Bain Capitalism: Subsidies, Tax Breaks — And Bust-Outs?January 16th, 2012 1:47 pm Joe Conason
Mitt Romney complains loudly and often about the “European” policies of the Obama White House, from excessive deficits and debt to government subsidies of industry. But his ultra-lucrative career at Bain Capital shows this carping is more rhetorical (and recent) than sincere. His inflated boasts of job creation appear to derive from companies that depended on government grants, tax favors, and other public benefits.
Even worse, however, Romney seems to have been unfazed by excessive borrowing when he worked in the private sector. For instance, Bain piled debt on a steel company it acquired, took the borrowed proceeds as “dividends,” and left the workers and the government to cope with the subsequent bankruptcy. Someday perhaps, Romney will explain just how this predatory style differs from what the mob used to call a “bust-out scheme.”
Certainly that is how things seemed to end at the Kansas City steel mill ultimately known as GS Technologies, although the early intentions of the Bain financiers may have been more benign. By the time GS shut down in 2001 after seven years of Bain mismanagement and laid off 750 workers, it had accumulated hundreds of millions in unpaid debt and unfunded pension and health liabilities, as Reuters found in a recent investigation. The workers, many of them suffering from occupational illness, were denied promised severance and health benefits. The pension plan, which cut benefits drastically, would have gone under altogether without an infusion of $44 million from the federal government, despite many earlier warnings to the Bain managers that they were not providing sufficient funding for it.
Where did the money go? Under Bain’s oversight, the renamed GS Technologies had accumulated debt of $378 million on annual revenues less than one-tenth that amount. If that sounds familiar, so does the penalty paid by the executives responsible: They walked away with a very handsome profit on their investment. Having put up about $8 million of their own money, they quickly issued $125 million in bonds and walked away with more than $36 million in “dividends.” According to Reuters, the Bain suits had no notion whatsoever of how to run a steel operation, let alone improve it – but they were constantly seeking federal and state tax handouts and grants, including a loan guarantee from Washington (just like the auto bailout Romney opposed). The company went belly up two years after Romney left Bain while continuing to receive payouts from its investments and extolling the benefits of rugged individualism.
Nobody yet knows how many Bain deals benefited from government largesse in one form or another, but the invaluable researcher Phil Mattera has begun to excavate the truth from under the scrim of Romney’s phony rhetoric. Two examples involving famous American enterprises may suffice for now
In 1998, one year after Bain bought Sealy Posturepedic with a group of other private equity firms, the mattress company sought and received a $600,000 grant from North Carolina authorities to relocate its corporate headquarters, research and manufacturing facilities there from Ohio (where Romney will no doubt be telling voters this year about his marvelous record of “job creation”).
And then there’s Staples, the office supply giant that Bain helped to create and that is often touted as its greatest success. Mattera writes that Staples has long depended on government subsidies, citing a Baltimore Sun story about a $4.2 million aid package the company received from Maryland authorities in 1996 to build a distribution center in Hagerstown.
As Mattera often notes, there is no need to go to Europe to find governments subsidizing industry. It happens here every day, and favored financiers like Romney have pocketed billions with their hands in the public purse.