The New York Magazine
points out a fact that even the Romney campaign must by now be painfully aware of—that Romney's career at Bain Capital is his Achilles heel.
The New York Times
reports that Obama hit at Romney on Friday by citing a recent Washington Post
report that Romney's firm, Bain Capital, invested in companies that outsourced American jobs. According to The New York Times
, Obama said at a campaign rally in Tampa: “My plan will stop giving tax breaks to businesses that ship jobs and factories overseas, and start rewarding companies that create jobs and manufacturing right here in the United States of America. Now, Mr. Romney disagrees with this.Today, it was reported in The Washington Post that the companies his firm owned were ‘pioneers’ in the outsourcing of American jobs to places like China and India. Pioneers! Let me tell you, Tampa, we do not need an outsourcing pioneer in the Oval Office. We need a president who will fight for American jobs and fight for American manufacturing.”
Obama campaign senior adviser David Axelrod, also took the opportunity to react to a new Romney campaign video that promises that Romney would "stand up to China" and "demand a level playing field for our businesses and workers.” He commented that with Bain's track record of relocating American jobs overseas, Romney's statements are "breathtaking hypocrisy."
Romney's Bain Capital troubles
The latest attacks against Romney from the Obama campaign come via The Washington Post's
article detailing Bain Capital's record of outsourcing American jobs to low-wage countries like India and China. Fresh attacks have also come from The New York Times
article that documents the seemingly less than ethical survival strategies the company appears to have mastered. Critics describe Bain Capital as a financial vampire that drains working capital lifeblood out of companies it controls even while the company totters on the brink of failure.
The Washington Post
article draws contrast between Romeny's campaign promise of bringing jobs currently outsourced overseas back to the United States and the evidence from Bain's Securities and Exchange Commission filings that the equity firm has been investing in companies that specialize in outsourcing jobs since the early nineties.
The Washington Post: Romney's Bain Capital outsources American jobs
According to The Washington Post
, Bain's business foray into outsourcing began in 1993 when the firm invested in the company called Corporate Software Inc.(CSI). Bain Capital helped to finance a $93 million buyout of the firm. CSI provided outsourcing of customer support services to tech companies such as Microsoft. At first, CSI employed U.S. workers but by the mid-1990s the company was setting up call centers outside the U.S.
Soon after Bain invested in CSI, the company merged with another firm to form Stream International Inc. The new firm became aggressively involved in setting up overseas calls centers with Bain active in the management of the company and providing “general executive and management services."
The Washington Post
reports four major outsourcing-related acquisitions by Bain Capital during Romney's tenure at the firm. The Washington Post
notes, however, that some of their most aggressive expansion in the outsourcing field took place after Romney left the firm in 1999.
The Romney campaign has responded to the The Washinngton Post
story. According to Politico
, the campaign criticized the story as "fundamentally flawed." Romney spokeswoman Andrea Saul, said: “This is a fundamentally flawed story that does not differentiate between domestic outsourcing versus offshoring nor versus work done overseas to support U.S. exports. Mitt Romney spent 25 years in the real world economy so he understands why jobs come and they go... As president, he will implement policies that make it easier and more attractive for companies to create jobs here at home. President Obama's attacks on profit and job creators make it less attractive to create jobs in the U.S.”
notes the fact of the Romney campaign's limited response that fails to directly address the issues raised in Tom Hamburger's The Washington Post
comments: "It doesn’t address Post reporter Tom Hamburger’s lengthy documentation of Bain’s involvement in foreign companies and companies that created jobs outside the United States, including Corporate Software Inc., Modus Media, GT Bicycle Inc., SMTC Corp. and Hyundai Electronics Industry. The difference between moving U.S. jobs overseas and creating jobs at foreign facilities, rather than American ones, is a potentially important political distinction... on the information we've seen so far, this looks like a cleaner and harder hit than some of the other Bain stories we've seen this cycle."
The Romney campaign also responded to Obama's comment in Tampa. According to The New York Times
, Andreas Saul, Romney's spokeswoman, spoke rather vaguely,“President Obama continues to use false and discredited attacks to divert attention from his abysmal economic record."
The New York Times: The Bain Capital Vampire
The New York Times
also runs a story based on information gleaned from Securities and Exchange commission filings, giving details of the several instances in which Bain made profit by taking over companies and simply proceeding to bring them to bankruptcy by methodically draining their working capital lifeblood. The New York Times
reports: "[Bain] held a majority stake in more than 40 United States-based companies from its inception in 1984 to early 1999... Of those companies, at least seven eventually filed for bankruptcy... In some instances, hundreds of employees lost their jobs. In most of those cases, however, records and interviews suggest that Bain and its executives still found a way to make money."
