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Eureka! I oppose capitalism because I teach at a law school

Eureka! I oppose capitalism because I teach at a law school

I knew that my position on Bain Capital would fray some relationships in the conservative blogosphere, but this post by Don Surber took me by surprise, Why Republicans Oppose Capitalism:

Newt and Rock Perry are trying to divide the party in a way I never imagined. I thought the divide would be between social conservatives and moderates. Instead it is between capitalists and — how do I put it delicately? — people who work for institutions.

My Eureka moment on this one was when I read this from the Legal Insurrection blog of William A. Jacobson:

When even Rush Limbaugh buys into the “criticising Bain is criticizing capitalism” meme, we have lost as a party. There is a huge difference between using government powers to impose value judgments (a la Obama) and making value judments in evaluating a candidate’s background.

It’s over.

We’ve discovered a way to lose the general election — tie Bain Capital to our legs and go swimming.

William A. Jacobson is a pretty good egg with a good head on his shoulders. But on this one he blew it. Why? Because he teaches law at Cornell Law School. He does not have to worry if Cornell Law School makes a buck or not. He wants it to, of course, but profit is pretty much an abstract notion to him.

With all due respect, you don’t know what you are talking about, either about me or my arguments.

I started teaching in 2007, prior to that I had been in private practices since 1985, all but two of those years in law firms with fewer than 10 attorneys, including solo practice.  There were many years when I went several months without a paycheck because the employees, landlord and vendors got paid first.

I also concentrated in representing investors, so I believe deeply in markets and investing.  I also understood how the system often was rigged for corporate insiders and money men, and that leveling the playing field was a key component of free markets.

So Don, get your facts straight before your next Eureka moment.  And if your facts about me are so off, maybe you should consider that your arguments about “Republicans who oppose capitalism” are off too.


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Meanwhile in New Hampshire, Barack Obama only managed 82% of the total Democratic vote. 10% went to write-ins and 1% of the total vote went to Vermin Supreme, the guy who claims to be a satirist and wears a rubber boot as headgear.

After Mitt Romney’s “slash, burn and scorch the earth” campaign against every candidate running, Don Surber is attempting to make the case that it is Perry and Newt who are “dividing the party”?

People often confuse legality with ethics or morality. Especially democrats, they will often substitute laws for morals. I often hear “Hey it was legal so its okay” as if pronouncements from the current swindlers in congress are like Moses coming down from the mountain. the fact that, hey yeah “It was legal, but you are a pretty f’d up person for doing that” doesn’t even enter into the equation.

Romney’s firm did invest capital, but its clear at this point these guys are vultures, but then again the vultures primarily feed on the dead, Bain ate on the living destroying valuable businesses gaining profits smaller than its net work. Like I pointed out, its like buying a business with a loan and then burning it down to collect the insurance screwing over the suckers that lent them the doe.

    Awing1 in reply to imfine. | January 11, 2012 at 11:13 am

    I like how to make you’re point that there’s a difference between being legal and being moral, you compared a perfectly legal activity with an illegal one. Apparently you didn’t even understand your own point.

      retire05 in reply to Awing1. | January 11, 2012 at 11:31 am

      I suggest you look up the term “corporate raider”. You will find some interesting names there. T. Boone Pickens, George Soros. All guys who used the very same “capitalist” tactics Mitt Romney used.

      Would you vote for them?

        Awing1 in reply to retire05. | January 11, 2012 at 11:38 am

        Until you can get six of the seven questions right on this test in the time allotted, I’m not replying to you anymore. It’s annoying debating with someone who can’t understand what they’re reading.

      imfine in reply to Awing1. | January 11, 2012 at 11:48 am

      I guess that would depend on the intent of Bain and Co when they made the loans on what they were going to do. As the creditors complained, they would have never lent Bain any doe if they had disclosed their intent to raid KB’s capital in such a horrendous fashion. In fact they had told the creditors that were real investors who were going to take KB toys to new level through expansion and aggressive growth. The lenders were thrilled because they were SUPPLIERS to KB Toys and they wanted more leverage with Walmart and Target. That is fraud and yes it is illegal.

        Awing1 in reply to imfine. | January 11, 2012 at 12:11 pm

        I don’t think anyone would deny that misleading creditors is immoral and in many instances illegal, but that wasn’t your original point.

