When Mitt Romney Came To Town
I had a chance to watch this 27-minute movie yesterday. There is no denying that the content in it probably would be highly effective on any television audience (I don’t know if it will be aired anywhere) with the material that is being presented. The movie presents one sob story after another where workers have been laid of because Bain Capital acquired the respective companies. The audience is presented with a plethora of tragic stories of ordinary Americans who had to struggle to get by after they ended up in unemployment. We are also introduced to multiple quotes taken out of context by Mitt Romney and together with the rest of the movie it paints a picture of a horrible man who acquires companies, makes a profit, and throws workers out on the streets. In short, it is what you would expect from Michael Moore or any other second-rate socialist who makes a movie about capitalism.
Unless you have some previous knowledge about what companies like Bain Capital actually does and instead choose to base your opinion solely on a movie like this, then I think it is fair to say that you are going to hate Mr. Romney. Since I have a relatively shallow understanding of what leveraged-buyout firms actually do I decided to find out more (Crazy, I know!). I stumbled upon an article by Avik Roy over at National Review Online where he explained the business practices of Bain Capital and leveraged-buyout firms. Here is an excerpt:
The idea behind leveraged-buyout (LBO) investing, sometimes called “private equity” investing, is to buy a struggling company — typically, one that the stock market thinks very poorly of — and restructure the company in order to make it profitable again. (Think GM, before it was bailed out by the government, or Research in Motion, the downtrodden maker of Blackberrys, today.)
Usually, these companies suffer from one of three problems: (1) high labor costs, often because of over-generous union contracts; (2) mismanagement at the CEO level, such as wasting precious resources on flawed product lines; or (3) a new competitor that threatens the old company’s core business model (e.g., Borders trying to compete against the onslaught of Amazon).
The LBO firm, often in concert with other similar firms, raises capital to buy the struggling business and turn it around. Most of this capital is borrowed from banks, hence the term “leverage,” but a significant amount comes from the LBO firms and their investors. The target company is usually “taken private” — that is, its shares no longer trade on a public exchange such as the New York Stock Exchange. If these investors succeed in turning around the company, resulting in an increased stock price when the company’s shares are publicly re-listed, the investors stand to reap financial rewards. If they fail, they stand to lose their investment in the company. It is a high-risk, high-reward line of work.
Okay, I think I got it: Private investors take over companies that are usually stumbling along and make them into profitable companies. And this is what many Republicans are currently hurling at Romney as a criticism? Since when is this acceptable behavior by Republicans? From what I have learned so far from reading about LBOs this is something that those of us who appreciate capitalism should be welcoming instead of bashing. I grew up in a country where capitalism is viewed as being the devil in disguise by a large proportion of the population. While I don’t know much about LBOs, I do know that something isn’t right when Republicans start to sound much like the socialists and communists that I grew up arguing with.
Look, I understand that Mr. Gingrich and Mr. Perry are looking for ways to attack the current front-runner in the race. After a desperate search for a line of attack they eventually came to the issue of Bain Capital . I am just not sure in the wisdom of engaging in attacks where the Republican candidates sound like Democrats. Why not attack him on his record as governor instead? Or his past statements about not being a Reagan Republican? And so forth.
I would also like to point out that I was critical of how Mr. Romney handled the social security issue that arose after Mr. Perry entered the race. Back then, Mr. Romney sounded more like a Democrat than a Republican in the way which he attacked Mr. Perry for bringing the issue of social security to light in one of the debates.
We should always want to move public discourse to the right just as Mr. Ryan did on health care. Not to the left as some of the candidates have been doing in this primary.