The steel manufacturer GS Industries steel mill in Kansas City, Mo., was made vulnerable by debt taken on to return money to Bain and its investors in the form of dividends or share redemption. Bain acquired GS Industries in 1993 with an investment of $8.3 million. But about a year later, GS issued $125 million in debt some of which went to pay a $33.9 million dividend to Bain. Bain re-invested about $16.2 million in the steelmaker but the company experienced a downtown in the late 1990s and finally filed bankruptcy in 2001. But Bain's investors still earned at least $9 million.
According to The New York Times
, Bain capital continued "religiously" collecting "$950,000-a-year advisory fee" in quarterly installments from GS to the very end .
The New York Times
reports that even while Bain investors lost money in a company that goes bankrupt, Bain would still earn millions in advisory and other fees. Cambridge Industries for instance, was forced to pay fees and penalties to Bain even when it was insolvent.
Bain collected $10 million in fees from Cambridge over five years including $2.25 million payment for buying the company. But during the period, Bain's investors watched their $16 million investment in Cambridge wiped out.
Cambridge went bankrupt after interest payments were outstripping its operating income. In a refinancing bid to lower interest payments, Cambridge paid $17 million it owed to a debt fund owned by Bain and a $2 million prepayment penalty. The company was finally forced into bankruptcy in 2000 when Bain refused to provide the company capital to fulfill a new order.
According to The New York Times
, Michael Stamer, a lawyer for the unsecured creditors committee, wrote to Bain’s lawyers, complaining: "We have been unable to identify what, if any, 'reasonably equivalent value' the Company received in exchanges for these exorbitant fees... It appears, instead, these fees were nothing more than a device used by Bain to provide a return on its equity."
Cambridge piled up losses for three consecutive years and finally filed for bankruptcy in May 2000 having accumulated debt of more than $300 million.
Another documented case was Ampad, a paper products company Bain acquired in 1992. The company grew through a series of acquisitions and increased sales but its debt piled up to nearly $400 million. It filed for bankruptcy in 2000 with Bain and its investors making a profit of more than $100 million on their $5 million investment. The company, before it filed for bankruptcy, had paid at least $17 million in fees to Bain.
Bain's signature pattern is reproduced in DDi, a circuit board maker that had expanded aggressively in the late 1990s with sales soaring. But even as sales soared so did its debts. It filed for bankruptcy in 2003 and as usual Bain's investors profited in excess of $100 million with Bain collecting "fees" of more than $10 million.
Dade International, a medical supply company, in which Bain invested in 1994, filed for bankruptcy in 2003 after it borrowed heavily to pay $420 million to Bain and other investors over several years.
Yet another case was Anthony Crane, a crane rental company. A downturn in the building industry hit the company, and it filed for bankruptcy in 2004, wiping out $25.6 million from Bain’s investors and $9.5 million from Bain employees. Bain, however, had collected a total of $12 million in fees before the company filed for bankruptcy.
Bain business experience, a case for Romney's presidency?
Romney's apologists say anyone familiar with the way the capitalist economy works knows that such practices are routine in the daily business of equity firms. But critics
maintain that the essentially selfish survival oriented practices of private firms such as Bain do not provide model for running government business and that the deeper the insight gained into how such private businesses make profits and thrive the more difficult it is to explain how such experience recommends a candidate's presidency.
United States is one of the few countries in the world where private business experience is over-rated in a candidate's credentials for presidency. Romney's critics
have said that the way businesses work in a free market economy is very different from the way goverment business is run and that success in business does not necessarily make a compelling case for a bid for executive position in government. Businesses balance accounts to make profits by any means, foul or fair. Governments manage fiscal policy to promote macro-economic stability and may run on deficits to that end. There are fundamental differences between the way a private business is managed and the way government business is run that constitute conflicting approaches to management that American voters may overlook. A good businessman who takes his "Darwinian survival strategies"
business experience too seriously may come to government with a completely wrong notion of how government business should best be run.
Obama and his team are waking up to the evidence that Romney's efforts to make a case for his presidency by touting his experience at Bain could be made to backfire if they do their homework thoroughly. Romney too often seeks to impress American voters by suggesting that his experience in the "real economy" with "turning around troubled companies and helping to start new ones, producing jobs in the process, has prepared him to revive the country’s economy." But the evidence being unearthed by his opponents show that Bain and most other equity firms do not make profits in the down-to-earth honest way "mom-and-pop" businesses do in the "real economy," but literally as predatory tiger sharks prowling the murky waters of the laissez fairez
system seeking whom to devour.
The New York Times
notes aptly that "Bain structured deals so that it was difficult for the firm and its executives to ever really lose, even if practically everyone else involved with the company that Bain owned did, including its employees, creditors and even, at times, investors in Bain’s funds."
The questions now being asked is whether the quality of "experience" Romney accumulated with Bain makes any case for his presidency.
The video below shows a pro-Obama PAC Priorities USA ad featuring former employees of a company Bain took over but sent into bankruptcy. The video features a laid-off worker recalling how he was told to set up a 30-foot stage outside the plant that turned out to be for no purpose beside for Bain executives to stand on while announcing to employees that they'd just lost their jobs.