This program provides a powerful examination of the forces that have contributed to the dismantling of the American economy. The program is based on the research of Pulitzer Prize-winning journalists Donald L. Barlett and James B. Steele.
ANNOUNCER: Worried that you’re falling behind, not living as well as you did or expected to?
BETTY GEORGE: When I left the university, I didn’t have nobody but me to depend on. Well, some people can say, “Well, I had a nest egg.” I didn’t even have an egg. I’m serious!
ANNOUNCER: Worried that pension you’ve been promised may not be there when you retire?
LARRY WEIKEL: Now that the company belongs to a Mexican outfit, they’re liable to just pick up and go back to Mexico, and there we are.
ANNOUNCER: Worried that the company you’ve worked for all these years may dump you for a younger person?
DIANE JOHNSON: They take all these men down there that have spent 25 and 30 years in that plant and locked them out and brought in a bunch of 20-year-olds that they could work for less money!
ANNOUNCER: Worried that the people who represent you in Congress are taking care of themselves and their friends at your expense? You’re right. Keep worrying.
BILL MOYERS: Our broadcast tonight is based on two years of reporting by the Philadelphia Inquirer team of Donald Barlett and James Steele. Twice before they have won the Pulitzer Prize. This time they’ve expanded their latest investigation into a just-released paperback book and they’re participating in this television adaptation of their reporting on “America: What went wrong?”
I’m Bill Moyers. We hear a lot of explanations for what’s been happening to the American economy. Millions of Americans are hurting and the reasons go beyond the recession. Corporations blame global competition and regulation, politicians blame the other party and everybody – everybody – blames the Japanese.
Donald Barlett and James Steele weren’t satisfied with those explanations. Years as investigative reporters taught them that if you want to understand what you don’t know, follow the money trail. That trail led them to 50 cities in 16 states and Mexico and it led them to government officials, corporate managers, to men and women in lumber mills, department stores, plants and factories, and to over 100,000 documents.
What they found tells us something about our political system. The Kettering Foundation has just issued a study which says our political institutions are losing their legitimacy. Americans believe the system is controlled by money, not by votes; that lobbyists, not representatives, are the primary political actors; that money and privilege are cutting the heart out of democracy.
The reporting of Barlett and Steele puts flesh to those opinions. They found that the pain of American workers and the pain of the middle class is not solely the result of the invisible hand of the marketplace. It’s often the work of rule-makers in Washington and deal-makers on Wall Street who collaborate to rig the game to their own advantage. The losers – well, the losers are people like Mollie James.
MOLLIE JAMES: If you have any kind of real estate or any kind of anything and go down to the Social Services to get help, you cannot get it. You cannot get it.
BILL MOYERS: Mollie James lives in Paterson, New Jersey. She’s the mother of four and grandmother of six. Mollie used to work at the Universal Manufacturing Company, as did most of these friends joining her for rum cake and coffee.
MATIIE LEWIS: But then when I need help, I can’t get it.
MOLLIE JAMES: I can go in there, smell of alcohol. I can go in there, been up using drugs. I would get money right away for anything I need. That’s right, Welfare. But if you got something, you can’t get any help.
BILL MOYERS: Mollie’s former employer, Universal Manufacturing, was bought by a company called MagneTek, Inc., controlled by a millionaire California investor named Andrew Galef. After Galef bought the company, he fired Mollie James and 500 other workers. He then transferred the manufacturing to Arkansas, where the wages are lower, and on to Mexico, where they’re even lower, less than $1.50 an hour.
MOLLIE JAMES: I would like to know why are these things happening? If the government are allowing these things to happen, to – all the jobs are going to Mexico, all the jobs are going to foreign countries, why can’t not something be done about it? This is not lower-income level that I’m talking about. I do not consider myself being a lower income. I’m a middle class income. I work to be a middle class income. And it’s not only happening to me, it’s happening to so many of the middle class incomes that I would like to know what can be done about it or is the government doing anything about it?
BILL MOYERS: Mollie has a lot of unanswered questions. She worked at Universal Manufacturing for 33 years. Starting out as an assembly line worker, she rose to become the only female operator of a large metal-stamping machine. She made $7.91 an hour. That comes to about $16,000 a year, but she put in a lot of overtime.
MOLLIE JAMES: I would work 40 hours of regular time. Sometime I work 40 hours overtime. And then sometime I work a little more than 40 hours because I would work on a Saturday for four hours. Sometime I work eight hours on a Saturday and then sometime I work four hours on Sunday, which would be double time.
INTERVIEWER: Why were you working all this time?
MOLLIE JAMES: Money. Because I wanted – I was always interested in buying things, like real estate or whatever.
BILL MOYERS: Lucky for Mollie, she owns this two-family house and has some savings. It’s about all she has and she certainly can’t depend on her pension.
MOLLIE JAMES: Would you believe I’m receiving $73.23 for a pension each month?
INTERVIEWER: How do you feel about that?
MOLLIE JAMES: I wouldn’t want to tell you how I feel about it after working so many years because you wouldn’t want to hear what I have to say about it. I’m furious. But what can you do about it? Nothing.
BILL MOYERS: She couldn’t do much about her severance pay, either. After taxes, Mollie got $3,171.66 for her 33 years of service to the company, a little less than $100 for each year she worked.
MOLLIE JAMES: No, I don’t have any medical, any medical benefits whatsoever. We only had medical benefits 30 days after, so now I don’t have anything.
