Simmons Mattress Company

On the whole, America provides a substantial segment of the population with a good living, a good life. The average middle-class wage-earner has a nice car, a furnished home, a high definition TV and satellite dish or cable, a bed, and food in the fridge. That’s what they get from the deal, from this arrangement of affairs called American capitalism.

Maybe, on the whole, it’s not such a bad deal.

But when you hear about what the banks and the investment firms and the equity clubs have been doing over the past 20 years, it is clear that the average middle-class wager-earner is also being fleeced by a criminal class that is really no better than those poorly-dressed miscreants who break into your house or steal your car. The crucial difference: Wall Street does it on a grand scale, stealing hundreds of millions or even billions instead of a few hundred or thousands.

So a “private equity firm” called Thomas H. Lee (THL) bought Simmons — the well-known mattress company– in 2003. They borrowed the money to do this, using Simmons itself as collateral.  Don’t you wish you could do that?  After they bought the company, they borrowed more money, again using Simmons as collateral, to pay themselves a fee for buying the company!

Wow. I want that job.

It also paid itself “special dividends”. How wonderful to have a position in life where you can just pay yourself “special dividends”. If you did that at your own place of work, that would be called “theft”. If you do from your Wall Street office, it’s called “Venture Capitalism”.

And you would donate money to Republicans to see if you can get away with not paying taxes on it. What a wonderful world!

In 1991, Simmons owed $134 million. By 2009, Simmons, bankrupt at last, after valiantly struggling to stay alive for years and years as these courageous “venture capitalists” violently looted it, owed $1.3 billion and the employee pension fund was gutted.

So where did the money go?

How is it possible that a profitable corporation could be made to pay out hundreds of millions of dollars to these strange people who walk in, shuffle a few papers, chat with their lawyers and consultants, and then walk out? The employees who made the company valuable by building very good mattresses will lose their jobs, maybe their homes, maybe their families. Some of them will find new jobs and carry on. Others will be ruined. But most of these people will probably still salute the flag and sing God Bless America and complain that the Democrats are going to introduce “socialized medicine” and think to themselves, “that’s life”, as if it was the normal state of human society that some individuals are allowed to steal and rape and destroy with impunity because they wear suits and look like Bernie Madoff, and others are allowed to work hard all their lives and then be cast aside as if they were nothing more than chattel.

The story in NY Times.

It has come to my attention that Reader’s Digest Magazine was similarly eviscerated.

Why is it legal for someone to come along, borrow money to buy a company using the same company as collateral, pay himself a huge reward, then dump the company– usually in a state of bankruptcy by then?  But then, how do you prevent it?  Should it be illegal to use a company’s own assets as collateral for a loan to purchase the company?

Of course it is.  But when is the last time the government asked labour for advice on how the laws governing these transactions should be written?