Romneyville and Financial Capitalism.

    By Oxy Mora on Mon, 01/16/2012 - 12:44pm |

    It is almost impossible to understate the achievements of Bain Capital and Mitt Romney, but I'll try.

    Bain capital financed a new Mall store retail chain called Staples. The idea came from two veteran Retailers. Home Depot, for example, had been in existence for over 15 years before Staples and served as a model of how a bunch of Mom and Pop building supply stores could be put out of business, products bought from China and prices reduced for the benefit of consumers. Staples is one of about fifty retail segments so reorganized and financed in the U.S. Its total sales are a fraction of Walmart, for example, and about one one thousandth of the retail sector as a whole.

    Bain Capital is one of many Private Equity firms in the United States which perform Venture Capital functions as well as "Buy Outs". One of the notable companies which Bain Capital financed with Venture Capital Money was Staples, which is one of three  other office supply Mall store chains in the U.S.

    Bain Capital, in comparison to the other Private Equity firms performing "buy outs", has a record of 22% of its target companies having gone into bankruptcy or disappeared---which is more than twice the industry average. One observer with knowledge of Bain Capital's deal strategy with Bank's trying to sell sick companies described it as a bait and switch routine: Bid high in the beginning and then in actual negotiations with the subject company chisel them down, the other bidders having gone on their merry way.   

    Romney will most likely be remembered in his HBS School Alumni Magazine as the founder of Bain Capital and, specifically, Staples. Bain Capital is one of the top Private Equity firms in America.

    // 

    So, I made a determined effort to understate the achievements of Bain Capital and its founder Mitt Romney but everything about the subject matter just kept coming up gangbusters. How do you contain it? What a triumph of American Business is Mitt Romney and Bain Capital! One's imagination is overwhelmed.  

    Why, putting all of my accolades together I could probably write a whole book just on Bain Capital and Mitt Romney, and title it Romneyville. 

    But Romneyville is small potatoes in the much larger picture of a world wide oligarchy which is referred to by economists as Financial Capitalism, a mutation of traditional capitalism, a Gargantuan network of money men who make money with money, men and women who are supra-capitalists---whose trading, speculation, generation of financial instruments have nothing to do with creating value in the original concept of capitalism---which was the accumulation of money for the purpose of creating goods and services on a scale above what an individual craftsman or farmer could achieve.

    The pitfall of writers and bloggers, including me, parsing Mitt Romney and Bain Capital in the context of this Presidential election is that Romneyville is a banal diversion from the real game which is being played out on the world wide stage---that of financial oligarchy facilitated by Financial Capitalism. We play at Romneyville discussions at our peril. Nothing could so undermine the cause of Progressives as a tepid perusal of the in's and out's of Bain Capital absent the context of Financial Capitalism.

    It's a fact, Bain financed Staples in a traditional Venture Capital mode---but so what, it's not even the best example of the genre.  O.K., so 22% of the Bain companies tanked---it's not a great outcome but it's off the mark. In the wide context of American Business, Romneyville is mediocre. 

    But Mitt Romney himself is an agent of world wide Financial Capitalism. Romney's past behavior is giving us many danger signs but we need to stay focused not on what Romney has done but the specific permanent damage he could do to the Progressive cause if he is elevated above his pay grade and given the office of President of the United States.

    Comments

    You make an excellent point(s). I think the challenge to progressives (aside from just keeping Romney from taking the reins of the country) is to develop a simple and direct statement as to why Financial Capitalism is not a good thing. One that does not come across as against capitalism in general. 

    "whose trading, speculation, generation of financial instruments have nothing to do with creating value in the original concept of capitalism" sort of resonates I think with the average working class individual.  Yet it doesn't explain why it is so dangerous.

    The recent recession/depression offers some back up, but there has too much rhetoric regarding the debt/deficit, Fannie Mae, etc. to put it all at the feet of the Financial Capitalists.  In many circles, it is just these kind of venture capitalists who are our economic saviors, they are more often than not job creators (if one says 10% of the companies go belly up, that means 90% did not - and in many cases the companies may have gone belly up had the venture capitalists not stepped in).

