Romney may have caught flak for saying that he likes being able to fire people, but at Bain he showed that he knows how to handle underperforming executives — including his old boss and mentor, Bill Bain. Romney wrested control of the firm from the senior partners who had run it onto the rocks, and twisted their arms into returning more than $100 million in cash and securities. In return for his doing so, many of Bain’s creditors agreed to write down some of the firm’s debts. When somebody owes you money, the last thing you want is for him to go into bankruptcy — better to get back 85 cents on the dollar of what you’re owed than to get back $0.00. Among the Bain debts written down was that owed to the Bank of New England, which had by that time gone bust and been taken over by the FDIC. Bain’s sole involvement with the FDIC in the matter was that the regulator, acting as receiver for a failed bank (i.e., doing its job) agreed to a run-of-the-mill debt writedown, like any number of creditors do any given day of the week.
The free-market purists among you might believe that there should be no such thing as an FDIC, but that is, at this point, a philosophical question. The FDIC, as I have argued in National Review, is the best-performing financial regulator we have, and what it does is the opposite of bailing out institutions. Bailouts are retrospective, cooked up after a company gets into trouble. What the FDIC does is prospective, ensuring that banks can cover their deposits and providing insurance in case of insolvency. Bailouts involve transferring taxpayers’ money to banks; the FDIC charges banks a fee (essentially an insurance premium) for its services. It is, in other words, exactly the kind of institution we wish we had in place to prevent bailouts. The FDIC is not perfect, but it gets the job done.