bain deluged them with requests for paperwork and reports, forcing them to worry more about the whims of their new bosses than the demands of their customers. "We took our eye off the ball," Patnode says. "And if you take your eye off the ball, you strike out."
In the end, Bain never bothered to come up with a plan for how KB Toys could meet the 21st-century challenges of video games and cellphone gadgets that were the company's ostensible downfall. And that's where Romney's self-touted reputation as a turnaround specialist is a myth. In the Bain model, the actual turnaround isn't necessary. It's just a cover story. It's nice for the private equity firm if it happens, because it makes the acquired company more attractive for resale or an IPO. But it's mostly irrelevant to the success of the takeover model, where huge cash returns are extracted whether the captured firm thrives or not.
"The thing about it is, nobody gets hurt," says Patnode. "Except the people who worked here."
Romney was a prime mover in the radical social and political transformation that was cooked up by Wall Street beginning in the 1980s. In fact, you can trace the whole history of the modern age of financialization just by following the highly specific corner of the economic universe inhabited by the leveraged buyout business, where Mitt Romney thrived. If you look at the number of leveraged buyouts dating back two or three decades, you see a clear pattern: Takeovers rose sharply with each of Wall Street's great easy-money schemes, then plummeted just as sharply after each of those scams crashed and burned, leaving the rest of us with the bill.
In the Eighties, when Romney and Bain were cutting their teeth in the LBO business, the primary magic trick involved the junk bonds pioneered by convicted felon Mike Milken, which allowed firms like Bain to find easy financing for takeovers by using wildly overpriced distressed corporate bonds as collateral. Junk bonds gave the Gordon Gekkos of the world sudden primacy over old-school industrial titans like the Fords and the Rockefellers: For the first time, the ability to make deals became more valuable than the ability to make stuff, and the ability to instantly engineer billions in illusory financing trumped the comparatively slow process of making and selling products for gradual returns.
Romney was right in the middle of this radical change. In fact, according to The Boston Globe – whose in-depth reporting on Romney and Bain has spanned three decades – one of Romney's first LBO deals, and one of his most profitable, involved Mike Milken himself. Bain put down $10 million in cash, got $300 million in financing from Milken and bought a pair of department-store chains, Bealls Brothers and Palais Royal. In what should by now be a familiar outcome, the two chains – which Bain merged into a single outfit called Stage Stores – filed for bankruptcy protection in 2000 under the weight of more than $444 million in debt. As always, Bain took no responsibility for the company's demise. (If you search the public record, you will not find a single instance of Mitt Romney taking responsibility for a company's failure.) Instead, Bain blamed Stage's collapse on "operating problems" that took place three years after Bain cashed out, finishing with a $175 million return on its initial investment of $10 million.
But here's the interesting twist: Romney made the Bealls-Palais deal just as the federal government was launching charges of massive manipulation and insider trading against Milken and his firm, Drexel Burnham Lambert. After what must have been a lengthy and agonizing period of moral soul-searching, however, Romney decided not to kill the deal, despite its shady financing. "We did not say, 'Oh, my goodness, Drexel has been accused of something, not been found guilty,' " Romney told reporters years after the deal. "Should we basically stop the transaction and blow the whole thing up?"
In an even more incredible disregard for basic morality, Romney forged ahead with the deal even though Milken's case was being heard by a federal district judge named Milton Pollack, whose wife, Moselle, happened to be the chairwoman of none other than Palais Royal. In short, one of Romney's first takeover deals was financed by dirty money – and one of the corporate chiefs about to receive a big payout from Bain was married to the judge hearing the case. Although the SEC took no formal action, it issued a sharp criticism, complaining that Romney was allowing Milken's money to have a possible influence over "the administration of justice."
After Milken and his junk bond scheme crashed in the late Eighties, Romney and other takeover artists moved on to Wall Street's next get-rich-quick scheme: the tech-Internet stock bubble. By 1997 and 1998, there were nearly $400 billion in leveraged buyouts a year, as easy money once again gave these financial piracy firms the ammunition they needed to raid companies like KB Toys. Firms like Bain even have a colorful pirate name for the pools of takeover money they raise in advance from pension funds, university endowments and other institutional investors. "They call it dry powder," says Slavkin Corzo, the union adviser.
After the Internet bubble burst and private equity started cashing in on Wall Street's mortgage scam, LBO deals ballooned to almost $900 billion in 2006. Once again, storied companies with long histories and deep regional ties were descended upon by Bain and other pirates, saddled with hundreds of millions in debt, forced to pay huge management fees and "dividend recapitalizations," and ridden into bankruptcy amid waves of layoffs. Established firms like Del Monte, Hertz and Dollar General were all taken over in a "prairie fire of debt" – one even more destructive than the government borrowing that Romney is flogging on the campaign trial. When Hertz was conquered in 2005 by a trio of private equity firms, including the Carlyle Group, the interest payments on its debt soared by a monstrous 80 percent, forcing the company to eliminate a third of its 32,000 jobs.
In 2010, a year after the last round of Hertz layoffs, Carlyle teamed up with Bain to take $500 million out of another takeover target: the parent company of Dunkin' Donuts and Baskin-Robbins. Dunkin' had to take out a $1.25 billion loan to pay a dividend to its new private equity owners. So think of this the next time you go to Dunkin' Donuts for a cup of coffee: A small cup of joe costs about $1.69 in most outlets, which means that for years to come, Dunkin' Donuts will have to sell about 2,011,834 small coffees every month – about $3.4 million – just to meet the interest payments on the loan it took out to pay Bain and Carlyle their little one-time dividend. And that doesn't include the principal on the loan, or the additional millions in debt that Dunkin' has to pay every year to get out from under the $2.4 billion in debt it's now saddled with after having the privilege of being taken over – with borrowed money – by the firm that Romney built.
If you haven't heard much about how takeover deals like Dunkin' and KB Toys work, that's because Mitt Romney and his private equity brethren don't want you to. The new owners of American industry are the polar opposites of the Milton Hersheys and Andrew Carnegies who built this country, commercial titans who longed to leave visible legacies of their accomplishments, erecting hospitals and schools and libraries, sometimes leaving behind thriving towns that bore their names.
The men of the private equity generation want no such thing. "We try to hide religiously," explained Steven Feinberg, the CEO of a takeover firm called Cerberus Capital Management that recently drove one of its targets into bankruptcy after saddling it with $2.3 billion in debt. "If anyone at Cerberus has his picture in the paper and a picture of his apartment, we will do more than fire that person," Feinberg told shareholders in 2007. "We will kill him. The jail sentence will be worth it."
