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“The absence of a ‘Humanity Clause’ at Bain Capital” published in the DSM Register on 1/13/2012

“The absence of a ‘Humanity Clause’ at Bain Capital” published in the DSM Register on 1/13/2012

Froma Harrop, is a syndicated columnist, born in New York City and a liberal writer and author. Her columns appear regularly in many major newspapers. She wrote the article “The absence of a ‘Humanity Clause’ at Bain Capital” published in the DSM Register on 1/13/2012

Ms. Harrop accurately states that Bain Capital bought majority control of Worldwide Grinding Systems (WGS) in 1993 for about $75 million. The rest of her story has the truth of a jigsaw puzzle with 10% of the parts showing.  She neglects to inform us that the previous owner of WGS, Armco Inc., incurred a $40 million book loss on the sale of WGS to Bain. Obviously WGS was a troubled business or their owner would not have taken such a large loss to sell it. Healthy manufacturers normally sell for 4 to 5 times their book value.

Income for WGS operations averaged $11.5 million for the years 1991, 1992 and 1993 excluding a 1992 special charge of $19.1 for closing a foundry and reducing the work force. So, the workforce reductions were well underway before Bain Capital bought it.
Bain’s purchase price of $75 million reflected a price/earnings ratio of about 6.5. Purchases are made on forward looking earnings estimates. With the growing competition from China in this type of manufacturing business, Bain’s price appears to be fair or better than fair.

Equity in GSI (the parent set up to acquire WGS and other similar companies),:
11/11/93 $ 10.9,
12/31/93 $ 14.0 (post sale to Bain)
12/31/94 $ -29.9 (following dividend to investors noted in article)
12/31/95 $ 106.6 (restructuring with $132 million additional paid in capital)
12/31/96 $ 112.8

Conclusion, yes there was a large dividend paid to the investors who facilitated the acquisition from Armco and the refinancing of the new GSI entity that acquired the WGS assets as well as those of other companies. However, the capital structure moving forward after 1995 was adequate.
Roger Regulbrugge, referenced in the article, was Chairman and CEO after the Bain takeover and was compensated in 1996 about $ 1 million excluding stock options. Under his leadership GSI Cost of Product Sold averaged about 86% for 1994, 1995 and 1996. This is a pathetic ratio and is more to blame for the company’s failure than the debt to equity ratio, was a quite normal, 3.4 at the end of 1996.

Froma Harrop’s article appears to be another Progressive hack job on Capitalism, quoting a few facts without context. WGS was a distressed tired company under Armco, who happily sold it at $40 million loss to Bain Capital. Bain reorganized the business, acquired new financing and investment but could not overcome the productivity problems internally and the foreign competition externally.

Sources: Armco Inc. 10-k for 12/31/ 1993; GS Technologies Corporation 10-k405 3/18/97

Observations on the October 18th Las Vegas/CNN Presidential Debate

Observations on the October 18th Las Vegas/CNN Presidential Debate

The purpose of this post is to provide a high level summary and personal opinion about the Republican Presidential debate held last night, October 18th, in Las Vegas.  The moderator was CNN’s Anderson Cooper.  The debate included: Speaker Gingrich; Governors: Perry and Romney; Senator Santorum, Representatives Bachmann and Paul: and businessman Herman Cain.

I prefer to not label people as “winners” or “losers” so I will define my analysis in terms of how candidates met my personal expectations.

Exceeded Expectations: 

Speaker Gingrich – As usual, Newt had the wittiest and most concise observations. More importantly, he chose to stay out of the mudslinging featured by the lower tier candidates.

Best Moment – After virtually every other candidate attacked Herman Cain’s 9-9-9 tax proposal, Newt was asked about the difficulty of selling that proposal to the people. Newt responded “You just watched it.”  Later in the debate, he also deftly addressed the serious problem that Republicans have with Latino voters.

Worst Moment – His answer on Yucca Mountain (as a nuclear waste storage site) was void of sensitivity to state’s rights.

Met Expectations:

Representative Bachmann – Michelle Bachmann had an overall good night. She regained an image of confidence and thoughtfulness that had been missing in recent debates.

