Barack Obama's Reelection Campaign Zeros in on Private Equity, Despite Potential Fiscal Pitfalls

During the GOP Primary Newt Gingrich and Rick Santorum tried to paint Mitt Romney’s success at Bain Capital as greedy. And now Team Obama has taken that tack as the presumptive nominee moves closer to clinching the GOP nod.

In fact during the past week, the president has tried to portray Mr. Romney as a vulture capitalist, according to the Washington Post. But it remains unclear whether this is a wise move. During the primary, Mr. Gingrich’s attacks on Romney were looked upon as an attack on capitalism. It seems that the former Speaker of the House shot himself in the foot, alienating himself from the conservative element of the Republican Party.

But Mr. Obama may also be on a slippery slope even though he is trying to appeal to the liberal base of the Democratic Party. This maneuver is considered to be a play to ensure the base turns out in November. However, in attacking private equity, Obama runs the risk of alienating the financial support of the Party’s investor class. That would be the so-called one percent who work at Wall Street firms, some of which are players in the private equity game.

Beyond the political implications, a bigger question is the role that private equity plays in the markets. In particular, private equity money is involved in many merger and acquisition deals where leverage (that is debt) is a key component. The common term for these deals is leveraged buyouts.

Further, these deals point to the fact that free market capitalism is built not only on success, but also failure. And that’s a critical concern. This is so because the failures often mean companies will go under and people will lose jobs. And one of the key concerns this election season is jobs.

The fact that the unemployment rate appears to be locked in at 8% or so does not bode well for Mr. Obama’s re-election bid. The fact that the $787 billion stimulus package hammered out by Congress and the President was intended to spur job growth is not helping his cause. Of course, the effectiveness of that play remains a hot button of political debate.

But the bigger question is who picks the “winners” and the “losers” in a free market system. The president’s attacks on Romney’s success at Bain capital may very well backfire. But Mr. Romney has yet to specify how his role as a player in the private equity frontier led to economic growth and job creation.

Whether or not Team Obama’s tack will deflect attention from his administration’s poor record in creating jobs remains to be seen. Ultimately the Post story correctly notes that “the struggle to frame a moral argument about private equity could affect the vote in November.” We can expect to be hearing a lot more about this industry in the coming months.

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Kyle Colona is a New York-based freelance writer and a Feature Writer for CompliancEx and the Wall Street Job Report. He has an extensive background in legal and regulatory affairs in the financial services sector and his work has appeared in a variety of print and on-line publications as well as his blog, “Colonaville.” You can find him on linkedin.

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