Beverly Mann

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Bain Capital vs. Berkshire Hathaway*

By: Beverly Mann Monday May 21, 2012 12:48 pm

On the blog Angry Bear, which I write for, I just joked that Slate’s Matthew Yglesias is channeling me. I was referring to a post I wrote on Angry Bear (and cross-posted here) last week called “Steven Rattner Misses the Point (Romney’s and Obama’s),” in which I expressed frustration that neither the news media nor (sufficiently) the Obama campaign has pointed out the distinction between the funding-of-Silicon-Valley-startups venture capital type of venture capital and the leveraged-buyout-to-extract-value-and-then-close-the-company type of venture capital that Bain engaged in (apparently) regularly when Romney headed it. My post today goes on to say:

And now that, as Yglesias discusses, Newark Mayor Cory Booker has given the Obama campaign permission to explain the differences between the various types of venture capital “models” (as Yglesias calls them), conceding that, yes, that may really be more relevant to the key issues in the campaign than Obama’s earlier relationship with Jeremiah Wright, I strongly urge the Obama campaign to do that—in detail, with as much specificity as is necessary to illustrate it.

In my earlier post, I mentioned the distinction between, say, the funding-of-Silicon-Valley-startups venture capital model and the leveraged-buyout-to-extract-value-and-then-close-the-company model that Bain engaged in (apparently) regularly when Romney headed it. Yglesias doesn’t mention the former but contrasts the latter with the genuine-turnaround model, which is the model that Bain and Romney claim was (and Bain claims, is)* theirs.

Yglesias is right to point out that the genuine-turnaround model is distinct from the extract-value-and-then-close-the-company one. But I think there’s also a distinction between the leveraged-buyout-to-extract-value-and-then-close-the-company model that Bain engaged (and, I assume, still engages) in, in which the intent is to “flip” the company as soon as possible, and the (to my knowledge) Berkshire Hathaway model, in which the venture capital firm, fund or holding company invests in companies, long-term, including buying some companies outright with the intent to actually own them for the foreseeable future. (From Wikipedia: “Berkshire Hathaway Inc. … is an American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States, that oversees and manages a number of subsidiary companies.”)

Surely there are differences between the decisions a Bain-like company makes vis-à-vis the businesses it acquires in order to flip quickly for large profits and a Berkshire Hathaway-like firm whose interest in the acquired business is long-term, because the very purpose of the investment is different. Those differences matter. A lot, I would think.

As for Booker, his short-term interest seems analogous to the Bain venture-capital model. Yglesias says he’s receiving quite a bit of campaign funding from finance types. Including, presumably, from those of the Bain model. (Or maybe Booker just doesn’t recognize the distinction.)

*The parenthetical was corrected for clarity.


Solamere Capital offered to help fund the auto-industry managed bankruptcy … just like Bain Capital!

By: Beverly Mann Wednesday May 16, 2012 10:24 am

Ah. Well, now we know what Romney has in mind when he says that GM and Chrysler didn’t need federal bailout funds in late 2008 and early 2009 in order to undergo bankruptcy reorganization rather than be forced to liquidate, because there was private-equity funding available for that purpose. Solamere Capital and its Rolodex of potential investors were available, but, stupidly, no one from the Obama administration thought to contact them.

Anyway, I can’t wait to hear the statistics on how many jobs Tagg Romney created!

(NOTE: This entire post, including its title, is intended as facetious.)

Steven Rattner Misses the Point (Romney’s and Obama’s)

By: Beverly Mann Tuesday May 15, 2012 9:22 am

Last February, in the lead-up to the all-important Michigan primary, Romney wrote an op-ed piece in the Detroit News titled “U.S. autos bailout ‘was crony capitalism on a grand scale’.” The dual purpose of the piece was to defend the recommendation he made in a November 18, 2008 op-ed article in the New York Times titled “Let Detroit go bankrupt” by saying falsely that GM and Chrysler did not need federal funds to proceed successfully through bankruptcy reorganization rather than having to liquidate, and to complain that the terms of the federally-financed bankruptcy outcome included an agreement by which the UAW received shares of stock in GM in exchange for the union’s assuming the company’s healthcare liability.

