"That's capitalism"

That's the Romney campaign defense against charges that Bain Capital is a vulture company that moves in and takes advantage of companies with cash flow problems, turns their equity into debt, and walks away with a fat profit regardless of what happens to the company they took over. Here's what Romney surrogate and potential VP candidate Sen. Rob Portman had to say:
Still, Portman, 56, defended Romney’s business record, dismissing an advertising offensive by President Barack Obama’s re-election campaign that highlights job losses at a steel mill that was taken over in 1993 by Bain Capital LLC, the Boston- based private-equity firm Romney co-founded and led. The mill, GST Steel, filed for bankruptcy protection in 2001.

“You know, that is capitalism,” Portman said. “There are not different kinds of capitalism; there’s the free market, and he can show where his efforts, net, created 100,000-plus jobs -- that’s pretty good,” Portman said of Romney.
Actually, in capitalism, you take risk, and rewards come from the risk-taking paying off. It doesn't come from a guaranteed profit-line whether or not your risk-taking paid off. Capitalism has to do with, you know, capital. That is, the money invested in a business idea to take it to market, so that, hopefully, consumers will find the product useful, buy it, and the investors will recover their investment, or, err, capital. If the company you invested in goes south, you lose your investment. That's capitalism. That is not how Bain Capital works. They do not work by investing in ideas. Rather, they work by fixing the system so that they make money regardless of whether or not the companies they invest in do. That's not capitalism. That's legalized theft.

Take the example of GS Technologies, the Kansas City steel mill that is the subject of ads from the President's campaign. What did Bain do, exactly? They bought majority stake in the company for only $8 million out of Bain coffers. Then, they quickly took all the cash and equity out of the company and replaced it with... debt. Under Bain's majority control, the company issued $125 million in bonds right away, and another $125 million in bonds to pay for a merger later. All that debt for the company, which eventually led it to bankruptcy, however, turned out a cash bonanza for Bain. Even as the company went bankrupt and 750 workers lost their livelihoods, Bain walked away with $16.5 million, including $4.5 million in consulting fees. Speaking of which, I wonder if Sen. Portman or Mitt Romney will explain to me the very capitalistic merit of a company payint its owner "consulting fees." Wonder who makes that decision. No, no conflict of interest there.

Here is more examples of "capitalism," from this very incident. When this company went bankrupt, guess who these captains of industry and epitomes of personal responsibility unloaded their pension obligations on. That's right, the big, bad, government.
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.
Indeed, Bain wasn't the only company dumping its pension obligations on the government.
Comparatively, the GS bailout was one of the pension guarantor's smaller hits. The federal fund swung from a $7.7 billion surplus to a $3.6 billion deficit that year as it struggled to cover bankruptcies in the steel and transportation industries. The failure of LTV Steel, for example, cost the agency $1.9 billion.
The "free market" as Sen. Portman puts it, apparently does not include the contracts these companies freely entered in with their employees - which generated the pension obligations.

What Sen. Portman, Gov. Romney, and the entire Republican party is peddling is not capitalism. It's economic Darwinism. It's corporate welfare. It's exploitation of the free market, and undermining of capitalism. It's privatizing the profits and socializing the losses. Their vision of America is a lot closer to feudalism than capitalism.


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