May 9th Prediction: Obama or Romney?

[Admiral Yi]

But more typically in this model, the business is simply run to generate cash to service huge debt loads, the profitability model is based on leverage, not innovation and investment (which siphons off precious cash), and the mangagement acumen involves putting in managers who may lack industry experience but know how to read an expense line and make cuts.

You mention make cuts as an afterthought, but that seems the key to the puzzle to me.

First we accept your assumptions that Bain replaced $X of previous ownership's capital with $38 million of their own money and a mountain of debt.  Generally speaking, debt is cheaper than equity, so Bain's $38 million gets paid more per dollar than old ownership's $X did.  But junk bond financing is not cheap capital.  So if Bain did *not* affect revenue and costs *apart* from the financing side, old ownership was receiving a return on equity at least as high as junk bond yields.  That's a pretty good return on equity, isn't it?  Junk bond lenders know there's a pretty good chance they'll never see their principal again, and charge accordingly.

So the puzzle is why would old ownership, recieving a return higher than a junk bond yield, sell out?  My thinking is the answer is they weren't.  Bain had to have improved the cash flow from operations.  Possibly by cutting unprofitable operations and jobs.

In other news, I just heard on NPR that Bill Maher donated a million clams to a Democratic SuperPAC or PACs.

[Neil]

I knew a gut that got claptrap from a floozy.  Probably she was a Democrat.

Typo ruined joke. 

[CountDeMoney]

In other news, I just heard on NPR that Bill Maher donated a million clams to a Democratic SuperPAC or PACs.

Was that an NPR podcast from early March?  Because you're that far behind.

[Admiral Yi]

Was that an NPR podcast from early March?  Because you're that far behind.

If NPR mentioned it during today's broadcast, how does that joke work?

[CountDeMoney]

Was that an NPR podcast from early March?  Because you're that far behind.

If NPR mentioned it during today's broadcast, how does that joke work?

If you pay as much attention to the radio like you do to TV and movies, you probably just dreamt it, that's all.

[CountDeMoney]

A metrosexual black Abe Lincoln.  How could that NOT work?

GOP super PAC rejects plan to invoke Jeremiah Wright

The founder of a conservative super PAC has rejected a proposal that would link President Obama to his former pastor Jeremiah Wright, a line of attack that the GOP rejected in 2008 and one which presumptive Republican presidential nominee Mitt Romney repudiated today.

"It reflects an approach to politics that Mr. Ricketts rejects and it was never a plan to be accepted but only a suggestion for a direction to take," said Brian Baker, president of the Ending Spending Action Fund, who said the proposal was "one of several submitted ... by third-party vendors."

The New York Times got hold of the proposed campaign playbook, submitted by Republican strategists to TD Ameritrade founder Joe Ricketts, who has become increasingly involved in GOP politics of late.

The plan, called "The Defeat of Barack Hussein Obama: The Ricketts Plan to End His Spending for Good," would "do exactly what John McCain would not let us do," the strategists write, according to the Times report — tie Obama to Wright's controversial sermons.

Fred Davis, the ad man behind "I am not a witch," oversaw the proposal. Davis worked on the McCain campaign and argued in favor of a Wright ad then. 

Strategic Perception, Davis' firm, said in a statement that the "the Ricketts family, never approved" the proposal "and nothing has happened on it since the presentation."

In an interview with TownHall.com, Romney also rejected the idea.

"I repudiate the effort by that PAC to promote an ad strategy of the nature they've described," Romney said. "I think what we've seen so far from the Obama campaign is a campaign of character assassination. I hope that isn't the course of this campaign. So in regards to that PAC, I repudiate what they're thinking about." (Asked later which Obama attacks he was referring to, Romney pointed to the president's Bain Capital ads.)

Earlier, Romney campaign manager Matt Rhoades said "we repudiate any efforts" to run "a campaign of character assassination." But he did not specifically condemn the PAC. That response was not enough for Obama's campaign; Obama campaign manager Jim Messina said in a statement that Romney "has fallen short of the standard that John McCain set, reacting tepidly in a moment that required moral leadership."

