A business model

To many people, knowing that Mitt Romney made a lot of money with Bain Capital is all they really need to know.  That means he must have done something that benefited the economy, the nation at large.  But that is only because they do not understand the business model of private equity firms.

So for the benefit of those people, I am going to publish a little history lesson, an object lesson that illustrates very clearly what role private equity plays in the world of business.

Mervyns was founded in 1949 by Mervin G Morris.  At it's peak it employed 30,000 people and had 257 stores.  It was acquired in 1978 by Dayton Hudson (now Target) and sold to the private equity firms Cerberus Capital Management, Sun Capital Partners, and Lubert-Adler in 2004.

At the time of the sale, the Mervyns stores were starting to show their age, Dayton-Hudson had been more interested in growing their Target brand than Mervyns.  But the business was still profitable.  It would have taken some work, but it was nowhere near a lost cause.

What happened?  The short version (the long version is a little more complicated but functionally the same), they sold off the real estate and the stores were compelled to lease it back at double the cost.  They sucked out $400 million in cash for themselves and left the company with $800 million in debt.  That was more than the company could survive.

The company was driven into bankruptcy, and 30,000 people lost their jobs.  But it was successful investment because the money borrowed to buy the company was debt to Mervyns, not to the private equity partners.  They got their money, everyone else got screwed.

This is the sort of capitalism that Mitt Romney represents.  It is the sort of capitalism that those who fund the tea party represent.  Yes, it really is legal.  But does this help or hurt anyone except the very few?  It is legal, but is it moral?  Is this really the sort of nation that we want to be?

If Occupy is to have a positive impact

When I was a teenager, I sat around a kitchen table with a group of people who were drafting a flyer.  There was going to be an anti-war rally at the local college campus, and we were discussing the text.  I submitted a draft text, and so did several others.  I learned a lesson that day.

The text that was overwhelmingly approved (not mine) was designed to appeal only to the most radical members of the movement.  Instead of reaching out to mothers who's children had been drafted and sent to Viet Nam, this was talking about solidarity with their Viet Cong brethren.  This was the left wing version of the Tea Party, and they were all patting themselves on the back for being so radical.

The anti-war and civil rights movements were successful when they evoked sympathy from the public at large.  When four anti-war protestors were killed by National Guard troops in Ohio, it served as a stark contrast between those protestors and the entrenched opposition.  When the network news showed the inhumanity of the police in response to black Americans who simply wanted to vote, that was also something that the American public at large could identify with.

Planning actions is the right thing to do.  They call attention to the movement, keep it in people's minds.  But if they do not want to be relegated to the lunatic fridge by the majority of Americans, then they need to adhere to three simple concepts.

• The purpose of an action is to focus the public's eye on both the Occupy movement, and the response of the establishment.  Getting the press there is important.
• Remember who your audience is.  You are on a stage.  You are trying to do three things.  Wake people up.  Highlight injustice.  Make them feel that you are standing up for them.
•  Avoid actions that are the political equivalent of public masturbation.  You are not there to please yourself, you are there to make a point that most of the 99 percent would understand and sympathize with.  Note I did not say agree with, there is almost nothing in this country that most people would agree with.  There were many people in America who did not want to sit next to a black man at a lunch counter, but sympathized with the desire of black Americans to be treated equally under the law, and to not have fire hoses set on them when they tried to protest.

Right now, I am not seeing that.  It makes me sad that a movement that could have been an important force for good in this country is marginalizing itself.