Which brings us to another aspect of Romney's business career that has largely been hidden from voters: His personal fortune would not have been possible without the direct assistance of the U.S. government. The taxpayer-funded subsidies that Romney has received go well beyond the humdrum, backdoor, welfare-sucking that all supposedly self-made free marketeers inevitably indulge in. Not that Romney hasn't done just fine at milking the government when it suits his purposes, the most obvious instance being the incredible $1.5 billion in aid he siphoned out of the U.S. Treasury as head of the 2002 Winter Olympics in Salt Lake – a sum greater than all federal spending for the previous seven U.S. Olympic games combined. Romney, the supposed fiscal conservative, blew through an average of $625,000 in taxpayer money per athlete – an astounding increase of 5,582 percent over the $11,000 average at the 1984 games in Los Angeles. In 1993, right as he was preparing to run for the Senate, Romney also engineered a government deal worth at least $10 million for Bain's consulting firm, when it was teetering on the edge of bankruptcy. (See "The Federal Bailout That Saved Romney")
But the way Romney most directly owes his success to the government is through the structure of the tax code. The entire business of leveraged buyouts wouldn't be possible without a provision in the federal code that allows companies like Bain to deduct the interest on the debt they use to acquire and loot their targets. This is the same universally beloved tax deduction you can use to write off your mortgage interest payments, so tampering with it is considered political suicide – it's been called the "third rail of tax reform." So the Romney who routinely rails against the national debt as some kind of child-killing "mortgage" is the same man who spent decades exploiting a tax deduction specifically designed for mortgage holders in order to bilk every dollar he could out of U.S. businesses before burning them to the ground.
Because minus that tax break, Romney's debt-based takeovers would have been unsustainably expensive. Before Lynn Turner became chief accountant of the SEC, where he reviewed filings on takeover deals, he crunched the numbers on leveraged buyouts as an accountant at a Big Four auditing firm. "In the majority of these deals," Turner says, "the tax deduction has a big enough impact on the bottom line that the takeover wouldn't work without it."
Thanks to the tax deduction, in other words, the government actually incentivizes the kind of leverage-based takeovers that Romney built his fortune on. Romney the businessman built his career on two things that Romney the candidate decries: massive debt and dumb federal giveaways. "I don't know what Romney would be doing but for debt and its tax-advantaged position in the tax code," says a prominent Wall Street lawyer, "but he wouldn't be fabulously wealthy."
Adding to the hypocrisy, the money that Romney personally pocketed on Bain's takeover deals was usually taxed not as income, but either as capital gains or as "carried interest," both of which are capped at a maximum rate of 15 percent. In addition, reporters have uncovered plenty of evidence that Romney takes full advantage of offshore tax havens: He has an interest in at least 12 Bain funds, worth a total of $30 million, that are based in the Cayman Islands; he has reportedly used a squirrelly tax shelter known as a "blocker corporation" that cheats taxpayers out of some $100 million a year; and his wife, Ann, had a Swiss bank account worth $3 million. As a private equity pirate, Romney pays less than half the tax rate of most American executives – less, even, than teachers, firefighters, cops and nurses. Asked about the fact that he paid a tax rate of only 13.9 percent on income of $21.7 million in 2010, Romney responded testily that the massive windfall he enjoys from exploiting the tax code is "entirely legal and fair."
Essentially, Romney got rich in a business that couldn't exist without a perverse tax break, and he got to keep double his earnings because of another loophole – a pair of bureaucratic accidents that have not only teamed up to threaten us with a Mitt Romney presidency but that make future Romneys far more likely. "Those two tax rules distort the economics of private equity investments, making them much more lucrative than they should be," says Rebecca Wilkins, senior counsel at the Center for Tax Justice. "So we get more of that activity than the market would support on its own."
Listen to Mitt Romney speak, and see if you can notice what's missing. This is a man who grew up in Michigan, went to college in California, walked door to door through the streets of southern France as a missionary and was a governor of Massachusetts, the home of perhaps the most instantly recognizable, heavily accented English this side of Edinburgh. Yet not a trace of any of these places is detectable in Romney's diction. None of the people in any of those places bled in and left a mark on the man.
Romney is a man from nowhere. In his post-regional attitude, he shares something with his campaign opponent, Barack Obama, whose background is a similarly jumbled pastiche of regionally nonspecific non-identity. But in the way he bounced around the world as a half-orphaned child, Obama was more like an involuntary passenger in the demographic revolution reshaping the planet than one of its leaders.
Romney, on the other hand, is a perfect representative of one side of the ominous cultural divide that will define the next generation, not just here in America but all over the world. Forget about the Southern strategy, blue versus red, swing states and swing voters – all of those political clichés are quaint relics of a less threatening era that is now part of our past, or soon will be. The next conflict defining us all is much more unnerving.
That conflict will be between people who live somewhere, and people who live nowhere. It will be between people who consider themselves citizens of actual countries, to which they have patriotic allegiance, and people to whom nations are meaningless, who live in a stateless global archipelago of privilege – a collection of private schools, tax havens and gated residential communities with little or no connection to the outside world.
Mitt Romney isn't blue or red. He's an archipelago man. That's a big reason that voters have been slow to warm up to him. From LBJ to Bill Clinton to George W. Bush to Sarah Palin, Americans like their politicians to sound like they're from somewhere, to be human symbols of our love affair with small towns, the girl next door, the little pink houses of Mellencamp myth. Most of those mythical American towns grew up around factories – think chocolate bars from Hershey, baseball bats from Louisville, cereals from Battle Creek. Deep down, what scares voters in both parties the most is the thought that these unique and vital places are vanishing or eroding – overrun by immigrants or the forces of globalism or both, with giant Walmarts descending like spaceships to replace the corner grocer, the family barber and the local hardware store, and 1,000 cable channels replacing the school dance and the gossip at the local diner.
Obama ran on "change" in 2008, but Mitt Romney represents a far more real and seismic shift in the American landscape. Romney is the frontman and apostle of an economic revolution, in which transactions are manufactured instead of products, wealth is generated without accompanying prosperity, and Cayman Islands partnerships are lovingly erected and nurtured while American communities fall apart. The entire purpose of the business model that Romney helped pioneer is to move money into the archipelago from the places outside it, using massive amounts of taxpayer-subsidized debt to enrich a handful of billionaires. It's a vision of society that's crazy, vicious and almost unbelievably selfish, yet it's running for president, and it has a chance of winning. Perhaps that change is coming whether we like it or not. Perhaps Mitt Romney is the best man to manage the transition. But it seems a little early to vote for that kind of wholesale surrender.
This story is from the September 13, 2012 issue of Rolling Stone.