BILL MOYERS: What Mollie does have is plenty of medical problems. Dr. Allen Gold is her ophthalmologist. Mollie is between the proverbial rock and hard place. She saved and owns too much to qualify for Medicaid and at 60 she’s too young to qualify for Medicare. If she needs surgery for her cataracts, it will cost her, out of pocket, over $3,000 per eye.
MOLLIE JAMES: My medical check-ups, which runs quite a bit of money, I have been paying for myself. I had to go to Valley Hospital as an outpatient. One test for the hospital was $277, one test was $961 as an outpatient. Oh, yeah. I have the bills to prove it.
BILL MOYERS: Mollie went to school to learn how to repair computers, but her eyes worsened, making that venture impossible. And then there’s the issue of age.
MOLLIE JAMES: Coming close to 60, you’re not going to find employment as easy as someone that’s younger.
MATTIE LEWIS: Once you get over 50, you can forget about finding ajob. You can forget about it.
MOLLIE JAMES: Yeah.
3RD WOMAN: That’s right!
BETTY GEORGE: If you don’t get it before you pass 50, you won’t get it.
3RD WOMAN: No, you know, you won’t get no job.
4th WOMAN: Unless you’re lucky.
MOLLIE JAMES: That’s right. You have to be lucky.
BETTY GEORGE: You fill out an application and once they see that age on there, you can forget it. They don’t bother with you.
MOLLIE JAMES: That’s right.
3RD WOMAN: What are you going to do?
MOLLIE JAMES: That’s right.
BILL MOYERS: James Steele, exactly how does Mollie figure in your series?
JAMES STEELE, “Philadelphia Inquirer”: Mollie was like so many millions of American workers in the last generation who got hurt by things that she had no control over. These were, for the most part, really solid, middle class citizens or people aspiring to the middle class but who, through no fault of their own, lost their jobs or their benefits, or in some cases both, by events over which they had no direction.
BILL MOYERS: How do you define the middle class?
DONALD BARLETT, “Philadelphia Inquirer”: We – everybody thinks they’re middle class and so you have to draw some line somewhere. And we defined it basically as $20,000 to $50,000 as the heart of the middle class. And then as an extended middle class, perhaps $15,000 to $75,000. Obviously if you’re living in New York City on $15,000 a year, you’re in poverty, but you can maintain a middle class lifestyle in a small Midwest town.
BILL MOYERS: Or in Paterson, New Jersey. Mollie said she made $16,000 a year plus overtime and she said, “I’m in the middle class.”
DONALD BARLETT, “Philadelphia Inquirer”: That’s exactly right.
BILL MOYERS: You say that the middle class is being dismantled – that is, progress is being reversed. There are economists who say the middle class ain’t doing so bad.
DONALD BARLETT: Absolutely. What we did was, we took 50 years of tax and economic data and looked at it. And when you look at it carefully, what you see over the last 10 years is a steady shrinking of that middle class. Now, some people are moving up. There’s no question about that. But that percentage at the top is still very small. Far more people are moving down and just literally millions and millions of people are clinging to that middle class by their fingernails. They’re holding either second jobs, working overtime and, as Mollie indicated, she often worked 40 hours a week extra.
JAMES STEELE: What you see very powerfully from the data is this country moving more and more toward a two-class society, with those in the middle being squeezed very dramatically.
BILL MOYERS: Well, since you did your report, the Census Bureau has come out with figures that support that. This was a recent story- “The U.S.A.’s middle class has shrunk substantially in two decades as many join the growing ranks of the rich or poor,’ the Census Bureau” – that’s not the Philadelphia Inquirer -“the Census Bureau reported Wednesday.”
You know, you two guys are not economists. You’re just reporters. Why should we take your word for it?
JAMES STEELE: I think one of the things we do, which even a lot of economists don’t do, is that we base so many of the statistics, so much of the data we used in the series, on tax data not, in fact, census data. And to our way of thinking, so much of the tax data is more accurate than some of the census data because when you’re filling out your tax return, you’re more likely to be – to raise the question, “Am I going to round this off or am I going to – if I make $550, am I going to tell the census person I make $600 a week?” But when I tell the tax collector I make $550 or $549, I’m more likely to be more accurate on that. So we’ve tended to rely on that.
BILL MOYERS: You claim that what’s happening to Mollie James and to others like her is not just accidental, that it’s the result of the “government rule book.” What do you mean by that?
JAMES STEELE: We only had one person write us and say, “Can I get a copy of this rule book?” But what the rule book really is, it’s all laws and regulations of the entire society, determined by the White House, the Congress, the regulatory agencies. It’d be everything from trade policy and tax policy, regulatory oversight, bankruptcy laws, for that matter it’s just everything.
BILL MOYERS: OK, but here’s what you say specifically:
“Taken as a whole, the rules that govern the game have created a tax system that is firmly weighted against the middle class, enable companies to cancel health care and pension benefits for employees, undermine long-time stable businesses and communities, rewarded companies that transfer jobs abroad and eliminate jobs in this country, placed home ownership out of reach of a growing number of Americans.”
What’s the connection between Mollie James and the rule book, those laws and regulations in the capital?
