Disability blog. Nominated for an Orwell prize.

This is why I love photography

"I would never turn away another mutant in need," Charles says. He reads Erik's mind blatantly and without shame these days. Erik supposes he deserves it. "And you, my friend, are needier than most."

The Beeb looks at those people who are descendants of infamous members of the Nazi party.

But he doesn’t seem that enamored with Mitt Romney either.

In an appearance on MSNBC’s “Morning Joe” program Wednesday morning, Mr. Powell, a Republican who did endorse Mr. Obama in 2008, despite having worked under President George W. Bush, chided Mr. Romney for listening to conservative foreign policy advisers.

Mr. Powell noted that Mr. Romney recently said that Russia was the “No. 1 geopolitical foe” of the United States.

“Well, c’mon Mitt, think. It isn’t the case,” Mr. Powell said. “I don’t know whether Mitt really feels that.”

Asked whether he thought Mr. Romney’s advisers told him to say that, Mr. Powell said: “I don’t know. You ask him.”

Mr. Powell said Mr. Romney’s comment had been “catching a lot of heck from the regular G.O.P. foreign affairs community.”

“We’re kind of taken aback by it,” he said. “Look at the world. There is no pure competitor to the United States of America.”

Earlier in the interview, Mr. Powell described Mr. Romney’s foreign policy advisers as “quite far to the right.’

“Sometimes, they, I think, might be in a position to make judgments or recommendations to the candidate that should get a second thought,” Mr. Powell said.

We don't really know Romney and we can't get a grip on his personality because he won't tell us much about the most important thing in his life: his total dedication to the doctrines and practice of a Church that teaches that white people lived in America long before native-Americans and that Jesus visited them; that God the Father has "a body of flesh and bones as tangible as man's; that humans can eventually become gods; and that the Garden of Eden and location of Christ's second coming were and will be in the state of Missouri.

How to overcome the huge gap between what one believes and how the general culture would react if the details of his faith were fully explained? One option: The construction of a personality designed to mimic the least offensive, nicest, all-American persona. So Romney sounds and looks like a focus-group tested model president from 1965. But the focus group doesn't exist - except in his own mind and manner every year of his life.

House Minority Leader, responding to an expected acceleration of John Boehner’s timeline on the Bush tax cuts, fired off a letter to the Speaker asking for immediate consideration of an extension of just the “low end” tax cuts – which include the Bush-era marginal rates for households making up to $1 million. This represents a shift in the dividing line for the Bush tax cuts, which has traditionally been at $250,000.

The Bush tax cuts at every level up to $1 million in annual income, in other words, are now framed as “middle-income tax cuts.” She says it right here in the letter:

Without further delay, the Majority Leadership should schedule a vote on extension of the middle-income tax cuts, as early as next week, to increase certainty for millions of American taxpayers and for the economy. We should not delay passing this legislation that will help afford all Americans the opportunity to reach their goals and realize the promise of the American Dream.

We must ask the very wealthiest Americans to pay their fair share. Democrats believe that tax cuts for those earning over a million dollars a year should expire and that we should use the resulting revenues to pay down the deficit.

First of all, if you make the dividing line at $1 million a year in annual income, there simply won’t be all that many revenues generated to pay down that deficit. When the dividing line was $250,000 a year, the revenue was around $800 billion over a ten-year period. I don’t have a strong grasp of what the numbers would be at $1 million, but my guess would be half that, if not more. So from a deficit reduction standpoint, this makes pretty much no sense.

Second of all, because of our marginal tax rate system, high-income earners at the $1 million
level would still benefit from all the tax cuts on the first $1 million of their income, which are substantial. In fact, you’d be giving hundreds of billions of dollars – whatever the difference is between letting the tax cuts expire at the $250,000 level and the $1 million level – entirely to well-off people.

The question of Romney's tenure at private equity firm Bain Capital will stay in the headlines as the Obama team releases ads on the subject and Romney continues to run on that record. But what can we take away from this debate?

One thing I'm noticing in these debates is an almost tautological idea that since shareholders own the firm, anything shareholders do with their firm is legitimate and outside the boundaries of public concern or critique.

Three Critiques

Starting from this baseline, the critiques as far as I read them (which will draw on two previous posts) break down along three lines:

1. Tax/regulatory loopholes. I did an interview with Josh Kosman, author of The Buyout of America, where he argued that the whole point of the enterprise is to game tax law loopholes. Private equity "saw that you could buy a company through a leveraged buyout and radically reduce its tax rate. The company then could use those savings to pay off the increase in its debt loads. For every dollar that the company paid off in debt, your equity value rises by that same dollar, as long as the value of the company remains the same."

A recent paper from the University of Chicago looking at private equity found that “a reasonable estimate of the value of lower taxes due to increased leverage for the 1980s might be 10 to 20 percent of firm value,” which is value that comes from taxpayers to private equity as a result of the tax code.

That's one thing in an industry with large and predictable cash flows. But after those low-hanging fruits were picked, as Kosman explained, "firms are taken over in very volatile industries. And they are taking on debts where they have to pay 15 times their cash flow over seven years — they are way over-levered."

2. Risk-shifting among parts of the firm. Traditional "creative destruction" is about putting rivals out of business with better products and techniques. Leveraged buyouts and private equity are about something different, something that exists within a single firm. This is often described as putting new techniques into place, firing people and divisions that are not performing, and generally making the firm more efficient.

The critique here is that, instead of making the firm more efficient, it often simply shifts the risks into different places. As Peter Róna, head of the IBJ Schroder Bank & Trust in New York, described it in 1989:

The very foundation of the LBO is the current actual distribution of hypothetical future cash flows. If the hypothesis (including the author’s net present value discounted at the relevant cost of capital) tums out to be wrong, the shareholders have the cash and everyone else is left with a carcass. “Creating shareholder value” and “unlocking billions” consists of shifting the risk of future uncertainty to others, namely, the corporation and its current creditors, customers, and employees…

3. Dividend looting. The theory behind private equity, as Róna caught above, is that it requires shareholders to be the proper and most efficient group to set the leverage ratio. But what if, instead of setting leverage for the long term to make the firm more efficient, shareholders simply use additional debt to pay themselves, regardless of the health of the firm? As Josh Kosman put it:
If you look at the dividends stuff that private equity firms do, and Bain is one of the worst offenders, if you increase the short-term earnings of a company you then use those new earnings to borrow more money. That money goes right back to the private equity firm in dividends, making it quite a quick profit.



It was a common trope in accounts of the housing bubble that greedy or shortsighted homeowners were extracting equity from their houses with second mortgages or cash-out refinancings to pay for extra consumption. What nobody mentioned was that the rentier class had been doing this longer, and on a much larger scale, to the country’s productive enterprises."