Just passing along a noteworthy Bloomberg article. Noteworthy because the author, Anthony Luzzatto Gardner, is Managing Director for Structured Finance at Palamon Capital Partners (a private equity fund). He points out in Bloomberg the particular nature of the deals orchestrated by Bain during Romney’s time at the tiller in an opinion piece titled Romney’s Bain Yielded Private Gains, Socialized Losses.
What’s clear from a review of the public record during his management of the private-equity firm Bain Capital from 1985 to 1999 is that Romney was fabulously successful in generating high returns for its investors. He did so, in large part, through heavy use of tax-deductible debt, usually to finance outsized dividends for the firm’s partners and investors. When some of the investments went bad, workers and creditors felt most of the pain. Romney privatized the gains and socialized the losses.
What’s less clear is how his skills are relevant to the job of overseeing the U.S. economy, strengthening competitiveness and looking out for the welfare of the general public, especially the middle class.
Thanks to leverage, 10 of roughly 67 major deals by Bain Capital during Romney’s watch produced about 70 percent of the firm’s profits. Four of those 10 deals, as well as others, later wound up in bankruptcy. It’s worth examining some of them to understand Romney’s investment style at Bain Capital.
He goes on with some details and the particular character of the types of deals Bain was engaged in.
Some noteworthy quotes from the comments:
The U.S. government is not a business. Unless Mitt plans to borrow another several trillion, pocket a chunk of it, and fire the citizens, his experience is worth less than nothing.
What Bain has done with some pension plans is perfectly legal, although hardly ethical.
Pensions are protected by ERISA, and the tax-payer foots the bill when a Bain-funded entity is relieved of pension obligations through bankruptcy.
This is a perfect example of privatized gains and socialized losses.
I’ve always had a hard time seeing how Bain could be held up as a qualification of any kind for POTUS. Certainly brokering deals is part of the job description, but deals dependent on loophole exploitation seem few and far between for the job.
UPDATE: Should have done this before – hat tip to Ed Brayton.
This is the best post I’ve seen in quite a while here.
Awesome analysis, and I hope we collectively pick up this meme and push it.
What is the social value of business? Of finance capital? Of Wall Street? Bain as described here is the poster child for government regulation.
Mr. Lynne says
… assert that the only values that business are to embody are to enhance shareholder value. To me this is pretty obviously false. Businesses have value beyond their share price. We all want jobs, but we don’t necessarily all want shares. Our communities like these jobs and businesses, but also like to have good corporate citizens. The products that are made by businesses have value to us (obviously). I value that there are medications that exist for our benefit even if I have no need to buy particular ones personally. There are values and our corporate governance structure only takes into consideration the obvious one. This is not radical, I believe Smith himself agrees with me. In our system where such governing structures limit the expression of values we want from our corporate civics, it becomes necessary for law and regulation to ensure the expressions that governance leaves out. Where businesses are able to violate the values we want, and where such a violation isn’t just the result of an otherwise acceptable trade-off, we can say the law was inadequate to the task. This seems to happen more and more as business, and it’s governing structures of limited values, are able to assert themselves into the legal machinery through regulatory capture.
But hey, what do I know?
I’m convinced. It has been in the best interests of business to be good citizens; after all, they rely on the non-business segment of society to thrive. I suppose there is an argument to be made that true competition regulates the behavior of the marketplace as dictated by consumers, but at some point, inequalities arise and that balance dissipates. When that happens, interests become powerful and, well, if not lawless, then morally bankrupt. There is a case to be made for the corporation as sociopath.
Keep telling yourself this. As I predicted on Monday, that mean ad Obama produced of Mitt singing would BACKFIRE like a 74 Ford Pinto and guess what? Gallup has gone from Obama +2 to now even, CBS and Ramussen have Mitt up by a point. I told you he would lose the lead by Friday.
Barack Obama certainly worked in the private sector, from Wikipedia In 1993, he joined Davis, Miner, Barnhill & Galland, a 13-attorney law firm specializing in civil rights litigation and neighborhood economic development, where he was an associate for three years from 1993 to 1996, then of counsel from 1996 to 2004.
And those polls you reference A) probably weren’t even the the field when the ad went up and B) are all within the MOE (margin of error).
I did not know he worked at a law firm. Is that the skill set we need to create jobs? I mention the polls b/c some asked if I had a crystal ball, snide comments like that.
how many presidents worked in the private setor before taking office. We won’t count the slave holders because we are progressives here:
The W: owned a baseball team, lost his shirt as a wildcatter (probably looking for those billions of barrels of oil bubbling up) and then crashed the economy.
Clinton: no private sector experience to speak of and I’m told the economy did pretty well.
Bush 41: forgetaboutit
Reagan: could read a movie contract and you keep telling me how the economy was.
Carter: a farmer. Maybe that explains it.
Ford: don’t know
Nixon: spent his time out of office lurking around the mahogony offices of DC firms. Gave us wage and price controls – who knew?
LBJ: Full time pol, yes?
JFK: Full time pol and trust fund manager. Economy was good.
IKE: Full time general, president and inspector of golf course landscaping. Economy ran itself.
Truman: owned a hat shop. There ya go.
FDR: President for life made a silk purse from a sow’s ear.
Hoover: Well, there it is, isn’t it
HR's Kevin says
That poll difference is not statistically significant and is well within the measurement error. You can’t use that of evidence that there has been any change at all, much less that it was caused by this particular ad as opposed to some other issue. You are just making yourself look foolish by crowing over this imaginary victory.
Also from gallup.com:
There is also this article from gallup suggesting that negative ads from both sides have tended to reinforce already held beliefs rather than change their minds:
This suggests that the ad in question is not likely to change polling numbers but may help fire up Obama supporters or make it more likely they will show up at the polls.
