Bain and Our Screwed-Up Culture
We recently saluted Leslie Sabo for giving his life to save fellow soldiers in Vietnam 40 years ago. Injured after shielding a comrade with his body, the Pennsylvanian grabbed his grenade and stormed the foe's bunker. He died in the explosion. For his selflessness, America awarded Sabo the Congressional Medal of Honor.
Weird how we pay tribute to heroes who make the ultimate sacrifice on the battlefield but absolutely worship those who make fortunes wresting every last penny from other members of their company. As many see it: If you're rich, you're automatically a great American. Criticize how someone got rich, and you're a "socialist."
President Obama has been pummeling Mitt Romney over the marauding activities of his former investment company, Bain Capital. Some liberals do go overboard defacing all private equity investing with the same paint sprayer. And Obama's ads portraying Bain's victims employ too many violins for my taste. The problem is not the profession. It's what one does in the course of business.
But even among those intent on making it big, people with a conscience will not cross certain lines. Bain blew across them. There seemed little it wouldn't do for a buck. That makes the prospect of a President Romney overseeing the laws that keep destructive "investing" practices legal and incredibly lucrative worrisome.
I don't see how buying a company, piling on $420 million of extra debt, immediately pulling tens of millions out of the business to pay off investors — all the while slashing the workers' pay — and then leaving the wounded patient to die in liquidation nine years later can be deemed honorable. This is what Bain did to American Pad & Paper as it turned a $5 million investment into a $100 million take.
Bain also stiffed Ampad's unsecured creditors, including a pension fund for some of its workers.
These lenders got back two-tenths of a penny for every dollar Bain owed them.
Bain used a similar strategy at GS Technologies, a steel maker. There it parlayed an $8 million investment into $16 million. When the company went bankrupt, the federal Pension Benefits Guarantee Corp. had to spend $44 million bailing out its underfunded pension plan. And workers saw their pensions slashed by up to $400 a month.
Let's talk about capitalism. Granted, self-interest fuels the "animal spirits" that create our great business enterprises. Because the benefits of capitalism flow down to society at large, we are often at pains to divide ethical behavior from the other kind. Sometimes labor costs must be cut to stay competitive. Not every factory can be saved. And Bain apologists argue with some merit that the companies acquired were in trouble to begin with.
OK, but if a company is in trouble, do you multiply its debt by a factor of 22 and immediately take out millions for yourselves? That's what Bain did at Ampad, and, sorry, "looting" is the word.
And here's another question. What kind of people would walk away from a company with their money doubled but break a promise to workers for severance pay and health coverage if it went bankrupt? This was the case at GS Technologies. You answer that.
After World War II, American culture embraced a belief that labor and management should share in the fruits of capitalism. Those norms have been obliterated to the point that many don't remember they existed. Meanwhile, the worshippers of Mammon hail the corporate destroyers as heroes. A financial elite that prospers by turning workers upside down for the change in their pockets should not be overseeing economic and tax policies for the country. Mitt Romney seems awfully comfortable with the way things are.