An instance of looting, he almost says!

THURSDAY, MAY 24, 2012

Tim Noah on Mitt Romney’s conduct: We all owe thanks to Timothy Noah for his new book about income inequality.

(If only someone would read it!)

Now, Noah has described Mitt Romney’s conduct at Bain Capital. Noah was goaded into this discussion by David Brooks’ recent ridiculous column,, which made it sound like Bain was involved in a charity function with respect to that famous steel mill.

How did Romney behave with respect to that Kansas City steel mill? It was “an instance of looting,” Noah says—or rather, he almost says that:

NOAH (5/23/12): Brooks insists that Bain Capital’s purchase of the Worldwide Grinding Systems steel mill in Kansas City, Mo., which eventually went bankrupt, was not—as the Obama campaign ad portrays it—an instance of looting. It was a case of picking up a wounded sparrow fallen from its nest and trying to nurse it back to health. Mother Nature, alas, had other ideas. “The company was in terminal decline before Bain entered the picture,” Brooks writes. “Bain held onto the company for eight years, hardly the pattern of a looter.”

For himself, Noah doesn’t call this “an instance of looting.” He says that’s how the ad “portrays it.”

But does he agree with that assessment? It isn’t real easy to tell:

NOAH (continuing directly): That misstates the problem. Of course private equity firms don’t buy companies with the intent of making them fail. They aren’t like Bialystock and Bloom in Mel Brooks’s The Producers, scheming to succeed by failing. The problem, as Nocera noted, is that when private equity firms manage their acquisitions incompetently, then the pain is felt exclusively by laid-off workers. The private-equity suits don’t suffer at all. This is what economists call “moral hazard” and everybody else calls a rigged game.

According to an authoritative Jan. 6 account by Reuters’ Andy Sullivan and Greg Roumeliotis, Bain Capital’s management of Worldwide Grinding Systems—which the private equity firm acquired in 1993—was a rigged game. Brooks makes much of the fact that Romney was no longer active at Bain by the time GT Technologies, as the company was by then known, went bust in 2001. But Romney was at Bain for most of the 1990s. During that time, according to the Reuters account, Bain was hiring line managers with no experience in the steel business and failing to set aside enough cash for the pension fund. When the company went bust in 2001 the Pension Benefit Guarantee Corp. had to bail out the fund to the tune of $44 million. This covered much, though not all, of the shortfall; according to Reuters, pension benefits “were cut by as much as $400 a month.” Seven hundred and fifty workers lost their jobs.

Bain would have made a lot more money had the steel company succeeded. That it didn’t isn’t entirely Bain’s fault; as Kimberley Strassel pointed out in a Wall Street Journal column, the late 1990s saw a sudden inflow of cheap foreign steel and a steep rise in electricity rates. What’s appalling is that Bain managed to do pretty well even when the steel company failed. Brooks and Strassel both point out that Bain ended up pumping $100 million into GT Technologies. But neither has the bad manners to note that when GT Technologies failed Bain still ended up (according to Reuters) at least $12 million ahead on its eight-year investment. And that doesn’t even count the $900,000 the company annually extracted in management fees through 1999. Such grotesquely unequal outcomes for those at the top and those at the bottom aren’t at all unusual in the private equity business.

Did I mention that the money private equity firms make gets taxed at only 15 percent because it’s capital gains? “Everybody who’s in private equity is really mad at Mitt Romney right now,” Nocera chortled during in his Daily Show appearance. (This was when Romney’s career in private equity was under attack from his primary opponents.) “They’re furious! […] This had been an issue early in the Obama administration—should these guys be taxed like Warren Buffett’s secretary. The issue then faded, kinda went away, and now—hey!—it’s back on the front page again.”

Tax breaks, government bailouts, profit assured even when investments fail. If this is reform, I’d hate to see what corruption looks like.

Did Noah describe this as “corruption?” He didn’t quite say that either! At any rate, there’s lots of information there.

There might even be too much.

But Mitt Romney “loot” that pension fund? That’s what E. J. Dionne has now said (see THE DAILY HOWLER, 5/23/12).

At some point, we ought to cut back on the nuance a bit. Did Mitt Romney loot a pension fund to the tune of $44 million?

That strikes us a rather large sum. Our questions:

Was that pension fund looted by Romney? If not, how should we describe it?

If so, should the public be told?