Romney's False Choice: You Either Support Asset-Stripping Or You Are Anti-Free Market Capitalism

1/9/2012 | Laissez-faire Capitalist

[Laissez-faire capitalist]

Gordon Gekko Romney is being taken to task over his proclivities, and activities at Bain. To make it short, Romney engaged in what is commonly known as asset-stripping.

My point in this thread isn't to delve into the minutiae of what asset-stripping entails, but rather to point out that Romney is attempting to pigeonhole Gingrich as being anti-free market capitalism through the use of a false choice:

If Gingrich doesn't support what Romney did at Bain, then he is anti-free market capitalism.

Romney's false choice...

And all the while, Romney is trying to use a smokescreen to cover what he did at Bain.

In the end, just because you CAN take on more debt to procure investors an earlier dividend, for example, doesn't mean that you SHOULD.

Might doesn't always make right...

[Leep]

Can I be the first to proclaim:

Romney is toast!

[Vendome]

In the end, just because you CAN take on more debt to procure investors an earlier dividend, for example, doesn’t mean that you SHOULD.

So it was a ponzi scheme?

Comeon. I’m all for hammering this jackass but Bain did everyone a favor.

Without their advice many companies wouldn’t be in business today

Without their foresight many investors would have lost their azz or continued to pour money down a drain hoping they will recoup their investment.

Bain shut down companies that, in their opinion, could not reach profitability objectives and Bain created a package to mitigate losses or create a product that at least made some money in the transaction of shutting down a broken business.

Hell, I’ve done it. “This thing ain’t making me money. I’m shutting it down and getting rid of the assets”.

That’s life and most businesses have a life cycle.

Sorry for the unemployed people but again, that’s life.

In the years 1999-2007 I worked for no less than 11 companies who went bankrupt. Two of them should have been put the stake and burned in effigy years before they ultimately died. Their business model sucked and their management was worse.

Another, “suddenly” found their American operations unprofitable. This one I couldn’t figure out. I mean we were the highest priced guys in any selling situation and I could their viewpoint, sort of.

But, I ultimately decided they had to answer to their investors at Adam Smith and they were being pressured to come up with some dough and distribute it. American operations took the hit.

I got laid off from each of these jobs and that’s just life.

Move on. Bitterness will keep you right were you are.

[worst-case scenario]

Here, here. There’s no creation - of anything except dollars - when you buy a company to take it apart, fire all the workers, ship the jobs overseas, and then use the money in the pension funds to play the market. This is more than vulture capitalism. It is more like a Mayan sacrifice capitalism: pull the still-beating heart out of the victim and then eat it.

Now he wants to use all the money he made pulling American businesses apart to buy his way into the Presidency, with a 527 headed by his personal lawyer pouring tens of millions into attack ads against other Republicans. What does Romney *want* the Presidency for, anyway? It can’t be because he is so committed to particular beliefs and values - because we KNOW that he’ll change his positions to suit whatever the polls are. Perhaps he’s planning to do for the US what he did for other companies what Bain Capital did - take the bits that are left apart and sell them off. Interested in buying the Grand Canyon? How about corporate sponsorship for the Washington Monument? Certainly he’s not going to be “putting America back to work” - because his work experience consists of using his inherited money to buy companies that he then tore to pieces.

American “capitalism” eviscerated manufacturing in this country. Now we are at the mercy of the Chinese, who make almost everything that is offered for sale at WalMart. They collect our debt while they work on hacking into all of our most secure computer systems, from finance to aerospace to military. We probably won’t even get an opportunity to fight once the war starts - all they have to do is yank the plug on our computers.

Man, rant over. But this Romney guy just chafes my tender parts.

[sick1]

So new financial products are not products?

Bain primarily worked with stressed companies. They could be considered junk - at least their bonds are likely to be. Turning the undesirable into a desirable product (which Bain was successful at since equity sale was their primary means of revenue) is a popular wealth pattern. I’ll never forget when i was doing research on companies in college and talked with a representative of Waste Technologies, his motto was “Your S**t is our bread and butter”. Besides being nasty enough to appeal to my college humor, it seemed like a pretty smart description of what they did and did well.

Overall, I guess I fail to see how what Bain did fails your very definition of Free enterprise.

[Revolting cat!]

Read this morning’s WSJ article (linked here somewhere) to see how many of those “stressed companies” that Bain made “desirable” went bankrupt after Bain collected its share.

[Revolting cat!]

‘vulture corporatism’ another FReeper characterized it earlier today.

[Utmost Certainty]

A lot of what Bain Capital was doing was Leveraged Buyouts (LBOs).

