Mitt, Ayn Rand, Reardon Steel Vs GST Steel

Dear Hank,

I have one of those recurring ideas in my head I’ve just got to get out so I can stop thinking about it. It concerns the following bits: Mitt Romney, Bain Capital, GST Steel, Ayn Rand, Atlas Shrugged,  Reardon Steel.

I can’t help but think about the parallels between Mitt and Bain Capital’s acquisition of GST Steel to Ayn Rand’s Atlas Shrugged in which Reardon Steel, which makes the world’s finest steel, struggles to stay in business despite being hampered by government and competitors interference. In Atlas Shrugged the competitors lobby the government to pass regulations that would be favorable to them and harmful to the small, yet efficient and profitable, Reardon. Does this sound familiar?

The theme in Rand’s book is one of let people be, to struggle, and not interfered with. The real good will come out. Governments only obstruct the will of the people.

The narrative that you hear from the pro-Romney camp about “private capital”, like Bain, is they try to rescue companies in trouble, and not all companies can be rescued. The narrative you hear from the Obama camp is that Bain Capital bought GST Steel, loaded it up with debt, sold off what it could, and then went bankrupt leaving 750 people without jobs, the government with a $40 plus million pension fund bill and Bain with a $16 plus million profit.

So which is it? Is Mitt with Bain and GST Steel struggling to keep a failing company alive but despite their best efforts it can’t be saved due to huge dark forces beyond their control or is Bain and Mitt a group of robber barons out to fleece a poor struggling company and in the process ruin the lives of hard working loyal employees?

Well there is a narrative that says Bain agreed to buy GST Steel and it tried to save it for 8 years. It invested $100 million of it’s own money to try and modernize the plant and make it competitive, but the unions wouldn’t accept any cuts and their demands were out of line, that cheap foreign steel was being dumped here and GST couldn’t compete and Bain regrettably had to close the plant and those workers lost their jobs. Another article attacks the unions saying workers were making huge salaries, didn’t work, and did what they could to avoid work including putting in tickets for repairs near the end of their shift so they wouldn’t have to do the work and bringing sleeping bags in during overtime situations so they could sleep on the job.

Let’s look at these in reverse order. Sleeping on the job and sloughing off work onto the next shift - obviously, whoever wrote this article has no experience in a large factory because both can happen. But my question is where’s the management? Isn’t Mitt saying what a great boss he would be? Is this what he allowed to go on in his business?

Foreign steel got dumped in the U.S. and GST couldn’t compete; it’s the union’s fault for not accepting lower wages. Cheap steel may have been getting put here but that’s hardly the union’s fault. The union is their to protect the worker’s rights and jobs. Sounds to me like Bain and Mitt didn’t know how to negotiate. Alcoa Aluminum went through similar problems their president took the company from $8.5 billion in sales to $22.5 billion and negotiated new contracts with the unions. Maybe, Mitt and his boys could have learned something from a guy like that. What was his name? Paul O’Neil, Secretary of the Treasury under W, until he got relieved of his job for speaking the truth.

Let’s look at how much money Bain put into GST Steel. From what I’ve been able to glean they bought the company for $75M of which they put up $8M. I’m not sure where they got the difference, $67M, but it wasn’t their money.

The $100M modernization? Well, that’s an interesting story. Before we can go there let’s look at the first $125M bond sale. Bain took over GST and immediately put up a bond sale for $125M. Here’s where they spent that money:

$65M - stock payout,

$36.1M dividend

I calculate they had $23.9M left.

They needed to modernize so they did a second $125M bond. They also used this money to merge with another steel company in South Carolina. Apparently, if you are going to carry that much debt you need to show large volume in sales, hence the reason for the merger.

The $100M modernization was really $98M. The LA Times said Bain put in $16.5M of their own money for the modernization. Really? I think they took $16.5 from the $23.9M that was left from the first bond issue. Maybe, they got the remaining $81.5M from the second bond sale. In any case I haven’t found anyone showing that Bain actually put in any of their own money other than the original $8M. Some folks might want to say the two bond issues totaling $250M was their money, but that isn’t true because others got left holding the bag - not Bain.

In 1995 GST owed $378M, in 2001 it owed $554M. “It couldn’t be saved and went bankrupt” so goes the narrative. The pension fund, which they had depleted as much as possible, was turned over to the government to bail out to the tune of over $40M. It turns out when the union went on strike, for the first time in 40 years, it was because Bain was not putting enough money into the pension fund.

So I ask you - does this sound like a little guy riding in to try and save the day and despite his best efforts and valiantly standing side by side with his workers and using the sweat of his brow and the vast knowledge of the business trying to save a struggling enterprise?

There’s more, a lot more, but I think you have to ask yourself do you want this guy, or his team, or the team that followed him at Bain, running your business? Or your country? If so Mitt is your man. Me? I think I’d either end up being one of those workers or a person holding some of those worthless bonds.

Gotta go,

Bryce

The Belmont

Hank,

Time to talk about The Belmont, at least on the winter book. As you know I’m quite the authority on horse racing having picked the winner in both this year’s Kentucky Derby and The Preakness that is until the last 100 yards or less when Bodemeister, my pick, got beat by I’ll Have Another. So I can claim being 99% right because the Bod led both races, except for the end.

Now you might wonder what the winter book is and how I know about it. The winter book is placing a bet on a horse in the winter based on its odds of it winning a race in the spring. The odds stay the same if you bought on the winter book regardless of what happened in the interim. So if you bet on She’s a Nag at 50-1 and by the time the race came around her odds were 2-1 it didn’t matter you got 50-1. How do I know about the winter book? That’s easy The Roaring Twenties. The Roaring Twenties was a T.V. show that I sometimes got to watch as a kid. It was on the cusp of my bedtime. I remember this episode where a mobster placed a bet on a horse on the winter book. The rest of the show was about people trying to kill the horse - I think that was it - but that’s how I know about the winter book. See, I’m a real pro when it comes to this stuff. So let me tell you about the Belmont.

