Romney's record at Bain Capitol: Does it matter?

[RecycleMichael]

http://news.yahoo.com/romney-s-record-at-bain-capital--does-it-matter-.html

The issue will be the bane of our existence until November. Here it is only May – and the back-and-forth over Mitt Romney's career in private equity at Bain Capital is already as confused as Facebook's initial stock offering. Buffeted by TV ads, web videos, feigned outraged and zigzagging Democrats, voters undoubtedly are stunned by the sudden outbreak of high-decibel arguments over Romney's business career.

But do these even matter? Amongst the background noise emerges the real question: What parts of Romney's business experience would influence his actions in the Oval office? That is a central question that voters should evaluate, although finding the answers will not be easy given the frenzied spin from both sides.
 
The brickbats began last week with Barack Obama's first major ad buy of the campaign featuring a displaced steelworker calling Bain a vampire "that sucked the life out of us." A Romney response video asked, "Have you had enough of President Obama's attacks on free enterprise?" Newark's Democratic Mayor Cory Booker was featured in the Romney ad because he described the blame-Bain game as "nauseating" on "Meet the Press." Then Booker released his own video saying, in effect, that he was for the Obama attacks after he was against them. The Republicans came back with a video suggesting that the Obama campaign pressured Booker into recanting.

Next we had the pro-Obama SuperPAC ad ... nah, there is too much to summarize. But a few obvious questions spring to mind: Why in the midst of a presidential campaign do we care so much about what Booker, or any New Jersey mayor, thinks about private equity firms? How many campaign-issued web videos will it take to drive the political press corps bonkers? In the old days (around 2004), campaign admakers had to pull an all-nighter to put rapid-response TV spots on the air. Now it takes a junior press staffer maybe seven minutes to patch together a video. Is this really progress towards a more perfect democracy? And most importantly, how relevant is the Romney record at Bain Capital (and the $200-million-plus he made swapping companies) to his actually serving as president in 2013? Do the Bain years reveal that much about how a President Romney might react to a sputtering economy or a euro crisis?

Romney's passionate responses to attacks on his business record during the Republican primaries seemed genuine rather than gimmicky. (For the most part, Romney lacks that essential political gift of faking sincerity). "I will not apologize for being successful," Romney declared during a late January debate in Florida. He quickly added, with awkward syntax, "The nature of America is individuals pursuing their dreams don`t make everyone else poorer -- they help make us all better off. And so I'm not going to apologize for success or apologize for free enterprise."

Beyond the three-cheers-for-capitalism rhetoric, three things unquestionably shaped Romney's life: his Harvard MBA, his early years as a business consultant for Bain and his tenure at the helm of Bain Capital, the private equity spin-off from the firm. For all of Romney's lionizing of the risk-taking visionaries of the business world, he was initially nervous about leaving the security of business consulting to start up Bain Capital. As Boston Globe reporters Michael Kranish and Scott Helman reveal in their biography The Real Romney, "He didn't want to risk his position, earnings and reputation on an experiment...Romney worried about the impact on his reputation if he proved unable to do the job."

But Romney's late-night brooding proved unnecessary. In financial terms, Bain Capital under Romney's reign was wildly successful, averaging an 88-percent annual return over 15 years. Campaign spokesmen and hired-gun economists on both sides will wrangle eternally over Bain's job-creation record from its investments in successful start-ups like Staples to closed-factory—gate failures like the Missouri steel mill featured in the initial Obama ad. But either way, this is retroactive score-keeping like ranking baseball teams based on hot-dog sales rather than games won. What mattered at Bain Capital was the bottom line. Everything else was an extraneous detail and, in the case of job loss, collateral damage.

This is who Romney is -- a portrait in business success rather than selfless altruism. Coming out of that experience, Romney's underlying problem with voters appears to be his inability to make the imaginative leap to grasp how other people live. In late April, Romney urged Ohio college students to follow their dreams: "Take a shot, go for it, take a risk. Get the education. Borrow money, if you have to, from your parents. Start a business." These are laudable sentiments, except for one tin-ear detail: Most American families do not have a bankroll of, say, $50,000 or $100,000 sitting on the sidelines waiting to be loaned to the first child ready to launch a new business.

Bain is as substantive a part of Romney's resume as Hollywood was for Ronald Reagan. Maybe more so, because in Romney's case so much else is off-limits and air-brushed from his political history. Never mentioned by Republicans, for example, is Romney's failed 1994 Senate campaign against Ted Kennedy in which he backed gun control, proposed tying the minimum wage to inflation and appeared at a fund-raiser for Planned Parenthood. That was another Mitt Romney in another century.

