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YOUR BOTTOM LINE
Is Bain Helping or Hurting Romney?; Job Prospects Grim for Recent College Grads; Facebook's IPO Mistakes
Aired May 26, 2012 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTINE ROMANS, HOST: The haves versus the want-mores. It's at the heart of this presidential election. Good morning, everyone, I'm Christine Romans. Forget campaign cash, the new politics of money is about what you think about the wealthy.
When it comes to jobs, President Obama wants you to focus on Governor Romney's time at Bain Capital, a private equity firm. But what is private equity? It's big investors like pension funds, university endowments, and wealthy people who pool their money together to invest in anything that can make them a profit. Often they zero in on failing companies to fix them or break them apart or sell them.
And as this Obama campaign ad shows, that can mean layoffs.
(BEGIN VIDEO CLIP)
JOHN WISEMAN: A paying job that you can support and raise a family on is hugely important.
UNIDENTIFIED MALE: That stopped with the sale of the plant to Bain Capital.
UNIDENTIFIED FEMALE: I thought that I was going to retire from there. I had about two-and-a-half years to go. I was suddenly 60 years old. I had no health care.
(END VIDEO CLIP)
ROMANS: You're going to be seeing a lot of that. No surprise Governor Romney has a different take. He claims to have created 100,000 jobs, at least. These are the investments Bain made in Staples, Sport Authority, Domino's, there's a lot of others. These are their success stories.
And Romney is counting jobs created even after Bain was out of the picture, because that's what private equity does, it comes in, cleans up a company, sells it, or moves it forward.
It's hard to measure though how many jobs Bain and Romney created in their private equity investment, it's from 1984 to 1999. Bain tells us they don't record payroll numbers for deals and private equity is private. Once a company is no longer publicly listed, the books are closed.
But today, with a painfully slow recovery, should we even be talking at all about Bain?
(BEGIN VIDEO CLIP)
NEWT GINGRICH (R), FORMER PRESIDENTIAL CANDIDATE: How can you be the president with the worst unemployment record since the Great Depression, the longest period of deep unemployment since the 1930s, and pick a fight over job creation?
(END VIDEO CLIP)
ROMANS: Will Cain is a CNN contributor who has been jumping off of his seat for the past minute.
WILL CAIN, CNN CONTRIBUTOR: I'm so excited to talk about this.
ROMANS: As a conservative are you happy to see this election focused on this record as opposed to the president's record on jobs?
CAIN: Do I look happy? I am thrilled to have this conversation over Bain. I agree with the president 100 percent. This is not a distraction. This is what the election is about, because this is nothing short of an indictment of profits and capitalism. That is the truth, Christine.
ROMANS: All right. Roland Martin is a political analyst. Roland, we talked about the anger of the middle class, it's because of numbers like these we're about to show you, the Congressional Budget Office found income for the top 1 percent jumped 275 percent between 1979 and 2007. The middle class saw income grow by just 40 percent during that same time.
When the president chooses to bring his jobs argument back to Bain, Republicans claim what he really wants you to hear is that these numbers show guys like Romney have rigged the game against the middle class.
ROLAND MARTIN, CNN POLITICAL ANALYST: And of course he wants to have that conversation, because what Will also does not want to admit is when you talk about a lot of these private equity companies, there's a difference between folks who actually want to buy a company, build it up, invest it, grow it, as opposed to go in, pile on lots of debt...
ROMANS: Now wait a minute, I want to go back -- Roland, hold on. Let's go back to the steel mill, though, the president's ad about the steel mill. Steel, I mean, it wasn't really that much of a bet that steel was going to go out of -- I mean, steel and paper are the two big companies that he gets nailed about.
Those were failing enterprises, many of them. And steel and paper had a really bad 20 years. Not because of Bain, way before Bain.
MARTIN: But -- no, no, I understand that. But, look, I can look at any number of companies. What I'm saying is the average person out there, what they're looking at is when these guys come in, and how they do business has a direct impact on somebody who is just a regular worker, who's trying to feed their family, pay their mortgage, and send their kid to college.
