Tuesday, September 4, 2012
Taking Down Taibbi
By Ross Kaminsky on 9.4.12 @ 6:10AM
Leftist criticism of Romney's business history is ignorant, hypocritical, and magically void of similar criticism of Democrats.
Matt Taibbi's recent anti-Romney screed published by Rolling Stone magazine entitled "Greed and Debt: The True Story of Mitt Romney and Bain Capital" has been the talk of the left-wing media, from the DailyKos and Huffington Post websites to MSNBC. It has also caught the attention of Business Insider, which says that the article "has tongues wagging. And for good reason."
Taibbi paints a picture of Romney and Bain Capital as ruthless mobsters, or (though he doesn't use this metaphor himself) as vampires who swoop in on unsuspecting companies, bribe the management to destroy the lives of their employees, saddle the company with debt, and then fly away with incisors dripping and bank accounts brimming as the company's life-blood drains away. It is an image that is far more surreal than real, but with just enough of a microscopic grain of truth to convince those with little understanding of finance and investing -- and helped along by a pre-existing bias against people involved in that field -- that Romney's world, and thus Romney himself, is to be feared.
For those of us who have even a modicum of experience in the world of private equity investing, Taibbi's article is a caricature that would be laughable if it weren't so angry, vicious, misleading -- and, unfortunately, accepted as at least plausible by many Americans whose personal experience doesn't allow them to recognize it for what it is: ignorant twaddle little different from the mindset of the Argentine murderer Che Guevara who wrote that "In capitalist society individuals are controlled by a pitiless law usually beyond their comprehension."
Normally I would rather have a root canal than read Taibbi's radical ramblings -- after all, I can hear the same siren song of ignorance and class warfare by watching Obama campaign videos --but his tirade demands a response because, paraphrasing Ronald Reagan, it includes much that so many liberals know but which isn't so.
It is difficult to decide where to start with Taibbi's deceptions, unjustified conclusions, and obvious hateful bias, so let's just begin at the beginning.
You know that you're in for a wild conspiracy-theory ride when the writer says that his target is a predatory hypocrite on a gigantic scale who has "somehow managed to keep [it] hidden, even with thousands of cameras following his every move."
Given how many leftist "journalists" would give a major limb to break the story that in turn breaks Romney's presidential aspirations, is it even vaguely credible to suggest that there is an unknown flood of damning stories about Mitt Romney being restrained by an invisible reportorial Hoover Dam despite hundreds or thousands of dam-busting muckrakers digging into every corner of Romney's history?
You know that you're reading a bitter leftist who senses the end of the nation's most recent experiment in radical leftist (and associated Keynesian) policies when you find Paul Ryan described as "a self-righteously anal, thin-lipped, Whitest Kids U Know penny pincher who'd be honored to tell Oliver Twist there's no more soup left." But then, petty insult is all the Democrats have left to run on.
You know that you've stepped into a pile of ignorant anti-capitalist excrement (and thus well-suited to be mixed into the Obama campaign's various unsavory recipes to be spoon fed to the few remaining college students still hungry for what he's selling) when you read that Mitt Romney is part of "the entire sociopathic Wall Street set" and that he was "disgustingly rich from birth." I wonder how unsuccessful one's parents must be for a person to earn Taibbi's approval.
With all the bile and bilge within the first dozen paragraphs of Taibbi's rant, you know it's not going to get any easier to read. And it doesn't.
THE ESSENCE OF THE COMPLAINT is that Mitt Romney is a hypocrite for complaining about the nation's federal debt since he used debt as part of structured transactions that contributed to his fortune, while not always working out well for others.
Taibbi quotes a "prominent corporate lawyer on Wall Street" -- who apparently doesn't have the courage to allow his name to be used -- as saying that after graduating from Harvard Business School, Romney "could have done anything -- but what does he do? He says, 'I'm going to spend my life loading up distressed companies with debt.'" Keep in mind as you hear the left's constant anti-Bain drumbeat that the companies they got involved with often were distressed to begin with, meaning that they would likely have failed without help. The fact that some failed even with help is unsurprising.
