"We were setting a lot of records for production at that time," says employee Steve Morrow. "We were making a lot of money, because we were getting profit sharing."

Bain combined Armco with the mill in Georgetown and foundries in Tempe and Duluth, Minnesota, to form GS Industries.

Romney purchased Armco with just $8 million down, borrowing the rest of the $75 million price tag. Then he issued bonds — basically IOUs — to borrow even more to pay himself and his investors $36 million.

Union official David Foster represented workers against Bain. Foster says Bain placed its interest above long-term stability.
Union official David Foster represented workers against Bain. Foster says Bain placed its interest above long-term stability.
Author Josh Kosman calls Romney a "parasitic capitalist, since he destroys profitable businesses."
Author Josh Kosman calls Romney a "parasitic capitalist, since he destroys profitable businesses."

Within a year, he'd already made four times his initial investment while barely lifting a finger. But he'd also run up a staggering $378 million in debt on GSI's tab.

Steel is an infamously cyclical business, a worldwide commodity prone to the same wild price fluctuations as oil. The Kansas City plant forged parts for equipment used in mining gold and copper, leaving it susceptible to the instability of those markets, as well.

Yet the smartest guys in the room thought they could run the plant better than the people setting production records.

"They were getting rid of old managers and hiring new managers [who] didn't have any steel experience," says Morrow. "Some of the guys were nice guys and everything, but they didn't have a clue what was going on."

Many of the new supervisors were ex-military, people who believed that adults are best motivated by punishment. Before Bain, says Morrow, "everybody got along."

Afterward? "They wanted to discipline people for getting hurt on the job. They wanted to put us in an environment like a war, where we were always fighting with them."

Romney was charging GSI $900,000 a year in management fees to run the company. The Kansas City mill received $900,000 worth of ineptitude in return.

Although Bain borrowed $97 million to retool the plant so it could also produce wire rods, it left the rest of the facility to rot.

To save costs, Bain went miserly on everything from maintenance to spare parts and earplugs. Equipment deteriorated. Since the new managers didn't know how to repair it, "they'd want to rent out a new piece of equipment instead of maintaining what we had," says Morrow. The waste and inefficiency were breathtaking.

Bain's plan all along was to streamline the company into greater profitability, then reap the rewards with a public stock offering. But the exact opposite was happening. Even Roger Regelbrugge, whom Bain installed as CEO, knew the debt was crushing GSI from within, according to Reuters. If a public offering didn't materialize, the company would collapse.

Steel was about to enter a periodic downturn. Countries around the world were locked in a war of tariffs and government-subsidized production, creating a glut and driving down prices. Romney's strategy of the flip was never meant to endure difficult times.

Workers saw the end coming; they were particularly worried that Bain was badly underfunding their pension plan. So they went on strike in 1997, bringing a traditional Rust Belt flair to the festivities by littering the streets with nails and gunning bottle rockets at security guards.

When it was all over, the steelworkers union agreed to wage and vacation cuts in exchange for extra health and pension safeguards should the plant close.

Yet GSI was hemorrhaging money, says David Foster, the union official who negotiated the deal. He says Bain cursed the company by placing its own interests above those of customers or above long-term stability.

"Like a lot of private equity firms, Bain managed the company for financial results, not production results," Foster says. "It didn't invest in maintenance or immediate customer needs. All that came second to meeting monthly financial goals."

It would take a few more years of bleeding, but GSI eventually fell to bankruptcy.

The Kansas City mill closed for good; 750 people lost their jobs. Worse, Romney had shorted their pension fund by $44 million. The feds were forced to cover the difference, while workers saw their benefits slashed in bankruptcy court.

The battered Georgetown plant and the foundries in Arizona and Minnesota ultimately were bought out of bankruptcy by new companies. Their workforces were halved.

Still, Romney walked away unbruised. All that debt was technically GSI's, not Bain's. Because he'd repaid himself and his investors just months after the purchase, Romney pocketed millions for running the company into the ground.

"They were clever and ruthless enough to pay their own investors back at a really high return rate," Foster says.

This was the beauty of Romney's racket. Even if he killed a company — and he tended to kill them fairly often — he still made out, leaving others to take the hit.


On the campaign trail, Romney describes his work at Bain as resurrecting distressed companies. In this version, he's the white knight lifting troubled firms from the precipice of failure.

Not true.

Private-equity companies like Bain rarely buy anything but profitable firms for one compelling reason: The patient must be healthy enough to be force-fed all that debt. So it's something of a misnomer for GOP opponents to slur him as a "vulture capitalist."

"Romney is not a vulture capitalist, as Rick Perry says, since vultures eat dead carcasses," notes Josh Kosman, who's written about the private-equity business for 15 years. He's "more of a parasitic capitalist, since he destroys profitable businesses."

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