The left, including the Obama administration and some in the media, are making anti-capitalist attacks on opponent Mitt Romney’s business career the latest tactic. And the gloves are off.
On July 12, Obama’s deputy campaign manager Stephanie Cutter went on the offensive charging Romney could be a criminal: “Either Mitt Romney, through his own words and his own signature, was misrepresenting his position at Bain to the SEC, which is a felony. Or, he was misrepresenting his position at Bain to the American people to avoid responsibility for some of the consequences of his investments,” she said according to Politico.
Many in media reacted by attacking Romney, or by continuing their attacks on Bain Capital and the private equity industry -- tarring an industry which benefits many people including union pensioners like teachers and police. Few reports defended Romney, like CNBC’s Larry Kudlow did, or criticized the allegations as the Washington Post fact checker did initially (they have since backed off calling the situation “at an impasse.”) The stories also rarely explained the private equity industry for viewers and readers who are likely unfamiliar with them.
The political attacks on Romney and Bain Capital came as little surprise during a heated election season. But the liberal news media’s coverage of the controversy often supported Obama’s attack or sought to make Bain Capital a villain. The Los Angeles Times on July 19 dredged up plenty of ugly, unrelated anecdotes about Bain even mentioning “right-wing death squads” in El Salvador.
MSNBC and the more obscure Current TV (founded by Al Gore), have railed against the Republican presidential candidate and what they call the “vulture capitalism” private equity firm he founded.
Cutter’s allegations against Romney were bolstered by MSNBC’s Mika Brzezinski on July 17. While “Morning Joe” host Joe Scarborough tried to interview Cutter about her “felony” remarks, Brzezinski could be heard in the background agreeing with Cutter multiple times including Cutter’s remark that “when” Romney was at Bain is “legitimate discussion” and concluding that the questions Cutter was bringing up about Bain and tax returns were “fair game.”
Meanwhile, that same morning, NBC’s Matt Lauer ignored Cutter’s “felony” remarks when he interviewed her on “Today.” Although Lauer challenged Cutter about the “exceedingly negative campaign,” but he failed to ask about the latest nasty attack on Romney.
The Obama team and some in the media have been trying to connect Bain investments that resulted in layoffs and outsourcing to Romney for some time. Romney has continually said that after 1999 he was not managing Bain investments and his campaign has demanded an apology from the Obama campaign because of Cutters’ attack.
Nate Silver, a New York Times blogger audaciously asked “Is Romney Overreacting to Bain Attacks?”
Romney has said all along that he was not managing Bain from 1999-2002, because he left in 1999 to manage the Salt Lake City Olympics. After the Boston Globe seized on some SEC filings that listed Romney’s as CEO of Bain Capital during those years, the Obama campaign went on the attack.
Financial outlets did a better job. On “The Kudlow Report” CNBC’s Larry Kudlow and American Enterprise Institute’s Jim Pethokoukis defended him against those attacks on July 12. On screen the charges were labeled “Baseless Bain Bombshell” which Kudlow said reeked of “utter desperation” on Obama’s part.
Kudlow said “it took ‘em three years to unwind all the paperwork and all the power... He had no operational responsibility. You literally, as the sole shareholder of the company, you literally cannot unwind the documents.”
According to Kudlow the paperwork confusion surrounding Romney’s title was “the SEC’s fault.” He also noted that Glenn Kessler of the Washington Post fact checked the Obama campaign’s claims about SEC documents and “says this is a lot of hooey,” along with Factcheck.org and Fortune magazine. The Post gave the claims a three Pinocchios rating, but backed off a little as of July 20. Kudlow made the case that Romney wasn’t lying and Pethokoukis argued that if you “read the prospectus of these various funds” they say Romney wasn’t running the funds. So “nothing was misrepresented,” he concluded.
Former Bain partner Ed Conard also defended Romney in an MSNBC interview and said that, “I believe that these attacks on Mitt and on Bain Capital are really attacks on business generally. Of course they are! Okay, and they are trying to pit employees against employers, of course they are. And what they want to do in that argument is pretend that the customer doesn’t matter. So, the customer decides which company to buy from. They decide which factory they’re going to buy from, they decide how much they’re willing to pay for products and we as investors and employees have to respond to those demands.”
Media Show Disdain for Bain
Suddenly, Bain Capital is in the news again thanks to recent anti-Romney campaign ads from Obama’s team and supporters as well as Cutter’s recent charges. But coverage of the company has been little different from the campaign rhetoric. It included vicious attacks and little defense or even explanation of what private equity companies do.
Many of the media quotes were so in-sync with the left on the issue that The Huffington Post has a video mashup of news and opinion programs talking about Bain, spliced into a monologue from “The Sopranos” TV show and footage from “Goodfellas” -- leaving viewers with the impression that private equity companies are like mobsters. In the accompanying column titled, “Bain Capital Explained by Tony Soprano,” HuffPo compared company practices to the organized crime tactic of “bust outs.”
Authors Ryan Grim and Hunter Stuart even claimed that “mafia-esque looting of productive enterprises has always been a part of the private equity business that has a terrible reputation.”
One of the quotes in the Huffington Post video was from left-wing talking head and MSNBC host Ed Schultz who described the private equity firm as “strip mining” companies on “The Ed Show.” It also included former MSNBC anchor David Shuster saying on Current TV that Bain was practicing “vulture capitalism.”
According to Colin Blaydon, Director of Tuck’s Center for Private Equity and Entrepreneurship at Dartmouth, that isn’t the case. He responded to Schultz’ claim saying, “If they [a private equity firm] are going to make money they have to make the companies successful and more valuable and that means you can’t ‘strip mine’ it. You can’t tear stuff off,” because you won’t have a profitable company left to sell afterwards.
