“There Are Known Unknowns And Unknown Unknowns”: What We Don’t Need To Know About Bain Capital
We’re asking the wrong questions about private equity.
The debate over Mitt Romney’s tenure at Bain Capital has moved through a number of phases, from “Did Mitt Romney do awful things at Bain Capital?” to “Should the Obama campaign be criticizing Mitt Romney for what he did at Bain Capital?” and now, “Is private equity a good thing or a bad thing?” Shockingly, people in the private equity business think the answer to the last is that it’s quite good. The predominant opinion from other people is that it’s sometimes good and sometimes bad, which from what I can tell it’s a pretty good summation of Romney’s PE career. At times, he helped start companies that went on to thrive, or helped companies perform better and survive. And at other times, he acted as what Rick Perry called a “vulture capitalist.”
But while it may be an interesting discussion for economists and economic writers to mull over, “Is private equity good or bad?” really isn’t a question we need to answer in the context of this presidential campaign. The question we need to answer is, “Does running a successful private equity firm mean you’ll be a successful president?” Mitt Romney’s answer to this question is, “Yes, because running a successful private equity firm means you know how to create jobs.” Barack Obama’s answer to this question is, “No, because being president is nothing like running a private equity firm. And also, Mitt Romney is a jerk for profiting while all those people got pink slips.”
It would actually help us understand this better if Mitt Romney talked more specifically about what exactly he learned at Bain that he’ll bring to the Oval Office. Unfortunately, he doesn’t get into much detail about his time there. If you asked him the question, he’d almost certainly say he learned that taxes should be cut and regulations should be scaled back, and that will create jobs. In other words, he’d repeat the standard Republican economic arguments, which really tells us nothing. But maybe I’m not giving him enough credit. Maybe there are some surprising insights about the working of the economy that he could only have gleaned at Bain. If there are, he hasn’t shared them yet.
And that’s really the rub. President Obama is right when he says that the presidency is a very different job from being a private equity CEO. Just when it comes to the economy, creating the right conditions for widely shared growth is not only a matter of wanting to do the correct things, it’s also about being able to accomplish them–convincing Congress to go along with your agenda, insuring that it’s implemented properly, balancing the competing interests that press on a president, and so on. Romney says he knows what to do because of his time at Bain (even if the substance of what he wants to do is the standard Republican wish list) but he hasn’t explained how his time at Bain taught him how to do it. He might argue that he learned that being governor of Massachusetts. But he almost never talks about his time as governor—it’s his time in the private sector that he says is the reason he can be a good president. And that’s not even mentioning all the other aspects of the presidency, like foreign policy, that I assume not even he would claim you prepare for by buying and selling companies.
Chances are slim that Romney is going to get too far into the details of what a private equity firm like Bain does, because the picture is mixed. Yes, he can point to some successes, companies Bain helped build or saved from decline. But that means he’ll also be asked about the failures. And as Tim Noah explains, the whole genius of private equity is that guys like Mitt Romney win either way. If the company they buy succeeds, they’ll get spectacularly rich. But if the company fails, they’ll still get rich, because the money they used to buy it was borrowed, and they were raking in huge management fees all along the way. That’s a story Romney would rather not tell. So he’ll stick to simple assertions, like “I know how the economy works.” Which leave us not knowing what he really knows, or doesn’t.
By: Paul Waldman, Contributing Editor, The American Prospect, May 23, 2012
“Why Bain Questions Matter”: Free Markets Should Serve All The People
Who are the dastardly enemies of free enterprise who decided to make an issue of Mitt Romney’s tenure at the private-equity firm Bain Capital? Er, those would be his fellow Republicans.
Listen to what Newt Gingrich said in January: “The Bain model is to go in at a very low price, borrow an immense amount of money, pay Bain an immense amount of money and leave. I’ll let you decide if that’s really good capitalism. I think that’s exploitation.”
Or what Rick Perry said that same month: “There is something inherently wrong when getting rich off failure and sticking it to someone else is how you do your business. I happen to think that that is indefensible.”
When Democrats say things like that, they’re accused of being Bolsheviks who want to destroy capitalism. But even in the context of the GOP primary battle, where “moderate” was the ultimate epithet, Romney’s actions at Bain were seen as raising a legitimate and important question: Shouldn’t free markets serve the American people, rather than the other way around?
