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 Brooks makes much of the fact that Romney was no longer active at Bain by the time GT Technologies, as the company was by then known, went bust in 2001.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?


  1. "Looting" implies taking something out illegally.

    I would really like to see a detailed report of exactly what took place. Were any laws broken?

    1. As long as no laws were broken, everything's A OK!

  2. Why didn't the Pension Benefit Guarantee Fund sue Bain to the recover the $44 million+ lost from the pension fund?

  3. Barack Obama's public equity compares unfavorably with Mitt Romney's private equity, says a Washington Post op-ed:

    Obama has invested billions of taxpayer dollars in private businesses, including as part of his stimulus spending bill. Many of those investments have turned out to be unmitigated disasters — leaving in their wake bankruptcies, layoffs, criminal investigations and taxpayers on the hook for billions....

    Amazingly, Obama has declared that all the projects received funding “based solely on their merits.” But...fully 71 percent of the Obama Energy Department’s grants and loans went to “individuals who were bundlers, members of Obama’s National Finance Committee, or large donors to the Democratic Party.” Collectively, these Obama cronies raised $457,834 for his campaign, and they were in turn approved for grants or loans of nearly $11.35 billion. Obama said this week it’s not the president’s job “to make a lot of money for investors.” Well, he sure seems to have made a lot of (taxpayer) money for investors in his political machine.

    All that cronyism and corruption is catching up with the administration. According to Politico, “The Energy Department’s inspector general has launched more than 100 criminal investigations” related to the department’s green-energy programs.

    1. Calling it a "Washington Post op-ed" suggests that it's the opinion of the paper's editorial board. It's not. It's from one of their stable of crackpot columnists, this one a toadying Bush apologist.

  4. Tim Noah didn't quite say *this*, and he only almost said *that*...

    But he *did* say that "everyone" except economists(!) would call the Bain record on WGS "a rigged game."

    People don't like rigged games, especially when they're rigged in favor of the big money guys.

    Is Noah right?

    It certainly sounds like the game is rigged when we hear of $1M annual fees taken out by the private equity managers as companies are ridden to the bottom.

    It certainly sounds like the game is rigged when the managers record multi-million dollar profits even as the underlying companies are extinguished.

    It certainly sounds like the game was rigged when employees' pensions and benefits disappeared while Bain grew fatter.

    That's certainly the way it sounds: the game was rigged for Bain.

  5. Check out Ryan Grim and Hunter Stuart:

    Read their article before viewing the video (which compares many practices of private equity firms to the mob's "bust out" schemes. The video (with Tony Soprano clips interspersed with clips of news coverage about Bain and private equity), I think, could be more effective. The article makes the point better.

  6. Seeing as WGS was on the verge of bankruptcy when Bain took it over, I'm willing to bet that the pension fund was "underfunded" at that time as well. It's pretty hard to "loot" something that wasn't there in the first place.

    Certainly Bain can be faulted for not contributing to the pension fund, but they seemed to be focused on making the company a profitable concern instead. Unfortunately, failing to fund pension plans seems to be widespread. In 2001 the Pension Benefit Guarantee Corp paid over a billion dollars to 268,000 workers in nearly 3,000 failed pension funds, so apparently Bain wasn't the only one "looting" pension funds that year.

    Obviously the workers didn't get the money they were owed, but "looting" implies that there was something there in the first place and I don't think that was the case. Could it be that the term "looting" is being applied to a practice common to struggling companies as an effort to cast an unfavorable light on a political opponent?

    As far as those workers complaining about Bain in 2001, I'm sure they would have preferred to have been thrown out of work back in 1993, eh?. Were those management fees excessive considering Bain kept people employed long past the time the company should have failed?

    1. "they seemed to be focused on makiing the company profitable..."

      Yeah, profitable for Romney and Bain.

      "looting" implies that there was something there in the first place and I don't think that was the case"

      Well, you're wrong.

      Whatever the state of pension funding prior to Bain, Bain *further* underfunded pensions during its tenure.

      So you don't know shit, but you try to spread it anyway.

    2. What do you know, another "Anonymous" that hasn't a clue as to the definition of the term "looted". "Looting" is the act of taking something from somebody. Seeing as there was no money in the pension fund, there was nothing to "loot".

      I don't know what it is with all you "Anonymous" characters, you seem to lack basic comprehension skills as well as being quite vulgar. Do you kiss your mother with that mouth?

    3. Which "Anonymous" chucklehead are you? It's hard to keep the various shades of stupid separated. It looks like you're the "Anonymous" who thinks he's clever when the facts indicate otherwise.

      "Wrong.Again.Idiot." THAT'S the extent of your argument? I'm supposed to bow down to the intellectual superiority of THAT remark? Sorry Charlie, I hate to break it to you, but you're NOT the smartest tuna in the sea. BTW, when you make your >clever< remarks, people are laughing AT you, not WITH you.