Best Moments – When discussing tax policy “Every American should pay something.” Also, she made an effective passionate appeal to mothers facing economic hardship and home foreclosures.   I believe she was also the only candidate who had the courage to answer the question about the 14th amendment.  She said something needed to be done about “anchor babies”.  Whether you agree or disagree, she shows courage and honesty.

Worst Moment – Regarding helping mothers facing foreclosures, she really did not have anything specific to offer.  It’s not wise to raise a big issue without a big solution.

Senator Santorum – Rick Santorum has consistently had his facts right on a broad set of issues, policies and background facts about his opponents.

Best Moment – He was very powerful in attacking Governor Romney as having “no credibility” on the healthcare issue (as a consequence of signing “Romneycare”).

Worst Moment – He lost control of himself several times as he interrupted Governor Romney and others trying to respond to his charges.  As a two term Senator, he should be more respectful of the debate rules.


Failed to Meet Expectations:

Herman Cain – Herman Cain was under attack from the opening bell.  It appeared Anderson Cooper was targeting Mr. Cain from the outset.  The other candidates were prepared to enthusiastically pounce on the 9-9-9 plan.   Mr. Cain should have anticipated this attack after his surge in the polls.  He maintained a cool demeanor, but his answers were not compelling.  It may be true that 9-9-9 will compel more middle class Americans to pay taxes.  If so, he should have Representative Bachmann’s courage to acknowledge it and defend it.

Representative Paul – I thought I was a Libertarian, but after listening to Ron Paul, I have accepted that I’m just not fully in that camp.  Regarding 9-9-9, he says it was “dangerous and regressive” and that his solution would be to repeal the XVI amendment (Federal Income Tax), but that implies a reduction in the government of 80%-90%, which is not realistic.

I have written an earlier post agreeing with Ron Paul that it is time to withdraw from Afghanistan.  I agree with his views about rolling back the number of military bases around the world and focusing on defense.

Governor Perry – Boy, what a disappointment as a candidate.  He starts out by twice referring to Herman Cain as “brother”.  Did you hear that term applied to any other candidate?  He gets a question about the 14th amendment and provides an answer about energy policy.  He digs up an old debunked rumor about Governor Romney employing illegals and then interrupts Governor Romney as he explains the facts, which simply don’t support the charge.

Governor Romney – I thought he did a good job early in the debate about 9-9-9 of engaging Herman Cain with respect as he expressed his concerns about the tax proposal.  I’m not exactly sure why he decided to participate in the back and forth snide commentary with Rick Santorum and Rick Perry, both of whom gain valuable exposure when they extend an argument with a front runner.

Governor Huntsman – The Governor did not participate in the debate, but he wrote one heck of a good article featured today in the Wall Street Journal Opinion page:  “Too Big to Fail is Simply Too Big”.  I almost moved him up to “exceeded expectations” for skipping the event.


Overall Summary – My short term reaction was to conclude that President Obama won the debate because the tone of the discussion was too harsh and negative.  On further reflection, I think it is more important to have a full out airing of candidate backgrounds, principles and beliefs right now, before the primary voting starts.  The worst case scenario is to have a nominee unprepared for the all-out assault that they will face from the Obama political machine.

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Observations on the October 18th Las Vegas/CNN Presidential Debate

Observations on the August 11th Iowa GOP/Fox News Presidential Debate

Courtesy of State Central Committee member Gopal Krishna, my wife and I had great 8th row seats for the Iowa GOP/Fox News Presidential Debate.
The debate included: Speaker Gingrich; Governors: Huntsman, Pawlenty and Romney; Senator Santorum, Representatives Bachmann and Paul; and businessman Herman Cain.

I’m writing this post on Sunday morning, August 14th.  I intended to write it before the Straw Poll, but I didn’t get it done.  My observations will include some thoughts about the Straw Poll, although I was not able to attend it in person.  I don’t believe in titling people as “winners” or “losers” so I will define my analysis in terms of my personal expectations.

