THE WAY WE ARE: Looting workers’ funds!

TUESDAY, MAY 15, 2012

Update—Barely a ripple: Question:

When he was a full-grown adult, did Mitt Romney loot the pension fund at a Kansas City steel mill?

Further questions: As a result of this looting, did the federal government’s Pension Benefit Guaranty Corporation (PBGC) have to bail Romney out? Despite the bailout, did workers lose a substantial part of their pensions?

Did this looting perhaps occur when Romney was an adult?

The word “looting” is ours, although we’re willing to be told why the term isn’t apt. Otherwise, that is what David Cay Johnston told Ed Schultz in January of this year (see THE DAILY HOWLER, 5/14/12).

Johnston was reviewing a lengthy, detailed Reuters report about this bad conduct by Romney, who was a full-grown adult when the conduct occurred. Once again, we’ll let you see the heart of the Schultz-Johnston exchange:
SCHULTZ (1/12/12): In 1993, Bain Capital became the majority shareholder of a Kansas City steel mill. Now according to Reuters, less than a decade later, the mill was padlocked and some 750 people lost their jobs. Workers were denied the severance pay and health care insurance that they had been promised. And their pension benefits were cut by as much as $400 a month.

How’s that for treating the workers good?

The remaining benefits, by the way, were paid by the Pension Benefit Guaranty Corporation, a pension protection agency in the United States government.

[...]

SCHULTZ: The scenario that I painted, is it very—is it accurate? You know, I mean, is this what companies do? Is this what these financiers do? They go around looking for companies that have it pretty good, have a bank account, have assets, go in there and do the dirty deed? What do you think?

JOHNSTON: Well, the record on Romney is somewhat mixed. There are companies that they essentially bought, sucked all the cash out of them, and then left behind. And I think the pension guaranty issue is one that will cause him a lot of problems, and a lot of explaining is necessary about why the government had to step in in this area.

[...]

SCHULTZ: Did Bain profit from reducing pensions?

JOHNSTON: Oh, there’s no question that they were able, in the particular case that was mentioned involving the steel mill, to take money out of this company, it didn’t have a properly funded pension, and fob it off on the Pension Benefit Guaranty program...There are other parts of it that have not come out yet with other companies, where they made changes to the benefit programs for workers.
According to Johnston, Bain underfunded the pension system, then “fobbed it off” on the PBGC. “I think the pension guaranty issue is one that will cause [Romney] a lot of problems,” he said. According to Johnston, “a lot of explaining is necessary about why the government had to step in in this area.”

(Quoting from the Reuters report: “The U.S. Pension Benefit Guaranty Corp, which insures company retirement plans, determined in 2002 that GS [Bain] had underfunded its pension by $44 million.” Bain had done this even as it took large profits and fees from the company.)

As we noted yesterday, Johnston’s political judgment seems to have been faulty in this matter. Back in January, major newspapers took a pass on the detailed Reuters report. More specifically, the Washington Post didn’t say a word about the underfunding of the pensions. With exception of Schultz, who struggled to explain this conduct, none of the children at MSNBC wasted their time on this matter.

In this way, we may have learned a bit about The Way We Are. Just a guess:

Despite our poses and protestations, we don’t seem to care a whole lot when average people get their pensions and their health care stolen. Reports of such conduct produce little stir, even on The One True Channel, where the world’s most heartfelt progressives sell puddles of piddle each night.

Romney’s looting of those pensions didn’t seem to matter much at the Washington Post. But then, it didn’t seem to matter to Rachel Maddow or even to Lawrence!

On the same night Johnston spoke with Schultz, Maddow devoted a very long segment to the way Romney allegedly mistreated his dog in 1983, a matter she has little real way to assess. But what about those people in Kansas City? Maddow never mentioned the story—didn’t seem to care!

Question: Could it be that some of those people may have been tea-bagger types? Given The Way We (Liberals) Are, could that possibly start to explain some part of the general indifference?

Back to the Washington Post: The Post didn’t seem to care about the $44 million worth of underfunded pensions. In January, the paper didn’t devote a single word to the conduct Reuters reported.

This morning, at long last, that has changed. But then again, given The Way We Are, how much has it changed?