    The Financial Capitalists operate out of sight to the typical American, their transactions speeding along in the unseen virtual world.  Images of the guys and gals screaming on the stock market floor or individuals in power suits going from their car (driven by someone else) into some skyscraper en route to some kind of negotiation , is about all they have.  There little concrete things to point to and say 'there, look at that!'


    by Elusive Trope on Mon, 01/16/2012 - 1:17pm

    Thanks, Trope. As much as anything I'm trying to re-calibrate my own mindset and think about the real problems which could accompany this man in a presidency.


    by Oxy Mora on Mon, 01/16/2012 - 1:48pm

    As Bill Mahr said on his show this week - there is 47% chance if he gets into the White House that he will be a Democrat.cheeky


    by Elusive Trope on Mon, 01/16/2012 - 2:31pm

    Story on financial capitalists from Rolling Stone: Everything You Need to Know About Wall Street, in One Brief Tale.  The writer, Matt Taibbi noticed one of the chief executives named in lawsuits from the failed Bear Stearns, Verschleiser, now with Goldman Sachs,  has rented out an entire hotel at Aspen this weekend, for a party for his daughter. The short take on the guy from Taibbi:

    .....So in essence, Verschleiser was triple-dipping. First he was selling worthless “sacks of shit” to investors, representing them as good investments. Then, he kept the money from the return sales of the wormy apples. And then, on top of that, he made money by betting against the insurers he was sticking with these toxic assets.

    We all know what happened from there. Bear, Stearns went under, thanks in large part to insane schemes like Verschleiser’s, and all of us were forced to pick up at least part of the tab as the Fed spent billions subsidizing Bear’s emergency takeover by JP Morgan Chase....

    And the legal document, a lawsuit by mortgage insurer AMBAC, that describes why, in spite of Rush/Fox News fairy tales, it was not black people or mexican strawberry pickers buying homes who caused the collapse on Wall Street, it was greed and chicanery on a huge scale by greedy beyond imagination big shots who are still there, enjoying the fruits of their 'free enterprise' swindles in gaming the system, a system that also spawned the money waving crew at Bain Capital.

    Frankly, I don't think 'progressives' or anyone else can package this kind of story up in a way to get across to the 'low information' portion of the electorate, in order to demand policy or action to stem the abuse. Obama had to make a recess appointment to get a guy to head the new consumer protection agency, a measure necessary due to GOP shills who carry water for the likes of Verschleiser,  for chrissakes.

    These big money guys buy politicians like we buy boxes of laundry detergent. Voters will have to figure this stuff out for themselves the hard way, if they ever do. Meanwhile, we will have to suffer the consequences, while the 1% rents entire hotels to party.


    by NCD on Mon, 01/16/2012 - 4:18pm

    NCD, I meant to respond earlier. Thanks very much for your comments. 

    I just hope the Obama Administration does figure out how to tie this up in a bundle for the average working guy, but like you I'm not holding my breath.  What a choice for blue collar workers---Obama vs. Romney. 


    by Oxy Mora on Tue, 01/17/2012 - 9:48pm

    On Romney's 15% tax, I noted some comments at various sites said, well, 'Kerry was rich too". Others pointed out though, 'OK, Kerry is rich, but unlike Romney, he doesn't want to end Social Security, Medicare and Medicaid'.  Hopefully people will figure that part out.


    by NCD on Wed, 01/18/2012 - 1:03pm

    Oxy, I think this is all finally starting to come together and (hopefully) filter into the public mind.

    The descriptive phrases that make sense to me are:

    Vampire Capitalism (More powerful than Financial Capitalism)

    Legitimate Commerce

    Greed is Not Good

    Corporations are Not People

    MoneyMonarchy (As opposed to the use of the terms Oligarchy or Fascism. Oligarchy is too obscure a concept, Fascism too loaded with old and not entirely illuminating history.) 

    (Then of course we've got my two made-up concepts: the use of the word Lucrescenti to describe the moneyed and politically powerful, and the idea that Shitty is Not Just a Different Kind of Fair. You don't have to use those, of course, they're just my vain creations.  :^)

    Anyhow, I think Progressives should focus on Peter Schwartz' simple but excellent point the other day that for corporations, jobs are an expense. All this "job creator" stuff is nonsense, and a quick look at the books proves it. What's a corporation's goal? Maximize profit and cut expenses. And in what column do jobs appear? That's right, expenses! Nothing in the mission statement or marketing efforts of any company is ever going to move jobs out of the expense column, ever. And smart voters will bear this in mind before they vote Republican.

    If we could really focus on this idea that a quick look at any page of bookkeeping anywhere proves that the "job creator" thing is a crock and a creation of "Vampire Marketing, Inc." it will take hold.

    I think.

     


    by erica20 on Mon, 01/16/2012 - 3:13pm

    I understand this or at least partially.

    But a business cannot function without relationships with government.

    Licenses must be sought; property taxes paid; tarriffs paid; tax deductions be allowed...

    Businesses are given 'bys' by the governments.

    They are given some slack on property taxes and income taxes and all sorts of costs by the governments.

