Sunday, July 15, 2012

What Has The Washington Post Really Said About Romney, Bain Capital, Jobs & Outsourcing?

Here lately Team Obama has been beating the drum so much on Romney’s Bain Capital connection and his record on jobs and outsourcing -- always quoting the Washington Post as their source -- that I had to research what the Post has actually said on the subject. The Post’s most unbiased source on politics is the FACT CHECKER so I went back several months and pulled up every FACT CHECKER column to see what they said and I have pasted them in verbatim below – no editing – so you can see for your self how the WaPo has played this story (don’t take my word for it – I included the website so you can check me). Now I didn’t look at the Post’s left leaning columnist’s articles because that would be akin to getting a testimonial from your mother. So what did I learn: Team Obama has been racking up so many Pinocchios that they should be getting a volume discount for trainer wheels for their noses!

It appears Team Obama has been counting on it being so difficult to FACT CHECK them that people will just take on face value what they’re feeding us and not bother to do some independent research so I’ve pulled the information together “in one tight shot group” below and I’ll trust my readers to be smart enough to draw their own conclusions as to what the WaPo really said. -- ENJOY

Weighing the evidence on Romney’s departure from Bain: A response to readers
By Glenn Kessler, Published: 14 July 2012 The Washington Post

http://www.washingtonpost.com/blogs/fact-checker/post/weighing-the-evidence-on-romneys-departure-from-bain-a-response-to-readers/2012/07/14/gJQAcIrXkW_blog.html

It’s not often that one of my columns gets more than 5,000 comments, many of them angry. I tried responding via Twitter and various e-mail exchanges but eventually gave up because I was overwhelmed. My analysis was also roasted on the web by various people I often admire, and the Huffington Post rewrote my column to highlight exclusive material that they thought I had played down. My best friend from third grade even sent me a message on Facebook saying I “was carrying the Republicans’ water.”

It was that kind of day!

I always value informed critiques. Given the many comments, I will try to make a general response.

First of all, as The Fact Checker, I began looking into Mitt Romney’s departure from Bain Capital in January in response to Obama campaign allegations that he was responsible for the closing of hundreds of stores at KB Toys. The question is not whether Romney left Bain in 1999 or 2002 — everyone knows he took a leave to run the Winter Olympic Games in Salt Lake City, then decided to run for governor in 2002 and officially backdated his resignation to 1999 — but whether he had a direct role in Bain deals during this period.

For some readers, this may not be important. He is listed as chief executive in SEC documents, he hired the people at Bain, and so they might believe he bears responsibility for these deals. End of story. But that’s really an opinion, not a fact.

When evaluating an attack ad, I have to look at the actual facts behind that ad. Can you really say Romney was responsible for the closing of 600 stores at KB Toys in 2004, given that the initial Bain investment took place in 2000, when he was at the Olympics, and he had clearly left Bain by 2002? It would have been fuzzier if the investment had started under Romney’s confirmed leadership, but I could find no evidence of his direct involvement in this deal.

The years 1999-2002 are a gray period in Romney’s life. The importance of whether you pick 1999 or 2002 as the end of his tenure at Bain is best illustrated by the Obama video ad above.

I hold campaign attack ads to a high standard, especially since they can be highly misleading. On balance, I would expect a campaign to provide direct evidence that the rival had a role in the activities being denounced. I would have come to the same conclusion if the person’s name on the Securities and Exchange Commission documents was Barack Obama, rather than Mitt Romney. Indeed, this column gave three Pinocchios to Republicans who claimed that Obama had a secret plan to raise gas prices because of long-ago comments by his aides.

Some readers who complained about the column may not be regular readers. When checking the facts, I pay little attention to the political party making the claim. I look at everything on a case-by-case basis. On the day new questions emerged about Romney and his departure from Bain, I wrote a long column that critically evaluated 22 claims by Republicans about Obama’s alleged “outsourcing,” finding many of them thinly sourced or absurd. I have repeatedly roasted Romney for misleading claims about the number of jobs he claims to have created at Bain. At the moment, I have given four Pinocchios more often to Romney than to Obama.

Regarding Romney and Bain, the question for me remains whether one can specifically tie Romney to the questionable deals. So far, I have not seen enough evidence that he was actively managing Bain and its investments during this period.

Thus I am standing with my assessment that Romney essentially left Bain in 1999. Our colleagues at FactCheck.org have done the same. But of course I remain open to new evidence or information, and will adjust Pinocchio ratings accordingly.

But readers can judge for themselves. Here is a roundup of the evidence, pro and con.

The Facts

SEC Documents

SEC filings in the 1999-2001 period show that Romney was listed as “sole stockholder, chairman of the board, chief executive officer, and president” of Bain Capital Inc., as well as positions with other Bain entities. Most the SEC filings were signed by other Bain executives, but we found six that have Romney’s signature. Moreover, one filing with Romney’s signature concerned ChipPAC, now known as STATS ChipPac, one of the biggest outsourcing companies in the world.

Counterargument: Bain Capital Inc. was simply an entity that was paid a management fee to run the funds and actually made virtually no profit, since it existed to pay salaries and expenses. Fortune magazine reported that it had obtained the offering documents for Bain Capital funds circulating in 2000 and 2001. None of the documents show that Romney was listed as being among the 18 “key investment professionals” who would manage the money during this period.

I consulted with securities law experts who have many years of experience with these particular SEC filings. One expert pointed out that the titles are basically meaningless, that someone can be listed as a chief executive and have no responsibilities whatsoever.

Financial Disclosure Forms

Romney’s state financial disclosure forms indicate he earned at least $100,000 as a Bain “executive” in 2001 and 2002, separate from investment earnings.

Counterargument: The 2001 filing describes him as a “former executive.” It is unclear why the 2002 filing would list him as an “executive” when the previous year’s form said he had retired. It could simply be a typo. The Romney campaign says this is retirement pay, not earnings. The 2001 and 2002 documents also say that Romney is “a passive, limited partner [with] no management capacity” in Bain funds that were part of questionable deals, such as the eventual bankruptcy of KB Toys.

PR releases and proxy statements

Various news accounts and documents describe him as taking a “part-time leave of absence” from Bain, including a July 19, 1999 news release about the resignation of two Bain managing directors that quotes Romney as the firm’s chief executive, saying, “We will miss them.”

Moreover, the annual meeting proxy statements of Marriott International and Staples filed in 1998-2001 — when Romney was a director of those companies — all show him as working for Bain, until he is listed as retired in the 2002 filings. (See this 2001 filing by Staples, for instance, in which it states that “Mr. Romney has also been Chief Executive Officer of Bain Capital, Inc., a firm that manages certain venture capital funds, since May 1992.”) There are SEC requirements that these descriptions be accurate, and directors must personally provide the information through a questionnaire.

Counterargument: Romney’s departure for the Olympics was sudden, nearly breaking up Bain, and he clearly left open the possibility he would return to the firm. The terms of his separation agreement, dating his resignation as 1999, were not reached until late 2001, so these materials reflect the uncertain nature of his future employment at Bain.

When Romney ran for governor of Massachusetts, Democrats sought to block his candidacy on the grounds that he had not lived in Massachusetts for seven consecutive years, as required.

The 2002 Massachusetts Ballot Law Commission report, which certified he could run, listed findings of fact, adopted unanimously by the commission, made up of representatives of both parties, including a) that he was employed by Bain until early 1999 and b) that when he worked at the Olympics he “worked, on average, over 12 hours per day, 6 days per week.”

The report showed that Romney remained on the board of three companies, two of which had Bain connections — Staples and LifeLike Co. The report said he returned to Massachusetts “to attend meetings at Staples,” but it does not mention that he attended any meetings at Bain, even as it provides a long list of social events that brought him back to the state.

2011 Election filing
In 2011, Romney, as a presidential candidate, filed a public financial disclosure form, under pain of perjury, that stated: “Mr. Romney retired from Bain Capital on February 11, 1999 to head the Salt Lake Organizing Committee. Since February 11, 1999, Mr. Romney has not had any active role with any Bain Capital entity and has not been involved in the operations of any Bain Capital entity in any way.”

You can see Romney’s signature, on the first page. If Romney lied on this form, that would be a felony.

The Bottom Line

I readily concede that the years 1999-2002 represent a gray period in Romney’s background.

The SEC documents, especially the ones Romney signed, do raise some questions. One could suggest that because Romney did not fully extricate himself from Bain until after his Olympic sojourn ended, he should bear some responsibility for what happened at Bain in these years. You could even say he hired the people who made these mistakes.

But that is entirely different from suggesting that he had a direct role in these suspect transactions — as Obama’s ads claim — or that the SEC documents open Romney up to civil or even potential criminal investigation, as the Obama campaign has charged.

I will continue to evaluate the claims made by each campaign on a case -by-case basis. If new evidence emerges showing Romney had a direct involvement in suspect transactions that certainly would become part of the evaluation.



Do Bain SEC documents suggest Mitt Romney is a criminal?
By Glenn Kessler, Updated: 13 July 2012 The Washington Post

http://www.washingtonpost.com/blogs/fact-checker/post/do-bain-sec-documents-suggest-mitt-romney-is-a-criminal/2012/07/12/gJQAlyPpgW_blog.html

NICHOLAS KAMM/AFP/GETTY IMAGES

"Romney and Bain claim that he was not involved with Bain, but Bain and its portfolio companies in their required filings under the Securities Exchange Act continuously certified to the Securities and Exchange Commission say precisely the opposite — asserting without qualification that he was a controlling person, fully in charge of Bain, under the Federal securities law. Under normal circumstances, the question of the truth of this representation would result in an investigation by the SEC into possible criminal, as well as civil, violations of the law."

— Robert Bauer, Obama campaign counsel, July 13, 2012

There is a journalistic convention that appears to place great weight on “SEC documents.” But these are public filings by companies, which usually means there are not great secrets hidden in them. The Fact Checker, in an earlier life covering Wall Street, spent many hours looking for jewels in SEC filings.

As we wrote yesterday, we are standing with our assessment that Mitt Romney left the helm of Bain Capital in 1999, when he departed to run the Salt Lake City Olympics. The date is important because some questionable investments by Bain took place between 1999 and 2002, when he ran for governor. But a Boston Globe article on Thursday raised new questions about that timeline, citing SEC filings, and the Obama campaign jumped to take advantage of it.

Despite the furor, we did not see much new in the Globe article. We had examined many SEC documents related to Romney and Bain in January, and concluded that much of the language saying Romney was “sole stockholder, chairman of the board, chief executive officer, and president” was boilerplate that did not reveal whether he was actually managing Bain at the time. (For instance, there is no standard definition of a “chief executive,” securities law experts say, and there is no requirement for anyone to have any responsibilities even if they have that title.)

The one thing new we saw in the Globe story was the assertion that “Romney’s state financial disclosure forms indicate he earned at least $100,000 as a Bain ‘executive’ in 2001 and 2002, separate from investment earnings.” But then we realized we had already reviewed those documents in January. The 2001 form describes him as a “former executive” (see page 1 of form A-5) — the campaign says this was retirement pay — but the 2002 form says “executive.” So either you believe he suddenly rejoined the firm, after leaving it, or someone made a typo.

Romney’s sudden departure from Bain had left the partnership in flux, in fact almost breaking up the firm, and a final resolution was not reached until he ended his Olympic sojourn and decided to run for governor. At that point, he signed retirement papers that set his departure date as February 1999, the month he left for the Olympics.

