Mitt Romney's Character Flaw

No one has questioned Mitt Romney’s moral character. Everyone is persuaded that Romney has the perfect marriage and the perfect family.

No one has any reason to doubt the appearance of a happy, loving marriage and a solid family life.

Yet, for someone whose moral credentials are beyond impeccable, Romney still provokes misgivings among Republicans.

Some people may find it difficult to grasp but there’s a great deal more to moral character than sexual behavior.

Lust is but one of the deadly sins. It isn’t even the deadliest. Pride stands out as the deadliest of the deadly sins and one would be hard put to ignore the fact that one holier-than-thou candidate, namely Rick Santorum, is running his campaign on vanity.

Of late Newt Gingrich has been trying to put Mitt Romney’s moral character into question by depicting him as a heartless and ruthless corporate raider, a man whose avarice—another of the deadly sins—caused him to destroy companies and lives in order to enrich himself and his partners.

As of now the attack has proven rather flaccid indeed. It has elicited many counterarguments to the effect that private equity investing is intrinsic to the capitalist system. It has made Gingrich appear to be the enemy of capitalism, not a good position for a Republican to occupy.

Most of those who have misgivings about Mitt Romney have had great difficulty articulating them. The Gingrich attack on Bain Capital has not helped them to do so.

Admittedly, the Gingrich campaign needed a visually compelling and dramatically engaging picture of Romney’s avarice. Unfortunately, its supporters have undermined their own cause with exaggerations and misrepresentations.

By now most Romney supporters have gotten beyond the flip-flopper charge. It is not a crime to change your mind. It is not a character flaw to become more conservative as you grow older. Many conservative voters have had some doubts, but now, facing the seemingly inevitable choice between Romney and Obama, they are more than happy to put their misgivings in a lock box.

And yet, there’s flip-flopping and there’s flip-flopping. If a candidate has changed his mind, that’s one thing. If he is dissimulating his position in order to trick you into supporting him, only to reveal after he is nominated or elected that he intends to govern differently, that is quite something else.

The former represents a change of heart or mind. The latter involves an old game called bait-and-switch.

Among those who are most discomfited by a Romney candidacy I suspect that the real reason is that they feel somehow that they are being played. Thus, that they are going to be seduced by a mirage only to be abandoned later on.

Investigative journalist William Cohan raised the issue yesterday in the Washington Post.

Before he was a journalist Cohan was an investment banker. In that role he directed auctions where distressed companies were sold to private equity investors. Among the private equity firms he dealt with was Bain Capital.

Cohan did not deal directly with Mitt Romney, but he had dealings with senior Bain officials at a time when Romney was running the company.

It is worth noting that private equity investors do not swoop into a community to buy up a company and throw everyone out to work. They buy the companies at auctions conducted by investment bankers.

Cohan does not question the value of private equity investments. He does not question the creative destruction that inheres in capitalism.

He brings a much harsher charge against Mitt Romney. From his dealings with Bain executives Cohan concluded that Mitt Romney could not be trusted, that Mitt Romney was not a man of his word. Being untrustworthy is not one of the seven deadly sins. 

Apparently, the conduct of Bain executives during Romney's tenure was so reprehensible that eventually the investment bankers refused to allow them to bid on distressed company assets.

Experience told Cohan and his colleagues that Mitt Romney was not the kind of man you wanted to do business with.

If he is right, then Romney’s flip-flops are really a sign of a fundamental character flaw. If that is true, it would give substance to the misgivings so many people have about Mitt Romney.

You know from personal experience that you are not likely to feel warmth and affection toward someone you cannot trust. Perhaps we are indulging a bit of moral reverse engineering, but Cohan’s charge, if true, would explain the emotional reaction to Romney. 

Since he is reporting about his own personal experience, his account has added credibility. If it is being distorted then surely a large group of investment bankers will soon come forth to defend the honor and good name of Mitt Romney.

