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Bain Capitalism: Subsidies, Tax Breaks — And Bust-Outs?

Memo Pad Politics

Bain Capitalism: Subsidies, Tax Breaks — And Bust-Outs?


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.

Joe Conason

A highly experienced journalist, author and editor, Joe Conason is the editor-in-chief of The National Memo, founded in July 2011. He was formerly the executive editor of the New York Observer, where he wrote a popular political column for many years. His columns are distributed by Creators Syndicate and his reporting and writing have appeared in many publications around the world, including the New York Times, the Washington Post, The New Yorker, The New Republic, The Nation, and Harpers. Since November 2006, he has served as editor of The Investigative Fund, a nonprofit journalism center, where he has assigned and edited dozens of award-winning articles and broadcasts. He is also the author of two New York Times bestselling books, The Hunting of the President (St. Martins Press, 2000) and Big Lies: The Right-Wing Propaganda Machine and How It Distorts the Truth (St. Martins Press, 2003). Currently he is working on a new book about former President Bill Clinton's life and work since leaving the White House in 2001. He is a frequent guest on radio and television, including MSNBC's Morning Joe, and lives in New York City with his wife and two children.

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  1. Lilred January 16, 2012

    Is there a way to find out what companies are owned by Bain. So can avoid them?

  2. MikeHalligan January 16, 2012

    i have a small business, can get one of those $1.4 million deals from the federal government? Hell, i’m still paying off school loans, maybe they could just let me forget those? doesn’t work for me, huh.

  3. LogicObserv123 January 16, 2012

    Can someone explain how the Bain operations are NOT fraud? Especially if they did it more than once? This guy does not merit the office of President. He has earned a jail term.

  4. drdavidgreen January 16, 2012

    Have you sent all of this on to the Obama campaign staff? If not, you should do so immediately. If so, remind them. This is political dynamite. Keep up the good work.

  5. envscience55 January 16, 2012

    Romney’s rhetoric on job creation, speaking out against the current President when he once worked to destroy jobs all for the sake of nice bonuses, increasing the size of his personal portfolio seems to be the norm for any GOP politician or lobbyist. Having spent five horrible years in DC under the last administration and witnessing DOI appointed officials go to prison, resign to avoid being charged with crimes for taking favors from Abramoff has given me an inside view and indelible dislike for the GOP party and its hypocrites.

    I worked with a civil service employee whos wife happened to be a lobbbyist too while working for the Assistant Secretary-Indian Affairs. This man had the gaul to have his wife work as a lobbyist for the Eastern Band of Cherokee Indians while he was employed with Indian Affairs and by the way he still is. Everyone in Indian Affairs knew of this cozy arrangement his spouse had with the tribe but did nothing to stop it. I mentioned something about this being an ethics violation and let me tell you I was the scourge of the Earth in the OCIO office. Being an American Indian citizen I felt it was my duty to bring this to the light of day.

    During the entire GWB administration this type of unethical behavior was commonplace and actually accepted as the norm. The DASM would take Congressionally allocated funds for the BIA and send them to other agencies within the DOI and therefore short change the tribes. While in the OCIO office a Alaska Native Corporation obtained a huge IT contract through less than legal circumstances and knocked the winning 8A contracting company out of the contract. It was discovered this company was owned by a Bush relative that had the last name of Bush out of South Carolina. An OIG investigation was initiated and to my knowledge even though they found illegal activity nothing was done to those who committed this fraud nor were the federal employees who made it possible for this contract to be awarded to an Alaskan Native Corporation brought to justice. The CIO at that time awarded these unethical non-native federal employees with $30K bonuses, Quality Step Increases and other perks for their part in this injustice. These employees are all GOP supporters and espoused it on a daily basis. Why do I bring this up? What I am hearing today about how bad President Obama has been in no way does it compare to the corruption of the prior GOP administration. I cannot see how these candidates can espouse this rhetoric and not talk about reforming their party and bringing these unethical federal employees to justice by dismissing them and indicting them as well.

    The bottom line is that I have absolutely no respect for any GOP candidate, supporter past of present and never will be able to even listen to their disgusting rhetoric knowing it is all lies in my humble opinion. Five years of seeing this first hand has made me totally disgusted with politics in D.C. including our current administration since they have done nothing to appoint American Indians to positions where they can and would make a big difference in the lives of America’s first people and her real minority that has suffered through more abuse, the American Holocaust and the greed of people like Jack Abramoff. When does this stop and the American Indians are treated with dignity and provided for since no treaties have ever been honored just like a business agreement? Could you buy a home or a business and just outright take it expecting to never honor the contract you signed?

  6. kurt.lorentzen January 16, 2012

    Romney would just perpetuate that same Wall Street modus operandi, and is NOT what this country needs. Neither is trillions in deficit spending, but I’d take that in the short term over “slash & burn” economics. Romney should go back to his Kennedy-esque compound and bask in his wealth. Our country is torn apart enough as it is.

  7. gary13136 January 16, 2012

    For those of you who may not be familiar with Google’s “Job Central” website, it is a website that lists current job openings around the country. For the past year, one of the most prominent job posters has been Staples; at least here in the Asheville, NC area. I’ve not applied to them, though. It seems to me that if a business regularly posts job openings, especially in our “down” economy, it must be because it’s not a very pleasant place to work. Regular job openings in a company would indicate to me that it’s not a place I would want to work. The employees are probably “job flexibilitied” to the point of exhaustion. Something to think about.

  8. tjmnewknee January 16, 2012

    Romney is a unscrupleous bastard. He is as big a liar ad Trump


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