The
left, including the Obama administration and some in the media, are
making anti-capitalist attacks on opponent Mitt Romney’s business career
the latest tactic. And the gloves are off.
On July 12, Obama’s deputy campaign manager Stephanie Cutter went on the offensive charging Romney could be a criminal: “Either
Mitt Romney, through his own words and his own signature, was
misrepresenting his position at Bain to the SEC, which is a felony. [1]
Or, he was misrepresenting his position at Bain to the American people
to avoid responsibility for some of the consequences of his
investments,” she said according to Politico.
Many
in media reacted by attacking Romney, or by continuing their attacks on
Bain Capital and the private equity industry -- tarring an industry
which benefits many people including union pensioners like teachers and
police. Few reports defended Romney, like CNBC’s Larry Kudlow did, or
criticized the allegations as the Washington Post fact checker did
initially (they have since backed off calling the situation “at an impasse [2].”) The stories also rarely explained the private equity industry for viewers and readers who are likely unfamiliar with them.
The
political attacks on Romney and Bain Capital came as little surprise
during a heated election season. But the liberal news media’s coverage
of the controversy often supported Obama’s attack or sought to make Bain
Capital a villain. The Los Angeles Times on July 19 dredged up plenty
of ugly, unrelated anecdotes about Bain even mentioning “right-wing death squads [3]” in El Salvador.
MSNBC
and the more obscure Current TV (founded by Al Gore), have railed
against the Republican presidential candidate and what they call the
“vulture capitalism” private equity firm he founded.
Cutter’s
allegations against Romney were bolstered by MSNBC’s Mika Brzezinski on
July 17. While “Morning Joe” host Joe Scarborough tried to interview
Cutter about her “felony [4]”
remarks, Brzezinski could be heard in the background agreeing with
Cutter multiple times including Cutter’s remark that “when” Romney was
at Bain is “legitimate discussion” and concluding that the questions
Cutter was bringing up about Bain and tax returns were “fair game.”
Meanwhile,
that same morning, NBC’s Matt Lauer ignored Cutter’s “felony” remarks
when he interviewed her on “Today.” Although Lauer challenged Cutter
about the “exceedingly negative campaign, [5]” but he failed to ask about the latest nasty attack on Romney. [4]
[4]
The
Obama team and some in the media have been trying to connect Bain
investments that resulted in layoffs and outsourcing to Romney for some
time. Romney has continually said that after 1999 he was not managing
Bain investments and his campaign has demanded an apology from the Obama
campaign because of Cutters’ attack.
Nate Silver, a New York Times blogger audaciously asked “Is Romney Overreacting to Bain Attacks?” [6]
Romney
has said all along that he was not managing Bain from 1999-2002,
because he left in 1999 to manage the Salt Lake City Olympics. After the
Boston Globe seized on some SEC filings that listed Romney’s as CEO of
Bain Capital during those years, the Obama campaign went on the attack.
Financial
outlets did a better job. On “The Kudlow Report” CNBC’s Larry Kudlow
and American Enterprise Institute’s Jim Pethokoukis defended him against
those attacks on July 12. On screen the charges were labeled “Baseless Bain Bombshell” [7] which Kudlow said reeked of “utter desperation” on Obama’s part.
Kudlow
said “it took ‘em three years to unwind all the paperwork and all the
power... He had no operational responsibility. You literally, as the
sole shareholder of the company, you literally cannot unwind the
documents.”
According
to Kudlow the paperwork confusion surrounding Romney’s title was “the
SEC’s fault.” He also noted that Glenn Kessler of the Washington Post
fact checked the Obama campaign’s claims about SEC documents and “says
this is a lot of hooey,” along with Factcheck.org and Fortune magazine.
The Post gave the claims a three Pinocchios [8]
rating, but backed off a little as of July 20. Kudlow made the case
that Romney wasn’t lying and Pethokoukis argued that if you “read the
prospectus of these various funds” they say Romney wasn’t running the
funds. So “nothing was misrepresented,” he concluded.