Fortune magazine on Thursday reported that it had obtained the offering documents for Bain Capital funds circulating in 2000 and 2001. None of the documents show that Romney was listed as being among the “key investment professionals” who would manage the money. As Fortune put it, “the contemporaneous Bain documents show that Romney was indeed telling the truth about no longer having operational input at Bain — which, one should note, is different from no longer having legal or financial ties to the firm.”

Let’s also not forget that Massachusetts Democrats tried to keep Romney off the ballot in the 2002 governor’s race on the grounds that he had been living and working in Utah, even paying taxes there, and thus had failed to meet the requirement to have lived seven consecutive years in Massachusetts. The effort failed, but not after Democrats waged an expensive, months’ long battle to prove he worked so much on the Olympics that he was in effect a citizen of Utah. (More on this below.).

Still, the Obama campaign has raised a very serious charge of potential criminal behavior. Does it have much credibility?

The Facts

One of the SEC documents in question that has received attention in recent days is a Form 13D that was posted by Talking Points Memo. A Form13D is filed when an investor or investment group announces that it has acquired more than five percent of the company.

In this case, Bain had merged a juice producer it had bought in 1998 — Fresh Samantha — with a rival called Odwalla. In return, a Bain investment fund received 3,612,122 shares in the new company. When Odwalla was sold to Coca-Cola in 2001, the Bain investment group made $55 million, more than four times its initial investment.

Romney is not mentioned in the filing Odwalla made at the time of the sale; instead, two Bain executives who sat on the board are listed. Romney is listed in the documents involving the investment fund that made the filing, Bain Capital Fund VI, L.P., which was formed prior to his departure for the Olympics.

We consulted with securities law experts, with many years of experience with these forms. One expert examined this document at our request. He suspected that someone had simply duplicated a filing that had been made many times before, though he acknowledged, “it looks inartful in retrospect.” He pointed out that the titles are basically meaningless, that someone can be listed as a chief executive and actually have no responsibilities whatsoever.

The SEC can bring civil charges for discrepancies in filing 13D documents, but as far as we can tell none has ever been brought for someone listing a misleading title. The more common 13D investigation involves a situation in which investors secretly act in collusion to acquire more than five percent of the stock, but fail to disclose that — or if investors do not make a timely disclosure that their holdings have fallen below five percent.

Moreover, there is a five-year statue of limitations, though the clock could start from when the SEC becomes aware of the matter. But 12 years have passed since the filing in question. Bringing in a federal prosecutor to examine criminal charges is even a bigger stretch.

Romney often did not sign the SEC documents. In the Odwalla case, for instance, the filing was signed by someone named Mark E. Nunnelly, a Bain managing director.

However, we have identified at least six filings that Romney did sign during this period: a April 13,, 1999 13D filing by Pirod Holdings regarding an investment in Rohn Industries; a Jan. 3, 2000 13D filing by VMM Merger Corp. regarding an investment in VDI MultiMedia; a Feb. 14, 2000 13G filing by Bain Capital Fund IV regarding Wesley Jessen Visioncare; a Feb. 13, 2001 13G filing by Bain Capital Fund VI regarding Integrated Circuit Systems; a Feb. 14, 2001 13G filing by Bain Capital Fund VI regarding ChipPAC; and a November 12, 1999 13G filing (first reported by Mother Jones) by Bain Capital Fund VI regarding Stericycle.

These few filings may just represent the winding down of affairs. Or some might think there is something more nerfarious going on. But, remember, when Romney decided to run for governor in 2002, he received a retirement package that was dated Feb., 1999. (In effect, as of that date, he became an investor in Bain, not a partner.) If he had been working hard on these transactions, it would be strange for him to not demand payment for his services.

We readily admit that there is grey area about Romney’s involvement with Bain in the 1999-2002 period, because his future post-Olympics role had not been settled and the future of Bain Capital was in flux. Some have seized on the SEC documents as evidence, but we think there are two stronger pieces of evidence that trump these random filings.

Indeed, if someone wanted to make a criminal case, why quibble with ancient SEC documents? In 2011, Romney, as a presidential candidate, filed a public financial disclosure form, under pain of perjury, that stated:
“Mr. Romney retired from Bain Capital on February 11, 1999 to head the Salt Lake Organizing Committee. Since February 11, 1999, Mr. Romney has not had any active role with any Bain Capital entity and has not been involved in the operations of any Bain Capital entity in any way.”

You can see Romney’s signature, on the first page, in which he states: “I certify that statements I have made on this form and all attached schedules are true, complete and correct to the best of my knowledge.” If Romney lied on this form, that would be a felony.

That filing would seem to trump these SEC documents. Moreover, there is another document — the 2002 Massachusetts Ballot Law Commission report that certified that Romney could run for governor. The findings in this report were the result of weeks of testimony and investigation. We have embedded the report below.

The report included these findings of fact, adopted unanimously by the Commission, made up of representatives of both parties:

“The Respondent was employed in Massachusetts from 1975 until 1999.”
“On February 11, 1999, the Respondent went to Utah to take the position of Chief Executive Officer (CEO) for the Salt Lake Organizing Committee of the 2002 Winter Olympic Games, a non-profit organization burdened by scandal and fiscal crisis.”
“On or about February 11, 1999, the Respondent became an employee of the Salt Lake Organizing Committee for a fixed term of three years. While so employed, the Respondent worked, on average, over 12 hours per day, 6 days per week.”

The report also stated: “The Respondent remained actively employed at Bain Capital until January 1, 1999, at which time he left to take the position of President and Chief Executive Officer of the Salt Lake Organizing Committee for the 2002 Winter Olympic Games.”

The report showed that Romney remained on the board of three companies, two of which had Bain connections — Staples and LifeLike Co. The report said he returned to Massachusetts “to attend meetings at Staples,” but does not mention that he attended any meetings at Bain, even as it provides a long list of social events that brought him back to Massachusetts. One would think that if Romney was trying to prove continued links to Massachusetts, he would have emphasized he kept doing work for Bain.

In other words, an official state investigation concluded that Romney no longer worked at Bain as of early 1999, and also was working “12 hours a day, six days a week” on the Olympics from 1999 to 2002. That also would seem to trump the SEC filings.

Bauer, in an email, provided this statement:

“Every 1934 Act filing is subject to the requirement that it be truthful, and are subject to potential civil and criminal charges. For example, Form 13D is intended to alert investors that a person or persons has a 5% position and what their intentions may be. Whether or not Mitt Romney will still active in Bain would be without doubt a material fact that an investor would want to know. No securities lawyer would say otherwise. Civil charges can be solely for the purpose of setting the record straight, while criminal referral by the SEC to the Department of Justice is typically for cases where someone knowingly and intentionally filed a false 13D. Whether a case is civil or criminal depends on the facts developed through investigation.”

The Pinocchio Test

The Obama campaign is blowing smoke here.We realize that Bauer gets to the word “criminal” by mentioning “investigation,” but that distinction might be lost on most listeners.

Meanwhile, the weight of evidence suggests that Romney did in fact end active management of Bain in 1999. He stated that in a federal disclosure form he signed, under threat of criminal penalties. He said he was a “former employee” in a state disclosure form. A state commission concluded 10 years ago that he did, indeed, leave Bain in 1999. Investors in Bain funds were told he was not part of the management team.

The SEC documents, especially the ones Romney signed, do raise some questions. One can certainly argue that because Romney did not fully extricate himself from Bain till after his Olympic sojourn ended, he should bear some responsibility for what happened in that period. But that is an entirely different matter than suggesting that he is a potential criminal. It is more of a PR problem, which the Obama campaign is trying to exploit to build a larger case that Romney is secretive.

We were tempted to award this claim Four Pinocchios, but the documents with his signature leave some room for inquiry. But, overall, they shrink in importance to the other evidence cited above. (Our colleagues at FactCheck.Org also reaffirmed their similar conclusion.)

Still, if the Obama campaign wants to put its money where its mouth is, it should immediately lodge a complaint about Romney’s financial disclosure form, filed just last year, rather than try to mislead people about potential violations in relatively unimportant SEC documents.

Three Pinocchios



More tenuous claims about Romney’s Bain Capital record
By Josh Hicks, Published: July 10 | Updated: Wednesday, July 11, 6:00 AM

http://www.washingtonpost.com/blogs/fact-checker/post/more-tenuous-claims-about-romneys-bain-capital-record/2012/07/10/gJQAZmKDbW_blog.html

“Mitt Romney the businessman. Take a look at his record. Romney bought companies; drowned them in debt; many went bankrupt; thousands of workers lost jobs, benefits and pensions. But for every company he drove into the ground, Romney averaged a $92 million profit.”

— Voice-over from Priorities USA Action ad attacking GOP presidential candidate Mitt Romney

“14,000 workers laid off.”

— Text from Priorities USA Action ad

Most of the anti-Mitt Romney ads in recent weeks have focused on Romney’s record at the private-equity firm Bain Capital, accusing the Republican presidential candidate of being everything from an outsourcing pioneer to a corporate raider. For what it’s worth, we debunked those notions in several previous columns.

We’ve also awarded Priorities USA Action, a super PAC that supports President Obama, with one Pinocchio for an ad that, in part, accused Romney of making “millions off of companies that went bankrupt while workers lost promised health and retirement benefits.” In addition, we’ve examined some of the companies that laid off workers while Romney served as Bain’s chief executive officer.

The Bain exaggerations are on the other side as well. We dinged the GOP challenger with three Pinocchios for laying claim to job growth that occurred after his tenure with the private-equity firm had ended. We also gave three Pinocchios to Bain Capital — and the Romney campaign — for sugarcoating their business record.

This latest video is unique. It blames Romney for the highest and most specific number of job losses we’ve seen anyone attribute to him as a former businessman. Let’s take a look at the Bain companies that filed for bankruptcy and fired workers to determine how much blame the presumptive GOP nominee deserves.

The Facts

First, a bit of background on Bain Capital. Romney founded the firm, which started out in venture capitalism and helped launch a few massive successes such as Staples and Sports Authority.

Bain eventually plunged into the world of private equity, establishing itself as a heavyweight in the field of leveraged buyouts. This is a practice in which investors take over controlling shares of companies (often struggling ones), and then typically borrow lots of money, acquire competitors, and consolidate operations in hopes of turning around their fortunes.

The firm also collected hefty management fees and cashed in on the loans of at least four companies before they went bankrupt — taking out the money as dividends.

Bain participated in about 80 leveraged buyouts during the Romney era, and just eight of the companies filed for bankruptcy, to the best of our knowledge. (See page 16 of the document we’ve linked to.)

Bain seems to have applied roughly the same management approach to each of the businesses, and the vast majority — about 90 percent, it seems — turned out fine.

The companies that filed for bankruptcy include Ampad, Dade-Behring, DDi, Cambridge Industries, Maxim Crane, Mother Care, and Stage Stores.

It’s a stretch to say Bain “drowned” these companies in debt, as though the firm purposely drove them toward insolvency or just engaged in unmitigated borrowing sprees. Here’s an analysis of Bain’s investment record from Democratic fundraiser and former Obama administration car czar Steven Rattner:

“Bain had less than its share of bankruptcies, but it had a few — it appears four — that are particularly troubling. In all those cases, when the portfolio companies initially showed signs of promise, Bain took advantage of their progress to borrow more money, which it took out as a dividend. Later, the fortunes of each company turned down, ultimately into insolvency.
“When Bain ‘releveraged’ those companies and took the cash out, the investment managers of course had no idea that the companies would later falter. But with the benefit of hindsight, taking a more conservative approach and refraining from squeezing these dividends out of the companies would certainly have been more prudent.

