Romney's Job Was to Kill Jobs, Not Create Them

Once upon a time, capital investment was just that - you put your own money into a new small business with a good idea and a hard-working owner to help it grow, make a profit and pay you back with interest.

Not today. And certainly not in the "private equity" pirate ship that Mitt Romney ran at Bain Capital.

Pema Levy at Talking Points Memo explains:

Reporting from the New Hampshire primary, Fox News’s Carl Cameron observed that Bain Capital was “the venture capital company in which [Romney] both bought and grew companies and occasionally shut a few down.”

But Bain Capital is not, as Cameron said, a venture capital firm. He wasn’t the only reporter to mislabel Bain, either. When Newt Gingrich first ramped up attacks on Romney as a “corporate raider” at Bain, the news media covered the attacks by referring to the company alternately as a venture capital firm and a private equity firm. After a few days, private equity began to be used more often. However, looking over transcripts from Fox News, CNN, and MSNBC, TPM found that all three often continue to use the term “venture capital” to refer to Bain and Romney’s private sector experience.

For better or worse, a key feature of this campaign will be Mitt Romney’s record at Bain Capital. As a result, the understanding the difference between private equity and venture capital will help voters understand the man they may vote for in the primary, and possibly the general election. Because venture capital tends to be regarded as a job-creation industry, confusing the two terms will likely work to Romney’s advantage.

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Historically, venture capital is about investing in the early stages of a company in order to help it succeed. With a minority stake in the company, after several years, the venture capital firm will make money by merging the new company or taking it public. If the company doesn’t succeed, they lose their investment.

“Venture capital is all about feeding a toddler of a company; getting it from toddler to early adulthood,” says Kleinbard. Continuing this metaphor, private equity is about improving mature companies.

“Private equity is sort of the successor term to what 20 years ago we called leveraged buyouts,” says Kleinbard.

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The fact that private equity takes out loans to purchase companies and then puts that debt on the companies’ balance sheets is what earns them criticism. In order to increase profitability, leveraged buyouts — what most private equity firms practice — strip assets from firms, sometimes jobs, in order to make more money. “When you have a ton of debt, particularly high-cost debt, you’re going to try to strip out assets as quickly as possible and extract that value,” says David Min, Associate Director of Financial Markets Policy at the liberal Center for American Progress.

Part of the outrage that Newt Gingrich, and Rick Perry until he dropped out, tried to stir up over Bain was the depiction of a “corporate raider” or “vulture capitalist.” And that is exactly how private equity’s critics see things.

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“I don’t think private equity firms typically help businesses at all,” says Joshua Kosman, a finance reporter and author of The Buyout of America: How Private Equity Is Destroying Jobs and Killing the American Economy. Kosman says private equity firms like Bain Capital go for companies with “moderate growth” whose profitability can be increased. If you look at the press releases of the companies Bain bought that eventually went bankrupt, they don’t say these companies are in dire straights, Kosman points out, they say they are profitable companies.

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Even though venture capital is a small piece of what Bain does, Mitt Romney is largely selling his Bain Capital experience to voters as venture capital. That’s because the main success stories Romney touts on the trail — and the source of his claim to have created 100,000 jobs at Staples and Sports Authority — were early venture capital investments. “I’m sure there are examples of people using leveraged buyouts to create jobs,” says Min, “but every finance major in America gets taught about leveraged buyouts as an important way to make money.”

“My personal view is that private equity plays a helpful role to some degree, but the explosion in private equity reflects a real shift in the economy that is fortunate for the very wealthy,” says Min. That’s the last thing Romney wants voters to think.

Ever see the movie "Other People's Money?" Danny DeVito plays a corporate raider who uses private equity - other people's money - to buy up good companies that are worth more broken up and sold off, then fire all the employees and strip the assets.

Unlike Romney, DeVito's character is truthful; he never claims to be creating jobs, or helping the economy, or doing anything other than destroying companies and the towns that depend on them in order to enrich himself.

He has a change of heart at the end, but DeVito's character at his worst has more heart and humanity than Mitt Romney will ever have.