I enjoy Bill Maher, host of HBO’s weekly roundtable, Real Time with Bill Maher. Granted, I find his standup act magnificently unfunny. But he’s an entertaining guy who (usually) has interesting things to say about the world. His New Rules segment is often hilarious and his desire to bring together competing views for debate resonates with me. Being a fellow atheist, I particularly enjoy his witty – and very fierce – takedowns of organized religion. And I like the fact that he operates in fearless fashion, flying plenty close to the sun with his social commentary. His political incorrectness makes him appear to exist outside of the media mainstream. This is all very refreshing to me.
However, there are a number of things that have grown increasingly bothersome with Maher. First is the guy’s breathtaking arrogance. At first, I found this attribute charming. After all, it’s almost a prerequisite for agent provocateurs, which is very much what Maher strives to be. But watching him get annoyed at his audience for not laughing at his extremely unfunny jokes is annoying. If you ever disagree with him, you’re not only wrong but you’re stupid. And when his guests punch back at him, he clearly gets his feathers ruffled. It’s never fun when someone can dish it out but not take it back. Some self-effacement – or simple open-mindedness – would help immensely in Maher’s case.
Second is his intense partisanship. For someone who strikes me as perfectly capable of independent thought, he toes the liberal line with the best of them. In fact, I can’t think of a single issue where Maher deviates from the liberal playbook. Given his feistiness, it would be fun to watch him disagree with his own party from time to time. And I’m pretty sure it would add to his legitimacy as a commentator. Instead, the guy is a walking billboard for all causes liberal.
This is loosely related to my third gripe, which is that I lose significant love for the man when he takes on the financial topics of the day. Not only does he tend to speak with authority on topics about which he clearly knows very little (more on that later), but he exhibits a degree of hypocrisy that unfortunately has come to characterize much of Hollywood. That is, Maher spends a fair amount of time on his show demeaning wealth accumulation and lamenting the inequality that exists today. This most often involves wholesale bashing of everything tied to Wall Street as well as the obligatory complaint about how CEOs make multiples more than their average employees. In Maher’s case, this is coming from a single man with a net worth of $15-$25 million (per various Google estimates) who lives in a 6,000 square foot home in a 2.5-acre Beverly Hills compound. (I’d love to know what he makes relative to an HBO stagehand and whether he thinks that multiple is justified.) Ever the environmentalist, his financial hypocrisy is compounded by the fact that he owns two cars and – at least occasionally – flies private (as Ann Coulter cleverly pointed out on one of his shows).
As many liberals who haven’t made their fortunes in finance do, Maher implicitly draws a distinction between well-earned riches and ill-earned ones. Apparently, by their calculus, it’s perfectly cool for actors and comedians to make millions of dollars. It might also be OK if you make computers. Or are a politician. But if you work in finance and happen to have made a lot of money doing it, you are immediately assumed less worthy of your money. In their world, some types of income are better earned than others. Apparently, robbing disappointed moviegoers of $20+ (or $50+ in the case of Maher’s standup) and hours of their time in the quest of padding their own pockets is totally legit. But going to business school and becoming well-versed in the vagaries of corporate finance is not.
Maybe it’s cool in an aloof kind of way to willfully embrace their cognitive dissonance. Or maybe there’s an insecurity that belies their apparent doublethink, something Drew Carey once summed up nicely:
Hollywood people are filled with guilt: white guilt, liberal guilt, money guilt. They feel bad that they’re so rich, they feel they don’t work that much for all that money – and they don’t, for the amount of money they make.
Which brings me to the crux of my post. During his New Rules conclusion last week, Maher decided to take sanctimonious aim at Mitt Romney. As can be seen in the above clip, Maher attempted to take Romney to task for his moneymaking past at Bain Capital. Specifically, he seemed most concerned with how Romney made his money rather than the fact that he made any at all. Maher led off the diatribe with the following:
You know, venture capitalists are not creators. They’re businessmen who find weak companies and prey on them.
What Maher – and his staff of writers – did in this segment was demonstrate an ignorance of basic finance. It’s not just worrisome that Maher apparently gets paid to spread untruths. It’s also dangerous because I’m guessing that the many in his audience (which must number in the millions) took his statement as gospel and repeated it to their friends and coworkers, creating an echo chamber that spouts ignorance on the topic of venture capitalism.
By the way, I was already annoyed before we got to this point in his show. Previously in his New Rules segment, Maher featured Apple, Ford, and Disney as examples of companies started by people who created products, “something they made besides money”. This, according to Maher, stood in stark contrast to Romney and his Bain colleagues, whose professional goals in life are to perform the economic equivalent of rape and pillage. Let’s ignore the fact that Maher, as a comedian, also doesn’t make anything tangible for a living – and that 99.9% of all entrepreneurs are in the game to make money (Jobs, Ford, and Disney included) – and focus instead on the fundamental misunderstanding of venture capitalism that Maher displayed.
