Previously: That’s a really good question (July 3, 2012)
“…you can only put thirty thousand dollars per year as a regular person into these accounts. How could he possibly have grown that account to one hundred and one million dollars?…”
Jennifer Granholm on Current TV:
Jennifer Granholm: Governor Romney’s IRA, his Individual Retirement Account, is reportedly worth as much as one hundred and one million dollars. This is just his retirement account. But you can only put thirty thousand dollars per year as a regular person into these accounts. How could he possibly have grown that account to one hundred and one million dollars?
Edward Kleinbard: Uh, uh, you know, again, this, this is a great mystery and, um, there are, uh, two possibilities. One is that from a little acorn a mighty oak grew very, very quickly, uh, extraordinarily so. Uh, but at [crosstalk] thirty thousand dollars a year for fifteen years.
Jennifer Granholm: How can that be? Wait, wait, wait, wait, don’t move away from that. How could this, what little acorn would have grown to a hundred and one million? And I want to get some of that acorn.
Edward Kleinbard: Exactly so. Me, too. Uh, you would have to have had, um, if you actually put thirty thousand dollars of cash, uh, away in a 401K plan for fifteen years, which was his tenure at Bain. You know, that by itself is four hundred and fifty thousand dollars. So you can imagine you need, you need a, uh, a return of like thirty percent a year to, to reach a hundred million dollars.
Jennifer Granholm: Which is ridiculous.
Edward Kleinbard: Exactly. So, the other possibility, uh, and the one that I find quite troubling, and again, disclosure would clarify all of this, complete disclosure would clarify it, uh, is that, uh, he didn’t just put thirty thousand dollars of cash in the fund which then went out and invested in, you know, S and P five hundred public stocks. The money went to buy, uh, interests in Bain funds that he himself controlled and he sold them at prices that he set. And the question is, did he set those prices at an honest fair market value [crosstalk], or did he lowball the prices?
Jennifer Granholm: Okay, wait, now, I just want to be clear about this. So, what you’re saying is that somebody can, um, put something into their IRA where they set the value of it and if it comes in under that thirty thousand, is that what it is, if it comes in under that cap that it’s okay, or is it a special deal [crosstalk] with private equity?
Edward Kleinbard: No. No, it, it’s, uh, it’s not okay. Uh, the price at which you sell into your 401K or IRA plan has to be the market price for what you’re selling. And so, if in fact you systematically are selling, um, uh, speculative, uh, uh, positions in private equity firms, uh, private equity funds, investments that you’ve made, uh, and you’re systematically doing that for nominal prices, that’s in fact a very serious issue.
Jennifer Granholm: So.
Edward Kleinbard: Because, he would not have offered me the opportunity to buy those same interests at the, at nominal prices. And so, that’s the question. [crosstalk] That’s the issue.
Jennifer Granholm: So, in other words, if I’m, I just want to read into it, ’cause I just want to say it as it is. So, he would have put into his IRA something that he put a value on which had the potential to grow enormously, so he maybe would have, again, this is all speculation on our part, he maybe would have undervalued it as it went in to the IRA, grew enormously, he wouldn’t have had to pay taxes on that because it is exempt from tax ’cause it’s an IRA. So that’s how possibly it could grow to some astronomical amount like a hundred and five million?
Edward Kleinbard: Right, because, if it, imagine, just as by way of an example, imagine that you, you valued, um, uh, positions that you sold to your IRA at ten cents on the dollar, ten percent of what they’re really worth. Well that means that you can put three hundred thousand dollars into your IRA, not thirty thousand dollars. Now, what’s very frustrating to me about all this, uh, you know, is that, uh, we, we can only, uh, talk in abstractions and generalities because, again, of the lack of disclosure. These are issues that, that, that would be clarified presumably to the governor’s, uh, benefit if he were to be [crosstalk], if were to be more candid with the American people.
Jennifer Granholm: If he were to be open, open.
Edward Kleinbard: Exactly.
Jennifer Granholm: All right.
It’s the one percent’s world, the rest of us only get to subsist in it.