        KB Toys looks bad on its face, and unless other information comes out that demonstrates some extenuating circumstances, I’d say it’s fair to call it a prime example of immoral corporate raiding. I still argue that tagging Romney with that deal is ridiculous, as I’ve said he left nearly two years before that deal even started, let alone when it went south. He was a retired equity partner with no actual control over the operations of the company, and the deal represented less than 1% of Bain’s investment capital at the time. That’s like blaming Bush for Obamacare because he owns some treasuries.

          Conrad in reply to Awing1. | January 11, 2012 at 12:30 pm

          Logic doesn’t seem to be a particular strength amongst those who are bashing Mitt over Bain. Have you noticed how so many of them apply highly charged, ad hominem labels to Mitt (“vulture,” “corporate raider,” “Dr. Kevorkian”) and think they are making a reasoned argument?

          There was even a comment a couple of threads back where Mitt was labeled a “crony capitalist” simply because he was born to a wealthy father and took his last name!

          What’s ironic about this is that these are mostly followers of a candidate (Newt) who gained prominence in this campaign for his clear, nuanced thinking and reticence to criticize other candidates. Now, Romney Derangement Syndrome has advanced to the point where it’s considered enlightened thinking to call Mitt a job-killing vulture based on actions taken by Bain AFTER he left the company.

          imfine in reply to Awing1. | January 11, 2012 at 12:46 pm

          If Romney was just a partner that left the firm and retired, that would be one thing. But if the founder leaves while retaining a sizable equity stake you can be sure that he not only knew about any major investment that was going on, he probably voted on it even if ihe wasn’t a managing partner. A managing partner is just someone who runs the firm day to day, it doesn’t mean no one else had any rights. At the very least these guys were clearly operating in the normal Bain fashion. When Romney invest in GS Tech, he immediately withdrew his entire 8 million $ investment and then 50% more. That does not sound like investing to me. That sounds like a vulture swooping down gobbling up assets to make sure there is nothing left for the creditors, who in parlance you would call “Debt Investors”. I mean wow. Who in the world does that stuff?

          Awing1 in reply to Awing1. | January 11, 2012 at 1:13 pm

          I didn’t realize $18 million was a “major investment” for a firm managing $3.1 billion.

          GS Technologies made the dividend payment a year after Bain took it over, when their management of the firm had increased profits and revenue in general considerably. Seven years later, at a time when 44 steel companies in the US went under, GS Technologies ended up in bankruptcy court. That is perhaps the longest, sloppiest corporate raid timeline I have ever seen.

Professor, you didn’t really expect Mr. Surber to do any background/fact checking about you before he wrote his article did you?
That sort of thing for “journalists” is so passe.

DINORightMarie | January 11, 2012 at 10:52 am

Oh, that is so funny!! I was telling my husband just yesterday evening that you, Professor, of all people know what you’re talking about, because of your prior legal work in the investments and finance area.

You were working in the field while Romney and Bain were doing their business, I believe. And, I am sure, your vast experience trumps these talking heads and bloviators!!! If he had just read your bio……or googled you, he would know better.

How funny! Such tools reveal their ignorance in such amusing ways. Mr. Surber, that means you.

“Newt and Rock Perry are trying to divide the party in a way I never imagined.”

Oh, how virginal of him. He’s trying to pretend that Romney has no history, especially no recent history, of unfair, negative campaigning, and also that the corporate form is something that cannot be abused. Next, he’ll be telling us that, because of their sacred office, Catholic priests are incapable of … you get the picture.

I’m not saying I’m convinced that Romney misbehaved with respect to Bain. He has surely engaged in the kind of campaigning that has brought the Republican party into disrepute, and he deserves a little of his own medicine.

“…How the system often was rigged for corporate insiders and money men”

Professor Jacobson, I very much appreciate your insistence on emphasizing this point. I, too, began with an immediate dislike of Perry’s and Gingrich’s “attack on capitalism”. Your underlining of the importance of the issue made me look into the matter in some depth.

