It's a pretty gruesome tale, that Bain Capital ad that the Obama campaign produced. It begins with a good company making quality steel products and a band of brothers proud of their work and putting their sons and daughters through college. Then Bain Capital sunk its fangs into the factory and bled it dry. Folks should have been suspicious when that truck pulled up just after dusk and the Karl Rove clones carried a coffin shaped box into the management suite. Count Romney had arrived.
The only problem with the ad is that it is a bald faced lie. Here is David Brooks at the New York Times.
The Obama attack ad accused Bain Capital of looting a steel company called GST in the 1990s and then throwing its workers out on the street. The ad itself barely survived a minute of scrutiny. As Kimberly Strassel noted in The Wall Street Journal, the depiction is wildly misleading.
The company was in terminal decline before Bain entered the picture, seeing its work force fall from 4,500 to less than 1,000. It faced closure when Romney and Bain, for some reason, saw hope for it in 1993. Bain acquired it, induced banks to loan it money and poured $100 million into modernization, according to Strassel. Bain held onto the company for eight years, hardly the pattern of a looter. Finally, after all the effort, the company, like many other old-line steel companies, filed for bankruptcy protection in 2001, two years after Romney had left Bain.
This is the story of a failed rescue, not vampire capitalism.
Let's count the ways that the ad is wildly misleading. First, the steel plant in the ad wasn't doing well before Bain arrived. It had already lost more than three quarters of its workforce and would have closed in 1993 if Bane hadn't stepped in. The steel industry was in terrible shape in the 80's and 90's.
Second, far from looting the factory, Bain Capital spent $100 million modernizing the plant. It turned out to be a bad gamble. Kimberly Strassel's article at the WSJ explains what happened.
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 GSI failed, along with 30 other steel companies. That was well after Romney left Bain Capital.
Third, Bain didn't kill the Kansas City plant. It kept it in business and its workers employed for eight more years. The Kansas City plant had a sad end, but that's only a small part of the picture.
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.
I don't much blame the Obama campaign for producing a fraudulent ad. They desperately need to direct attention away from Obama's record and they need to damage Romney.
But if I were working on the Obama campaign I would be very worried. This has so far been a boondoggle. Instead of Romney, it is the Obama campaign that has spent the last few days on defensive. Mayor of Newark, Cory Booker, a genuine hero, was reduced to eating his words about the ad. The President, when he should be looking presidential at a meeting of NATO, had to take time out to answer a question about the Bain ad with a short, prepared speech defending it.
The Bain ad also exposed a genuine contradiction in the campaign's strategy. One voice in the ad reassures us that there is nothing wrong with equity capital as such. It was a discordant note in an otherwise disciplined presentation. Who thought it was necessary and why? Well, there is this, from The Hill:
President Obama raised far more cash from hedge fund and private equity donors than any other candidate in the 2008 election cycle.
According to an analysis by the nonprofit group Open Secrets, Obama took in nearly $3.5 million from large private-equity donors that year — nearly twice what his general-election rival, Sen. John McCain (R-Ariz.), pocketed.
This year Romney is giving Obama a run for that same money.
Romney is doing well in fundraising from the financial sector. According to Open Secrets, Romney has already outraised Obama in this cycle $2.5 million to $650,000 from hedge funds and private equity firms.
Still, it's hard to bite a hand that feeds you more than a half a million dollars and hard to cross an industry upon which a lot of prominent Democrats depend. So attacking Romney as a vampire capitalist always has to have a "not that there's anything wrong with that" clause inserted.
Conservatives often imagine that Obama is a closet socialist. If so, it would be socialism of the French kind: the same set of companies and no new ones decade after decade, in a cozy relationship with government. Obama's Bain ad exposed more weaknesses of his than of his opponent. That should worry people who were expecting a ruthlessly efficient campaign.