“Let’s be sure to keep these few problem children in perspective. During the Romney years, Bain made 77 significant investments — and a number of smaller ones. It made billions for worthy investors and, yes, doubtless created some incalculable number of net new jobs for the U.S. economy.”

It’s also worth noting that a combination of forces besides debt led to insolvency for these companies, including reduced market share, bad economic conditions, and rising interest rates. Consider this passage from a July 2006 AP article describing the path toward bankruptcy for Dade-Behring:

“Over the next few years, the euro weakened against the dollar. Since half of Dade Behring’s sales were in Europe, the company had fewer dollars coming in. At the same time, rising interest rates meant higher payments on its increased debt load. To deal with the one-two hit, Dade-Behring laid off 1,000 of its 7,000 employees [internationally] and shuttered factories.”

Okay, so it didn’t help that the company had accumulated loads of debt. But that’s pretty much par for the course when it comes to strengthening a business — Keynesian economists argue much the same thing when it comes to the national economy.

As for that precise number of layoffs — 14,000 — Priorities USA provided a long list of news articles citing job losses for Bain companies. But this is hardly the best method for producing totals, since it could easily lead to double counting. The reports weren’t always clear about where and when the cuts took place, after all.

In the case of Dade, Priorities USA cited five articles, at least two of which seem to be talking about the same round of 1,000 layoffs following the company’s merger with Behring. The super PAC counted this as 2,000 job losses.

We noticed another problem with this number: A January 2008 Boston Globe article noted that some of the laid off workers “were offered transfers to other facilities.”

Let’s pretend for the sake of argument that Priorities USA cited perfect numbers. Even then, Bain’s companies would have lost 4,200 jobs while Romney served as the firm’s chief executive — from 1984 until February 1999. The rest of the layoffs occurred after he left, sometimes as long as five years later, as was the case with Anthony Crane. (Democrats sometimes exploit a gray area in Romney’s departure from Bain, but The Fact Checker, FactCheck.org and Fortune magazine have concluded he effectively left in early 1999.)

Here’s how a New York Times article explained that deal last month:

“Bain bought Anthony Crane, a crane rental company, which then acquired a slew of smaller competitors, financed by debt. But a building slowdown hit the company hard, and it filed for bankruptcy in 2004.”

Again, we see that debt was not the only problem. We should also note that Priorities USA attributed 1,220 layoffs to Romney because of the crane company’s troubles. Yet the GOP candidate had left Bain, managed the 2002 Olympics and was serving as governor of Massachusetts by the time it filed for bankruptcy.

We found no articles mentioning layoffs for Anthony Crane, and SEC filings did not show a reduction in employment during Romney’s tenure. But Priorities USA cobbled together a bankruptcy filing, which showed 780 full-time workers in 2004, with a blurb from the trade publication Rental Equipment Register that said the company had “2,000 employees” in the year 2000.

Again, Romney left Bain in February 1999. Besides that, the bankruptcy document reported 780 full-time workers and 900 contract crane operators, which the super PAC never mentioned to us. It’s likely that the trade publication’s 2,000 figure was a ballpark estimate representing both permanent and contract workers. If so, we still don’t have a shred of evidence proving that layoffs occurred at Anthony Crane.

Priorities USA argued that Romney deserves blame for putting these companies on a path toward bankruptcy and layoffs before he left Bain. While there’s a case to be made in this regard, it’s impossible to determine the cutoff point for responsibility.

For example, the New York Times article noted that Cambridge Industries “was finally forced into bankruptcy in 2000, when Bain declined to provide the company with an infusion of capital needed to fulfill a major new order.” Here, debt seems to have hurt the company. But the straw that broke the camel’s back is a decision that took place without Romney, just one year after he left the firm.

As for the claim of $92 million in profits from each bankrupt company, the ad said that’s what “Romney averaged.” But the number — if it’s correct — would actually apply to all the Bain partners. It’s not like the GOP candidate would have pocketed the money himself, which is what the video misleadingly suggests.

Priorities USA founder Bill Burton had this to say about Romney’s record at Bain: “Mitt Romney is dishonestly trying to avoid responsibility for the devastating impact of his decisions while in charge of his buyout firm.” He added, “Profiting from bankruptcies and failure is just one more way that Romney plays by a different set of rules than middle class Americans.”
The Pinocchio Test

In January, we awarded three Pinocchios to Romney for claiming he created 100,000 jobs at Bain Capital, partly because a great many of those jobs seemed to have come about after his time with the firm. This established a standard that we’ve generally followed for analyzing post-Romney Bain: It doesn’t make sense to credit him with good news or bad news that occurred after he left the company.

Time and again, we’ve dinged campaigns when they’ve blamed Romney for Bain-related outsourcing and layoffs that didn’t happen under his watch. We’ve allowed some leeway when these groups attack the candidate for his tenure as chief executive, because that’s largely “fair game for scrutiny of his record as a business executive,” as we said in a previous column.

Still, this Priorities USA ad goes too far. Only a relatively small portion of the supposed 14,000 layoffs could have occurred during Romney’s time with Bain, and it’s impossible to know how much blame to pin on the former executive for the remaining losses. Furthermore, the ad misleadingly suggests that Romney himself collected $92 million in profits from bankrupt companies, but all the Bain partners would have shared that money.

Priorities USA earns three Pinocchios for its latest attack on GOP challenger’s Bain record. The claims are only slightly less tenuous than Romney’s boast of creating 100,000 jobs.

Three Pinocchios



Obama’s new attacks on Romney and outsourcing
By Glenn Kessler, Published: June 29 | Updated: Monday, July 2, 6:02 AM

http://www.washingtonpost.com/blogs/fact-checker/post/obamas-new-attacks-on-romney-and-outsourcing/2012/06/29/gJQA5FbbCW_blog.html

“The Washington Post has just revealed that Romney’s companies were pioneers in shipping U.S. jobs overseas.... Does Iowa really want an outsourcer-in-chief in the White House?”

— one in a series of new Obama campaign ads

“Pioneers! Let me tell you, Tampa, we do not need an outsourcing pioneer in the Oval Office. We need a president who will fight for American jobs and American manufacturing. That’s what my plan will do.”

— President Obama, June 22, 2012

“Offshoring is the shipment of American jobs overseas. And in that Washington Post story, which the president is using now to attack American companies by name, there are no examples of jobs being taken from the United States and shipped overseas. What you have are companies that are expanding into new markets.”

— Romney senior adviser Eric Fehrnstrom on CBS’s “Face the Nation,” June 24, 2012

“Just last week, it was reported that Governor Romney’s old firm owned companies that were ‘pioneers’ — this is not my phrase, but how it was described in the report — ‘pioneers’ in the business of outsourcing American jobs to places like China and India. Yesterday, his advisers tried to clear this up by telling us that there was a difference between ‘outsourcing’ and ‘offshoring.’ Seriously. You can’t make that up.”

— Obama, June 25, 2012

The Obama campaign has seized on a recent front-page article in The Washington Post to argue that former Massachusetts governor Mitt Romney is an “outsourcer-in-chief,” while the Romney campaign has pushed back, asking for a retraction of the article. (The Post has refused and stood by the reporting.)

The Fact Checker does not check the facts in the reporting of Washington Post writers or columnists, despite the many pleas of readers to do so. We even avoid checking most pundits. We generally confine ourselves to checking the rhetoric used by politicians and interest groups.

In this case, both campaigns have seized on a news report in The Post, and both are describing it inaccurately for their own political purposes. The Obama campaign has even made the report the centerpiece of its current ad campaign. This puts us in a bit of a strange position.

So we will try to describe what the report is about, without venturing into the realm of media criticism.

The Facts

The article, by reporter Tom Hamburger, appeared on the Web on the evening on June 21 with a headline that said: “Romney’s Bain Capital invested in companies that moved jobs overseas.” The headline was different in the print edition: “Bain’s firms sent jobs overseas.”

The Obama campaign moved quickly to define what the article meant, with Obama senior adviser David Axelrod releasing a statement declaring that Romney “made a fortune advising companies on how to outsource jobs to China and India.”

The actual article, in fact, does not say that transfers of U.S. jobs took place while Romney ran the private equity firm of Bain Capital. (Since Romney kept an ownership stake in Bain, he may have still benefited from transactions, but “advising” is another matter.)

Instead, the article says that Bain was prescient in identifying an emerging business trend — the movement of back-office, customer service and other functions out of companies that were willing to let third parties handle that business. Several of the companies mentioned in the article grew into major international players in the offshoring field today.

For instance, Stream International was a major client of Microsoft. As Microsoft grew, it decided it would subcontract to Stream some customer service work. Someone might dial a number listed on a Microsoft Web site if they had problems, but they would be connected to someone working at Stream.

This was an important shift in the U.S. business landscape, and Bain Capital caught the wave, investing in companies that, as the article put it, were “pioneers” in the emerging market of handling such tasks for other companies. Originally, much of this work was handled in the United States. But with the installation of the first fiber-optic cable under the Atlantic Ocean in 1988 — and the burst of installation in the 1990s and beyond — it was only a matter of time before those jobs suddenly could be moved overseas.

Stream International, for instance, is now Stream Global Services. This is how its Web site describes its business:

“Originally formed more than 15 years ago as an outgrowth service for a large software reseller, Stream has grown to become a global provider of sales, customer service and technical support services for the Fortune 1000. Since its inception, Stream’s global footprint has expanded to cover 21 countries, with 33,000 employees across 49 locations. Stream currently manages millions of voice, email and chat contacts each year from customers around the globe.”

Romney stopped managing Bain in 1999, so much of this movement overseas took place after he left the firm. But the firms Bain invested in were well-primed to take advantage of this opportunity. Major advantages in computing power also took place in the decade of the 2000s, allowing companies to create global networks that provide 24-hour manufacturing and customer service around the globe.

Similarly, another Bain investment mentioned in the article, GT Bicycles, was a shrewd bet on bicycles being assembled largely from parts overseas. Eventually, domestic manufacturing of bicycles virtually disappeared.

The Romney campaign, for its part, is attacking the article on the basis of how the Obama campaign interpreted it, not what it actually says.

As part of its demand for a retraction, the Romney campaign produced a slide show claiming that many of these companies actually created jobs in the United States. The slide show, however, only shows half of the picture — these are the jobs created at these companies, but they are replacing customer service and manufacturing jobs that had once existed at other companies. Most likely, it’s a wash — no overall job creation one way or the other.

In other words, the same jobs moved from Company A to Company B — and then eventually they moved overseas.

The broader implications of this trend are lost in the tit-for-tat of 30-second ads. As the Post article pointed out, there is an ongoing debate about the merits of the practice.

Economists will argue whether a globalized world is a good thing or a bad thing. A strong middle class in India might become a market for American products, boosting jobs in the United States. Americans may also benefit from lower prices for goods (such as a bicycle). Alternatively, one could say that the transfer of such jobs overseas has hollowed out the U.S. economy, leaving fewer opportunities for American workers.

