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October 29, 2012 10:36 am

The Amend Corner: Is Romney really a businessman?

Written by Don Amend

It’s not often that a conservative bashes a Republican presidential candidate just before the election, but that happened this week.

The conservative is David Stockman, who served as Ronald Reagan’s budget director during his first term. Stockman’s conservative credentials are that he proposed big spending cuts and resigned, according to his book, “The Triumph of Politics,” because Reagan didn’t support them.

This week, Stockman, in an article for Newsweek, denounced Mitt Romney’s claim to be a businessman and job creator based on his career as head of Bain Capital. Stockman argues that Romney was not a businessman, but “a master financial speculator who bought, sold and stripped businesses” without creating or delivering any products or services to justify the millions of dollars his company made. And because Stockman also ran a private investment company, he knows what he is talking about.

This is not a new accusation. Romney’s Republican opponents in the primaries raised the same issue. One of them — I forget which one because most of them were quite forgettable — called it “vulture capitalism.”

Now this article is pretty tough to wade through, so you should read the whole article to get the whole story. But one example Stockman provides involves a company that many Powell people will recognize, and a Bent Street store that disappeared about a decade ago. I’ll try to tell the story as clearly as I can.

Between 1984 and 1999, the years Romney founded and ran the company, the stock market went through a huge expansion. During that period, investors like Bain invested in many companies through leveraged buyouts, so very little of their own money was put at risk. Because of the stock market boom, most of the companies grew in value and, without doing a thing, Bain made money. Most of the $2.5 billion in profits the company made, though, came from 10 of the companies Bain invested in, and four of those companies went bankrupt.

One of those companies was Stage Stores, Inc., which Bain bought for $10 million in a leveraged buyout involving junk bonds.

During that time, such stores were struggling to compete with Walmart and other big box stores. Still, over the next few years, Bain spent around $400 million buying such small stores and adding them to Stage Stores, and they continued to struggle.

Instead of addressing the competitive problems of Stage, though, Bain had the company issue $300 million in junk bonds and used the money to purchase C.R. Anthony, a chain of 250 stores, one of which was in Powell, and integrate them into the Stage chain. Nothing was done to make the stores more competitive, so they were still losing out to Walmart, but because the chain had grown by 250 stores, Bain could show investors that Stage was a “growth company” and the stock doubled during the “dot.com bubble” of the ‘90s.

In 1997, Bain, which actually owned only a handful of the stores itself, sold its Stage, Inc. stock, leaving the company with huge debt  and virtually no assets. In 1999, the economy turned down, and, without any cushion to fall back on, Stage declared bankruptcy, ending 5,000 jobs. Bain made $175 million profit on a $10 million dollar investment and left others to cover the debt Bain put the company in.

Romney claims the company was growing while Bain owned it, but Stockman says the deficiencies in the stores’ inventories and marketing did not suddenly materialize after Bain sold out, but had been growing for years, and by stripping the company of assets, they doomed it to eventual bankruptcy.  Bain simply timed their exit before the inevitable collapse came.

I have picked only one instance from Stockman’s article because of the Powell connection, but there is much more to the story. In the end, Stockman says, bad government policy has made leveraged buyouts such as those Bain Capital practices “monsters of the financial midway that strip-mine cash from healthy businesses and recycle it, mostly to the top 1 percent.” 

I know and respect many real businessmen, and I certainly don’t begrudge them the money they make, no matter how much it is. I have worked for several, and I know they work hard to earn what they get. In fact, a lot of them are probably underpaid for what they put into their businesses. Neither do I have a problem with the investor who provides those businessmen with the capital. Investors like that are vital to our economy, and they are interested in helping businesses survive.

But that’s not what companies such as Bain Capital do. Having little of their own money at risk, they are indifferent to the success or failure of the companies they invest in, and, if they make a profit, are just as happy to see the companies fail, no matter how many jobs are lost in the process. And, as in this case, they often do it without producing anything of real value.

I agree with Stockman that Romney’s career at Bain doesn’t make him a businessman, and it certainly doesn’t make him a job creator. More to the point, he can’t run the government that way, so as a qualification for president, the experience is worthless.

If I needed another reason to vote against the Republicans this year, that would be it.

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