Will The Etch-A-Sketch Work?
The Mormons and financial predators behind Romney-- each group for its own transparent reasons-- spent nearly 100 million dollars to help their awkward throwback of a candidate overcome the weakest Republican field in the history of that party. Now the Mormons and predators are gearing up to raise at least another billion dollars to win over a very few swing voters in Florida, Ohio, North Carolina, New Mexico, Virginia, Wisconsin, Colorado, Iowa, Nevada and New Hampshire. But forget about swing voters and independents for one moment. Even Republicans don't trust Romney and they don't like him either (though he's starting to bond with even the craziest of them now). But as one GOP candidate after another-- ones who were trusted and liked-- discovered, the Romney limitless spending Death Star gets the last word.
This week's Village Voice rolled out another extensive examination of Romney's Achilles Heel, "Mitt Romney, American Parasite. It's a theme that didn't work-- at least not well enough-- for his Republican opponents in the long drawn out primary. But if Obama is going to have a second term, it has to work for those swing voters in Florida, Ohio, North Carolina, New Mexico, Virginia, Wisconsin, Colorado, Iowa, Nevada and New Hampshire. Less than a quarter million people watched the video version of the story (above) that Gingrich's Sheldon Adelson (Mafia)-financed SuperPAC released. It's good-- watch it if you haven't-- but Obama has to do better. The Voice piece is subtitled, "His Years at Bain Represent Everything You Hate About Capitalism." Obama's team has to figure out how to make that relevant to swing votes in some states that can be pretty difficult for Democrats. Romney has used his years at Bain-- which made a lot of money for a small handful of very wealthy people-- as his launching pad for his political career. This isn't what your brother-in-law is going to be hearing on Hate Talk Radio or on Fox. It's going to be up to all of us to understand this story well enough to explain it to... well, our brothers-in-law.
His 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 companies 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. But much like the Enron boys, Romney's battery of MBAs fancied themselves the smartest guys in the room. It didn't matter if a company manufactured bicycles or contact lenses; they were certain they could run it better than anyone else.
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. Because he was yanking out cash early and often, he would profit even if his targets collapsed.
...[Romney] mounted his career in politics, setting his sights on the biggest target in Massachusetts: the U.S. Senate seat held by Ted Kennedy
There were early signs that he might topple the Kennedy dynasty. Much like today, Romney was pitching himself as a commander of the economy, a man with the mastery to create jobs. Yet he suffered an affliction common to those atop the financial food chain: He assumed that what was good for him was good for all. Call it trickle-down blindness.
In the midst of that 1994 campaign, one of Romney's companies, American Pad & Paper, bought a plant in Marion, Indiana. At the time, it was prosperous enough to be running three shifts.
Bain's first move was to fire all 258 workers, then invite them to reapply for their jobs at lower wages and a 50 percent cut in health care benefits.
"They came in and said, 'You're all fired,'" employee Randy Johnson told the Los Angeles Times. "'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."
But instead of reapplying, the workers went on strike. They also decided the good people of Massachusetts should know what kind of man wanted to be their senator. Suddenly, Indiana accents were showing up in Kennedy TV ads, offering tales of Romney's villainy. He was sketched as a corporate Lucifer, one who wouldn't blink at crushing little people if it meant prettying his portfolio.
Needless to say, this wasn't a proper leading man's role for a labor state like Massachusetts. Taking just 41 percent of the vote, Romney was pounded in the election. Meanwhile, the Marion plant closed just six months after Bain's purchase. The jobs were shipped to Mexico.
Yet Romney didn't learn his lesson. He seemed incapable of noticing that his brand of "creative destruction" left a lot of human wreckage in its wake. Or that voters might see him as more scumbag than saint.
Just a few months after being hammered by Kennedy, he set fire to another company.
The move was classic Bain. Before buying Georgetown, Romney had purchased the Armco steel mill in Kansas City, Missouri, which had been in business for more than 100 years.
"We were setting a lot of records for production at that time," says employee Steve Morrow. "We were making a lot of money because we were getting profit sharing."