Glaring by its absence is the converse of Taibbi's thought process: if it was wrong for Mitt Romney to engage in business transactions financed with private debt, why is it right for Barack Obama to saddle future generations with trillions in public debt, the benefits of which, unlike in a Bain capital deal, have zero chance of accruing to those who will be paying the bills? Not surprisingly, the article goes nowhere near that question.
Taibbi next offers a simplistic explanation of leveraged or management buy-outs, complete with the insinuation that Romney and Bain Capital got corporate executives to go along with deals that were bad for their companies by "buying off a company's management."
It is true that the word "leveraged" means that borrowed money is used to finance at least part of the purchase of the company from its existing owners. But complaining about the interest owed on that money is like complaining about the interest owed on your mortgage: you knew what you were getting into when you bought the house, you knew what your payments would be, and you determined that the transaction made sense based on your own weighting of the many considerations involved. You knew that you had enough cash on hand for a down payment but not enough to buy the house outright; you were grateful for the availability of a loan, aka "leverage." You might end up being wrong, but you certainly didn't aim to harm yourself with the transaction.
Taibbi quotes a former Securities and Exchange Commission accountant as saying "that interest just sucks the profit out of the company." No, it was a cost of acquiring the company, and doesn't "suck profit out" any more than buying a home "sucks the profit out" of your own income. Of course, borrowed money is not free, but it is a valuable tool, not some sort of demonic capitalistic curse brought down on unsuspecting victims. Anybody who has ever run a business that used credit of any form knows this, but Taibbi has obviously lived a far more intellectually cloistered life than the one he accuses Mitt Romney of. And again, I wonder if Taibbi has a mortgage.
No doubt, as we've learned all too painfully in recent years, some people buy "more house" than they should, with financially devastating effects. But this does not mean, pace Taibbi's assertions in this area as well, that they were victims, nor were Romney's few failures victims of Bain. (This is not to suggest that there were no unethical players in the housing boom/bubble, but the idea that malfeasance, at least by people other than politicians and bureaucrats, was the majority of the cause is unsupportable.)
ONE OF THE MOST GLARING examples of leftist ignorance of the way the world really works comes in Taibbi's saying that once a company has been purchased with leverage, "one of two things can happen." Those two things are the firing of workers and slashing of benefits, or bankruptcy. This is sheer idiocy. It is like saying that once you buy a home with a mortgage, the only two things that can happen are that every other aspect of your life has to suffer or that you will file Chapter 7. But for most people, neither of those things happens, and life is better following the purchase than before it, with somewhat more negative outcomes when people buy during the froth of a bubble-bull market, just as there were more negative outcomes when people bought Internet stocks in late 1999. Bad outcomes do not imply widespread villainy.
What business executive would make a decision where the only two possible outcomes were either bad or fatal for the company and its employees? If you believe, as Marxists do, that businessmen are little more than heartless calculating machines who can be bribed to sacrifice the futures of men and women they have worked with for years, then perhaps the story makes sense. But what normal person accepts such cynicism as generally true of those who run companies, big or small?
Not all businessmen are smart, wise, or ethical. (Though they are more of each than the average politician because they are risking their own money, future, and reputation rather than others'.) But despite not being (surprise, surprise) perfect and omniscient creatures, businessmen try to make the best decisions possible, including some risky ones, because they want to grow their businesses and (evil) profits, something that has the long-run effect of benefiting employees and customers alike. Not every business decision is without losers, but no businessman wakes up in the morning thinking "what person's life can I ruin today?"
Of course, Taibbi isn't done after accusing Romney and executives he worked with of conspiracy to destroy people. He moves on to say that the business model most comparable to Romney's is the "bust-out," which he explains as the strategy that would be used by a "gangster" or "mobster" -- after which he helpfully adds that "private equity firms aren't necessarily evil by definition." (Isn't that redundant, Matt?) The same left that accuses Romney of causing cancer also accuses him of being a modern day "Goodfella," movie characters who, by the way, were hardened criminals.
