Fox's Flawed Attempt To Deflect Attention From Romney's Leveraged Buyout Record


Fox News is pushing fatally flawed analogies to defend Mitt Romney from criticism over his jobs record at Bain Capital, pointing to the Obama administration's green energy loans and the successful rescue of the U.S. auto industry. These comparisons crumble under scrutiny, as leveraged buyouts are different from providing bankruptcy financing or loans.

Obama Campaign Ad Hits Romney On Jobs

New Obama Campaign Ad Highlights Bain's Takeover Of Steel Mill Under Romney's Leadership. In a new ad, the Obama campaign tells the story of how venture capital firm Bain Capital, which Romney led at the time, took over Kansas City steel mill, GST Steel. GST eventually went bankrupt, resulting in hundreds of workers losing their jobs and much of their pensions. However, Bain's executives walked away with millions of dollars in profit. [YouTube, 5/14/12]

Fox News: Romney Should Respond By Hitting Obama Over Auto Rescue, Solyndra

Byron York: Auto Rescue Is Similar "In Essence" To Bain's Steel Mill Bankruptcy. Fox News contributor Byron York, also the chief political correspondent at the Washington Examiner, wrote:

The Obama campaign has released a new ad holding Mitt Romney responsible for the loss of 750 jobs in the bankruptcy of a steel plant purchased by Romney's Bain Capital in 1993.


How will Romney respond? The Romney campaign has given some broad hints lately. First, the campaign has carefully scrutinized Romney's entire record at Bain and believes it is a strongly positive one overall. But that is the big picture -- there are individual instances in which Bain investments failed. Given that, look for the Romney campaign and its surrogates to counterattack by focusing on an instance in which Barack Obama, in essence, took over a company and laid people off in an effort to save the larger enterprise.

That was, of course, the auto bailouts, and while Obama often cites his success in "saving" the car industry, few remember today how many (non-union) workers lost their jobs in the Obama administration's handling of the matter. During the economic crisis, General Motors and Chrysler shut down more than 700 dealerships, resulting in the loss of tens of thousands of jobs. And the companies did it under pressure from Obama. [Washington Examiner, 5/14/12]

Brit Hume: Romney Could "Fire Back" By Highlighting Auto Rescue, Solyndra. Fox News senior political analyst Brit Hume stated:

HUME: One way would be to fire back at the president for his record on job creation for what happened to the workers at a place like Solyndra, where the administration, I guess, encouraged that company to hire people and generate a business, and then it went bankrupt and everybody lost, including the workers and the taxpayers.

You could talk about the dealerships, auto dealerships that were closed down when the government got control of a couple of the auto companies, an awful lot of people lost jobs, businesses were closed, and so on. [Fox News, America's Newsroom, 5/14/12]

But The Auto Rescue Plan Cannot Be Compared With Bain's Leveraged Buyouts

New York's Jonathan Chait: Comparing Bain's Actions To Auto Rescue Is "Fairly Silly." New York magazine writer Jonathan Chait wrote:

The transformation of American business is deeply unpopular. It has made working life less secure and has failed to deliver broad-based prosperity even while it has bestowed enormous riches on the most fortunate. The locus of public opinion on it in many crucial ways sits well to the left of what either party proposes. Many Americans want to go back to the days when corporations offered secure employment and generous benefits.

That's why, interestingly, Romney is not trying to fight against the currents of public opinion but glide along with them. His response to Obama is telling. As reported by Byron York, Romney plans to hit back at Obama by citing the auto bailout, which imposed some of the same kinds of restructuring that Romney used at Bain: wage cuts for workers, incentive payments, and so on. The comparison is fairly silly, because the key point is that Romney's career produced huge gains for owners of capital, and the auto bailout forced them to swallow huge losses. But it shows Romney's recognition of what the voters want. [New York, 5/14/12]

Wash. Post's Sargent: "Obama Didn't Personally Profit When He Bailed Out The Auto Companies." The Washington Post's Greg Sargent wrote:

If this is indeed the comparison the Romney campaign plans to pursue, it's a curious one. After all, Obama didn't personally profit when he bailed out the auto companies. By contrast, Bain walked away with at least $12 million in profits after its episode involving GST Steel, the company that is the subject of Obama's ads. More broadly, Jon Chait notes: "Romney's career produced huge gains for owners of capital, and the auto bailout forced them to swallow huge losses."

Beyond this, what's really curious about this counterattack is that it only helps underscore the philosophical difference between the two that the Obama campaign is trying to highlight with the Bain attacks.


[W]hen Romney invokes the auto bailout, all he does is remind us of an instance where his economic worldview broke down -- where his philosophy compelled him to advocate for what likely would have been a disastrous course. This worldview led him to originally argue that the bailout would guarantee the auto industry's certain demise. This worldview obliges him to continue arguing that the auto industry would be in better shape today than it is now if Obama had not pursued a government "intervention." Many experts dismiss Romney's claims about the bailout as thoroughly wrong on several levels .

