A Flea in the Fur of the Beast

“Death, fire, and burglary make all men equals.” —Dickens

Tag: mitt romney bain capital

Romney’s Bain experience does not qualify him to be president!

by pdxblake

A private equity operator, writing a few weeks ago in  Bloomberg, described his analysis of Mitt Romney’s success as a private equity manager and found some interesting details (you might want to go back and read my earlier post on the real problems with private equity for a primer)

Thanks to leverage, 10 of roughly 67 major deals by Bain Capital during Romney’s watch produced about 70 percent of the firm’s profits. Four of those 10 deals, as well as others, later wound up in bankruptcy.

To put this in context, a study (pdf) on the private equity industry by the ICAEW, a trade group for Chartered Accountants in the UK, looked at the overall failure rate of companies acquired by private equity firms by firm size (<10 million pounds [green], 10-100 million pounds [blue] and over 100 million pounds [red])


During the years when Romney was at Bain (1984 –  2002 1999), the failure rate of large UK private equity deals was mostly between 10 and 20%.  Private equity deals fail when the companies end up in bankruptcy, which happens because most target companies for private equity firms are in some form of distress, so this failure is to be expected.  The high returns generated by successful deals is a way of compensating investors for the inevitable failures.

There may be small differences between the UK and the US private equity firms, but seeing 4 of the 10 deals that made Bain and their investors the most money end up in bankruptcy is surprising (and out of line with the overall industry rates of failures of all deals).  If 4 out of 10 money-making acquisitions end in bankruptcy, the total rate of failure in the overall portfolio is likely to be much higher, and much further out of line from the private equity industry as a whole.

The aggressiveness with which Bain used leverage and used the borrowed money to pay itself management fees and dividends likely caused this higher rate of failure of their companies even while Bain profited.  Anthony Gardner, writing in Bloomberg, describes one such company:

In 1992, Bain Capital bought American Pad & Paper (Ampad) by financing 87 percent of the purchase price. In the next three years, Ampad borrowed to make acquisitions, repay existing debt and pay Bain Capital and its investors $60 million in dividends.

As a result, the company’s debt swelled from $11 million in 1993 to $444 million by 1995. The $14 million in annual interest expense on this debt dwarfed the company’s $4.7 million operating cash flow. The proceeds of an initial public offering in July 1996 were used to pay Bain Capital $48 million for part of its stake and to reduce the company’s debt to $270 million.

From 1993 to 1999, Bain Capital charged Ampad about $18 million in various fees. By 1999, the company’s debt was back up to $400 million. Unable to pay the interest costs and drained of cash paid to Bain Capital in fees and dividends, Ampad filed for bankruptcy the following year. Senior secured lenders got less than 50 cents on the dollar, unsecured lenders received two- tenths of a cent on the dollar, and several hundred jobs were lost. Bain Capital had reaped capital gains of $107 million on its $5.1 million investment.

This strategy of making money on companies who later failed as a result of Bain’s actions leaves me unsure of why Mitt Romney’s business experience makes him qualified to help the US economy recover.  As Gardner concludes, “While Bain Capital wasn’t alone in using financial engineering to turbo-charge its returns, it was among the most aggressive under Romney’s leadership. Enriching investors by taking leveraged bets isn’t a qualification for a job requiring long-term vision and concern for public welfare. It is appropriate to point that out to voters.”

And that is why it is fair to question Romney’s business track record which he uses as evidence he would make a good president.  I fear he would do to America what he and Bain did to Ampad.


The Correlation Between Unemployment And The Election Is An Illusion

by evanmcmurry

Yesterday, I discussed Jennifer Rubin’s indictment of the “media,” however she defines it, for focusing on the Bain attacks rather than the state of the economy. Rubin’s theory was that the 8.2% unemployment rate—which looks to be here to stay for a while—was 100% for sure going to tank Obama’s reelection chances, so the media was being irresponsible by actually vetting Obama’s opponent, as Romney is going to win no matter what so who cares. The problem with this is that we’ve had 8.1-8.2% unemployment for a while now, and it hasn’t impacted Obama’s numbers at all. He remains 2-3 points ahead of Romney in national polls, and 3-6 points ahead in swing states. Rubin was so convinced of a correlation between unemployment and a defeated incumbent that she wanted the media to report it even though it hadn’t shown up yet. I called that crazy.