The Pinocchio Test

The Obama campaign moved quickly to define what the article said, claiming that this transfer of jobs took place while Romney ran Bain. That’s not what the original article said.

Yet the campaign clearly seized on this report because their interpretation fit with a long-term “outsourcing” attack they have waged against Romney. One of their outsourcing ads before the article ran, in fact, earned Four Pinocchios. These new ads would not fare much better; there is little in the Post article that backs up the Obama campaign’s spin.

(Our colleagues at FactCheck.org have also offered their own analysis of the Obama outsourcing ads and the issues raised in The Post’s article, saying “some of the claims in the ads are untrue, and others are thinly supported.” The Obama campaign did not dispute the details of their analysis, except to once again claim that Romney had an active role in Bain after he left to run the Salt Lake City Olympics in 1999--a claim that FactCheck.org quickly debunked. We came to the same conclusion in January. There is no evidence that Romney played a role in Bain decisions after he left to run the Olympics.)

The Romney campaign, meanwhile, has sidestepped the article’s implications — also by acting as if the article says what the Obama campaign claims.

Given that this debate involves an interpretation of a Post article, we are not going to award any Pinocchios. But we urge readers to reread the article without thinking about the spin from both sides.


Whopper: White House adviser David Plouffe on Romney’s jobs record and GOP strategy
Posted by Josh Hicks 22 June 2012 The Washington Post

http://www.washingtonpost.com/blogs/fact-checker/post/whopper-white-house-adviser-david-plouffe-on-romneys-jobs-record-and-gop-strategy/2012/06/20/gJQAi13HrV_blog.html

There was an amazing article the other day, I believe it was in the Wall Street Journal, where Republicans in Congress openly were saying, ‘we’re not going to do anything until the election on the economy, because we want to help Mitt Romney.’ ... With an economy that needs help right now, with the middle class that’s struggling, it’s an amazing thing.”

“For all of this talk about government, for every private-sector job created in Massachusetts by Governor Romney, six public sector jobs.”

— White House senior adviser David Plouffe on “Fox News Sunday,” June 17, 2012

White House senior adviser David Plouffe made the rounds on the Sunday talk shows this week, making appearances on all the major networks except one. He used the opportunity to defend and clarify President Obama’s campaign message, but he also took swipes at presumptive GOP nominee Mitt Romney.

We wondered what article Plouffe was referring to when he said Republicans have talked openly about trying to improve Romney’s election chances by blocking economic progress. And what about the Republican challenger’s job-creation numbers? We wrote a column in the past about this issue, but Plouffe’s assertion about six government jobs for every private-sector job represented a new and inconceivable-sounding twist.

Let’s examine the veracity of these claims.

The Facts

In terms of the “amazing article” Plouffe referred to, we found no reports quoting Republicans talking openly about sitting idle on the economy to improve Romney’s election chances.

The Obama campaign backed up Plouffe’s claim by pointing to a Wall Street Journal article titled “Republicans See Advantages in Go-Slow Approach on Bills.” The subhead reads:“GOP Lawmakers Banking on Election Gains; Democrats also resist compromise.”

Right away, this suggests the article is not what the White House adviser implied. Sure enough, the piece says Republicans are “bullish about Mr. Romney winning and the GOP making gains in the Senate,” and that “they are wary of cutting deals that would curb the options of more conservative leadership that could be in place next year.”

In other words, GOP lawmakers don’t see much sense in making deals with Democrats when they might have a lot more power after the election. One senior member of the House Budget Committee, Rep. Scott Garrett (R-N.J.), reportedly asked: “Where is the upside?”

The article says nothing about Republicans trying to sabotage the Obama administration with inaction on the economy in order to help Romney’s prospects. In fact, it said, “Republican leaders deny that.”

Furthermore, the report noted that Democrats themselves are avoiding compromise on major budget issues because “they don’t want to undercut their ability to make a campaign issue of Republicans’ support for curbing the growth of Medicare and other popular entitlement programs.” This is the only mention of either party using inaction as a strategy to affect the upcoming election, and it’s an indictment of the left, not the right.

We should point out that calculated moves are nothing new for lawmakers during an election year. In 1996, for example, congressional Republicans saw little hope that then-GOP presidential nominee Bob Dole would unseat President Bill Clinton, so they passed welfare-reform legislation before the GOP convention had even taken place. This increased their own odds of victory in the election, but it undercut Dole, taking away an issue he had hoped to use against Clinton.

We should also mention that the current Republican strategy mirrors an approach Democrats used when they were confident their party would win the presidency in 2008. Congressional leaders then held back many key appropriations bills until Obama. took office in 2009, thus allowing them to shape the 2008 budget more to their liking.

As for Plouffe’s claim about the Bay State’s employment gains, data from the Bureau of Labor Statistics show Massachusetts added 22,400 private-sector jobs during Romney’s tenure. That means the state would need to have created 134,400 public-sector jobs in the same period for the White House adviser’s claim to be true.

That’s not even close to what happened. Massachusetts gained just 5,300 state-government jobs while Romney was in office. As such, the state added more than four private-sector jobs for every state-government job. This is pretty much the reverse of what Plouffe claimed.

The best reasoning we could find to support Plouffe’s claim is that the rate of public-sector job growth for the state (4.7 percent) was about six times that of private-sector gains (.79 percent) during Romney’s tenure. But this is very different from having six times the number of new government jobs, which is what the White House adviser clearly implied when he said, “for every private-sector job created in Massachusetts by Governor Romney, six public sector jobs.”

The bottom line here is that Plouffe equated growth rates with raw numbers, thereby vastly exaggerating the amount of public-sector work the Bay State created under Romney.

We should note that we didn’t include local or federal employment in our analysis because governors generally have little control over those numbers. Regardless, it wouldn’t have made a difference. Government jobs as a whole in Massachusetts increased at a slower rate (.46 percent) than private sector jobs (.79 percent) during Romney’s tenure.

In this regard, the state added more than 11 private-sector jobs for every government job. Again, this contradicts what Plouffe said.

The Obama campaign did not respond to questions about Plouffe’s statistics, but issued this statement about his remarks Sunday: “Instead of taking action on the economy and passing the President’s American Jobs Act now, congressional Republicans continue to drag their feet and play politics, though their own candidate Romney has no plan on jobs. Just like David Plouffe said, we have an economy that needs help right now, with a middle class that’s struggling. Republicans should set the politics aside and do what’s in the best interest of the country.”

The Pinocchio Test

Government jobs in Massachusetts grew at six times the rate of private-sector jobs during Romney’s term as governor, but that’s not at all the same as adding six public-sector jobs for every one in the private-sector. The state actually gained at least four private-sector jobs for every government job.

Plouffe referred to an “amazing article” that supposedly proved that Republicans have talked openly about improving Romney’s chances in the election by doing nothing on the economy. But the article actually explained that GOP lawmakers prefer to postpone any deal making until after the election because they’re feeling bullish about their chances. That is no different than what Democrats have done in the past.

Neither of Plouffe’s claims were factually correct, so Team Obama earns four Pinocchios.

Four Pinocchios



The latest Romney claim about Bain Capital
Posted by Glenn Kessler 30 May 2012 TheWashingtonPost

http://www.washingtonpost.com/blogs/fact-checker/post/the-latest-romney-claim-about-bain-capital/2012/05/29/gJQA9RPK0U_blog.html

“With regards to Bain Capital, they just put a report out about their record, the Bain Capital guys did. They noted they made about 350 investments since the beginning of their firm, and of those investments 80 percent of them grew their revenues.”

— Mitt Romney on Fox News, May 24, 2012

“The fact is that Bain Capital, there were a number of investments that didn’t perform well. In the case of Bain, it was less than 5 percent of the investments that ended up in bankruptcy. The fact is 80 percent of the companies he invested in grew. And that means that jobs were created. If you look, for example, at Sports Authority, 15,000; if you look at Brighter Horizons, 19,000; if you look at Staples, nearly 90,000 jobs created.”

— Romney senior adviser Ed Gillespie, on CBS’s “Face the Nation,” May 27, 2012

Now that the “100,000 jobs created” talking point has been discredited, we sense a new talking point developing in the Romney campaign — that 80 percent of Bain Capital investments “grew their revenues.”

We’ve been highly skeptical of most of the attacks on Bain by the former Massachusetts governor’s GOP rivals and the Obama campaign, arguing on numerous occasions that the overall record of the investment firm is pretty good. But the point of private equity is to reward investors, not necessarily create jobs, which is where Romney’s defenders create problems for themselves.

So now Romney is citing Bain’s claim that 80 percent of their investments grew their revenues. Ed Gillespie, one of his aides, even suggested that revenues “means that jobs were created.” Is that the case?

The Facts

This new statistic appears to have emerged in a lengthy defense that Bain Capital — which Romney headed until 1999 — sent to its investors in March. (We should note that the letter approvingly quotes The Fact Checker for one of our analyses of an anti-Bain ad by Newt Gingrich.) The Bain letter said:

Despite political attacks that tend to emphasize the few companies that have struggled, the facts are that revenues grew during our ownership in 80 percent of the more than 350 companies in which we have invested. Our growth-oriented approach is reflected by our current portfolio companies, which have opened over 5,000 stores and facilities during our ownership. Today, our companies employ over one million people worldwide (including in every U.S. state) and generate over $155 billion of annual revenue…. Through more than a generation of investing, less than 5 percent of our companies filed for bankruptcy while under our control, a figure that is consistent with the broader economy and compares favorably considering the risks associated with private investing. In the vast majority of these cases, our work has resulted in better, more competitive companies.

The 5 percent bankruptcy figure may be a surprise to people familiar with the Wall Street Journal’s comprehensive examination of Bain Capital’s investments, which found that “about 22 percent of the companies either filed for bankruptcy or liquidated by the end of the eighth year after Bain invested.”

The operative words in the Bain statement are “under our control.” As long as Bain owned less than 50 percent — often the case if there had been a public share offering — then the success or failure apparently would not end up in Bain’s statistics.

Regarding the assertion that 80 percent of the investments yielded rising revenues, the Romney campaign directed us to Bain Capital. We asked for an accounting of the 350 firms and their revenue gain. Charlyn Lusk, a Bain spokeswoman, said she would answer our questions but then maintained radio silence, though not before asking us to correct the Wall Street Journal’s 22 percent figure with the dubious 5 percent claim.

Here’s why the 80 percent figure is problematic: It tells you almost nothing about the success or failure of these companies. In fact, it is almost surprising that the figure is not nearly 100 percent.

The Bain statement is so vague and imprecise that, in theory, revenues could grow in a single year, but fall in other years, and still be claimed as a growth in revenues. Moreover, the statistic takes no account of whether the business ultimately failed, despite revenue growth, because under Bain’s direction it had taken on too much debt.

As an example, let’s look at Ampad, the paper company that was the subject of a recent Obama ad. The company showed tremendous growth during the period of Bain’s control — in other words, before it offered shares to the public and Bain began to cash out. Documents filed with the Securities and Exchange Commission show that revenues, mainly through acquisitions, grew from $104 million in 1993 to $617 million in 1995. This, as we have noted before, was the company strategy — to build revenue through acquisitions.

Success story? After the initial public offering — when Bain reaped about $50 million and its control fell below 50 percent — revenues started to fall, to $572 million in 1999. Interest payments on the debt, run up to build that revenue, exceeded gross profits. In the space of a few years, the stock price went from $26 a share to 15 cents, at which point the company filed for bankruptcy protection.