Obama, by contrast, argues that an unfettered free market is not a total cure-all. He argues that sometimes active government is necessary to help those who have been damaged by free market excess or to step in when the consequences of allowing unfettered capitalism to run its course could damage thousands of lives. In service of this larger point, the Obama campaign is very happy to engage in a dispute over the auto-bailout, a clear cut case where this argument turned out, by most accounts, to be thoroughly vindicated. If anything, invoking the auto-bailout in the context of the battle over the Bain years only reinforces the larger contrast of economic worldviews the Obama team hoped to draw with the Bain ads in the first place. [The Washington Post, 5/14/12]

Bain Used Leveraged Buyouts To Maximize Return To Shareholders

LA Times: Romney's Leveraged-Buyout Strategy Was "To Create Wealth For Your Investors." From the Los Angeles Times:

Under Romney's leadership, Bain became one of the nation's top leveraged-buyout firms, helping lead a trend in which companies were acquired using debt often pledged against their own assets or earnings.

Bain expanded many of the companies it acquired. But like other leveraged-buyout firms, Romney and his team also maximized returns by firing workers, seeking government subsidies, and flipping companies quickly for large profits. Sometimes Bain investors gained even when companies slid into bankruptcy.


Bain managers said their mission was clear. "I never thought of what I do for a living as job creation," said Marc B. Walpow, a former managing partner at Bain who worked closely with Romney for nine years before forming his own firm. "The primary goal of private equity is to create wealth for your investors."


Leveraged buyouts allow investors to purchase businesses with the acquisition funded sometimes by significant amounts of debt. To critics, these leveraged deals can make acquired companies more vulnerable to economic downturns, leading to a greater likelihood of bankruptcy and job cuts. At the same time, the deals sometimes introduce discipline to firms and even whole industries that need it.

Either way, Bain investors typically profited. [Los Angeles Times, 12/3/11]

Boston Globe: With Failing Businesses, Romney "Never Suggested They Had To Do Something To Save Workers' Jobs." From a January 27, 2008, Boston Globe article:

The primary objective, of course, was to make money. That meant every job couldn't be saved. Some strategies, such as a roll-ups, are designed at the outset to cut jobs. In roll-ups, similar firms in the same industry are acquired and combined to boost revenues while eliminating duplicative jobs, particularly in administrative areas such as payroll, personnel, and information technology.


In assessing deals, Romney and partners didn't consider whether they saved or created jobs, according to a former Bain employee who requested anonymity, citing confidentiality guidelines. When Bain partners discussed shutting down failing businesses in which they invested, Romney never suggested they had to do something to save workers' jobs. "It was very clinical," the former employee said. "Like a doctor. When the patient is dead, you just move on to the next patient." [The Boston Globe, 1/27/08]

Reuters: Under Bain Ownership, Steel Mill Went Bankrupt, But Bain Reaped $12 Million Profit And $4.5 Million In Consulting Fees. In October 1993, Romney's Bain Capital became the majority shareholder in a group of investors that bought the Kansas City steel mill renamed GS Technologies. From Reuters:

[I]n October 1993, Bain Capital, co-founded by Mitt Romney, became majority shareholder in a steel mill that had been operating since 1888.

It was a gamble. The old mill, renamed GS Technologies, needed expensive updating, and demand for its products was susceptible to cycles in the mining industry and commodities markets.

Less than a decade later, the mill was padlocked and some 750 people lost their jobs. Workers were denied the severance pay and health insurance they'd been promised, and their pension benefits were cut by as much as $400 ... a month.

What's more, a federal government insurance agency had to pony up $44 million to bail out the company's underfunded pension plan. Nevertheless, Bain profited on the deal, receiving $12 million on its $8 million initial investment and at least $4.5 million in consulting fees. [Reuters, 1/6/12]

LA Times: Under Bain Ownership, Steel Mill "Cut Jobs And Benefits Almost Immediately." As the Los Angeles Times reported:

Leveraged buyouts allow investors to purchase businesses with the acquisition funded sometimes by significant amounts of debt. To critics, these leveraged deals can make acquired companies more vulnerable to economic downturns, leading to a greater likelihood of bankruptcy and job cuts. At the same time, the deals sometimes introduce discipline to firms and even whole industries that need it.

Either way, Bain investors typically profited.

That was true in the case of GS Industries, the 10th-biggest Bain investment in the Romney years. Bain formed GSI in the early 1990s by spending $24 million to acquire and merge steel companies with plants in Missouri, South Carolina and other states.

Company managers cut jobs and benefits almost immediately. Meanwhile, Bain and other investors received management fees from GSI and a $65-million dividend in the first years after the acquisition, according to interviews with company employees.