No wonder Romney is the candidate of Establishment Republican, the media(owned by them), and other financial wheeler-dealers (as was Obama). He will maintain the status quo so the moneyed elites can (with my limited knowledge of finance): 1) leverage the bejabbers out of each company they acquire for their own corporate gain (raider); 2) put their debt ahead of all other debt of the company (breaker of legal contracts); 3) make deals with the owners-top managers of acquired company so that they make a big profit too while everyone else, creditors, lkower manaagement, workers) takes a bath (one of the reasons they are “invited” in by owners-top mgmt); 4) fob off the contracted pension agreements as if they are of no matter so that eventually taxpayers must cover them until there is no more savings (from a prosperous GDP) to do so — beggar us all; 5) require only a short-term profit horizon (especially for themselves) so that there can be no long-term business planning for the company.

I am certain there are more issues that those knowledgeable in the world of the finance used by the “corporate raiders” could find, e.g., letting banks and other financial institutions operate without differentiation and being permitted to put forward debt as equity with no transparency.

I regret that what I read about Perry and Gingrich is more about morality and fairness than about the regulations that need to be changed so that every American has a fighting chance to work, own, take risks, get financing, plan for a reasonable retirement.

Let them put forward the exact regulations that must be changed as part of their platforms. Show much mpre clearly how the current regulations-laws are skewed toward the rich getting richer and everyone else getting screwed.

Thanks again. You made my day!

Conducting “scorched earth” tactics in your own back yard is usually a losing proposition. Romney temporarily benefited from it in Iowa but it incited others to arson.

In the end, you get a spectacular bonfire right before the entire city is engulfed in flames.

Paging Mrs. O’Leary and her cow…

Donald Douglas | January 11, 2012 at 11:12 am

‘I knew that my position on Bain Capital would fray some relationships in the conservative blogosphere…’

I wouldn’t worry about it too much. Conservatives whine when leftists squelch debate but they cry foul when someone on the right gives it to ’em?

Professor, Frank Luntz brought up a good point last night on Hannity in a discussion that included Mark Steyn. He pointed out that capitalism is a derogatory term coined by Karl Marx that encompasses many versions of capitalism that do not represent free enterprise, like fascism and crony capitalism. Your point seems to lie in the difference between “free enterprise” and the more all-encompassing and derogatory term “capitalism”.

Luntz was arguing that America was built on free enterprise but is succumbing to versions of capitalism that are anything but free enterprise. Maybe you could rephrase your position around that difference? Right or wrong (about Marx coining the term), it’s a very good point.

    Henry Hawkins in reply to Pasadena Phil. | January 11, 2012 at 11:51 am

    Ditto this. Among myriad other examples, there is nothing less in line with capitalism or free enterprise than bailouts. The more government intrudes, the less the system is one of free enterprise.

    Excellent point. Gingrich should make the distinction and run with it. In for the penny, in for the pound (you know, like a capitalist investment).

Professor, I think you should play some of the nasty ads that Romney was running in Iowa. I caught one when I was in Southern Minnesota before the election, and it was awful.

Anyone here have links to some of those ads? I think people should see just how low ROMNEY sunk.

JimMtnViewCaUSA | January 11, 2012 at 11:26 am

This gave me pause (reaction to Todd Palin endorsing Newt).
The election will be easy, vote “ABO”. But we have to recognize that all the candidates have pretty major flaws.

Keep up the good work professor. I am a lawyer with a background similar to yours, and though it’s not my specialty I’ve been reading the financial press for many years.

The model that is being criticized is in urgent need of exposure: whether it is (1) ripping out the capital from a viable company via big management fees before bankrupting it, or (2) ripping out the equity out of American homeowners via subprime mortgages before dumping them on naive investors overseas, or (3) ripping out the life savings of an entire nation by government spending far beyond the ability to pay back, the common denominator is the same: it’s the intentional use of debt ON TERMS THE BORROWER NEVER INTENDS TO REPAY, without regard for the consequences to anyone else, and sucking the life out of the victim before chucking the carcass.

Newt is on to something BIG here, and he needs all the help of all the legal and economic minds he can get to explain it to the American people before it’s too late.

This isn’t just a Bain Capital problem — it goes to the heart of a way of thinking that is NOT Conservative and NOT Capitalist in any way that Americans have traditionally defined those words.

Read the main editorial in the Wall Street Journal today:

I don’t think anyone who read it would call Bain Capital “vultures.” That is a stereotype based on demagogeury.