Despite Romney's truth-stretching boast that he was a "severely conservative" governor of Massachusetts, his record in office suggests otherwise, inspiring a touch of forgetfulness. Never deliberately mentioned on the campaign trail is Romney's non-partisan approach to appointing judges in Massachusetts. Or his long-standing support for abortion rights until he wrote in a 2005 Op-Ed (using an eerily Obama-esque choice of words) that his "convictions have evolved and deepened on the issue." And then there is that amnesiac detail about Massachusetts' first-in-the-nation law imposing a health-care mandate on state residents.

So what's left? Romney does deserve credit for the success of the 2002 Salt Lake City Winter Olympics. Of course, the Olympics had a budget of about $1.3 billion for the three years that Romney oversaw it. That three-year total is less than the federal government currently spends every three hours.

About the only thing else on Romney's adult record is the six years that he has spent in the single-minded pursuit of the highest office. But to say that a major Romney qualification for the presidency is the years that he has spent running for the presidency is akin to Kim Kardashian (like Zsa Zsa Gabor before her) being famous for being famous.

This process of elimination inevitably leads back to Bain Capital. What matters is not Bain's job-creation record but the values that Romney absorbed on the job. Romney's belief in the creative destruction of capitalism, his conviction that a dynamic economy produces winners and, yes, losers would undoubtedly shape his presidency. That is his economic vision – and it is directly linked to his years at Bain.

The problem, of course, is that this is not the kind of argument apt to pop in TV commercials in the heat of a presidential quest. Instead, the exaggerated Democratic attacks on Romney's record in private equity are designed to make him seem like the 19th century landlord who throws widows and orphans into the cold on Christmas day. Small wonder that Obama said at Monday's press conference that Romney's Bain record is "not a distraction" before adding, with a hint of malice, "this is what this campaign is going to be about."

So it is easy to conclude that, from now until November, the Bain refrain will play mainly in the Plains – and everywhere else there are swing voters.

[nathanm]

If attacking one person's record at one company is "attacking free enterprise" you can put me down as a crusader against it. Romney's response is vapid and ridiculous. I think that makes him look worse than anything he might have done at Bain. It's not as if there's not plenty of footage of Rick Perry and Newt Gingrich, neither of whose conservative bona fides are in question, slamming Romney for his time at Bain. The other thing that concerns me is that he seems to have changed his tune regarding the number of jobs he claimed to have created during his time there. It grew by a factor of ten somehow between the time he was running for governor and the beginning of his Presidential campaign.

Personally, I'd like to see a real and substantive discussion about how appropriate it is for PE firms to do deals the way they do. There's plenty of idiocy in Romney's statements like the one about private companies never borrowing too much to not really need to look to his time at Bain to see what kind of a leader he would be. He's telling us every single day.

[guido911]

But to say that a major Romney qualification for the presidency is the years that he has spent running for the presidency is akin to Kim Kardashian (like Zsa Zsa Gabor before her) being famous for being famous.

My gosh, who in the hell does that sound like?

[Gaspar]

The Bain thing will play well in communities of voters ignorant to the role of private equity and venture capital in our economy.  Swing voters and moderates tend to be the more intelligent voters who spend less time killing their brains (like we do) with the venom of politics.  While you may be able to criticize them because their convictions are light, you have to applaud them because they alone hold the key to the temple.

Unfortunately, this writer showed his bias in this paragraph:

In late April, Romney urged Ohio college students to follow their dreams: "Take a shot, go for it, take a risk. Get the education. Borrow money, if you have to, from your parents. Start a business." These are laudable sentiments, except for one tin-ear detail: Most American families do not have a bankroll of, say, $50,000 or $100,000 sitting on the sidelines waiting to be loaned to the first child ready to launch a new business.

Most new businesses are not launched with a "bankroll."  Most are launched through innovation, and fearless perseverance. Most are launched through venture capital obtained from banks and private investors. The existence of obsticles (financial or otherwise) and failure are no reason to stop, give-up, or submit yourself as a ward of someone else. 

I disagree on his classification of Romney's words of encouragement as "tin-ear."  On the contrary, we have a growing population of young people who have been taught to fear Capitalism because it requires risk, and risk is evil.  They've been taught that the only way to build wealth is to start with wealth.  They've been programed that failure is permanent and poverty is more than just a state of mind.

Sure, sometimes you are successful your first time at bat, and sometimes you fail.  A smart man knows that in most cases, failure is the road to success.

Capitalism without failure is like religion without sin. Bankruptcies and losses concentrate the mind on prudent behavior. – Allan H. Meltzer

[nathanm]

The Bain thing will play well in communities of voters ignorant to the role of private equity and venture capital in our economy.  Swing voters and moderates tend to be the more intelligent voters who spend less time killing their brains (like we do) with the venom of politics.  While you may be able to criticize them because their convictions are light, you have to applaud them because they alone hold the key to the temple.

...

