acquisition of another company using a significant
amount of borrowed money (bonds or loans) to meet
the cost of acquisition. Often, the assets of
the company being acquired are used as collateral
for the loans in addition to the assets of the
acquiring company. The purpose of leveraged buyouts
is to allow companies to make large acquisitions
without having to commit a lot of capital.
private equity side is where the controversy over
layoffs and outsourcing begins.
difficulty is deciding how to assign blame or
praise. For example, when the Romney campaign
claims they created jobs they are referring to
jobs created through venture capital deals and
are tallying up all of the jobs created at those
companies even though their investment accounts
for a very small portion of the investments made,
and they are generally taking credit for jobs
created well after Mitt Romney 'left' Bain and
well after Bain pulled out of these deals. On
the other hand, when defending against attacks
over outsourcing and massive layoffs, the Romney
campaign often absolves itself by citing Romney's
'departure' in 1999.
did Mitt Romney leave Bain?
Romney's departure brings us to another controversy.
On one hand, the general narrative is that Mitt
Romney left the day-to-day management decisions
in 1999. On the other hand, he continued to receive
a salary of $100,000 or more (the SEC filings
only have to disclose if this amount was $100K
or more; not the exact amount) well after this
still signing SEC forms and continued to be
listed as the CEO and sole owner of the company--according
to the Fact Checkers, this
apparently doesn't prove he was actively managing
It would seem that in the world of private equity
and SEC filings, the semantics of titles like
"CEO'" and "sole owner" follow
a different set of rules. As
Andrew Sullivan asks:
How does Romney attend board meetings of Bain
acquisitions, sign six filings on Bain acquisitions,
get a six figure salary as an executive, list
himself as sole owner and CEO with the SEC in
these years, and insist he was not "involved
in the operations of any Bain Capital entity in
would be very unusual for somebody to have the
titles of not just "CEO" but "President",
"Chairman of the Board" and be "sole
stockholder" and to have no responsibilities
whatsoever. In fact, I defy Glenn Kessler to come
up with any example of anybody anywhere--save
for Mitt Romney--who has been characterized to
the SEC as "sole stockholder, chairman of
the board, chief executive officer, and president"
and also claimed to have no responsibilities whatsoever
and to have merely been a passive investor.
if the Romney campaign will take credit for jobs
created after Romney left Bain, it would stand
to reason they'd be on the hook for jobs lost
after he left (especially since the job losses
happened in companies where Bain had more direct
oversight and majority ownership, and the success
stories were companies where Bain's investments
were small and they had little/no active oversight
over these companies).
Private Equity Makes Money
Private equity firms purchase companies through
leveraged buyouts, and often sell them within
5 years. Generally, only a small portion of the
money used for this buyout comes from bank loan
and partners acquired by the private equity firm.
Then, the company purchased is often expected
to pay off the loan. The company is often sold
off within 5 years. In the more controversial
and less popular instances, costs related to long
term growth (like employees, more efficient factories
and R&D budgets) are reduced in order lower expenses
and increase profits. The company is then sold
off, often at a high return. The company may very
well go under due to the structural deficiencies
itís been left with, and employees lose their
jobs. But the goal (short term profits) were attained.
Sometimes the loans these companies are on the
hook for are made to pay large dividends. Sometimes
these companies go under due in part to the excessive
costs of these loans. Nevertheless, the private
equity firm has made its money.
is what is meant by the term ďVulture
Capitalism.Ē Itís clear that the private equity
firmís earnings are not commensurate with the
health of a company (certainly not its long-term
In an expose on private equity by investigative
journalist, Josh Kosman, Bain Capital is implicated
as one of the private equity firms who often make
money by squeezing companies in the manner above.
.. Here is KosmanÖ
Because private equity companies can invest with
mostly other people's money, then load the company
they invested in with debt by placing them on
the hook to pay off the loan, the risk taken on
by PE firms like Bain are often exaggerated. For
example, in the instance of GST Steel, one of
the common responses is that Bain Capital invested
over $100 million in the company and that the
company shut down due to the downturn of the steel
investigative journalist Josh Kosman and SEC filings
reveal that Bain only invested a small amount
of the total investment, and that it added debt
to the company in order to pay dividends. According
to Kosman, GST may have survived the downturn
had it not been loaded with so much debt.
Mitt Romney claims to have created more jobs as
governor of Massachusetts (2003 to 2007) than
Obama as has president (2008 until at least 2012).
Technically it is true that Massachusetts saw
a net gain in employment from 2003 than the US
economy has seen since Obama’s inauguration
in 2009. Of course, the economy was growing from
2003 to 2007. On the other hand, Obama inaugurated
into an economy that was losing well over half
a million jobs/month, so the comparison is a bit
question is; how did Massachusetts job creation
look compare to other states during that time?
Unfortunately, MA actually ranks 47th in terms
of job growth for that time period.