And so I get the Wall Street argument Will wants to make. But when you're one of those folks who they put out of a job, trust me, you're not sitting here going, I'll fatten your pockets but I'm the one who don't have a job.
CAIN: All right. I get it. I get your argument, too, Roland, because it has been made about 100 times now that you'd like to argue that private equity and Bain Capital in particular has made money magically somehow by destroying companies.
And you synthesize that by suggesting what they do...
MARTIN: That's not what I said.
CAIN: ... is they go in -- hold on. They go in and they load companies up with debt, they fire employees, and suck it out of the profits. So you have to answer one simple question if that is your premise. If Bain Capital did that, if that was their modus operandi, why have they been in business since 1987? No debt lender in the world would continue to fund a guy like that.
MARTIN: First of all, we are looking at a variety of companies in terms of how they operate. And again...
CAIN: We're talking about Bain.
MARTIN: ... it's what exactly -- no, no, but here's the deal, though. OK. We're talking about what he did in terms of various companies. And what the president is saying, which is a valid argument, is that when it has been a problem, it is open for criticism, it is open for interpretation, it is open for analysis.
And so -- (INAUDIBLE) what Mitt Romney is going to have to understand is, when you're the president of the United States, you don't run a private equity firm. This is a totally different deal. It's totally public versus being private.
MARTIN: It's a whole different job description.
ROMANS: Let me bring in "Joe the vice president" crossing "Joe the plumber," when the vice president, Joe Biden, weighed in on the Bain issue this week. Listen, guys.
(BEGIN VIDEO CLIP)
JOE BIDEN, VICE PRESIDENT: Your job as president is to promote the common good. That doesn't mean the private equity guys are bad guys. They're not. But that no more qualifies you to be president than being a plumber.
(END VIDEO CLIP) ROMANS: All right. Will, private equity firms like Bain, they're not about creating profits. They're about creating -- or not about creating jobs, rather, they're about creating profits. That's what private enterprise does and then the theory I guess is that at the end of that there are jobs that are created.
CAIN: It's more than a theory.
ROMANS: Why is Romney's time at Bain Capital relevant to this election?
MARTIN: Well, first of all, let me explain this also. The road to hell is paved with good intentions. OK. Jobs are not the intention of private equity. Profits are. And jobs are the by-product. Why does that qualify Mitt Romney to be president? Well, if you listen to President Barack Obama, and then we'll use Joe Biden to back him up, what does a president do?
President Obama said he creates an equitable tax structure, he creates clusters for manufacturing bases. It's a laundry list of things that no human being is qualified to do when you lay it out like that.
However a man that has played in the private market successfully to net job growth I think is pretty qualified to go in and get the economy on the right track.
ROMANS: I'm going to ask you each one question, and I want a succinct answer. Roland, what kind of capitalist do you think these two candidates are? How is their capitalism different?
MARTIN: I would say that Mitt Romney is a 100 percent red meat-eating capitalist, whereas President Obama, as the vice president said, looks at it from the common good, say what -- how can I be concerned with a person at the top, but also the person in the middle, and the bottom, because you want to bring them up.
CAIN: I unfortunately am not as committed as Roland is to believing that Mitt Romney is a dedicated adherent to pure market capitalism. But I think he's better than President Obama, because the answer to your question is I think he is at the very least a social democrat in the European form, which is...
ROMANS: Really? The president.
CAIN: Which just means you have a very tenuous relationship with capitalism.
ROMANS: Hmm. That's as close as you can get to actually saying...
ROMANS: All right. All right. We're going to leave it there guys.
MARTIN: Those are called silly talking points.
CAIN: No, no, no, that's called understanding the ideologies. MARTIN: "Social democrat," "European model." What are you going to say next, he wears Armani all day?
CAIN: That's you, Roland. We all know that's you in this family.
ROMANS: Oh man. All right, guys, have a great weekend.
MARTIN: No, actually, I wear Sean John, American company.
ROMANS: OK. You guys keep fighting it out during the break, because I've got something for the college kids that's really important here. Coming up in YOUR BOTTOM LINE, just what does that diploma get you? Some harsh advice to the class of 2012 and to America from a former labor secretary.
