The bailout for Bain Capital – Part 2

Posted by AzBlueMeanie:

I posted the other day about The bailout for Bain Capital:

When President Obama proposed bailing out the auto industry in 2009, a rescue that was ultimately successful, Willard "Mittens" Romney infamously criticized the plan in a New York Times editorial titled, “Let Detroit Go Bankrupt.”

But when his vulture capitalist firm Bain Capital ran into trouble with one its investments, Bain Capital got a federal bailout. Reuters reported last week in a Special report: Romney's steel skeleton in the Bain closet:

[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.

This was a bailout from the federal Pension Benefit Guarantee Corporation.

But there was another bailout that directly benefitted Bain Capital that kept the vulture capitalist firm from going out of business, and that was negotiated by Willard "Mittens" Romney — loan foregiveness from the FDIC. Jed Lewison reported at Daily Kos: Mitt Romney, who secured a $10 million federal bailout for Bain, calls Obama a 'crony capitalist':

In 1991, [Romney] convinced the federal government to forgive $10 million in debts owed by Bain & Co., a deal that helped prevent his company from failing and ultimately made him millions of dollars. Via Nexis, here's a story about it published on October 25, 1994 in The Boston Globe:

Republican Senate nominee Mitt Romney's rescue of a business consulting firm was achieved in part by convincing the Federal Deposit Insurance Corp. to forgive roughly $ 10 million of the company's debts, according to sources close to the deal and federal records obtained by The Boston Globe.

Romney, whose business acumen has been the cornerstone of his campaign, has said saving the Bain & Co. consulting firm from the brink of bankruptcy in 1991 was the accomplishment that most convinced him he had the mettle to be a US senator.

Bain & Co. and the FDIC agreed to the deal after months of intense negotiations. Moreover, bankers say debt forgiveness is relatively routine when a company is at risk of collapse.

But the $10 million cost to the FDIC raises the question of whether Romney's success, as well as the resurrection of Bain & Co., came partially at the expense of the federal agency that protects US bank deposits.

No doubt Mitt Romney would defend that $10 million in federal aid to Bain & Co. as having prevented the bankruptcy of his firm and as having saved hundreds of jobs. But the corollary of that argument is that Mitt Romney saved Bain & Co. with a $10 million bailout from the federal government—and given that fact, he's the last person on Earth who should be accusing anybody of crony capitalism.

I take exception to the point in the Globe report that "bankers say debt forgiveness is relatively routine when a company is at risk of collapse." I represented two major banks for collections and bankruptcy workouts and I never saw a debt foregiveness from my clients. Then again, I never pursued a collection against the son of a former governor and presidential candidate, so maybe that makes all the difference. It's who you know, and people in high places whom you can call for a favor. That's not business acumen. That is crony capitalism.