In a rebuttal op-ed in the New York Times, Steven Rattner, the Obama administration’s auto taskforce chief advisor and himself a venture capitalist, deconstructed Romney’s claims, especially the statement that private capital was available to fund the reorganization process. Rattner wrote:

In late 2008 and early 2009, when G.M. and Chrysler had exhausted their liquidity, every scrap of private capital had fled to the sidelines.

I know this because the administration’s auto task force, for which I was the lead adviser, spoke diligently to all conceivable providers of funds, and not one had the slightest interest in financing those companies on any terms. If Mr. Romney disagrees, he should come forward with specific names of willing investors in place of empty rhetoric. I predict that he won’t be able to, because there aren’t any.

So even though Rattner is a venture capitalist, I was a little surprised to read that he characterized a new Obama ad as unfair for targeting Romney’s work as a venture capitalist for Bain Capital by illustrating what that work actually entailed. The ad, which responds to Romney’s claim to have created 100,000 jobs while at Bain, shows what happened at a Kansas City steel mill that Bain bought not for the purpose of creating jobs but for the purpose of shuttering it after Bain had made some money from it.

Rattner said that the two candidates should not pretend that the purpose of venture capitalism is to create jobs. Romney, he said, should not have claimed that he created 100,000 jobs while at Bain. And Obama should not complain that Bain’s brand of venture capitalism often was to buy ongoing businesses, milk them quickly, and disassemble them in liquidation or for the value of their parts.

“Bain Capital’s responsibility was not to create 100,000 jobs or some other number. It was to create profits for its investors,” Rattner is quoted as saying. “This is part of capitalism, this is part of life. I don’t think there’s anything Bain Capital did that they need to be embarrassed about.”

Well, okay. And the more common types of venture capitalism—of the funding-of-Silicon-Valley-or-bio-tech-start-up variety, for example—will, if all goes well, create profits for the investors and create jobs. But that’s not the type of venture capitalist Romney was.

Yet the entire premise of Romney’s campaign is that he’ll use his business acumen, demonstrated during his Bain years, to create jobs, not that he’ll use it to create profits for investors. He’s running for president, not for chairman of the board of Goldman Sachs. Which is why he says he created 100,000 jobs as head of Bain Capital. And which is why Obama wants to show that, well, Bain Capital’s responsibility was not to create 100,000 jobs or some other number; it was instead to create profits for its investors. And that it created profits for its investors. And exactly how it did that, and what the consequence was for the employees who were the collateral damage. (“Like watching an old friend bleed to death,” one of the former steel mill employees says in the ad.)

Rattner’s right that it is indeed part of capitalism, part of life. And Bain Capital may not have done anything it needs to be embarrassed about. But Bain Capital is not running for president claiming that its purpose is to create jobs and that it knows how to have the economy create hundreds of thousands of jobs each month, when in fact its sole purpose is to make a profit for its investors and all it has demonstrated is that it can do that well and that job creation and job loss are irrelevant to its purpose and to the outcomes. Romney, by contrast, is running for president claiming exactly that. An ad by his opponent pointing out that, contrary to his incessant assertions, Romney’s work at Bain was disconnected from job creation in both purpose and result is not only fair but directly on point.

Cross-posted at Angry Bear.

Can Your State Mandate That You Buy Broccoli or Join a Gym? (And why the excoriation of Donald Verrilli is misplaced)

By: Beverly Mann Friday March 30, 2012 1:15 pm
(photo: hulagway/flickr)

(photo: hulagway/flickr)

[Cross-posted at Angry Bear.]

The answer to the title’s question—Can your state mandate that you buy broccoli or join a gym?—depends upon which of the two possible grounds the 5-4 Supreme Court majority overturns the ACA’s individual-mandate provision. And which grounds the majority selects also will determine whether under the Court’s new “liberty” jurisprudence, Social Security and Medicare also are unconstitutional.

That’s because if, for all their posturing about the imposition on individual liberty of having to buy healthcare insurance that the individual may not want, they ultimately base their ruling not on that imposition on individual liberty to choose whether or not to buy a health insurance policy, but instead upon—and only upon—a narrow reading of the Congress’s powers under the Commerce Clause, states will retain the right to mandate the purchase of health insurance (e.g., “Massachusetts’s “Romneycare”), and of auto insurance, and of broccoli, and of gym memberships.