    When a manufacturing plant is put in place assurances must be given in exchange for the right to do business that the drinking water of the locality is not poisoned, that workers are not poisoned or abused; that waste and garbage are properly accounted for...

    And if deductions are taken with regard to employee's pensions then there must be certifications made by the governments granting those tax credits and deductions that the monies in those pensions are properly secured.

    Books discussing these issues can easily run a thousand pages.

    There are always contracts between corporations and governments and when those contractual provisions are broken some one must take the blame.

    Governments should not let management 'walk away' from failed businesses leaving the locality with unemployed workers, destroyed pensions, poisoned water and empty rotting buildings.

    Oh well...


    by Richard Day on Tue, 01/17/2012 - 6:32pm

    Thanks, erica. I also liked Peter's comments on the subject. 

    As an actual business owner and having spent a while in other companies, managers overall do appreciate employees. There's just no question however that over the last several decades, because of profit hungry investors, employees were thrown on the chopping block in a startling way.

    In my small business I want my employees to stay because they are well trained and have a good work ethic. Frankly, that makes things a lot easier on me. 


    by Oxy Mora on Tue, 01/17/2012 - 9:58pm

    I have mixed feelings about financial capitalism.  In ten years covering business, I have to say that I always liked the investment managers, be they from mutual funds, or PE funds or hedge funds, the best.  When they do good work, they do really good work.

    I think the problem is priorities.  When you answer to shareholders and investors -- when you're a fiduciary, then it really isn't possible to have other stakeholders.  It's hard to see how workers will ever get a fair shake in that situation.  Last time I posted about this, I mentioned Elevation Partners and got a response from, apparently, a new reader to the site, with his own tale of betrayal to tell.  Obviously, it stuck with him.  It obviously affected me, as I voluntarily changed industries to get away from it.

    My issue with Romney is one of relevance.  You can be the best VC/PE/Hedge Fund/Mutual Fund guy in the world and I'll probably like you personally.  But you have spent your career serving one master -- your investors.  That doesn't qualify you to be President.

    What I suspect is that when it's Romney vs. Obama, you're going to hear a lot about about Mass. than Bain.  Mass. don't play in the Republican primaries.  But Bain won't play in the general.


    by Michael Maiello on Mon, 01/16/2012 - 3:17pm

    Thanks, Destor. I saw that other post and putting the two stories of Elevation Partners together made an impact. 

    About the General, I'm wondering if Romney can really back away from the "job creator a la Bain" posit of his overall campaign. It seems that the Governorship of Mass by itself isn't much of a story. 

    I'm just steeling myself not to take my eye off the ball with respect to the potential devastation a Romney Administration could cause. 


    by Oxy Mora on Tue, 01/17/2012 - 9:32pm

    One other thing--we could find ourselves dealing with another form of bamboozlement--the idea that if Mitt is elected, he'll just be a slightly-to-the-right version of Barack Obama.

    While this may be true of Mitt's personal views, it won't be true of his presidency.


    by erica20 on Mon, 01/16/2012 - 3:20pm

    I think that probably will be true of his presidency, although it all depends on what kind of Congress he ends up with.


    by Dan Kervick on Tue, 01/17/2012 - 3:26pm

    Dan, you made a comment several days ago which I thought expressed a truth and it got me thinking, maybe we are all standing around like we have a kind of Stockholm Syndrome and have become almost empathetic toward the oppression of Financial Capitalism.

     


    by Oxy Mora on Tue, 01/17/2012 - 4:00pm

    Oxy, I think our minds are all polluted by a brutal, radically individualistic and monstrously aggressive contemporary mass culture that promotes individual victory, exhibitionism and domination as the chief American values, and has written the very powerful democratic and egalitarian strains of American history out of the official narrative.  It's fantastically repulsive.  It is hard even to take a breath in contemporary America without feeling the need to throw up.

    Even Obama's recent big speech, which was a definite improvement, seems to accommodate itself to the crass tradition of domination.  There is still the notion in it that life is a kind of contest in which some are victorious and some lose, and that the more "democratic" version of this conception  is that all we can ask of this American cage match is that we each get a "fair shot" at victory.

    I refuse to believe that there aren't still a very sizeable number of Americans who completely repudiate this repulsive reality show version of America as some kind of manic chariot race, where our chiefest prayer is that with God's grace we can successfully humiliate our opponents and leave them in the dust.

    The contemporary revisionist view is that America has never been about democracy, community and equality, but always the expression of a Nietzchean will to dominate the world and liberate oneself as an individual.  This just seems completely false to what I understand about American history, and the way most Americans have traditionally lived their lives.  But maybe that's some kind of weird New England bias I have.