And Governor Romney says American students are getting a third-world education, calling it the civil rights issue of our time. An issue largely absent from this campaign finally surfaces.
ROMANS: How's this for graduation advice. It's the graduation address that won't be given courtesy of Robert Reich. "Members of the class of 2012, as a former secretary of labor and current professor, I feel I owe it to you to tell you the truth about the pieces of parchment you're picking up today. You're..." well, you can see the word right there on the screen, or at least two letters of it.
I sat down with Robert Reich earlier. He's professor of public policy at the University of California at Berkeley. He was secretary of labor in the Clinton administration. He has written 13 books including a new e-book, "Beyond Outrage."
ROBERT REICH, PROF. OF PUBLIC POLICY, UNIVERSITY OF CALIFORNIA, BERKELEY: Well, I would never say that word publicly, and I certainly would not give that kind of commencement address. I've given several this spring. But I did want to be realistic in print with students. Because I don't think they're getting the actual truth.
ROMANS: I think, you know, you're right. And I've been called by my own staff a "Debbie downer" a couple of times for pointing out to kids that this is tough. I mean, I don't know what's worse, starting college in the heat of a financial crisis and saying, boy am I glad to be in college right now and not in the real word, and graduating after a financial crisis and the opportunities aren't much better.
REICH: Well, the opportunities are certainly better than people who do not have a four-year college degree. And your earnings are still at least so far about 70 percent better than people who just have a high school degree.
So, look, a college degree is still a good investment but it's becoming less and less of a good investment. And the costs of borrowing for college loans and the amount of college loans keep on going up.
ROMANS: Let's talk about that a little bit, because tuition at a public four-year college has risen 368 percent in the last 30 years and students who take out loans, they graduate with an average $22,000 of debt.
Now, if there's a job on the other end, you can pay off that debt and you can sort of absorb that tuition inflation. When there's not a job on the other end, that's where it really bites. The cost of that investment becomes so difficult to bear.
REICH: Yes. It's not just whether there's a job. There is going to be a job. But what we are discovering is that the jobs are paying, even for college graduates, are paying less than they paid adjusted for inflation 10 years ago.
In fact, if you look at the Economic Policy Institute, just did a survey, just released a study showing that the typical college graduate today, the young college graduate, age 21 to 24 years old, is earning, adjusted for inflation, about 5 percent less, assuming he or she has a job, than the college graduate -- the young college graduate was earning was earning in 2000 -- in the year 2000.
And if that trend continues, and it may not continue, but if that trend continues, and also the trend toward increasing college costs, and increasing costs of loans for college continues, well, at some point, college is not going to become a very good deal.
ROMANS: All right. Mr. Secretary, thank you for joining us.
ROMANS: All right. Mitt Romney has made this presidential election about the economy, even vowing to cut the jobless rate to 6 percent. This week, Romney tackled education, a critical issue that has barely surfaced in the presidential debates or on the campaign trail.
He took aim at the president, charging that under the current White House, American students are getting a third world education.
(BEGIN VIDEO CLIP)
MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: But millions of our kids are getting a third world education. And America's minority children suffer the most. This is the civil rights issue of our era. And it's the greatest challenge of our time.
President Obama has made his choice. And I made mine. As president, I'll be a champion of real education reform in this country.
(END VIDEO CLIP)
ROMANS: Romney proposed a voucher-style system that would significantly change the public school system and bring back the debate over school choice. Under his proposal, low-income and disabled students would be able to use federal money to attend public schools, charter schools, and in some cases, private schools.
Federal funds would also be used for tutoring or digital courses. The Obama camp was swift to react saying the budget Romney signed into law when he was governor of Massachusetts actually cost 14,500 teachers, librarians, and school police officers their jobs.
If we look at Romney's record on education, it's changing. He once wanted to get rid of the Department of Education, but changed his mind when he ran as a presidential candidate in 2007.
As a candidate in 2007 he also supported No Child Left Behind, but is now against it. He's also said President Obama's Race to the Top competition makes sense when it comes to student testing and teacher evaluation.
All right, coming up next, status update on the Facebook IPO. We knew it was complicated...