If, on the other hand, the Commerce Clause ground is simply the fig leaf used to segue into an individual-liberty-to-choose-not-to-buy-health-insurance ground, then the ruling also will imperil the legal underpinnings of Social Security and Medicare, because while those programs were enacted not under Congress’s Commerce Clause power but instead under its taxing power, both programs require payment for insurance—one, a retirement annuity, the other, eventual health insurance—that the individual may not want and may never use. Not everyone lives to age 65, after all.

The Commerce Clause issue deals only with the breadth of Congress’s power to regulate interstate commerce and the things that impact it. Or, in Commerce Clause jurisprudence lingo, the power to regulate “markets” that impact interstate commerce. The Obama administration, and the Congress that enacted the ACA, have claimed that there are two separate “markets” that the ACA regulates: the market for health insurance and the market for healthcare itself. The Commerce Clause issue does not address what states can regulate, and what states are prohibited by concepts of “liberty” from regulating. For that, you have to look at the Fourteenth Amendment’s due process clause and the constitutional doctrine known as “substantive due process,” which concerns the limits of state governments’ powers to intrude into personal autonomy, personal decisions. As I explained in a post earlier this week, it is the doctrine under which the Supreme Court has stricken state laws prohibiting the sale and use of contraception and state laws prohibiting sodomy, and those categorically prohibiting abortion (Roe v. Wade).

The Fourteenth Amendment applies only to the states, but its due process clause is virtually identical the Fifth Amendment’s due process clause. The Fifth Amendment applies to the federal government, and the “substantive due process” doctrine applies to that Amendment’s due process clause in the same manner in which it applies to the Fourteenth Amendment’s.

As Goes Obamacare, So Goes Romneycare … and State Laws Requiring Auto Insurance?

By: Beverly Mann Tuesday March 27, 2012 12:13 pm

(photo: IslesPunkFan flickr)

[Cross-posted from Angry Bear, with minor editing.]

I’ve written repeatedly at Angry Bear during the last year or so that the challenge to the constitutionality of the ACA’s minimum-coverage provision (a.k.a., the individual-mandate provision) is not really a Commerce Clause challenge but instead a challenge under the Fifth Amendment’s due process clause, under what is known as the “substantive due process” constitutional law doctrine. The Fifth Amendment’s due process clause limits what the federal government can do vis-à-vis individuals. A clause in the Fourteenth Amendment is nearly identical, and identical in substance, to the Fifth Amendment’s due process clause, except that it limits what state governments can do vis-à-vis individuals.

SCOTUSblog’s Lyle Denniston’s early report suggests that I was right. The outcome of the case, he predicts, will depend on whether Kennedy believes that the Court can uphold the mandate provision without opening the door to unlimited congressional mandating of purchase specific things, not because Congress lacks that power under the Commerce Clause but instead because it violates liberties protected under the Fifth Amendment’s due process clause. Denniston does not mention the Fifth Amendment, but, whether or not the justices themselves did specifically, that is the upshot.

The “substantive due process” doctrine holds that there are certain incursions into personal autonomy and certain impositions on individual liberty beyond which the Constitution allows the government to go. It is this doctrine by which the Court has stricken down such laws as state laws barring the sale and use of contraceptives, state laws prohibiting abortion under all circumstances (Roe v. Wade), and state laws criminalizing sodomy.

But based on Denniston’s early report about the nature of Kennedy’s concerns, I don’t see how, absent an utterly artificial Commerce Clause-based ruling, a ruling that the mandate unconstitutionally infringes upon person choice, upon personal liberty, would not also mean that Massachusetts’s “Romneycare” law, and state laws that require drivers to purchase auto insurance, would be constitutionally permissible.


By: Beverly Mann Tuesday March 27, 2012 10:38 am

(Photo: dbking, flickr)

[Cross-posted at Angry Bear.]

To the general public, all that matters are the headlines, reflecting the bottom line. The universal consensus among reporters who attended the 90-minute Supreme Court argument yesterday on whether an 1867 law called the Anti-Injunction Act bars the Court from considering challenges to the constitutionality of ACA’s individual-mandate provision was that the justices will decide the constitutionality of the mandate provision despite the AIA.