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Obama and the Road Ahead: The Rolling Stone Interview

In an Oval Office conversation with a leading historian, the president discusses what he would do with a second term – and his opponent's embrace of 'the most extreme positions in the Republican Party'

by: Douglas Brinkley

President Barack Obama on the cover of Rolling Stone.

Mark Seliger

We arrived at the Oval Office for our 45-minute interview with President Obama on the morning of October 11th. After our conversation ended, the president would board Air Force One for Florida, where he was slated to hold a rally at the University of Miami before watching Vice President Joe Biden debate Rep. Paul Ryan. But now, before the tape recorders were turned on, the president and I chatted for a minute about "The Bronco Buster," the Frederic Remington sculpture next to his desk that once belonged to Theodore Roosevelt. Then, as the small talk began to eat up too much time, Obama took charge. "All right," he said briskly. "Let's fire up."
Photos: President Barack Obama
Barack Obama can no longer preach the bright 2008 certitudes of "Hope and Change." He has a record to defend this time around. And, considering the lousy hand he was dealt by George W. Bush and an obstructionist Congress, his record of achievement, from universal health care to equal pay for women, is astonishingly solid. His excessive caution is a survival trait; at a time when the ripple and fury provoked by one off-key quip can derail a campaign for days, self-editing is the price a virtuoso must pay to go the distance in the age of YouTube.
Viewed through the lens of history, Obama represents a new type of 21st-century politician: the Progressive Firewall. Obama, simply put, is the curator-in-chief of the New Deal, the Fair Deal, the New Frontier and the Great Society. When he talks about continued subsidies for Big Bird or contraceptives for Sandra Fluke, he is the inheritor of the Progressive movement's agenda, the last line of defense that prevents America's hard-won social contract from being defunded into oblivion.
Ever since Theodore Roosevelt used executive orders to save the Grand Canyon from the zinc-copper lobbies and declared that unsanitary factories were grotesque perversions propagated by Big Money interests, the federal government has aimed to improve the daily lives of average Americans. Woodrow Wilson followed up T.R.'s acts by creating the Federal Reserve and the Federal Trade Commission and re-establishing a federal income tax. Then, before the stock market crash in 1929, the GOP Big Three of Harding-Coolidge-Hoover made "business" the business of America, once more allowing profiteers to flourish at the expense of the vulnerable.
Enter Franklin Roosevelt, a polio victim confined to a wheelchair and leg braces. His alphabet soup of New Deal programs – the CCC and TVA and WPA – brought hope to the financially distraught, making them believe that the government was on their side. Determined to end the Great Depression, Roosevelt was a magnificent experimenter. Credit him with Social Security, legislation to protect workers, labor's right to collective bargaining, Wall Street regulation, rural electrification projects, farm-price supports, unemployment compensation and federally guaranteed bank deposits. The America we know and love today sprung directly from the New Deal.
For the next three decades, the vast majority of voters benefited from Roosevelt's revolution. And every president from FDR to Jimmy Carter, regardless of political affiliation, grabbed America by the scruff of the neck and did huge, imaginative things with tax revenues. Think Truman (the Marshall Plan), Eisenhower (the Interstate Highway System), Kennedy (the space program), Johnson (Medicaid and Medicare), Nixon (the EPA) and Carter (the departments of Energy and Education). Whether it was Attorney General Robert F. Kennedy going after the Mob or LBJ laying the groundwork for PBS, citizens took comfort in the knowledge that the executive branch was a caring iron fist with watchdog instincts that got things done.
It was the election of Ronald Reagan that started the Grand Reversal. Reagan had voted four times for FDR, but by 1980 he saw the federal government – with the notable exception of our armed forces – as a bloated, black-hatted villain straight out of one of his B movies. His revolution – and make no mistake that it was one – aimed to undo everything from Medicare to Roe v. Wade. Ever since Reagan, both the New Deal and the Great Society have been under continuous siege by the American right. Bill Clinton survived two terms only by co-opting traditional GOP issues like welfare reform and balanced budgets. Unlike Clinton, Obama must hold tighter to the Progressive movement's reins. There are no more moderate Republicans left in Congress to do business with; today's GOP conservatives want to roll back, not reform. Having brought Obamacare this far, the president must find a way to close the deal in his second term.
Paul Nitze, the foreign-policy guru of the Truman administration, once told me that the problem with historians like myself is that we're always hunting for a cache of documents to analyze. What our ilk tends to forget, he chided, is that inaction is also policy. Under this criterion, Obama must also be judged by the things he won't allow to happen on his watch: Wall Street thieving, Bush-style fiscal irresponsibility, a new war in the Middle East, the reversal of Roe v. Wade, the dismantling of Medicare into a voucher program – the list is long. The offense-driven, Yes-We-Can candidate of 2008 has become the No-You-Won't defensive champion of 2012. Obama has less a grand plan to get America working than a NO TRESPASSING sign to prevent 100 years of progressive accomplishments from being swept away, courtesy of Team Romney, in a Katrina-like deluge of anti-regulatory measures.
