Mitt Romney and 100,000 jobs: an untenable figure
Well I don't consider it an attack on capitalism. There is more to the free Enterprise system than just PE venture capital(good) and LBO/consulting type models.
Remember the term LBO was not even common 30 years ago. The deficiency IMO is the weakening of checks and balances. If a single owner should decide to hire a management consultant, the owner just naturally is not going to risk the long term well being of the company and his livelihood just to enrich the consultant.
At Bain, they came up with a way that they had the say in company decisions, as management and as board members. Both management and the board of a company have a fiduciary responsibility to the shareholders of the company they are “helping”, but at the same time are trying provide maximum returns to the Bain style company. So they are serving 2 masters.
I don't like the business model because in general they aim to get all their money and profits out in a 3-5 year time frame even if the company growth or turn around has not happened. Also, because so much debt is incurred to pay the dividends, consulting, and management fees, there is great potential of decreasing the long term viability of the firm.
To me it's kind of a mutation of capitalism. At any rate, a bank that looked at the loans would have had information to review the business projections(did Bain provide accurate numbers and good assumptions) to justify the loan.
If it was risky, they would increase the interest rate charged to reflect the risk, not necessarily deny the loan(especially during periods of easy money)and the interest rate would be pegged to prime, LIBOR, or some other index(not a fixed loan).
Naturally, if the Bain style company triples their investment, and their fees etc. are paid for by loans vs putting the loans into the business, and the company is so debt ridden it has to file bankruptcy a year or two later questions need to be asked.
Did the management firm fulfill it's fiduciary responsibility to both companies or did it enrich itself at the expense of the other. Also, did the management use good judgment, were the assumptions too rosy etc. etc. Loss of jobs is collateral damage, and while unfortunate, is not generic to my analysis.
So the real issue is Romney. Was there any mistakes? Was it poor judgment? Is he so honest that he would always be even handed with the interest of Bain vs the company being managed? Were there events that happened in the economy that should have been allowed for that were overlooked?
I worked for a company that did plenty of acquisitions and mergers, but I would never work as this type of management consultant. Equating this model to Capitalism is like equating a bounty hunter to Law Enforcement.
If I wanted a law in order candidate, I would not choose a bounty hunter. If I want a jobs creator I would not pick someone from the LBO/consultant type of business. Even if they are perfect, the model is not politically viable for too many voters.
If mittens had been the number 1 job creator in the USA as Mass. Governor, he could at least show he knew how to translate his knowledge into policies that help job growth, but his state was in the bottom 4.
The main concern of Americans in the swing states is jobs. I don't think Romney can win on this issue. In fact, defending him has already tainted the term Capitalism. Pubbies themselves should have never labeled these questions as attacks on capitalism. They should have just said, I am sure Romney can answer any questions there might be about this hand full of companies.
Now I don't use the term Vulture capitalism, but I don't ignore that the term exists. It is a well-known term. And like the definition of pornography, Americans know it when they see it. I'm afraid if Romney is the candidate, that's all they will be able to see.