TAIBBI's great expose on Bain's role in KB Toys came 228 days after reported/discussed at DU.

[grantcart]

KPETE's thread today captures the essence of a brilliant article by Taibbi in the Rolling Stone outlining how Bain Capital ruined companies by loading them with huge debt that would eventually swamp viable companies and allow Bain a second bite at selling off the parts.

KPETE's thread: http://www.democraticunderground.com/10021223780



The real heart of Taibbi's article (IMHO) is a very specific discussion about Bain's role in KB Toys

I feel bad even asking Patnode about Romney. Big and burly, with white hair and the thick forearms of a man who's stocked a shelf or two in his lifetime, he seems to belong to an era before things like leveraged debt even existed. For 38 years, Patnode worked for a company called KB Toys in Pittsfield. He was the longest-serving employee in the company's history, opening some of the firm's first mall stores, making some of its canniest product buys ("Tamagotchi pets," he says, beaming, "and Tech-Decks, too&quot , traveling all over the world to help build an empire that at its peak included 1,300 stores. "There were times when I worked seven days a week, 16 hours a day," he says. "I opened three stores in two months once."

Then in 2000, right before Romney gave up his ownership stake in Bain Capital, the firm targeted KB Toys. The debacle that followed serves as a prime example of the conflict between the old model of American business, built from the ground up with sweat and industry know-how, and the new globalist model, the Romney model, which uses leverage as a weapon of high-speed conquest.

In a typical private-equity fragging, Bain put up a mere $18 million to acquire KB Toys and got big banks to finance the remaining $302 million it needed. Less than a year and a half after the purchase, Bain decided to give itself a gift known as a "dividend recapitalization." The firm induced KB Toys to redeem $121 million in stock and take out more than $66 million in bank loans – $83 million of which went directly into the pockets of Bain's owners and investors, including Romney. "The dividend recap is like borrowing someone else's credit card to take out a cash advance, and then leaving them to pay it off," says Heather Slavkin Corzo, who monitors private equity takeovers as the senior legal policy adviser for the AFL-CIO.

Bain ended up earning a return of at least 370 percent on the deal, while KB Toys fell into bankruptcy, saddled with millions in debt. KB's former parent company, Big Lots, alleged in bankruptcy court that Bain's "unjustified" return on the dividend recap was actually "900 percent in a mere 16 months." Patnode, by contrast, was fired in December 2008, after almost four decades on the job. Like other employees, he didn't get a single day's severance.

Read more: http://www.rollingstone.com/politics/news/greed-and-debt-the-true-story-of-mitt-romney-and-bain-capital-20120829#ixzz24zAWyW9R

In the 80s I took my furniture company through the process of shopping it to venture capitalist consortium's, they included Rockefeller, Saudi and other big name groups. Typically they would combine 10 deep pockets, each putting in 25 million, then they would look at 100 companies, nominate about 10 for the second round and end up picking about 1 to invest in and keep going until there capital was committed

So I was not immediately biased that what Bain was doing was evil, I wanted to see for myself. So I had 3 days where I didn't have to work and I got a list of Bain investments and started going through them one by one. In some of the cases it seemed pretty clear that the companies were on the way out anyway.

And then I came to KB Toys. The reason that it stood out is that had already gone through a restructuring once and was profitable, award winning, had a social conscience. It was the perfect company for an ethical venture capitalist to invest in and get it to the next level.

Bain bought it, took out their cash, saddled it with debt and destroyed the company. I did a lot of original source checking and laid out the facts point after point on January 14, 2012.

Here is the thread http://www.democraticunderground.com/12511407

I detail the particular history of KB Toys and why it was the perfect example of Vulture Capitalism and here was my conclusion

Bain engineered a private equity purchase of a profitable company that had already gone through 'creative destruction' eliminating unprofitable legacy operations and saddled the company with hundreds of millions of dollars of debt. The company was not just profitable but an example of the kind of companies that demonstrate a wider social conscious for its customers and the larger community. Sixteen months after purchasing the company with only 6% cash of the value Bain takes out dividends at over 400% of their investment. Significantly this was done during the time of the attacks on 9/11 when the country as a whole was undergoing a heightened sense of patriotism, sacrifice and social duty. Less than 2 years after saddling KB Toys with massive debt and taking out astronomical dividends, K-B Toys faces Chapter 11 bankruptcy and closes 354 previously profitable stores.

Vultures take meat that is already dead and complete the final loop in the cycle of life.

Bain took a company that had already been restructured and was surging in profits and cash. There was never any interest by Bain to restructure KB Toys, that had already been done.

Bain purchased KB Toys simply to raid its cash, and they did so during a time when the rest of the country was undergoing a period of reviewing the founding principles of the country.

