I never really understood what Mitt Romney did at Bain Capital. I was reading Kemstone's latest piece about Romney (there's probably a link to it if you look to the right in my Favorites column) and he provided a link to a September article in Rolling Stone by Matt Taibbi explaining this, along with links to a response and to Taibbi's response to the response.
Here's the address of the article:
Being as one of the things I do best is turning tech into English, I'm going to try to explain what I learned in something other than financial jargon. My source for what I didn't already know is the Taibbi article. What I'm about to explain apparently isn't what Bain Capital started out doing, at least not solely, but it is what they developed into, and Romney was heavily involved in this process. They started out in venture capital (investing in startups), then switched to buying existing companies.
A lot of companies are publicly traded. That means anyone can buy stock in them, and it typically means that the majority of the stock is publicly traded rather than in the hands of someone inside the company. So, if someone manages to buy enough stock, they can control the company.
That's what Bain Capital does, but it doesn't do it mostly with its own money. It puts down a portion of the money (the size of the portion varies), and borrows the rest from a bank. This is called a Leveraged Buy Out, or LBO.
How do they make sure enough stock is available? Usually by offering more per share than the company is trading at; then, stockholders think it's a good deal and are willing to sell.
How do they make sure they don't get fought really hard by executives inside the company? They give those few executives monster bonuses, essentially getting them to sell their employees out.
Once they own the company, they can make the company do whatever they want. What they want is mainly two things:
1. They want the company to pay back the loan that they borrowed from the bank to buy the company. This saddles the company with huge debt it didn't need and often can't quite afford, and of course it isn't the company that needed the loan in the first place.
2. They want the company to pay them enormous management fees.
If politically necessary, they can add enormous dividends to stockholders to that list.
So they're essentially milking the company. Do they provide management advice? Of course, but it isn't typically worth the debt plus fees.
What are they advising the company to do? Well, the first thing is to put itself into a position to be able to pay off all this new debt. How? By laying off people, typically a lot of people. Also by selling off assets. And by reducing costs in general by any means necessary, such as by sending jobs to cheaper labor in China.
Does the company survive? Sometimes. And yes, it's better for Bain when the company survives, but what's most important isn't the company's survival, it's getting their investment out quickly so that Bain and the bank gets return on investment whether the company survives or not.
This is what Romney means by "business experience."
He isn't the solution. Actually, he's the problem.