Finance Defends Bain, Misses Point

Reformed Broker and Epicurean Dealmaker recently provided a necessary service in defending Bain Capital from scurrilous and misinformed attacks. I suggest, however, that this “rallying of the finance troops” is an example of preaching to the converted, and talking over the heads of an increasingly motivated anti-finance movement. Again, the anti-Bain idiocy deserved a corrective response and both Josh and TED did so effectively. However, there is a sense in which the argument is merely shoring up the walls of the finance cocoon.

The Other End of the Pendulum

It is possible to view the socioeconomic conditions of 2005 as the converse of 1975. Thirty years ago, corporate management was largely powerless in the face of labor power, taxes were extreme and government intervention was the “vampire squid” of the age.  Profits sucked and unless investors were fully exposed to the major geopolitical clusterfuck of Iran-related East tensions, returns were scarce to non-existent.  Beginning with Reagan, the pendulum began to swing back, slowly crushing labor and, for our purposes, culminating with the repeal of Glass-Steagall.

To be employed in finance in the 75-05 period was to believe fully in the primacy of bottom line, profit-related orthodoxy. If nothing else, it sustained the efforts to clear the political and regulatory anti-business, socialist clutter of 1970s. As an organizing principle, faith in the bottom line provided the advantages of clarity and measurability in addition to the obvious outsized creation of wealth.  Bain Capital, among many others, is the walking, talking, strutting embodiment of this thirty-year transition – the realization of a Platonic form dreamed up by William F. Buckley and other 1970s-era pro-business conservatives.

The Financial Crisis was a clear representation of the other end of the socioeconomic pendulum, and the excesses, arrogance, avarice and overall public destructiveness of finance was clearly analogous to that of organized labor and misguided government in the 70s. To blindly defend Bain now is to associate ourselves with the spluttering, enraged defenders of organized labor in the early 80s. In both cases, an intellectually-consistent orthodoxy not acclimated to criticism had ceased to function for wide segments of the population, in the current case the un- or under-employed.

We are conditioned, in finance, to accept as an axiom that aggregate corporate profitability should be the end goal of almost all government policy.  Primarily, we only really argue about the means to achieve this. Outside of the finance cocoon however, this is exactly the mode of thinking they believe is the problem.  For people who haven’t experience real wage growth in a couple decades (i.e almost everybody in numerical terms), finance-generated, corporate profit-friendly policy solutions to the current economic malaise are a ridiculous, tragic joke. “Oh, really? You want license to fire more of us in the pursuit of productivity?  While cutting unemployment insurance? Where do I sign up?”.

Incumbent politicians and the banking industry will use all of their considerable intellectual capital to maintain the current, rent-seeking status quo. The truth in the end, however, is that many of the actions of the investment banks during the lead up to the GFC were entirely indefensible, and eventually history will show this. It does not, importantly, mean that the economically important aspects of finance should be “thrown out with the bathwater” of reform or that every element of the business is corrupt.  But, in defending the finance industry from attempts to reform we are going to have to understand that for most Americans, referrals to the benefits of increased profitability are going to fall on deaf, increasingly angry ears.

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17 thoughts on “Finance Defends Bain, Misses Point

  1. [...] The Interloper tackles my defense of Mitt Romney but makes a bigger point about the socioeconomic pendulum swinging too far.  (Interloper) [...]

  2. kris says:

    Wow, wow, woooooooooooow. Take a breath.
    Amazing!

  3. kris says:

    Both the Unions and Private Capital want to maximize profit. Humans are wired to maximize profit. The difference is between ethical profit (invest and reap returns) and unethical profit (extortion). Both unions and big capital started up very honestly and have ended up in extortion.
    Check the Louisiana monks’ story, how capital have become extortionist by means of state power.
    http://www.nola.com/crime/index.ssf/2011/06/st_joseph_abbey_monks_louisian.html

    • Kenneth Dietrich says:

      We all know that as human beings we are corruptible that is why we need government and religious leaders. However in a democracy we the people choose our leaders. Sometimes we let emotion over true facts cause us to make poor choices in who we vote for. We also must take credit for the way things are and not blame others.

      • kris says:

        No objections.
        Both freedom and slavery are choices. Currently, here in the west, we’ve chosen slavery. Hence, one of the very rare Nietzche’s observations that is correct, is the sub-header for Interloper’s blog.

  4. MrV says:

    The leveraged buyout of Qantas was an excellent case in point.
    Probably 6 months prior to the financial crisis, a buyout was on the cards. Had it succeeded the airline certainly would not have survived.