Yesterday, the Obama campaign began to push a two-minute ad about Bain. At the New York Times, Michael Barbaro makes his usual hapless attempt to evaluate the ad.

In fairness to Barbaro, he’s at his best when he writes front-page reports concerning Romney’s hair. Given The Way We (Actually) Are, that is a point of high interest.

In the case of the ad about Bain, Barbaro quotes one former steelworker who cites the underfunding of the pensions. But when he reviews the ad for accuracy, Barbaro only talks about the fact that people lost their jobs. He doesn’t have a thing to say about underfunded pensions.

As he types, he goes on and on, offering a wide array of Romney- and Bain-friendly points. Did those people’s pensions get looted? Not in Barbaro’s world!

In this morning’s Washington Post, the disinterest about the underfunding of the pensions persists. In a front-page report about the new ad, Amy Gardner says nothing about the underfunded pensions. But hurrah! In a Fact-Checker piece which appears on-line, Glenn Kessler finally does.

Or does he? Back in January, Johnston said this issue should cause Romney “a lot of problems.” He said Bain took pension money out of the company, then “fobbed it off on” the PBGC.

This is conduct in which Romney engaged as a full-grown adult. With apologies for the length of the excerpt, this is the amount of emphasis Kessler gives to the looted pensions:
KESSLER (5/15/12): Certainly, the Kansas City plant was already on a downward slide when Bain Capital showed up. The ad suggests everything changed for the worse once Bain arrived…but it is possible the plant may not have survived as long as it did without Bain’s investment. A timeline published by the Kansas City Star in 2001 showed the plant had employed 4,500 workers in 1970, but by 1983, it had shrunk to 1,500 workers.

“Poor market conditions forced a wave of layoffs in the early 1980s and led the company to prune its product line,” Reuters reported earlier this year in a lengthy report on the deal. “By the early 1990s, the plant focused on two items: wire for products such as mattress springs and tires; and high-carbon balls and rods used by the mining industry to pulverize rocks. The mill's equipment was out of date and it faced stiff competition from Nucor Corp, which also made grinding balls.”

After Bain made its investment and the company issued new debt, the plant was able to invest in new equipment. Still, the record is clear that Bain reaped a substantial return on its investment—at least $12 million—while the company’s debt burden soared to $378 million. That debt left the company vulnerable when a flood of cheap imports dramatically lowered prices and devastated the U.S. steel industry. More than two dozen steel companies filed for bankruptcy protection during that period.

But how much of this was Bain’s fault—or Romney’s?

The Reuters article quoted union officials as blaming Bain for the saddling the company with too much debt. But Reuters also quoted an analyst as blaming the union—which mounted a strike in 1997 over pension benefits—and noting that all of the steel companies that failed in that period were unionized. And Regelbrugge, the former chief executive, blamed his successor for hiring poor managers. “I have no question that the company would have survived under different management,” he said. (One could argue that was also Bain’s fault.)

Mark Essig, the chief executive at the time of the bankruptcy filing, cited the low prices for steel products but also pointed the finger at the company’s debt load. He told New Steel magazine in 2001 that the company had a debt of $500 million, “which is far too much debt for a company of our size.” The company had net losses of $16 million, $25 million, and $53 million in 1997, 1998, and 1999, respectively—and was making interest payments of $40 million a year.

Essig also cited the high cost of electricity in Kansas City, as well as natural gas. He said the closure of the plant was permanent because “we don’t expect wire-rod, electricity, and natural-gas prices to ever make it profitable.”

In any case, Romney had left day-to-day management of Bain in February 1999 to help organize the Salt Lake City Olympics. So he was running Bain when GS Industries settled the 1997 strike with workers by promising guarantees on their pensions, but he was not there when the company used the bankruptcy process to break those promises and slash those benefits. (The U.S. Pension Benefit Guaranty Corp. later determined that the company underfunded the pension plan by $44 million.)

The Kansas City plant was closed in February 2001. Romney did not legally extricate himself from Bain Capital until shortly before his Olympic tenure ended in 2002. (A 2002 Boston Globe article said he retained a key financial interest until August of 2001.)
Hurrah! That one parenthentical sentence represents the very first time Post readers have heard about this conduct, although they are told on-line. But you can see how much weight this conduct receives in Kessler’s lengthy report.