DONALD BARLETT: Basically that rule book rewards people who shuffle paper, who rearrange assets, who restructure corporations, who merge and consolidate. It places a premium on ever innovative financing arrangement and it penalizes those people who would create new businesses. In Mollie’s case, this was a company that went back many, many years, went through a series of restructurings and as part of the process, the people in Paterson lost their jobs. Their jobs were transferred to the South and then finally to Mexico.
JAMES STEELE: What you saw in the case of what happened there was that so many people seizing on that rule book put it to their own use by starting to buy, sell and trade companies, much like a lot of Americans trade knick-knacks at a yard sale. But they were borrowing and using those assets to destroy, not to build. And people like Mollie got caught in the middle. They lost their jobs. They saw their plants closed. But those who did this very often made off with quite a bit of money.
BILL MOYERS: And you say that the overall effect was one of the great transfers of wealth in our history.
DONALD BARLETT: When you combine the corporate restructuring with the federal government’s addiction to deficits, which means ever more tax dollars going to the holders of the nation’s debt, this is the era of the largest transfer of wealth ever in this country.
BILL MOYERS: In fact, once again you’ve been supported by evidence subsequent to your reporting. The front page of The New York Times just a couple weeks ago says that the 1980’s were a very good time for the very rich, that 60 percent of the growth in the average after-tax income of all American families between 1977 and 1989, 60 percent of it went to just 660,000 families.
JAMES STEELE: That’s right. You know, there’s no doubt about it. The rich got richer. There was an explosion, really, of overnight rich. Those in the middle were squeezed and you had a growing number who were trapped at the bottom.
BILL MOYERS: But wasn’t this inevitable? That is, you know, the economists will tell us journalists that businesses have to go through these kinds of – this kind of restructuring from time to time, that it’s just the way the economic system, the business cycle works. Didn’t you find that to be the case?
DONALD BARLETT: This is absolutely true. Business restructuring is as old as business. You go back into the 1850’s and the Studebaker brothers, Henry and Clem, began making covered wagons and horseless carriages. They made them for 50 years and then nobody wanted covered wagons and horseless carriages and they began making automobiles. And you look at Baldwin-Lima-Hamilton Corporation, which makes steam engines. In Philadelphia – back in the 20’s – it employed 20,000 people. But eventually there was no demand for steam engines. But then you come into the 50’s and there was television set manufacturing and you can come through history and always there’s a new industry moving on-line to provide jobs to replace the jobs that are lost in the dying industry.
You see this until you come to the 1980’s and the 1990’s and now there is no new industry to provide the comparable-paying jobs for middle class people of the dying industries.
BILL MOYERS: And the result?
DONALD BARLETT: The result is just a drastically declining number of solid, middle-class-paying jobs. This is blue collar, white collar, middle level manager, and increasingly professional.
BILL MOYERS: So the 80’s did not, contrary to much that we heard, create the kinds of jobs that would enable people who had been in or aspiring to the middle class to find comparable employment?
JAMES STEELE: That’s right. I mean, you had so many – if you go back, many economists who extolled what went on in the 80’s should go back a number of years. Everybody extolled the benefits of the service economy. Well, what those who talked about the service economy didn’t make clear was that many of those jobs would pay a lot less than the old man-ufacturing jobs.
BILL MOYERS: Well, I was struck recently by reading The Economist of London, which has said, and I’m quoting, “For all the talk of fragmentation of America today” – you know, black, white and so forth – “there’s only one division that is dangerously getting worse, and that’s the gap between the rich and the poor.” And here are some of the disparities that you two fellows reported.
Almost half of all Americans who had jobs and filed income tax returns in 1989 earned less than $20,000. During the 1980’s, the combined salaries of people in the $20,000 to $50,000 income group increased 44 percent and the combined salaries of people earning $1 million or more a year increased 2,184 percent.
Back in 1952 it took a factory worker one day to earn enough money to pay the closing costs on a new house in Levittown, then selling for $10,000. That was in an era when the overwhelming majority of families buying homes relied on the income of one person. In 1989, it took a factory worker 19 weeks to earn enough money to pay the closing costs on that same Levittown home, now selling for $100,000 or more. And it now requires two incomes for most families to be able to afford that home.
President RONALD REAGAN: Well, one of the things that’s needed, I think was illustrated in the local paper on Sunday. I made it a point to count the pages of help wanted ads in this time of great unemployment. There were 24 full pages of classified ads of employers looking for employees.
BILL MOYERS: There’s a paradox to this. There were a lot of new jobs created in the 1980’s. One of the last things President Reagan did in office was to send a letter to Congress reporting that nearly 19 million non-agricultural jobs were created during his administration, that over 90 percent of them were full-time jobs and over 85 percent of those were in occupations in which average annual salaries exceeded $20,000. Fact is, the job growth was centered in the retail and service sectors, which pay the lowest wages. Retail trade workers earn an average $204 a week. Manufacturing workers earn an average $458 a week and their numbers are falling. George Bush promised more jobs, too.
President GEORGE BUSH: My mission is 30 in 8 – 30 million jobs in the next eight years!
BILL MOYERS: But since Bush took office, fewer than two million non-agricultural jobs have been created. There’s a way to go.
The first in the series by Barlett and Steele reports on how the declining fortune of workers can be traced to the borrowing binge American companies went on through the 1980’s. Those companies took on a debt of some $1.3 trillion. Some did it to expand, others – investment bankers, banks and individuals -did it for the sake of control, for instant wealth. They took good companies and borrowed against future earning power. The sellers got the money and the company was saddled with huge debt. The fellows who engineered it all – well, they simply rolled the dice. Some fine American institutions – Macy’s, Bloomingdale’s, B. Altman – were burdened then with enormous debt and the money borrowed was not used to pay their workers or to create more jobs. It was used to buyout existing stockholders. To meet that debt, plants were closed and jobs lost.