With barely enough time to reload his leftist "journalist" zip gun, it's time for Taibbi's next assault on Romney, done with an unsubtle intent to remind people of the Republican presidential nominee's Mormon faith. In the course of just a few paragraphs, Wall Street is described as a "cultish… church of making money" and Romney as a "true believer… within that cult" who has a "cultlike zeal." Get the idea?
Bain is said to have a "reputation… for secrecy and extreme weirdness" with its employees "known for their Mormonish uniform of white shirts and red power ties." Wow, I've never seen a white shirt with a red tie anywhere else. I wonder if Barack Obama or Harry Reid is about to be accused of secret LDS-hood. Oh, wait, Harry Reid is a Mormon and does have a bad reputation. Maybe Taibbi is right!
Taibbi doesn't recognize his own self-contradictions, describing "Gilded Age robber barons" who "built America in spite of themselves" by which he means they did not "share the wealth" enough. (Sound familiar, Joe the Plumber?) How does a leader do something transformational, something that has never been done and rarely even imagined, something that requires great discipline, skill, and creativity, "in spite of himself"? The answer usually is that he doesn't; he does it because of himself. HE BUILT THAT. But in Taibbi's world, the only thing that matters is that entrepreneurs got "filthy rich."
This you-should-rather-have-a-root-canal-than-read-it article spends some time on specifics, including two companies, Ampad (already the subject of an Obama campaign video) and KB Toys, that did not prosper following their involvement with Bain. Taibbi ties the failure of KB to Romney even though even ABC News has noted that "'corporate raider' claims were widely discredited, largely because Romney was no longer leading Bain when the company bought KB Toys, having left a year earlier to help organize the Salt Lake City Olympic Games." As Taibbi spins it, Romney was thus a "mere beneficiary of the raping and pillaging, rather than its direct organizer" -- but of course the capitalist vampire is still responsible.
In the interest of not being accused of glossing over a superficially valid criticism of Romney's mostly "sterling business career" (as the Romney campaign would term it), it is true that some Ampad employees lost their jobs shortly after Bain's takeover of the company. And it is also true that any acquirer looking for "efficiencies" will be looking to reduce staff and increase the remaining employees' productivity -- in the interest not only of investors but of the long-run sustainability of the company. But as the Washington Post notes, Bain had specific growth targets for Ampad that represented the heart of its business case for the acquisition. Industry evolution, particularly overseas, disrupted those plans -- as has happened in many industries other than paper -- and Ampad eventually failed after, it is true, Bain had earned a large profit on its initial $5 million investment.
This is the only part of the story Taibbi and Obama will tell you, but it is far from the whole story and far from a fair telling.
BAIN BOUGHT AMPAD in 1992. The company went public in 1996 and Bain "had relinquished control by the time the office supply manufacturer declared bankruptcy in 2000," again according to ABC News. In other words, many other investors thought that Ampad was worth more after Bain got involved than it was before, and the stock price reflected confidence in the company until just months before the company failed. In the first five years after Bain bought Ampad, sales skyrocketed from about $100 million per year to over $600 million per year. Yes, the debt load was a financial drag, but not nearly as much of a problem as the fact that starting in 1998, sales began to sag due to overseas competition and pricing pressure from stores like Office Depot and another Bain investment, Staples.
Even the company's 1997 annual report, published more than half a decade after Bain's takeover of the company described Ampad as a "market leader (with a) well-positioned and diversified customer base." The company reported having 4,520 full-time employees and operating a total of nearly 5 million square feet of manufacturing, distribution, office, and warehouse space. And despite operating at a modest net loss due to Taibbi's hated debt service, the company's assets exceeded its liabilities by $100 million at the end of 1997. It is also worth noting that a Boston Globe analysis of the Ampad saga states that Bain "agree(d) to start forgoing payment (of its fees) until the company turn(ed) around." This is manifestly not a tale of capitalist malefaction, but of a firm making a good-faith effort to save a business.