Ok, this whole thing is starting to make me physically sick. I’m sure the Obama team is just sitting back, laughing, and rubbing their hands together. Mission accomplished.

Occupy Wall Street was not an organic thing. Their brilliant. They were looking ahead to the election and knew that Romney would be the one. Who better than a Wall Street guy who is getting lots of campaign cash from Wall Street.

I think of politics as a chess game. What will be the next move? Perhaps if all blogs would quit attacking each other and turn to Obama and his administration. There sure is plenty of material there! For you see, if we are busy attacking, who’s talking about freeing Gitmo guys? Biden talking to the Taliban, Fast & Furious, Solyndra, Daley leaving, the collapse of the Euro, someone killing another Iranian nuclear scientist, Obama going to a high school to announce that sometime you have to bypass the congress to get things done, etc., etc.

    Maybe if the GOP establishment would embrace conservatives instead of warring against us things would get better. They can’t because they are so in the tank for the same dirty special interest money that backed Obama and are determined to deliver on the same agenda.

      Forget the GOP. They’re lost to conservatives. That’s how the TEA Party movement came to be.

        cynic in reply to Kitty. | January 11, 2012 at 12:23 pm

        I joined the TEA Party in ’09. I then became a Precinct Committeeman and worked very hard to get one of those Freshman Congressmen elected.

        Even that didn’t go very well. It’s Illinois. What can I say? Redistricting put two Republicans together competing for the same spot. Do I go with the 20-yr. incumbent, or the new guy, who isn’t quite as conservative as I would like? How does everyone feel about term limits? Now their election is getting nasty. The TEA Party wants the 20 yr. guy. Games being played between the candidates, the TEA Party and the Republican Party. YEESH I think I’m getting an ulcer.

          That seems to be the problem here too. Around here, there are too many people trying to ingratiate themselves to the CA Republican State Committee as if the RSC cares. I’m afraid that many of these Tea Party groups have already been co-opted by Republican operatives.

          I can make time to work for a conservative candidate or two but as soon as the discussions turn to “electability” and how “we need help from the RSC”, I’m gone. I’m not interested in electing Republicans. I’m interested in electing conservatives.

        Tamminator in reply to Kitty. | January 11, 2012 at 8:42 pm

        Yeah, and the Tea Party won back the House in 2010. And will win the Senate back in 2012.
        You don’t want conservatives in the Republican party?
        Then vote for Obama again, like you obviously did before.

Wow, now we’re eating ourselves? I’ve worked in acadenics for several years now myself, I still have a pretty solid understanding of…you know…basic economics. Sure I don’t care to much about if my school makes money, but then again, most people don’t own their own businesses, and don’t care much about more than the abstract financial concerns of the places they work. This isn’t meant to be a dig at the vast majority of people, it’s just an observation. So even if Surber had been right about your credentials (which he obviously wasn’t) it wouldn’t have any bearing on your credibility to discuss the topic. Being flat wrong just makes it even worse.

    Henry Hawkins in reply to tsrblke. | January 11, 2012 at 11:57 am

    Another way to look at it is to say that anyone who works for a living is, in a sense, a small businessman. Wherever one works, isn’t it necessary that your pay and benefits (gross income) exceed your expenditures (taxes, time, training, education, etc) to obtain it, ideally exceeding your bills (profit)?

Professor, thanks for the small autobiographical dose in this post and I am happy to see that you were out there trying to look after the little guys and gals. As a former managing partner in a medical diagnostic business, I, too, know what it is like to have to pay all your vendors, service suppliers (doctors), lease payments and employees before there is something for you and I have also gone months without a paycheck in order to keep the doors open.

I think those of us who are, or, who have been in business for ourselves just want a level playing field — nothing more, nothing less. What is so hard about that Mr. and Ms. Government Insiders and your fellow Cronies?

    JEBurke in reply to Liberty. | January 11, 2012 at 2:26 pm

    In what way did Bain Capital ever gain an advantage from a non-level playing field tipped its way by “government insiders” or “cronies?”

Surber scuttled his own argument.

He has gone the way of ad hominem attack. People normally resort to that tactic when they can’t defeat your position.

