Wednesday, January 11, 2012

Mitt Romney's Bain Capital Problem

With all of the arrows and daggers flying around regarding the Bain Capital business model, it is important to underscore that its entire business is not all bad.  Bain Capital is a venture capitalist firm, a business model that pools large sums of money to either start a business, take a company public via IPO, or in its worst form gut a company for pure profit.

Bain Capital did all three.  To Mitt Romney's credit, Bain helped start Staples.  Today, Staples is a household name as a go to place for office supplies.

In 2007, Bain Capital was very successful to help take Blackstone Group public through a lucrative IPO.

In these two cases, venture capitalism was successful and true to the pure capitalist model.  Firms were either created or allowed to prosper to exchange of funds similar to procuring funds through a bank.

So why does Mitt Romney have a Bain Capital problem? 

American Pad & Paper and KB Toys are a classic example.  American Pad & Paper, owned by Bain Capital, was gutted to the core while Romney was CEO of Bain Capital.  Wages cut, then jobs were cut.  Plants shuttered and towns once proud became ghost towns.

With KB Toys, Bain loaded KB Toys with debt and then used to debt to buy Bain Capital stock for profit.  KB Toys is no longer.

The difference between pure capitalism where businesses are allowed to start, grow, prosper and fail is that leveraged buyouts and corporate raids - a legal, but questionable practice by venture capitalist firms to maximize return on investment (ROI) for the firm and its investors.

Let's be clear - raiding a company and gutting it, is not capitalism.  It is corporatism that only benefits the investors of the firm that owns the firm.  Corporate raiding as it in the case of American Pad & Paper is artificial and counter-

Because when Bain Capital raided American Pad & Paper (Ampad) and KB Toys, they were proud of its self-termed "destructive capitalism".

Now that Romney is running for President and crediting his business record as the counter to Obama, it's fair to see that not all is rosy with Mitt Romney.  Too be the compassionate conservative eager to earn votes of conservatives, many of whom lost their jobs in rural America, seems hollow and hypocritical.

Was Romney a successful manager of Bain Capital?  Yes.  But when you want to earn votes saying you will help create jobs, when you helped do the opposite, that rings of pure hypocrisy.  Not to mention the toll on workers and families, as evidenced here.

Remember, the backbone of corporate raiding is greed.  And contrary to Gordon Gekko, greed is NOT good.

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