Bain combined Armco with the mill in Georgetown and foundries in Tempe, Arizona, and Duluth, Minnesota, to form the newly christened GS Industries.
Romney purchased Armco with just $8 million down and borrowed the rest of the $75 million price tag. Then he issued bonds-- basically IOUs-- to borrow even more to pay himself and his investors $36 million.
Within a year, he'd already made four times his initial investment while barely lifting a finger. But he'd also run up a staggering $378 million in debt on GSI's tab.
Steel is an infamously cyclical business, a worldwide commodity prone to the same wild price fluctuations as oil. The Kansas City plant forged parts for equipment used in mining gold and copper, leaving it susceptible to the instability of those markets as well.
Yet the smartest guys in the room thought they could run the plant better than the people setting production records.
"They were getting rid of old managers and hiring new managers that didn't have any steel experience," Morrow says. "Some of the guys were nice guys and everything, but they didn't have a clue what was going on."
Many of the new supervisors were ex-military, people who believed that grown men and women are best motivated by punishment. Before Bain, says Morrow, "everybody got along."
Afterward? "They wanted to run the plant like a disciplinary environment. They wanted to discipline people for getting hurt on the job. They wanted to put us in an environment like a war, where we were always fighting with them."
Romney was charging GSI $900,000 a year in management fees to run the company. The Kansas City mill received $900,000 worth of ineptitude in return.
Although Bain borrowed $97 million to retool the plant so it could also produce wire rods, it left the rest of the facility to rot.
To save costs, Bain went miserly on everything from maintenance to spare parts and earplugs. Equipment deteriorated. Because the new managers didn't know how to repair it, "they'd want to rent a new piece of equipment out instead of maintaining what we had," Morrow says. The waste and inefficiency was breathtaking.
Bain's plan all along was to streamline the company into greater profitability, then reap the rewards with a public stock offering. But the exact opposite was happening. Even Roger Regelbrugge, whom Bain installed as CEO, knew the debt was crushing GSI from within, according to Reuters. If a public offering didn't materialize, the company would collapse.
Steel was about to enter a periodic downturn. Countries around the world were locked in a war of tariffs and government-subsidized production, creating a glut and driving down prices. Romney's strategy of the flip was never meant to endure difficult times.
Workers saw the end coming; they were particularly worried that Bain was badly underfunding their pension plan. So they went on strike in 1997, bringing a traditional Rust Belt flair to the festivities by littering the streets with nails and gunning bottle rockets at security guards.
When it was all over, the steelworkers union agreed to wage and vacation cuts in exchange for extra health and pension safeguards should the plant close.
Yet GSI was now hemorrhaging money, says David Foster, the union official who negotiated the deal. He claims that Bain cursed the company by placing its own interests above those of customers or long-term stability.
"Like a lot of private equity firms, Bain managed the company for financial results, not production results," Foster says. "It didn't invest in maintenance or immediate customer needs. All that came second to meeting monthly financial goals."
It would take a few more years of bleeding, but GSI eventually fell to bankruptcy.
The Kansas City mill closed for good; 750 people lost their jobs. Worse, Romney had shorted their pension fund by $44 million. The feds were forced to cover the difference, while workers saw their benefits slashed in bankruptcy court.
The battered Georgetown plant and the foundries in Arizona and Minnesota ultimately were bought out of bankruptcy by new companies. Their workforces were halved.
Still, Romney walked away unbruised. All that debt was technically GSI's, not Bain's. Because he'd repaid himself and his investors just months after the purchase, Romney pocketed millions for running the company into the ground.
"They were clever and ruthless enough to pay their own investors back at a really high return rate," Foster says.
This was the beauty of Romney's racket. Even if he killed a company-- and he tended to kill them fairly often-- he still made out, leaving others to take the hit.
On the campaign trail, Romney describes his work at Bain as resurrecting distressed companies. In this version, he's the white knight lifting troubled firms from the precipice of failure.
Private equity companies like Bain rarely buy anything but profitable firms for one compelling reason: The patient must be healthy enough to be force-fed all that debt. So it's something of a misnomer for Republican opponents to slur him as a "vulture capitalist."