Excellent follow up Jacobson, good job. Some folks just don’t know the difference between free market capitalism and looting

I am a small businessman currently going essentially without pay due to the economy. We’re down 16% over last year, which was down 20% over the year before. Most clients and some employees assume if you own your own business, you must be some kind of millionaire, but in these tough times I choose not to let my employees know that most of them are making more money than I am, just as I also didn’t share the fact of great profits I enjoyed when the economy allowed them. Mine was a start-up in 2001 that lost money for two years, broke even one year, and then rocked in yearly profits till 2008. That is the risk inherent in entrepreneurism. Thank you, Mr. Obama, for killing the economy just as my investment began to pay off.

    LukeHandCool in reply to Henry Hawkins. | January 11, 2012 at 1:08 pm

    I feel your pain, Henry. As a young man, I worked seven days a week in our family business. I worked after school, on the weekends … and when times were bad I worked for free for long stretches (got room and board, haha!)

    When my dad became seriously ill when I was in high school and was in the hospital for three months, I was waking up at 3:00 a.m. every day to get some work in before going to school.

    I vowed then that when I had my own kids in the future, I would not be self-employed, so as to have more stability (let the business owner deal with the stress of keeping the business a going concern) and to be able to spend more time with my family.

    I work for the government now (you get your money’s worth from me!) and many of my co-workers are as clueless about the private sector and what it takes to run a business as my teenage classmates were way back then.

    How many times have I felt like screaming and pulling my hear out when they talk about retirement (the most popular topic among government employees) after “30 long years” of working a brutal 8-hour day, five days a week, with holidays off, paid vacation, sick time, hour-long luch break … Hour-long lunch break? When I was working in the family business, we were so busy that one’s lunch break was the two minutes it took to wolf down a bologna sandwich before getting back to work.

    When they talk about their favorite topic, “30 years is long enough!” and various iterations you hear quite frequently. My parents never stopped working from childhood until my father couldn’t walk anymore in his eighties. 30 years is seen as interminably long … my parents worked 70+.

    The mindset is infuriating. When union negotiations are going on, you’ve got people saying, “We work hard for our money,” and the like. I feel like saying, “Are you kidding? Compared to what I experienced in my family’s small business, I feel like I’m getting paid to take it easy by comparison.”

    Don’t get me wrong. There are competent, hard-working government workers. The problem is, you have a large percentage of workers who are absolutely dead wood. Absolutely useless.

    When I see them I feel like Romney. I would like to fire them. It would break my heart and be personally agonizing if I had to lay off a good, hard-working person.

    But the self-righteous, lazy dead wood who feel they are entitled to the taxpayers’ money? I’d actually enjoy firing them.

    But this is government. You basically have to commit homicide to get fired. Even then it would be iffy.

      Henry Hawkins in reply to LukeHandCool. | January 11, 2012 at 1:33 pm

      I LOVE YOU, MAN. Ahem, just kidding. Hey, I’m right there with you – been working full time since I was 16 and in HS.

      Oddly, I was a government employee for 16 years until two things conspired to knock me out of it: One, the state regulating authority amended the criteria for my profession to where I was suddenly no longer qualified to do.. the.. same job.. I’d been doing… for 16 years. Two, the state government passed the Mental Health Reform Act, which dumped all substance abuse/mental health programs into the private sector. Not only was my job cut, but my unit, my agency, and my entire division was cut, something of which I approved politically, but ouch! We were assured the private sector would hire us all, in fact, we’d probably end up with a better deal. NOT. The government was so ignorant of costs and business in the private sector that the contracts offered to local private providers were so poorly paying that nobody would apply for them – and still won’t ten years later. I was out of my gov’mt job with zero prospects in the private sector.

      So, what does a conservative minded, hardworking boy do? I didn’t whine and ask for a handout. I took my severance, added it to personal savings, borrowed some money, and went out and bought myself a job, that is, began my own agency. I do not and will not accept gov’mt contracts either.


      Midwest Rhino in reply to LukeHandCool. | January 11, 2012 at 4:24 pm

      yeah .. you said a lot there LHC … I “like” it, but there is no like button 🙂

Bain bought Clear Channel Communications in 2008.
Clear Channel’s most famous employee is Rush Limbaugh.
Ergo, I hate capitalism. Or something.

    Midwest Rhino in reply to gabilange. | January 11, 2012 at 4:27 pm


    Rush is tied to BAIN?