ROMANS: The most powerful woman in tech, speaking to the smartest budding minds in business at the Harvard Business School commencement this week. And what did Sheryl Sandberg say about that Facebook IPO fiasco? Not much. She told the graduates, though, to keep in touch via Facebook, of course.
(BEGIN VIDEO CLIP)
SHERYL SANDBERG, CHIEF OPERATING OFFICER, FACEBOOK: We're public now so can you click on an ad or two while you're there?
(END VIDEO CLIP)
ROMANS: Ha. Here we are, six trading days under its belt, still talking about Facebook's awful debut. The story takes a new twist every day. The latest that Morgan Stanley is under investigation by several regulators by giving the big guys an inside scoop before the IPO. That's the allegation, at least. Leaving you, the regular guy, out.
Joining me is the man making that accusation, Henry Blodget, CEO of Business Insider; and also Ali Velshi, host of "YOUR MONEY."
Hi, guys, we're still talking about Facebook. We are still talking about Facebook. What happened here? Illegal or unethical?
HENRY BLODGET, CEO, BUSINESS INSIDER: So am I the guy making this allegation?
ROMANS: One of the guys.
BLODGET: OK. So it is clearly grossly unfair. So far Morgan Stanley underwriters have said, look, we followed all the rules, but what happened here was that Facebook's business appears to have deteriorated in the second quarter. Facebook told the analyst at the underwriter and other underwriters about that. The analysts then cult their numbers all in sync.
And then word of that went out to big institutional investors, but not small investors. That's a very important piece of information that was not shared with all investors, which is the definition of selective dissemination, which is a problem.
ROMANS: Now how is this different, if it's true, how is it different from what got you in trouble in the securities industry?
BLODGET: Well, there are lot of echoes here.
ROMANS: Because rules have changed.
BLODGET: That's right. There are a lot echoes. And so I think the big picture of what's happening is when I got in trouble it was for analysts working very closely with bankers on tech IPOs in the 1990s. That was the practice in the industry at the time. After the dot-com bust, Eliot Spitzer came out, said, this is a silly rule, we've got to change this. Arguably he was right, it should be changed. And I was in the middle of that and got in trouble.
Similarly here the rule exists for a reason which is that the SEC didn't want individual investors to get research ahead of an IPO and then feel mislead by it, so they said research analysts can't say anything.
But the thing is, they can say stuff to big institutions as long as they say it verbally, if it's not in print.
ALI VELSHI, HOST, "YOUR MONEY": Right. This is the weirdness about it. Lots of people got phone calls. But in this world of 2012, you think if you have what we would think of as material information to your decision to invest, there has got to be some effective way of disseminating that.
And the average investor isn't smart enough to know that they have to somehow have access to someone to get that information, right? We're thinking this IPO is out there. All everyone is talking about.
ROMANS: But the press was reporting that revenue from computers was slowing, that people going to mobile phone devices. That's not even like rocket science. And that's clear.
BLODGET: Well, that's the key point. And Facebook will presumably say, look, we changed the prospectus. There's the line in the prospectus talking about how users are growing faster than revenue.
I read that line very closely. I'm a former analyst. It did not communicate to me that the second quarter was weaker than they had expected a week before and that numbers had come down.
ROMANS: IPOs are risky by definition. This is why not just anybody can go and buy an IPO like you can buy a lottery ticket. Because it isn't. This is for -- this is the professional... (CROSSTALK)
VELSHI: But the problem is, you can't get in on IPO price, but as we can see, you can certainly get in right after it. And what a lot of people advise is that we don't -- this doesn't normally happen. What happened here at Facebook is an unusual event.
VELSHI: Things can happen and if you let the dust settle a little bit, you may not get in on the price day one, but you'll find out if something went wrong. And lo and behold, something went wrong.
ROMANS: And several things.
VELSHI: By the way, this may have very little to do with whether or not Facebook is a good investment at some price.
ROMANS: Right. And in Silicon Valley there is a different view on all of this, because they're kind of laughing at us sort of, saying, come on, you don't make money on the first day or the second day. What are you people talking about?
So they're kind of having a different view of all of this. Who's the biggest loser in the end? Is it NASDAQ, is it Morgan Stanley, is it Facebook, or is it just the little guy who thought he was going to...