In his statement, Baker said that "Mr. Ricketts intends to work hard to help elect a President this fall who shares his commitment to economic responsibility, but his efforts are and will continue to be focused entirely on questions of fiscal policy, not attacks that seek to divide us socially or culturally."

House Speaker John Boehner (R-Ohio) also weighed in, telling reporters, "I don't know what these other people will do or why they do it. All I know is the American people vote with their wallets."

The playbook prepared for Ricketts includes footage for a five-minute film called "Next," which includes footage of Wright declaring "God Damn America" and calls the pastor "the inspiration for Obama's campaign." Over an image of the two together, the ad declares that there's "simply a fundamental difference between his view of America and ours."

The document refers to Obama derisively as a "metrosexual black Abe Lincoln."

Wright was pastor of the president's Chicago church, Trinity United Church of Christ, and served a largely ceremonial role on Obama's 2008 African American Religious Leadership Committee until some of his more incendiary remarks came to light. Obama disavowed Wright's words in a March 2008 speech calling the sermons "a profoundly distorted view of this country."

McCain's campaign cut a Wright-themed ad in 2008 that never aired; the candidate decided he did not want to touch the subject. (The ad footage was later obtained by ABC News.)

"I remain proud of our campaign and proud of what we were able to accomplish," McCain said today. "I made my decision. I stand by that decision. The Romney campaign has repudiated that kind of strategy. It seems to me the matter is closed."

He laughed off descriptions in the playbook from some of his 2008 advisers that he was "crusty" and "confused" during the campaign. "It is what it is. My life has moved on. I moved on after, it's over. I enjoy being in the Senate. There's no reason for me to hold any grudges. It's a way for political operatives to continue to make money," he said.

Obama remains personally very well-liked. Republicans have shied away from attacks on his character, focusing instead on who best can handle the economy.

The proposal obtained by the Times suggests hiring an "extremely literate conservative African-American" to shield Republicans from accusations of race-baiting, the Times report says. (That same spokesman would claim that Obama presented himself, falsely, as a "metrosexual black Abe Lincoln.")

The $10 million plan would include television and newspaper ads as well as outdoor advertisements and aerial banners, according to the Times report.

Attacks on Obama using Wright did air in the 2008 campaign.

Late in the 2008 race, an outside group did spend millions on an ad in battleground states tying Obama to the controversial pastor. The North Carolina GOP also aired a TV ad attacking Obama for his past association with Wright, over McCain's objections.

Pollster Whit Ayres and Internet consultant Becki Donatelli, named as recommended hires for the project in the playbook, said they had nothing to do with the proposal.

Ricketts's super PAC was a player in state Sen. Deb Fischer's surprise victory in Tuesday's Nebraska Republican Senate primary. His son, Pete Ricketts, is a member of the Republican National Committee from Nebraska who ran against Sen. Ben Nelson (D) in 2006. His daughter, Laura Ricketts, is co-owner of the Chicago Cubs — making her the first openly gay owner of a Major League Baseball team. She is a major fundraiser to Obama's reelection campaign.

[The Minsky Moment]

But more typically in this model, the business is simply run to generate cash to service huge debt loads, the profitability model is based on leverage, not innovation and investment (which siphons off precious cash), and the mangagement acumen involves putting in managers who may lack industry experience but know how to read an expense line and make cuts.

You mention make cuts as an afterthought, but that seems the key to the puzzle to me.

First we accept your assumptions that Bain replaced $X of previous ownership's capital with $38 million of their own money and a mountain of debt.  Generally speaking, debt is cheaper than equity, so Bain's $38 million gets paid more per dollar than old ownership's $X did.  But junk bond financing is not cheap capital.  So if Bain did *not* affect revenue and costs *apart* from the financing side, old ownership was receiving a return on equity at least as high as junk bond yields.  That's a pretty good return on equity, isn't it?  Junk bond lenders know there's a pretty good chance they'll never see their principal again, and charge accordingly.

So the puzzle is why would old ownership, recieving a return higher than a junk bond yield, sell out?  My thinking is the answer is they weren't.  Bain had to have improved the cash flow from operations.  Possibly by cutting unprofitable operations and jobs.