    That seems significant to me …

      punfundit in reply to Midwest Rhino. | January 11, 2012 at 4:48 pm

      Don’t worry, Rush is his own boss. He owns a majority share in The Rush Limbaugh Show. Besides, he’s criticized Romney so many times he should theoretically have been fired by now.

NC Mountain Girl | January 11, 2012 at 12:57 pm

I’ve 25 years as a CPA. Both private equity firms like Bain and real estate developers like Trump arrange their deals so that they make money even if the venture fails. They do put some equity at stake they also have contractural arrangements to take out considerable sums out of the venture in the form of fixed development/consulting fees. Guess what gets paid first every month? The consulting fee.

I agree that it’s a cheap shot to accuse you of lacking support for free markets because of what you do for a living (as far as I know, Friedrich Hayek and Milton Friedman spent their lives in academe).

But then, there is this:

“I also understood how the system often was rigged for corporate insiders and money men, and that leveling the playing field was a key component of free markets.”

Yes, insiders often get breaks (eg, Solyndra) and “money men” (presumably meaning Wall Streeters who use their ability to move markets to profit whatever happens, a la Goldman Sachs). But how does any of that apply to Bain Capital — a private equity investment firm that raised funds from other private investors, identified mostly small to medium-sized private companies or entrepreneurial startups that needed capital, injected private capital into these enterprises to grow them, turn them around, or get them of the ground, burrowed into these companies spending long hours to shape or reshape them, winning in most cases and losing in some?

Did Bain not operate on a level playing ground — one where other potential owners or managers of these companies had every chance to compete with Bain? Where Bain’s portfolio companies were compelled to compete, successfully or not, in the marketplace?

Am I missing something? Or is there some muddling of issues going on here.

Man alive..what a distraction that folks/candidates are making out of how either Newt or Romney earned their livings. And I can understand Newt raising a political issue around Romney and Bain. Frankly I wish that entire discussion were avoided.
In Newts case? He worked for the now poisoness mortgage company and got hammered. Now we find Romney getting hammered for the type of business he worked for..also made poisonous via mainly..Obama’s politics.
In Romneys defense..setting aside his ill chosen responses not all venture capitalists are satan. There are indeed circumstances when chopping up a poor performing company is necessary despite political ramifications.
Would we speak ill of a medical doctor for doing amputations in an effort to save the “whole”? Sometimes with business really tough decisions are necessary and being “nice” and “fair” arent the criteria. Or have we finally entered the time depicted in Atlas Shrugged where new standards are applied….such as “political friendliness” where profit takes a back seat to all self interest (execpt of course approved self interest)

quick follow up to earlier as I read around about “vulture” capitalism etc. Interesting to read also about reactions around “firing” someone.
Funny how it all works. When we stumble on a yard sale and find a ton of stuff we can peddle on Ebay for profit…we like to think were just being thrifty or some other comfortable word.
When we fire our cable TV providor and find another for less money per month to help the whole family financial bottom line…why heck were just being smart shoppers.
But with corporate types…we use other words…looters…vultures…crooks.
Yet the motivations at the root are the same.

Excellent thoughts! But that will go over the Professor’s head. Look at his banner headline: “Eureka! I oppose Capitalism because I teach at a Law School”! That’s not what Surber said! Professor, because you teach at a Law School you don’t know how capitalism works. You never had to make a payroll. Heck there are plenty of comments on this thread from people who are and have been entrepreneurs, read what they said. But since you love Newt, you excuse your comments and avoid the real issues. Talking about having blinders on professor you take the cake in your Newt worshiping.

Surber’s latest update has the damning claim that you, Prof. Jacobson, “used to sue capitalists”. How he knows that you have ever sued anyone, I’m not sure. Apparently the distinction between representing someone suing and actually doing the suing escapes him when he is upset.

But it’s interesting that Surber, though shocked that anyone would sue a capitalist, has no trouble calling capitalists “dumb and crooked”.

I surely didnt mean any slight at Prof Jacobson. What I was getting at was the bad painting of capitalists are getting in the Press by an Obama supporting media is all. We dont need Republicans doing Obama’s campaign work.
Maybe what is going on is a slap at certain types of capitalists..the ones that do the messy politically unclean work. You lawyers that defend murderers and child molestors. Certainly we wouldnt damn any lawyer by some of the work he does…would we?