But law geeks like me know that what also matters is how they conclude that the court has “jurisdiction”—legal authority—to decide the constitutionality of the mandate provision. That’s because federal judges are incessantly, and often spontaneously, throwing lawsuits out court, claiming that they lack jurisdiction to hear the case—a trend begun in the 1980s and accelerated exponentially, explicitly and by malignant (as opposed to benign) neglect to reverse lower appellate court rulings, by the conservative legal movement to which a majority of the Roberts and Rehnquist courts adhere.

A key part of the conservative-movement’s federal-courts-have no-jurisdiction-to-hear-any-constitutional-claims-except-the-ones-that-conservatives-want-them-to-hear jurisprudence is that federal-court jurisdiction either exists or it doesn’t, and if it doesn’t it can’t be waived by the parties. So even if neither party claims a lack of federal jurisdiction, the judge, judges or justices in each case must raise the issue themselves if they believe jurisdiction may be lacking. Under the Constitution, Congress decides what types of cases the federal courts have jurisdiction to hear, by enacting “jurisdictional” statutes that either grant or remove federal-court jurisdiction in specific categories of cases, subject only to requirements or prohibitions in other parts of the Constitution. (Actually, the Supreme Court has created several legal “doctrines” out of whole cloth that remove federal-court jurisdiction in various cases, but I’ll leave that for another day.)

The AIA provides that “no suit for the purpose of restraining the assessment or collection of any tax may be maintained in any court by any person.” The ACA’s individual-mandate provision does not become effective until 2014 and the penalty for failure to obtain the minimum insurance will not be assed until April 2015, through income tax filings. Early on in the ACA litigation, the Obama administration claimed that the ACA penalty was a tax and that the AIA therefore removes federal-court jurisdiction to hear the challenge to its constitutionality until 2015, but it soon retracted that claim and now argues that the penalty is, well, just a penalty, not a tax, and that therefore the AIA doesn’t remove federal-court jurisdiction to decide the constitutionality of the mandate and penalty for non-compliance with the mandate until 2015; the Court can decide the issue now.

My ACA-Individual-Mandate Analysis Summed Up In Three Paragraphs

By: Beverly Mann Monday March 26, 2012 1:19 pm
United States Supreme Court (photo: oncle, flickr)

United States Supreme Court (photo: oncle, flickr)

[Slightly-edited cross-post from the Angry Bear blog, with permission.]

As readers of the Angry Bear blog (affectionately known as “AB”) know, I’ve written quite a number of in-depth posts on the ACA litigation—on the individual-mandate provision and on other issues as well. (The number, by my count, is at least 11, including the one I posted Saturday, titled “Showtime at the Supreme Court”). And for your reading enjoyment, and in honor the big show that will be staged at the Court during the next three days, I’m posting the links to all 10** of the earlier posts I located, below.

But in response to a comment by AB regular reader and commenter Coberly to my “Showtime” post, I summed up my analysis of the individual-mandate issue in three paragraphs. Coberly wrote:

Why, is there nothing then you can’t do in the name of the commerce clause?

Or is it a mystery known only to those who “actually know the law,” as opposed to those of us who worry about little things like civil liberties as they are actually experienced by, say, human beings?

I responded:

There are limits to what Congress can do in the name of the Commerce Clause, but because medical treatment for uninsured patients, including those traveling from one state to another, requires cost-shifting of huge amounts of money, some of it interstate, a law like the ACA is within the Commerce Clause limits.

That’s not to say that there may not be some other reason why a statute that falls within Congress’s Commerce Clause powers is unconstitutional, and although the people challenging the constitutionality of the mandate don’t expressly say this, their “freedom” and “liberty” claim is really a claim that the mandate violates the Fifth Amendment’s due process clause under a constitutional-law doctrine known as “substantive due process.” (That doctrine also is the legal doctrine under which the Supreme Court ruled that states can’t bar the sale and use of contraceptives, and is the doctrine underpinning Roe v. Wade and Lawrence v. Texas, the opinion that struck down state sodomy laws as unconstitutional.) But the Commerce Clause plays no role in this, one way or another.

Sure, if the Court strikes down as beyond Congress’s authority under the Commerce Clause a statute that requires people to do something or that bars them from doing something, then people are “free” to do or not do whatever the statute required or barred. But that’s just incidental. It isn’t less of an imposition on liberty for Congress to require people who can afford to do so to buy health insurance directly through the government by a tax under Congress’s taxing power (which is what the government does with Medicare) than to require then to buy it elsewhere under Congress’s Commerce Clause power.