President Obama is right to raise this issue now. I wish he had done so during the debate on financial regulatory reform — only now is he posing the kind of fundamental questions that needed to be asked — but better late than never. In his defense, a tough reelection campaign does tend to focus the mind.
There’s nothing inherently wrong with private equity, which plays an important role in the economy. And, of course, there’s nothing wrong with wealth; those who risk their capital in private-equity ventures should be rewarded when those deals pay off. No one begrudges Romney his offshore investment accounts, his mansions or his wife’s Cadillacs.
But as Romney himself acknowledges, free markets need rules and regulations in order to function. Some kinds of dealings are prohibited or even criminalized — insider trading, for example, because of the way it benefits a select few at the expense of other investors.
It is reasonable to ask whether some highly leveraged buyout deals, of the kind that Bain and other private-equity firms often conduct, should fall into the same thumb-on-the-scale category as insider trading.
Suppose a company is failing and appears beyond rescue. Suppose a private-equity firm buys the company with borrowed money, burdens it with more debt, and then spends the next few years firing workers, selling assets, eliminating pension plans — all while collecting handsome “management fees.” Then the company fails anyway, as it was fated to do.
What higher economic purpose has been served? Why is this not what Perry memorably called “vulture capitalism”?
The discussion we should be having goes far beyond the relatively small world of private equity. Look at the mounting losses at the nation’s largest and supposedly best-run bank, JPMorgan Chase — at least $2 billion and perhaps much more.
The transactions that produced the losses are numbingly complex, but essentially they involved betting both ways on the direction of various economic and business indicators. The idea was to balance the bets so that if the bank’s predictions were right it would make a lot of money; if the predictions were wrong, it would lose money, but not so much.
The bank got on a winning streak, so it made bigger and bigger bets. Then the bank’s luck turned, and Chairman Jamie Dimon discovered that the betting positions were unbalanced — instead of losing a little money, the bank was set up to lose a lot. Sharp-eyed traders at hedge funds noticed what was happening and jumped in to take advantage of a big spender on the skids.
That’s a classic Las Vegas story, but why should it be a Wall Street story? Should a bank whose deposits are federally insured — a bank big enough to crash the financial system — be standing at a craps table in the middle of the night yelling, “Baby needs a new pair of shoes”?
This is what Rick Santorum said in March: “I heard Governor Romney here called me an economic lightweight because I wasn’t a Wall Street financier like he was. Do you really believe this country wants to elect a Wall Street financier as the president of the United States? Do you think that’s the kind of experience we need? Someone who’s going to take and look after, as he did, his friends on Wall Street and bail them out at the expense of Main Street America?”
Good question. I’d like to hear Romney’s answer.
By: Eugene Robinson, Opinion Writer, The Washington Post, May 24, 2012
“Between The Sensational And The Sanitized”: Mormonism Meets The Press
It’s difficult to escape the sense that something is still missing from press coverage of Romney’s Mormonism.
Witness the Sunday New York Times above-the-fold front page article “Romney’s Faith, Silent but Deep” by Jodi Kantor, a long story that presents the candidate’s Mormonism as rules-oriented, wholesome, and prayerful.
That same day the Washington Post investigated the potential impact of the 1857 Mountain Meadows Massacre—an attack by Mormons in southern Utah on a wagon-train from Arkansas—on the 2012 campaign.
This split between Mormons imagined as murderous bearded polygamists and clean-cut company men reflects a larger division in coverage of Mormonism this season between the sensational and the sanitized.
And it’s no wonder that political journalists and religion scholars alike are expressing hunger for something more.
Yesterday, in USA Today, religion scholar and author Steven Prothero lamented Romney’s own failure to engage the “Mormon moment,” blaming the quality of coverage on the general politicization of religion in the public sphere:
Not so long ago, Romney would have had to explain Mormon theology to voters in some detail. But now that religion has collapsed almost entirely into morality, all he has to do is assure us that its values are compatible with our own. I do not want liberals or evangelicals to use this election as an excuse to attack the Mormon faith… But I am chagrined to see our public square stripped of real religious conversation. Has the religious right pushed so hard to reinvest our politics with religion only to turn our religion into politics?
Prothero ends his essay with the expectation that he and others will continue to have questions about the Mormon faith this year and that “lots of people will doubtless step up to answer [those] questions.” Says Prothero, “One of them ought to be Mitt Romney.”