The story of Ampad is the story of many businesses: a well-intended but eventually unsuccessful effort. There is no disputing that Bain and Romney did well despite Ampad's failure six years after Bain's investment. There is also no disputing that people who owned RIMM stock (the maker of the Blackberry smart phone) or First Solar, neither of which has anything to do with Bain, did well if they sold the stock a couple of years ago, and not so well if they've held on. And the same goes for thousands of companies that have gone from growth to failure in a short time as the world changed rapidly around them.
The same liberals who are so afraid of the smallest change in climate refuse to recognize that things change in business far more dramatically, far more rapidly, and with real rather than imaginary effects on actual humans rather than on computer models.
You'll note that Taibbi's tale, like all anti-capitalist critiques of the Ampad story, downplays the time the saga took to play out, and the initial success of Ampad, at least in terms of revenue growth. They make it sound as if Bain bought the company and, just-barely-figuratively speaking, immediately lined up the employees against the warehouse wall. (The story-telling is little different from the unforgiveable Joe Soptic implicit lie that Mitt Romney was responsible for his wife's death.)
But Ampad was clearly not the story of intent to "raid" a company. Nor is the sort of intentional or negligent failure Taibbi accuses Romney of causing borne out in any sort of pattern. After all, as the same Post story notes, only "about 22 percent of the companies [which Bain invested in] either filed for bankruptcy or liquidated by the end of the eighth year after Bain invested." Considering that Bain's investments were generally in troubled ("distressed") companies -- after all, why else would the companies have accepted capital from and control by others -- this strikes me as Romney having done a remarkable job.
What I know is that if you took my investment portfolio, you'd find some horrific results mixed in with some winners; if you only focus on the negatives, you could paint a terribly negative picture of my abilities as an investor. If my compound returns had been half of Romney's, I'd be much better off than I am now, but then not everybody has Romney's talent -- a true talent that Matt Taibbi will never understand given that he not only doesn't have the talent, but disapproves of its results. As someone who has tried, on a much smaller scale, to do what Romney did, I can only tip my hat in admiration at his success. Furthermore, having been involved in a few private equity deals, again on a much smaller scale, my experience is that investors care a lot about a purchased company's employees -- but few, and probably not even I, care quite as much as Romney seems to.
Mitt Romney's wealth is approximately six tenths of one percent of that of America's second-richest man, and conspicuous friend of Barack Obama, Warren Buffett. Indeed, with Romney's personal net worth estimated somewhere around $250 million, not even one fourth of the wealth of the lowest-ranking person on Forbes magazine's list of the 400 richest Americans, one wonders whether Romney would have made more money had he not cared so much about the employees of the companies he and Bain invested in and controlled.
Speaking of Buffett -- which Taibbi doesn't because being rich and aggressive is apparently only a toxic cocktail if mixed with being a Republican -- even Felix Salmon, the finance blogger for that well-known conservative mouthpiece, Reuters, noted in 2009 that Buffett "seems to have fired 21,000 people -- 8.6% of his workforce -- over the past year" including some of his poorest employees. After calling Buffett "teflon-coated" (although to stick with Taibbi's mob metaphor I might prefer to suggest he's paid his protection money to the Democratic National Committee), Salmon asks rhetorically, "Could anybody else fire 3,000 Salvadorean textile workers and receive essentially no bad press at all?" Actually, the answer is yes, if you're a Democrat, as you'll read in a moment.
SPEAKING OF INVESTMENT returns, Taibbi also quotes some insightful research by Brett Arends in which Arends explains that Bain's results under Romney's tenure were not as spectacular as are often reported, and that an investor in Bain did similarly to an investor in the stock market during the 1984-1998 period analyzed. However, most Bain investors did not hold those investments for 14 years, but rather "about five to seven years" meaning that "Bain Capital's dollar-over-dollar returns would have averaged somewhere between 20% and 30% a year." This compares to an average return of less than 19 percent a year for a period that included the remarkable stock market boom/bubble of 1995-1998. I can tell you as a professional trader and semi-professional investor that beating the stock market during a "straight up" bull market run is very difficult to do.
