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Thread: Tall Tales About Private Equity

  1. #1
    Havakasha is offline

    Tall Tales About Private Equity

    Tall Tales About Private Equity
    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.

  2. #2
    SiriuslyLong is offline
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    Joined: Jan 2009 Location: Ann Arbor, MI Posts: 3,560
    Cory Booker May Not Want To, But Robert Reich Goes Right Ahead And Indicts Private Equity

    May 22, 2012 11:04 pm
    By Scott Nance
    Democrat Cory Booker may not want “to sit here and indict private equity” like that once run by Republican presidential hopeful Mitt Romney, but a former Labor secretary was more than happy to take that plunge.

    Booker, the mayor of Newark, N.J., stirred up a firestorm Sunday by appearing on national TV to seemingly undercut President Obama’s attacks on the way Romney handled his time at the head of private-equity firm Bain Capital.

    However, Robert Reich, the Clinton-era Labor secretary and noted liberal economist, teamed up with to create a lively and clever Web video which describes just why a political critique of private equity firms is entirely valid — “in eight simple steps.”


    I wish Solyndra could have found some private equity.... That way ALL OF US don't have to pay for one political parties mistake.

    Here's a primer on "private equity":

    Don't let the left tell you "it's bad!"

  3. #3
    Havakasha is offline
    I quess he couldnt find a way to contradict Steven Ratner. Lol.

    Look over there.....

  4. #4
    SiriuslyLong is offline
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    Joined: Jan 2009 Location: Ann Arbor, MI Posts: 3,560
    Quote Originally Posted by Havakasha View Post
    I quess he couldnt find a way to contradict Steven Ratner. Lol.

    Look over there.....
    Politics as usual. Don't care if he did create or didn't create jobs while at Bain. He's doesn't adhere to liberal ideology and that's good for me.

    You see what liberal ideology has already achieved with "government equity" lol. A $585 MM "investment" in Solyndra... Simply foolish and bad for the common good of society. That's downright anti progressive.

  5. #5
    Havakasha is offline
    Only one thing you can talk about and thats the continued talking point Solyndra. Thats kind of pathetic when there is a whole word of good "liberal ideology" has done for this countnry.
    Lets just start with Social Security and Meciare for starters.

  6. #6
    SiriuslyLong is offline
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    Joined: Jan 2009 Location: Ann Arbor, MI Posts: 3,560
    Quote Originally Posted by Havakasha View Post
    Only one thing you can talk about and thats the continued talking point Solyndra. Thats kind of pathetic when there is a whole word of good "liberal ideology" has done for this countnry.
    Lets just start with Social Security and Meciare for starters.
    It's quite relevent to the topic. Why didn't Solydra seek private equity? Why didn't private equity seek Solyndra? Probably because no one would touch it with a ten foot pole.

    So what does the Obama administration do? Invests the tax dollars from all Americans and borrows on our childrens future to "invest" in Solydra. Priceless, don't you think?

  7. #7
    Havakasha is offline
    Fox News Raises Solyndra Red Herring To Deflect Attention From Romney's Record
    January 09, 2012 12:35 pm ET by Jeremy Holden

    Chris Wallace has offered a window into how Fox News can be expected to cover improving economic news during this year's presidential election: by raising red herrings.

    Discussing criticism of Mitt Romney with Democratic National Committee chairwoman Debbie Wasserman-Schultz on Sunday, Wallace asked about scrutiny over layoffs at companies controlled by Bain Capital during Romney's tenure at the firm. Wallace then asked whether it was therefore fair to pin layoffs at the bankrupt solar panel firm Solyndra on President Obama, arguing that Energy Department loan guarantees to the firm made Obama a "venture capitalist."

    Even if we were to accept that Obama was acting as a venture capitalist through DOE loan guarantees, Wallace's analogy is absurd: Mitt Romney was not simply acting as a venture capitalist at Bain. Pema Levy at Talking Points Memo explained why the analogy is fraudulent:

    The comparison is misguided on many levels and only makes sense if you fundamentally misrepresent both what private equity at Bain meant in practice, and what happened at Solyndra. As a private equity firm, Bain Capital invested in companies and came up with a plan for making them profitable, or more profitable than they previously were. It wasn't merely a loan -- that's venture capitalism -- because it included a business strategy. Sometimes the plan was to lay off workers and cut wages and benefits. Sometimes the strategy failed and the company went under. But Romney, as CEO of Bain, was in charge of strategies that called for laying off workers while benefiting shareholders. None of that is true of Solyndra, where the company was loaned money to follow through on its own projects but ultimately failed anyway.
    As detailed by the Boston Globe during the 2008 campaign, Bain Capital specialized not just in venture capital, but in leveraged buyouts, often using a strategy "designed at the outset to cut jobs":

    The primary objective, of course, was to make money. That meant every job couldn't be saved. Some strategies, such as a roll-ups, are designed at the outset to cut jobs. In roll-ups, similar firms in the same industry are acquired and combined to boost revenues while eliminating duplicative jobs, particularly in administrative areas such as payroll, personnel, and information technology.
    Wallace proffers no evidence that Obama or the Energy Department set out to cut jobs at Solyndra.

    Meanwhile, Romney's record at Bain continues to come under scrutiny.

    On Monday, The Wall Street Journal reported:

    The Wall Street Journal, aiming for a comprehensive assessment, examined 77 businesses Bain invested in while Mr. Romney led the firm from its 1984 start until early 1999, to see how they fared during Bain's involvement and shortly afterward.

    Among the findings: 22% either filed for bankruptcy reorganization or closed their doors by the end of the eighth year after Bain first invested, sometimes with substantial job losses. An additional 8% ran into so much trouble that all of the money Bain invested was lost.
    Wallace's strange diversion -- already being promoted by the right-wing echo chamber -- could serve to insulate Romney from any further examination of his time at Bain and the effect the strategic decisions he made there had on employment and the broader economy. As Greg Sargent has noted, jobs creation is emerging as one of the central issues of this election and Romney's campaign.

    In recent days, Romney's oft-stated claim to have created 100,000 jobs while at Bain has come under scrutiny amid questions that his campaign is cherry picking companies that created jobs and whitewashing those that lost jobs.

    After a Romney aide told Glenn Kessler of The Washington Post that the campaign was basing its figures on only three companies, Romney was pressed to explain the claim during an ABC News debate. He said that during his tenure at Bain, the firm "invested in over 100 different businesses" and that "net, taking out the ones where we lost jobs and those that we added, those businesses have now added over 100,000 jobs."

    At this point, the only actual evidence cited by Romney's campaign is the jobs created at three firms. The Associated Press analyzed Romney's statement at the debate and concluded:

    No one has been able to produce a full accounting of job gains and losses from the scores of companies Romney dealt with at Bain. But a Los Angeles Times review of Bain's 10 largest investments under Romney found that four of the big companies declared bankruptcy within a few years, costing thousands of jobs and often pension and severance benefits.
    The question as to the net effect that Romney's decisions at Bain had on employment remains an open one. It's a question that requires nuance and a careful explanation of the net effect decisions made had on the overall economy, particularly given the fact that the the private sector under President Obama created 1.9 million jobs in 2011 -- the fastest rate of private sector job creation since 2005.

  8. #8
    Havakasha is offline
    It is important to note that despite the Solyndra scandal, the Department of Energy’s renewable energy loan guarantee program has had many more successes than failures. It plays an important role in expanding renewable energy in the US and helps move solar, wind, geothermal, etc. towards economies of scale where they will be able to compete with traditional energy sources. We will cover some of the program’s successes in upcoming pieces.

    Are you sure there wasnt ANY private equity involved with Solyndra?

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