The Pain of Bain Falls Mainly on the Insane

Romney's time at Bain is the best, most defensible part of his record

Newt Gingrich, fresh off of making tens of millions as a DC insider access provider to the rich and famous, has a lot of chutzpah criticizing Romney, and by implication, capitalism. Operatic bloviator Gingrich sternly intones how Romney has some explaining to do, while laughably characterizing his gold-plated lobbying as "history consulting."  Sure, DC is constantly clamoring for the services of historians.

Romney made billions and saved companies while Newt danced and sang on the Good Ship Freddie Mac, and we are still paying for the malfeasance that went on there while The Great Historian was collecting his government-funded fees.  And only raw politics unencumbered by principle can explain why the inarticulate governor of America's free enterprise job engine would would join in on the gang attack.

Private equity is a route firms in trouble often take.  Usually, the only alternative left is going out of business, resulting in everyone losing their job.

First, a brief explanation of private equity from economy reporter Robert Samuelson. I recommend the entire article. It is a dispassionate, fact-based examination with blessedly lucid explanations:

Private equity refers to groups of investors buying the stock of an existing company, thereby “taking it private.” Because most purchases use borrowed money (“leverage”), these transactions are known as “leveraged buyouts.” Once the investor group has control, it tries to improve profitability by lowering costs and increasing sales. The hope is to resell the business at a huge gain; this usually takes three to 10 years. In 2010, private-equity firms invested $148 billion in 1,234 U.S. companies, says the Private Equity Growth Capital Council. (WaPo - Samuelson)

For those leftists of all parties still bawling about Bain, investment banker and Obama man Steve Rattner comes to Romney's defense.

Bain Capital is not now, nor has it ever been, some kind of Gordon Gekko-like, fire-breathing corporate raider that slashed and burned companies, immolating jobs wherever they appear in its path.

Wall Street has its share of the “vulture capitalists” that Texas Gov. Rick Perry enjoyed mocking in South Carolina earlier this week. But Romney was almost the furthest thing from Larry the Liquidator. (Rattner - Politico)

Don't Blame Bain -- Blame Government Tax Policy

First, it’s fair game to question the amounts of debt that are sometimes used in leveraged buyouts. While higher debt usually means higher returns — because debt is cheaper than equity, thanks in part to its tax deductibility — it also means higher risk of bankruptcy.

Bain had less than its share of bankruptcies, but it had a few — it appears four — that are particularly troubling. In all those cases, when the portfolio companies initially showed signs of promise, Bain took advantage of their progress to borrow more money, which it took out as a dividend. Later, the fortunes of each company turned down, ultimately into insolvency.

When Bain “releveraged” those companies and took the cash out, the investment managers of course had no idea that the companies would later falter. But with the benefit of hindsight, taking a more conservative approach and refraining from squeezing these dividends out of the companies would certainly have been more prudent. (Rattner - Politico)

The liberal Rattner concludes...

It’s certainly fair game for any candidate’s opponents to dig into his record. But in Romney’s case, focusing on questions about his principles — and his current, staunchly conservative ones — could be more productive than trying to rewrite the firm’s history.    (Rattner - Politico)

Indeed.  Go after Romney on his liberal record and statist reflexes, but his Bain actions appear to be on the up and up.  Upon comparison, Obama is clearly the superior job-destroyer and money waster.

Which is worse?  Greedy Wall Street bankers making money by saving (or sometimes dismantling) sinking companies, or rapacious federal flying monkeys snatching tens and hundreds of billions from innocent citizens and blowing it on green energy  failures and government-funded car fires?

Finance is only one part of capitalism.  To put all of this in a larger context, I recommend Adam Davidson's excellent article in Atlantic, Making it in America, where he gives us insight into manufacturing in America.

Further Reading:

The Great Bain Diversion
The Truth about Bain and Jobs
The Battle of Bain Capital
Romney Doesn't Need to Apologize
Does Romney have the Right Kind of Business Background?