Monday, May 07, 2012

Nothing Like Running Companies Into The Ground

Don't blame David Gregory, not for offering up the question that begged to be asked.    On yesterday's Meet The Press (segment here from Crooks and Liars), Gregory repeated a talking point of the GOP and especially of the Romney campaign, when he asked Vice President Biden "The argument is, "Why not give somebody who's got-- a real background in business to try to turn it around?"

The query gave Biden an opportunity to repeat Obama campaign talking points, which have the advantage of being accurate:       Obama upon taking office faced the nation's worst-ever recession; if the "jobs bill" had been passed, a lot more teachers, firefighters, and police officers would have been been (re-) hired; when Romney was governor, Massachusetts ranked 47th of 50 states in job creation; Romney saved companies only "by piling debt on them."

Whoa, let's go back to that one.    Accumulating debt and firing workers is Romney's specialty.    In the video below, Robert Reich describes how private equity firms feed at the public trough while amassing millions for their executives.    David Waldman applies this scheme to the Repub candidate by explaining

Romney borrows money to buy a majority stake in a company, takes over its board of directors, and uses that position to vote Bain a fat management contract, and take out the biggest loans possible from the company's bank. That money goes to pay back the people who put up the money for the purchase, as well as giant bonuses for Bain managers. But now the company has a huge debt to the bank (the interest on which is, of course, tax deductible), which the Bain managers sorta-kinda attempt to pay back by cutting payroll, benefits, investments in equipment, etc. Basically anything they can find to transfer the pain to anyone other than themselves.

Pete Kotz explains how Bain Capital eviscerated one company during the fifteen years Romney led the company:

James Sanderson had encountered a rare moment of industrial harmony. It was the early 1990s, and the 750 men and women at Georgetown Steel were pumping out wire rods at peak performance. They had an abiding trust in management's ability to run a smart company. That allegiance was rewarded with fat profit-sharing checks. In the basement-wage economy of Georgetown, South Carolina, Sanderson and his coworkers were blue-collar aristocracy.

"We were doing very good," says Sanderson, president of Steelworkers Local 7898. "The plant was making money, and we had good profit-sharing checks, and everything was going well."

But that was before Bain (figuratively) came to town because Romney's

specialty was flipping companies — or what he often calls "creative destruction." It's the age-old theory that the new must constantly attack the old to bring efficiency to the economy, even if some are destroyed along the way. In other words, people like Romney are the wolves, culling the herd of the weak and infirm.

His formula was simple: Bain would purchase a firm with little money down, then begin extracting huge management fees and paying Romney and his investors enormous dividends.

The result was that previously profitable companies were now burdened with debt. 

Georgetown Steel was about to run headlong into class warfare, GOP-style, as

Bain would slash costs, jettison workers, reposition product lines, and merge its new companies with other firms. With luck, they'd be able to dump the firm in a few years for millions more than they'd paid for it.

But the beauty of Romney's thesis was that it really didn't matter if the company succeeded. Since he was yanking out cash early and often, he would profit even if his targets collapsed.

Which was precisely the fate awaiting Georgetown Steel.

When Bain purchased the mill, Sanderson says, change was immediate. Equipment upgrades stopped. Maintenance became an afterthought. Managers were replaced by people who knew nothing of steel. The union's profit-sharing plan was sliced twice in the first year — then whacked altogether.

"When Bain Capital took over, it seemed like everything was being neglected in our plant," says Sanderson. "Nothing was being invested in our plant. We didn't have the necessary time to maintain our equipment. They had people here that didn't know what they were doing. It was like they were taking money from us and putting it somewhere else.

Hmm.    And where might that "somewhere else" have been?      Kotz notes

History would prove him correct. While Georgetown was beginning its descent to bankruptcy, Romney was helping himself to the company's treasury.

That's great, because as David Gregory says people are saying, what Washington really needs to restore a bustling economy with good-paying jobs is a businessman like Mitt Romney in charge.

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