Steve Rattner, a veteran of Wall Street who served as President Obama's "car czar" and helped oversee the auto-industry bailout, goes after Mitt Romney's characterization of his time at Bain Capital in a strongly-worded op-ed in the New York Times. Rattner was dragged into the debate over whether or not attacks on Bain were fair game and his initial contention that the attacks were unfair landed him in an RNC video attacking Obama. But Rattner has backtracked since then, saying that Obama's contention, that he is not attacking private equity per se but rather examining Romney's record, is fair game. In the op-ed, Rattner condemns how the former Bain CEO has construed his own business record, "trot[ting] around the country erroneously calling himself a 'venture capitalist.'"
Rattner takes issue with Romney's claim that he was a job creator at Bain, arguing that Bain's goal was to get good returns for investors, not create jobs, and that Romney's calculus for how many jobs he created is flawed.
From the Times:
That’s fair, particularly because Mr. Romney himself has been foolishly reweaving history to claim, as recently as last week, that he helped create 100,000 jobs during his time at Bain.
In fact, Bain Capital — like other private equity firms — was founded and managed for profit: ideally, huge amounts of gain earned legally and legitimately. Any job creation was a welcome but secondary byproduct.
The language in one prospectus seeking Bain Capital investors was clear: “The objective of the Fund is to achieve an annual rate of return on invested capital in excess of the returns generated” by other investments. Any job creation was accidental.
Rattner goes on to say why Romney's job-creation claims are off-base:
Although Bain Capital sold off those early investments years ago, Mr. Romney takes credit for every job ever created at every company Bain Capital invested in during his tenure — while ignoring jobs eliminated after his departure.
“The steel factory closed down two years after I left Bain Capital,” he said last week about GST Steel, the Kansas City, Mo., company that went bankrupt in 2001. “I was no longer there, so that’s hardly something which is on my watch.”
Meanwhile, when Staples went public in 1989, it had 1,100 employees; at the end of 1998, right before Mr. Romney exited Bain, it had 42,000 workers. Yet Mr. Romney takes credit for the 89,000 employed at the close of 2010.
Lastly, Rattner says that part of Bain's business model is to cut jobs in order to save money.
These enterprises were often what Wall Street describes as “undermanaged,” which means the Bain Capital team could take “aggressive action” that often included cutting costs — read: jobs — to increase profitability.
That’s not wrong; it’s part of capitalism. Whatever its flaws, private equity has made a material contribution to sharpening management. But don’t confuse a leveraged buyout with job creation.