And what about the seed corn of the future: research and development? What about new plants and equipment?
During the boom years of the 1950’s when manufacturing jobs were created at a record pace, companies invested $3 billion in new manufacturing plants and equipment for every $1 billion paid out in interest. By the 1980’s that pattern had been reversed. For every $1 billion invested in manufacturing plants and equipment, corporations paid out $1.6 billion in interest.
During the 1950’s, for every $1 billion that corporations paid out in interest on borrowed money, they allocated $710 million for research and development. By the 1980’s, for every $1 billion in interest payment, corporations spent only $220 million on R&D.
Through the 1980’s, corporations paid out $2.2 trillion in interest, more than double their interest payments through the 1940’s, 50’s, 60’s and 70’s combined. It would have been enough money to create seven million manufacturing jobs, each paying $25,000 a year.
OK. What does this have to do with the government rule book?
JAMES STEELE: There’s a provision in the tax code that allows corporations a virtually unlimited write-off for interest paid on corporate debt.
BILL MOYERS: They can deduct their-
JAMES STEELE: They can deduct that from their income taxes.
BILL MOYERS: Yeah, but that’s been there a long time and there’s a certain logic to it, Don. Businesses were given this deduction so that they would be allowed to build new plants, invest in new jobs.
DONALD BARLETT: Right. That’s precisely it. That’s why – that’s why the system worked for all those years. Businesses did borrow money to build new buildings, to invest in research and development, to develop new manufacturing processes, to create new products. But that’s not what they did in the 1980’s.
BILL MOYERS: Why?
DONALD BARLETT: Something went awry in the 1980’s and the people doing that trading, as Jim mentioned, were more concerned with making instant – instant profits rather than making long-term investments in the future of the country.
JAMES STEELE: It’s part of the money games that people began playing in that decade that had nothing to do with creating real value.
BILL MOYERS: So the restructuring was not designed to create new opportunities. It was designed to create new wealth that did not go back into the economy.
JAMES STEELE: Exactly. We were told at the time this was part of the normal economic processes, but it didn’t happen that way.
BILL MOYERS: Did you – did you find people out there you were interviewing who knew that this is what was happening, or were they just befuddled? Did they understand what had been done to them?
JAMES STEELE: When we interviewed many people who had gone – had seen this process, they did not realize some of the larger questions, but they knew exactly what had happened to them in terms of having their – losing their job and having their benefits cut. I mean, they felt betrayed. They felt like some part of the system that they had weighed into had turned on them.
BILL MOYERS: And they were willing to talk?
JAMES STEELE: Willing to talk and – in fact, one of the most amazing things that happened to us, I think – Don would go out one place, I would go out another place. We would tape record interviews with these people. We’d come back, transcribe the tapes. I’d give him my transcript, he’d give me his transcript. It sounded like we were talking to the same people. The same kind of thing had happened to each and people had that same reaction of betrayal, something had gone wrong in their lives and they didn’t know why, but they just felt very wounded, as a result.
BILL MOYERS: Well, we had the same experience when we followed your trail. Here’s the result.
LARRY WEIKEL: I never, ever thought that I would be fired. I never, ever thought that the job would come to an end. I never, ever had an idea about anything like that.
BILL MOYERS: In 1966 Larry Weikel took a job here at the Diamond Glass Company. With only a 10th grade education, he worked his way up the ranks and had achieved a secure, middle class life. When the company closed its doors in 1990, Larry was out of a job and now he worries about his grandchildren.
LARRY WEIKEL: I don’t know how the young children are going to do it. They’re going to have to have an education. They’re going to have to be professional people. They’re cutting out the middle class people and I feel that there’s going to be rich folks and there’s going to be poor folks, and I’m the poor folk. I don’t see how any of my family is going to come up with the money needed to send these kids to school and to get their college education. I thought I was going to have it nice and I wouldn’t think anything of sending one of my grandkids to college because I figured I’d have some money when I retired, you know? But I’m using it up as quick as, you know, I can get my hands on it now, you know? It’s a little tough now.
BILL MOYERS: It’s tough for many of Larry’s co-workers, as well. The Diamond Glass Company plant had been a fixture in Royersford, Pennsylvania, for all of this century. It had been a family-owned business that dated back to 1874.
LARRY WEIKEL: I went over to Diamond Glass because my dad said it was a good place to work and when I went there, I thought I died and went to heaven. It was that nice. You had a good time when you went to work, you know, and the foreman would holler at you in the shop, but after you were done work, he’d buy you a beer, you know? And they paid me well. They took care of everything that I really needed. Medical benefits were there. And I figured if I just do my job for them, they’d do their job for me and they – they always did.
BILL MOYERS: Well, they didn’t do their job for Larry. He and 500 of his co-workers lost their jobs as a result of the takeover craze of the 80’s.