Former
Bain partner Ed Conard also defended Romney in an MSNBC interview and
said that, “I believe that these attacks on Mitt and on Bain Capital are
really attacks on business generally. Of course they are! Okay, and
they are trying to pit employees against employers, of course they are.
And what they want to do in that argument is pretend that the customer
doesn’t matter. So, the customer decides which company to buy from. They
decide which factory they’re going to buy from, they decide how much
they’re willing to pay for products and we as investors and employees
have to respond to those demands.”
Media Show Disdain for Bain
Suddenly,
Bain Capital is in the news again thanks to recent anti-Romney campaign
ads from Obama’s team and supporters as well as Cutter’s recent
charges. But coverage of the company has been little different from the
campaign rhetoric. It included vicious attacks and little defense or
even explanation of what private equity companies do.
Many
of the media quotes were so in-sync with the left on the issue that The
Huffington Post has a video mashup of news and opinion programs talking
about Bain, spliced into a monologue from “The Sopranos [9]”
TV show and footage from “Goodfellas” -- leaving viewers with the
impression that private equity companies are like mobsters. In the
accompanying column titled, “Bain Capital Explained by Tony Soprano,”
HuffPo compared company practices to the organized crime tactic of “bust
outs.”
Authors
Ryan Grim and Hunter Stuart even claimed that “mafia-esque looting of
productive enterprises has always been a part of the private equity
business that has a terrible reputation.”
One
of the quotes in the Huffington Post video was from left-wing talking
head and MSNBC host Ed Schultz who described the private equity firm as
“strip mining” companies on “The Ed Show.” It also included former MSNBC
anchor David Shuster saying on Current TV that Bain was practicing
“vulture capitalism.”
According
to Colin Blaydon, Director of Tuck’s Center for Private Equity and
Entrepreneurship at Dartmouth, that isn’t the case. He responded to
Schultz’ claim saying, “If they [a private equity firm] are going to
make money they have to make the companies successful and more valuable
and that means you can’t ‘strip mine’ it. You can’t tear stuff off,”
because you won’t have a profitable company left to sell afterwards.
More
recently, liberal comedian Stephen Colbert used his trademark humor to
promote the Bain attacks by drawing comparisons to the Donner party, the
infamous pioneers whose journey “culminated in death and cannibalism [10]” according to PBS.
On
the July 16 “Colbert Report,” Stephen Colbert made business success a
mean joke saying, “Folks, Obama is hammering Mitt over a Washington Post
article that claims the folks at Bain were pioneers in the practice of
shipping work from the United States. Who cares? Pioneers opened up the
West. Bain was just like the Donner party, they ate the weak.”
Jon
Stewart also turned his comedic wit against Romney and Bain Capital
that night saying (as Romney), “I was just the guy with the
smokescreen-ish yet still legal title of CEO and Managing Director who
was paid at least $100,000 a year to do what, according to me, Mitt
Romney was nothing.”
Private Equity Benefits Teachers, Police and Other Union Workers
Unless
they work in finance, it is unlikely many news consumers have great
understanding of private equity firms. This makes the public more likely
to accept media mudslinging against the industry, which too often
villainizes companies rather than explaining what really goes on.
Blaydon
told the Business and Media Institute that private equity companies get
investors to agree to put up money to be invested for a certain time
period. Those investors could be wealthy individuals, but are often
public pension funds (like CalPERS and New York State pension fund) and
university endowments.
According
to the Jan. 26, 2012, Wall Street Journal, the amount of public pension
money flowing into private equity has grown from 3 percent to 11
percent since 1992.
“Big
public-employee pensions had about $220 billion invested in private
equity in September, or 11% of their assets, according to Wilshire Trust
Universe Comparison Service, which tracks the holdings of pensions,
foundations and endowments,” Michael Corkery wrote. That was $50 billion
more than one year earlier.
The
private equity firm then takes the investors’ money and makes private
investments in companies (sometimes struggling companies), often by
acquiring a “controlling interest” in it. “There are a lot of different
ways and strategies,” Blaydon told BMI. Some consolidate fragmented
industries by buying up lots of “pieces” and putting them together.