…if I’m a citizen looking to elect a President I want someone who has experience in public service; if I’m a shareholder or director looking to elect the next corporate CEO I would be looking for someone with business experience. I’m not at all convinced the skill sets translate in either direction.
Most businesses fail because of a lack of capital. Any company that wants to expand and grow requires credit. What is leverage besides credit?
Investors steer money towards ideas and products that have the best chance of fast and big success. Those companies also create the most jobs and the best products. Regulation and taxes to limit that investment have the effect of limiting job growth and product development.
Mr. Lynne says
But does not negate the thesis. Of course there are limits. My point is that there should be limits because unbridled satisfaction of only narrow interests necessarily can create societal losers. Many times those losses are legitimate acts of creative destruction, but sometimes they are expressions of an unacceptable disregard for other societal values. The thing is, from the perspective of maximizing shareholder value, every regulation is onerous. Shareholder value would demand the elimination of the EPA, of ADA, of NFPA, SEC, etc. Tough cookies.
Why is it that because the government picks winners and losers in a time of crisis it is perceived as bad. Doesn’t private equity also pick winners and losers on a daily basis? And, as with GM, private equity decided it was a loser, yet the government invested in it. What you describe is the sound of one hand clapping – there is a social cost that does not figure into the free-market model where business makes all the decisions.
Private equity uses investors monies, GM received monies from the U.S. Treasury.
John Tehan says
…and they’ve returned to profitability, saving hundreds of thousands if not millions of jobs.
I thought GM still owes $25 billion?
John Tehan says
…is clearly not worth the space it’s taking up between your ears. GM paid off their government loans, with interest, five years ahead of schedule. The Treasury still owns a lot of GM stock, which will now be sold as they return to profitability. Naturally, Republicans will spin this and say that GM still owes the government a pile of money, but they will be lying when they do so.
They started to pay back the loans five years before they were scheduled to begin, but they haven’t finished doing it yet. I share your irritation, but please don’t let yourself be goaded into carelessness.
had an agreement. GM has begun repayment earlier than scheduled. Where is the problem?
And after Johnt001 couldn’t help himself and took a personal shot at me and clouded the issue with loans being paid back but some swaps between Treasury and GM. Do they or do they not owe $25 billion? All I am asking. Also, ask SomervilleTom to read my latest post on energy. I want to know if Richard Lindzen is a “crackpot”.
must be a businessman?
Heck no!!! My ideal businessman is one who is successful, makes lots of money building things like an office supply store or a steal plant in Indiana, learns from failures, and is what we Yankee fans call George Steinbrenner, THE BOSS of the operation.
Know anyone like that?
UAW took a haircut and don’t think anyone at Ampad is praising the BOSS of that operation.
But I bet if Steinbrenner – THE BOSS as you call him – made a run for president, he would produce his ta returns.
Just like the public unions in California bankrupting a city a week now. Regarding Ampad, Mitt plowed millions and millions into new equipment and plant operations, yet the employees made no concessions and China dumped their cheap steal into the US market. Now we will have a POTUS who will stand up to the Chinese, not bend over.
drove GM into bankruptcy and their car sales show it. The UAW took 30% pay cuts and a no-strike clause.
But the question remains: The government loaned money to GM. The company is now profitable because of it. Many jobs were saved and created and they are repaying the loan sooner than they agreed to. Why is this a bad thing?
GM should have went thru bankruptcy court first, as Mitt suggested, then if necessary, throw a lifeline. I believe the shareholders got screwed, from what I hear. Hence, crony capitalism.
I am glad they are doing well. I have only purchased Big Three vehicles.
“Retirees who belonged to the United Automobile Workers and two other unions while at Delphi got their full benefits after the bankruptcy, because of an unusual side agreement with General Motors, which was honored even as G.M. also went into Chapter 11 that year. Retirees like Mr. Gump who were not union members, or who belonged to smaller unions, did not get such help. ”
But I’m glad you’re glad that they are doing well, especially all those working people who kept their jobs. Too bad about Mr. Gump – if only he had union membership and a democratic voice, things might have turned out better for him.
John Tehan says
1.) That was not a personal shot at you. That was an attack on your ideas – “what you think” – perhaps you should read it again.
2.) When I answered, I was relying on this article at factcheck.org which says, in part:
Unfortunately, that was from 2010, which I did not notice at the time, so the situation may have changed. I apologize for that oversight on my part, it would appear that at least some of the space between your ears is being put to good use.
GM could not get private investment, so they got a government loan with conditions. It really doesn’t matter what you call it, what would the consequences look like if GM went under? Has GM changed its ways in terms of doing business? Has GM execs and labor made mutual sacrifices in order to make a productive company? Can the banks give similar answers to these questions?
You borrow money from a bank, you deduct the interest as an expense – the bank pays taxes on the interest on the income. Not corporate socialism. A123/Solardyne/Evergreen/Liberty Mutual/Mass Film Credits – that’s corporate socialism.
It simply cherry picks some Bain deals, and one of them was a huge success story, Accuride, now a $1 billion-revenue public corporation employing 2,800 people — DESPITE a 2009 bankruptcy. How is this a bad thing? Because it was leveraged? And private leverage at that? Come off it.
And want to talk about “socializing” corporate failures? What else was Obama’s bailout of GM, including funding of the UAW’s pension? All on the taxpayers’ dime. How is this OK, and not private investment with private reward or failure, levered or all-cash?
Staples, or Solyndra? I choose Staples.
Absolute disgrace picking on an old man because he donated to Romney. Tell the Prez. We don’t live in Syria.
…and the President isn’t targeting them. Seems Mr. Vandersloot is a bigger threat to democracy than the President is.
(( Couldn’t we rate, or at least upthumb, comments as well as main posts? ))