Charles Krauthammer said Newt Gingrich was speaking like a “socialist” because Newt, responding to Mitt Romney’s demand that Newt give back the consulting money he earned from Freddie Mac, said that he’d consider it if Romney gave back the money he earned from bankrupting companies and laying off workers.
George Will calls it a “capital crime,” and an attack on capitalism. Wrong.
While Gingrich’s comments were ill-advised on a number of levels, it was not an attack on capitalism or socialist to criticize certain types of predatory takeover practices which were epidemic in the 1980s and 1990s.
What we saw then, in a number of cases, were not true turn-around situations, but stripping companies of assets both explicitly and through extraordinary management fees, leaving a shell of a company and unemployed workers. It may not have been illegal, but it certainly was not something to praise.
I don’t know if Bain under Mitt Romney’s tutelage engaged in such practices. Certainly many people have made the case that it did, and it was used to great effect against Romney in his loss to Ted Kennedy.
A Boston Glove article in 2007, reprinted here, made the case regarding the takeover of Ampad:
In 1992, Bain Capital acquired American Pad & Paper, or Ampad, from Mead Corp., embarking on a ”roll-up strategy” in which a firm buys up similar companies in the same industry in order to expand revenues and cut costs.
Through Ampad, Bain bought several other office supply makers, borrowing heavily each time. By 1999, Ampad’s debt reached nearly $400 million, up from $11 million in 1993, according to government filings.
Sales grew, too – for a while. But by the late 1990s, foreign competition and increased buying power by superstores like Bain-funded Staples sliced Ampad’s revenues.
The result: Ampad couldn’t pay its debts and plunged into bankruptcy. Workers lost jobs and stockholders were left with worthless shares.
Bain Capital, however, made money – and lots of it. The firm put just $5 million into the deal, but realized big returns in short order. In 1995, several months after shuttering a plant in Indiana and firing roughly 200 workers, Bain Capital borrowed more money to have Ampad buy yet another company, and pay Bain and its investors more than $60 million – in addition to fees for arranging the deal.
Bain Capital took millions more out of Ampad by charging it $2 million a year in management fees, plus additional fees for each Ampad acquisition. In 1995 alone, Ampad paid Bain at least $7 million. The next year, when Ampad began selling shares on public stock exchanges, Bain Capital grabbed another $2 million fee for arranging the initial public offering – on top of the $45 million to $50 million Bain reaped by selling some of its shares.
Bain Capital didn’t escape Ampad’s eventual bankruptcy unscathed. It held about one-third of Ampad’s shares, which became worthless. But while as many as 185 workers near Buffalo lost jobs in a 1999 plant closing, Bain Capital and its investors ultimately made more than $100 million on the deal.
Again, nothing illegal, but certainly fair game in evaluating Romney’s claim to business acumen and ability to turn around the economy and create jobs. And bringing it up was no worse than Romney demanding that Gingrich return money he lawfully earned for consulting Freddie.
Don’t think shutting Republican candidates up about it is going to make the problem go away. You can be sure that Obama researchers have spent months if not years digging into old Bain deals and digging up similar instances:
Romney’s opponents in both parties have already begun preparing files on his Bain years, raising the prospect that a drip-drip of opposition research could sap Romney over the course of a long campaign.
“The Romney people are going to have to say he helped the economy and Bain Capital invested in startups and created jobs. He’s going to want to talk about Staples,” said former Mike Huckabee campaign manager Chip Saltsman. “His opponents are going to want to talk about the ones where he came in and bought everything and sold everything.”
Romney is going to have to deal with his Bain history. Criticizing any predatory practices — if they took place — is not talking like a socialist.
How bad the Bain problem will be if Romney is the nominee against Obama remains to be seen. It is another of Romney’s “known unknowns.” Better we find out now.DONATE
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