Politics and Public Opinion

Why Mitt Romney isn’t Gordon Gekko

A quick Google search of “Mitt Romney” and “Gordon Gekko” brings back nearly 100,000 results that use both names—and that’s just from this past week alone. What’s more, I would guess a fair percentage of those results make an unflattering comparison between the real-life private equity investor/venture capitalist/presidential candidate and the fictional corporate raider (played by Michael Douglas) from the 1987 film Wall Street, written and directed by Oliver Stone. Indeed, the liberal group Americans United for Change has already launched a website suggesting Romney pick Gekko as his 2012 running mate. It’s a tongue-in-cheek way of suggesting  similarities between the two men, one of whom the American Film Institute named the 24th greatest movie villain of all-time (just ahead of ax-wielding Jack Torrance from The Shining and two behind Arnold Schwarzenegger’s Terminator).

And this sort of superficial comparison from liberal writers is typical: “Like Gekko, Romney made his fortune buying and selling companies; and like Gekko, he believes that his ‘greed is good’ version of rough-and-tumble creative destruction is a positive force for America, weeding out the bad performers and nurturing lean-and-mean profit engines. If you are looking for the paradigmatic exemplar of the new style of capitalism mogul launched by the Reagan revolution, Romney is your man. Michael Douglas’s Gordon Gekko is merely ersatz.”

It’s also a comparison that some of Romney’s rivals for the Republican presidential nomination have encouraged. As Newt Gingrich told Fox News on Monday: “I’m for capitalism. I’m for honest entrepreneurs investing. I’m for people creating businesses. …  But I’m not for looting. … I think there’s a real difference between people who believed in the free market and people who go around, take financial advantage, loot companies, leave behind broken families, broken towns, people on unemployment.”

But is Mitt Romney really Gordon Gekko come to life? True, they both bought and sold companies. And they both have fabulous hair. But after those similarities, not so much.

Here is Gekko’s story:

Gordon Gekko. Became rich in the 1970s  buying real estate. In the 1980s, turned to hostile takeovers and leveraged buyouts. One—though eventually unsuccessful—example is the attempted acquisition of Bluestar Airlines, which Gekko planned to then liquidate, selling its assets and plundering its overfunded pension plan.

As one investment banker described the plan: “We already got the Bleezburg brothers lined up to build condos where the hangars are, we can lay off the planes with Mexicana, who are dumb enough to buy ‘em, and Texas Air is drooling at my kneecaps to get the slots and the routes. … This is the price tag on the 737s, the gates, the hangars, the routes. We got it all nailed right down to the typewriters. Of course the beauty of it is the overfunded pension fund. Gekko gets the 75 million in there. Fifty million buys him the minimum annuities for 6,000 employees and he walks away with the rest. All in, he’ll net 60 to 70 million. Not bad for a month’s work.”

Gekko is eventually convicted of insider trading and other securities violations and sent to prison.

Indeed, Stone partly modeled Gekko after 1980s financier Ivan Boesky, who went to jail for insider trading and once made a speech that served as the inspiration for Gekko’s infamous “Greed is good” speech. But let’s be clear. The Gekko character typically engaged in hostile takeovers of companies with the intent of stripping them of their assets and walking away with the dough. The goal was not to improve them or make them more profitable. When protege Bud Fox asked Gekko why he needed to “wreck” Bluestar, Gekko replied, “Because it’s wreckable.”

And now here is Romney’s story:

Mitt Romney. Founded Bain Capital in 1984. Initially, Romney focused the firm on venture capital, providing funds to promising startups. One of its biggest successes was office supply company Staples, which now has some 100,000 employees. Later, Bain switched its focus to friendly, leveraged buyouts of struggling companies suffering from some sort of mismanagement—whether high labor costs, bad products, or poor execution of business strategy. The Romney-Bain formula, says blogger Avik Roy, “involved consensual acquisitions, often with the old management staying on to manage the restructured company. Bain Capital sought not to break up businesses, but to improve them.” The Wall Street Journal found that Bain produced about $2.5 billion in gains for its investors in 77 deals from 1984-1999, on about $1.1 billion invested. Overall, Bain recorded roughly 50 percent to 80 percent annual gains in this period.