No wonder the right has such a gleam of hatred for Obama – he is the roadblock to their revolution. The conservative movement, however, has a crippling problem: If they can't beat Obama with a 7.8 percent unemployment rate, then how can they hope to derail Hillary Clinton in 2016 when presumably that number will be substantially lower?
If Obama wins re-election, his domestic agenda will be anchored around a guarantee to all Americans that civil rights, Social Security, Medicare, Medicaid, affordable health care, public education, clean air and water, and a woman's right to choose will be protected, no matter how poorly the economy performs. Obama has grappled with two of the last puzzle pieces of the Progressive agenda – health care and gay rights – with success. If he is re-elected in November and makes his health care program permanent, it will take root in the history books as a seminal achievement. If he loses, Romney and Ryan will crush his initiatives without remorse.
The main goal of Obama's second term, besides driving down unemployment, will likely be the conversion to clean energy. While Obama doesn't wear an Inconvenient Truth T-shirt, he nevertheless understands that environmentalism makes for good business in the 21st century. The high seas and savage winds of fossil-fuel abuse are upon us. Obama has made clear that addressing climate change is the issue of most long-term consequence facing not only America but human civilization itself. "I will not walk away from the promise of clean energy," he declared in his State of the Union address this year. "I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here. We have subsidized oil companies for a century. That's long enough." When Obama was prepping in Nevada for his first debate with Mitt Romney, he took a break to tour the Hoover Dam. Critics scoffed at the trip, but a second-term Obama presidency seems poised to build a clean-energy grid in the same infrastructure-driven vein as the New Deal's dams and road projects. Why not take advantage of proximity to learn about how thousands of workers were paid to build the towering dam, which continues to protect the Southwest from flood damage and irrigate thousands of acres of farmland, all while providing low-cost power to California, Arizona and Nevada?
Every so often I see CNN flash the Electoral College map on my TV screen, and some wizard pollster describes a convoluted formula, a running of the tables, in which Romney becomes president without winning Ohio. He probably can't. Shortly after Obama was elected, he provided U.S. auto manufacturers with $62 billion in emergency aid. The federal government, in essence, became the principal stockholder of General Motors (it still holds 500 million shares). Romney not only disagreed with Obama's decision but wrote perhaps the dumbest op-ed in American campaign history, titled "Let Detroit Go Bankrupt." Theodore Roosevelt came to the rescue of San Francisco after the Great Earthquake of 1906 and George W. Bush helped rebuild New York City in the wake of the 9/11 terrorist attacks, but Romney wanted to pull the plug on the Rust Belt as it struggled to jump-start its troubled economy. Thanks to the Obama bailout, which saved the auto industry, unemployment in Ohio stands at 7.2 percent, well below the national average. They should erect statues of Obama in Toledo and Akron. Name a boulevard after him in Dayton and Elyria. Without the bailout money, GM and Chrysler likely would have gone bankrupt, and many Ohio towns would have become Hoovervilles.
Over the summer, I brought my wife and kids to an Obama rally in the Ohio town of Maumee, not far from where I grew up. The president delivered a speech about how bailing out GM and Chrysler saved thousands of jobs in Ohio. When he started working the rope line, two young African-American girls began squealing with joy. Playing the good Samaritan, I escorted them to the front of the line so they would be sure to meet the president. The younger girl asked Obama to sign her T-shirt with a Sharpie.
"How old are you?" he asked.
"Eleven."
He gladly obliged.
The older girl had the same request. Obama, however, eyed her with warm parental disapproval. "How old are you?" he asked.
"Fourteen," she replied. The same age as Malia Obama.
"Oh, no," the president said with a broad smile, crouching down to make eye contact. "You're too old to have someone writing on your clothes. Do you understand? That's a nice shirt you have. Take care of it. I'll give you a fist-bump instead."
It was a wonderful moment to witness. This wasn't a president who merely kissed babies for votes. Even though the commotion all around him was louder than a Sousa band, Obama was able to differentiate the ages of the two girls, and then offer the older one a lesson about being a young woman and having self­respect.
I was reminded of this incident when our interview with the president ended. As we left the Oval Office, executive editor Eric Bates told Obama that he had asked his six-year-old if there was anything she wanted him to say to the president. After a thoughtful pause, she said, "Tell him: You can do it."
Obama grinned. "That's the only advice I need," he said. "I do very well, by the way, in that demographic. Ages six to 12? I'm a killer."
"Thought about lowering the voting age?" Bates joked.
"You know, kids have good instincts," Obama offered. "They look at the other guy and say, 'Well, that's a bullshitter, I can tell.'"

