Bain Capital- Not Job Creators

David Stockman, famous for his work in the Reagan administration and subsequent admission that "trickle down" economics doesn't work, has penned a long and dense piece about Bain Capital and the business models behind private equity.  The lead paragraph:

Bain Capital is a product of the Great Deformation. It has garnered fabulous winnings through leveraged speculation in financial markets that have been perverted and deformed by decades of money printing and Wall Street coddling by the Fed. So Bain’s billions of profits were not rewards for capitalist creation; they were mainly windfalls collected from gambling in markets that were rigged to rise.
 

It goes on to describe how Bain's really big windfalls, the 10 deals that together comprised 75% of investor profits, were mostly inside deals that screwed lenders and suckers who bought IPO shares at inflated prices after Bain had loaded the companies up with so much debt that they couldn't possibly survive in the long term.

The startling fact is that four of the 10 Bain Capital home runs ended up in bankruptcy, and for an obvious reason: Bain got its money out at the top of the Greenspan boom in the late 1990s and then these companies hit the wall during the 2000-02 downturn, weighed down by the massive load of debt Bain had bequeathed them. In fact, nearly $600 million, or one third of the profits earned by the home-run companies, had been extracted from the hide of these four eventual debt zombies...

The Bain Capital investments here reviewed accounted for $1.4 billion or 60 percent of the fund’s profits over 15 years, by my calculations. Four of them ended in bankruptcy; one was an inside job and fast flip; one was essentially a massive M&A brokerage fee; and the seventh and largest gain—the Italian Job—amounted to a veritable freak of financial nature.

In short, this is a record about a dangerous form of leveraged gambling that has been enabled by the failed central banking and taxing policies of the state. That it should be offered as evidence that Mitt Romney is a deeply experienced capitalist entrepreneur and job creator is surely a testament to the financial deformations of our times.

The article gives fascinating details.

I want to be clear about my position: Congratulations to Romney and Bain for exploiting these rules and making tons of money by finding suckers to lend to them and then to buy stock in their IPOs. It's not apparently illegal, and under our capitalist ethos I guess it isn't even really immoral. But it does sound like another aspect of the crony capitalism that many (rightly) decry, and it doesn't seem to imply any understanding of how a government creates jobs. I'd feel better about Romney if he were saying: "all these deals enriched me but didn't really improve our economy or society- as president I'll know how to put a stop to these games so investing gets better at creating value for the middle class". That's obviously not his message.