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?

What 'Aqua Buddha' really tells you about Rand Paul

When GeorgeW was running for the presidency, he had a stock answer for questions about his history of moronic behaviors.  They were youthful indiscretions, and they were in the past, and he would not go into that.

Yeah, that is sort of a copout.  Without acknowledging anything in particular, he admitted that when he was young and stupid he did the sort of things that young and stupid people often do.  But at least he responded to the question, where the answer actually had something to do with the question.  He did not pretend to be someone else. 

Rand Paul, however, did not take this path.  Rather than defuse the issue he became irate.  He wouldn't admit to doing anything that might be in character with the imbecilic stoner that the story seems to describe.  Here is why that is a problem for me.

Paul has an image of himself.  Fine, we all have that.  But, if something, say facts, contradict that image, even in his distant past, rather than face those facts he becomes belligerent.  It says that what he believes is much more important than what is true.

Every day in life, we face things that were not part of our plan.  There are several ways we can handle this.  Let's take a simplistic example.  We have saved our money to buy a specific car, enough to pay cash for it.  We go to the dealer, and find out that the price has gone up, and we no longer have enough.  What can we do?
We can change what we are doing, to try to adapt to the new circumstances.  Get a car that we actually can afford. We can try and change the environment itself.  Go back and save some more money, come back when we have enough.  Or we can take the approach that Rand Paul is trying to take.  You keep trying to put the money into the salesman's hand, and snatch away the keys.  Eventually you try assaulting the salesman and they call the police and you are taken away.  Because you not having enough money is just not in your view of things,so you cannot accept it.

It is not that he did stupid shit when he was a college student that is important in all this.  It is that pointing out something that does not jive with his view of himself and how he relates to the world causes such an inappropriate reaction.  And it reveals how he will react when other facts do not agree with his prejudices.  He is not interested in the truth, or what is right, he is interested in what he believes.

Unfortunately, that is a common trait of many tea bagger types.  And that is why they are not fit to hold public office.