The Long Version

Retired broadcast journalist. Blogging helps scratch the itch. Recovering exRepublican – Sober and still Conservative.

Posts Tagged ‘President of the United States

Bain Capital and GS Technology…The REST of the Story.

with 8 comments

This is by far a more revealing story—of the pressures of a global market, the dangers of an inflexible workforce, and the opportunities that come with private equity and risk-taking.

It’s not the story the President’s campaign wants the American people to hear however.  It’s much much easier to just blame Bain Capital and, in turn, the President’s political opponent.

The problem is the Obama team knows the majority of Americans are too lazy to dig for information or do their own fact checking.  They want it spoon fed through their TV screens, radios, or laptops.

It’s been said the Truth will set you free.

So here’s a heaping helping from the Wall Street Journal where Kimberley Strassel reported in May the real reasons GS Technology went under.  It isn’t the story the Obama political machine or mainstream media would have you believe.  Not even close.

Taken from the Wall Street Journal – Potomac Watch, Thursday, May 17, 2012

This week the Obama campaign debuted its attack on Bain Capital, the private-equity firm Mitt Romney founded. Its two-minute ad purports to tell the story of GS Technologies, a Kansas City-based Bain investment that went bankrupt in 2001.

To hear the Obama campaign, this is a tale of greed: GST was a healthy, happy, quality steelmaker until Bain plundered its worth and stripped its 750 workers of their due. “It was like a vampire,” laments one former employee in the ad. “They came in and sucked the life out of us.”

GST is a tragic tale, though in a different way. 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.

The Kansas City plant had two product lines—high-carbon rods and grinding media (used in mining)—that it felt could give it a competitive edge. But it needed investment, and Armco was tapped out. Bain nonetheless saw some potential and in 1993 joined other investors to acquire it for $80 million. Management renamed it GS Technologies (which would become part of a larger GS Industries) and poured an additional $100 million into modernization.

The 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.

The bankruptcies were led by unionized companies that, like airlines and textiles and Detroit, had negotiated pay and benefits that helped drive their employers under. GST’s pension benefits would get passed on to the federal Pension Benefit Guaranty Corp., which in 2002 received $7.5 billion in claims from the steel industry alone. The PBGC covered GST’s basic pension payouts.

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.”

Isn’t it amazing what important details provided in context can do?

 

It’s Time to Sacrifice

leave a comment »

Times are tough.

I’ve felt the sting of the economic downturn myself and understand the concept of differentiating between my wants and my needs.  In so doing I have had to cut back significantly on my monthly spending.  It hasn’t been easy.  In fact it’s been pretty damn hard and humbling.  But we’ve done it to the best of our ability and are managing to keep afloat even if that means our noses are just above the waterline.

With that in mind it is with great interest that I follow the current furor over the nation’s budget and the proposals to come out of congress and the White House.

The President ordered the cabinet to cut $100 million from the $3.5 trillion federal budget.

Those numbers are so incredibly large they become surreal to most of us average folks making it tough to really wrap one’s head around it.  So I decided to do some math and get some comparative figures based on my own budget.

You know, to help bring it down to earth.  The one you and I live on at least.

My monthly expenses, prior to my own personal economic downturn, came to about $5000 a month.  That includes my mortgage, car payment, utilities, groceries, household expenses, medical needs, child related expenses,  credit payments, meals out and entertainment, etc.

If I was to follow the lead of the president, taking the same action he took in the face of reduced revenue and the prospects of financial failure and a bankrupt government, I would have to get out the budget cutting axe and bite the bullet!  100,000,000 dollars is a big number.  That has to hurt.

Cutting my spending by exactly the same ratio as the president’s proposal is 1/35,000 of my total budget: 100,000,000 / 3,500,000,000,000 = 1/35,000.

The ultimate burden of sacrifice I would have to ask my family to commit to and share would be…

18 cents.

Kind of puts the whole fiasco in Washington into perspective doesn’t it?

Unfortunately I don’t have a printing press in the basement rolling out sheets of $20’s to supplement my spending habits nor can I vote myself a new debt ceiling to waylay the approaching and open hands of my creditors.

In the personal economies of my world and yours, sacrifice is real.  It can cut deep and be painful. Still, we do what is necessary to provide the needs of our families, we work to improve our situation and over time we hope it gets better.  In the meantime we survive, sometimes with a little help from our friends, families, or religious communities.

What our government is doing through its inability to understand the word sacrifice, by not saying no to its wants, by not being fiscally responsible, by printing money that has no foundational backing, spending recklessly over generations of time, over-taxing its citizens, and not seriously considering balancing its books, is making our personal efforts to improve our own personal economies next to impossible.

For me this isn’t about political parties, ideologies, or the power struggles that pervade the beltway of our nation’s capital.  It’s about liberty.  The freedom to go out and create for myself and my family the means by which we can enjoy the wonderful things and opportunities in our world.

Vote for Liberty in 2012.  Change, as we are learning, is simply too ambiguous and too risky.