That’s doubtful. Whether by dint of his pragmatic personality or by official campaign strategy, Romney continues to studiously avoid open discussion of his religion, preferring instead to stress only the elements of his faith that align with campaign priorities. (Clayton Christensen, another Harvard-affiliated, business world-molded Mormon leader has emerged lately as a Romney media surrogate.)
Romney’s reticence can be understood as a feature of the late twentieth century LDS corporate culture that formed and rewarded him. Late twentieth century corporate LDS Church culture strongly emphasized disciplined messaging (also known as “correlation”) as well as individual obedience and cultural conservatism (call it “retrenchment”) in the service of institutional growth. It’s worth noting that correlated, retrenched corporate Mormonism (insiders sometimes call it the “MORG”) is not the only way to do Mormonism, but it is the way Mitt Romney has practiced Mormonism and it is the brand of Mormonism that found institutional ascendancy in the late twentieth century.
It’s worth noting too that late twentieth century corporate-institutional Mormonism openly discouraged and even stigmatized critical inquiry into Mormon experience. In 1981 a high-ranking Church leader admonished Mormon scholars that “some things that are true are not very useful.” Critical inquiry within a faith tradition lays the groundwork for critical dialogue about religion in the public sphere. Without a contemporary tradition of internal debate, Mormons like Romney may find ourselves less prepared to participate in a robust public give-and-take about our own faith.
There are, of course, some outstanding examples that countervail this general trend.
Peggy Fletcher Stack of the Salt Lake Tribune has been providing thoughtful and nuanced coverage of Mormonism for decades, while more recently McKay Coppins of BuzzFeed has emerged as an invaluable source on the faith angles of Romney’s candidacy. Matthew Bowman [who recently wrote about the emergence of the LDS corporate culture], Kathleen Flake, Kristine Haglund, and Ben West are among the LDS scholars whose expertise on questions of Mormon history and culture should be featured in the press.
But it seems that the problem the press faces now is knowing what constitutes an informed and critical question about Mormonism—how to inquire probingly about a religion that is so young, so unfamiliar, without appearing anti-religious or anti-Mormon. What are the questions to ask?
Perhaps it’s worth remembering that Mitt Romney represents one variety of Mormonism: a late twentieth century corporate institutional Mormonism focused on growth. Every corporate growth strategy has winners and losers, and there are losers in the institutional history of Mormonism too. Who lost? How were they treated? Where did they go? How do the winners of late twentieth century corporate institutional Mormonism (like Romney) relate to the losers?
If that sounds too much like a story about Bain Capital, let me translate these questions into religious terms. Conflict between individual conscience and institutional mandates is a timeless religion story—think Abraham, Augustine, the Reformation. How individuals process and manage such conflicts discloses important information about the nature of their faith, their methods of decision-making, and the quality of their moral deliberation. Is there any moment at which Mitt Romney found himself in conflict with his own church?
We know, for example, that Romney (like many other Mormons) celebrated the Church’s lifting of the 1978 ban on black ordination. How did he feel about the ban before that time? Did he experience a conflict between individual conscience and institutional policies? How did he understand the value and the costs of the Church’s segregation? How did he manage it? What did he learn about authority, fairness, and conflict from this important period in LDS history?
This is the rugged interior landscape of faith—scholars call it “interiority.” Regular people call it “soul.” I know that Mormonism has soul, and I’m quite certain Mitt Romney does too. But if Romney really is just a by-the-book decision maker who always finds himself in perfect harmony with the priorities of large corporations—religious or financial—voters should probably know that as well.
Perhaps this is the place for serious journalists to dig in.
By: Joanna Brooks, Religion Dispatches, May 22, 2012
“It’s Not An Attack On Capitalism When Done By Republicans”: Mitt Romney’s GOP Primary Opponents On Bain Capital
Romney has placed his record at Bain at the center of his campaign. In April for example, Romney said, “You might have heard that I was successful in business. And that rumor is true…And after 25 years, I know how to lead us out of this stagnant Obama economy and into a job-creating recovery!” (Multiple independent fact checkershave concluded that Romney’s claims on job creation at Bain are simply false.)
On Monday, President Obama took Romney at his word and noted that the former Massachusetts governor’s record at Bain Capital is “not a distraction” but “what this campaign is going to be about.” Romney’s Republican primary opponents agreed, and in the last six months offered criticism of his tenure at Bain that make Obama’s remarks sound tame by comparison.