In 1999, as economic challenges mounted, GSI sought a federal loan guarantee intended to help steel companies compete internationally. The loan deal was approved, but in 2001, before it could be used, the company went bankrupt, two years after Romney left Bain. [Los Angeles Times, 12/3/11]

Reuters: Bain's "Failed Investment" In Steel Mill Led To "A U.S. Bailout." After the steel mill went bankrupt, the federal government had to bail out its underfunded pensions plan:

The story of Bain's failed investment in the Kansas City mill offers a perspective on a largely overlooked chapter in Romney's business record: His firm's brush with a U.S. bailout.

His supporters say the pension gap at the Kansas City mill was an unforeseen consequence of a falling stock market and adverse market conditions. But records show that the mill's Bain-backed management was confronted several times about the fund's shortfall, which, in the end, required an infusion of funds from the federal Pension Benefits Guarantee Corp.


The U.S. Pension Benefit Guaranty Corp, which insures company retirement plans, determined in 2002 that GS had underfunded its pension by $44 million. The federal agency, funded by corporate levies, stepped in to cover the basic pension payments, but not the supplement the union had negotiated as a hedge against the plant's closure. [Reuters, 1/6/12]

While Obama Administration Used A Structured Bankruptcy To Rescue GM, Chrysler

McClatchy: GM And Chrysler Went Through "Government-Sponsored Bankruptcy" In 2009. McClatchy reported that GM would move through an accelerated "government-sponsored bankruptcy":

Administration officials said late Sunday the federal government would provide an additional $30 billion to GM -- which has already received about $20 billion in government loans -- to help it restructure through bankruptcy. GM will follow a similar course taken by Chrysler LLC, which filed for Chapter 11 protection in April and hopes to emerge from its government-sponsored bankruptcy this week.

The officials, speaking on condition of anonymity in advance of Obama's public remarks, said the administration expects the court process to last 60 to 90 days. If successful, GM will emerge as a leaner company with a smaller work force, fewer plants and a trimmed dealership network. [McClatchy, 6/1/09, via Cleveland Plain Dealer]

U.S. Now Owns A 26 Percent Stake In GM. According to The New York Times, "the Treasury Department still owned a 26 percent stake" in GM as of the beginning of May 2012. This is down from the roughly 60 percent stake owned when GM left bankruptcy in July 2009. [The New York Times, 5/3/12]

Center For Automotive Research: Auto Rescue Saved More Than 1 Million Jobs In 2010. In November 2010, The Wall Street Journal reported that a study from the Center for Automotive Research found that the auto rescue saved well over 1 million jobs:

No matter what happens with Government Motors, the taxpayer intervention in the auto business appears to be a win for Americans, a new research report asserts.

The Center for Automotive Research said today the government's bailouts of the U.S. auto industry spared more than 1.14 million jobs last year alone, and prevented "additional personal income losses" of nearly $97 billion combined for this year and last.

Another 314,400 jobs were saved this year thanks to the $80 billion in taxpayer lifelines extended to GM, Chrysler, and the GMAC and Chrysler Financial financing businesses, CAR said. [The Wall Street Journal, 11/17/10]

Bain Comparisons To Solyndra Are Also Fraudulent

Solyndra Was Given A Loan Guarantee, Not Leveraged For Profit. From a Department of Energy press release announcing the loan guarantee extended to Solyndra in March 2009:

Energy Secretary Steven Chu today offered a $535 million loan guarantee for Solyndra, Inc. to support the company's construction of a commercial-scale manufacturing plant for its proprietary cylindrical solar photovoltaic panels. The company expects to create thousands of new jobs in the U.S. while deploying its solar panels across the U.S. and around the world. [Department of Energy, 3/20/09]

Talking Points Memo: Comparison Between Bain Business Model And Solyndra Loan "Is Misguided On Many Levels." Talking Points Memo's Pema Levy wrote:

The comparison is misguided on many levels and only makes sense if you fundamentally misrepresent both what private equity at Bain meant in practice, and what happened at Solyndra. As a private equity firm, Bain Capital invested in companies and came up with a plan for making them profitable, or more profitable than they previously were. It wasn't merely an investment -- that's venture capitalism -- because it included a business strategy. Sometimes the plan was to lay off workers and cut wages and benefits. Sometimes the strategy failed and the company went under. But Romney, as CEO of Bain, was in charge of strategies that called for laying off workers while benefiting shareholders. None of that is true of Solyndra, where the company was loaned money to follow through on its own projects but ultimately failed anyway. [Talking Points Memo, 1/8/12]

Posted In
Economy, Jobs, Wages, & Unemployment
Fox News Channel
Brit Hume, Byron York, Martha MacCallum
America's Newsroom
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