Exceeded Expectations: 

Governor Romney – Mitt Romney spoke powerfully and articulately on every opportunity.  I was particularly impressed with his handling of the “gotcha” question about the Bain Capital investments in businesses that later failed and lost jobs.  His answers on Romneycare are consistent with what can be expected of a Republican governor in a liberal state.  I believe the 10th Amendment has meaning, so I respect his answer.   He did not compete in the Straw Poll.

Senator Santorum – Rick Santorum sprinted from anonymity to relevance with his precise, powerful responses on his legislative achievements related to welfare reform and middle east foreign policy.  For me, his clash with Ron Paul made me consider again the Congressman’s views on foreign policy.  His debate performance helped him to 4th place in the Straw Poll.

Met Expectations:

Speaker Gingrich – Newt Gingrich had a great start when he criticized Chris Wallace for asking “gotcha” questions. The crowd was 100% with him.  Unfortunately, he finished weakly with an oddly placed plea for citizens to contact their representatives now because we can’t wait until 2012’s election for leadership.

Representative Bachmann – Michele Bachmann had an overall good night.  I thought she had the most difficult of the “gotcha” questions when she was asked if she would be submissive to her husband as President.  She showed great control over her emotions.  She came across as thoughtful and confident in her responses.  I thought she relied too much on lines from her scripted stump speech.  She is the Iowa leader coming into the debate and I thought she held her own, as confirmed by her 1st place showing in the Straw Poll.

Failed to Meet Expectations:

Representative Paul – Ron Paul should be in my wheelhouse.  I have strong Libertarian leanings in my political ideology.  I thought he made a mistake engaging in the cat fight with Senator Santorum.  He came across as a little shrill in his efforts to defend Iran and criticize past U.S. foreign policy.   I imagine President Obama was nodding in agreement.  Most of all, I don’t understand why he does not ask his ardent supporters to show respect and refrain from aggravating the many people who attended the debate to hear candidates, not activists.  Of course, he nearly won the Staw Poll, but I’m skeptical that his national polling numbers will improve based on the debate.

Herman Cain – Herman Cain should also be in my wheelhouse.  I believe strongly in capitalism as the engine of prosperity for America and the world.  Herman’s strength is his ability to provide short understandable answers to complex questions.  He has not moved quickly enough from process to solutions. I thought he performed at about the same level as the South Carolina debate, but that is not good enough at this point.

Governor Pawlenty – Tim Pawlenty looked petty in the way he engaged Representative Bachmann.  I realize that some of this was driven by the questions, but he would have been well served to remember Reagan’s 11th Commandment.   Given the time and effort he has put into his Iowa effort, his % of the vote in the Straw Poll confirms that he did not meet expectations in this debate. He had the organization, but he did not have the committed voters like Bachmann and Paul.   I understand now why McCain did not pick him as his VP in 2008.

Editorial Note: My comments were finished before Governor Pawlenty dropped out.

Governor Huntsman – Jon Huntsman is a Republican.  I don’t understand why Dick Morris keeps saying he should run in the Democrat Party.   I appreciate his willingness to stick with positions that he knows are unpopular with a meaningful segment of the Republican base.  That takes character and integrity.  I think he has those qualities. I thought his demeanor lacked sparkle and emotion.  His responses were not crisp.  He has not spent much time in Iowa so the Staw Poll doesn’t mean much for his candidacy.

In closing, I would like to emphasize that I would be willing to work hard and support any of these candidates, Rick Perry or Sarah Palin should they win the Republican nomination for President.  Each of them would be a far better President than Barack Obama, who has turned out to be the most partisan, divisive President of my lifetime.



Should elected party officials endorse candidates before the primary?

Should elected party officials endorse candidates before the primary?

Earlier this week, I received a press release with the following redacted endorsement:
xxx, Iowa– xxx County Republican chairman xxx today endorsed xxx for the 2012 Republican presidential nomination.

This notification stirred me to think about the question “Should elected party officials endorse candidates before the primary?”. As Chairman of the Polk County Republican Party for the period 2009-2010, I made a personal decision that I would not endorse primary candidates for local or statewide offices, but my tenure did not cover a presidential cycle. Should the rules be different for Iowa’s “1st in the Nation” presidential caucus?