Yet presumably, this company is part of Bain’s 80 percent “success” rate.

This graphic, from The New York Times, shows a similar tale for Dade, an Illinois medical company, where sales doubled, debt soared, and the size of the work force fell. Yet, presumably this would also be considered a “success story” under Bain’s metric.

Certainly, there are sophisticated studies that show additional business revenue can mean more jobs. But, unlike those studies, Bain has not been transparent about how this statistic was derived.

The other problem with this statistic — at least as the Romney campaign uses it — is that many of these investments took place long after Romney had left the firm, some 13 years ago, which makes it increasingly irrelevant to his skills or performance. (Gillespie, in his comment on CBS, rattles off figures for the current employment of companies in which Bain invested, even though this has virtually nothing to do with Romney’s involvement.)

The Pinocchio Test

Bain generally has a good story to tell, but they should not disguise their performance behind suspect statistics. Private equity plays an important role in the economy, especially in terms of providing financing to more risky companies or endeavors. But a successful private equity firm is judged on how much money it makes for its investors, not how much revenue grows or how many jobs are created.

We are willing to revisit this ruling if Bain Capital is willing to explain how it developed this statistic, showing exactly what companies were included and what time period was covered. Until we can verify this figure, it means little — and the Romney campaign should stop using it as well. At the moment, it appears rather dubious.

Three Pinocchios

UPDATE: After this column appeared, Bain Capital sent us the following statement. The reference to “media reports” appears to refer to The Wall Street Journal analysis. This statement does not answer our question about the revenue claims, so we will maintain our Pinocchio ruling.
“Bain Capital is a private company, not a political organization. We stand behind the information in the letter we sent to our investors in March, which was created to inform them, not to be a part of a political campaign where too often data is taken out of context and distorted. It is a fact that fewer than 5% of our portfolio companies over the past 28 years have filed for bankruptcy while under our control. This figure is consistent with the broader economy and compares favorably considering the risks associated with private investing. Suggestions of a higher number in media reports earlier this year are simply false and were based on a flawed methodology that excluded literally dozens of investments, and included companies that we did not even own at the time of bankruptcy. Bain Capital is very proud of the integrity and hard work our employees and management teams have brought to the challenge of growing businesses in both strong and weak economic periods.”


An out-of-context view of Romney’s time at Bain Capital
Posted by Glenn Kessler at 24 May 2012 The Washington Post

http://www.washingtonpost.com/blogs/fact-checker/post/an-out-of-context-view-of-romneys-time-at-bain-capital/2012/05/23/gJQAlHHPlU_blog.html l

“To me, Mitt Romney takes from poor, the middle class, and gives to the rich. It is the opposite of Robin Hood.”

— worker in latest Obama campaign ad

Mitt Romney’s role at Bain Capital continues to be a major issue in this presidential election, as the Obama campaign rolls out video after video about the travails of individual workers who suffered at companies owned by Bain.

The latest video, about a company called Ampad, must bring back bad memories for Romney because in 1994 he seemed on the verge of defeating the late Ted Kennedy in a bitter Senate race when striking Ampad workers showed up in Massachusetts and started showing up in Kennedy attack ads. The Ampad story turned the tide against Romney and Kennedy won.

The Obama ads are very slick, and we find them frustrating to fact check. Unlike some of the ads produced by Romney’s GOP rivals — such as the notorious “King of Bain” video produced by supporters of Newt Gingrich — the facts mentioned in the ads are generally correct. But then those facts are intercut with highly personal attacks on Romney by the workers themselves, such as the statement featured above.

We can’t fact check those statements, since they are personal sentiments. (Some of the lines are almost too perfect, which makes us wonder.) So that leaves us in the uncomfortable position of validating the facts in a highly negative attack.

So we are going to try a different tack: a guide for readers on how to evaluate claims about Romney and Bain Capital. We will use this particular deal as an example.

The Facts

1. What was Romney’s involvement?

Romney was the chief executive of Bain Capital, which essentially started out as a venture capitalist (providing seed money for companies such as Staples) and then moved into the more lucrative realm of private equity. In private equity, Bain would take direct ownership of the company, often with current management, in a deal largely financed by debt.

In the case of Ampad, described in a UPI article at the time as having “earned of small profit in 1991,” Bain bought it in 1992 from Mead Corp., which was trying to cut costs at the time, with the intention of combining it with other paper firms. Bain invested $5 million, but the bulk of the purchase was financed by a $35 million loan.

Here’s how Mergers & Acquisitions Report described the deal under the headline, “Bain Capital Kicks Off Office Products Consolidation Play.”

Bain Capital is targeting sales growth for Ampad of 15%-25% a year, roughly 50% of which will be accomplished through acquisitions, [Bain executive Marc] Wolpow said. The acquisitions could range in size from a $10-15 million purchase of a single product line to an acquisition two to three times the size of Ampad, Wolpow said.
The idea is to capitalize on the shift that is currently occurring in distribution of office supplies, he added. "With the advent of Staples and Office Warehouse, we've seen a dislocation of small distributors," Wolpow explained. "Large distributors are consolidating as we move toward a more efficient distribution of office products."
Bain Capital runs three equity funds with a total of $200 million in capital. The combined portfolio of the funds includes 40 companies. "We are trying to identify companies where value can be created through increased operating earnings, either by improving operations or increasing revenues," Wolpow explained.

Note the last part of Wolpow’s comment — “improving operations” means greater efficiencies, which can mean fewer jobs.

Romney never served on the board of Ampad (later renamed American Pad and Paper). Instead, other Bain executives such as Wolpow did. Romney was running Bain at the time the strategy was launched, though he later took off time for the Senate race and left Bain for good in 1999. Romney was regarded as a hands-on manager, but he was in charge of the whole enterprise – some 40 companies.

2. Why did the workers lose their jobs?

One of the plants purchased by Ampad was in Marion, Ind., which had once been owned by Smith Corona. Literally on the day of the takeover, workers were all told they had lost their jobs but could reapply, often at lower wages and poorer health-care benefits. Bain was trying to make this company more efficient, and did so in a brutal fashion.

The transaction took place in July, 1994, when Romney was running for the Senate seat. He first claimed he was not involved in the transaction, but Wolpow was quoted in 2002 as saying that as chief executive, Romney was responsible for decisions made by Bain employees.

To maximize profits at Ampad, Wolpow told the Boston Globe, “we implemented an aggressive plant closing and cost-cutting program.”

“Mitt’s employees executed that transaction. We carried out the business plan. He was CEO of the firm,” Wolpow said. “I reported directly to Mitt Romney ... You can’t be CEO of Bain Capital and say, ‘I really don't know what my guys were doing.’ ”

Wolpow, who left Bain in 1999 when Romney left to help run the Olympics, now runs a private equity firm, Audax Group. He declined to comment on the Ampad transaction this week.

The workers in Marion went on strike and Ampad eventually shut down the plant. Charles Hanson, Ampad’s president, said the Dallas-based firm “regretted” its decision but said it was necessary because the company “has sustained severe economic damage as a result of our inability to manufacture products at our Marion plant,” according to a Boston Globe account.

3. What was Bain’s return on investment?

The Ampad deal turned out to be very lucrative for Bain Capital. Out of that $5 million investment, the firm earned $107 million, according to a Bain prospectus obtained last year by the Los Angeles Times.

The Boston Globe also tracked the deal in a fascinating graphic, showing both Bain’s gains and the company’s increasing debt load. The biggest payday for Bain was when the company sold shares to the public in 1996, which allowed Bain to sell some of its shares and reap about $45 million. (It still owned about one-third of the company even after the public offering.) Bain, year after year, also earned large fees for providing advice — and even for arranging the public offering of shares.

But the debt load was too much for the company, especially as it came under price pressure by companies such as Staples (another Bain company), and it quickly fell into bankruptcy just a few years later.

4. What’s the context of this particular deal?

The overall record of Bain Capital is a pretty good one, at least for investors. The Wall Street Journal found that Bain under Romney produced about $2.5 billion in gains for investors in 77 deals, on about $1.1 billion invested. But about 22 percent of the companies either filed for bankruptcy or liquidated by the end of the eighth year after Bain invested. “Of the 10 businesses on which Bain investors scored their biggest gains, four later landed in bankruptcy court,” the Wall Street Journal said.

The Ampad deal certainly looks like it turned out bad for the workers and very good for Bain. But that is the nature of the private equity business.

As Howard Anderson, a senior lecturer at the Massachusetts Institute of Technology’s Entrepreneurship Center told The Washington Post: “Private equity is a little like sex. When it’s good, it’s very, very good. When it’s bad, it’s still pretty good.”

The big question, for us at least, is whether the story of one company — or a few — in some of Bain’s bad deals should negate a largely positive record of building businesses, sometimes in challenging economic climates. Moreover, as we noted in our fact check of the last Obama video, it is not entirely clear if some of these particular plants would have survived in any case — or as long — without Bain’s investment. One cannot look at each individual case in a vacuum, ignoring broad economic trends or competition that had made these jobs already vulnerable.

The Pinocchio Test

As we said at the beginning, the Obama campaign ad depicts the facts fairly straight. But we going to award a Pinocchio because this particular story of these unfortunate workers is taken out of context from Bain’s overall record. It’s also not entirely clear how much Romney was responsible for the decision to treat the workers in this manner, but he was the chief executive, so he certainly has the ultimate responsibility. The Ampad transaction, until its final days, also largely tracks with Romney’s active leadership of Bain, making it fair game for scrutiny of his record as a business executive.

One Pinocchio



Romney and Bain Capital: the Obama campaign’s newest ad
Posted by Glenn Kessler 15 May 2012 The Washington Post

http://www.washingtonpost.com/blogs/fact-checker/post/romney-and-bain-capital-the-obama-campaigns-newest-ad/2012/05/14/gIQAxCP3PU_blog.html

Romney and Bain Capital: the Obama campaign’s newest ad

“It makes me angry. Those guys were all rich. They all had more money than they would ever spend, yet they did not have money to take care of the very people who made the money for them.”

— Former steel worker Joe Soptic, in a new Obama campaign ad on Mitt Romney’s business record

It’s no surprise that the Obama campaign chose the story of GS Industries for its first television ad attacking Mitt Romney’s record at Bain Capital.

Unlike some of the tales of job-killing and factory-closings that were thrown at Romney during the GOP primaries, this is a relatively straightforward story: The initial investment in the steel company was made in 1993 by Bain under Romney’s leadership, and the company took on hundreds of millions of dollars in debt while paying Bain investors millions of dollars in dividends.

Romney was no longer actively managing Bain when the steel company filed for bankruptcy protection in 2001 and closed its Kansas City plant, causing more than 700 workers to lose their jobs and health insurance, as well as part of their pensions. (More on that below.)

Using just the voices of angry former workers at the company, the ad is less about Romney’s business record and more about his values.

Romney is described by the workers as “a vampire” who destroyed people’s lives while seeking to make as much money as possible. “If he going to run the country the way he ran our business, I wouldn’t want him there,” one worker says. “He would be so out of touch with the average person in this country.” Ouch.

GS Industries has also been a tempting target for Romney’s GOP rivals. In January, Texas Gov. Rick Perry mentioned it as an example of Romney being a “vulture” capitalist. The opposition research done by Sen. John McCain’s campaign in 2008 also highlighted GSI.