Here are the top 10 comments about Bain from Romney’s Republican rivals:
1. “The idea that you’ve got private equity companies that come in and take companies apart so they can make profits and have people lose their jobs, that’s not what the Republican Party’s about.” — Rick Perry [New York Times, 1/12/12]
2. “The Bain model is to go in at a very low price, borrow an immense amount of money, pay Bain an immense amount of money and leave. I’ll let you decide if that’s really good capitalism. I think that’s exploitation.” — Newt Gingrich [New York Times, 1/17/12]
3. “Instead of trying to work with them to try to find a way to keep the jobs and to get them back on their feet, it’s all about how much money can we make, how quick can we make it, and then get out of town and find the next carcass to feed upon” — Rick Perry [National Journal, 1/10/12]
4. “We find it pretty hard to justify rich people figuring out clever legal ways to loot a company, leaving behind 1,700 families without a job.” — Newt Gingrich [Globe and Mail, 1/9/12]
5. “Now, I have no doubt Mitt Romney was worried about pink slips — whether he was going to have enough of them to hand out because his company, Bain Capital, of all the jobs that they killed” — Rick Perry [New York Times, 1/9/12]
6) “He claims he created 100,000 jobs. The Washington Post, two days ago, reported in their fact check column that he gets three Pinocchios. Now, a Pinocchio is what you get from The Post if you’re not telling the truth.” — Newt Gingrich [1/13/12, NBC News]
7. “There is something inherently wrong when getting rich off failure and sticking it to someone else is how you do your business, and I happen to think that’s indefensible” — Rick Perry [National Journal, 1/10/12]
8. “If Governor Romney would like to give back all the money he’s earned from bankrupting companies and laying off employees over his years, then I would be glad to then listen to him” — Newt Gingrich [Mediaite, 12/14/11]
9. “If you’re a victim of Bain Capital’s downsizing, it’s the ultimate insult for Mitt Romney to come to South Carolina and tell you he feels your pain, because he caused it.” — Rick Perry [New York Times, 1/8/12]
10. “They’re vultures that sitting out there on the tree limb waiting for the company to get sick and then they swoop in, they eat the carcass. They leave with that and they leave the skeleton” — Rick Perry [National Journal, 1/10/12]
Just last night, Newt Gingrich defended his attacks, saying “I think there are things you can legitimately look at in Bain Capital. I think there are things you can legitimately look at in anybody’s record, including Mitt Romney’s record.”
By: Judd Legum, Think Progress, May 22, 2012
“The Governor Behind The Curtain”: Bain Capital Is Not Just Fair Game, It’s Beyond Fair Game
Obama supporters are seething and the RNC is dancing with delight in the aftermath of Newark Mayor Cory Booker’s nonsensical comparison of ads exposing Mitt Romney’s real record on job creation with racially tinged attacks on Barack Obama’s former pastor.
The RNC thinks that it caught the Dems with their pants down, inadvertently admitting that Romney’s work at Bain Capital should be off limits. But the indisputable fact is that Romney’s experience at Bain is completely fair game — Romney himself made that choice when he decided to present it as his chief qualification for the presidency. In fact, it’s beyond fair game: if this election is truly about jobs and the economy, then Bain is one of the only games in town.
Romney, attempting to shed his record as Massachusetts governor as fast as he can, has chosen to run almost exclusively on his record as a “job creator” at Bain. Pay no attention to the governor behind the curtain, whose state ranked 47th of 50 states in job creation during his term! In the process, he’s mixed up some of his “job creation” numbers and cherry-picked the facts he’s chosen to tell the American people. Romney keeps telling us his side of the Bain story. But are we to completely ignore the very real stories of factories shut down and American jobs lost? Let’s hear all sides of the story. Isn’t that what elections are all about?
And let’s also have an honest conversation about whether or not Romney’s success in making money for investors through his position at Bain qualifies him to be president. Venture capital and private equity have a role to play in our economy. But making money for investors doesn’t mean that you know how to make the economy work for all Americans. As President Obama pointed out yesterday, the goal of a private equity firm is to create wealth, not jobs — most often, to make as much money as possible for a few investors. The goal of a president needs to be an economy that works for everybody. That’s a critical difference.
Both candidates agree that this election is about the fundamental direction that our country will take for the next four years. We should embrace this. How about this simple concept: Let’s have that full debate about all aspects of the relevant experience of both candidates and let the voters decide.
By: Michael B. Keegan, The Huffington Post, May 22, 2012
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