Dear Friends (and friends of friends),

There has developed some confusion about the essence of Mitt Romney’s sources of wealth, and particularly how his Bain Capital actually works.  We all know that Republican Governor Rick Perry called Bain Capital “vulture capitalism,” and that Republican Newt Gingrich described it as a business based on “figuring out clever legal ways to loot a company.”  But how in fact did Mitt Romney amass a $250 million fortune at Bain?

Part of the confusion about the Bain Capital business model rests with the dismal reporting about Bain from the corporate media, particularly the usually reliable CNN.  Below is a brief analysis of that  misleading reporting, as well as a much deeper look into how Bain Capital actually operated under Romney’s “creative leadership” going well beyond the time Romney formally left in 2003.  It takes about ten minutes to read.  It is drawn from many different sources, including  a Deutche Bank study; a University of Chicago study;  The Wall Street Journal; The Washington Post; The  New York Times;  The Boston Globe; The Boston Herald; The Speculation Economy by George Washington University professor Lawrence Mitchell; and The Buyout of America, How Private Equity is Destroying Jobs and Killing the Amerian Economy by Josh Kosman.

A couple of important points to understand as you analyze just what Bain Capital actually does.

One, Bain is not a venture capital firm; it is a leveraged buyout firm (LBO).  It finds established companies to take over through borrowed debt that becomes the debt of the target or take-over company. It is risk averse.   It typically does not invest in start-up ventures, such as Google, Microsoft, new drug or new product companies, or technology, since those investments involve true risk.

Two,  Bain makes millions on its leveraged buyouts in two ways; by charging enormous “management fees” (in the millions) paid out of the target companies borrowed funds, and by dividends paid to Bain out of the borrowed funds used to finance the deal.  Bain’s “investment” is a “win-win” for Bain regardless  of the outcome for the target company.  Bain does not “create jobs” as successful new venture companies do; indeed, Bain is admittedly indifferent to job creation.  If anything, jobs (and the associated employee benefits like pensions)  are viewed as a cost burden that should be reduced, or outsourced to cheaper labor markets.

The Bain business model is that of one of the most rapacious and unsustainable forms of capitalism.  It has the effect of destroying not only whole companies (22% of Bain companies actually went into bankruptcy or liquidation within eight years of the takeover), but destroys good jobs, and inflicts huge damages on the very communities in which the companies once operated, through lost tax revenues, family upheavals, and long-term economic stagnation.

Feel free to pass this on, especially to anyone who may believe Bain Capital provides a good reason to think Mitt Romney might know how to create jobs or grow stable communities.

Warm regards,

John
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How the Corporate Media Obscure the Truth About Mitt Romney’s ‘Vulture Capitalism’ at Bain
http://www.alternet.org/story/155689/how_the_corporate_media_obscure_the_truth_about_mitt_romney%27s_%27vulture_capitalism%27_at_bain