As usual in campaign ads, some important context is missing. Let’s fill in some of the blanks. There is also a longer, six-minute version for a Web site called romneyeconomics.com, but we will focus on the two-minute version airing in battleground states.

The Facts

First of all, the investment was one of many done by Bain under Romney’s leadership, which the Wall Street Journal documented was a record mainly of success, not failure. The Romney campaign immediately countered the Obama ad with a Web ad focused on Bain’s successful investment in Steel Dynamics, featuring interviews with happy steel workers.

But Bain was a minority investor in Steel Dynamics, whereas it was the majority investor in GS Industries. Under Romney’s direction, Bain purchased GS Technologies, a mini-mill in Kansas City — the focus of the ad — and then combined it with Georgetown Industries Inc. in South Carolina, creating GS Industries. Romney was a hands-on manager at Bain, but it is unclear how much direct involvement he had with the newly created company.

Roger Regelbrugge, who became chief executive of the new firm, told Bloomberg News last year that he met Romney at a luncheon in Boston and may have had some subsequent conversations. But he said that most of his communication with Bain was through two Bain executives who served on the GS board — and Romney was not on the board.

Romney, however, has acknowledged he was involved in the initial deal.

“I take personal responsibility for making the investment,” Romney told the Boston Globe in 2002 when asked about the plant closure. “But I didn’t manage these companies. Our philosophy at Bain Capital was to support management teams in companies where we saw potential for growth, or in companies that were in financial distress that we thought we might be able to save.”

Certainly, the Kansas City plant was already on a downward slide when Bain Capital showed up. The ad suggests everything changed for the worse once Bain arrived — the romneyeconomics.com Web site even calls it a “successful company” — but it is possible the plant may not have survived as long as it did without Bain’s investment. A timeline published by the Kansas City Star in 2001 showed the plant had employed 4,500 workers in 1970, but by 1983, it had shrunk to 1,500 workers.

“Poor market conditions forced a wave of layoffs in the early 1980s and led the company to prune its product line,” Reuters reported earlier this year in a lengthy report on the deal. “By the early 1990s, the plant focused on two items: wire for products such as mattress springs and tires; and high-carbon balls and rods used by the mining industry to pulverize rocks. The mill's equipment was out of date and it faced stiff competition from Nucor Corp., which also made grinding balls.”

After Bain made its investment and the company issued new debt, the plant was able to invest in new equipment. Still, the record is clear that Bain reaped a substantial return on its investment — at least $12 million — while the company’s debt burden soared to $378 million. That debt left the company vulnerable when a flood of cheap imports dramatically lowered prices and devastated the U.S. steel industry. More than two dozen steel companies filed for bankruptcy protection during that period.

But how much of this was Bain’s fault — or Romney’s?

The Reuters article quoted union officials as blaming Bain for saddling the company with too much debt. But Reuters also quoted an analyst as blaming the union — which mounted a strike in 1997 over pension benefits — and noting that all of the steel companies that failed in that period were unionized. And Regelbrugge, the former chief executive, blamed his successor for hiring poor managers. “I have no question that the company would have survived under different management,” he said. (One could argue that was also Bain’s fault.)

Mark Essig, the chief executive at the time of the bankruptcy filing, cited the low prices for steel products but also pointed the finger at the company’s debt load. He told New Steel magazine in 2001 that the company had a debt of $500 million, “which is far too much debt for a company of our size.” The company had net losses of $16 million, $25 million and $53 million in 1997, 1998 and 1999, respectively — and was making interest payments of $40 million a year.

Essig also cited the high cost of electricity in Kansas City, as well as natural gas. He said the closure of the plant was permanent because “we don’t expect wire-rod, electricity, and natural-gas prices to ever make it profitable.”

In any case, Romney had left day-to-day management of Bain in February 1999 to help organize the Salt Lake City Olympics. So he was running Bain when GS Industries settled the 1997 strike with workers by promising guarantees on their pensions, but he was not there when the company used the bankruptcy process to break those promises and slash those benefits. (The U.S. Pension Benefit Guaranty Corp. later determined that the company underfunded the pension plan by $44 million.)

The Kansas City plant was closed in February 2001. Romney did not legally extricate himself from Bain Capital until shortly before his Olympic tenure ended in 2002. (A 2002 Boston Globe article said he retained a key financial interest until August 2001.)

As we have noted before, a 2002 statement Romney filed with the Massachusetts State Ethics Commission listed him as a 100 percent owner of “Bain Capital Inc.”

But there is less than meets the eye here. Bain Capital Inc. was the management firm, which was paid a management fee to run the funds and actually made virtually no profit, since it existed to pay salaries and expenses. After Romney formally left Bain in 2001, a new entity called “Bain Capital LLC” took over the management function.

The Obama campaign argues that it is fair to link the closure of the plant to Romney’s decisions.

“He set this in motion,” deputy campaign manager Stephanie Cutter told reporters. “It was his structure that was put in place, and he was listed at this time as either the CEO or president of the company, was still making profits off this deal, and continues to profit off of Bain Capital today.”

We have twice given the Obama campaign Pinocchios for blaming Romney for Bain deals that took place entirely after he left for the Olympics gig. This case is a different matter. It falls into a gray area, because the investment and many key decisions were made while Romney was running Bain, as he has acknowledged — even if the denouement came when he was no longer in charge. Romney, in fact, in the past has tried to claim credit for jobs created at companies years after he left Bain, so it’s no surprise the Obama campaign would try to tag him for job losses.

Bain Capital issued a statement saying that “we understand that in a political campaign our exemplary 28-year record will be distorted and complex business situations will be portrayed in a simplistic way.” This is how Bain described the case of GS Industries:

“Bain Capital undertook an ambitious plan in 1993 to turnaround GSI, a struggling manufacturer of specialty steel products that was slated for closure if no investor could be found. We invested more than $100 million and many thousands of hours into this turnaround, upgrading its facilities in an attempt to make the company competitive. This was unfortunately at a time when the steel industry came under enormous pressure, and nearly half of all U.S. steel companies went into bankruptcy.”

The Pinocchio Test

The ad certainly packs an emotional wallop. We can’t really fact check the workers’ comments, especially their personal attacks on Romney, except to note that they frequently mix up Bain Capital with GSI. (Technically, GSI cut the pension benefits, not Bain.)

The biggest problem with this ad is that it takes a single data point — Bain’s investment in GS Industries — and tries to draw larger conclusions about Romney’s business practices and his values. But Romney all but invited such scrutiny by claiming that his business experience taught him how to create jobs, when in fact his role was to generate a good return on his investments. Sometimes that worked out well for workers, but in the case of GSI, it did not. Usually, however, it seemed to work out well for Bain.

Bain Capital was clearly involved in the company’s decisions to greatly add to its debt load — decisions that were made while Romney was actively running Bain. That debt load may have contributed to the company’s failure to weather a steep decline in steel prices, but it was not the only factor that led to the company’s bankruptcy filing. The ad fails to make clear that the Kansas City plant was already facing hard times, and Bain Capital’s investment may have represented its best chance for survival.

There is also the question of how much weight one should give to the fact that Romney was no longer actively managing Bain Capital when decisions about cutting health benefits and pensions were made. The workers’ frequent references to “Bain Capital” and Romney certainly leave the impression that he was part of that decision.

All told, we wavered between one and two Pinocchios because of these missing details but finally leaned toward one. With all of these facts in hand, it will be up to readers to determine how much they blame Romney — or what this particular case says about his business practices or values.

One Pinocchio



Does Mitt Romney love outsourcing?
Posted by Josh Hicks 4 May 2012 The Washington Post

http://www.washingtonpost.com/blogs/fact-checker/post/does-mitt-romney-love-outsourcing/2012/05/03/gIQAJQDH0T_blog.html

“President Obama’s clean-energy initiatives have helped create jobs for projects across America, not overseas.”

“What about Mitt Romney? As a corporate CEO, he shipped American jobs to places like Mexico and China. As governor, he outsourced state jobs to a call center in India. He’s still pushing tax breaks for companies that ship jobs overseas.”

— Ad from President Obama’s re-election campaign

President Obama’s campaign team fired back with this ad after the conservative political advocacy group Americans for Prosperity ran a commercial saying billions of dollars in stimulus funds went toward foreign jobs. We awarded that claim Four Pinocchios in a previous column, and the Obama crew quoted us in its rebuttal.

We certainly appreciate the mention, but we can’t let that stop us from checking the claims in this ad. Is presumptive GOP presidential nominee Mitt Romney really such a fan of outsourcing? Let’s look at his record and proposals.

The Facts

The Obama campaign pointed us to a series of SEC filings and news accounts showing that three companies within Bain Capital’s portfolio sent jobs overseas. Romney served as chief executive of the firm, which specialized in private-equity investment and leveraged buyouts during his tenure there. He left the company in February 1999 to become president and chief executive of the committee that organized the 2002 Olympics in Salt Lake City.

One example of outsourcing came from the Holson Burns Group, a manufacturer of photo albums and picture frames. The company opened and then closed several new U.S. plants before outsourcing most of its production to the Far East by 1993, six years after Bain took control of the business.

The Obama campaign also mentioned Canadian electronics maker SMTC Manufacturing, which announced in March 2001 that it planned to move one of its production operations, then located in Denver, to Chihuahua, Mexico.

A third company, Modus Media, announced in June 2000 that it would open a plant in Guadalajara, Mexico after cutting 200 jobs from a plant in Fremont, Calif.

Notice a problem with the last two examples? The outsourcing occurred in 2000 and 2001. Romney left Bain in early 1999.

We’ve gone over this problem with the Obama campaign before, awarding three Pinocchios to a January memo the team released blaming Romney for job losses and bad deals that took place after the former executive had stopped working for Bain.

We discovered that Romney’s name appeared on Bain SEC filings between 1999 and 2002. But a 2002 statement the former executive filed with the Massachusetts State Ethics Commission said he was a “passive, limited partner [with] no management capacity” in the Bain entities in which he held ownership.

We also learned that the creditors who sued some of Bain’s companies and executives over dividend payments around the time in question did not name Romney in their lawsuit. Plaintiffs generally try to list as many people as possible as defendants to encourage settlement, so it’s highly unlikely that Romney had any involvement with Bain’s businesses during this period.

These facts essentially exonerate Romney from allegations that he was responsible for any outsourcing, bad deals and layoffs that occurred with Bain’s companies in the early 2000s. (Note: it may make a difference if the initial investment took place while Romney was actively running Bain Capital, but that is not the case here.) So that leaves just one possible example of outsourcing out of scores of investments made by Bain under Romney’s leadership.

The Obama campaign did not answer questions about why the presumptive GOP nominee deserves blame for outsourcing that occurred after he gave up his leadership role at Bain.

As for the notion that Romney shipped jobs to India while serving as governor of Massachusetts, we’ve dealt with that claim as well. We determined in a previous column that Vice President Joe Biden deserved Two Pinocchios for claiming the former governor had outsourced call-center work that provided customer service for food-stamp recipients.

What happened is that Romney vetoed a 2004 budget provision that would have prohibited Massachusetts from contracting with companies that outsourced the state’s work to other countries. He argued at the time that the policy would cost lots of money without preventing jobs from simply going to other states instead of overseas.

