Mitt Romney's Secrets to Success

Mitt Romney hoards money the way eccentric old ladies stockpile porcelain dolls, knickknacks, and other assorted trinkets of inestimable value. The former governor of Massachusetts is reportedly worth $250 million dollars, which makes him the wealthiest presidential candidate in U.S. history. Thankfully, Romney isn’t trying to hide his stash of cash under his mattress or in one of estate safes. Instead, Mitt has his loot spread out in a variety of high-interest bearing account in the Cayman Islands and Switzerland.

It would be class warfare to disparage Mitt Romney from being rich and successful. I may not be part of the fortunate 1%, but I harbor no resentment towards a man who would spend millions of his own money for the privilege of sharing the stage with the likes of Herman Cain and Newt Gingrich.

I do resent the fact, however, that Mitt’s money makes more than I do. In 2011, Mitt’s money made more than $ 4 million. That is, Mitt collected more than $4 million in interest income, which means that Mitt’s money was making more than a $109,000 a day! Assuming Mitt’s money was working 24/7 with no holidays, then Mitt’s money makes more than $4,500 an hour.

Needless to say, my money doesn’t work that hard, nor do I. Otherwise, I might try running for president myself instead of writing about the morons we end up electing. However, it is clear that Mitt’s money works harder than mine does. After all, my bank is only offering me 0.05% percent on my cash, whereas according to my calculation Mitt’s money is getting closer to 10%.

Of course, Mitt’s money may be taking greater risks than my money. I may be liberal politically and ethically, but I’m fiscally conservative, which means I enjoy having money, but not spending it. The idea of going in to debt gives me hives and makes me apoplectic.

Mitt has a healthier relationship to debt. He understands what poor old Aristotle did not: namely, that money can indeed be the mother of money. After all, debt is the engine of wealth creation for Bain Capital, the financial services firm that Romney once led.

Bain Capital has served its clients handsomely. In prosperous years, Bain has managed to generate annualized returns of 80% for some of its clients. Bain gets its money to work hard. How does Bain manage to generate such fantastic returns year after year? They must have recipe for success the rest of us in the 99% could follow.

The Bain formula isn’t rocket science, but it certainly rivals alchemy in its ingeniousness. Essentially, Bain borrows money from investors such as rich folks, pension funds, or endowments. It then uses the money it has borrowed to get banks to lend it even more money. This is called leverage. Sometimes, venture firms like Bain borrow thirty or forty dollars for every dollar they put up; the higher the leverage the higher the return on equity.

To see why this is so, imagine I’m a hedge fund manager with $10,000 in my pocket. I make my living convincing people I’m smarter and more knowledgeable that them, so it’s quite probable I could induce a few friends and relatives to pony up their life savings so that we can pool our resources, invest in a hotshot business opportunity, and all become filthy rich. Let’s say I manage to raise $990,000, which added to my original $10,000 comes out to a cool million. Based on the money I’ve raised and my idea I then manage to convince some major banks to lend me even more money. Thanks to the magic of leverage I now have $30 million dollars I can use to invest in equities, acquire a business, or make bets in the high stakes derivatives market.

For the sake of argument, let’s say I buy a company for $20 million. I might fire a couple of workers or move operations to a third world country where labor costs are a pittance. I’ve made the company more valuable so I can sell it to some other hedge fund manager for more than I bought it somewhere down the road. In the meantime, I still have a third of my equity available to pay for administrative perks, my base salary, and to hire an army of industrious tax lawyers to help me reduce my tax liability.
Let’s say I sell the company after a year for $25 million. You might say my return on the equity I raised was an impressive 17%. But remember all that leverage. I only put in $10,000 originally, but now I’m a multimillionaire with a track record of creating wealth for my clients. Investors and banks will clamor to lend me money and I can repeat the whole process again.

Thanks to the magic of leverage, I’m virtually guaranteed to generate impressive return on the equity I start with. Sure, I have to find buyers for the companies I “invest” in. Like a used car dealer, I make some cosmetic improvements to the companies I’m peddling. I may even find genuine ways of adding value to the companies I acquire. However, my primary aim will be to buy companies low and sell them high. Jobs may be destroyed and created thanks to this freewheeling form of capitalism. But my primary fiduciary responsibility is to create wealth for myself and my clients.

Now, some financial experts might insist that what I’m doing is amoral and parasitic. After all, it’s not clear that my activity is really contributing to the economy or the larger social good. Do I really deserve to make 400 times what a teacher makes? I look at this way, wealth like mine wouldn’t exist unless there were people as ingenuous and ballsy as myself who could hatch and execute such brilliant money-making schemes. The wealth people like me generate out of thin air can be used to hire chauffeurs, secretaries, accountants, tax lawyers, strippers, bartenders, gardeners, and public servants who share my passion for free markets and less government oversight.

Of course, my hedge fund activities may contribute to inequality, but it is entirely legal. Indeed, it may even be ethical. Sure there are winners and loser – and booms and busts – but when the financial system collapses the government will step into to bail everyone out. After all, banks will get virtually zero interest loans from the Fed so they can lend money to hedge fund managers like me again.

Only financial wizards like me can get the engine of prosperity started again, which is why bonuses need to part of any bailout program. You might think that future taxpayers may be hit with the bill for any bailouts, but it is far more likely that the U.S. will simply devalue its currency or default altogether. In fact, present day taxpayers will actually get a tax cut because an economic meltdown is not the time to raise taxes. Everyone wins!

The discerning reader may have noticed that my hedge fund scheme privatizes the gains, but socializes the risks. Indeed, some might argue that the system I’ve outlined amounts to a form of socialism for the rich. Such critics, I assure you, are engaging in class warfare and guilty of attacking capitalism itself. Poor people are not poor because of capitalism; they are poor because they fritter their money away on frivolous things, like taxes.

Well, I hope I’ve shed light on why Mitt Romney is rich and successful and why the rest of us are not. Mitt has been focused on money the way squirrels are focused on acorns. This may sound like a nutty analogy, but it may explain why Romney is now considered by many to be presidential timber.

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