"Romney is not a vulture capitalist, as Rick Perry says, since vultures eat dead carcasses," notes Josh Kosman, who has written about the private equity business for 15 years. He's "more of a parasitic capitalist, since he destroys profitable businesses."
...Yet [Romney's defenders] seem strangely incurious about the ruin he has delivered across the country. Take Kansas City, for example.
The Armco plant closing involved more than the torching of 750 jobs, Morrow says. Contractors and suppliers collapsed. Workers' children and widows lost health care and pension benefits. And while Bain received millions in tax breaks-- paid for by the very people left holding the bag-- Romney walked away millions richer.
So one might forgive everyday Americans for feeling they're on the wrong end of a rigged game, one where the wealthy always win-- no matter how inept-- and the little guy is left to hack through the debris.
Bain is a private company, meaning it has no obligation to reveal its practices. It has never made public a list of companies it has purchased (nor would Bain or the Romney campaign comment for this story).
So in January, the Wall Street Journal did its best to piece together Romney's track record, reviewing 77 investments made under his direction. It turned out that nearly one in three of the companies experienced severe financial trouble. One in five wound up in bankruptcy.
The more telling figure: Of Romney's 10 biggest moneymakers, he ultimately destroyed four of them, leaving bankruptcy judges to clean up the mess.
As Foster sees it, Romney was an early pioneer of gaming the system. It would take another decade before large banks used many of the same principles to detonate the mortgage industry.
"The great irony is that his entire management experience at Bain Capital is buying companies and loading them up with debt and then looting the balance sheet," Foster says. "It's the very model that drove the American economy off the cliff then left other people to manage the wreckage."
...[I]f Romney played the friendly politician, kindness wasn't his specialty at Bain. Rewarding CEOs with huge bonuses, he was generous to ranking executives. Yet he tended to treat those below his pay grade as little more than machinery.
Romney has claimed to have created 100,000 jobs at Bain and says that providing work for Americans was a primary company goal.
He cites Domino's, Sports Authority, and Staples, companies that added jobs after Bain bought in.
But Bain bought Domino's just months before Romney left to run the Salt Lake City Olympics, meaning someone else created those jobs. And he didn't manage Staples or Sports Authority; Bain was a minority investor.
By Romney's logic, any large investor-- say, the Texas teachers' pension fund-- also creates hundreds of thousands of jobs. The boast is so foolish that his campaign has since backed away from it.
Even Kaplan admits that private equity firms rarely create jobs. Workers are seen as costs, and costs are the enemy. According to Kosman, Romney was in truth among the most heinous job-killers of them all.
While writing his book, Kosman conducted an interview with a Bain managing partner. The man told him that when Bain was about to buy a company, its partners would hold a meeting. "He said that about half the time [they] would talk about cutting workers," Kosman says. "They would never talk about adding workers. He said that job growth was never part of the plan."
That claim was buttressed by the Associated Press, which studied 45 companies bought by Bain during Romney's first decade. It found that 4,000 workers lost their jobs. The real figure is likely thousands higher, since the analysis didn't account for bankruptcies and factory and store closings.
...Romney refuses to discuss most of the companies he purchased at Bain, nor will he release his tax records from those years. As a result, voters are left to make their own call on his catalog of creative destruction-- and what he might be like as president.
Romney has professed his admiration for Ronald Reagan. But judging by his business history, the president he most resembles is Vladimir Putin. Romney has devoted his life to ensuring that every last penny rises to a few hands at the top. And like Putin, he has never shown much concern for the countrymen he tramples along the way.
"The word 'oligarchy' comes to mind," says Michael Keating when asked to envision a Romney presidency.
Keating is a former business consultant and executive at Bertelsmann, a multinational investment firm that operates in 63 countries. He asserts that men like Romney "hide their antisocial actions behind a rhetoric of free-market capitalist platitudes. But in the end, it's all about the bottom line-- and only their own bottom line..."
"I don't think Romney is so much dangerous as he is unimaginative," Keating adds. "And in the world we live in, that amounts to the same thing."