The Democrat-led legislature did not override Romney’s veto as it had done with 117 others, suggesting few lawmakers were willing to fight hard for the provision. Massachusetts at the time was paying $160,000 per month for Citigroup to operate a system of food-stamp cards that included a customer-support center in India.

The Massachusetts Department of Transitional Assistance insisted that the call-center jobs return stateside when the contract expired, but the work just ended up in Utah. Only 18 jobs remained in India during Romney’s last year in office.

In terms of Romney promoting federal tax breaks for outsourcers, that claim relates to Romney’s support for a territorial tax system that would allow U.S.-based companies to bring foreign earnings back home without being taxed domestically.

We should mention that the U.S. corporate tax rate of 35 percent is highest in the world, although the effective tax rate — the rate after all the breaks and loopholes take effect — is considerably lower for most companies.

The primary goal of the territorial tax is to provide an incentive for multinational companies to repatriate their funds. The current U.S. system actually discourages this practice by requiring corporations to make up the difference between foreign taxes and U.S. taxes whenever they bring their money home. Think of it this way: if your company earned profits in Ireland, you probably wouldn’t bring those funds back to the U.S. for a second round of taxation instead of investing them back in low-tax Ireland.

For what it’s worth, the territorial system is highly common among industrialized nations, although most have added provisions to collect on certain foreign earnings such as investment interest, royalties and income earned in tax havens.

The Obama ad described Romney’s territorial-tax proposal as a break for companies that outsource jobs, and it cited a New York Times article in doing so. But that piece didn’t characterize Romney’s plan the same way. In fact, it barely touched on the topic of foreign earnings, and mostly dealt with Romney’s calls for a lower domestic tax rate for U.S. corporations.

The only mention of territorial taxation comes at the end of the article, when the author notes that Obama has pitched a minimum tax on foreign earnings as part of his broad plan for overhauling the corporate tax system. At the end of the article, Romney economic advisor Glenn Hubbard criticizes the president’s plan.

Here’s the only reference to territorial taxation:

“Mr. Hubbard, accusing the administration of a “full-throttle attack on multinationals”, said Mr. Romney would propose shifting to a territorial system that would not tax corporate income earned overseas.”

The word “outsource” never appears in the article, and the word “job” only shows up in a quote in which Hubbard criticizes the proposed tax plan from former GOP presidential candidate Rick Santorum.

Technically, outsourcers could receive tax breaks under Romney’s plan, but only if they decide to bring home some of their foreign earnings. This could play out one of three ways: they could invest the funds domestically, potentially creating jobs and increasing profits; they could hand more money over to shareholders; or they could do a combination of both.

Romney’s plan, which calls for a corporate tax rate of 25 percent, could make outsourcing less attractive, but taxes would still be lower in a lot of other countries. It also offers at least the possibility that U.S.-based multinationals will repatriate some of their money, although many economists doubt that they would create jobs with it. Harvard economist Robert Pozen told us that repatriated funds would likely go toward shareholder dividends, and not to new U.S. investments, since the income from those investments would still be taxed at a fairly high rate domestically.

Regardless, there is virtually no incentive for repatriating money under the current system. Pozen has recommended converting to a system of territorial taxation, with no exemptions for “mobile” income or money placed in tax havens, and a minimum tax of at least 20 percent so U.S.-based multinationals have to pay that combined rate no matter where they do business. Theoretically, this would discourage companies from moving their operations to nations with super-low rates that the U.S. can’t match without blowing a massive hole in its budget.

Obama campaign spokeswoman Kara Carscaden had this to say about the Obama team’s ad: “In the private sector and the public one, Romney had opportunities to keep American jobs at home and didn’t take them. Romney owned and profited from Bain even while running the Olympics, still profits from it today and can’t wash his hands of the actions taken under his ownership. Whether it’s shipping public jobs to India or outsourcing private ones to Mexico and China, Romney’s record is clear.”

The Pinocchio Test

Two wrongs don’t make a right. The Obama campaign is rebutting a truly misleading ad by resorting to old tricks and ignoring our previous rulings.

For one thing, the ad blames Romney for moves that Bain Capital made when he was no longer working for the firm. It also recycled a claim that we debunked earlier about the GOP candidate outsourcing jobs to India while he was governor of Massachusetts.

In terms of tax breaks for outsourcers, the ad is technically right. But it failed to acknowledge one of the primary goals of territorial taxation, which is repatriation of money. This is a case of telling just part of the story while ignoring the other side -- not the worst sin in our book, but not something we overlook either.

On balance, the Obama ad earns Two Pinocchios. Its misleading claims overcompensate for the whoppers from the Americans for Prosperity commercial.

Two Pinocchios



The latest Super PAC attack against Mitt Romney
Posted by Glenn Kessler at 25 April 2012 The Washington Post

http://www.washingtonpost.com/blogs/fact-checker/post/the-latest-super-pac-attack-against-mitt-romney/2012/04/24/gIQAIqxCfT_blog.html

“Mitt Romney. He made millions off of companies that went bankrupt while workers lost promised health and retirement benefits.

“His own tax return from last year reveals he made $21 million, yet paid a lower tax rate than many middle-class families.

“Now Romney’s proposing a huge new $150,000 tax cut for the wealthiest 1 percent, while cutting Medicare and education for us.

“Mitt Romney. If he wins, we lose.”

— Voiceover of a new television ad by Priorities USA Action

This television ad, by the pro-Obama Super PAC Priorities USA Action, poses a unique challenge for this column because each of the statements uttered within its 30 seconds has a ring of truth. Of course, it paints each of these facts in the most negative light possible, without any balance, but that’s their prerogative.

The ad also repeatedly shows an image of a youthful Romney with dollars stuffed in his pockets — a 27-year-old photo that was shot as part of a promotional effort for a relatively new company, Bain Capital, that Romney headed at the time. The ad at one point even photoshops an image of an older Romney, a rather cheesy maneuver that recently was mocked by our friends over at Flackcheck.org.

Here’s some context for the claims made in the ad.

“He made millions off of companies that went bankrupt while workers lost promised health and retirement benefits.”

That’s the dark side of Romney’s business career at Bain Capital, which he would argue on balance helped create jobs for workers. (We had earlier taken Romney to task for claiming he created 100,000 jobs without mentioning the ones that had been lost.)

As the Los Angeles Times has documented after obtaining a prospectus for potential $1 million investors, Bain was tasked with creating wealth for its investors, not creating jobs. The prospectus put it plainly: “The objective of the fund is to achieve an annual rate of return on invested capital in excess of the returns generated by conventional investments in the public equity market and the private equity market.”

There was no mention of “jobs” in the prospectus. As the newspaper put it: “Romney and his team also maximized returns by firing workers, seeking government subsidies, and flipping companies quickly for large profits. Sometimes Bain investors gained even when companies slid into bankruptcy.”

We have documented several occasions where Romney opponents have exaggerated or taken out of context specific details about various Bain deals, such as the notorious “King of Bain” film released by a pro-Newt Gingrich Super PAC.

But this video avoids those pitfalls by making its accusation much more general. Clearly, some workers were harmed when Bain investments went sour, but whether that is Romney’s fault or the result of broader economic trends and poor business practices is open to question. Meanwhile, other workers gained because Bain decided to invest in their companies.

On balance, the analysis of Bain’s investment record by Steven Rattner, a Democratic fundraiser and former car czar for President Obama, strikes us as about right:

Bain Capital is not now, nor has it ever been, some kind of Gordon Gekko-like, fire-breathing corporate raider that slashed and burned companies, immolating jobs wherever they appear in its path. ... Bain had less than its share of bankruptcies, but it had a few — it appears four — that are particularly troubling. In all those cases, when the portfolio companies initially showed signs of promise, Bain took advantage of their progress to borrow more money, which it took out as a dividend. Later, the fortunes of each company turned down, ultimately into insolvency.
When Bain “releveraged” those companies and took the cash out, the investment managers of course had no idea that the companies would later falter. But with the benefit of hindsight, taking a more conservative approach and refraining from squeezing these dividends out of the companies would certainly have been more prudent.
Let’s be sure to keep these few problem children in perspective. During the Romney years, Bain made 77 significant investments — and a number of smaller ones. It made billions for worthy investors and, yes, doubtless created some incalculable number of net new jobs for the U.S. economy.

“His own tax return from last year reveals he made $21 million, yet paid a lower tax rate than many middle-class families.”

Romney obviously is very wealthy, largely as a result of that business career. His 2010 tax return shows income of $21.6 million, virtually all of it from capital gains and dividends, which under current tax law are taxed at 15 percent for investments of at least a year. He also made substantial charitable contributions, further reducing his tax rate to 13.9 percent.

Is that rate lower than many middle-class families? It depends in part on definitions. Priorities USA is comparing Romney’s effective rate against the effective rate paid by Americans for all federal taxes, as shown in this analysis by the Tax Policy Center, which is nonpartisan. This would include the employer’s share of payroll taxes, which is legitimate since many economists believe that comes out of an employee’s paycheck.

By that measure, many categories of taxpayers on average pay a higher effective tax rate than Romney, and even people in the $40,000 to $50,000 range are only slightly below his rate. The average tax rate for Americans is 18.8 percent, with about half of that from the individual income tax. As a percentage of adjusted gross income, it works out to about 20.4 percent.

There’s little argument that Romney pays a very nice tax rate on his income.

“Now Romney’s proposing a huge new $150,000 tax cut for the wealthiest 1 percent, while cutting Medicare and education for us.”

This contains two broad statements, based on 1) Romney’s campaign tax plan and 2) his public support of the House Republican budget. It is missing a few caveats.

The ad suggests that Romney’s tax plan is aimed just at the wealthy, but actually it would cut taxes for many Americans — though some lower-income workers would see a tax increase because Romney eliminates an Obama tax cut, according to another analysis by the Tax Policy Center. The wealthiest Americans overall pay the most in taxes, so it should be no surprise that in any across-the-board tax cut, they would get the biggest reduction in taxes.

Romney has suggested that he will make up some lost revenue by eliminating unspecified tax breaks, which in theory could reduce the tax cut for wealthier Americans. But since he has not yet spelled out those plans, it’s legitimate to tag him with the higher figure.

The House Republican budget would reduce projected expenditures for Medicare, though actual spending would increase year over year. (It’s worth noting that Republicans have frequently claimed that Obama “cut” $500 billion from Medicare to fund the health-care law.) The Republican budget does not offer many details for spending reductions in non-entitlement programs, but it does target Pell grants, which provide college funding for low-income students.

But as always, the details are much more complicated. Pell grants face a major funding cliff after 2014, and the Republican plan is an effort to address that problem while maintaining a maximum grant of $5,550. We take no position on whether the proposal makes sense or not—here is a good, dispassionate account — but readers should be wary when they hear the word “cut,” as it usually is measured against a perfect world, not reality.

The same holds true for Medicare. The ad carefully does not repeat the claim that the House plan would “end Medicare,” as some Democrats charge. (In a previous ad, this group claimed Medicare would be “dismantled” under Romney.) Republicans would argue they are trying to address problems that are not sustainable under the current path for the program.

Still, this line reminds us of the devastating attacks that Bill Clinton used against Bob Dole in the 1996 election, when he tied the GOP nominee to the House Republican effort at the time to both cut taxes and overhaul Medicare. It is clearly out of the same playbook.