So Romney was a starter and fixer of companies, not a wrecker and pillager like Gekko. Nor did he do anything illegal like Gekko. Indeed, the private equity industry overall has been a powerful force for good in American economic life for the past 30 years. Corporate America entered the 1980s fat and uncompetitive. Private equity firms like Bain helped get it back in shape.

As one analysis puts it: “During the 1970s, productivity growth slipped badly as ever rising product prices protected inefficient production practices. Moreover, many workers protected by strong unions were able to extract wage gains which failed to reflect the slump in output. … The sharp rise in the dollar from 1981-1985 worsened the competitive disadvantage of U.S. firms … America would have to undertake a massive adjustment program to repair the damage done to the nation’s competitive position. … Playing an integral role in the overall restructuring are mergers, acquisitions, and leveraged buyouts … an important catalyst in Corporate America’s struggle to regain its once competitive statute.”

And one study that reviewed the performance of private equity over the past 30 years concluded thusly: “The empirical evidence is strong that private equity activity creates economic value on average. We suspect that the increased investment by private equity firms in operational engineering will ensure that this result continues to hold in the future. Because private equity creates economic value, we believe that private equity activity has a substantial permanent component.”

And that’s the whole ballgame, really. Romney and Bain created value and increased productivity, which is the only true economic security for companies and their workers. And that approach not only saved many of the companies Romney invested in, it will save that other malfunctioning corporation called the U.S.A.

5 thoughts on “Why Mitt Romney isn’t Gordon Gekko

  1. This all sounds well and good, but Obama, Axelrod, Jerrett, et al will paint the deepest, darkest picture of unemployment & families ruined. Already we are seeing people come out saying they lost their jobs, homes, livelihood, etc. due to Romney & Bain. They will destroy Romney with this, so why even go there? There are other candidates that don’t have this baggage. They also didn’t create the blueprint for Obamacare.

    I don’t see enough ‘upside’ in Romney as the GOP candidate, and can’t comprehend why the GOP establishment is backing him so strongly, unless they figure that regardless of who wins (Romney vs. Obama), it will be “business as usual” in Washington DC for another four years.

  2. I’m a big fan of capitalism, which when done right “creates value and increases productivity,” and of course doesn’t always work out as hoped.

    And to give Bain credit, it’s probably fair to say that they never went into deals intending to wreck companies.

    But what it looks like they did is a) take uncalled-for risk via overleveraging (as an ex-Bain founder told the NYT), b) in many cases took out excessive fees and distributions given the underlying realities at specific companies, and c) this is the real key — when the going got tough, they didn’t seem to try very hard to save the companies involved, especially if they had already extracted their super-high returns. Instead, they took them into bankruptcy, eliminating jobs, stiffing creditors, and leaving public shareholders with worthless paper.

    Do failures happen even if you’re trying to do it right? Of course, but the evidence that Bain consistently tried to do it right is mixed at best.

    Am I wrong in seeing it this way? Possibly. But instead of explaining these things himself, Mitt Romney is relying on you, the WSJ, IBD, and others to conduct his defense, and almost seems to believe that it’s beneath his dignity to explain himself.That won’t cut it.

    It’s been 17 years since Ted Kennedy’s attack on just one Bain investment (Ampad) in its relatively early stages moved Romney from being in position to win a US Senate seat to losing by 17 points. Yet Romney still has never defended the specifics of his work at Bain as truly “creating value and increasing productivity” for anyone but Bain. It’s either because he’s not articulate enough to be able to do it (doubtful), or he won’t. If he won’t, and still thinks that saying “I was a successful businessman” is enough, he’s badly mistaken — and all the free-market commentators in the world won’t save him. If he won’t, he needs to be stopped during the primaries, because he will be creamed in the general.

  3. All too often Bain’s intention was to loot the business knowing it could not compete with the debt load placed on it. (ie. American Pad and Paper, KB Toys) How does one make a company “mean and lean”
    when the debt is increased 400 fold, from $11 million to $400 million in the case of Ampad. This is not
    creating value and increasing productivity and eliminating waste. Just the opposite, the increased interest payments make the business uncompetitive and unable to withstand any down times. Any freshman at business school can tell you that is no way to run a business… unless there is a hidden agenda. Slash and burn. Willard Romney’s Bain is the Tecumseh Sherman of Capitalism. He has a lot to answer to.

  4. We’ll see if America wants to keep its socialist president, or elect a venture capitalist (if Romney is nominated). I’m betting on a landslide for Romney, and Republicans generally.

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