"Anything Goes" Capitalism Destroys Companies and Workers' Lives
In the title tune to the 1934 musical Anything Goes,"Cole Porter says "times have changed," since the stock market crashed in 1929, but the super rich, like John D. Rockefeller Jr., "still can hoard enough money to let Max Gordon produce his shows."
The lyrics also tease FDR because Eleanor advertised a mattress from a venerable company: "Missus R., with all her trimmin's, can broadcast a bed from Simmons, 'cause Franklin knows, Anything Goes."
That 133-year-old company, which employs members of my union, the United Steelworkers (USW), will file for bankruptcy soon. Then it will be auctioned to yet another private equity firm - the seventh such sale in little more than 20 years.
Repeatedly, new owners stuck their greedy hands under the mattress and pulled out money. Each time, that hurt the company and the workers. The firm is $1.3 billion in debt now - eight times what it was when the private equity companies started passing Simmons around like a cheap date. And a quarter of its workforce - 1,000 people - is laid off.
This is Anything Goes capitalism. It destroys companies. And it destroys workers' lives. But it sure does work for the private equity firms. They made around $750 million in profits from the now-indebted and bankrupt Simmons.
It's time to flip the mattress on that failed economic philosophy. Time to end the days of Anything Goes, just like FDR did. Time to regulate private equity before it ruins more American manufacturing.
Too often private equity firms buy manufacturers, borrow against their assets, pull out that money as "dividends," and run off without regard to the future of the company or its workers. It's smoking instant cash gratification in a crack pipe. Here is how Robert Hellyer, a former Simmons president who worked under several of the private equity buyers, explained it to the New York Times:
From my experience, none of the private equity firms were building a brand for the future. ... Plus, the mind-set was, since the money was practically free, why not leverage the company to the maximum?
It's morally wrong. It's economically wrong. It's gotta stop.
Bankrupting viable companies - the way the private equity firms did Simmons - for the profit of a few and the pain of the most should be banned. The New York Times, writing about the Simmons case, noted:
A disproportionate number of the companies that were acquired during that frenzy are now struggling with the enormous debts. More than half the roughly 220 companies that have defaulted on their debt in some form this year were either owned at one time or are still controlled by private equity firms, according to analysts at Standard & Poor's.
The current owners of Simmons, the ones who put the company even further into debt, Thomas H. Lee Partners of Boston, will leave the mattress firm mired in bankruptcy while walking away about $77 million richer. Clearly, Anything Goes for them. All profit; no consequences.
Not so for Simmons bond holders, who stand to lose more than $575 million in the bankruptcy; the workers, who confront losing their livelihoods, and the company itself as it struggles to survive under an extraordinary debt burden.
Scott A. Schoen, Simmons co-president, whined to the New York Times that the mattress downturn was "unprecedented and unforeseeable."
On the other hand, as the Times noted of the private equity takeovers, "Many of these deals, cut in good times, left little or no margin for error - let alone for the Great Recession." Maybe Mr. Schoen could have shown a better business plan.
Then, again, it wasn't about business planning. It was all about raiding the company for its assets and shipping out, like a Viking invader.
Before the likes of Thomas H. Lee and partners showed up on the scene, Noble Rogers, 50, worked happily for Simmons, mostly at the Mapleton, Ga., plant. President of the USW local, he loved Simmons because the company cared for its workers, providing a pension, and when workers retired, giving them a bonus of $20 for each year and a mattress set.
"There were picnics, March of Dimes walks, Christmas parties, and we always had Halloween parties. It was really a family-oriented company," Rogers told the New York Times.
Then in 2003 came Thomas H. Lee Partners of Boston, the latest private equity firm extracting more money from Simmons.
In the spring of 2008, Simmons laid off the entire night shift of Rogers' plant. A few months later, on Sept. 18, Simmons officials announced they were closing the factory altogether.
Rogers negotiated with Simmons for the traditional gift of $20 for each year worked and the mattress set for those eligible for retirement. Simmons rebuffed him. But then, that was to be expected. Simmons - under Thomas H. Lee - had stopped the parties and picnics.
The USW has worked with legitimate private equity firms that bought struggling manufacturers, set them on a path to profitability, and moved on to the next money-making acquisition.
That is completely different from buying a company to function as nothing more than a leach, engorging on its assets until huge debts are amassed, then carelessly disengaging to snare a hapless new victim.
Anything Goes capitalism is something that must go.
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This is Milton Friedman capitalism as it has been taught for almost 30 years in most MBA programs. It is short sighted (quarterly reports being a huge problem) and deliberately amoral.
The economic theories which insist that a free market is best for all are based on the expectation of mature leadership and reasoned thinking. There has been nothing like this on Wall Street in years.
These firms have pillaged the economy and are being rewarded for their behavior while we remain imprisoned by their greed.
Well, ya see, union guy, it's the capitalists what controls the money system.
Now, if you guys controlled the money system, well, you'd be spending it on things like making sure that people were employed, and had benefits and suchwhat.
But the bankers own, more or less, the money system and so they are spending on the thing that is most important to them.
And that is making more money.
All of the capitalists are busy competing for the very best way to make more money as quickly as possible because that is what bankers and capitalists do.
So, here's a clue, union guy.
You don't need to own the means of production - but no problem if you do.
You don't need to own the banking system - let the bankers get back to banking.
You need to own the money system.
And, we do.
http://www.youtube.com/watch?v=fGV-NCmHFE8
Private Equity may be a bad guy in all this, but the core problem with Simmons is and has always been that it is not a profitable enterprise. A big reason for that is unions and their pensions and high pay.