According to that detailed Reuters report, Romney underfunded a pension plan by $44 million, even as he took large sums from the company. When the company finally went under, the federal government had to step in—and workers lost a large chunk of their pensions even with the federal bailout.

Johnston seemed to think this was very bad conduct—conduct which would cause Romney trouble. But in the months which have passed since that time, we have perhaps gained a better idea of The Way We (Actually) Are.

Why has this bit of adult conduct generated so little interest? We’ve made our first proffer: Mainstream journalists simply don’t care about working-class shlubs in Kansas City, some of whom may resemble modern tea-bagger types. Nor was there much interest at MSNBC, except in the case of Schultz’s efforts; Maddow cared about the dog but not about the workers. Of course, it was Maddow who spent two weeks in 2009 telling dick jokes about such folk, even as she pretended each night that she was somehow being forced to do it.

That too is part of The Way We Are—of the way we actually are, despite our various poses. Tomorrow, a rather strong contrast will appear as our anthropological dig continues: We’ll look at the way the Washington Post treated a second story about Romney’s alleged bad conduct.

Given The Way We Are, underfunded pension plans barely cause a ripple. By way of contrast, a piece of adolescent misconduct by Romney has rocked large parts of our world.

Tomorrow: Was Romney a homophobe? Is he sociopathic? For that matter, how about us?

99 comments:

  1. You say maybe the pension angle is under-reported because some of the looted might be Tea Partiers. That seems a little forced, Bob.

    There are two other, much simpler, explanations:

    * It's under-reported because there are too many moving parts.

    The complexity means our press are just too dumb to analyze it, and it's too easy to move the blame from Bain, to unions, or to managers, or to the decline of steel.

    Which leads directly to explanation number two...

    * It's under reported because it goes against our religion.

    We all have one religion in this country. We worship capital. Our religion, capitalism, demands that the failures are the result of not enough free markets, too much government intervention.

    Under this religion, the very *existence* of U.S. Pension Benefit Guaranty Corp was a market distortion that could be partly blamed for the result!

    ReplyDelete
    Replies
    1. Beautiful analysis, Anon at 10:22. This is why people so often turn to these "gotcha" games for analyzing candidates -- because the ideas are instantly understandable and provoke immediate emotional reactions. When true critique of the system is off the table, there's nothing else to talk about except which candidate you'd rather have a beer with.

      Delete
    2. I'd add that it's a boring topic to people who only care about themselves and people like themselves, since the people in question never worked in a factory and never had to learn how a pension system works.

      But the idea that there's a media conspiracy to never cover the tea baggers? Really? You'd think some people would be more careful about speculating what kind of politics these union workers hold, like bloggers who never met them and constantly criticize other people for assigning attributes to people they've never met.

      Delete
  2. I would not agree with the ""looting" description. Reequipping a failing plant with new production equipment, regardless of debt load, is hardly ""looting." Given the state of the steel industry at the time, with steel plants failing regularly due to imports, it was probably a bad decision, but it wasn't looting.

    The use of pension guarantees in lieu of cash raises was a common tactic, one used by local governments as well, to postpone the problem rather than solve it, and underfunding was not only common, it was inevitable. Bain/GS Industries was hardly the only one to do that; just look at the financial status of state and city governments throughout the US today.

    Romney was gone when GS Industries folded, so how is he responsible for the terms of the bankruptcy, which are set by a bankruptcy court in any case?

    Bain took a $12 million return during the years it owned GS Industries, which is called a "handsome return on its investment" but which I call chicken feed. Bain would have would have gotten a whole hell of a lot more than that had the company succeeded.

    Looting is when you strip assets and sell the carcass, and Bain did the opposite; it added assets and kept the company until it failed in a dying industry.

    ReplyDelete
    Replies
    1. "It added assets" should read "it added DEBT."

      And it's clear what I said above about religion was proven true very quickly, thanks Jayhawk...

      Bain underfunded pensions, added debt, and took profits.

      Sorry if that goes against you belief system!

      Delete
    2. Wouldn't it have been simpler and more accurate to type: "I have no expertise in this field nor knowledge of the particular details of this case"?

