On the Money Trail
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Confessions of a Vulture Capitalist

by Al Jacobs, author of Nobody's Fool: A Skeptic's Guide to Prosperity

February 2012

Shortly before the recent South Carolina Republican caucus, Texas Governor Rick Perry described his opposing presidential contender Mitt Romney, as a “Vulture Capitalist.”   This brought back memories; the same charge was hurled by then-Insurance Commissioner Steve Poizner during the 2010 California gubernatorial campaign to describe his opponent for the GOP nomination, Meg Whitman.  Although Whitman beat Poizner, Democrat Jerry Brown reused the accusation tellingly when he trounced Whitman in the general election.

Perry’s criticism of Romney landed no more harshly than that of another aspirant for the job, former House Speaker Newt Gingrich, who described Romney as “unethical” and “greedy” from his days as a principal at the Boston-based venture-capital firm Bain Capital.  The charges stem from scathing advertisements, financed by a Gingrich contributor, depicting Bain atrocities in which destitute companies are acquired, employees lose jobs, and insolvent firms file for bankruptcy, while Bain Capital manages to turn a profit.  Perry and Gingrich suggest such free-market capitalism is anti-American.

I’ve reviewed Bain Capital’s business activities and concede Romney ran a tough, competitive operation.  As his former managing partner Marc Walpow acknowledged, “The primary goal of private equity is to create wealth for your investors.”  Romney fulfilled that obligation effectively while also creating a good bit of wealth for himself.  Ah, and there’s the rub.  Not only is it cast as somehow improper to operate a successful company where others prosper, but it can be particularly offensive if the managing entrepreneur also turns a profit.  If you entertain any doubts about this you need only read the January 29, 2012, article by Connie Cass of the Associated Press.  The headline sets the tone: “Romney’s riches.”  The four lead sentences then aim to instill as much envy and resentment as possible: “Just how rich is Mitt Romney?  Add up the wealth of the last eight presidents, from Richard Nixon to Barack Obama.  Then double that number.  Now you’re in Romney territory.”  The territory is then described as “somewhere between $190 million and $250 million.”

Not content to simply depict Mr. Romney’s success and productivity in as unflattering a manner as possible, Ms. Cass then drags personal prosperity down to a depressing level with the following paragraph.

“I think it’s almost hard to contemplate what $250 million means,” said Shamus Khan, a Columbia University sociologist who studies the wealthy.  “People say Romney made $50,000 a day while not working last year.  What do you do with all that money?  I can’t even imagine spending it.  Well, maybe…”

As a venture capitalist myself, and one who has managed to acquire a reassuring nest egg, I’m now forced to look into the mirror to see if I, too, am anti-American.  I confess to the following: In 2002 I purchased for $1,050,000, with two associates, a 20-unit apartment in Santa Ana, California.  The building appeared in grim shape with the prior owner’s mortgage loan in default.  Seven of the tenants were seriously delinquent in their rent; four other units, severely trashed, sat vacant.   We inherited a young couple as resident managers, with the husband responsible for maintenance.  Upon our acquisition the property produced nothing but red ink.

During the three years we owned and operated the apartment, changes occurred.  We renovated and rented the vacant units. We evicted the delinquent tenants, replacing them with paying tenants.  We discharged the managers, who spoke only English, in favor of a woman who spoke both Spanish and English.  This seemed advisable because of the high percentage of Hispanics in the area.  We transferred maintenance to local independent low-priced workmen.  And finally, in 2005, after the building regularly generated an attractive monthly cash flow, we sold it for $2,400,000.

I’m certain both Perry and Gingrich would brand me a vulture capitalist.  The evictions threw people onto the street; two employees lost their jobs; I failed to subscribe to an English-only policy; my maintenance practices ignored high-priced licensed contractors; and worst of all, my associates and I profited handsomely from the sale.  As to what Connie Cass and Shamus Kahn might think of me, I dare not even contemplate, although I suspect that to persons with their sense of values, receipt of an exceptionally favorable return on an investment is irrefutable proof of greed.  Similarly, with this as a basic criterion, Mitt Romney must be equally culpable.  Of course in any evaluation, we must consider the source.  Inasmuch as the criticism leveled by Newt Gingrich and Rick Perry constituted little more than political infighting, it can be discounted as such.  And the attitude of an Associated Press writer and a Columbia University sociologist is equally obvious: blatant hostility to anything Republican.  That this is so should be clear to anyone familiar with the leanings of both the media and academia. 

This now gets us to the crux of the matter: Can a man held up to ridicule for being financially successful compete effectively for the presidency?  I fear the answer is No!  Although the possession of wealth itself can be regularly overlooked when the involved parties choose to do so, a derogatory fixation on a candidate’s affluence can be the kiss of death.  As things are now shaping up, Mitt Romney may wrest the Republican nomination from his competitors, but it’s unlikely he will be elected to the presidency.  There are simply too many voters who will refuse to cast their ballot for a person constantly maligned as a multimillionaire.

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Al Jacobs has been a professional investor for four decades. He is a nationally syndicated columnist and appears regularly on ProducersWeb.com, DrLaura.com and SheKnows.com.  He is the author of Nobody’s Fool: A Skeptic’s Guide to Prosperity. Subscribe to his financial column, "On the Money Trail," at no cost or obligation, at www.onthemoneytrail.com.