Understanding the bait-and-switch is difficult. Cohan tries to explain it in detail, so I will quote extensively from his description. As you read it keep in mind that the two stage process of auctioning off companies might correspond to the two stage process whereby a party selects a candidate for office and the candidate presents himself for the general election. Or else it might correspond to the two stage process of running for office and governing.

Cohan begins by explaining the way private equity works. He emphasizes that Bain was unique among private equity firms in its dishonorable behavior:  “Seemingly alone among private-equity firms, Romney’s Bain Capital was a master at bait-and-switching Wall Street bankers to get its hands on the companies that provided the raw material for its financial alchemy. Other private-equity firms I worked with extensively over the years — Forstmann Little, KKR, TPG and the Carlyle Group, among them — never dared attempt the audacious strategy that Bain partners employed with great alacrity and little shame. Call it the real Bain way.”

The first round of an auction eliminates the pretenders and settles on the private equity firms that are offering the highest bids. In that round Bain tended to offer the highest price. 

Once it had eliminated the competition, Bain began lowering its offer in the next round.

Cohan writes: “I never negotiated directly with Romney; he was too high-level for any interaction with me. Rather, I dealt often with other Bain senior partners, who were very much in his mold. In my experience, Bain Capital did all that it could to game the system by consistently offering the highest prices during the early rounds of bidding — only to try to low-ball the price after it had weeded out competitors.”

He continues: “By bidding high early, Bain would win a coveted spot in the later rounds of the auction, when greater information about the company for sale is shared and the number of competitors is reduced. (A banker and his client generally allow only the potential buyers with the highest bids into the later rounds; after all, you can’t have an endless procession of Savile Row-suited businessmen traipsing through a manufacturing plant if you want to keep a possible sale under wraps.)”

Cohan adds:  “In my experience — which I heard echoed often by my colleagues around Wall Street — Bain would seek to be the highest bidder at the end of the formal process in order to be the firm selected to negotiate alone with the seller, putting itself in the exclusive, competition-free zone. Then, when all other competitors had been essentially vanquished and the purchase contract was under negotiation, Bain would suddenly begin finding all sorts of warts, bruises and faults with the company being sold. Soon enough, that near-final Bain bid — the one that got the firm into its exclusive negotiating position — would begin to fall, often significantly.”

Consider a candidate who says everything his party wants to hear during the nominating process, only to change his mind once he has become the nominee.

Or else, consider a president who promises one thing while he is running for office but who then, once he takes office, claims that he has discovered new information that prevents him from keeping his word to those who elected him.

Recall the time when George H. W. Bush reneged on his No-new-taxes pledge.

In the world of private equity, the final stage of the auction looks like this: “At such a late date, of course, the seller is more than a little pregnant with the buyer. Attempting to pivot and find a new buyer — which knew it had not been selected in the first place, but was now being called back — would be devastating to the carefully constructed process designed to generate the highest price. Once Bain’s real thoughts about the price were revealed, the seller either had to suck it up and accept the lower price, or negotiate with a new buyer, but with far less leverage.”

  

Cohan correctly states that it is a character issue: “Bain’s behavior also reveals something about the values it brings to bear in a process that requires honor and character to work properly. If a firm’s word is not worth the paper it is printed on, then its reputation for bad behavior will impair its ability to function in an honorable and productive way.”

In conclusion, Cohan applies his insight into Romney’s character to the current election: “This win-at-any-cost approach makes me wonder how a President Romney would negotiate with Congress, or with China, or with anyone else — and what a promise, pledge or endorsement from him would actually mean.

“Would a President Romney, along with a Republican Congress, cut taxes for the wealthy even more than he has pledged to do? Would he not try to balance the federal budget, even though he has said he would? Would he protect defense spending, as he has indicated he would?

“I have no idea how Romney might behave in office. I do believe, however, that when he was running Bain Capital, his word was not his bond.”

It is difficult, perhaps impossible, for a political ad to look at the issue of a candidate’s trustworthiness, but Cohan has provided us with a look at Mitt Romney's business practices that makes everyone’s qualms about him seem perfectly rational.