I don’t believe there is a clear answer to this question. The best I can do is to share some anecdotal experiences from my time as Chairman that may have relevance to the discussion.

Activist Issues – On several occasions, I received complaints from political activists that we (Polk County leaders) were favoring a candidate. Frequently these complaints were associated with our website coverage and emails related to campaign events held by or on behalf of one of the candidates. Usually the complaint was “Why did you communicate candidate x’s event but you failed to communicate candidate y’s event?”. Almost 100% of the time, our failure to communicate was the result of the campaign failing to inform us of their event. Never the less, some people remained convinced that we had undercut their candidate because we secretly favored another one.

Candidate Issues – On a few occasions, we received complaints from candidates. Usually this was associated with “setting the bar too high” for access or visibility at an event. We paid our bills by conducting these events, so we had to consider every possible revenue source. We thought we set the access fee appropriately. Some candidates remained convinced that we had intentionally set rules to favor only candidates with strong financial support.

Policy/Platform Issues – I feel very strongly that there is only one role for a Chairman when it comes to platform issues. His or her role is to run a platform development process that is broadly based. The process should include meaningful representation from the many precinct caucuses in the county. The platform discussions should be led by a strong facilitator (not the Chairman) who respects the rights of every representative to participate subject to the agreed rules of order. The Chairman should never try to force his or her personal policy views into the process. If a Chairman openly prefers one candidate, is that not clearly an endorsement for that candidates policy views? As an example, many Polk County Central Committee members knew that I supported John McCain in 2008 (before I was Chairman). I had to work hard to convince some members that my effort to broaden the platform committee was not a Trojan horse to place more moderates into the process. The reality is that my only intent was to include more of the elected platform representatives.

It is clear to me that in a local or statewide primary election, a Chairman cannot endorse a candidate without seriously aggravating the suspicions of activists and candidates? Presidential politics in Iowa tend to be fairly emotional. In Iowa we have many of our finest activists joining the fight on behalf of their preferred candidate. By endorsing a candidate, a Chairman will almost certainly alienate some people and lose their support for county activities in the general election.  I would therefore recommend that a County Chairman, or any other elected party official, refrain from making such endorsements.

Observations on the October 18th Las Vegas/CNN Presidential Debate

The DSM Register Independence Day Weekend “Progressive Trifecta” (3rd of 3) “Keep Social Security Safe”

The Des Moines Register’s Opinion Section on Sunday, July 3, 2011 featured a “Progressives Trifecta” of half-truths and sophistry:

Richard Doak – What if the founders were around today?

Donald Kaul – My favorite 4th of July speech

Dean Baker – Keep Social Security safe from politicians who want to save it

This week I will focus my comments on Dean Baker’s article sub-titled “Real patriotism requires coming to terms with the grimmer side of American history”. Mr. Baker is co-director for the Center for Economic Policy Research (CEPR). The CEPR home page lists 10 funders, mostly far left organizations including the Open Society Foundations, which was founded by and led by George Soros.

Dean Baker-He advises the reader that two thirds of people age 65 rely on Social Security for more than half their income. He notes that “with traditional pensions disappearing and many near retirees losing much or all of the equity in their home, and also seeing 401(k) assets plummet”, hence “the next generation is likely to be even more dependent on Social Security”. He then proceeds to explain “Fortunately the program (Social Security) is fundamentally solid”. He goes on to summarize various facts about the trust fund and speculates about various ways to further improve the long term health of the program. He says “Many opponents of Social Security insist that its $2.6 trillion trust fund does not exist or that it is “just sheets of paper”. He acknowledges that “the trust fund is held in the form of U.S. government bonds, which are indeed sheets of paper. However, investors everywhere eagerly seek out these ‘sheets of paper’ as the safest asset in the world”.