No doubt the Bain/Romney heyday included some of the greatest years in private equity history, corresponding to the stock market boom. But to put it in perspective, so far in 2012 only eleven percent of hedge funds are beating the S&P 500 (which is up about 10 percent for the year), and that's down from an already very bad 26 percent in 2011. (For a Harvard study of hedge funds versus stock index returns, see here, and for an article on the same topic, see here.)
Yes, some of Bain's investments failed and cost jobs, and Bain's management fired people as part of trying to position companies for success. But that is no different from any other company striving to survive and thrive in the ultra-competitive business environment. Have you heard a peep from the liberal media about the Obama-donating execs at Google firing 4,000 people in the past month (of whom about one third are in the U.S.)? Matt Taibbi wants you to think only Bain does that, and does it with cold-hearted glee.
But the net effect of Romney and Bain Capital has been extraordinarily positive: According to the Wikipedia entry on the firm, "Since inception it has invested in or acquired hundreds of companies including AMC Entertainment, Aspen Education Group, Brookstone, Burger King, Burlington Coat Factory, Clear Channel Communications, Domino's Pizza, DoubleClick, Dunkin' Donuts, D&M Holdings, Guitar Center, Hospital Corporation of America (HCA), Sealy, The Sports Authority, Staples, Toys "R" Us, Warner Music Group and The Weather Channel."
While I don't want to do the math myself, it is reasonable to assume that Mitt Romney and Bain Capital are responsible for some six-figure number of jobs in America, for which they and their investors deserve to have been richly rewarded, even if the road to success was not without its potholes.
Taibbi's criticisms of Bain are like complaining that a .320 batting average major league baseball player (of whom there have only been 51 among players who have played 1,000 games or more) should primarily be thought of, condemned, and dismissed for his strikeouts. And Romney's batting average is far above .320.
It is also worth noting Taibbi's critique of Bain regarding the failure of KB Toys that "Bain's experience in the toy industry… was precisely bupkus." Again, Taibbi displays a fundamental ignorance of business. Of course it is important, even critical, for those running a business to understand their industry. But management can learn or hire that experience; they don't need to come into the business knowing about it.
The current CEO of Ford Motor Company, Alan Mulally, was hired away from aircraft manufacturer Boeing. Former Apple Computer CEO John Sculley came from PepsiCo. There are certain attributes of an excellent businessman that are more important to bring into a company than specific industry knowledge. These attributes -- the ability to think outside the box, to execute, to lead from in front, to manage people -- are rarer and more valuable than any particular knowledge of a specific industry.
And if lack of knowledge of a particular business sector were a fatal flaw, how does Taibbi explain Bain's success in fields as diverse as steel, day care (which the Wikipedia list is missing, regarding Bain's involvement in Bright Horizons), movies, sports gear, office supplies, and, well, whatever it is you want to say Brookstone sells? Romney's ability to succeed in such a wide range of industries is remarkable.
One wonders if Taibbi would have offered the same criticism of Obama-buddy Buffett whose holdings include everything from insurance to furniture to private jets. Warren had better be flying his own plane and building his sofas, right Matt? In fact, when NetJets was failing, Buffett sent a former utility executive to straighten out the situation. Fixing NetJets included firing about 800 people -- layoffs which the company's founder, Richard Santulli, had managed to avoid for several years.
To be clear, I am not critical of the layoffs that were likely necessary to save the business. I am critical of Taibbi's misleading and context-free condemnation of the relatively few layoffs which Mitt Romney was involved with at Bain Capital-controlled companies. Furthermore, even Warren Buffett has had to close a company that he owned: Buffett himself talks about the worst trade he's ever made, ironically enough in the original Berkshire Hathaway company, which he took control of and which then failed, costing over 2,000 textile workers their jobs and shuttering the last textile mill in New Bedford, Massachusetts.
As Buffett tells the story, he speaks with justifiable positivity about the business necessity of using machines to "save (on the cost of) people." Imagine how Matt Taibbi would portray Mitt Romney if he found a quote of a Bain Capital employee making a similar statement. The Berkshire Hathaway failure (the original textile company, not Buffett's tremendously successful holding company which kept its name) was no more a sign of ill intent or incompetence by Mr. Buffett than the Ampad story is of Mr. Romney.
