Bain Capital vs. Berkshire Hathaway**
Matthew Yglesias channels … me!
Yep, that’s right. 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, those of the Bain model. (Or maybe Booker just doesn’t recognize the distinction.)*
*This parenthetical was added after the original posting.
**This parenthetical was corrected for clarity.
funny person the Republicans chose as their bid for the presidency.
If the American people fail again in this choice, they’ll deserve what’s coming to them.
“Good and hard”, as the man said.
Prior to erasing Glass-Steagall venture capitalists of all stripes had to invest their own money and that of their clients. That was the heart of the capitalist concept. Private money made private investments. True enough that some of the money used by the venture capitalists (mostly in the form of investment banks) came from funds of small people money such as pension plans and insurance companies. Still it was private money. When the seperation between investment banking and depositor banking was eliminated it opened flood gates of new capital to the venture capitalist, but the new money was not under management, but instead, it was depositor funds. Too big to fail was born.
Excellent idea – pointing out that not everybody in the Wall Street business is a villain.
And that clearly, some are. Did you ask Corey Booker whether he sees a difference?
The same kind of difference you describe?
Maybe if you send him a copy of your post, he will respond in an appropriate way.
Bain Capital bought and sold corporations and yes corporations are people my friend. Isn’t that the slave trade?
Is Booker running for Governor of New Jersey soon? Probably positioning himself in the money primary for that job. No chance of getting to state level w/o getting hired by Big Finance.