Mitt Romney has an identity problem. He is running for president by making promises about America's future, but as a man who is largely without a past. Not only has Romney renounced many of his previous positions--on abortion, immigration, gun control, climate change, and the individual mandate he once championed as Massachusetts governor. He also refuses to divulge many details about what even he has said is his main qualification for the White House in a faltering economy: his successful career in "private equity" from 1984 to 1999 (or thereabouts).
What is it about the private equity world that Romney doesn't appear eager to bring up? As I explain in an article in the current issue of National Journal, "Mystery Man," Romney was basically what used to be known as a "barbarian at the gate." The term "private equity" sounds respectable, but it is a euphemism for the old leveraged buyout deals we remember from the 1980s, the era of corporate raiders like T. Boone Pickens and Henry Kravis. After junk-bond king Michael Milken, who funded a lot of those takeovers, went to jail, the industry decided to rename itself in order to remove the taint.
This is Mitt Romney's true world. As the founder of Bain Capital, Romney became a brilliant LBO buccaneer who specialized in buying up firms by taking on a lot of debt, using the target firm as collateral, and then trying to make the firm profitable -- often by breaking it up or slashing jobs -- to the point where Bain and its investors could load up the firm with even more debt, which Bain would then use to pay itself off. That would ensure a profit for Bain investors whether or not the companies themselves succeeded in the long run. Often, burdened by all that debt, these bought-out companies did not succeed, costing thousands of jobs as they were downsized, sold off and shuttered. Other times they did phenomenally well, as in the case of Sports Authority and Domino's Pizza.
But job creation is irrelevant to Bain's business model, which is all about paying back investors. Nor does the long-term fate of the companies that private-equity firms buy up matter crucially to Bain's bottom line (though of course success is better). The only real risk for Bain is that these companies fail to make enough initial profit in order to permit Bain to pile on more debt and extract a payout, so that it can make back its investment quickly.
Though he started off dabbling in less profitable "venture capital," Romney quickly saw the high-return, low-risk potential of LBOs in the mid-1980s and ultimately was involved in about 100 such deals, which made him a true Wall Street tycoon. He then maximized his take further by socking away his gains in offshore shelters from Bermuda to the Caymans and using capital gains tax breaks and loopholes to reduce the rate of his 2010 tax return (the only one he's released) to 13.9 percent, a far lower rate than the one paid by middle-class Americans. Many of Wall Street's big dealmakers do the same with their profits, employing whole teams of international tax accountants.
But none of these dealmakers has ever run for president. This is perhaps the main reason for Romney's reticence: It's not just that being honest about Bain's real business pulls back the veil from the ugly heart of financial capitalism. It's also that this may be the hardest year since 1932 for a Wall Street big-shot to make a bid for the White House: The former Masters of the Universe remain unpopular because of the historic recession they did so much to create. So it's hardly a surprise that Romney won't dwell on practices that his onetime GOP primary opponent, Texas Gov. Rick Perry, labeled "vulture" capitalism.
None of this is necessarily disqualifying for a presidential candidate; on the contrary. Americans have always admired business success, no matter what package it comes in. It is part of the nation's lore going back to the rags-to-riches tales of Horatio Alger and F. Scott Fitzgerald, and the storied careers of Andrew Carnegie and J.P. Morgan. Romney is undoubtedly one of the most successful capitalists ever to run for president. Based on his record at Bain, as governor, and at the Olympics, there is little doubt that he is a numbers whiz who is handy with a budget, and America has serious budget problems. "At the end of the day, people are going to know Mitt Romney was a super-successful businessman, and they're going to factor that in," says Vin Weber, a senior Romney advisor. "And most people will find that attractive and not negative."
Maybe so. But as the Obama attacks persist, even some in the Romney camp fret that they are watching a Democratic version of the kind of attacks that permanently defined Michael Dukakis as weak in 1988 and "Swift-boated" an unresponsive John Kerry in 2004. Could Romney end up being defined as a hard-hearted moneybags? "That worries me a little bit," Weber admits.
The Obama attacks also may be resonating because they compound an image of aloofness, of detachment from the lives of ordinary Americans, which has dogged Romney for many years. He is hardly the first rich man to run for president, yet he lacks the populist touch of previous successful candidates. Franklin Delano Roosevelt also came from a wealthy patrician family, but by the time he ran for president as a polio victim who had suffered among the people in Warm Springs, Ga., FDR had reputation for transcending that background. So did John F. Kennedy, whose father's vast but somewhat shady Wall Street fortune financed a rich-kid bid for Congress, the Senate, and then the presidency. But JFK's charisma and war-hero reputation, and his ability to connect with people--for example, by famously telling a hushed crowd of mothers who had lost sons in World War II that "I think I know how you mothers feel, because my mother is a Gold Star mother too"--made him a popular figure.
Not so Romney. His record contains few such man-of-the-people moments (ironically, his best argument may be his successful health care law in Massachusetts, another thing he doesn't want to talk about). And his uncommon Mormon religion, about which he is also reticent, further contributes to the image of a Man Hard to Know. This is the same Romney who declared during the hard-knocking primaries that the $350,000 he earned in speaking fees wasn't a lot of money, who said that his wife drives a "couple of Cadillacs," who grinningly bet Rick Perry $10,000 on a whim, and who boasted that even wealthy Ted Kennedy had to "take a mortgage out" to beat him. And those are moments when Romney was trying to be one of the guys. What has become clear is that he is part of a world of super-elites who live in a universe apart from most Americans.
Romney may well make a very good president. But we should know who we're getting.