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Manhattan Moment: Back to 2008

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Mitt Romney doesn't talk much about his financial industry career. Yet Romney shouldn't -- and can't -- run from his past. His best bet is to try to turn his experience into an advantage. He should say: It takes someone who knows Wall Street to fix Wall Street, and President Obama isn't that person.

On Monday, Romney got a reminder of his political peril. Obama unveiled a website and attack ad that blames Romney and his old industry, private equity, for deep cuts in the steel industry. The ad focuses on workers at GST Steel, who lost jobs and pension income to corporate bankruptcy in 2001 -- a decade after Romney's firm, Bain Capital, had taken GST over.

"They cut corners and extracted profit ... placing [GST] deeply in debt," the website notes. "Workers were denied their full pensions ... and the federal government was forced to ... bail out the pension fund." One steelworker's verdict: Romney is a "job destroyer."

There are academic arguments to make in Romney's favor. Businesses close. People lose jobs. Unions pushed up American costs as young workers pushed Asian business costs down.

But such arguments leave Romney exposed. Whom do people blame for the fact that America's middle class hasn't made the switch well to a supposedly post-industrial era? Politicians and bankers -- and Romney is both.

Romney remains vulnerable on some academic arguments, too. Many private equity deals are good, helping new businesses get off the ground, and helping old businesses to restructure. Romney does sometimes talk about his investments in Staples and the Sports Authority.

But some private equity deals are bad. In these cases, financiers did reap profits while leaving struggling companies struggling even harder to pay off even more debt.

That hardly need be a disaster for Romney. His best bet is to say that he understands what's wrong with Wall Street: He was there. He can tell voters: In the past two decades, the financial industry, of which Bain was a part, was hardly operating in a free-market environment.

The private-equity industry was able to borrow so much money because the financial system was awash in debt. The fact that we all nearly drowned in debt wasn't an accident. For decades, the U.S. government made it clear that it would bail out big banks when necessary -- and big banks used this guarantee to borrow money and lend it right back to everyone else, including private equity firms, for a song.

The American government still heavily favors finance over other industries. Obama's Dodd-Frank law exempts large financial firms from the bankruptcy process, when failing industrial companies -- including steel companies -- still have to go bankrupt.

If that's not a blueprint for future bailouts, what is?

Moreover, Romney should explain that things got much worse in the decade after he left finance, when the credit bubble took over.

The problem isn't that steel companies can go bankrupt, but that big financial firms can't -- because they're "too big to fail." How do you fix that? Romney should propose limits on borrowing and other risky behavior, so that even the biggest banks can go bankrupt without taking down the economy.

Then, the big banks will borrow less and lend less -- meaning less money with which private equity financiers and others can manipulate "real" companies.

Finally, Romney should say that the threat of future bailouts is not hypothetical. As JPMorgan's multibillion-dollar trading loss last week proves, the economy remains vulnerable to unregulated finance -- even though Obama has been in charge for three years.

Romney should stop ceding Obama the advantage in an election that's going to be about Wall Street. He needs to make the same speech about the financial industry that Obama once made on race and that JFK once made on religion.

Nicole Gelinas (@nicolegelinas on Twitter) is a contributing editor to the Manhattan Institute's City Journal.

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