Mitt Romney: Vulture Capitalist

by on June 13, 2012 · 13 comments

in American Empire, Culture, Economy, Election, History, Labor, Popular

by John Lawrence/ San Diego Free Press

Criticisms of Mitt Romney’s background at Bain Capital and his record as a “job creator” are fair game.

I have never heard so many conservative pundits offering gratuitous avuncular advice to Barack Obama that his campaign strategy attacking Bain Capital will not get him anywhere. Joe Scarborough of Morning Joe on msnbc and others have gone on and on about how using Bain Capital against Mitt Romney is not a good strategy. Well, when conservatives offer advice to Barack Obama about what will or will not work for him, Obama better do just the opposite of what they recommend because ultimately they want him to lose. Therefore, he should double down, not abandon, the Bain Capital strategy.

But the problem with Obama is that he starts out praising Romney for being a good businessman (Clinton said he was “superlative”), certainly something no Republican would do for Obama. Then Obama goes on to say that, while Romney created wealth for himself and his investors, the President of the US must be concerned about creating jobs for everyone. This is a roundabout, circuitous route to putting Romney down, a circumlocution, something the Republicans would never do. Instead, they start right our calling Obama a failure. Obama starts out praising Romney, then seeming to walk on eggshells aiming at a scholarly criticism of his activities at Bain. Obama should get right to the point: Romney made his money at Bain by destroying jobs and companies, picking over their bones like the vulture he is.

Bain Capital is a private equity (formerly known as leveraged buyout) firm. They changed the name to protect the guilty. What they do is to pick the bones of perfectly healthy companies and in many cases drive them into bankruptcy. Here’s how it works: they buy a private company with borrowed money (the leverage in leveraged buyout). But they don’t buy just any company. They buy one with assets they can strip. It just so happens that they usually buy companies that have a unionized work force. Why? Because a company with a unionized work force usually has a pension fund. Their goal is to get their hands on that pension fund and transfer that asset to Bain Capital. So they borrow the money to buy a company, strip the pension fund and fire all the unionized workers. Then they hire a nonunionized work force to do the same jobs at half the pay. In this way they claim to have made the company “more efficient.” Contrary to Republican hogwash, wealthy Individuals like Romney are job destroyers not job creators. Then the vulture capitalists borrow as much money as they can using the company itself as collateral. The next thing they do is to pay Mitt Romney himself, his partners and investors all the borrowed money plus the pension fund. They may also sell off parts of the company or move jobs overseas. Then the company is left to sink or swim on its own. If it can manage to pay all the increased debt Bain Capital put it in, it swims. If not, it sinks and goes bankrupt. In either case, Mitt Romney and Bain Capital have made tens or hundreds of millions of dollars.

President Obama’s attack on Romney and Bain Capital has been rather tepid and timid. He essentially says that, while Romney and Bain have done wonderfully well for Bain Capital’s investors making them a lot of money, that this is not the skill set required of the President of the United States who has to create jobs for the general public, not make a lot of money for investors. This is typical Barack Obama rationalizing. Instead, he should go for Romney’s jugular, something the Republicans including Romney never fail to do, not congratulate him on making money for his investors. First of all, even the companies that have managed to survive the Bain treatment have ended up with a non-union work force working for minimal pay. The fact that Staples and some others are successful companies has nothing to do with it. Staples was never acquired by Bain. They just played a venture capital role there. Romney’s role as a vulture capitalist was to identify companies with tangible assets and then to figure out a way to get control of those assets for Bain and its investors. But it gets worse from there.

This is from the LA Times:

Bain Capital had bought a controlling interest in a paper products company called Ampad for $5 million in 1992. Two years later, after Ampad bought a factory in Marion, Ind., the new management team dismissed about 200 workers, slashed salaries and benefits, and hired strikebreakers after the union called a walkout.

“We were just fired,” Randy Johnson, a former worker and union officer at the Marion plant, recalled in a telephone interview. “They came in and said, ‘You’re all fired. If you want to work for us, here’s an application.’ We had insurance until the end of the week. That was it. It was brutal.”

In October 1994, Johnson and other striking workers drove to Massachusetts to protest Romney’s Senate campaign. “We chased him everywhere,” Johnson recalled. “He took good jobs with benefits, and created low-wage, part-time, no-benefit jobs. That’s what he was creating with his investments.”