His first mistake was a knee-jerk one that many liberal pundits commit, which is to automatically assume that private equity is the manifestation of economic evil. In reality, private equity (broadly-defined) plays a critical role in capitalism. Not being an expert on the topic, I’ll defer instead to someone who is for a better explanation of private equity’s role. Below is a quote from Jonathan Macey, professor of corporate finance at Yale Law School, from a recent WSJ OpEd in which he lamented the attacks on private equity in the Republican primaries:
This is anticapitalist claptrap. Private-equity firms make significant investments in companies, mainly U.S. companies. Most of their investments are in companies that underperform industry peers. Frequently these firms are on the brink of failure. Because private-equity firms are, by definition, equity investors, they make money only if they improve the performance of their companies. Private equity is last in line to be paid in case of insolvency. Private-equity firms don’t make a profit unless their companies can meet their obligations to workers and other creditors. The companies in which private-equity investors are able to turn a profit generally grow, rather than shrink. This is because the preferred “exit strategy” by which private-equity firms profit is to take the private companies in which they invest and enable them to go public and sell shares that will help the company grow even stronger. As for turnaround success stories, Continental Airlines, Orbitz and Snapple have all benefitted at some time from private-equity investment.
Maher’s second mistake lay in his failure to understand what it means to be a venture capitalist. By labeling Romney and his colleagues as venture capitalists, Maher conflated venture capitalism with private equity writ large. In reality, venture capitalism is a subset of private equity in the same way that a journalist belongs to the broader category of “writer”. Included under the umbrella of private equity are several strategies, including leveraged buyouts (“LBOs”), distressed investing, growth (or acceleration) capital, and venture capital. To give Maher and his liberal peers the benefit of the doubt, we can assume that the private equity practice they disdain is the much-maligned LBO. Among other things, the practice involves using a company’s assets as collateral to borrow large sums of money in order to effect a buyout. Once in control, private equity firms generally seek to improve the financial performance of the acquired company, which often includes significant restructuring as companies rationalize their business models. This can involve the shutdown of entire business units and the loss of jobs. Some might call this callous and unfair. Others might say such creative destruction forces companies to adapt or die in the face of escalating competition, leaving those left standing much better suited for survival. Whatever the case, automatically assuming that all such transactions are bad for society is intellectually lazy. LBOs can have outcomes both good (Harley-Davidson, Viacom) and bad (Regal Cinemas, Federated Department Stores). And, sadly, it does allow room for certain financial reengineering that can lead to ill-gotten gains for some. But the practice plays a necessary role in capitalism. If it didn’t, it wouldn’t exist, for capitalism is among the most lethal and efficient self-correcting forces on the planet.
But let’s chat more about what it is that venture capitalism actually does. In a nutshell, it provides young, cash-strapped companies with the funding needed to realize their visions. So while they might not create anything tangible per se, venture capitalists most certainly provide the funding needed for companies to go out and make things. Say, for example, a young programming whizkid (we’ll call him Mark) comes up with an idea to revolutionize social networking and needs money to support his new website. Mark might go to a venture capital firm, someone like Accel Partners, and pitch his idea with the hope that it likes what he has to say and is willing to back him. Maybe Accel gives the young Mark $12 million to make his dream a reality in exchange for an equity stake in his venture. And maybe, seven years later, his idea becomes a $100 billion IPO that sees both Mark and Accel grow fabulously rich. That, my friends, is the most successful venture capital story ever told.
Funnily enough, some of Maher’s own examples help refute his argument. In its early days, Apple benefited greatly from the funding provided by venture capital firm Sequoia Capital (whose credits also include companies like Google, Electronic Arts, Funny or Die, LinkedIn, and YouTube, to name a few). Walt Disney was able to cobble together enough friends and family money to form the company that would go on to bring us Mickey Mouse and Snow White. While Disney didn’t benefit directly from venture capitalism in its early days, the company did come to appreciate the beneficence of the practice since it now has its own venture capital unit, Steamboat Ventures. Henry Ford didn’t rely on formal venture capital in founding Ford Motor Compnay, but he did succeed with the help of a handful of “angel investors” who provided him with the necessary capital to build his Model T. (Note: Angel investors are basically venture capitalists who operate in more independent fashion on a smaller and less formal basis).
You see, venture capitalism is just one example of how Wall Street performs a crucial role in our society. Sure, there are terrible misdeeds and injustices that occur, as with any industry. But there isn’t a more effective form of capital formation and allocation on the planet.
For someone so enamored with reason in his vehement anti-religiosity, Maher can be maddeningly unreasonable when it comes to all matters economic. I can understand why you get that with the likes of MSNBC, a company that, as a matter of existential necessity, chose to follow Fox News down the rabbit hole of overt bias. But I’ve come to expect better from Maher, so consider me disappointed.
By the way, it’s worth noting that, while at Bain Capital, Mitt Romney was involved not just in straight LBO deals but also venture and growth capital ones, including with companies like Staples and Domino’s Pizza.