To call what Bain did to KB Toys as 'Vulture' Capitalism is an insult to Vultures.

They were pirates and this is why there is so much interest to change the subject and not let the real facts of Bain Capital come to the surface during the Republican Primary.

It matches what Taibbis wrote point by point but preceded it by 228 days.

Compare it to what Taibbi wrote and you can see that the essential facts were well discussed at DU 228 days before RS published Taibbi's elegantly written and well researched article containing essentially the same points.

A few days ago a social welfare manager did a similar point by point dissecting of the lies of the Romney campaign about what is happening on welfare.

Its the kind of thing that happens at DU alot. Not just ahead of the curve, way ahead of the curve. Those who do this for a living would be well advised to comb DUs threads carefully because there is a lot of gold in these forums, sometimes its weeks ahead and sometimes months ahead but the most compelling reason to be a regularly reader of DU is that it is a community that has a tremendous resource of people whose experience and passion result in a regular production of valuable data, opinion and discussion.

[AnnieBW]

1. KB Used to Have Really Good Toys

Okay, I'm married to a guy with a mental age of about 12. He goes to toy stores to look for action figures and stuff like that. He calls it "collecting". He remembers KB very well. He would always go in there to look for new stuff. They usually had first-run stuff, not dollar-store quality merchandise. Along about Y2K, they suddenly changed to dollar-store crap. There were also a lot of figs from the show "Reboot" that wound up at Big Lots about 2001. We bought several of them to resell on eBay. (It took a while, because all of the other geeks were out of money at that time, too.) Anyway, we thought it was economic redlining, because that's when our local mall started to go downhill. But then all of the KB Toys went under.

That sucks. I don't have a problem with ethical venture capitalists. But Bain, as we've all seen, is nowhere near ethical.

[grantcart]

3. This is why we can't have good toy stores.

[northoftheborder]

2. When this act of destruction happened to KB toys I had young grandchildren....

....and loved their excellent toys and books. I was so shocked when they went out of business, and of course, learned only last year about what happened with Bain & Romney. I told my d-i-l about it, and who was behind it, and I hope it made a dent on her Republican right-wing Christian brain. She appeared to be startled and shocked at the time I told her about this.

[reformist2]

4. Matt Taibbi quotes a Wall Streeter who says all that Romney knows how to do is "the bustout".

What's a "bustout"? That's the term used by the Mafia for when they used to loot local businesses and force them into bankruptcy.

[grantcart]

5. Yeah the Sopranos had several, the best was the one that they did with the sporting goods store

owner that had a gambling problem.

bust it out and then burn it down.

[nanabugg]

6. I wondered what happepned to them. They were the best toy store with very reasonable prices..much

better than ToysRUs. I guess they couldn't stand working folks getting toys for their kids.

[NYC_SKP]

7. Wealth doesn't simply evaporate. Tricks like "dividend recapitalization"...

...reveal where the wealth that's "lost" goes.

K/R

[grantcart]

8. Thanks

[cliffordu]

9. K&R

[grantcart]

10. Harumph, harumph, harumph

[cliffordu]

12. OK, smartass.....

Grantcart's veracity is beyond reproach in this, as in everything I have ever read by him.

He is Aces. The bomb. All that and a bag of chips. For shizzle he's the hizzle. He's the turd in the turducken, the Krack in the Kraken.

Once, grantcart farted in class and got a standing ovation from the students and an "A" from the professor as the gas passed was actually a chord progression, an A minor 7 flat five passing into to F7 flat 5, made famous by Theolonious Monk in 'Round Midnight, perhaps the most recorded (and least farted) jazz tune in history.

grantcart can actually masturbate in 5/4 time. three notes with the left hand, two with the right, switching hands every bar.

grantcart has a vestigial tail, and uses it to hold cards (cheating) when playing Pijou with his long suffering wife.

grantcart once won a game of russian roulette with a real Russian at the Roulette table at Cesar's in Vegas. The Russian says he'll never bet against grantcart again.

And neither should you.

[grantcart]

13. Stay thirsty my friend.

[cliffordu]

18. That obvious, hmm?

Gettin' old.

[grantcart]

30. Your upthread comment made me think of Dos Equis

[cliffordu]

31. Izzat ME????

[grantcart]

34. are you still thirsty?

its how I picture you.

[cliffordu]

36. Still thirsty....

Just drinking tea, though. dammit.

When I wrote the thingy above I had JUST seen the dos equis commercial....so there.....

[JDPriestly]

11. A lot of unusual people post on DU -- unusual in different ways.

Some of us are unusually active in our communities, in politics, in education, in medicine, in science, even in religion.