The Republicans like to point out how Solyndra, which was invested in by Obama’s administration and then went bankrupt, was a huge flop. No matter how many successes the Obama administration has had, Republicans will characterize the whole program as a failure because of the failure of a small part of it. They don’t mention the other successes like saving General Motors. By the same token Obama should talk about Ampad, GST Steel, Aventis and other companies whose bones have been picked by Romney and Bain and ignore any successes Romney and Bain might have had.

This is from Rolling Stone:

And let’s take a look at the record specifically of Bain Capital, which Romney owned from 1992 to 2001.

• 1988: Bain put $10 million down to buy Stage Stores, and in the mid-’90s took it public, collecting $184 million from stock offerings. Stage filed for bankruptcy in 2000.
• 1992: Bain bought American Pad & Paper, investing $5 million, and collected $107 million from dividends. The business filed for bankruptcy in 2000.
• 1993: Bain invested $25 million when buying GS Industries, and received $58 million from dividends. GS filed for bankruptcy in 2001.
• 1994: Bain put $27 million down to buy medical equipment maker Dade Behring. Dade borrowed $230 million to buy some of its shares. Dade went bankrupt in 2002.
• 1997: Bain invested $41 million when buying Details, and collected at least $70 million from stock offerings. The company filed for bankruptcy in 2003.

President Obama is afraid to criticize Romney’s Bain Capital days because Republicans will accuse him of being against capitalism. Well, so what. Today’s capitalism is not your Grandfather’s capitalism. If a law were passed making it illegal to raid a company’s pension fund and make a large payout to investors, would that be against capitalism? Capitalism is malleable. It only exists within a legal framework. Some of it should be outlawed like the part that let Romney buy companies with borrowed money and then take a tax writeoff because the money was borrowed. Wall street lobbyists have changed the laws regarding capitalism to their own advantage. The Commodities Futures Modernization Act of 2000 deregulated derivatives and helped to cause the financial meltdown of 2008. Advocating reregulating derivatives is not anti-capitalistic. So if Obama were to go after Romney’s record as a vulture capitalist, it does not mean he is against capitalism, only capitalism as it has been “modernized” and deregulated.

Obama should double down on what Romney and Bain Capital really did which was to load companies up with debt, take the borrowed money for their own personal benefit, raid pension funds, fire unionized workers and hire nonunionized ones at much reduced pay, sell off profitable parts of companies and then force them into bankruptcy. This is exactly what a vulture does: picks apart a carcass for its own profit. He should not give Romney one iota of credit for making money for himself and his investors. After all Romney will never be caught dead giving Obama one iota of credit for anything.

{ 12 comments… read them below or add one }

avatar Karl Welzein June 13, 2012 at 12:54 pm

I’m not a Romney supporter by any means, but you aren’t helping our cause. Most of what you wrote is completely wrong.

Companies don’t own pension funds anymore than your company owns your 401k. Pension funds are held by the unions. The union then invests the money in the stock market. The company pays union dues to the Union and part of that is applied towards the pension fund.

Seriously, who told you all of this?

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avatar Elana June 13, 2012 at 3:17 pm

Oh, Carl, your wrong. Company pension schemes vary from company to company and companies do have pension funds for non union employees.

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avatar Karl Welzein June 14, 2012 at 7:02 am

Maybe, but this article specifically cited doing this with union companies. Did you read it?

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avatar Brandt Hardin June 13, 2012 at 12:58 pm

Is there any doubt that a Romney administration would favor the rich and increase the income gap in our country? Mitt is a pariah in Mormon Clothing and will stop at nothing to expand an empire of greed for the rich in this country. Can his sacred Mormon underwear gain him enough donations to buy this election? See for yourself as Mitt dons his tighty-whities from the Good Lord Himself at http://dregstudiosart.blogspot.com/2012/05/mitt-romneys-magic-mormon-underwear.html

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avatar dpeters June 13, 2012 at 2:12 pm

Mr. Lawrence, are you aware that Bain Capital’s managing Director Jonathan Lavine was a top Obama bundler and was at Bain Capital when GST Steel went bankrupt?
The bullet point you have in the above article leaves this out I have copied it here for you just in case:
• 1993: Bain invested $25 million when buying GS Industries, and received $58 million from dividends. GS filed for bankruptcy in 2001.