  • Public reliance on Social Security-Mr. Baker is not providing a fully accurate picture in his description of the American public’s dependence on Social Security. I checked several sources for my information and found them to be relatively consistent, so I have only referenced three of them. My conclusion is that Americans who have lived within their means, saved money, invested prudently and maintained marketable skills are relying properly on Social Security as a meaningful component of their retirement. Social Security was never intended to be more than that.
  • Average U.S. Home Prices[1]
  • The median price of homes in the United States in 2004 was $221,000. It peaked in 2007 at $247,900. In 2010 it was $221,800. Baker’s statement about near retirees losing much or all of their equity would only have occurred if they leveraged their home equity for other reasons. If they had been in their home for 20 years, even the depressed 2010 prices reflect a gain of 80%.
  • Planning to Retire by Emily Brandon[2].
    • Americans age 65 and older receive most of their income from four sources: employment, Social Security, pensions, and asset returns, according to a recent Congressional Research Service report. The prevalence of each of these types of income has shifted somewhat since 1980. More Americans now continue working past age 65 and fewer people bring in income from assets. Here’s a look at how the biggest sources of retirement income have changed over the past 30 years.
    • Employment. In the 1980s and 90s about 16 percent of seniors worked, a number that steadily increased to 20 percent in 2008. Earnings now make up over a quarter (26 percent) of income for Americans age 65 and older, with the typical senior bringing in a median of $20,000 annually from work.
    • Social Security. Social Security remains the most common source of income for people age 65 and older. About 86 percent of seniors receive these monthly checks for a median of $12,437 annually. This entitlement makes up 39 percent of the typical senior’s income.
    • Asset income. Just about half of Americans (54 percent) receive some income from assets, down from 67 percent in 1980. But most Americans don’t receive very much in the form of interest, dividends, rent, or royalty payments. Interest rates and dividend yields have fallen since the early 1990s. The typical American made just $1,054 off their assets in 2008. Asset returns account for approximately 13 percent of retiree income, down from 24 percent in 1990. (Writer’s note: The Federal Reserve is “saving the economy” with 0% interest rates. Unfortunately this punishes millions of retirees who saved for their retirement and were counting on fair returns on bank deposits, CD’s etc..)
    • Pensions. The proportion of Americans with a pension from a former employer has fallen slightly from 37 in 1990 to 34 percent in 2008. Pensions payout a median of $10,800 annually which makes up about 20 percent of the typical retiree’s budget.
  • 401K Balances Moving Back to Pre-recession levels by David Pitt[3]
    • Americans who were afraid to open their 401(k) statements during the recession are finding good news inside the envelope now: For the most part, their accounts have come all the way back and then some.
    • Nine in 10 of the popular retirement plans are at least back to where they were in October 2007, the peak of the stock market. Since the bull market began in March 2009, stocks have almost doubled.
    • And many investors who kept their nerve and continued putting some of their paycheck into a 401(k) during the market’s worst months are now ahead.
  • My main issue with Mr. Baker is his insistence that the Social Security Trust Fund is secure. The current crisis over the debt ceiling now exposes that lie completely. President Obama has admitted that checks may not be issued if the U.S. Treasury cannot continue to borrow next month. If the Social Security Trust Fund held real assets, rather than government paper, they could sell those assets and pay benefits independently from the General Fund. As noted above, long term investments in real estate, stocks, bonds, commodities (gold), etc. have real value. Unfortunately all we have is paper made worthless by closet socialists like Tom Harkin and Barack Obama. I wish this were not true. I have paid into these programs at maximum levels for most of my working career. Privatize Social Security? Absolutely. Young people should demand it. The Ponzi scheme is over!

    I refer you to the following article, The Fraud of the Social Security ‘Trust Fund’ Exposed by a Most Unlikely Source by Don Boudreaux on July 16, 2011[4]

    If Americans choose to accept the misinformation of socialists like Mr. Baker as fact, then they deserve the government and fate that they choose. The Republicans have proposed a plan and until President Obama does likewise, they should be applauded for at least recognizing the problems. Mr. Baker knows better. He is simply a socialist who hopes to use the budget crisis to tax the private sector out of business, redistribute an ever shrinking American economic pie, and secure power for global elites like George Soros.

    [2] U.S. News and World Report, January 12, 2010

    [3] The Huffington Post, March 21, 2011


    Photo: Gino Santa Maria –

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