Capitalism without failure is like religion without sin. Bankruptcies and losses concentrate the mind on prudent behavior. – Allan H. Meltzer

Conflating PE and VC is like conflating investment banks and regular banks. They do completely different things that happen to both involve investment.

I'm sure Meltzer would be rather unhappy at the way corporate america has its hand stuck out as if they're waiting on a tip. You need to face the world as it is, not as you wish it were.

[Ed W]

This is related to Romney's business ventures and his run at the presidency, and it may have changed in the last year.  Didn't he have offshore accounts that were not subject to US taxes, and if so, has any other presidential candidate used similar accounts to avoid paying taxes?  It seems to me that a candidate would pay his fair share of taxes and do so proudly, not hide money in numbered accounts.   

[Gaspar]

Conflating PE and VC is like conflating investment banks and regular banks. They do completely different things that happen to both involve investment.

They both invest to sustain business during a period of insolvency.  One at the beginning and the other at the end...or new beginning.  I have a good friend who engages in both, and the consulting that goes along with it.  PE is far more difficult because it requires longer investment and a period of evaluation, and significant expertise in consulting and remodeling businesses.  Most PE firms are also engaged in VC.  It's like the french fries on the burger menu.

[erfalf]

PE just gets a bad wrap because they do the things that the companies should have done. In particular in turnaround cases. They do the things that the company should have been doing on their own to keep the company solvent. I understand it is fun to think that all PE firms are like the dude in Pretty Woman (my wife like's this one so...) that just break up companies and sell them off, not all PE is this way. Although sometimes it is, but only when there is a market for said "parts". Maybe it is better, more efficient, to do it this way. They do shut down some parts of companies, but only because they are costing the company, possibly even the livelihood of the company. I can guarantee you that a PE firm would not shut down profitable business for the fun of it. After all, they are in it to make money. Which apparently, according to Obama is not the way a Pres should think. They need to be figuring out how to loose money.

[Gaspar]

PE just gets a bad wrap because they do the things that the companies should have done. In particular in turnaround cases. They do the things that the company should have been doing on their own to keep the company solvent. I understand it is fun to think that all PE firms are like the dude in Pretty Woman (my wife like's this one so...) that just break up companies and sell them off, not all PE is this way. Although sometimes it is, but only when there is a market for said "parts". Maybe it is better, more efficient, to do it this way. They do shut down some parts of companies, but only because they are costing the company, possibly even the livelihood of the company. I can guarantee you that a PE firm would not shut down profitable business for the fun of it. After all, they are in it to make money. Which apparently, according to Obama is not the way a Pres should think. They need to be figuring out how to loose money.

Beyond that, they typically package their product into publicly available investment, and liberals hate any investment where people can make money.

[Teatownclown]

[nathanm]

Your friend's PE firm is probably nothing like a big PE firm, much the same way as Arkansas Valley Bank is not the same as BOk which is not the same as Bank of America or Wells Fargo. The "business" is the same, but differently sized banks approach the market in very different ways. They all depend on a government guarantee, but only the large ones really abuse it.

erfalf, my complaint has nothing to do with breaking up companies. Sometimes different divisions are better off as separate companies. Sometimes they aren't. The problem is that the big ones buy going concerns and turn them into not going concerns and somehow manage to turn a profit anyway. They are making money at the direct expense of others, not through the normal method of building value and thus growing the economy as a whole.

Stop listening to Hannity's description of the complaints and listen to the actual complaints.

[Gaspar]

Your friend's PE firm is probably nothing like a big PE firm, much the same way as Arkansas Valley Bank is not the same as BOk which is not the same as Bank of America or Wells Fargo. The "business" is the same, but differently sized banks approach the market in very different ways. They all depend on a government guarantee, but only the large ones really abuse it.

erfalf, my complaint has nothing to do with breaking up companies. Sometimes different divisions are better off as separate companies. Sometimes they aren't. The problem is that the big ones buy going concerns and turn them into not going concerns and somehow manage to turn a profit anyway. They are making money at the direct expense of others, not through the normal method of building value and thus growing the economy as a whole.

Stop listening to Hannity's description of the complaints and listen to the actual complaints.

Personally, I'd like to see a real and substantive discussion about how appropriate it is for PE firms to do deals the way they do.

Sorry, I guess us "free marketers" don't understand where you are going?

[erfalf]

Your friend's PE firm is probably nothing like a big PE firm, much the same way as Arkansas Valley Bank is not the same as BOk which is not the same as Bank of America or Wells Fargo. The "business" is the same, but differently sized banks approach the market in very different ways. They all depend on a government guarantee, but only the large ones really abuse it.

erfalf, my complaint has nothing to do with breaking up companies. Sometimes different divisions are better off as separate companies. Sometimes they aren't. The problem is that the big ones buy going concerns and turn them into not going concerns and somehow manage to turn a profit anyway. They are making money at the direct expense of others, not through the normal method of building value and thus growing the economy as a whole.

