I'm showing my age :), but does anyone remember Sir James Goldsmith? Ever see the movie Other People's Money? Follow me over the fold to see how Mitt Romney's Bain Capital is far more insidious and damaging than Sir James ever was.
Sir James Goldsmith was a corporate raider back in the 1970s - 1990s. Now, I do not condone all that he did - some of his "greenmail" deals were as bad as the excesses of today - but I remember a great debate he had on PBS - CPB Annenberg project back in the late 1980s. At that time, some of his "raider" projects involved buying up companies and then breaking them up and selling off the pieces. I.e., the so-called "creative destruction" of capitalism. While I acknowledge the human cost for those that lost their jobs, in many cases, these people were going to lose their jobs anyway. As Goldsmith put it - when I buy a company, I'd rather run it and keep people working. If it's a good plant, a profitable plant, then it stays. If it's not, if it is actually the case that the value of the land, building and equipment is more than the value that the plant produces as an operating plant, then it goes.
I am good with this, and here is where I would recommend to you the movie Other People's Money. In the movie, Danny Devito is the corporate raider, and is looking to take over a wire and cable company and sell it off. In one scene, the movie does a great job explaining the math behind it. In the climax scene of the movie, both he and the company president present their case to the shareholders - this part is so great that my economics professor in grad school used it. As Devito's character puts it - the plant is outdated, and fiberoptics will make it further obsolete. There is a better use for the land, and the people working there will have better opportunities elsewhere. A great line is "I bet the last horse and buggy whip company left in the U.S. made the best damn buggy whip you ever saw". But of course, times changed and it went under. My father's company was going through the same thing at the time, and I want to say: the union and the company worked together to make the plant work as long as possible, taking pay, overtime and vacation cuts for older workers in exchange for keeping pension benefits intact, and giving the overtime to the younger workers so they could make money while they got ready to get a new job. Even in the death of the company, both labor and capital made out.
The other video I would recommend to you is Charlie Rose's interview of Sir James Goldsmith back in 1994. Goldsmith-Rose Interview. Here is where he describes Mitt Romney and Bain Capital to a T, and his words are so prescient, it's scary.
The economy is there to serve the fundamental needs of society, which are prosperity, which are stability, and which are contentment. That is the basis of my thinking. And what I’m saying at this stage is that if, purely for an economic doctrine, you have a situation whereby the economy grows but you create poverty, unemployment, and you destabilize the society, you’re in trouble.
The facts are that people who benefit are big major corporations. There is a divorce between the interests of major corporations and of society. When one used to say and believe – and probably rightly – what is good for General Motors is good for the United States. That is no longer true.
You go and you create a corporation in China. And you build a factory in China. And what do you want to sell, mugs? You sell mugs in China. And you conquer part of the Chinese market by competing fair and square in China. That’s life. That’s adding to the activity of China. You’re a corporate citizen over there, you’re working over there.
But if you move a factory from the States and take that to China, not so as to conquer the chinese market but so as to re-import the goods into the States, so as to get cheap labor, what are you doing? What you are doing is you are saying to your employees here, You’re too expensive, folks. You want money. You want protection. You want unions. You want holidays. Forget it! We can employ 47 people over there (for each one of you) who want nothing.
So, don’t confuse 2 issues. One is going out to participate in their growing economies by building there and conquering part of the market. The other is merely killing off employment in your own country, getting rid of your own labor force – transferring it over there and importing it back – purely so as to increase your profit margins.
And this was in 1994! Sadly, how much truer are his words today. This is where Mitt Romney comes from - destabilizing society for the sake of his own profit. The fact is, hedge fund and private equity investments do not create jobs, and do not benefit the economy.
Let me describe to you a private equity deal that I know about. Private equity firm bought 2 successful, profitable companies. Merged them together, laying off 40 people in the process, about 15% of the original full-time workforce. When the downturn came, and plenty of opportunities were to be had to invest more money and buy up other similar companies that were going out of business (positive creative destruction), they instead laid off another 50 people, cut paychecks, increased health care cost to the employees and eliminated 401K matching contribution.
(an aside here - the idea that hedge fund managers or private equity firms should be compensated for the risks that they take is an absolute fraud. They take on very little risk. They get huge fees up front to cover their due diligence costs. They fund it with 50% or more debt, and the rest is covered by the breakup cost even if it doesn't work out. The banks that fund the debt they laden on the companies? - same thing, huge fees up front and high interest rates of 10% or more. By the time the company goes under, they've gotten theirs.)
Ultimately, the combined company recovered some with the economy and all the cuts they made paid off - the company achieved its return on investment and was sold. The private equity firm and the CEO/CFO made millions. And, do you think they went back to the employees and even said "here, here's the $250K that you gave up in 401k matching contributions, we want to give back a little of what we made by screwing you over these past few years". No they did not.
God help this country if Mitt Romney becomes president - if you think the 1% have taken too much now, just wait. As Tom Hartmann says - Tag, You're It. Get out and work for President Obama. Let's keep Jim Webb's seat Blue here in Virginia, and get the House back! When the corporate raiders of yesterday are more reasonable than the robber baron Bain Capitals of today, we need action now!