I don't think there's anything wrong with this practice in a free-market, obviously. It has its place and purpose.

But there's good point in raising the issue—not as an attack on Capitalism by any means, which I don't think is the intention here—but rather as an attack on Romney's record as a real job creator. Which he doesn't seem to have a sustained record of, despite all his aggrandizing about private sector experience.

[sick1]

Agreed - LBO’s are a tool - neither good or bad. So what metrics should we choose to judge Bain’s use of it?

I think net jobs is fair / reasonable. Also ROI seems reasonable. I’m not wowed by an anecdotal evidence to tug on the heartstrings without any context.

Yours is a fair perspective but that’s not what I think is going on in the majority of anti-Bain/Romeny-Bain comments here.

[jwalsh07]

Perhaps it is time to change your handle?

[sick1]

I read it. If you read beyond the headline and first few paragraphs, then you’ll see that the bankruptcy rate was:

a) not unreasonably high
b) skewed by small Bain’s small company focus
c) skewed by the inclusion of firms up to 7 years past when Bain controlled them (remember Bain has a duty to sell to the highest bidder not to the smartest bidder unless their interest is ongoing)

[loveliberty2]

In the case of LBO's, one would have to say that it is the entrepreneurs who created, risked and, for many years, provided jobs in many of the industries which Bain and other such companies became involved with who are true private sector heroes.

It is not the bankers and venture capitalists who rushed in to "save" them, sometimes only to take their own cut of the money and leave a percentage of them to go bankrupt anyway.

Now, if a true entrepreneur who invested his savings, started a Widget Manufacturing Company, and provided jobs to a few or hundreds of fellow citizens runs for President, then he deserves kudos for that courageous risk-taking action. To be fair, the Romney experience with Bain is not exactly a true freedom of individual enterprise example.

[achilles2000]

Let’s start with the fact that no such crime against humanity known as “asset stripping” exists. Assets used in one enterprise may have little or no value, but a high value if transfer - just as a functional alternator in a wrecked car has no value in the wrecked car but considerable value in a car that works but which needs an alternator.

Most of what Bain did was back new or growing companies like Staples and Dominos. In some cases they tried to turn companies around that were failing. Some investments worked and others didn’t. Overall Bain did well because it created value. Along the way it created a huge number of jobs.

One theoretical physics and engineering threads I manage to withhold my “brilliant” insights because I don’t know nearly as much about those things as others. But it seems that many on FR incontinently spread their opinions on things they not only know very little about, but what they repeat is a false message packaged for them by someone else.

Ok. Bain should never have invested in any turnaround situation so that all of the employees could have lost their jobs.

BTW, I can find articles all over the net in which people with agendas or who know nothing about the turnaround business voice all kinds of opinions - kind of like FR. Those who don’t know how this small complicated corner of the world works should go learn something before they post. If you know the area, you can independently evaluate the opinions. Simply collecting opinions and proclaiming that lots of people hold such and such an opinion is an absurd way to proceed. People who can’t find the character to do that often end up in thrall to people like Michael Moore or Alex Jones.

[Utmost Certainty]

So what metrics should we choose to judge Bain’s use of it?

I think net jobs is fair / reasonable. Also ROI seems reasonable. I’m not wowed by an anecdotal evidence to tug on the heartstrings without any context.

Right, I'm not caring about bleeding heart anecdotes either. Though assessing the success of an operation like Bain Capital is difficult to meaningfully quantify. Because so much of the eventual success/failure of the firms they were involved with, would be dependent on factors presumably beyond Bain's control—such as having good executives in charge, etc. Also we'd have to figure out what sort of timelines to range the question in—are we looking at how a given firm did 5, 10, or more years down the line? So on, so forth.

Which also figures into why I think it's better to scrutinize Romney's "private sector experience" from the POV of: How much real-world field experience does he have running a competitive firm in a dynamic marketplace, where he's having to produce something tangible, deal with hiring/firing workers, etc?

I realize financial instruments are products too, of course, but is this the sort of bona fide private sector experience, where someone can honestly say they have an immersive, pragmatic, working knowledge of how the real economy operates? I'm skeptical that someone accustomed to dealing in the more abstract layers of finance, would have a reliable grasp on these matters.

[worst-case scenario]

He’s selling himself as the man who can create jobs. With this record, Obama is going to be able to beat him like a drum - no matter HOW much money Romney has his SuperPac spend. Negative advertising isn’t enough. Running as the Not_Obama will not be enough. If we nominate this guy, we are doomed to another McCain fiasco.

At least with Santorum or Paul, we have an actual bona fide candidate, with solid opinions. Even Newt has more of a presence, as well as a positive Conservative history.