The Belmont is the longest race in the triple crown of horse racing. Many horses can win the first two races: The Kentucky Derby and The Preakness, but The Belmont is a different beast. A fast sprinter will not last; the horse that wins needs stamina to be able to go the distance. Only great horses can win all three and the greatest horse to do that was Secretariat. The Belmont that Secretariat ran has to go down as one of the greatest of moments in sports history. Put it up their with the U.S. hockey team’s win over the Soviet Union in 1982, with Babe Ruth’s called home run in the World Series. When Secretariat was coming down the home stretch the jockey could look across the track at the other horses. 31 1/2 lengths was the recorded length he won by but it was so much bigger than that. The only other horse that comes close in the annals of horse racing is Seabiscuit. 

So let me give you my winter book on the Belmont (okay it’s three weeks away but that’s an eternity.) First off, I know whose not going to win: Bodemeister or I’ll Have Another. I don’t think either horse has the stamina. I’ll Have Another might do it but I doubt it. Bodemeister definitely won’t do it. Bob Baffert isn’t going to race him.

Here are the horses that have a chance: I’ll Have Another, Dullahan, Went the Day Well, Creative Clause, Gemologist.

Horses that aren’t really in contention are: Union Rags, Hansen, Alpha (although he could finish in the money), Take Charge Indy, Daddy Long Legs, Rousing Sermon, Trinniberg, Liason.

Teeth of the Dog is a horse I like because of it’s name. It came in the middle of the pack at the Preakness. If it wins The Belmont I’ll crow that you heard it here first.

That is all.

Carry on,

Bryce

Off the Coast of Florida

Off the coast of Florida there’s a little boat sitting near an island’s edge. I guess you call it a skiff. It looks like a rowboat was stretched and two masts were placed inside: one almost in the bow, the other slightly behind the midpoint. The sails are wrapped around the masts, only a small slender triangle of the sail is visible and it’s edge is a dark gray with a congruent maroon inner piece. Because the sails are backlit by a bright sun they appear to be darker than they are. The outsides of the boat are a light green, but you could hardly tell that due to the dark shadow cast from the sun. The only hint of it’s true shade is from an outrigger, or is it a dingy strapped to the side? The side of that semi cylindrical shape escapes the sun’s dark cast shadow of the rest of the boat’s side. This is more the type of boat one would expect to see around the Horn of Africa or in the Red Sea.

The inside of the boat glistens white. There’s a tiller, tied off by a white rope and a red bundle near the front. Who’s ship is this?

It is none other than that of Pedro don Pete. His friends call him The Don; his enemies, Little Pepe. It is reputed that a woman, not impressed with his masculine accouterments  so named him and if you call him this name within earshot it is reputed he will challenge you to a duel on the spot. Nobody calls him that to his face. Not that anyone is afraid of him, his days of “womanizing and whoring” - as he calls it - are well behind him; he’s 75 or 80 years old and can barely get around. You don’t call him Little Pepe because you don’t want to have to make an excuse not to fight him.

This island is Pedro don Pete’s Paradise, as he calls it, complete with villa and cantina. The villa is a small stone and cinderblock shack that can be seen on the island’s one hill. The cantina is where we are. A few palm trees, a hammock for don Pete, stumps sitting vertical in the ground for us to sit on, and a few wooden boxes strapped together with a slight roof to make a bar. He calls it his tiki bar, but the only hint of such a thing are a few palm founds sadly stapled to the sides of the boxes.

If you get there late in the afternoon or early evening don Pete will be behind the bar, after awhile he will retire to the hammock and he encourages you to “mix your own.”

One always tries to get there early because once don Pete gets to his hammock he picks up “old Sadie” as he calls the tiny guitar (or oversized ukulele) that is leaning against a box that serves as his “day table” as he calls it. Don Pete will then begin to strum old Sadie and sing. A more god awful sound would be hard to imagine, that’s why you want to get there early so that by the time he starts up with the entertainment you are well into your cups and don’t really care that an old man is caterwauling in a hammock a few feet away from you. 

Fortunately, he can’t sing very loud and the guitar is never in tune but he can’t strum it with much power. Some people make requests and he never turns down a request. Stairway to Heaven, Shake Rattle and Roll, Hey Joe, Electric Slide, Get Down Tonight doesn’t matter don Pete says sure and then he strums the guitar and mumbles some incomprehensible words. By the second or third line of whatever he’s playing he’s probably forgotten what you requested. He certainly has no idea how to play it. Whenever a newbie is along it’s fun to try and get them to make a request and watch them listen, then look around to see if anyone else realizes that don Pete is not playing Rock of Ages or Kumbaya or whatever they requested. Of course, the rest of us are trying to keep a straight face and nod along to the music as if don Pete is hitting all the notes and singing all the right words. Sometimes you can catch a muffled phrase or word at the end of a line and repeat it as if you were just a second off from his singing. This is especially fun if you’ve drunk so much rum that your tongue already feels thick and fat in your mouth. By the way you can order any drink you want at don Pete’s Tiki Bar and you’ll get either light or dark rum. Can you have it with ice? or coke? or pineapple juice? Sure. Did you bring any?

So you learn to bring everything you want to drink but the rum. You leave whatever you bring for don Pete’s next “customers.”

And when it gets dark and you’ve had enough and don Pete is asleep in his hammock you slip out to your dingy and return to your boat.