Mitt Romney claims to be the presidential candidate with business experience, but what kind of business experience does he have? Perhaps it is easy to pose as the “business candidate” with the broadest catholicity when you are running against Barack “you didn’t build that” Obama. However, Mitt Romney’s business experience is not the kind that you might be imagining: inventing some business idea in his basement, following a business plan, and intersecting with the free market at every turn. Actually he was a “master financial speculator,” says Ronald Reagan’s Budget Director David Stockman. One who “bought, sold, flipped, and stripped businesses.”
Romney’s venture capital investment in the highly successful office retailer Staples is truly impressive. He invested $5 million to fund the business in 1986 and it took off as a solid business, earning legitimate profits by providing efficiency in the office retail industry under the genius of CEO Tom Stemberg. Bain Capital sold out for $15 million after a short time, amounting to a successful investment. But the Staples investment does not account for Bain’s extraordinary success. Unfortunately, it does not represent Bain and Romney’s strategy for success.
Bain Capital did extremely well during Romney’s tenure: $2.5 billion in returns, $1.1 billion invested. But out of the 77 major deals made from 1984 to 1999, ten of them account 75 percent of investor profits. The other 67 investments did nothing even remotely impressive. So what happened with these ten magical deals that cost only $250 million and returned a bounteous $1.8 billion? Stockman explained Romney’s strategy: “He spent his 15 years raising debt in prodigious amounts on Wall Street so that Bain could purchase the pots and pans and cast-offs of corporate America, leverage them to the hilt, gussy them up as reborn ‘roll-ups,’ and then deliver them back to Wall Street for resaleÂ—the faster the better.”
Stockman noted that Romney’s 15 years as head of Bain Capital from 1984 to 1999 correspond with “the first great Greenspan bubble.” He observed, “The credentials that Romney proffers as evidence of his business acumen, in fact, mainly show that he hung around the basket during the greatest bull market in recorded history.” Mr. Romney’s record with Bain was not filled with building businesses. “The record is actually all about the utter unfairness of windfall riches obtained under our anti-free market regime of bubble finance.”
One of Bain Capital’s most magical investments of the big ten, Wesley-Jessen provides an illustration of Mitt Romney’s business experience and strategy. He invested $6 million in the company in 1995 and made fifty times on the investment, selling off for a profit of $300 million in 1999. During this four-year period, the company doubled in income. Doubling is nice, but how did he get a fifty times return? Stockman writes, “The rest of the gain was due to massive leverage, the Greenspan bubble, and accounting moves that can fairly be called myopic.” Romney made a lot of money at the top of that bubble in the late 1990s. But how great were these ten winning businesses if you look at them as profit-making enterprises, disregarding contemporaneous financial markets? Apparently they were not all great businesses; four out of these ten firms ended up in bankruptcy during the 2000-2002 downturn. Mitt Romney’s business experience does not represent the ability to build a business from the bottom up. Rather his success required this peculiar practice of “leveraged gambling” which took advantage of Greenspan’s banking bubble.