LARRY WEIKEL: My last day at Diamond Glass was very sad. We’re taking – you know, starting clearing some of the machinery out and stuff like that. And I’d just look around and figured, “Boy, 23 years I pounded this concrete. I look in here and – I won’t be able to – I won’t be in here anymore,” you know? It just seems like – it was just an emotional time for me, you know? I was pretty well upset, you know? I just – it just seemed like a nightmare, you know? ”Well, what am I going to do now?” You know, I never – I never hunted for a job. I never – you know, I was never out looking for a job before. I don’t know. It’s just going to be new. That’s what I figured.
BILL MOYERS: A once-stable company was destroyed and profits of tens of millions of dollars were made for those behind it all. How did this happen? The new economic rules were these: Take the company public, borrow a lot of money to expand by acquiring other companies, run up the price of the stock and sell it off at a nice profit. That’s exactly what happened at Diamond Glass. The company changed its name to Diamond Bathhurst, Inc., went public and borrowed big to acquire other glass plants. Wall Street loved it. The stock shot up from a low of $6 to a high of $29, as within no time at all the company became one of the largest glass container manufacturers in the United States. Sales and profits soared.
Sounds pretty good so far, but there was one problem. Within months, Diamond Bathhurst couldn’t meet the interest payments on its mountain of debt. The company closed one manufacturing plant after another to cut costs. Thousands of workers lost their jobs in New Jersey, Ohio, West Virginia and Pennsylvania. Even that wasn’t enough. Deeply in debt, Diamond Bathhurst was bought by Anchor Glass Container of Tampa, Florida.
Larry Weikel remembers how things changed.
LARRY WEIKEL: Different companies would buy us out or whatever. You know, we’d change companies. They’d always get people in from different companies and, well, they didn’t know you. They were from out in Indiana or someplace. They didn’t – they didn’t care about anything. You know, they didn’t – there was no family ties there or anything. It just seemed like there was no promotion from within any more. If they needed somebody, they got them from a different plant somewhere. And it started going downhill from when it was – when it started going that way.
Every time I’d go to work, I’d get a big knot in my stomach. I dreaded going to work. It seemed like if things didn’t go right in production or something like that, they’d punish you. They’d humiliate you. They’d make you feel like dirt, just to cover their own butts. It was terrible.
BILL MOYERS: Jobs’ were eliminated and the remaining employees were pressured to increase output, but there was no investment in more modern equipment or new technology. The final days of production came in August of 1990. Larry Weikel and the remaining employees were out of work.
Larry lost his health insurance and the future of his pension is in question.
LARRY WEIKEL: They say that it’s vested, but I’m kind of leery. I don’t particularly trust them. I don’t – I’m kind of worried about waiting till I’m 55 or 60 to pick up on my pension plan. A lot will happen in that many years.
BILL MOYERS: [voice-over} Larry helps out at a marine repair shop these days. He used to earn close to $50,000 a year.
LARRY WEIKEL: Now I work about 15 hours a week. I have – I make about $7.25 an hour. Just enough, you know? I had some money saved up. I’m going to have to get a job here soon because I’m down to about nothing. I’ll get a job eventually. I’ll – you know, I’ll – I’ll get somewhere. I’ll do something. Anybody that’s got to make 100 bucks can make 100 bucks. I mean, if he got to start at one end of the block to the other end of the block and go up the street and ask somebody if they want their house painted, he can make 100 bucks. You know, I’ll do something if it gets that bad you know? I’ll really – you know, you have to.
BILL MOYERS: Don Barlett, Larry Weikel and the other Diamond Glass employees were working under the old rules, right?
DONALD BARLETT: That’s right. Those were the rules that kind of provided a sort of informal social contract. They got a job and they devoted their lives to the plants and in return they got a reasonable wage, health care and pension.
BILL MOYERS: And the new rules? Those are the old rules. What about the new rules?
DONALD BARLETT: The social contract was canceled in the 80’s and the new rules – these people were very disposable.
BILL MOYERS: Who profited from Anchor Glass in what we saw?
JAMES STEELE: Well, in this case, one of the big winners was William E. Simon.
BILL MOYERS: The former U.S. treasury secretary?
JAMES STEELE: That’s correct, who is now on – well, came on the Forbes 400 list of richest Americans in part because of using that write-off for interest deduction and corporate debt.
BILL MOYERS: Once again, we’ll pick up your trail.
WILLIAM E. SIMON, Secretary of the Treasury: I swear that I will support and defend the Constitution of the United States.
BILL MOYERS: [voice-over} Former U.S. treasury secretary William Simon founded an investment banking firm called Wesray. He and his partners used mostly borrowed money to acquire companies. After making changes that often included job cut-backs, the companies would be sold at a substantial profit or taken public, another form of sale.
Now let’s go back to Diamond Glass that became Diamond Bathhurst, that was then bought by Anchor Glass. William Simon helped engineer the leveraged buy-out of Anchor Glass, cutting the workforce, slashing expenses and earning for himself, according to publicized reports, more than 100 times his money. Simon then had Anchor Glass purchase the old glass container division of Anchor-Hocking. He and his Wesray friends invested only $1 million in the purchase. They borrowed $76 million. According to government documents, $48.5 million of the borrowed $76 million was then re-loaned to Simon and his friends.
Let’s look at that again: $48.5 million of the $76 million was then re-loaned to Simon and his friends. They in turn used $24 million of it to buy the land and buildings at the various glass plants. Then they leased the land and buildings back to their new company, Anchor Glass, for 20 years.
There was still more. Simon and his associates bought the furnaces and other glass-making equipment in the various plants in exchange for a note promising to pay $43.6 million. Then they leased the glassmaking equipment back to Anchor Glass.