[untwist]

The purpose of exposing this video, from Gingrich’s perspective is to show the difference between corporate-level consolidation as one aspect of healing over-bloated dying companies, and a comprehensive business model that enables ground-level, small business creation. That is a critical question that gets to the point of what we need in our president.

Romney is a corporate guy. There is nothing wrong with that - I have worked for a couple of the biggest corporations in the world and endured restructurings and staff reductions for 30 years. Newt’s angle is that Romney may know how to make money via corporate restructuring, but he does not have the real experience as a national leader, driving public policy to trigger wide-spread economic expansion by policy reform. It is child’s play for the Obama gang to credibly paint Romney as a corporate raider 1%’er. The story tells itself!

Listen to what Prof. Art Laffer says: “You know, economics is my profession, and I’ve specialized in it all my life, especially public policy economics. I feel sort of like a doctor in a hospital, choosing which surgeon is going to operate on my child. And, you’ve got a bunch of good candidates out there but Newt Gingrich has done it before. His plan is pure and simple supply-side Reaganomics all the way,” he said.

The point is that Romney is a corporate rebuilding expert. He is in the business of doing the dirty work of painful corporate restructing that creates profits and survivability for corporate investors. That is an important service, but does nothing for the working guy who loses his job after many years of service and is out on the street.

The Reagan model is supply-side driven, driving tax-rate reductions, deregulation, small business incentives and consumer-based, ground-up growth that benefits everybody. This is where Newt has credibility and experience. The American people voted Reagan in the 80’s and Reagan needed a real, results driven visionary in the House to sponsor his change. Newt was a key driver - Laffer knows this because he was there! In ‘94 the American people voted for revolution in the congress after 40 years of democrat strangulation. Newt was the leader! Look how investment grew after Newt’s reforms. Deficits were reversed, taxes reduced, investment incentives enacted, stock market blasted off, unemployment shrank to near full-employment level. We know what happened in Clinton’s 1st 2 years when he had both houses of Congress. He was killing us. What changed things - Newt!

There is a big difference between creating corporate profits and saving those investors and core employees vs. growing a widely incentivized, ground-up economy. This is where Newt has an advantage because as Prof. Laffer states, Newt has credible experience doing this. Newt can lay claim to helping create 11 million jobs in the 80’s. Romney did create corporate profits but in no way does his model comprehensively trigger consumer confidence and wide-spread growth. This is why Newt Gingrich is immeasurably most qualified to stand as the GOP nominee for President and I pray the SC voters will get this message. I live in Florida and can’t wait to vote for Newt.

[Utmost Certainty]

Now, if a true entrepreneur who invested his savings, started a Widget Manufacturing Company, and provided jobs to a few or hundreds of fellow citizens runs for President, then he deserves kudos for that courageous risk-taking action. To be fair, the Romney experience with Bain is not exactly a true freedom of individual enterprise example.

Right, that's the crux of where I'm coming from as well. Romney seems to be promoting a narrative that he was this successful businessman, bla bla, when really AFAIK he was just a financial guy. Which I'm not knocking or demeaning in any way; some may not personally like what firms like Bain Capital do, but they do in fact serve a vital purpose in the grand scheme of the economy—just like vultures and other scavengers serve a vital purpose in the biosphere.

[sick1]

I can appreciate the distinction but don’t subscribe to it. I’ve been told that my profession (IT/internet) is not real because it’s 0’s and 1’s. Finance is a data oriented product at this point (debt instruments, derivatives) and I guess I don’t find it any less real than a widget. To each their own.

But if that is your standard and a 0 is no business experience (say community organizer) and a 10 would be someone like Henry Ford - then a) where does Mitt fall on the scale? and b) where are the rest of the candidates? IMO, I think only Huntsman has had a real job now that Cain is out.

[sick1]

Achilles,

Do you find it funny that we’re explaining the basics of finance and capitalism to someone with the name “Laissez-faire capitalist”? Guess it’s our does of Vitamin I for the day.

[Utmost Certainty]

I wasn’t saying financial products aren’t real. I was only drawing the distinction, that running an investment firm generally requires quite a different mode of thinking than, say, running an innovative entrepreneurial business from the ground up—such as creating a Ford Motors, or an Apple, or what have you. I’d believe the latter to possess superior working understanding about how the “real economy” works and what really it takes to create jobs, etc.

I’d place Romney somewhere around a 7.5 on your scale.

[Utmost Certainty]

Oh, and as far as the rest of the candidates, I don’t know—I presume they’re all much lower than Romney FWIW. But good businessmen don’t necessarily make good politicians; both domains require rather different skill sets and natural talents to be successful.