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All Da King's Men

Vampire Capitalism ?

By David King Published: May 25, 2012

I only know one way to say it - the Obama people are making absolute fools of themselves over Bain Capital's relationship with GST Steel. They are also making fools of themselves for attacking Romney's successful business experience (experience that candidate Obama lacked in 2008, btw).

The Obama campaign ad accuses Romney/Bain of vampire capitalism, of destroying GST Steel  in order to profit from the carnage. A former GST employee says in the ad, "It was like a vampire. They came in and sucked the life out of us".

Not hardly. What Bain actually did was extend GST Steel's life. From the Wall Street Journal:

The real story of GST is that of a private-equity firm trying to spark some life into a uncompetitive, over-unionized industry. Bain's crime here—if that's what you call it—was giving a dying steel plant an unexpected eight-year lease on life.


When Bain bought the Kansas City mill in 1993, steel was a scene of carnage. Global players were pouring out cheap products, and America's high-cost steel plants couldn't compete. The industry had lost 200,000 jobs in preceding years. In 1992 alone, the six largest U.S. steel mills had lost a combined $3 billion. Armco, the company Bain would buy the plant from, would lose $641 million in 1993.


The Kansas City plant was itself dying. At its 1970 height it employed 4,500; by the late 1980s it was down to 1,000. A year before acquisition, Armco had laid off another 75. Its equipment was old; it faced fierce competition at home and abroad.


B.C. Huselton, a vice president of the business at the time, tells me that in 1990 the Armco CEO held a meeting. "He told us, 'Look, we either try to sell it, or we've got to shut it down.'" Armco
had shut down another Kansas City facility, Union Wire Rope, only a few years before.


Bain and other investors stepped in to keep the company alive, because they saw the potential in two product lines - high-carbon rods and grinding media. The Wall Street Journal continues with the story:


The [Bain] strategy worked for a time. The market firmed up and GSI became a U.S. leader in steel rods. In 1994 it felt confident enough to distribute a dividend to investors. In both 1996 and 1997, GSI would realize $1 billion in revenue.

And then came the tsunami. The late 1990s saw a new outpouring of cheap steel from elsewhere around the globe. The Asian financial crisis walloped the mining industry, cutting demand for GST products. The price of GST's electricity and natural gas skyrocketed. The union dug in, refusing to make concessions. By April 1997, it was on strike, shooting bottle rockets at guards. Labor costs spiked, and by 1999 GSI was reporting $53 million in net losses.

In 2001 it would become one of 31 steel companies that went bankrupt from 1993 to 2003. (Mr. Romney left Bain in 1999.) The steel crash was the economic drama du jour, with Congress railing about "dumping."


At the time, GST's union blamed the company's bankruptcy on the political class, for failing to hamstring imports. "We can't compete against the steel imports that are being sold under cost," said the president of GST's union in 2001. "Our pleas fell on deaf ears in the political arena." The Bush administration would ultimately slap on giant tariffs.


Sounds a lot different than the myth Team Obama is pushing, doesn't it ???


There's more the Obama-nauts don't want you to know:


The Obama ad doesn't note that the broader company, GS Industries, employed 3,500 and that the Kansas City plant (with 750 workers) was the only one shuttered. Other plants were bought and operate today. Nor does it mention Bain's other steel investment in the early 1990s, in an Indiana start-up called Steel Dynamics. The firm touts innovative technology and a nonunion workforce. It today reports $6.3 billion in revenue—25 times what it claimed in its 1996 IPO—and employs 6,000.


A private-equity firm looking to quickly strip value from a company—to "suck" the life out of it—does not do so by investing $100 million in modernization and holding on for eight years, through bankruptcy. Bain has surely made its share of mistakes, and one may well have been trying to resuscitate a traditional steel firm in the grip of industry upheaval. The irony, says Mr. Huselton, is that this plant "wouldn't even be in today's news, if it hadn't been the opportunity that came with Bain. Those jobs would have been gone in 1993."


And that, my friends, is what Paul Harvey would call 'the rest of the story'. Remember this when you hear Obama and friends attacking private equity firms, attacking Romney's successful business record, and basically attacking capitalism itself in order to get their guy re-elected.


Here's what Romney said yesterday about Bain:


 "They made about 350 investments since the beginning of the firm, and of those investments, 80 percent of them grew their revenues,” Romney said on “Fox & Friends,” citing a recent statement from Bain’s PR firm that tried to highlight the private equity firm’s positive business record. “So I’m pretty confident that the overall record of the enterprise I helped begin is one that’s pretty solid.”


All investment comes with risk, but an 80% success rate sounds pretty good to me, even if all Team Obama wants to talk about are the failures.

I'm seeing in the Obama campaign people who attack Romney/Bain on two fronts - first, they attack Romney when he makes money, and second, they attack Romney when he doesn't. That way, they ALWAYS have something to complain about. How convenient.







 

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