And finally, there was the Anchor Glass corporate headquarters in Tampa, Florida. It, too, was owned by Simon and associates, who leased the building to the company.
Several years later Anchor Glass, in a report filed with the S.E.C., said the transactions were too generous to Simon and the other investors.
[on camera] Then what happened?
JAMES STEELE: In March, ’86, Anchor then went public and sometime after that, Simon sold most of his – all of his holdings.
BILL MOYERS: And how much money did he make?
JAMES STEELE: We don’t know the exact amount, but it had to be in the tens of millions of dollars.
BILL MOYERS: And what happened to Anchor Glass?
DONALD BARLETT: Anchor Glass ultimately was sold to a Mexican glass-making company, the largest competitor – foreign competitor, actually, of Anchor. And ironically, the Mexican glass company now is putting in the modern equipment to make products that the U.S. owners, former U.S. owners, never invested in.
BILL MOYERS: So an American manufacturing plant – wiped out, closed down.
JAMES STEELE: Right.
BILL MOYERS: Jobs and investment sent off to Mexico and they then built the new plant, the new equipment, made the investment in the future, provided jobs for people there?
DONALD BARLETT: That’s correct.
BILL MOYERS: And what happened to the plant in Royersford?
DONALD BARLETT: Well, the Royersford plant was closed, plants in San Leandro, California-
JAMES STEELE: Gulfport, Mississippi, and I think Vernon
DONALD BARLETT: Vernon-
JAMES STEELE: -Vernon, California, were-
DONALD BARLETT: -Vernon, California-all closed.
JAMES STEELE: All closed.
BILL MOYERS: All closed?
JAMES STEELE: All closed.
BILL MOYERS: And the workers?
DONALD BARLETT: All lost their jobs.
EDWIN BOHL: We were just getting to the point where we thought we could really do a little traveling and things like that and naturally, after you lose the last few years in your – before you go on to your Social Security stage and that – it’s quite depressing to really have the props knocked out from underneath you.
BILL MOYERS: Meet Edwin Bohl of Hermann, Missouri. Like Larry Weikel, Ed and his wife Geraldine have seen the future and it doesn’t work.
The place to begin Bohl’s story is with a company called Interco, Inc., a Fortune 500 conglomerate whose products included some of the best-known names in American retailing: Ethan Allen furniture, Converse sneakers, London Fog raincoats, Florsheim shoes. Interco could trace its origins back more than 150 years. It was one of the country’s largest industrial employers.
To fend off a hostile takeover by a pair of corporate raiders from Washington, D.C., Interco’s management turned to investment bankers Bruce Wasserstein and Joseph Peretta to reorganize the company. Their plan called for Interco to borrow $2.9 billion. The financial plan was the sort that Wall Street embraced with enthusiasm. Supporters of corporate restructurings insisted that debt was a positive force, but like Diamond Glass, Interco failed to be a textbook mode for the wonders of corporate debt.
TELEVISION REPORTER: This is the third Missouri shoe plant to close since March, including the International plant in Perryville.
BILL MOYERS: Within two weeks of taking on the debt. Interco closed two Florsheim Shoe plants – one in Paducah, Kentucky, the other in Hermann, Missouri – and sold the real estate. Interco announced that the shutdowns would save more than $2 million, just enough to pay the interest on the company’s debt for five days.
Six hundred and forty employees lost their jobs. Ed Bohl was one of them. Ed has lived in Hermann all of his life. He and his wife Geraldine are active in the community, including a local folk dance group.
EDWIN BOHL: It’s a very active little town. We have a lot of festivals going. We have the Mayfest, we have the Oktoberfest, we have Wurstfest, any kind of festival. Like everybody tells us, you give us something to celebrate, Hermann will celebrate it as a festival.
BILL MOYERS: Hermann is a picturesque town of 2,700 on the Missouri River about 70 miles west of St. Louis. Settled by Germans from Philadelphia in the 1830’s, the town is still heavily German and proud of its heritage. The deeply-ingrained work ethic of the people here served the town’s largest employer well. Beginning in 1902, that employer was known simply as “the shoe factory.”
EDWIN BOHL: I went to work for International Shoe on March the 31st, 1952. I started as a common laborer and I started for $.70 an hour. It was such a growing thing, it was such a demand for making shoes in those days that we just absolutely couldn’t make enough shoes. I worked for Florsheim 37 years, all total, from the day I started till – in fact, it was just a little over 37 years by the time we finished up on February the 28th, 1988.
BILL MOYERS: [voice-over} Announcement of the closing of the Florsheim plant came without warning just before Christmas.
EDWIN BOHL: We was given a very, very short notice. In the morning, we had a brief meeting. We all were informed that everything was going great. They were giving us some different insurance benefits and they were also going to give me some more new formulas to use in finishing my shoes and at the present time we were making a lot of samples for the whole division. And so we thought everything was going great.
BILL MOYERS: Later that day the news came.
EDWIN BOHL: And shortly after everybody was in the plant, they called a meeting and we were told right then that the plant was going to be closed and that there would not be no jobs held for nobody and that there absolutely was nothing wrong with our work. We had number one work out there. The cost was in line with everybody else’s and that, but it was just one of the things, that we were chosen to be closed.
