Thursday, January 12, 2012

Romney campaign faces new trouble

Today, the Romney campaign is running into heavy weather.   Having lost a third of his likely New Hampshire votes to his cousin, an even richer and more entitled Mormon businessman named Jon Huntsman, Romney thought he had an insurmountable lead in South Carolina.  But then New Gingrich’s PAC released this video about corporate raiding activity by Bain Capital, and it changed the equation.

This video takes you through four examples of job losses from Bain Capital’s control of some companies, and classifies Bain Capital as a corporate raider.  Corporate raiders were a feature of 1980s capitalism in the US, founded on one idea: that markets are NOT efficient, and that therefore old mature companies with entrenched management can be profitably looted. The raiders would buy the companies, lay off people to improve their profitability and to generate cash for new raider acquisitions and as collateral for  borrowing by the raider (which was stashed on the acquisition’s books so that the raider would never have to pay it back), and then either flip the companies and sell them or shut them down and cash in their assets; or at worst case, put them into receivership in order to get out from under the raider's debts.   For the raiders to make a profit, they had to find end buyers and lenders who would cheerfully take a bath, yet their stripping of companies and pyramiding debt damaged what they were selling.  So who was buying and cementing in these profits for the raiders? 

The answer was, the companies’ competitors.  Typically the original management would not sell to competitors; or they had a number of business lines competitors did not want to deal with.  So the raider would strip away the businesses the buyers didn’t want, and deliver what they did want, which was market share.  Since the competitors were just as happy with shuttering their competition as with buying it, they didn’t care that the raiders stripped them.  Often, when the competitors did buy raider assets, they ended up closing up the whole operations, which is why the people in the video took a double hit:  first the layoffs from the raider, and then closure by the ultimate buyer.  And since what they were buying from the raider was monopoly, they were willing to pay more than these companies traded originally, on the assumption they could raise prices after closing them, or imagining they could better manage their competitors' assets.  This guaranteed the raider a profit.  The whole point of the raider industry, then , was to reduce competition in the corporate world and to reduce the role of markets.  This was "sold" to MBAs and the public as "cutting the dead wood" but really it was an attempt to manipulate markets to reduce competition and raise prices, just as similar operations that were undertaken in robber baron days.

So was Bain a corporate raider,  rather than the passive investor I have referred to in previous posts?

Romney says he was a builder not a raider, and has already been planting stories suggesting the whole business is overblown.  That the video mentions only cases of recent vintage, when he had long since given up day to day management of Bain Capital, is not too much  in the video's favor, although it must be said that he is profiting from every deal since Bain Capital is his company, whether he chooses to manage it or not.  His big financial successes were from passive investments, not from management, which reinforces the notion that he is no kind  of business manager, but even this pro-Romney article admits that the leveraged buyouts Bain was involved with had a high "failure" rate to the target companies, though as we have seen, the failure was others', not Bain's.

The press is willing to help him  overcome these problems, but the shock in South Carolina is strong, because the images of Romney  kicking back at the airport having his shoes shined, and reveling in the misfortune of others with a nasty cheshire grin  creates an indelible impression of a bully in action.

People can forgive someone who got caught up in the greed moment of the 1980s.  They can’t forgive someone who remains a sneering pompous ass to this day.  That’s why an attempt on “The View” today to defend him against the “I like firing people” comment that he made, stripped of context, appearing in anti-Romney ads,  has failed to help him.  The ads themselves were payback for his anti-Obama ads in New Hampshire.  The Obama ads had Obama saying, “If we talk about the economy, we lose.”  Obama was quoting McCain staffers, so to put it  in the ad was misleading since Obama was not talking of his own campaign.  But Romney refused to pull the ads because the full context – McCain was being blamed for a poor economy, which could be just as easily applied four years later to Obama.  Likewise, however, Mitt’s gleeful claim that he likes to fire people, a non sequitur when speaking of insurance choice,  is a revealing portrait of a man with zero empathy and too great a delight in winning.

In short, it now appears that Romney's insistence that he is a business manager will probably haunt him the way Kerry's claim to being  a war hero ended up doing very little for him.

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