Obama Would Prefer Public Equity to Private Equity
It’s readily apparent from President Obama’s campaign rhetoric that he knows less about running a business than an 8 year-old running a lemonade stand. The president and his campaign are openly criticizing Mitt Romney’s tenure at Bain Capital running the private equity operations being all about making money for his investors and not about creating jobs. Does the president realize how idiotic that argument is?
“If your main argument for how to grow the economy is ‘I knew how to make a lot of money for investors,’ then you’re missing what this job is about,” Obama said this week.
With all due respect Mr. President, millions who have given up looking for jobs understand that you’re missing the point: businesses need fewer people because of less demand for their products, they are paralyzed by ever-growing federal regulations and unpredictable health care expenses.
The only reason businesses hire more employees is to make money. Could it be any simpler? The president either doesn’t undersand or is opposed to anyone making money; other than himself, of course.
Let’s try an example with a fictitious business that even the president’s advisors might understand: Limited Motors (LM.)
LM has invested heavily in a new “green” automobile, the Bolt, that hasn’t paid off as they expected. Poor sales of the Bolt have created a heavy burden on the bottom-line of the company creating an immediate cash flow crisis.
LM contacts a private equity firm; let’s call them “Main Capital,” in hopes of securing private investment to bridge their current money dilemma.
Main Capital brings in bags of money in exchange for a 40 percent stake in LM. Main analyzes LM’s operations, suggests changes and reworks the marketing plan for the Bolt. LM uses some of the cash brought in by Main to revise the Bolt, implement a new marketing plan and put into practice operational improvements to reduce overhead.
Sales of the Bolt take off and LM has to hire additional workers to support a second assembly line and additional shifts. As a stakeholder the private equity firm reaps significant returns for its investors, LM is saved from possible bankruptcy and a few hundred people now have jobs that otherwise wouldn’t.
Obama Wants Private Equity to Die
This is an example of how private equity investors foster an environment for the creation of jobs. Private equity doesn’t directly create jobs; it allow companies to flourish so they need to hire additional employees.
It doesn’t always go this way. Sometimes private equity firms make recommendations that don’t work; despite their investment and business savvy there are times when it’s not enough to save a failing company. They may be able to sell off their ownership stake and recover some of their investment; sometimes private equity investors get clobbered like any other investor; and failures often lead to people losing their jobs. Occasionally streamlining business operations to help save a company may cause the loss of some jobs. Without the opportunity for private equity failure is assured and all jobs are lost.
The president’s folks would like us to believe that Mitt Romney’s goal was to make money for his investors rather than create jobs. It’s such a nonsensical argument that it really doesn’t warrant this much discussion. Private equity firms are, by definition, in the business of turning $100 into $200, period; they couldn’t raise the funds to invest if their business objective was to create jobs and turn their investor’s $200 into $100.
Often private equity is the difference between companies going out of business and saving jobs. President Obama should understand this concept since he’s so fond of claiming the jobs he’s created or saved.
On CBS “Face the Nation,” Senior Obama Campaign Advisor Robert Gibbs said, “People of this country will reject the sort of speculation-type economic gains that Mitt Romney is quite good at for himself and for his investors and instead look for an economy that is growing, that is built to last, that continues the job creation we have seen and not quite frankly return to the failed policies of the past.”
Here’s a concept apparently lost on the president and his crew: private equity helps business thrive and growing businesses create jobs. A company cannot build a thousand widgets with a staff capable of building half that number.
The president should be celebrating private equity, not using it as a weapon. Is it any wonder the business community finds the Obama Administration the most anti-business White House in recent history?