Today, Stockman is reeling from a series of business failures and a $7.2 million fine to settle an SEC fraud case. His 25‐room mansion in Greenwich, Conn. (at 19,963 square feet, it’s bigger than Mount Vernon and Monticello combined), went on the market for $19.5 million. So, he is peddling another “shocking” new book, doubtless as bigheaded and unintelligible as the first one. Hoping to fool people twice, he dropped this nasty chapter about Mitt Romney and Bain Capital into Newsweek, complete with the obligatory snide references to “the top 1 percent” (and to be in this elite group, you needn’t own a $19.5 million home; earning $350,000 will do it). To hear Stockman tell it, Romney’s success is “all about the utter unfairness of windfall riches.”
Stockman’s message in this Newsweek preview depicts debt as evil and classifies changes in the ownership of troubled companies as inconsistent with “honest free enterprise.” He rehashes an old list of 77 Bain Capital deals that the Wall Street Journal acquired from Deutsche Bank in January 2012. Although this is old news, Stockman pretends to find it a “startling fact” that four of the better deals ended in bankruptcy after Romney left. But he names only two: Ampad and Stage Stores. As with General Motors, bankruptcy does not mean shutting down. Ampad still makes office products under the Esselte Corp (Pendeflex) umbrella, and Stage Stores still operates hundreds of stores under such names as Peebles.
What everyone needs to know about private‐equity firms is that they can make money only if they sell a company for more than they bought it. And they can sell a company for more than they bought it only if they have done something to increase its prospective value. Adding debt obviously reduces a company’s value — and therefore what it can be sold for — unless the debt is used to acquire assets the market expects the company to pay off. Stockman’s grumbling about Bain Capital’s (rare) use of “junk bonds” flunks freshman accounting and reeks of sour grapes. “Bain’s returns reputedly averaged more than 50 percent annually during this period, compared with 17 percent for S&P 500 stocks,” Stockman writes. In fact, Bain’s returns were even greater, averaging 50 to 80 percent, according to Stockman’s source. But these profits were ill‐gotten, Stockman claims. “Bain’s billions of profits were not rewards for capitalist creation, they were mainly windfalls collected from gambling in markets that were rigged to rise,” he writes. “I know this from 17 years of experience doing leveraged buyouts at one of the pioneering private‐equity houses, Blackstone, and then my own firm.”
Unlike Stockman’s defunct company, Bain did not just do “leveraged buyouts.” It also provided seed capital and management consulting to companies such as Staples. The second big difference is that Bain turned around most firms successfully, while Stockman had the opposite experience.
Anyone who believed Stockman’s gloomy 1986 book about how “Reaganomics failed,” or Greider’s book about how Stockmanomics failed, might easily have missed the 1985–1999 bull run. So did Stockman, apparently. After an uninspiring post‐political tour as director of dubious mergers and acquisitions at the defunct Salomon Brothers investment bank (which took him on tour among money managers as a political showpiece), Stockman then failed as a wheeler‐dealer with Blackstone.
Stockman “became known internally for hyping bad deals and arguing against investments championed by others,” Dan Primack reported in Fortune magazine. Primack explained further: