The Bust Out
by Antonino D'Ambrosio
In Martin Scorsese's now classic film Goodfellas, there is a scene where wiseguys Henry Hill (Ray Liotta) and Tommy DeVito (Joe Peschi) burn down the Bamboo Lounge, a nightclub the gangsters had been using as a way station to house cases of liquor, food, and expensive clothes that they then "flipped" (to turn a huge profit on) on the street. Watching as the U-Hauls pull up and unload the merchandise, Henry Hill sets up the scene with the following voice-over:
As soon as the deliveries are made in the front door, you move the stuff out the back and sell it at a discount. You take a two hundred dollar case of booze and sell it for a hundred. It doesn't matter. It's all profit.
Sonny, the club's owner, is unable to make the payments and soon the debt is insurmountable. The gangsters have been profiting and now they will score one last huge gain by burning the place down and leave Sonny, the owner, with a huge load of debt impossible to repay. Liotta as Hill once again in voice-over:
And, finally, when there's nothing left, when you can't borrow another buck from the bank or buy another case of booze, you bust the joint out.
When I read the endless stories of private equity's record breaking billionaire buyouts in today's news, this scene in Goodfellas plays like a constant loop in my mind. In essence, private equity companies like KKR, Blackstone, and the Carlyle Group (these names should ring a bell for most folks reading this because they are key players in the sub-prime mortgage catastrophe and the debt crunch that threatens to plow this country deep into recession) have perfected the art of the legal "bust out." I'm sure the gangster in Goodfella wish they had thought of this greatly profitable scheme. What these firms do is use risky debt-laden business models to earn hundreds of millions a year while allowing their partners to pay a lower tax rate on their huge investment income than nurses have to pay on a $50,000 salary (15% for the billionaire and 35% for the nurse). These companies make exorbitant profits the old fashioned way -- they don't earn it. Instead they make money by loading debt onto the companies they buy, cutting out as much cost as they can (which can mean laying off employees), and then selling the companies for a profit.
During the Bush years, these "bust-out" billionaires experienced an increase in their personal wealth that would have made the "robber barons" of the American Gilded Age drip with envy. Private equity luminaries like Henry Kravis (of the infamous RJR Nabisco takeover) continue to get wealthier while millions in America get poorer. From 2001-2008, the wealthiest 1% in America received $491 billion in tax breaks. This is nearly equal to the debt held by China, $493 billion of American treasury securities. (Could there be a connection? I wonder.) The private equity has helped destabilize the American economy and further shaken the global economy as the dollar grows weaker and American foreign debt grows larger. The United Nations estimates 600 million people live in "absolute poverty" while the USDA declares that 40 million Americans are "food insecure" (11 million miss daily meals), a term that replaced "hungry" as the Bush administration felt "it could not determine" what being "hungry" constituted.
Clearly, the private equity "bust-out" business model is threatening an already tenuous 21st-century American democracy. For workers, the buyout and subsequent "bust out" of scores of American companies has helped to stagnate wages, roll back hard-fought labor protections, undermine unionization, inflate the already astronomical price of healthcare, and make it nearly impossible for many to save and build towards retirement or the semblance of a secure future.
The income gap is the largest since 1928 with the wealthiest 1% controlling nearly 30% of the country's wealth. The numbers don't lie, no matter how much proponents of private equity, deregulation, and "small government" try. And they are telling. In 1960, the average CEO made 41 times what the average worker made. Not good, and certainly not fair. Yet compared to now, when the average CEO makes 400 times what the average worker makes, those old numbers seem like a fantasy.
Certainly, we want and need Americans to do well, but wealth must be spread across every section of America, not limited to the tiniest fraction of Americans. As recent economic indicators prove, hard work does not pay as most Americans work longer hours for much less. The poverty line for one person is $10,400. Working 40 hours at the minimum wage barely gets you to that number and this is certainly not enough to survive on. For a family of four the line is $21,200. The minimum wage doesn't get you close (unless you put your children to work). What does this all add up to? As Senator John Edwards wrote in his powerful Wall Street Journal op-ed piece "My Plan to Stop Corporate Abuses," "Forty percent of all economic growth over the past 20 years has gone to the top 1% of American families . . . the success of our own economy demands that we uphold our country's values: fair reward for work and opportunity for all."
Opportunity is key but is in short supply these days, thanks in large part to the "bust-out" schemes. It is time to take a stand and take back the economy. Republican Presidential candidate Senator John McCain (the hero of campaign finance reform with the McCain-Feingold Bill) had a chance to stand with workers by voting for a bill that would ensure equal pay for women. Ironically, McCain voted against it while campaigning through the poorest regions of the country, claiming "This is government playing a much, much greater role in the business of a private enterprise system." If that didn't make his stance painfully clear enough, Senator McCain also staunchly refuses to close the tax loophole that allows private equity executives to pay fewer taxes than a janitor.
To be sure, Senator McCain is no friend of the working-class or middle-class taxpayer. Remember the Charles Keating Savings and Loans scandal (a precursor to the looming private equity "bust-out" era) that caused 1,600 banks to close and millions of people to lose their life savings. Senator McCain has the dubious distinction of being one of the "Keating 5," the five U.S. Senators who were bought and then sold out millions of American's for some $300,000. That crisis eventually cost $161 billion dollars of which taxpayers paid $124.6 billion. This led to a huge budget deficit and then the 1990-91 recession. As one private equity executive told me the other day, "What do you expect? This is not a community, this is capitalism!"
Working with the Service Employee International Union, which represents 1.5 million public service workers, nurses, hospital staff, nursing home and home care providers, building services workers, and security guards, we at La Lutta NMC (www.lalutta.org) in partnership with Noise Pop Industries (www.noisepop.com) are producing a series of short films addressing the issue of income inequality to make sure that this issue is front and center in the presidential race -- the country being mired in a war that has drained us of resources and spirit, this election, for working people, is perhaps the most important in American history -- and beyond. "No Free Lunch" is the first in the series and stars the scathing and hilarious comedian Lewis Black. We are currently in pre-production on the second and third films, which will continue what we started with "No Free Lunch."
Please go to <www.july17action.org> to see the short version of "No Free Lunch" and learn how you can get involved in actions against corporate greed. For the full version, please visit <youtube.com/user/TakeBacktheEconomy>.
Antonino D'Ambrosio is the writer, director and producer of "No Free Lunch" starring Lewis Black. D'Ambrosio's next book is A Heartbeat and A Guitar: 1964, Johnny Cash, Civil Rights and the Battle for America (Nation/Basic Books).