    Mass culture is just a product manufactured by the plutocratic rulers of America to perpetuate the outlook that best preserves their own positions.  So one thing we should do is turn off as much of it as we can.  It's really poisonous - and even ironic distancing can't shield one from its toxins.


    by Dan Kervick on Tue, 01/17/2012 - 7:34pm

    But maybe that's some kind of weird New England bias I have.

    I can't imagine what New England might have to do with that, but then this essay is stereotypical New England to me.


    by artappraiser on Tue, 01/17/2012 - 8:15pm

    That's the transcendentalist tradition, AA.  To me New England is a place of town meetings and civic organizations, with extremely strong community spirit and a genius for democratic self-government, where people worked together to build a common life.  It's churches and "meeting houses" and publicly constructed and operated schoolhouses.  It's the Shakers.   It's contradances.   It's the town commons.   It's the New Hampshire state legislature which is - so we understand - the third largest democratic legislature in the world, after the US Congress and the Indian Parliament.  

    It's in the Calvinist Jonathan Edwards, who wrote that the duty of Christian charity:

     is most reasonable, considering the general state and nature of mankind. This is such as renders it most reasonable that we should love our neighbor as ourselves; for men are made in the image of our God, and on this account are worthy of our love. Besides, we are all nearly allied one to another by nature. We have all the same nature, like faculties, like dispositions, like desires of good, like needs, like aversion to misery, and are made of one blood. And we are made to subsist by society and union one with another. Mankind in this respect are as the members of the natural body, one cannot subsist alone, without an union with and the help of the rest.

    Sometimes the communal and organizational tradition of New England has been expressed through formal government; sometimes through religious organizations; sometimes through organizational "voluntarism" which is particularly strong in New Hampshire. Walk around the New England landscape and everywhere you see the memorials and legacies of the things people did together, not a lot of idolatrous monuments to the pride of  individual magnates and titans.

    The tea partiers and free-staters who have been attracted to New Hampshire by the Live Free or Die motto really don't know what kind of "freedom" New Hampshire has traditionally practiced.


    by Dan Kervick on Tue, 01/17/2012 - 9:41pm

    You all are making me homesick for Vermont. 

    I grew up in the Midwest in a town in which neighbors typically worked in local factories and made enough money on one salary to support a family and have time left over to participate in community activities. I'm not sure we will ever see that kind of life ever again and that does make me sad at times. 


    by Oxy Mora on Tue, 01/17/2012 - 10:02pm

    Thanks, Erica. I think what Romney's financial backers want is a complete reversal of any semblance of financial regulation which might have been introduced by Obama---as starters. 


    by Oxy Mora on Tue, 01/17/2012 - 9:34pm

    There is nothing fundamentally wrong with financial capitalism that isn't inherent in old-timey capitalism.

    People accumulate some inputs of some kind - equipment and raw materials - do some work on those materials, and transform them into something else such that the sum of the market prices of what results is greater than the sum of the prices of the original inputs.

    It's capitalism if some of the value that was added in the productive process goes to the owners of the materials, even if those owners contributed no share at all of the work that transformed the materials and added the value.

    The process can exhibit creative destruction in that the creation of the new value might destroy the market for some other things.  If I and several partners buy the parts for a tractor, put one together, and then hire ourselves out to plow fields, we might put some of the proprietors of plowing businesses that use horse-drawn plows out of business.   The same thing can happen under various kinds of socialism.

    What Romney's firm does is just capitalism on a bigger scale.  They build new businesses out of the parts and profits of old businesses, and the stuff they end up with is clearly worth more on the market than was the stuff that went into the process.  If it weren't they wouldn't have undertaken the process.  Obviously millions of consumers agree,  which is why the big box stores are able to put the mom and pop stores out of business.

    Under any system of private property, the more a person owns, the greater that person's bargaining power and social power in commanding shares of additional value that is created.  So inequalities in distributions of private property tend to generate even greater inequalities over time.  That's true of Bain capital, and also true of the guys with the tractor.

    So there can be no simple statement of why "financial capitalism" is bad while some more pure primordial form of capitalism is good.

    The same fundamental moral issues are implicated in all of these activities: What is the most just way of distributing the addition in value that is made as a result of work with what already exists?  What role should property rights, ownership privileges and bargaining power play in the distribution of added value?   Should the upside and downside risks of organized enterprise that are inherent in the processes of creative destruction in a dynamic economy be born fully by the participants in those enterprises, or should they be distributed more broadly across the society?


    by Dan Kervick on Tue, 01/17/2012 - 3:59pm

    Thanks for commenting. I'll respond when I've had a chance to study on it. 


    by Oxy Mora on Tue, 01/17/2012 - 4:03pm

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