Jamelle Bouie at the Prospect goes me one further, using data from Nate Silver that the correlation itself may be an illusion:

Pace almost all election coverage, unemployment doesn’t actually tell you much about the final outcome of an election…There’s almost no relationship between the unemployment rate on Election Day and the fate of the candidates. It’s fun trivia to note that Obama is running with the highest unemployment rate since 1936, but alone, it doesn’t say anything about Obama’s position with the electorate.

(He has a chart, so if you’re a visual learner click over. )

So what can haz correlation?

By contrast, there is a significant relationship between final election outcomes and either GDP growth or growth in personal income. Indeed, if you’re trying to explain Obama’s continued strength in the polls—despite a sluggish economy—look no further than the fact that growth is positive on both counts. This isn’t to say that it’s good—the economy is predicted to have grown by 1.3 percent in the second quarter, and income is up by only 0.3 percent—but that it’s unusual for incumbents to lose when there’s any growth at all.

This really does explain it all. High unemployment is often coincident with lack of growth, and is a more visible symptom of a stagnant economy, so it’s no wonder that it’s been the focus of warnings for Obama. But our economy is growing. It’s not growing as quickly or as strongly as we want it to, which is why Obama’s not running away with the election, but if you want an explanation as to why he’s still ahead of Generic Candidate R, look no further than the fact that the economy is in forward motion.

Bouie and Silver both think Romney is overreacting to the Bain attacks, as Romney’s national polling numbers haven’t moved in the last three months either. I’d disagree with this. Romney’s behind, not just in national polling numbers, but in favorability ratings, in swing states, in whom voters trust, etc. Stagnation for Romney is defeat. All the Bain attacks need to do is keep him where he’s at, which is precisely what they’re doing.


by evanmcmurry

Under the Jennifer Rubin formula, in which “[anything] x a Jennifer Rubin column = Mitt Romney,” the coming economic forecast x today’s Jennifer Rubin column = Mitt Romney. I let her ‘splain, since she’s so good at it:

The divergence between what the Obama campaign and the media (I repeat myself) are talking about (Bain, Bain and Bain) and the most important economic (and hence political) news of the year is breathtaking. To put it bluntly, we are looking at economic contraction. In lay’s terms that is a recession.

Speaking on behalf of the lays, thanks; we preesh the jarg.

For the left flogging the Bain story and the right bemoaning Mitt Romney’s response, stop. Just stop. You’re making fools of yourselves. If we are indeed heading for zero percent growth (and/or zero job gain-territory), there is no way that anything else matters. Obama can call Romney a criminal. The lefty bloggers can attack Congress (really, this is the formula for reelecting Obama?). But it will make no difference. None.

Good to know. Actually, the economy’s been in full slowdown mode for three months. It’s been rather covered in the media, however you define that word. People, even lays, know about it. And yet Obama’s approval ratings have remained where they are—not great, but not the poll numbers of a president who’s got 8.2% unemployment around his neck, either. Actually, not only do a sizable portion of voters still blame Bush for the Great Recession, but there’s a sliver of an indication that blame for the economy is shifting onto the GOP House, as their little debt ceiling escapade was also covered by the media, and the lays seemed to have noticed.

It’s likely that Obama will still suffer more than he has for the stagnant labor market. But as there’s no evidence that it’s happened yet, I don’t get how anybody’s making fools of themselves by acting as if it hasn’t happened. Rubin’s calling the media irresponsible because they won’t report a narrative that has no empirical basis.

Instead, Rubin’s real hand is accidentally tipped in the paragraph above. “There is no way that anything else matters. Obama can call Romney a criminal…But it will make no difference.” Sure, Obama can call Romney a criminal, or Romney can be a criminal, it doesn’t matter: if the economy sucks, Romney wins. This exact strategy—that Romney should do nothing but sit on his hands while he gets called a vulture and outsourcer and a fetus disposer and a liar, while he waits for the economy to tank—is why he really, really appears to be losing the election.

