Steve Kaplan at the American Enterprise Institute blog has a must-read guide to private equity funds. It should be read in full, but a few points stand out.

First, Newt Gingrich and Texas Gov. Rick Perry (both of whom have made their money from the government or trading on government influence) contend that private equity firms don’t really do productive things once they acquire a company. The reverse is true:

More recently, most top private equity firms have added operational engineering. Operational engineering means bringing consulting and executive resources systematically and consistently to portfolio companies. These resources might include advice on and help with pricing, sales management, manufacturing, and procurement. At Bain Capital, Mitt Romney pioneered the use of consulting resources (from Bain Consulting) in private equity investments. More than 20 years later, that strategy has been widely adopted.

Second, the anti-Bain crowd must have test-marketed “looting” because they use it a lot. It has very little to do with private equity firms, however. Kaplan explains:

One complaint, uttered by Newt Gingrich, Rick Perry, and others, is that private equity investors are vulture capitalists who “loot” their companies. According to this view, private equity firms pay themselves dividends by having the company borrow additional money. These transactions are known as dividend recaps. If the company subsequently goes into bankruptcy, the private equity firm still gets to keep the dividend.

While it is true that the private equity firms get to keep the dividends, it is ridiculous to say that private equity investors actively loot their companies. As Steve Rattner (former Obama administration “car czar” and former private equity investor) pointed out recently, private equity firms can take cash out of a company only when banks are willing to lend more money. That happens only when the company has done well and is expected to do well in the future. In most dividend recaps, therefore, the private equity investors and the banks are positive about the company — the banks expect to be repaid, and the private equity investors expect their equity to be worth even more. When those companies go bankrupt instead, something unexpected (and negative) has usually happened.

In other words, private equity investors cannot systematically and purposely loot their companies. Banks do not purposely make bad loans. That just does not happen.

Private equity funds only receive their 20 percent share of the profits if their investors earn at least an 8 percent annual return.

Second, a bankruptcy of a private equity-funded company is usually assumed to be a complete failure. That, too, is usually not true. While a bankruptcy often leads to some additional job losses, it does not mean the company goes out of business. And in some cases, when the company emerges from bankruptcy, it becomes quite healthy.

Last year I took Perry to task for his appeals to ignorance and know-nothingism. But that is precisely what both he and Gingrich are doing — playing on the public’s (and, most especially, political reporters’) near-total ignorance about private equity funds. It is perhaps not as obvious to the sophisticated media elite (because they don’t anything about the topic either), but this is flat-earthism in the economic realm. Rep. Michele Bachmann (R-Minn.) said the HPV vaccine causes mental retardation. Gingrich says private equity is about looting. Unfortunately for Bachmann the average person knows more about vaccines than private equity, but it’s essentially the same philosophy: Use whatever catchphrase or made-up “fact” is at hand to ding your opponents.

Put it this way: Gingrich means “looting” in the way he meant “right-wing social engineering.” That is, he convinces himself in the moment of his own righteousness so that he can, without batting an eye, say things that aren’t so. That’s certainly his pattern. He can say he was an “historian” and not an influence-peddler, for at that moment he sincerely believes it. He can say he never actually paid an ethics penalty. And likewise, once fixated on Romney’s Bain experience, that too must be cast in a way to diminish his opponent and elevate his own standing. He will tell you that he is the honest truth-teller — just asking questions, you see.

But he’s not, actually. And more than the issue itself, the ease with which he says things that are patently untrue should concern voters.