Some are unusually well educated or well traveled or well informed because of our work or the accident of our birth.

We come from very different walks of life, different professions, different parts of the country.

One thing I value on DU is that respect each other. We set protocols that require us to at least try to interact with tact and sensitivity to each other's feelings while posting on DU.

As a result, our discussions are rarely hijacked by personal attacks and pettiness.

None of us is right all the time, but we learn from each other. That is probably the one trait that we share: the desire to learn from each other.

So anyone interested in learning with us, teaching us or maybe even learning from us, is welcome and I hope will enjoy this website.

This may seem a little off topic. But I was responding to this:


Its the kind of thing that happens at DU alot. Not just ahead of the curve, way ahead of the curve. Those who do this for a living would be well advised to comb DUs threads carefully because there is a lot of gold in these forums, sometimes its weeks ahead and sometimes months ahead but the most compelling reason to be a regularly reader of DU is that it is a community that has a tremendous resource of people whose experience and passion result in a regular production of valuable data, opinion and discussion.

[grantcart]

14. morning kick

[goclark]

16. wow! Txs grantcart k and r

[grantcart]

17. tks

[goclark]

42. Here is another K for September

[magical thyme]

15. it's entirely possible that at least some "outsiders" do look through DU

Last edited Thu Aug 30, 2012, 11:35 AM - Edit history (1)

while looking for potential hot button issues to focus on.

So congrats to *Grantcart* for his groundwork!!!!

So glad Taibbi did this great (and enraging) article...just in time for the election!

I've seen an issue of RS occasionally in our break room. Time to money up, buy one and leave it there for my teaparty co-workers to fret about.


edited to correct kudos!

[cliffordu]

19. You should read grantcarts original......

check the link in the OP....

[HiPointDem]

38. I know for a fact they do. I saw instances of it when I was lurking here. One was the liberal

radio host Thom Hartmann....

[efhmc]

20. I always wondered what happened to that toy store.

Unhappily, now I know.

[grantcart]

21. sad for the store, sad for the employees.

[efhmc]

22. Yes and for the consumer who didn't want a big box store.

[Blue_Tires]

24. +1

[BarackTheVote]

23. Something disturbing

kept creeping into my mind as I was reading this article: Mitt Romney's campaign is nothing less than a leveraged buy-out of America. He puts down a relatively small amount of his own money, the Koch Bros. and their ilk plop down a huge, ungodly sum. And then when RMoney gets into the Oval Office, his only plan and intention seems to be to cut trillions of dollars in taxes for himself and his corporate backers, leaving America bankrupt and millions of lower and middle-class people left to unemployment and the streets. Scary.

[grantcart]

25. This is not an election, its an intelligence test for the country. Welcome to DU.

[HiPointDem]

39. The leveraged buyout is ongoing. Cities are being forced into bankruptcy, assets being

sold off for pennies on the real value, to be privatized and used as milk cows.

It's the new enclosure movement.

[hedgehog]

26. Mafia bustout:

“busting out” a restaurant or other business means buying supplies on credit, then stealing those supplies and leaving the business holding the bag. When the credit ceiling of the business is reached, the business is declared bankrupt and the creditors are stiffed. The mobsters, of course, walk away with all the supplies that were bought on credit and sell them off for a 100% profit. The beauty of the scam is that the business (and the business’ owners) are the ones stuck with the legal responsibility, while the creditors are stuck with the tab.

http://www.zerohedge.com/article/guest-post-busting-out-joint

[grantcart]

27. and then burn it down and get the insurance.

[hootinholler]

28. This is not vulture capitalism

It is predatory. Corporate raiders. They are not scavenging from carrion but are killing good businesses.

The KB stockholders may have grounds for a suit.

[grantcart]

29. just curious what is the difference between vulture and predatory capitalism?

[goclark]

32. Good question ~ keep kicked

[hootinholler]

35. I was really just pointing out that Bain's behavior was more like a predator than a scavenger

A vulture would be buying 'bad debt' for a dime on the dollar, and hounding the debtor.

Bain wasn't doing that. Especially in the case of KB, a terrific chain, BTW, a relatively healthy corporation bought and leveraged them until they hemorrhaged.

They made money going in getting leveraged cash back and then made money going out at the fire sale.

[grantcart]

37. ah got it

[Puregonzo1188]

33. I remember going to KB Toys as a child and always wondered what happened to them.

They used to always be in all the malls and now I never see them.

[TeamPooka]

40. great reminder

"but the most compelling reason to be a regularly reader of DU is that it is a community that has a tremendous resource of people whose experience and passion result in a regular production of valuable data, opinion and discussion."

That's why I'm here.
I wish I found DU earlier.

[grantcart]

41. welcome to DU