      Delete
    3. It undercuts his claim of being a job creator That's not complicated

      Delete
  3. What part of "it is possible the plant may not have survived as long as it did without Bain’s investment" and "After Bain made its investment and the company issued new debt, the plant was able to invest in new equipment" did you not understand? You do comprehend that new equipment is an added asset, right? You do understand that new equipment might actually help the company be more successful, right?

    If you've even been in large corporate management you might understand that equipment is never bought with cash. It is purchased with credit, and debt is incurred in the process. The company was in a condition that it could not secure the credit to obtain the new equipment, and Bain injected enough capital to allow that to happen.

    If Bain was "looting" that company, it would not have allowed the purchase of new equipment, nor would it have allowed the company to function for as long as it did. The company's customer base was largely mining, and mining was in trouble as was the steel industry. A great many steel industries failed in that same time period.

    Bain Capital did do some asset stripping, but GS Industries simply is not one of the samples of that process. It was a company that was using some poor management procedures to stay alive and did not succeed in doing so.

    If you want to talk about underfunding pensions, let's talk about cities and states which have done that not in millions of dollars but in billions of dollars. The grits have not hit the fan yet, but they will, and the taxpayers will foot the bill for that too.

    ReplyDelete
  4. Underfunding of pensions is a tactic used in union negotiations when there is insufficient cash flow to provide raises. The union agrees to pension benefits instead of raises. The underfunding is inevitable, because if there was not enough cash flow for the raises how can there be enough cash to fund the pennsion?

    Cities and states use this so that politicians can get reelected by not having to raise taxes.

    General Motors used it again and again, and later raised wages as well, which cointributed to its economic failure. In its "rescue" which is widely hailed as one of Obama's great accomplishments, and was actually a structured bankruptcy proceeding, the pension was palmed off to the US taxpayer just as the GS Industry pension was, and as US Steel pension was, and as dozens of others have been.

    ReplyDelete
  5. @Jayhawk

    Let's see if we have this right. Bain took out $385 in loans, saddling GS Industry with $40 million in annual interest payments (an unsustainable burden, we're told, for a company in this line of manufacturing), presided over incompetent management, made $12 million in profits, and then led the company into bankruptcy.

    Meanwhile, GS couldn't meet its pensions guarantees, which it escaped through bankruptcy proceeding and which Bain wasn't responsible for anyway, thanks to the way the company was structured (Bain is free to take profits, but isn't responsible for losses). The debt of course, was also GS Industry's, not Bain Capital's, despite the fact that Bain profited handsomely.

    And this you view as admirable or typical business arrangement?

    Let's keep your views on unions and state and city pensions out of it, shall we? The issue is complicated enough, without further obfuscating it.

    Of course, if Romney cares to sell himself as part of a larger corruption of the pension system, rather than as a heroic capitalist saving endangered firms from ruin (rather than looting them) then your views might be relevant.

    ReplyDelete
  6. I don't know, Bob, maybe you're "reciting" a "script" about rapacious robber-baron capitalists and the downtrodden little guy because it's a feel-good novel that makes your moral sense thrill with superiority.

    Wait, what am I thinking? I forgot that when Bob Somerby has a reaction to something in politics it's always authentic, self-aware, and fully formed, but when other people do, it's a pretense, because all they really do is provide pleasingly scripted entertainments to satisfy their audience of dullards and rubes.

    ReplyDelete
  7. "Let's keep your views on unions and state and city pensions out of it, shall we?"

    Hahahahaha. Because when cities and states do it, or when Barack Obama does it with General Motors it's perfectly okay, but when Bain Capital does it it's a heinous crime. That is definitely "obfuscation."

    "an unsustainable burden, we're told"

    Oh, really? Told by whom, precisely? The company I worked for was in precisely the same line of business and had debt payments of, as I recall, some $76 million per year, and we did just fine. $40 million might be sustainable or it might not, but the "line of business" is irrelevant; the cash flow, size, annual sales, and a lot of other factors would determine whether or not it would be sustainable.

    ReplyDelete
  8. Obfuscation???

    The question, of course, is who took profits?

    Romney's Bain did.

    Bain added debt, underfunded pensions and took profits.

    ReplyDelete
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