Let's start with how the campaign has been going. Ever since the first debate, Romney has abruptly shifted his position on a whole host of issues, from his tax plan to financial regulation.
He made a strong sales pitch for what I think are really wrongheaded plans. But the facts haven't changed. The fundamentals haven't changed. The essence of this race is, "Do we have an economy that is building on all the work we've done over the last four years – an economy where we're focused on growing a strong, vibrant middle class, where we're focused on creating a strong manufacturing base here in the United States, where we are continuing to cut our imports of foreign oil, not only by developing homegrown oil and gas, but also by making sure that we are developing and taking leadership in clean energy? Are we going to continue to make investments in education that ensure that every kid in America has a shot at success if they're willing to work hard? Are we going to reduce our deficit in a way that's balanced and allows us to continue to make the investments that help us to grow?" That's what I'm putting forward.
What Governor Romney's putting forward is a return to the very same policies that got us into this mess in the first place: tax cuts skewed toward the wealthy and rollbacks of regulations that we fought very hard against lobbyists and special interests to put in place, to make sure that we don't have taxpayer­funded bailouts, to make sure that insurance companies aren't taking advantage of folks who need health care, to make sure that we have a strong consumer advocate in place to protect people from unscrupulous lenders.
So what I'm absolutely sure about is that we've got the better argument. And Governor Romney understands that. It's the reason why, after a year and a half of campaigning on plans that very clearly were going to involve $5 trillion worth of tax cuts, he's trying to fog up the issues, because he knows that the American people aren't buying what he's selling.

Many observers have commented on how Romney has misrepresented or even changed his positions in this last leg of the campaign – that he's been like a chameleon on plaid. Do you feel that he has lied to the American people?
What I think happened is that we won the battle of ideas during the course of the last year. His argument for a $5 trillion tax cut skewed toward the wealthy – which would necessarily involve either blowing up the deficit or increasing taxes on middle-class families – is not a recipe for growth. It won't create jobs, it won't reduce the deficit, and the American people understand that. So two weeks ago, or three weeks ago, they had to figure out, "Is there some way that we can fuzz up what we've been proposing?" In the first debate, he made as good a presentation as he could on what is a fundamentally flawed economic theory. What we're going to be focused on is making certain that he has to answer for those theories – ones that will not be good for the middle class and won't grow the economy long term.
But understand, there's no doubt that what he has campaigned on for the last year is what he believes, because we've seen it before. We saw it when he was the governor of Massachusetts: His efforts to balance the budget involved raising taxes and fees on middle-class families, even as wealthy families were getting tax breaks, gutting investments in education and forcing costs down to local school districts and local communities. We saw it in how he answered a question on 60 Minutes as recently as two weeks ago, when he said he thought it was fair for someone like him, who's making $20 million a year, to pay a lower tax rate than a teacher or bus driver making $50,000 a year. His basic theory is that if folks at the top are doing well and are unencumbered, that prosperity will rain down on everybody else, because they'll make better decisions about allocating capital.
I've got a different theory. I believe that when middle-class families are doing well – they've got money in their pockets, they're getting decent wages, they've got some health care security – then we all do better. Because those are customers who are buying goods and services, so businesses do better. It goes back to what Henry Ford understood when he decided to pay higher wages to his workers: that meant those workers on the assembly line making those Model T's could end up buying those cars. That's how we grew a middle class. So more than anything, our task over the next four weeks is just to lay bare just what these economic choices are. The American people are going to understand which choice is better for them and what is going to be better for the country as a whole.

