American Parasite

Mitt Romney's years at Bain represent everything you hate about capitalism.

Just a few months after being hammered by Kennedy, he set fire to another company.

The Price of Incompetence

The move was classic Bain. Before buying Georgetown, Romney had purchased the Armco steel mill in Kansas City, which had been in business more than 100 years.

According to author Josh Kosman, one of Mitt Romney's goals as a venture capitalist was to starve the companies Bain purchased, whacking not just employees, but customer service and research-and-development funding.
Lyric Cabral
According to author Josh Kosman, one of Mitt Romney's goals as a venture capitalist was to starve the companies Bain purchased, whacking not just employees, but customer service and research-and-development funding.

"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, borrowing the rest of the $75 million price tag. Then he issued bonds — basically I.O.U.s — 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," says Morrow. "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. Since 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," says Morrow. 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," says Foster. "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," says Foster.

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.

The Parasitic Capitalist

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.

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My Voice Nation Help
6 comments
Hoastros65
Hoastros65

Peter Kotz: "hrmrhrmhnmnrhm"Reader: "What'd you say?"Kotz: "HMRHAMDHMHMNMH!!"Reader: "Take Obama's dick out of your mouth, i cant understand you"Kotz: "Romney's evil"

2tor
2tor

Lol, what a fantasy this is. First off, steel was lost in the 80's, Secondly, it was due to high labor prices. lastly, if they were fired, what was the point in going on strike? The fact is, smart capitalism made us the strongest nation in the world. Because everyone wants some sort of entitlement now, unions being the worse, we're no longer competitive. Don't complain about jobs going elsewhere, unless you're willing to do something about it. Going on strike isnt it, you're reinforcing the idea to send them elsewhere!

Animal63
Animal63

Funny how our economy was at its best when unions were at 35% of the workforce, as opposed to the 8% it is today, and the top tax rate was 90%.

2tor
2tor

What's funny about it? We had all new markets open up across eastern Europe, we were entering the digital age, and they couldn't get enough of our products. Beside, you must've forgetten we lost steel production in the 80s due to the unions, even though we made the best in the worl. No-one could afford it. Now not even our own government, which was the last American steel customer, doesn't buy it. There's nothing funny about this, it's just sad people won't own up.

Subject: [vvm-hou] Re: American Parasite

2tor
2tor

You lost me when you went back to the fifties. That's totally irrelevant. That made the rest of your effort moot.

Animal63
Animal63

So when unions were at 35% of the workforce in the 50's, nobody could afford our steel then? Or was it that globalization in the 80's made it possible to move production to 3rd world countries with no minimum wage, no worker or environmental protections, where people will fight over a job working 12-20 hours a day with no safety or health protections, for pennies an hour, because nobody has any income? Where the companies can dump toxic waste with impunity. Where they can employ young children who should be in school when their families can't make ends meet on the parents' income. And when a worker becomes sick or hurt on the job, gets pregnant, or complains, they're easily fired and replaced.

Yeah, yeah, blame it all on the unions. After all, how dare they expect a decent, livable wage, so they they don't have to struggle from paycheck to paycheck. And they really have some nerve expecting health coverage, so that their stomachs don't turn at the thought of having to see a doctor. And they really have some gall expecting a safe workplace, weekends and holidays off, retiement benefits, Workmens' Compensation when they're injured, etc. Yeah, it's all the unions' fault. Never mind the fact that CEO pay has gone up from 30 times their workers' pay in 1980 to 300-500+ times today, and that many make more in one month, no matter how incompetent they may be, than most of us will earn in a lifetime. And never mind the fact that when a CEO crashes a company, they still get "golden parachute" packages worth millions, while their workers and shareholders lose everything.

Yeah, I guess workers should be happy to have any job, no matter low paying it is, or how badly mistreated or abused they are. Right?

 
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