      "You want to keep at it?" *Snicker* Ooooh, Mr "Anonymous" is a TOUGH GUY now. Pardon me, I can't feel threatened right now, I'm too busy laughing. You're so tough and you can't even post using a fake name, much less your real one? What are you afraid of Mr "Anonymous"? What are you trying to hide?

      You seem to think you're some sort intellectual titan, able to beat people to the ground with the superiority of your clever arguments. You really ought to stop lying to yourself.

    4. Well, here is where you show that you don't know what your're talking about.

      "I'm willing to bet that the pension fund was "underfunded" at that time as well. It's pretty hard to "loot" something that wasn't there in the first place."

      So you DON'T know how much money is in the pension fund, but only "willing to bet" it was "underfunded" -- but not empty. Then you make the quantum leap from "underfunded" to "nothing in it to loot."

      Now I will admit that since it's sharp turn to the right, The Daily Howler has been attracting a whole new audience -- like you. But there are still people around here who can recognize the aroma of arguments pulled out of hindquarters.

    5. Been reading Daily Howler since the late 90s and it has been consistently left wing, which to me will always (in part) mean attacking partisan facts-be-damned journalism and honoring and defending the fact-based variety. The left only wins a facts-honored public debate ... The right will always have far more money than the left and so if it's just a 'facts irrelevant, who has the bigger megaphone' competition, the left loses. If we can agree on the preceding, what is it that makes you think DH has veered sharply to the right?

  7. Loot is also called"'Ill-gotten gains".

    Many things politicians and corporations do are not illegal, but their gains are nonetheless ill-gotten.

    If you write the laws, or if you donate large sums of money to people who write the laws, this state of affairs becomes the norm.

  8. Okay, one very important item is mentioned in the story but ignored by everyone, Romney wasn't at Bain when this occured! Obama was a chicago Democrat when Rod Blagoiovich was taking bribes. Therefore acording to your logic, Obama is guilty of Blago's bribes! He gets a pass on Rev. Wright because he doesn't remember hearing those racist rants, but Romney is responsible for actions taken by a group he was associated with after he left! Liberal logic at it's best!

    1. Another delightful thread, illustrative of the delightful minds The Howler attracts these days. TobyTucker, who apparently congratulates himself for his bravery in using a fake name, is scaling new heights here.

      In any case, what the Bain defenders here fail to note (in addition to the false claims ("Romney wasn't at Bain when this occurred!") and the absurd rhetorical devices ("I'm willing to bet....") is that Bain's activities are actually taxpayer subsidized.

      The interest on the money these Equity firms borrow (and put on the books of the acquired companies) to finance their acquisitions is tax deductible -- a huge subsidy, even the hundreds of millions borrowed. In addition, the salaries the partners draw, sometimes in the billions, aren't taxed as earned income, but as "carried interest income" -- subject to a maximum rate of 15%.

      So, in effect, the entire enterprise is being paid for by other people who have to make up the difference, because we are, after all, running deficits. Meanwhile, you see what happens to people's pensions, whatever TobyTucker "is willing to bet" about the state of the pension fund.

      In any case, spare me the venom, dear Toby. Just explain why the rest of us should subsidizing Bain Capital.

  9. Shorter:

    Romney looted WGS/GTT while at Bain, then left before the final collapse, therefore Obama is awful.

    Also, because I can't do math, there was never any money in the pension fund, so how could Bain take it?

    Yes, I'll be this stupid forever.

    1. Hey "Shorter" --

      Do you have some deep-seated compulsion to summarize, according to your own lights, every pro-Somerby post favorably, and every anti-Somerby post contemptuously?

      The fact that I agree with you this time doesn't diminish the fundamentally distasteful nature of the exercise.

    2. I agree, but you shouldn't say it.

  10. Here's the problem. You are walking into a briar patch if you think that leveraged buyouts, asset stripping, and the role of private equity can be easily explained in a way that not only people even want to begin to understand, but that portrays Mitt Romney as a robber baron.

    In fact, you are running the risk of making Mitt look like a genius for his ability to figure out how to make money, even when the enterprises he acquires go bust.

    In other words, proving that Mitt wins all the time isn't necessarily a bad trait you want to have in a president.

    It's like saying, "Gee, if Rachel Maddow could only explain neurosurgery in a way people can understand, we'd all be brain surgeons."

    But Mitt has claimed he is a "job creator." Well we have both his record at Bain and as governor of Massachusetts to check, don't we?

    1. 'Mitt the criminal' is easy to explain. I'm sure Obama's team will get off message -- they already have, of course -- into all that other stuff that Mitt and Cory would rather talk about. Cory effectively changed the debate from specific criminality to the abstract 'is private equity bad'? He's already been rewarded by Bain, but this service will expand his Wall Street footprint.