A Fair Attack on Private Equity

Cory Booker didn't distinguish himself as a particularly adept politician when, yesterday on Meet the Press, he undercut the Obama campaign's message by criticizing its attacks on Bain Capital. Booker is a surrogate for the campaign after all, and if there's one thing that's expected of surrogates it's that they stay on message.

But the bigger puzzle here is why Booker, despite his reputation as a smart guy and his close links to the Obama campaign, would be so unfamiliar with the details of the attack on private equity that he would label them "crap" -- when, in fact, the factual record bears out the harsh assessment of Bain Capital and private equity more broadly.

The Obama ad about the steeel company in Kansas City, GS Technologies, that Bain owned has drawn a lot of fire for being unfair, but PolitiFact recently did a long analysis of the ad and concluded that its claims are "mostly true."

Josh Kosman, a New York Post reporter who wrote a book on private equity and looked closely at the GS case, also has written that the ad is "largely accurate." Bain did saddle the company with too much debt, as the Obama campaign charges, and got its own payday before walking away and letting the company collapse. Kosman quotes the former CEO as saying “a better capitalized GS could have ridden out the currency crisis and been a gold mine.”

I've seen this dark side of private equity up close: my former publishing house, Harcourt -- a very profitable education publisher that also had a distinguished trade book arm -- was bought by an Irish private equity firm and a greedhead named Barry O'Callaghan. Harcourt was merged with Houghton Mifflin to be part of a larger publishing empire that O'Callaghan was assembling. Instead, the debt burden was too great once the financial crisis came along and the whole mess is now in bankruptcy court. Harcourt has been gutted along the way.

Now, to be sure, maybe Bain Capital isn't the only reason that GS Technologies went bankrupt -- like so many other steel companies in the face of foreign competition. But this episode does stand at odds with Romney's claims to be an economic miracle worker, and that's the bigger point. As Obama said today, as reported by the Los Angeles Times:

“My opponent, Gov. Romney -- his main calling card for why he thinks he should be president is his business experience. He’s not going out there touting his experience in Massachusetts. He’s saying, I’m a business guy. I know how to fix it. And this is his business,” Obama said. “When you’re president as opposed to the head of a private equity firm, your job is not simply to maximize profits. Your job is to figure out how everybody in the country has a fair shot.”

Obama, who as recently as last week was raising money for his campaign at the home of a New York private equity firm executive, said there were people “who do good work in that area,” and can help identify opportunities for new jobs and industries.

“But understand that their priority is to maximize profits. And that’s not always going to be good for communities or businesses or workers,” he said.

This is the message that you'd think Booker would have been able to articulate. And instead of bashing the attack on private equity, he should have tutored David Gregory and viewers on how exactly these firms can hurt workers and the economy.