You liberals are so Intellectually dishonest you fail to mention that Romney left Bain in 1999.

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avatar Anna Daniels June 13, 2012 at 3:42 pm

Romney left Bain in 1999 and negotiated a retirement agreement that has paid him a share of Bain’s profits ever since. Your statement dpeters was misleading and factually incorrect. NYT article here. http://tinyurl.com/89xz3qe

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avatar Bearded OBcean June 13, 2012 at 2:13 pm

Why let facts get in the way of an argument? All they do is trip up your narrative.

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avatar RB June 14, 2012 at 7:50 am

Neither companies nor investors (Bain) can raid pension plans. Pension plans are protected by Employee Retirement Income Security Act (ERISA). This often repeated folk tale of taking pension money comes from bankrupt companies failing to ever make their pension contribution (airlines) and from the ability of companies to remove funds when the plans are more than 100% funded. If you have a pension plan, you will receive it either from the plan or from ERISA protection.

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avatar Karl Welzein June 14, 2012 at 9:25 am

Exactly.

Some people just don’t like facts getting in the way of their agenda.

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avatar Bearded OBcean June 14, 2012 at 10:42 am

I guess the author has the same feeling about the thousands of dealerships that closed down in the wake of the government taking ownership of auto industry.

As for Solyndra, that’s your money and my money that is lost. Not a private firm’s money.

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avatar John Lawrence June 19, 2012 at 7:31 pm

The story begins in 1999 after the stock-market run-up in the 1980s which left corporations with over $250 billion in excess pension fund assets, aided also by years of downsizing and 1990 and 1974 laws limiting raids on fund surpluses and requiring adequate funding. Many of the corporations hadn’t contributed to their pensions in over ten years, yet had enough assets to cover all current/future retirees to age 100. Their lobbying then allowed new uses for those monies.

Bell Atlantic then used $3 billion to finance early-retirement benefits for 25,000 managers being let go, and Verizon (its eventual successor) continued the practice – the result, combined with a relatively small market decline, was the surplus fell from $24 billion in 2000 to $1.7 billion in early 2005. It then froze the pensions of its 50,000 management employees, withdrew another $5 billion, and by early 2011, when the market was higher than in 2000, the plan had a $3.4 billion deficit. Delphi, Delta, Ford, G.M., and United acted similarly; most then passed their underfunded plans off to the government’s PBGC, which in turn further cut many of the employees’ pensions per law.

Companies also tapped pension plans to pay retiree health benefits, previously covered on a pay-as-you-go basis. DePont was the first, folowed by Allegheny Technologies, Florida Power & Light, Prudential, U.S. Steel, and others. Again, two major firms – Allegheny Technologies and U.S. Steel, then dumped their diminished pension funds on the PBGC.

M&A activity, as well as spin-offs have enabled companies to convert surplus pension assets to cash. For example, G.E. sold an aerospace unit to Martin Marietta in 1993, along with its 30,000 employees and $1.2 billion in pension assets – about $531 million overfunded. By getting a better price because of the surplus it was able to pocket the $500 million. After doing this dozens of times, its $24 billion 1991 surplus became a shortage of $6 billion in early 2011 – despite a substantial interim market rise. DOD then sued because it had funded the G.E. workers’ retirement funds and was supposed to get a refund if the unit closed (Martin Marietta subsequently closed it, and DOD labeled the transaction a ‘sham’). Courts have ruled that even surplus employee contributions can be disposed of this way.

Transferring executive retirement benefit costs to employee pension funds via loopholes is another common technique. Intel saved $200 million doing this; Johnson Controls, Parker Hannifin, PMI Group, and others did so; again, some are now underfunded.

Terminating pension plans via other loopholes that involve setting up a replacement 401(k) has been used to help pay corporate creditors instead of full pensions. Think Enron, Occidental Petroleum, Wards, etc.

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avatar Grog August 13, 2012 at 10:21 am

Mr. Lawrence,

I notice none of the pro vulture economics crowd commented on your facts, why, its all over their head. Thank you for giving examples of how the vulture wall street types find any and every loop hole they can to f%#$ the middle class to line their greedy pockets. And if the loop hole doesn’t exist don’t worry they’ll lobby one into the law. Wake up sheep this country and your futures are being sold by todays politicians on both sides of the aisle to the wealthy few. Wake up damn it!

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