First, junk bond financing isn't always that expensive depending on credit conditions.  That was Milken's great contribution.  Even now junk yields are around 5% or so; I guarantee you any PE worth its salt targets ROE well above that.

Second, getting access to cheap financing is arguably in itself one the biggest competitive advantages of the PE industry.  The slick suits from Boston, NY, SF that do these dozens of these deals are going to have an easier time arranging mezzanine facilities than some old-time steel execs in Gary or Kansas City.

Third, typically the long-hanging fruit in terms of cuts is CAPEX and R&D.  In the short run, these can be cut without impacting the top line, but the cuts immediately free up cash flow from financing.  In the long run growth prospects are hurt, but since the usual exit target is within 5 years, that doesn't really matter.  To be fair to Bain/Romney, it's not clear they took that road with GS -- they seemed to have made some effort to invest and modernize.

Fourth, one person's "unprofitable operations" is another's opportunity.  Sometimes a situation can't be fixed, but sometimes it can with enough effort and creativity.  But the LBO model tends to work against the latter because the constant need to meet interest payments tends to emphasize cutting bait over doubling down and fixing the problem.

[alfred russel]

Another aspect of this is by loading the companies full of debt you reduce taxable income (due to the interest payments).

[derspiess]

Was that an NPR podcast from early March?  Because you're that far behind.

If NPR mentioned it during today's broadcast, how does that joke work?

It is old news.  Broke about the same time as the Rush Limbaugh-Sandra Fluke controversy.

[CountDeMoney]

IIRC, he had originally cut the check to Obama's campaign directly, who politely refused it.  Mentioned it several episodes back.

[Ed Anger]

One of the pro GOP groups is running a 'look at the scum supporting the nigger' ad with maher included in it.

[Admiral Yi]

What's CAPEX?

Not sure how much money a minimill spends on R&D Joan.

[Syt]

Capital expenses.

[katmai]

Stay Classy Arizona GOP

Arizona elections chief seeks proof of Obama's citizenship
ReutersBy Tim Gaynor | Reuters – 1 hr 56 mins ago

 
(Reuters) - Arizona's secretary of state said Friday he had asked officials in Hawaii to verify that Barack Obama was born in their state in order for the president's name to appear on the November ballot in Arizona.

Ken Bennett, who is Republican presidential candidate Mitt Romney's campaign co-chairman in Arizona, said he made the request on behalf of a constituent.

Earlier this year, hardline Arizona sheriff Joe Arpaio announced that an investigation by his office had found that Obama's birth certificate was a forgery.

Most Republican critics of Obama have given up pushing widely discredited long-running allegations that he was not born in the United States.

Bennett said he is attempting to confirm that Obama's name can appear on Arizona's presidential ballot, the Arizona Republic newspaper said.

While confirming on Friday that he had made the request, Bennett said he did not buy into the "birther" belief.

"First, I have been on the record since 2009 that I believe the president was born in Hawaii. I am not a 'birther,'" he said in a statement.

"At the request of a constituent, I asked the state of Hawaii for a for a verification in lieu of certified copy. We're merely asking them to officially confirm they have the president's birth certificate in their possession and are awaiting their response," he said.

The White House has denied repeated claims that Obama was not born in the United States.

In April 2011, Obama released a longer version of his birth certificate to try to put to rest speculation that he was not born in the country as required by the U.S. Constitution to become president.

The Arizona Republic said Bennett made the request about eight weeks ago and communicated with Hawaii officials as early as four weeks ago.

Bennett's office did not immediately return calls seeking further comment on Friday.

In March, Maricopa County Sheriff Arpaio declared Obama's birth certificate a forgery following an investigation by a volunteer posse, acting at the request of conservative Tea Party activists in the Phoenix valley.

The move reviving the birther controversy by Bennett - who is the state's elections chief - met with a weary response from local Democrats on Friday.

"Tea Party Republicans are at it again," Luis Heredia, the executive director of the Arizona Democratic Party, told Reuters.

"By catering to right-wing extremists, Bennett is trying to score cheap political points while sacrificing common sense. Arizona deserves better. It is time to move our state forward."

[CountDeMoney]

Man, I bet Hawaii is fucking glad to be as far away from the rest of us as they are.