VELSHI: Who got in at 42 bucks.
ROMANS: Right, right. Who thought he was going to play with the big guys and really got hurt.
BLODGET: Well, fortunately folks haven't gotten that hurt yet. I think a lot of people did sell on the first day at a profit, and that's nice. Maybe the profit wasn't as big as they had hoped, but still, overnight money, that's good.
And the stock isn't down that much and Facebook's a very good company, so hopefully it works out fine in the end. But for right now there's egg on a lot of faces, from the underwriters to Facebook to, unfortunately, some investors.
ROMANS: All right. The one -- my takeaway about Facebook is if you don't know the log-in to your 401(k), please find out, because you should be...
VELSHI: You shouldn't be in IPOs.
ROMANS: Right. And you should be looking at your 401(k), your long- term investments and not get so crazy about -- for retail investors, about an IPO.
VELSHI: Unless it's for fun.
ROMANS: Henry Blodget, Ali Velshi, thanks, guys.
Coming up, it's Fleet Week in New York, and as we honor our nation's veterans this Memorial Day, we look at where the jobs are for the men and women coming home.
ROMANS: Our next story takes the "help wanted" sign to the next level. Some inspiration here for the men and women who have us served in Iraq and Afghanistan who are coming home.
ROMANS (voice-over): For Dave Devanzo, to find a job, all it took was a sign.
DAVE DEVANZO, U.S. NAVY (RET.): I'd had been driving past that Modern sign probably for, you know, before I moved out here 12 years ago, for probably about, you know, 18 years before that.
ROMANS: This billboard off I-95 outside of Philadelphia, construction equipment company Modern Group wants the hire people just like him, veterans. He retired from the Navy in August after 29 years.
DEVANZO: It was a bit of a shock I think for me. I put all the applications out, all the work I had done, put my feelers out there, and got little response, very little response. So I saw the sign out front, and I called the HR department, sent them my stuff, and the rest is history.
ROMANS: And that's what led him to a job as a shop technician here.
DEVANZO: I will tell you this, my first ever job interview, and I'm 47 years old right now, happened at Modern Group. So it was a change, definitely a change.
ROMANS: Dozens of applications poured in to Dave Griffith, Modern's president and CEO.
DAVID E. GRIFFITH, PRES. & CEO, MODERN GROUP LTD.: You can imagine the visibility that that sign gets.
ROMANS: He's hired 27 veterans and reservists from all branches of the military.
GRIFFITH: They tend to be more disciplined, more focused, more sensitive to the customer. I think there's a greater attention to detail from folks coming out of the military.
JASON BLAIR, U.S. NAVY (RET.): He has shown me quite a few things around here.
JERRY MILLER, U.S. NAVY (RET.): Yes, we've got to help each other out. You know, we're all on the same team. Inevitably our mission is to get the entire job done and keep this company rolling.
ROMANS: There's a huge push to hire more veterans. The unemployment rate for post-9/11 veterans has been steadily improving, 9.2 percent in April, but it's still higher than the national average.
Some 40 major U.S. companies have pledged more than 100,000 jobs to veterans by 2020, including Time Warner, the parent company of CNN. Already this year, 12,000-plus vets have been hired.
The fields that have been hiring veterans? Government, health care, tech, and manufacturing.
GRIFFITH: I feel very strongly as the CEO that our obligation is to honor that service. If we can do that in such a way that we can hire these young men and women and bring them on board and also do good for our company and our stakeholders, I can't imagine why I wouldn't do that.
DEVANZO: What we deal with in the military, it's nothing more than really a snapshot of society anyway. So coming here, working with these guys here, it's just -- I think it's a perfect transition.
ROMANS: Enjoy your Memorial Day weekend, everyone. My blog this week is about the healing housing market. Check it out for my advice on how to stage your home for sale. And did you know that mortgage rates are at record lows again? 3.78 percent.
We're on Facebook and Twitter, @CNNBottomLine. I'm @ChristineRomans on Twitter, and ChristineRomansCNN on Facebook.
Back now to "CNN SATURDAY" for the latest headlines. Have a great weekend, everyone.