“In
all likelihood they are adding jobs. But another way of doing this is
to invest in and take control of a company that is not performing well
and is not as profitable as it should be,” he explained. In such cases,
job losses can happen in order to make a company more efficient so that
it can survive in the globally competitive environment we live in.
The
goal of such funds, is that after making improvements and making the
company (or companies) more valuable, is to sell it for a significant
profit.
The
profits don’t just benefit private equity fund managers, like Romney,
as some have argued. They generate profits for pension recipients,
universities and other investors. Policemen, teachers and firefighters
often benefit from private equity investments, a fact Blaydon said is
“one of the great ironies.”
Unions
like the AFSCME and Service Employees International Union (SEIU), have
attacked Romney and Bain Capital for what they claimed was a “long and
troubling track record of putting profits before workers.” But as
Corkery noted in his Journal article, the SEIU and AFSCME unions both
have pension money across the country invested in private equity.
But
looking solely at layoffs also misses a bigger picture. Former hedge
fund manager Andy Kessler addressed that in an op-ed in the July 16,
2012, Wall Street Journal. He wrote, “Did Mitt Romney and Bain Capital
help office-supply retailer Staples create 88,000 jobs? 43,000? 252? Actually, Staples probably destroyed 100,000 jobs while creating millions of new ones.” [11]
How?
Staples cut out the middleman “eliminating the jobs of distributors and
brokers who charged nasty markups” and “enabled hundreds of thousands
of small (and not so small) businesses to stock themselves cheaply and
conveniently and expand their operations.”
Post, WSJ, Kudlow and Chris Hayes Find Facts about Filing
As
many in the news media, rushed to judgment against Romney, Bain Capital
and Private Equity, a few reports cut through the political catfight to
find hard facts.
The
Washington Post’s fact checker wrote on July 13, that “Despite the
furor, we did not see much new in the Globe article. We had examined
many SEC documents related to Romney and Bain in January, and concluded
that much of the language” about Romney’s position “was boilerplate that did not reveal whether he was actually managing Bain at the time.” [8]But as of July 20, the Post retreated somewhat from that position saying things were “at an impasse because of the ambiguity.”
Although
some, including Stewart have mocked the “retroactive” retirement claims
of Romney’s campaign, on July 13 the Post explained it easily:
“Romney’s sudden departure from Bain had left the partnership in flux,
in fact almost breaking up the firm, and a final resolution was not
reached until he ended his Olympic sojourn and decided to run for
governor. At that point, he signed retirement papers that set his
departure date as February 1999, the month he left for the Olympics.”
Similar explanations were detailed on “The Kudlow Report” on July 12, and surprisingly on MSNBC’s “Up with Chris Hayes [12]” July 15. Hayes interviewed former Bain Capital partner Ed Conard [13]
who said unequivocally that a “management committee” was running the
company from 1999 onward. Conard said Romney was “legally” the owner and
CEO, but “Mitt was gone” and “working so hard on the Olympics.”
When
Hayes asked why he was getting paid during those years, Conard said,
“Mitt created the firm. He created enormous franchise value and so did
other partners, like myself, at the firm. OK? And their contribution to
the franchise value of the firm had to be recognized, so when Mitt left,
it’s not like people said, ‘Oh, see ya later. You don’t get another
dime from the firm.’ They said, ‘Hey, you’ve created something
incredibly valuable and you need to be compensated for that’.”
Hayes
also said, “I don’t understand why it took three years [to negotiate].”
Conard explained that there were multiple factors including Romney
wanted compensation for the value he had created, but “all partners want
to get involved in the negotiation” because it would have an impact
their compensation when they chose to leave Bain.
After
that Hayes got it and said, “I see, So that’s the benchmark. He’s the
first one to leave after this thing had been created. And the
negotiation for him is going to create the benchmark for the
compensation structure.” “Of massive significance,” Conard replied.
Later Hayes told Conard that after his explanation, the situation “makes more sense.”
