How Romney and Bain screwed Italy

By Michael J.W. Stickings

Italy? Never heard of it.

From Bloomberg:

Mitt Romney skipped Italy on his swing through Europe. That was probably prudent.

That's because Bain Capital, under Romney as chief executive officer, made about $1 billion in a leveraged buyout 12 years ago that remains controversial in Italy to this day. Bain was part of a group that bought a telephone-directory company from the Italian government and then sold it about two years later, at the peak of the technology bubble, for about 25 times what it paid. 

Bain funneled profits through subsidiaries in Luxembourg, a common corporate strategy for avoiding income taxes in other European countries, according to documents reviewed by Bloomberg News. The buyer, Italy's biggest telephone company, now has a total market value less than what it paid Bain and other investors for the directory business.

In Italy, the deals have spurred at least three books, separate legal and regulatory probes and newspaper columns alleging investors made a fortune at the expense of Italian taxpayers.

*****

Romney himself probably earned more than $50 million, and possibly as much as $60 million from the Italian directory sale of Seat Pagine Gialle SpA, according to a person familiar with the matter. The deal turned into one of the biggest windfalls of his tenure.

*****

"Mitt Romney and Bain played the role of successful financial speculators at the peril of the Italian government and the small stock-market investors who were burned by the sharp decline in Seat (PG) shares," said Giovanni Pons, a journalist for la Repubblica and co-author of "L'Affare Telecom" (2002), which recounts details of the Bain deal.

Okay, a few things:

First, while this may all have been "in full compliance with all tax and reporting requirements in Italy, Europe, the U.S. and the resident countries of other investors," as Bain contends, this matter provides yet more insight into just what Romney means when he says he has the sort of business expertise that qualifies him to be president. Other than being a one-term governor, what else has he done other than tear companies apart for profit, channelling said profit into tax shelters (just as Romney himself has put money in places like Switzerland and the Cayman Islands)?

And how would that translate to federal fiscal and economic policy? (Though Romney's plan seems to be merely to cut taxes on the rich, like himself, while hoping for a massive global economic recovery for which he would take credit.)

Second, Italy, and Italian policy, is very much to blame for what happened:

The sale of the government's directory business is "a dark chapter in the country’s privatization history, one that has hurt Italians deeply," said Bernardo Bortolotti, an economics professor at Turin University who advised the Italian Treasury on asset sales from 2002 through 2005. "It was a mistake from the start, damaged by a lack of transparency and the use of offshore funds."

The Italian government didn't have to sell the business, just as it didn't have to adopt privatization -- and embrace "neo-liberalism" -- as official policy. (It is again planning to sell off various public assets, apparently having learned nothing from history, dooming itself once more.)

Romney and Bain took advantage of the situation and profited immensely. This is not to excuse them. Even if what they did was legal, it certainly stretches the bounds of ethics. But the point is that Italy allowed itself to be taken advantage of. Or, I should say, the Italian government. And while Romney made off with tens of millions, Italy is still struggling economically and the Italian people, who were screwed over in the deal, remain the true victims of this madness.

Third, Bain sold the business in 2000, one year after Romney supposedly stepped down to go run the Salt Lake Olympics. Bloomberg reports that he was "personally involved in the deal at various points, including the initial decision to invest." So... was he still involved after 1999? He made tens of millions of dollars. Does it make any sense that he just walked away from this huge money-making deal when he stepped aside? Was everything in place for the sale prior to his departure? And/or did he continue to take an active interest in the deal after that?

Questions, questions. Romney will no doubt do his utmost to avoid having to provide the answers -- truthful answers, that is.