Where were you when you first saw Romney's speech in Boca Raton about the 47 percent? What was your first reaction?
We were out campaigning. I don't remember which state we were in – probably Ohio. [Laughs] Since we've been there so often, the odds are, it was probably Ohio.
It took a while before we actually saw the full transcript of what he said. I think it was pretty surprising. It's an indication of a story that Republicans have been telling themselves for a while, at least a sizable portion – that somehow, half the country consider themselves victims and want to be dependent on government. Obviously, he was wrong on the facts, since the overwhelming majority of that 47 percent are either folks that are working every day and paying all kinds of taxes but just don't earn enough money to pay income tax; or are senior citizens who worked all their lives and did everything right so they could count on some sense of security as they got older; or they are veterans who have sacrificed for our country, or soldiers who are sacrificing as we speak on behalf of our country. But that sense that folks who have contributed to this country but are at the lower ends of the income scale are somehow looking for government to do something for them, or feel some sense of entitlement, is just fundamentally wrong. It doesn't jive with what I see as I travel across the country every day.
Are there people who, both at the top and the bottom, aren't pulling their weight and are looking for a special deal? Sure. But as was pointed out when this controversy erupted, there are a whole bunch of millionaires who aren't paying any income tax, as well as people at the lower end of the income spectrum who may be taking advantage of the safety net that we've put in place. We should hold everybody accountable who's not doing their fair share. That's what the American people believe: They don't like bailouts, they don't like handouts, but they do understand that we have to have a government that ensures that if somebody is working hard and carrying out their responsibilities, that they can succeed and that they can give the prospects of a better life to their kids and their grandkids.

What has surprised you the most about the Republican campaign this year?
What was interesting was the degree to which Governor Romney was willing to embrace the most extreme positions in the Republican Party: on immigration, on environmental issues, on women's issues and on the economy. Frankly, I think that's telling when you start thinking about the presidency. If you can't say no to certain elements of your party, if you don't have sets of principles that you're willing to fight for, even if they're not politically convenient, then you're gonna have a tough time in this office.
It was only at a point where it was determined that the American people had soundly rejected those views that you started seeing him try to fuzz up those positions. But they remain his positions. He continues to believe, when it comes to immigration, that the Arizona law is a model for the nation, and that self-deportation is the answer. When it comes to women's health issues, he continues to believe that Roe v. Wade should be overturned. He would be supportive of a constitutional amendment overturning a woman's right to choose, would eliminate funding for Planned Parenthood, is supportive of legislation that would allow employers to make determinations as to whether women could get contraception through their insurance companies.
Four weeks out from an election, you can't hide from positions that ultimately are out of sync with how the majority of Americans think. I guarantee if you talk to not just Democratic women, but a whole bunch of Republican and Independent women, they will tell you they're very capable of making their own health care decisions. If you have a chance to meet these Dream Act kids, some of whom were brought here when they were two or three or five, and are American in every sense, except for their papers – love this country, have pledged allegiance to this flag, want to contribute – then you would reject the idea that somehow they should be deported to some country where they've never been. But those are Governor Romney's positions, and we gotta make sure that the American people understand those positions.

Do you have any fear that Roe v. Wade could be overturned if the Republicans win the presidency and appoint another Supreme Court justice?
I don't think there's any doubt. Governor Romney has made clear that's his position. His running mate has made this one of the central principles of his public life. Typically, a president is going to have one or two Supreme Court nominees during the course of his presidency, and we know that the current Supreme Court has at least four members who would overturn Roe v. Wade. All it takes is one more for that to happen.

How do you feel about Justice Roberts' ruling on the Affordable Care Act? Were you surprised?
I wasn't surprised. I was always confident that the Affordable Care Act, a.k.a. Obamacare, was constitutional. It was interesting to see them, or Justice Roberts in particular, take the approach that this was constitutional under the taxing power. The truth is that if you look at the precedents dating back to the 1930s, this was clearly constitutional under the Commerce Clause. I think Justice Roberts made a decision that allowed him to preserve the law but allowed him to keep in reserve the desire, maybe, to scale back Congress' power under the Commerce Clause in future cases.

What made you so certain that the law was constitutional?
It's hard to dispute that health care is a national issue of massive importance. It takes up 17 or 18 percent of our entire economy; it touches on everybody's lives; it is a massive burden on businesses, on our federal budget and on families. It's practiced across state lines. So the notion that Congress could not take a comprehensive approach to that problem the way we have makes no sense.
I am very proud of the steps we've taken already: making sure that insurance companies can't impose lifetime limits that could leave families high and dry if somebody gets a severe illness. Parents being able to keep their kids on their own plans until they're 26 years old. The rebates that are already going out to customers because we've said to insurance companies that you've got to spend the dollars you collect in premiums on actually providing care, not just on overhead and CEO salaries. The $600 a year that seniors are saving on their prescription drugs. The tax breaks we're providing small businesses in order to provide health insurance for their families. The cost-control measures that are trying to develop better ways of providing care. All those things are already happening. By 2014, people who have pre-existing conditions or individuals who are paying 18 or 20 percent more for health insurance than somebody on a big group plan – they're going to have a chance to get affordable care, and we'll provide tax credits to the folks who need it.
So this is a model that we know can work. It's working in Massachusetts right now – you have 98 percent of adults and 99.5 percent of kids in Massachusetts with health insurance. For the greatest nation on Earth not to make sure that people aren't going bankrupt when they get sick – that was a blot on our society. And for us to take this step forward is something that is really going to make a big difference for millions of families for decades to come. It also gives us our best opportunity to start really going after the waste and inefficiencies of the system, so that we can start cutting back on the health care inflation that is driving our deficit and hurting families and businesses every single day.

