Bain Capital, Romney, & Democrats Total Lack of Understanding of How Investing Works

The Obama campaign vid about Romney, Bain Capital, and GST Steel is posted below this. There are a lot of problems with it, mostly that it’s untrue. If one didn’t know better, the purpose of private equity firms is to raid healthy companies, throw good hard working people out of work, and pay themselves.

The description here is GST Steel was a healthy thriving company, and Romney came in and destroyed it. First problem is Romney had left Bain two years before GST declared bankruptcy. The narrative is Romney and Bain came in, sucked all the money out, paid themselves and left.

GST, like all steel companies began going downhill in the early 1990’s. Then was the beginning of alternative materials to steel and higher rates of imports of steel, mostly from Asia, causing a downturn in the amount of steel being produced in the US. This was when Bain came in, using the equity investment business strategy of buying up companies heavily in debt, restructure them and cut costs, and make them productive again. Once they’re productive again, they’re taken public or sold to another company.

The company was actually turned around after Bain restructured it. It became a world class producer of rods. It was going downhill before Bain got there and would have failed and declared bankruptcy much earlier like so many steel production companies did then.

It’s lame the Dems are saying, well, Romney set it all in motion; just because he had left two years earlier doesn’t mean he’s not responsible for what happened. The reason he left by the way was to save the Salt Lake City Winter Olympics. If you'll remember, it was headed for major disaster. He turned it into a profitable, popular, success. It was also lame, and it really ticked me off when during the Republican debates, both Perry and Gingrich went after Romney for being a venture capitalist and rich. Really? That’s what opened the door for this whole lying mess. Both those guys plummeted in my estimation of them.

Even though Romney wasn’t there, he’s responsible? Obama’s been there for what, 38 months? How many jobs has he cost? 8.1% unemployment. About 17% unemployment if all the citizens that have left the job market are counted, or ran out of unemployment benefits, taken lesser jobs or have just given up. OH! What am I thinking? It’s Bush’s fault, and them ‘wascally ‘wepublicans…

The vid:

http://youtu.be/sWiSFwZJXwE

Understanding Derivatives-a Primer

Heidi is the proprietor of a bar in Detroit. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar.

To solve this problem, she comes up with a new marketing

plan that allows her customers to drink now, but pay later.

Heidi keeps track of the drinks consumed on a ledger (thereby granting the customers' loans). Word gets around about Heidi's "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Heidi's bar. Soon she has the largest sales volume for any bar in Detroit.

By providing her customers freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages.

Consequently, Heidi's gross sales volume increases massively.

A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi's borrowing limit.

He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral!!!

At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS.

These "securities" then are bundled and traded on international securities markets. Naive investors don't really understand that the securities being sold to them as "AAA Secured Bonds" really are debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb!!!, and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses.

One day, even though the bond prices still are climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi's bar.  He so informs Heidi. Heidi then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts.

Since Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and Heidi's 11 employees lose their jobs.

Overnight, DRINKBOND prices drop by 90%. The collapsed bond asset value destroys the bank's liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The suppliers of Heidi's bar had granted her generous payment extensions and had invested their firms' pension funds in the BOND securities.

They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds.

Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multibillion dollar no-strings attached cash infusion from the government.

The funds required for this bailout are obtained by new taxes levied on employed, middle-class, nondrinkers who have never been in Heidi's bar.

~~Source Unknown