Posted by: mutantpoodle | January 14, 2012

Even the liberal NPR…

I don’t want to spend my entire life writing about Romney and Bain Capital.  I really don’t.

But since the story is getting play, thanks to the desperate blaspheming of the God of the GOP (money, not Mitt) by Newt Gingrich and Rick Perry, I thought I’d give the media a handy primer on why this is important.

I bring this up because NPR whiffed on this yesterday morning.  After noting the Perry and Gingrich attacks on Bain, where Perry descried Romney’s Bain as a “vulture capitalist” and Gingrich described what Bain did, in some cases, as “looting”, John Ydestie looks for a rebuttal, and finds it at the University of Chicago.

“Looting a company and destroying a company does not create value,” says Steven N. Kaplan, a professor at the University of Chicago Booth School of Business. “At the end of the day, in order to make money, you have to sell the company to somebody, and if the company … has been looted and is unproductive, nobody is going to buy it.”

The public relations problem for private equity capitalists at firms like Bain, KKR and Blackstone is that they’re the agents of the creative destruction part of capitalism. They aim to take over underperforming firms and operate them more efficiently. [Steven] Davidoff, who worked on merger and acquisition deals as a lawyer before becoming a professor at Ohio State, says there’s no doubt that in that process people can get hurt.

“Sometimes operating them efficiently means that employees lose their jobs, plants are closed down and companies are restructured,” he says.

And that is precisely not the issue.

And it’s not that “…[Private Equity] managers make use of a lucrative loophole to cut their tax bill.” (Although, in fairness, that’s probably not the best optics for Mitt Romney, and probably why he says he won’t ever release his tax returns.)

The issue is that, time and again, Bain went into a troubled company, restructured, laid off workers, issued bonds to pay themselves, and left behind a company that failed while still making their precious management fees.

I noted in an earlier post that Bain Capital was agnostic about jobs. As they were about the long-term success of the companies they restructured. Here’s where they were devout: getting their money back.  If they got their money back, their “investment” was a success, no matter what happened to the target company later on.

Mitt Romney likes to say that his opponents are putting free enterprise on trial. Which is fine by me, even if it is apostasy, but what Mitt Romney did at Bain isn’t “free enterprise” as most people understand it.

It’s 3 card monte.

I have issues with capitalism, but not, generally, in the form where someone actually risks capital and gets rewarded. That is not the world of private equity, and to avoid the risks of pure capitalism, private equity firms do things (like issue bonds that overburden companies with debt) that make eventual failure more likely while protecting their payout.

When I wrote before about Mitt and Bain, I linked to a Vanity Fair article that talks about how Mitt started Bain Capital.  This is your risk taking, entrepreneurial GOP Frontrunner:

Starting almost immediately, Bain proposed, Romney would become the head of a new company to be called Bain Capital. With seed money from Bill Bain and other partners at the consulting firm, Bain Capital would raise tens of millions of dollars, invest in start-ups and troubled businesses, apply Bain’s brand of management advice, and then resell the revitalized companies or sell their shares to the public at a profit. It sounded exciting, daring, new. It would be Romney’s first chance to run his own firm and, potentially, to make a killing. It was an offer few young men in a hurry could refuse.

Yet Romney stunned his boss by doing just that. He explained to Bain that he didn’t want to risk his position, earnings, and reputation on an experiment. He found the offer appealing but didn’t want to make the decision in a “light or flippant manner.” So Bain sweetened the pot. He guaranteed that if the experiment failed Romney would get his old job and salary back, plus any raises he would have earned during his absence. Still, Romney worried about the impact on his reputation if he proved unable to do the job. Again the pot was sweetened. Bain promised that, if necessary, he would craft a cover story saying that Romney’s return to Bain & Company was needed due to his value as a consultant. “So,” Bain explained, “there was no professional or financial risk.” This time Romney said yes.

Mitt Romney’s Bain problem isn’t that he made a ton of money, or that he seems like a privileged douche all too often when he opens his mouth.  It’s that he’s playing the same rigged game that most people perceive Goldman Sachs et al played in the run-up to the 2008 financial collapse, and the game is fixed in his favor.

Bleating on about how criticism of his wealth and income inequality generally is based on “envy” isn’t going to cut it, although he’d better hope it does, because when people realize how the deck was stacked for Bain Capital, the reaction won’t be envy.

It will be seething fury that a group of people – and Mitt is one of them – sail along without any regard for their actions, because they  aren’t accountable for and don’t suffer for their mistakes, even if thousands of others do.

Accountability is for the envious.

[Photo of Mitt Romney in the Bain Capital days, from When Mitt Romney came to Town.]

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