  5. Mike Light says:

    Nothing but money matters on Wall Street. These profiteers live such a dofferent life that they cannot relate to the vast majority of Americans. That’s my problem with Romney. I think Obama is pathetic in solving problems or even picking the right cabinet. On the other hand Romney, doesn’t get it. It’s all money. Everyone can’t just go out and get a well paying job. His Wall Street with the mortgage fiasco, and lending money to Greece, and paying outrageous salaries to enforce the better than thou attitude on Wall Street. I will add an article written in response to Greek children being abandoned because their families couldn’t feed them. It’s just one example of Goldman Sacha greed and lack of conscience…,..,,…
    What would you expect? Parents are abandoning children in order to hopefully get them fed. The country has very little hope of getting through this without more pain to their populace and severe austerity measures. And who is smack dab in the middle of this again. The pin stripped suited crooks from Goldman Sachs. When the credit agencies, bond investors, and everyone else (and Goldman Sachs, also) figured it was time for Greece to stop borrowing, the mercenary Ivy League whiz kids figured out some derivatives which would allow them to detrimentally increase their debt load. All that mattered to Goldman was to get their fees, such that there employees, and not just executives as the Press and Congress have focused on make millions of dollars. People can still find pictures of Lloyd Blankfein and Gary Cohen raising their hands lying to a Congressional committee about what they knew or didn’t know about the mortgage fiasco. Two questions arise: 1) Should we see these two crooks back in court over this? And 2) Can anyone explain why they were allow to be made a bank and be bailed out, while immediately turning around and paying employees enormous sums of money, when they don’t have branches, checking accounts or make loans to US citizens?
    Enough for now.

  6. Hmmm, interesting to say the least. I was mentioning all of this to a co-worker earlier today and he kept pointing out that it doesn’t matter that what P.E. companies do or don’t do, because it’s all legal. I made the point that, that’s the difference between being able to do somthing that is completely unethical (just because it’s legal) and not. This is the reason that the Romney’s/ Bain Capital’s of the world can get away with social murder, (because it’s legal). This is the reason that the Romney’s/ Bain Capital’s of the world strip good companies of everything that they have and leave them in the proverbial gutter and feel good about their so called capitalism, (because it’s legal). This is why we, as a society, are in decline and don’t make many things here anymore, becasue we allow the “bottom feeders of P.E.” get away with this nonsense, (because it’s legal). This is all the more reason that we SHOULD have laws against this destructive behavior.

    To be sure, P.E. started out as many things that go awry in this country, with not only good but GREAT intentions. After the decade of the 70’s (and well the 60’s too) when America finally had to compete with the workd for goods (because with services we can beat the pants off anyone) we faltered and many companies became way too conservative in the way in which they did busines. They were shell-shocked. So along comes P.E. and it tried to “unlock” value for stockholders. There is nothing wrong with that. But as more companies saw the profitablility and jumped into the market and profits became harder to come by (no more low hanging fruit) many started to see other ways to make those big profits and started to do whatever it took to make the profits (damn the torpedoes). This should sound familiar as it is Econ 101. And as I understand it Bain was a major force in just this sort of activity.

    I love when I hear those who defend P.E. by pointing out that #1. The people who invest are “teachers and Policemen’s and (add a name here, little old ladies who live on a fixed income) pension funds. #2. That deals don’t always go well no matter what the intent (especially when it’s clear the intent was to strip a company and leave the bones on the side of the road for the employees to pick over.

    Well, I challenge the P.E.’s of the world to show me in balck and white one deal where they lost a penny of their intial investment?

    I challenge the P.E.’s of the world to help me understand how making the pension funds of CALPERS and (add a name here) ritch by gutting the pension funds of private companies and then putting the burden of those funds on the backs of the American tax payer is a fair and just or forget fair and just, zero sum game for either party??

    IDIOTS

    • kris says:

      Quite intriguing this one. The first thing it came to my mind was Obama saying on “60 Minutes” that: “Wall Street did nothing illegal”. It’s surprising that this one president that openly wants to cubanize the United States, is actually in bed with big finance.

  7. ArrDoeTee says:

    Nothing of value to add here but I do want to comment that I’ve been reading your commentary close to the beginning (namely when TRB & TBP referred this place) and I have to say that at face value I really appreciate the calm demeanor you present your chosen topics with. It’s pretty rare nowadays to find financial commentary that isn’t rife with appeals to emotions that usually blur what the writer is trying to communicate.

  8. Rick says:

    Nailed it! Absolutely nailed it!

  9. [...] Three clear financial services professionals respond to a call of critique opposite Bain Capital: Interloper points out where he believes Josh Brown and The Epicurean Dealmaker skip a [...]

  10. [...] How to think about private equity.  (The American also Musings on Markets, Daniel Gross, Interloper) [...]

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