Thanks Leo - this is the best article ive read in a long time
Time to flex our muscle and show them who really controls the economy:
http://nationalstrike.wordpress.com/
If Geithner isn't callin Leo Girard - Leo - YOU CALL HIM!!!!
The unions support "anything goes immigration" which is also killing American wages and jobs.
Sadly, the unions are doing their part to hurt the American middle class. They are also fighting hard against health care reform since they get much of their power from the current system.
Unions are fighting hard FOR health care reform! Take a look at the AFL-CIO blog site! Day after day they post a story pushing for the public option! The AFL-CIO voted for single payer at its convention in September. Unions waste way too much of their time negotiating over health care costs. They'd like to get that off the table so they could get raises for their members.
What are you talking about?????
$750 million to the private equity group/$1.3 billion bankruptcy
Creative bookkeeping? Fraud?
Nice diversion, false at that, from the article. $750 to the private equity group/ $1.3 billion bankruptcy=theft somewhere. Deduce a little from the evidence.
that is the whole idea of private equity, the modern day equivalent to the "trusts" that TR knocked down
they milk comopanies for all their worth, do not reinvest, strip them of their assets and flip whats left
killing industry and job after industry and job
these sorts of internal threats are much worse I am afraid than unfair trade
This does appear to be an all-out assault on the USA--- and especially 98 percent of us.
I work for a company purchased by a private equity group.
The first thing the private equity firm did was sell and lease back all of the property of the company. The private equity firm took the money, which was 4x what they paid for the company, and distributed it to themselves and other owners.
This left the company highly leveraged and cash poor. The company continues to struggle on with layoffs, no raises, etc. The private equity firm has already been paid back 4x on their original investment.
thats the MBA way
its all about short term gain, chopping, cutting downsizing outsorucing
no real investment, creating, innovating going on there
Plus the ultimate slap in the face of the PE firms being taxed at about 15%........
Watching the antics of the Federal government and its relationship with the money power is like watching a felony being committed every single day by people who are called lawmakers and leaders.
Things drone on without recourse or reform. Lately I have read the word apathy with more frequency related to what will it take for Americans to be mad enough to stop the BS. Mr Gerard tells a story that shows how Americans can become apathetic. However, the lack of timely action towards reform is about to rear it's ugly head again and there will be another bubble pop. Forcing more small businesses into bankruptcy creating more apathy. Then eventually creating anger as the situation worsens. I was born in Flint, Michigan. There was a time when the lifestyle provided to UAW workers was the envy of many. Other people benefitted by catering to the autoworker's money with a myriad of services. When those companies were booming the tide lifted a lot of boats. Then, of all people, Ross Perot warned us about that great sucking sound from nafta as jobs disappeared. Here we are now. We are reduced to even giving the robbers repayment and bonuses while we lose another decade if the whole thing doesn't implode first. I just don't get it with our country anymore.
You think it is bad right now...It is coming b/c China is buying out American domestic businesses from Americans who probably sing everyday that Obama is a socialist. Yet, with china flashing money they are ready to sell all to a socialist. Tomorrow your boss is really going to be a socialist...I guess it is a free market econonmy and thus, capitalism, right? See below...
http://news.yahoo.com/s/ap/20091007/ap_on_bi_ge/as_meltdown_rising_china
02bmw76,
my post is not directed at you per se but I shld've rather used "one" or "their" instead of "you"..
You are so right, o2bmw76. I often wonder why people are not in the streets here, the way they would be in places like France. Why do Americans just sit back and take this stuff like sheep?
I am surprised too that the middle class is so passive. The majority of people are just taking it. Remember, we have the numbers. Vote wisely.
Do Not worry good people. Congress will take care of this. After all we voted them into office to look after our best interests. And I can assure you that we mean a heck of a lot more to our elected officials than the criminal bankers and Wall Street types.
Congress and Obama have responsibility to develop meaningful laws that can guide American corporations, that benefit from being American, to behave in more a socially responsible way.
Corporations are amoral. They behave in the lowest common denominator allowed by law. And, their Directors and Executives are largely immune from responsibility and prosecution - the SEC and other enforcement agencies rarely actually go after the executives. Instead they fine the corporation, punishing the shareholders for the deeds of the executives and directors.
States compete for having corporations headquartered in their state to collect some taxes. The way they complete, states like Biden's tiny little Delaware which is famously easy on Corporations, is to formulate laws that make it easy for Directors to avoid responsibility. States have been on a race to the bottom of the list of those that help consumer (Average Americans).
Time for the Federal Government to control those companies that act in interstate commerce - any company with a website.
In reality its not "Capitalism", is unregulated greed. When organizations operate with out regulations and or standards you get what you see going on today, form of government has nothing to do with it. The senate and congress of this country have sold their souls to the big companies and are doing nothing to regulate the banks and financial institutions. I see no change between the two parties except that obama was the last to lie about what he was going to do to change things.
Ok, let me see if I got this right. We are talking about people who have enough disposable funds in their discretion to buy Simmons and we are going to stick it to them by having the government take over the company and run it right. We are sitting around complaining about how our employers are treating us, right? We are worried about retirement because we lost value recently in our retirement fund and / or house? We are going to get social security aren't we? So what's the problem? The government has our whole world in their little hand. We will be taken care of. Those guys with the money are financially mobile and when we put the squeeze on them I'm sure they won't be bothering us anymore. They will just pick up their marbles and leave us with our union bosses and government and go play in some other country. And we will be striking as our property taxes go sky high like they did in Michigan and our cities will all look like Detroit. Whatever happened to their plan to bulldoze the city?
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