Stop listening to Hannity's description of the complaints and listen to the actual complaints.

Does anyone have proof that PE firms that have deals where the company goes under actually make money?

I can promise you that for all the deals they make money on, they loose money on just about as many.

[nathanm]

Does anyone have proof that PE firms that have deals where the company goes under actually make money?

Yes. Try Google. Or even the news.

[Teatownclown]

OP-ED CONTRIBUTOR
Tall Tales About Private Equity
By STEVEN RATTNER
Published: May 22, 2012

PRESIDENT OBAMA started his general election campaign by taking aim at Mitt Romney's job creation record at Bain, setting off a lively debate over the fairness of the attacks.

I am among those who have been drawn into the argument — there was even a snippet of me defending private equity in a Romney campaign ad.

As a former Obama administration official, I was uncomfortable about being used in a Romney ad in support of his position.

However, I was also concerned that the Obama ads, while narrowly accurate, might be seen to portray Bain Capital (and implicitly, private equity) in an ugly light because a few of the companies the firm invested in went bankrupt while Bain Capital still made money

On Monday, Mr. Obama struck the right balance, emphasizing that he wasn't attacking private equity but was questioning Mitt Romney's Bain Capital credentials to be the job creator in chief.

That's fair, particularly because Mr. Romney himself has been foolishly reweaving history to claim, as recently as last week, that he helped create 100,000 jobs during his time at Bain.

In fact, Bain Capital — like other private equity firms — was founded and managed for profit: ideally, huge amounts of gain earned legally and legitimately. Any job creation was a welcome but secondary byproduct.

The language in one prospectus seeking Bain Capital investors was clear: "The objective of the Fund is to achieve an annual rate of return on invested capital in excess of the returns generated" by other investments. Any job creation was accidental.

In Mr. Romney's case, his jobs assertion rests heavily on just a few early investments.

Originally hatched to provide venture capital to young enterprises, Bain Capital notched a few such successes, notably Staples and Sports Authority. These were small stakes in companies — about $2.5 million in Staples — over which Bain had little influence.

While I defend the role financiers play in making our economy work, I also concede that Mark Zuckerberg was far more central to the success of Facebook and its 3,200 jobs than the venture capitalists who invested early.

Although Bain Capital sold off those early investments years ago, Mr. Romney takes credit for every job ever created at every company Bain Capital invested in during his tenure — while ignoring jobs eliminated after his departure.

"The steel factory closed down two years after I left Bain Capital," he said last week about GST Steel, the Kansas City, Mo., company that went bankrupt in 2001. "I was no longer there, so that's hardly something which is on my watch."

Meanwhile, when Staples went public in 1989, it had 1,100 employees; at the end of 1998, right before Mr. Romney exited Bain, it had 42,000 workers. Yet Mr. Romney takes credit for the 89,000 employed at the close of 2010.

As the years clicked by, Bain Capital and Mr. Romney smelled the chance to make more money by raising larger amounts. That, in turn, led them toward classic leveraged buyouts — the purchase, often heavily financed by debt, of more established companies.

These enterprises were often what Wall Street describes as "undermanaged," which means the Bain Capital team could take "aggressive action" that often included cutting costs — read: jobs — to increase profitability.

That's not wrong; it's part of capitalism. Whatever its flaws, private equity has made a material contribution to sharpening management. But don't confuse a leveraged buyout with job creation.

Under Mr. Romney's leadership, Bain Capital engaged in the less attractive practice of putting more debt on seemingly successful investments in order to take dividends out. In at least four instances of Bain Capital investments during Romney's tenure, these "recapped" companies, of which two were featured in the Obama ads, subsequently went bankrupt, costing thousands their jobs.

To be sure, some of Bain's large leveraged buyouts — notably, Domino's Pizza — added jobs. But Mr. Romney left Bain Capital two months after the Domino's investment (7,900 new jobs claimed) was finalized.

Aware of private equity's reputation, Mr. Romney still trots around the country erroneously calling himself a "venture capitalist."

And in a further effort to deflect attention from the Bain Capital debate, Mr. Romney last week argued that President Obama was responsible for the loss of 100,000 jobs in the auto industry over the past three years.

That's both ridiculously false (auto industry and dealership jobs have increased by about 50,000 since January 2009) and a remarkable comment from a man who said that the companies should have been allowed to go bankrupt and that the industry would have been better off without President Obama's involvement.

Adding jobs was never Mitt Romney's private sector agenda, and it's appropriate to question his ability to do so.

Steven Rattner, a contributing opinion writer, was a Treasury Department official in the Obama administration.