7/31/2019 Rolling Stone Article Rebuttal

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This note is a rebuttal of sorts to the September 2012 Rolling Stone article by Matt Taibbi entitled, Greed

and Debt: The True Story of Mitt Romney and Bain Capital. With the Presidential election just days away,

it feels important to put my message out there, even if I only reach a few people. Please feel free to

respond directly if youd like. My email address is kevincullen67@gmail.com. Thanks. Kevin Cullen,

Pelham Manor, NY.

http://www.rollingstone.com/politics/news/greed-and-debt-the-true-story-of-mitt-romney-and-bain-

capital-20120829

I have been in the corporate lending business and have made many loans to portfolio companies ofprivate equity firms like the ones mentioned by Matt Taibbis article. While I can certainly understandTaibbis perspective and the perspective of anyone who may have been negatively impacted byexcessive leverage at any one of their portfolio companies, I can also tell you that most successful privateequity-led LBOs (defined by absolute returns to equity investors) arent based on the sort of financialengineering that has garnered some firms some bad press in recent years. The real home runinvestments are those based on value creation through operational improvements and by assembling andincentivizing strong management teams to build companies that will be profitable (and increase in value)over a long-term investment horizon. Do private equity firms sometimes walk away from portfolio

companies when they realize their investment is worthless? Sure. Do I blame them? Not at all they aresimply fulfilling their fiduciary duty to act in the best interests of their limited partnership investors (many ofwhom are working-class Americans- teachers, firefighters, and other public employees via the pensionfunds that support their well-deserved retirements).

The lexicon of value creation in corporate world consolidation of fragmented industries, synergies,outsourcing, off-shoring, redundancy elimination, automation is the same regardless of whether there isa private equity firm involved or not. While some of these do focus on generating new revenues streams,unfortunately, most of these strategies involve creating more efficient companies, and reducing costs byeliminating jobs. This creative destruction sure doesnt sound very nice but it is simply Adam Smithsinvisible hand or economic Darwinism at work, a phenomenon that is played out every day in our freemarket economy where there is competition for scarce resources. Strong companies with a sustainablecompetitive advantage will survive and thrive; those that lack a sustainable competitive advantage go

bankrupt or are acquired by stronger companies. I think all economists will agree that this cullingprocess happens with or without private equity firms private equity firms simply accelerate the pace ofchange/evolution. Finally, I think it is important to point out that the best private equity firms, like the bestnon-sponsor owned firms, not only cut costs but also invest in (and create jobs relating to) the highest-potential ideas for creating core value.In terms of placing blame for the dire economic circumstances that the US faces today, as a registeredRepublican it seems easy for me to point a finger at Obamas policies but, in truth, I think it is equallyeasy to blame the Bush administration for creating the mess that Obama inherited. That said, I think it isfar more complicated than any individual administration, policy/program or law (i.e., NAFTA, Obamacare,TARP, Dodd-Frank, Repeal of Glass-Steagall), government agency (i.e., Fannie and Freddie),corporation (i.e., Lehman, AIG, Countrywide, Goldman Sachs) or person - theres a lot of blame to goaround. As a country, weve been spending far too much for far too long on foreign wars we couldnt

afford, on entitlements, public and municipal pensions that arent sustainable and on housing and studentloan finance that may ultimately bankrupt our country. As consumers, many stretched to buy homes atinflated prices, financing the purchase price with far too much debt and many others have depleted theirhome equity built over time by borrowing under home equity lines of credit to buy the latest flat screen TV,as an example. The other thing to point to, which isnt anyones fault per se, is that todays workforcesupports an ever larger number of retirees per workforce participant. This trend has worsened as peopleare living longer but will continue to get worse as wave after wave of Baby Boomers continues to retire(the first Baby Boomers, who represents roughly a quarter of the US population, turned 65 in January of2011).

mailto:kevincullen67@gmail.commailto:kevincullen67@gmail.comhttp://www.rollingstone.com/politics/news/greed-and-debt-the-true-story-of-mitt-romney-and-bain-capital-20120829http://www.rollingstone.com/politics/news/greed-and-debt-the-true-story-of-mitt-romney-and-bain-capital-20120829http://www.rollingstone.com/politics/news/greed-and-debt-the-true-story-of-mitt-romney-and-bain-capital-20120829http://www.rollingstone.com/politics/news/greed-and-debt-the-true-story-of-mitt-romney-and-bain-capital-20120829http://www.rollingstone.com/politics/news/greed-and-debt-the-true-story-of-mitt-romney-and-bain-capital-20120829mailto:kevincullen67@gmail.com

7/31/2019 Rolling Stone Article Rebuttal

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Though I probably read the Cliff Notes version of this book back in school, I recently noted in an onlinereference to the concept of Slowly, then all at once, which is how Ernest Hemingway explains goingbroke in his classic novel The Sun Also Rises. Thats exactly what is happening in our country wereslowly going bankrupt and it could be one day soon when investors stop buying our vaunted treasury debt(at which point well literally be bankrupt, pretty quickly). At some point soon (and sooner than most think),were going to have to let our economy (and spending) settle at some sort of equilibrium by renegotiatingour obligations/promises to a number of internal/domestic constituents. It isnt surprising that we dont seethat idea on the Democrat or Republican platform because it isnt a popular stance, but thats the realityfolks.

This mini-rant must sound like I am really down on the prospects of United States as a whole. Nothingcould be further from the truth. While the national debt seems high, relative to GDP, it has been higher inthe not-too-distant past. Following World War II, the ratio Debt to GDP reached 117.5% compared to thecurrent ratio of just over100%. So weve been here before. The difference this time is that in the periodfollowing WWII, our manufacturing capacity was intact - unlike the rest of the worlds industrial base,which laid in ruins and gave the United States a virtual monopoly on production and supply of the goodsneeded to rebuild. This set the stage for unprecedented growth in GDP through the early 1950s.Obviously our GDP growth prospects today arent quite as robust, so growing into the debt wont be aseasy, but it the only rationale approach one need only look at the results of recent austerity measuresand higher taxes imposed on the economies of Greece and Spain to see that they are counterproductiveto the goal of becoming solvent as a country. The good news for our growth prospects is that the relativebenefit of off-shoring (moving production overseas to cut labor costs) has largely disappeared due towage growth in overseas markets, a fact which is fueling a rebirth in US manufacturing. This shift,together with the unrelenting pursuit of technological innovation is triggering yet another rebirth of theAmerican dream. Evidence shows that companies in the United States have never been healthier from abalance sheet standpoint with most having repaid a significant amount of debt since 2008 and haveunprecedented amounts of cash sitting on their balance sheets gathering dust. By-in-large, mostcompanies have deftly reduced their cost-structures to better withstand the great recession (hence thecontinued elevated levels of unemployment) and are well-positioned to expand and capitalize on theircurrent strength. Now the only challenge remains is to create an environment where we can convincecorporations to open their purse strings and spend that cash to increase capacity, to make acquisitions,hire additional workers and to otherwise invest for the future. Once (or if) that happens, we could be in foranother boom, the likes of which we havent seen since the 1950s or not.

In terms of the Obama versus Romney question, I think our choice really comes down to answering asimply question. Who has the business acumen, leadership and backbone to deal with our challenges,fiscal and otherwise? I think the answer is clear but, like I said, its complicated.