You said, "a.k.a. Obamacare." Do you mind if historians call the achievement Obamacare? I'll be very proud. Because I'm confident that I'm going to win this election, and that we're going to implement it over the next four years. Just like Medicare and Social Security, as time goes on, as people see what it does, as it gets refined and improved, people will say, "This was the last piece to our basic social compact" – providing people with some core security from the financial burdens of an illness or bad luck.

You sometimes use the term "fair shake." FDR had the New Deal, Lyndon Johnson had the Great Society. Is the Fair Shake something you'd be comfortable with to describe your legacy?
I'd be comfortable with that, and hearing it from a historian, it sounds pretty good to me.
But look, the key thing I've tried to communicate, and I will continue to try to communicate to the American people, is that when you talk about economic fairness, it's not just an issue of fairness – it's also an issue of growth. It's how the economy succeeds. Republicans, and certainly Mitt Romney, often tries to frame this as "Obama's a redistributionist, whereas we want to grow the pie instead of taking from Peter to pay Paul." But look at our history: When we've been successful, it's because everybody is in on the action. Everybody feels a sense of ownership, because everybody is benefitting from rising productivity, everybody is benefitting from a growing economy. When prosperity is broad-based, it is stable, it is steady, it is robust.
But when you have just a few people at the very top benefitting from what we do together as an economy, then growth gets constrained. On one end, you've got a lot of money in the hands of a very few people who are speculating and engaging in a lot of financial transactions that can get our economy in trouble. We saw that in 2007 and 2008. On the other end, you've got middle-income people and low-income people who are overextended, taking on too much debt, and that can create problems. You don't have enough customers to buy the products and services that are being produced, so businesses then pull back and you get into a negative cycle. When the opposite is the case, you get into a virtuous cycle, and that's what we're constantly trying to push.
The success we've had, although we've got a long way to go, is based on making sure that everybody feels they've got a stake in the system. Look at what happened in the auto industry: You've got management and workers coming together, everybody making some sacrifices. Suddenly, what was an industry on the brink of collapse is now resurgent. GM's on top again, Chrysler is making profits like it hasn't made before, all the supplier chains that employ people all across the Midwest are benefitting. And that model, I think, is one that the American people instinctively get.

The auto bailout helped rescue states like Ohio from economic disaster. What, in turn, have you learned from the people of Ohio during your many visits to the state?
They just want to work hard, but they want to make sure that hard work is rewarded. When you go into these auto plants, you get folks who not only have been working at the plant for 15 years, their dad worked at the plant, sometimes their grandfather worked at the plant. It's not just a paycheck for them – they really take great pride in making great products, making a great car. One plant we went to, a bunch of workers had just won the lottery, and they were still showing up to work every single day. One of them had bought his wife one of the cars he had made, for her birthday, and he had bought flags for his entire town, because he was proud of his country and there was no place he'd rather be. That's what you see in Ohio, that's what you see across the country. People want to work hard, they want to feel like they're contributing, they want to feel like they're helping to build the country. All they want is just a chance.

Have you ever read Ayn Rand?
Sure.

What do you think Paul Ryan's obsession with her work would mean if he were vice president?
Well, you'd have to ask Paul Ryan what that means to him. Ayn Rand is one of those things that a lot of us, when we were 17 or 18 and feeling misunderstood, we'd pick up. Then, as we get older, we realize that a world in which we're only thinking about ourselves and not thinking about anybody else, in which we're considering the entire project of developing ourselves as more important than our relationships to other people and making sure that everybody else has opportunity – that that's a pretty narrow vision. It's not one that, I think, describes what's best in America. Unfortunately, it does seem as if sometimes that vision of a "you're on your own" society has consumed a big chunk of the Republican Party.
Of course, that's not the Republican tradition. I made this point in the first debate. You look at Abraham Lincoln: He very much believed in self-sufficiency and self-reliance. He embodied it – that you work hard and you make it, that your efforts should take you as far as your dreams can take you. But he also understood that there's some things we do better together. That we make investments in our infrastructure and railroads and canals and land-grant colleges and the National Academy of Sciences, because that provides us all with an opportunity to fulfill our potential, and we'll all be better off as a consequence. He also had a sense of deep, profound empathy, a sense of the intrinsic worth of every individual, which led him to his opposition to slavery and ultimately to signing the Emancipation Proclamation. That view of life – as one in which we're all connected, as opposed to all isolated and looking out only for ourselves – that's a view that has made America great and allowed us to stitch together a sense of national identity out of all these different immigrant groups who have come here in waves throughout our history.

