It’s apparent that the president is hoping to win re-election largely (if not completely) by criticizing Mitt Romney’s tenure at Bain Capital. You only need to hear one campaign speech to understand the president’s obvious aloofness and dangerous naivete when it comes to private equity and the business sector as a whole.
The president’s campaign staff has spent months fishing for particularly egregious examples in Mitt Romney’s career that Obama could turn into populist talking points. The “Obama for America” campaign even went so far as to develop a “gotcha” website to chronicle all of Romney’s private equity mischief. On this website the four most prominently displayed sob stories of companies once owned by Bain Capital are not only taken out of context, but fall comically short of the entire story.
The home page of the website contains nothing but a quote from Marc Wolpow, a former managing partner at Bain saying, “I never thought of what I do for a living as job creation… The primary goal of private equity is to create wealth for your investors.” Congratulations Mr. President, you have discovered that all along the purpose of Bain’s investments was… to make money. Oh, the horror!
Obama’s main critique of Romney seems to be that he ran Bain Capital like a private equity firm. Investors, whether they are stock or commodities traders, venture capitalists, or even banks, do not use their capital to create jobs; they use and distribute their capital to grow their capital and maximize returns. In some instances, companies invested in by Bain Capital had to lay off employees, outsource manufacturing, leverage debt, or any number of other things necessary to bring companies back to solvency and/or profitability. However, of the 350 companies that Bain Capital has invested in, 80 percent have seen revenues grow, making Bain one of the most successful private equity firms in history.
The first company formerly controlled by Bain on which this pro-Obama website focuses is Ampad. The site declares:
“With American Pad & Paper (Ampad), Mitt Romney and his partners took a small but successful paper products business and merged it with other companies in the industry, piling up debt as they went. Ultimately, the company was unable to keep up with the interest payments on its debt and was forced into bankruptcy, but not before Romney and his partners were able to squeeze out more than $100 million for themselves.”
What “romneyeconomics.com” fails to mention is that the financial distress of the firm only began four years after Bain sold its majority equity stake. While Bain still retained partial equity, it was nowhere close to a majority owner and it was not running the day-to-day operations anymore.
The second firm of note, Dade Behring, is discussed on this website under the title “Dade: Profiting from Debt.” The story of the company reads:
“With Dade Behring, Mitt Romney and his investors took over a healthy company and loaded it with debt. Rather than sell the company, they then had Dade take out even more loans to buy out their shares, driving the company into bankruptcy. Nearly 3,000 workers lost their jobs, while Romney and his partners made more than $250 million in profit.”
Having added $5 trillion to the national debt, and with the national unemployment rate at 8.1% and the effective unemployment rate double (including those who have given up looking for work and those who are underemployed), it boggles my mind how Obama can criticize anyone for culpability in job losses and debt accumulation. Once more, Dade Behring roared back to profitability once Bain took it through that structured bankruptcy. Dade filed for Chapter 11 in 2002. By 2006 Dade’s annual revenues were $1.7 billion and it stood as the largest company in the world of its kind. In 2007, Dade was sold for $6.4 billion, and its shares were offered at $77 per share (or roughly 2 ½ times the current value of Facebook stock).
In the third slide on this attack website, the Obama team decries the unfair consequences of the bankruptcy negotiated for GST Steel which Bain took over in the early 1990’s. The slide laments:
“When the company eventually declared bankruptcy, workers were denied their full pensions and health insurance, and the federal government was forced to step in and bail out the pension fund.”
Oh, the irony of Obama condemning a federal government bailout. While Bain controlled GST Steel when it went through bankruptcy, Romney had left Bain two years prior and was neither responsible for the declaration of bankruptcy, nor its settlement terms.
The fourth and final company of prominence on romneyeconomics.com is Stage Stores, a clothing store chain that Bain purchased in the late 1980’s and reorganized in the 1990’s. The website tells the story of how the mergers and acquisitions undertaken by Stage Stores racked up debt and caused the company to declare bankruptcy. Today, Stage Stores owns over 800 stores in 40 U.S. states, employs 13,000 men and women, and in 2010, boasted $1.5 billion in sales. Even though the growth strategy pursued by Bain involved taking on short-term debt, Bain’s actions hardly held back the company long-term.
Back on May 21, the president said in one of his campaign speeches, “If your main argument for how to grow the economy was ‘I knew how to make a lot of money for investors’ then you’re missing what this job [president] is about.” Obama has led the economy for three years now, and the economy has suffered from a net jobs loss. During Romney’s tenure Bain Capital, the company is estimated to have created tens of thousands of net new jobs. After three years of failed business and economic policies under Obama, having a candidate whose firm boasts an 80 percent success rate and a clear record of job creation is a very exciting prospect for both the Republican Party and America.