: GERALDINE BOHL:: When he came home at lunchtime, he was so happy about, you know, the insurance and his new formulas and so forth. Ed can really get a build-up if he hears some good words. And when he called me about 1:30, he was crying and I cried.
EDWIN BOHL: And I would say the saddest part was when everybody left.
BILL MOYERS: At age 58, Ed Bohl unexpectedly found himself on the unemployment rolls and he had a difficult decision to make. He could wait until he reached retirement age and collect his full pension, but if he did he would have to pay for his own costly health insurance. Or he could take early retirement with a reduced pension and the company would continue to pay his health insurance.
EDWIN BOHL: We had a very, very good insurance, one of the best that we could think of, we had. And in order for me to keep my insurance benefits and all of that, my best way for me to do was to take early retirement. And for me to take my early retirement, I sacrificed 29 percent of my pension, which is quite a sum. If I wouldn’t have done this, my insurance would have been fairly sky-high, so therefore I figured I was just as well off taking my early retirement and sacrifice that much.
BILL MOYERS: Ed Bohl found a part-time job at the local Western Auto store. He makes about $4.75 an hour, less than half his salary at Florsheim.
EDWIN BOHL: During the day, you don’t have half a dozen to a dozen jokes down here, you know, to pass the time away or nothing. That’s the way I just figure all the time. The money is not the greatest, but it keeps your spirits up and everything else and keeps your mind activated and all of that and makes a lot of difference, the way I feel.
GERALDINE BOHL: Our life has changed to the extent that the things that we really had planned for went down the drain, like we both thought that we were hard workers all our life and that we would enjoy taking some trips, like maybe to Germany or even seeing our own country.
EDWIN BOHL: And what we’re trying to do is get – do a lot of activities where there’s not much money involved.
GERALDINE BOHL: We get a little depressed, say, Thanksgiving, but we come back. And if we hear that good old German music, we just come alive and start laughing and singing. That’s our therapy. We’re not going to go see a psychiatrist. We’re going to sing and dance.
BILL MOYERS: The two guys who really had a lot to sing and dance about were Bruce Wasserstein and Joseph Peretta. Their firm made $9 million in fees for arranging the restructuring that eventually led Interco into bankruptcy court. Peretta himself said in The Wall Street Journal, “No group of people, not just me and Bruce, ever accomplished so much in such a short period of time in Wall Street’s history.”
Well, tell that to Edwin Bohl or Mollie James or Larry Weikel. What happened to them happened all over the country in the 80’s, as Don and Jim reported. That takeover craze led to the closing of plant after plant and the elimination of thousands upon thousands of jobs and profits of tens of millions for those behind it.
It also led to the loss of billions of dollars in tax dollars. Look at this chart. In the 1950’s, companies paid $4 billion in taxes for every $1 billion in interest. In the 1980’s they paid $3 billion in interest for every billion in taxes. There are 70 million people in the country who made less than $30,000 a year during the 1980’s. Now, if you were one of them, every penny that you paid in federal income tax -every penny went to make up for the taxes lost when corporations deducted their interest. Many of the people paying those taxes are the very workers fired by the companies borrowing all that money.
And where was Congress during all this? Well, Congress was being lobbied hard to stay out of the way and Congress obliged. Therein lies another story uncovered by Barlett and Steele.
It is 1985. Pressure is building in Congress to do something about the wave of hostile takeovers, leveraged buy-outs and corporate mergers sweeping the country. Representative Timothy Wirth of Colorado, then chairman of a key House subcommittee, was concerned that damage was being done to the country in these battles for corporate control. He wanted hearings to assess the fairness of the takeovers.
Wirth turned to a top aide, David Aylward, to schedule witnesses and set the agenda for the hearings. Aylward said that the hearings would explore the role that high-yield or junk bonds were playing in financing corporate takeovers. But shortly after the hearings convened, Aylward resigned from Wirth’s staff and took a new job. He became the lobbyist for the newly-formed Alliance for Capital Access, whose sole aim was to block any legislation that restricted junk bonds.
: DAVID AYLWARD: It’s very important to look at the individual company one’s buying a bond in and leave the bonds with very large yields to the really sophisticated investors who want to take that kind of risk.
BILL MOYERS: [voice-over} Though the Alliance represented 120 companies, in reality it was a Washington lobby for Michael Milken, the junk bond chief for Drexel Burnham Lambert. Over the next few years the Alliance became one of the Capital’s most successful lobbies, wining and dining lawmakers, passing out checks to House members and Senators to make speeches, testifying before Congressional committees and extolling the benefits of junk bonds.
From 1985 through 1990, the Alliance raised and spent $4.9 million. With this war chest it became a familiar organization on Capitol Hill. Lobby reports tell the story. Mayflower Hotel – breakfast meeting with members of Congress; Joe and Moe’s – lunch with Congressional staff; Cafe Berlin – lunch with Senate staff; The Washington Palm – lunch with Senate staff; U.S. Senate restaurant, for Congressional staff lunches; gifts to Congressional and Senate staff; limousine services for members of Congress and staff; Bird’s Florist – floral arrangements for Congressional dinner – all this tax-deductible.
Congress did indeed repeal numerous tax breaks, from IRA accounts to the deduction of most consumer interest, but Aylward’s lobbying paid off. Congress refused to scale back the virtually unlimited deduction for interest on corporate debt, the engine that had driven the junk bond movement and cost thousands of American workers their jobs.