If Americans re-elect you, what will be different in your second term? What is your plan to avoid four more years of gridlock?
It's important for people to understand how much we've gotten done, because sometimes folks obsess with gridlock and the ugliness of the process here in Washington. We passed health care – something that presidents have tried to do for 100 years, and we will implement it. We passed the toughest Wall Street reform since the 1930s, and we will implement it and continue to strengthen it. We have put in place a Consumer Finance Protection Agency that's going to be an ongoing advocate for every American out there who is involved in a financial transaction, saving people billions of dollars. We have expanded access to college through the Pell Grant program and by keeping student loans low. The list of things that we've accomplished, even once the Republicans took over, is significant.
Now, there are some things that are undone. We are going to have to get a handle on our deficit and debt, but we need to do it in a balanced way that doesn't simply stick it to middle-class families. I'm confident we can get that accomplished, in part, because the Bush tax cuts lapse at the end of this year, and we'll have a showdown about how we're going to fund the government that we need to grow in a sensible way, in a balanced way. Immigration reform I believe we'll get done, because the Republican Party will start recognizing that alienating the fastest­growing segments of our society is probably not good politics for them – not to mention the fact that immigration reform is the right thing to do.
On energy and climate change, we will continue to develop oil and natural-gas resources, but we'll build off the work we've done, doubling fuel-efficiency standards on cars and doubling the investment we've made in clean energy. There's a huge opportunity for us to focus on energy efficiency in our buildings, in our schools and in our residences. If we can make our economy as energy efficient as Japan, say, we would be cutting our greenhouse emissions by 20 percent and saving consumers billions of dollars every single year. And by the way, we can put a whole bunch of construction workers back to work in the process.
Internationally, having ended the war in Iraq, I am now committed to ending the war in Afghanistan by 2014. Doing that in a responsible way will have a huge impact, because we're also going to be able to take the money we've saved on war to do some nation-building here at home.
We're going to have a full agenda in the second four years, but people shouldn't underestimate how much we can get done. Obviously, I'd love to see a shift in Congress where we are electing people who are less interested in the next election and obstruction and are more interested in getting stuff done. And that's true whether it's Republicans or Democrats. I just want to make sure that there are people who have some sense of service toward their constituencies.

Forget for a moment about obstruction by Wall Street lobbyists and Republicans in Congress. If you could single-handedly enact one piece of regulation on the financial industry, what would it be?
The story of Dodd-Frank is not yet complete, because the rules are still being developed. Dodd-Frank provided a platform to make sure that we end some of the most egregious practices and prevent another taxpayer-funded bailout. We've significantly increased capital requirements and essentially created a wind-down mechanism for institutions that make bad bets, so the whole system isn't held hostage to them going under. We have to make sure that the rules issued around the Volcker Rule are actually enforced. So there's a lot of good work that will be done around Dodd-Frank.
I've looked at some of Rolling Stone's articles that say, "This didn't go far enough, we didn't institute Glass-Steagall" and so forth, and I pushed my economic team very hard on some of those questions. But there is not evidence that having Glass-Steagall in place would somehow change the dynamic. Lehman Brothers wasn't a commercial bank, it was an investment bank. AIG wasn't an FDIC-insured bank, it was an insurance institution. So the problem in today's financial sector can't be solved simply by reimposing models that were created­ in the 1930s.
I will tell you, the single biggest thing that I would like to see is changing incentives on Wall Street and how people get compensated. That ultimately requires not just congressional legislation but a change in corporate governance. You still have a situation where people making bets can get a huge upside, and their downsides are limited. So it tilts the whole system in favor of very risky behavior. I think a legitimate concern, even after Dodd-Frank, is, "Have we completely changed those incentives?"
When investment banks, for example, were partnerships, as opposed to corporations, all those partners understood that if there was some tail risk out there – some unanticipated event that might result in the whole firm blowing up – that they were going to lose all their money, they were going to lose all their assets. They weren't protected. These days, you've got guys who are making five years of risky bets, but it's making them $100 million every year. By the time the chicken comes home to roost, they're still way ahead of the game. So I think it's something that needs to be discussed. But that's not something that can entirely be legislated – that's something that also has to involve shareholders and boards of directors being better stewards of their institutions.

Bill Clinton – how important is he as a surrogate for you? What's your friendship with him like these days?
Our relationship is terrific. He did a masterful job, obviously, at the convention. He has been a tireless surrogate on our behalf. I'm talking to him regularly, and he's given me good advice. Not only is he a great politician, but he's also somebody who has a lot of credibility with the public when it comes to how the economy works. Because the last time we had healthy, broad-based growth was when he was president, and people remember that. So he can say things that people immediately grab on to. And one of the things he said during the convention that I thought was very helpful was to put this whole economic crisis in context.
The biggest challenge we've always had is that unlike FDR – who came into office when the economy had already bottomed out, so people understood that everything done subsequent to his election was making things better – I came in just as we were sliding. Because of the actions we took, we averted a Great Depression – but in the process, we also muddied up the political narrative, because it allowed somebody like Romney to somehow blame my policies for the mess that the previous administration created. Bill Clinton can point that out in ways that are really helpful and really powerful.

Halloween's coming up. If you could have Mitt Romney dress in a costume, what should he be for Halloween?
I don't know about this Halloween. Next Halloween I hope he'll be an ex-presidential candidate.
This story is from the November 8th, 2012 issue of Rolling Stone.

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