The Pinocchio Test

In many ways, this ad provides an effective template for a political attack on Romney. It is carefully written, so none of the claims, by themselves, are factually inaccurate, though one can quibble with certain phrases (“cuts”). The overall picture is harshly negative and lacking context, but in 30 seconds, what would one expect?

One Pinocchio



Romney and ‘outsourcing’: Biden’s out-of-context fact

Posted by Glenn Kessler at 29 March 2012 The Washington Post

http://www.washingtonpost.com/blogs/fact-checker/post/romney-and-outsourcing-bidens-out-of-context-fact/2012/03/28/gIQA2UgQhS_blog.html

“Despite the fact that millions of taxpayer dollars were flowing to companies outsourcing state services like overseas call centers, he vetoed a bill passed by the Massachusetts legislature that would have stopped the state from outsourcing contracts overseas, state contracts…No, I really mean it. I mean, that’s one, when I was told about it, I said, ‘I’m not going to say that until you fact check that for me again.’ I mean, think about it. It’s one thing for the local company to outsource a call service, but for the state government to outsource a call service that’s set up to answer questions for people in the state about a problem they have with the government, to outsource that, denying folks in Massachusetts the jobs that are attended to that.”

— Vice President Biden, remarks in Davenport, Iowa, March 28, 2011

Since the vice president brought it up, let’s delve into some ancient Massachusetts history again.

We were dubious about this charge when the pro-Obama Super PAC claimed, in a slashing web ad, that American jobs were “relocated” when Mitt Romney was governor of Massachusetts. But it’s another matter when the vice president levels the charge – and says it’s been fact checked.

We always caution readers to be wary of claims made about particular votes — or in this case, a veto. What is the context for that person’s action?

The Facts

Several months before the bill had landed on Romney’s desk in 2004, the governor proposed a $29-million plan to curb outsourcing of jobs out of the state, according to a March 23 article on the front page of The Boston Globe. But the plan landed with a thud and did not get very far in the Democratic-controlled legislature.

Fast forward a few months. In June, a budget bill was sent to Romney containing a provision that would have prohibited Massachusetts from contracting with companies that outsourced the state's work to other countries. A key concern was a $160,000-a-month contract with Citigroup to operate a system of electronic food-stamp cards that included a customer phone service center in India.

Interestingly, both the liberal editorial page of the Boston Globe and conservative editorial page of the Boston Herald urged Romney to veto the amendment.

The Globe said: “Another section that would discourage the state from doing business with companies that outsource work to foreign countries should be vetoed. The state contracting process is a poor tool to address globalization.”

The Herald was even more pointed, saying Romney was “hoist with one’s own petard” by launching the anti-outsourcing initiative in the first place. “These programs would cost more if those services weren't outsourced,” the Herald noted. “If he goes along with this anti-outsourcing amendment, Romney will demonstrate an utter lack of commitment to competition in government contracting.”

We’re not going to debate the merits of the bill, but it does demonstrate the conundrum before Romney. He could either try to ensure that some additional jobs were available to taxpayers — or he could try to save taxpayers some money. (The Globe reported that Kansas had tried to shift its food-stamp work from India, only to drop the idea when lawmakers learned it would boost the state’s costs by $640,000.)

Romney opted for the later course, saying the measure did not protect state jobs — the call center might have moved from India to another state — but “had the potential of costing our citizens a lot more money.” The Democratic-dominated Massachusetts legislature did not override his veto, even though it overturned 117 others, suggesting there was little real support for the measure.

It’s difficult today to get a handle on how many jobs were at stake. Proponents of the bill had touted a union study claiming that $7 million was spent on contract work overseas — but that’s a drop in the bucket compared to Massachusetts’s $24 billion budget at the time.

When the food-stamp contract expired, the Massachusetts Department of Transitional Assistance insisted that those jobs be returned to the United States. But they ended up in a call center based in Utah. According to articles in the local media, by 2006 (when Romney was still governor) there were just 18 jobs that remained in India, mainly to crunch Medicaid numbers.

While Biden suggested that Massachusetts under Romney was unique in outsourcing jobs, “denying folks in Massachusetts the jobs,” a survey from the National Conference of State Legislators in 2004 (cited in a USA Today article that year) said that almost 40 states “outsource some work, including call centers, overseas where labor is cheaper.”

Biden’s office referred us to the Obama campaign.

“The Vice President made it very clear: Romney had a chance to keep American jobs at home and he didn’t take it,” said Kara Carscaden, deputy national press secretary for the campaign. “Instead, he vetoed the bill and sent Massachusetts jobs and taxpayer money to India. If anyone deserves a Pinocchio, it’s Mitt Romney for calling himself a job creator.”

The Pinocchio Test

Biden has taken a single fact and blown it out of proportion, even in his speech trying to link the veto to a decline in manufacturing jobs in Massachusetts.

Yes, Romney may have vetoed a bill on outsourcing, but his decision was supported by the two main newspapers in the state. It also is telling that the Democratic-controlled legislature did not override Romney’s veto. In other words, not every veto is bad — or every bill is good.

Moreover, Massachusetts was not an unique case in trying to save taxpayer funds by shipping a relatively small number of such jobs to India or other countries — jobs that likely would not have ended up in Massachusetts in the first place.

The vice president should have asked for yet another fact check.

Two Pinocchios



The Obama campaign’s suspect claim about Romney’s role in store closings
http://www.washingtonpost.com/blogs/fact-checker/post/the-obama-campaigns-suspect-claim-about-romneys-role-in-store-closings/2012/01/17/gIQA6wey6P_blog.html

By Glenn Kessler, 18 January 2012 the Washington Post

“Romney closed over a thousand plants, stores and offices, and cut employee wages, benefits and pensions. He laid off American workers and outsourced their jobs to other countries. And he and his partners made hundreds of millions of dollars while taking companies to bankruptcy.”

-- Stephanie Cutter, Obama campaign memo titled “Romney’s Economic Record: Profit at Any Cost,” Jan. 13, 2012

The game of numbers between the Obama and Romney campaigns is getting a bit silly. Romney started it by making the untenable claim that he helped create more than 100,000 jobs, a figure that included jobs created by companies long after Romney’s involvement had ended in the businesses. (In the recent debate, he modified his statement to make it a tad more accurate.)

Now, apparently believing that’s what good for the goose is good for the gander, the Obama campaign has upped the ante by blaming Romney for job losses and bad deals that took place after he stopped working at Bain Capital in early 1999 in order to run the Salt Lake City Olympics. As we will demonstrate, they use a technicality to accomplish this.

We will examine the statement that Romney “closed over a thousand plants, stores and offices.”

The Facts

First of all, note that the statement starts with “plants” and then pads it with “stores and offices.” As far as we can tell, there are only handful of plants on this list – Ampad (two), GS Industries (two), Dade Behring (three). The big number on this list comes from store closings -- in particular 600 stores shut down by KB Toys after it filed for bankruptcy protection in 2004.

The Bain Capital deal with KB Toys certainly looks a bit fishy. Bain paid $300 million for KB Toys in December 2000, but only put in $18.1 million in cash, borrowing the rest. Then, less than two years later, KB Toys took out bank loans to fund executive bonuses and dividends to Bain totaling more than $120 million. In 16 months, Bain had easily quadrupled its investment.

When KB Toys filed for Chapter 11 bankruptcy protection in early 2004, largely because of a price war with Wal-Mart, creditors alleged that the dividend deal had weakened the company. They sued various Bain entities and executives to get some of the money back. (KB Toys eventually emerged from bankruptcy proceedings in 2005 but then fell victim to the economic crisis in 2008 and was liquidated.)

But what does this have to do with Romney? After all, Bain had invested in KB Toys almost two years after he left to run the Olympics.

The problem is that Romney did not legally extricate himself from Bain Capital until shortly before his Olympic tenure ended. (A 2002 Boston Globe article said he retained a key financial interest until August of 2001.) So a 2002 statement he filed with the Massachusetts State Ethics Commission on his financial interests lists ownership of various Bain entities, some of which appear to intersect with the funds that invested in KB Toys.

The document says that Romney is “a passive, limited partner [with] no management capacity” in many of these funds, and so it appears he certainly profited from the KB Toys transaction. But the controversial payout took place in 2002, after he formally left Bain.

In the Massachusetts document, Romney is also listed as 100 percent owner of “Bain Capital Inc.” But there is less than meets the eye here. Bain Capital Inc. was the management firm, which was paid a management fee to run the funds and actually made virtually no profit, since it existed to pay salaries and expenses. After Romney formally left Bain in 2001, a new entity called “Bain Capital LLC” took over the management function.

By virtually all accounts, Romney was focused on Olympics in the 1999-2002 period. Yet because Romney had not legally separated from Bain, his name is littered across Securities and
Exchange Commission filings concerning Bain Capital deals during this period. The crazy quilt of private-equity structures, in some ways, makes his ownership appear even more ominous, as the filings list hundreds of thousands of shares controlled by Romney.

Even so, it is a real stretch to claim that Romney — himself! — “closed” these stores. No evidence has emerged that he was involved in the KB Toys transaction. Indeed, when creditors sued over the dividend payment, they named six Bain-controlled entities and three Bain executives who had served on the board of KB Holdings.

Given that the plaintiffs’ lawyers will try to list as many possible defendants to try to force a settlement, one can be certain Romney would have been named if there had been any hint of his involvement. But he was not named, despite the SEC filings suggesting his control of the shares.

In other words, creditors apparently had determined Romney was only a passive investor.

While the creditors made many allegations about Bain’s behavior, the lawsuit appears to have been settled very quietly with no press attention. Ironically, the man who led the creditors’ case was Norman Eisen, now President Obama’s ambassador to the Czech Republic.

In what appears to be a reference to the case, Eisen’s law firm biography claims he brought “one of the first complaints targeting abuses by the burgeoning private equity industry” and that his “suit against the private equity firm produced a rapid and significant settlement for the creditors.” (Eisen did not respond to an email seeking comment.)

Without those 600 stores closed by KB Toys, that nice, round “1,000” quickly begins to shrink.

Obama campaign deputy press secretary Kara Carscaden defended in the figure in a lengthy statement:

“Romney has asked Republicans to nominate him based on his record as a ‘job creator.’ But his job at Bain wasn’t about job creation, it was about wealth creation, which is why many of his investments in companies resulted in bankruptcies, laying off workers and outsourcing jobs. That’s also why the number of jobs he claims to have created has been a moving target – it can’t be substantiated. Yet, Romney continues to broadly assert that he created jobs, no matter how large or small his role was in relation to a specific investment or whether those jobs were created while he was an investor. So, if Romney is claiming credit for jobs created at Staples long after Bain was involved, then using the same standard he should take responsibility for jobs lost and factories closed no matter the size or timing of the investment. The fact is that Romney still owned Bain when it bought KB Toys, which went bankrupt and closed hundreds of stores. Romney made money off that failure -- but since he has never released his tax returns, we don’t know how much.”

The Pinocchio Test

Two wrongs don’t make a right. Just because Romney exaggerated claims about job creation does not mean that the Obama campaign can tag him with store closings in which he appears to have played no role. The financial filings suggesting Romney still had some measure of control at Bain from 1999-2001 gives the Obama campaign opportunities to raise doubts, but the fact that Romney was not named in the KB Toys suit is an important factor in our ruling.

Romney’s record when he was running Bain is certainly fair game, but any deals made after 1999 just shouldn’t count.

Three Pinocchios