Which brings us back to Andrew Galef. Remember him, the California investor who bought Universal Manufacturing in Paterson, New Jersey, and fired Mollie James and 500 of her co-workers? Well, Mr. Galef belonged to the Alliance. On May 17, 1989, he appeared before the House Ways and Means Committee and described the companies that would benefit from junk bonds as – quote – the very companies leading to an American renaissance.”
So how goes the renaissance?
Centrust Savings Bank, Columbia Savings and Loan, Imperial Savings and Loan and Lincoln Savings and Loan all gave thousands of dollars to the Alliance. They all collapsed when the junk bonds that propelled their rise sank in value. All four are now under federal supervision and will cost American taxpayers billions to bail out.
Another group of Alliance members – Doskocil, First Executive, the Forum Group, Integrated Resources, Southmark, U.S. Horne – have sought bankruptcy court protection. The reason: inability to make enough profits to cover the interest payments on their junk bonds.
So Don Barlett, James Steele, what went wrong in America?
DONALD BARLETT: One of the things that happened was that Congress, which should serve as a kind of a referee to assure that the rules are the same for everyone, that the playing field is level, really abandoned that role in the 80’s and became, in some instances, little more than a tool of special interests. And once again you have a sharp departure here from history. If you go back to the tum of the century, you can look at a time when people were dying from eating poisoned foods and quack medical products, Congress responded with the Food and Drug Act. When income became out of balance shortly thereafter, the turn of the century, Congress responded with the federal income tax in 1913. You can trace this all through until you come to the 80’s and there’s no response from Congress. And what response there is only makes the situation worse.
BILL MOYERS: What about the White House? Was it just Congress that was complicitous?
DONALD BARLETT: No, you had the same – you had the same thing going on within the White House. It’s really interesting when you go back to that Food and Drug Act and you look at Theodore Roosevelt back then and after he signs the act, he looks at it, he says, “Sometimes the public good must outweigh the right to private gain.” And you had no similar moral force speaking in the 1980’s or today and it really has undermined the future of the country.
BILL MOYERS: What do you mean?
DONALD BARLETT: Well, in the sense that the people corning of age today are going to find it increasingly difficult to even match their parents’ middle class lifestyle, let alone surpass it. It’s going to be virtually impossible.
BILL MOYERS: Yet you say in your series that people struggling to get into the middle class, which has long been the American Dream-
DONALD BARLETT: Right.
BILL MOYERS: -have very little chance of it now.
JAMES STEELE: Exactly.
BILL MOYERS: Because the rules are rigged against them?
JAMES STEELE: The rules have been rigged, yes.
BILL MOYERS: Is the worst over?
JAMES STEELE: Unfortunately, far – I think far from it. In fact, probably the worst aspect of this has not even hit yet. I think the declining fortunes of the middle class that began a generation ago are probably going to continue through the 1990’s and beyond for probably two reason. I think the first one is this new buzzword, the “global economy.” The global economy is going to be to the 1990’s and beyond what corporate restructuring was in the 1980’s and every time in the 1980’s where people sacrificed long-term growth and long-term profits for short-term profits and plant closings, the words “shareholder value” were used to justify that process. In the 1990’s and beyond, they’re going to be using the words “global competition” to do the same thing.
And secondly, there’s going to be a continuing fall-out, I think, from the 1980’s as more and more companies seek bankruptcy court, more and more lay off workers and more and more companies, I think, struggle to deal with the excesses of the past.
DONALD BARLETT: And overlaying this, you have the federal deficit, which if you look at it from a different perspective, which is what we did – you go back 20 years and you look at middle class families, about 18 percent of their taxes went to pay the interest, annual interest payments on the federal debt. It’s now 43 percent. You can chart out the day eventually when every penny in income tax paid by a middle class person is simply going to be transferred to one of the wealthy holders of the U.S. debt.
BILL MOYERS: This is one of the reasons that Kettering Foundation and others suggest that our political system is in crisis. It is not addressing these problems.
DONALD BARLETT: Well, at the very same time you have that, you have the government stuffing the Social Security Trust Fund with I.O.U.’s and they’re stuffing the Federal Employees Retirement System Trust Fund with I.O.U.’s and other trust funds with I.O.U.’s. All those I.O.U.’s are also going to come due right after – shortly after the turn of the century.
BILL MOYERS: But can the politicians who collaborated to create this mess be expected to clean it up? I mean, can the people responsible for the problem be responsible for the cure? You pause.
JAMES STEELE: Well, as Don was saying earlier, in other times in our history the response has come – the tum of the century, certainly, with the Pure Food and Drug Act and in the teens with the income tax and certainly in the 30’s to correct some abuses that were in the securities market, so we’re optimists in the sense that that can happen. Unfortunately right now I think we’re in agreement that we don’t see that on the horizon right at this time.
DONALD BARLETT: Felix Frankfurter had a pretty good observation back in the early 1930’s when they were creating the Securities Act and he said that government really seldom recognizes a problem when it’s developing and only acts after there’s a crisis or it’s approaching crisis stage, and that too often the action is worse than – only worsens the problem. And that’s what you’re seeing now. You’re seeing an incredibly growing problem with no reaction whatsoever from government.
BILL MOYERS: That’s it for tonight, for Listening to America. Join me next week with Donald Barlett and James Steele for more on “America: What Went Wrong?” I’m Bill Moyers.
This transcript was entered on April 2, 2015.