TAIBBI GOES ON to discuss Romney's supposed similarity to, and business dealings with, "convicted felon" Michael Milken -- a man whom John Stossel correctly described as having "helped more people than Mother Teresa." Although there are legitimate questions of conflict of interest in a department store merger that Taibbi mentions, the problematic pattern is more in the "journalist" than his target: The failure of the department store company "took place three years after Bain cashed out " -- yet of course remains Romney's fault.
But if essentially accusing Romney of being part of a criminal conspiracy isn't enough, Taibbi's next gem is to accuse Romney of being a secretive, government-subsidized, tax-break-junkie who wants a "crazy, vicious and almost unbelievably selfish" society. We are led to believe that Romney is deserving of more scorn and disdain than any gangster, despite never having committed a crime and despite creating more jobs and wealth than a stadium full of Matt Taibbis could ever hope to -- not that he and his ilk would have any interest in actually creating anything of value lest it lead to a long-term capital gain or an urge to vote Republican. (The horror!)
As we anticipate more demonization of Bain at the Democratic National Convention, it is worth noting that most employees of private equity-owned companies know no more about how private equity works than employees of major corporations know about how trading in their companies' bonds works. In short, they know precious little. In this and most other ways, including the occasional tendency to dislike the boss, they are no different than tens of millions of other American workers except that those associated with Bain are more likely to remain employed than those associated with Solyndra or other Obama "investments."
After attacking Romney's career, and just when you thought Taibbi couldn't go any lower, he sinks to even more desperate and petty levels: there's also apparently something wrong with Romney because you can't detect a particular accent in his speech even though he has lived and studied in many places. Matt, don't you realize that living and studying in many places is precisely what causes many people (like me) not to have a particular distinct accent?
And by the way, just what accent does Obama have? Oh, I remember, it depends (and for Hillary Clinton and Joe Biden as well) on whom he's speaking to. As Shelby Steele put it, "It sounds a little hollow. Sometimes, he's Martin Luther King, sometimes, he a Black militant from the Sixties, then he's a Baptist minister. He can be so different. There's not yet an Obama voice. That troubles me on other levels. It's hard to know what bag he's going to come out of when he takes to the podium. "
Taibbi also grouses about Mitt Romney having attended "a collection of private schools" despite Taibbi himself having attended an elite (and very expensive) Massachusetts prep school and the also elite, expensive, and rabidly leftist Bard College -- reportedly the single biggest American college recipient of money from George Soros' foundations. So who's the real hypocrite, Matt?
IN CLOSING HIS ARTICLE, which comes across mostly as an intellectual laxative for unbalanced socialists, Taibbi unintentionally begs an important question: By calling Mitt Romney a "man from nowhere" he reminds us that Barack Obama is a man much of whose life story, increasingly called into question, is a shadowy unknown, made and kept that way by the president himself.
Similarly, Taibbi talks about a conflict "between people who consider themselves citizens of actual countries, to which they have patriotic allegiance, and people to whom nations are meaningless…" Even the average Democrat (at least those not in journalism or Congress) will not be able to help thinking of Romney positively in this light as compared to our president who went to Berlin to call himself a "citizen of the world" and whose second-favorite activity after golf (the 100th round of his presidency occurred in June) is apologizing for his country. After all, what person whose stated goal is to "fundamentally transform" something can be said to have an allegiance to that something?
Matt Taibbi's Rolling Stone anti-Romney, anti-capitalist rant does have tongues wagging, with the chattering classes and the media's useful idiots thinking "I knew it all along" when in fact they have just been served another giant steaming helping of misdirection and hatred to be swallowed with a chaser of ignorance. The available facts on Mitt Romney's business career show a man who is competent, caring, and, yes, capitalist -- and proudly so.
Mitt Romney is a remarkably well-qualified aspirant to the presidency with a skill set (and running mate) ideally matched to our nation's current needs. In that, I understand why Taibbi and his fellow leftist radicals are so afraid.
To read another article by Ross Kaminsky, click here.
Posted by Brett at 11:34 PM