More recently, liberal comedian Stephen Colbert used his trademark humor to promote the Bain attacks by drawing comparisons to the Donner party, the infamous pioneers whose journey “culminated in death and cannibalism” according to PBS.
On the July 16 “Colbert Report,” Stephen Colbert made business success a mean joke saying, “Folks, Obama is hammering Mitt over a Washington Post article that claims the folks at Bain were pioneers in the practice of shipping work from the United States. Who cares? Pioneers opened up the West. Bain was just like the Donner party, they ate the weak.”
Jon Stewart also turned his comedic wit against Romney and Bain Capital that night saying (as Romney), “I was just the guy with the smokescreen-ish yet still legal title of CEO and Managing Director who was paid at least $100,000 a year to do what, according to me, Mitt Romney was nothing.”
Private Equity Benefits Teachers, Police and Other Union Workers
Unless they work in finance, it is unlikely many news consumers have great understanding of private equity firms. This makes the public more likely to accept media mudslinging against the industry, which too often villainizes companies rather than explaining what really goes on.
Blaydon told the Business and Media Institute that private equity companies get investors to agree to put up money to be invested for a certain time period. Those investors could be wealthy individuals, but are often public pension funds (like CalPERS and New York State pension fund) and university endowments.
According to the Jan. 26, 2012, Wall Street Journal, the amount of public pension money flowing into private equity has grown from 3 percent to 11 percent since 1992.
“Big public-employee pensions had about $220 billion invested in private equity in September, or 11% of their assets, according to Wilshire Trust Universe Comparison Service, which tracks the holdings of pensions, foundations and endowments,” Michael Corkery wrote. That was $50 billion more than one year earlier.
The private equity firm then takes the investors’ money and makes private investments in companies (sometimes struggling companies), often by acquiring a “controlling interest” in it. “There are a lot of different ways and strategies,” Blaydon told BMI. Some consolidate fragmented industries by buying up lots of “pieces” and putting them together.
“In all likelihood they are adding jobs. But another way of doing this is to invest in and take control of a company that is not performing well and is not as profitable as it should be,” he explained. In such cases, job losses can happen in order to make a company more efficient so that it can survive in the globally competitive environment we live in.
The goal of such funds, is that after making improvements and making the company (or companies) more valuable, is to sell it for a significant profit.
The profits don’t just benefit private equity fund managers, like Romney, as some have argued. They generate profits for pension recipients, universities and other investors. Policemen, teachers and firefighters often benefit from private equity investments, a fact Blaydon said is “one of the great ironies.”
Unions like the AFSCME and Service Employees International Union (SEIU), have attacked Romney and Bain Capital for what they claimed was a “long and troubling track record of putting profits before workers.” But as Corkery noted in his Journal article, the SEIU and AFSCME unions both have pension money across the country invested in private equity.
But looking solely at layoffs also misses a bigger picture. Former hedge fund manager Andy Kessler addressed that in an op-ed in the July 16, 2012, Wall Street Journal. He wrote, “Did Mitt Romney and Bain Capital help office-supply retailer Staples create 88,000 jobs? 43,000? 252? Actually, Staples probably destroyed 100,000 jobs while creating millions of new ones.”
How? Staples cut out the middleman “eliminating the jobs of distributors and brokers who charged nasty markups” and “enabled hundreds of thousands of small (and not so small) businesses to stock themselves cheaply and conveniently and expand their operations.”
Post, WSJ, Kudlow and Chris Hayes Find Facts about Filing
As many in the news media, rushed to judgment against Romney, Bain Capital and Private Equity, a few reports cut through the political catfight to find hard facts.
The Washington Post’s fact checker wrote on July 13, that “Despite the furor, we did not see much new in the Globe article. We had examined many SEC documents related to Romney and Bain in January, and concluded that much of the language” about Romney’s position “was boilerplate that did not reveal whether he was actually managing Bain at the time.” But as of July 20, the Post retreated somewhat from that position saying things were “at an impasse because of the ambiguity.”
Although some, including Stewart have mocked the “retroactive” retirement claims of Romney’s campaign, on July 13 the Post explained it easily: “Romney’s sudden departure from Bain had left the partnership in flux, in fact almost breaking up the firm, and a final resolution was not reached until he ended his Olympic sojourn and decided to run for governor. At that point, he signed retirement papers that set his departure date as February 1999, the month he left for the Olympics.”
Similar explanations were detailed on “The Kudlow Report” on July 12, and surprisingly on MSNBC’s “Up with Chris Hayes” July 15. Hayes interviewed former Bain Capital partner Ed Conard who said unequivocally that a “management committee” was running the company from 1999 onward. Conard said Romney was “legally” the owner and CEO, but “Mitt was gone” and “working so hard on the Olympics.”
When Hayes asked why he was getting paid during those years, Conard said, “Mitt created the firm. He created enormous franchise value and so did other partners, like myself, at the firm. OK? And their contribution to the franchise value of the firm had to be recognized, so when Mitt left, it’s not like people said, ‘Oh, see ya later. You don’t get another dime from the firm.’ They said, ‘Hey, you’ve created something incredibly valuable and you need to be compensated for that’.”
Hayes also said, “I don’t understand why it took three years [to negotiate].” Conard explained that there were multiple factors including Romney wanted compensation for the value he had created, but “all partners want to get involved in the negotiation” because it would have an impact their compensation when they chose to leave Bain.
After that Hayes got it and said, “I see, So that’s the benchmark. He’s the first one to leave after this thing had been created. And the negotiation for him is going to create the benchmark for the compensation structure.” “Of massive significance,” Conard replied.
Later Hayes told Conard that after his explanation, the situation “makes more sense.”