Earlier I asked if anybody saw an out for Romney from the Bain Capital trap the Obama campaign had set for him that didn’t involve closing his eyes and wishing for 10% unemployment. That’s almost literally what Jennifer Rubin is proposing he do. Can the Washington Post really not find a better conservative columnist?

Romney/Bain Trap, Part One Million: All Of Romney’s Moves Are Bad Ones

by evanmcmurry

I love it when questions I ask are immediately answered. We’ve been chasing Mitt Romney down his Bain Capital rabbit hole, in which the profits he made as a CEO demonstrate a business acumen that qualifies him for president, while he was simultaneously not responsible for a single policy implemented the company of which was CEO that qualifies him to be president. A few hours ago, I asked what Romney does in response to the Bain Capital attacks, as this is one narrative he can’t pivot into jobs, and it doesn’t go away even if the economy remains subpar.

Jon Chait has the next act:

More openly embracing Paul Ryan (whose ideas have taken over the party’s policy apparatus) would help change the argument, at least momentarily. But of course if he did so, Romney would be running exactly to the place Obama was trying to chase him. I speculated this last month, and Greg Sargent did actual reporting to help confirm it: The main point of the attacks on Bain is to soften up Romney for the final argument about policy. The Ryan budget, with its tax cuts for the rich and massive cuts to the social safety net, is so far out of line with public opinion that many undecided voters have trouble believing that Romney would do such a thing. Defining his biography is a way to set up that argument.

Walker insists, “Always be aggressive, moving forward. You’re always better moving forward.” But probably not if you’re moving forward straight into the trap your opponent has set. 


That’s probably why Romney is instead responding by returning to his go-to attack, which is to assail Obama as a “crony capitalist” for continuing longstanding policies of subsidizing green energy. (This is also how Romney replied to the last wave of attacks on his tenure at Bain.) It’s not the silver-bullet response anxious Republicans are demanding. That’s because the silver-bullet response does not really exist.

I’d add that the crony capitalist attack doesn’t sit too well with the “Obama = socialist” one. They’re not mutually exclusive—Obama’s grants/tax deductions to green companies could be seen as a sort of social engineering of the economy—but try explaining that in a 30 second ad.

Romney remains without an out here. Anybody who can think of one, that doesn’t involve Romney closing his eyes and wishing real hard for 10% unemployment, let me know.

More On The Romney/Bain Trap

by evanmcmurry

Furthering my theory that the real Romney/Bain trap—whether it was the Obama campaign’s play along or just a lucky break—has less to do with jobs, outsourcing, etc., than Romeny’s inability to tell the truth over Basic Things He’s Done. Following yesterday’s #retroactive wonderfulness comes this:

The Times presents both sides of the argument. It notes that there is “no evidence” Romney exercised control over Bain in the disputed period, but it also points out that “his campaign has declined to say if he attended any meetings or had any other contact with Bain during the period.” (via Greg Sargeant)

Again, voters are still undecided about whether they buy Romney’s economic credentials as a qualification for president—he polls about even or slightly above Obama on who would better handle the economy, the only issue on which he has any sort of purchase—but they know they don’t trust the guy, which is why Romney’s favorability ratings aren’t even in danger of cresting 40%. Hearing things like “Romney profited from a business but wasn’t responsible for anything it did” and “Mitt Romney was listed as CEO but can’t remember if he attended any meetings” hits that distrust button, hard. “I don’t recall” only works if you’re already President or AG, not if you’re trying to convince people to put you in office.

Moreover, how does Romney respond to this? He’s already had his fingers crossed as tightly as possible without snapping them that the economy tanks. But this is one argument on which you can’t pivot onto jobs or deficits. It has nothing to do with Obama, the economy, or anything else: it solely concerns Mitt Romney and what he’s done and why he can’t even tell the truth about a meeting he attended.