Morning Report 1/5/06
Vulture in a Coal Mine
Rescuing dying mine companies? Wilbur Ross is your man. Rescuing dying miners? Well, er, uh …
Underground miners are famous for taking canaries down to their workplaces. When the canaries start gasping and dying, it's time for everyone to go back up to the surface before they, too, die.
Unfortunately for miners, "king of bankruptcy" Wilbur Ross, rescuer of dying industries (but not of dying miners), is waiting for them. He's not the canary in the coal mine. He's more like the vulture.
How much more tragedy could be heaped on poor Upshur County, West Virginia, site of the Sago disaster? The blunder by public officials in saying the trapped miners were alive, when actually all but one of the doomed dozen were dead, was brutal. The county's Stockert Youth Center has been converted into a grief-counseling headquarters, and people will be working overtime there.
Wilbur Ross, the New York financier and Palm Beach socialite who swallowed up the company, has been seen squirming before the cameras in the aftermath of the Sago disaster. Maybe he should have gotten his ass down there to rescue the Sago miners — they're his workers. Well, OK, maybe he shouldn't have. But like other mine owners, he and his company didn't want the expense of keeping a rescue squad on the scene, which some speculate is why it took almost a full day to get the effort going. In any event, the Sago mine, like many others, had numerous citations for safety violations.
Reminds me of Ace in the Hole, one of the most cynical movies to ever emerge from Hollywood. The Billy Wilder opus, released in 1951 (and also titled The Big Carnival), concerned a New Mexico cave-in that trapped a hapless souvenir collector, but its main focus was the ruthless reporter (Kirk Douglas as the memorable "Chuck Tatum") who milked the disaster for all it was worth, ultimately causing the trapped person's death by insisting on a more dramatic, and prolonged, rescue attempt so he could keep feeding stories. Along the way, the reporter even screwed the victim's wife, played with brio by Jan Sterling. She winds up fatally stabbing the reporter, but not before telling him, among the movie's many memorable lines, "I've met some hard-boiled eggs in my time, but you, you're 20 minutes."
But still not as hard-boiled as Wilbur Ross.
Set the Wayback Machine to September 24, 2004, at the Coulterville coal mine in Illinois. Reporter Jennifer A. Bowen of the Belleville News-Democrat captured the moment:
When miners came out of the Zeigler No. 11 mine after their shift Sept. 24, they were greeted with boxes and ordered to turn over their safety equipment and remove all their belongings from lockers.
The Coulterville mine was closed.
Then they learned their union contract had been voided to make the sale of the mine more lucrative for a buyer.
Suddenly, with the stroke of a judge's pen, the life that 250 miners had known for years, even decades, was gone. Their health care, gone. Their paychecks and plans to dig coal in deep, dark mines until they retired, gone.
The buyer was Wilbur Ross. Bowen's story explains:
Former Zeigler No. 11 mine owner Horizon Natural Resources of Ashland, Ky., had been embroiled in bankruptcy hearings since 2002 before the sale of its mining properties. The Zeigler No. 11 mine and mines in Kentucky, Indiana and Illinois were sold for $786 million in cash and credit to the International Coal Group, a conglomeration of investors led by New York billionaire Wilbur Ross and partner A.T. Massey Coal Co.
Horizon's spokesman previously stated the company was dealing with huge economic problems that were causing it to suffer financially from top to bottom. They tried to save jobs.
Ross is known as the King of Bankruptcy for buying failing companies — from steel to airlines to oil — and saving them.
Ross is also known as once having been the husband of erstwhile New York pol Betsey McCaughey, who savaged Hillary Clinton's health-care plan in the '90s, as New York's Daniel Gross recalled in "The Bottom-Feeder King." Ross has moved on to another spouse, socialite Hilary Geary.
In the bidness world, Ross's taste runs to a combination of union-busting, federal bankruptcy laws, and corporate welfare. That enables him to turn over pension and health-care obligations to the overburdened federal government so that he and his partners can rake in huge profits from "turning around" distressed industries. More from Bowen's story:
After the sale, six union operations previously owned by Horizon were shut down. The nonunion mines remained open.
Under the bankruptcy and reorganization plan, U.S. Federal Bankruptcy Judge William Howard in August agreed that Horizon should not be responsible for $800 million in health insurance contractual obligations to more than 3,000 active and retired United Mine Workers of America union members.
The judge threw out the contract and voided the collective bargaining agreement to make the sale of the mines more appealing to Ross and his partners.
Zeigler No. 11 was the last UMWA-operated mine in Southern Illinois. … The union tried to prevent the judge from allowing Horizon to sever its contract with the union and void its obligations to union retirees. But under federal bankruptcy guidelines, the move is legal.
As it turns out, of course, Ross makes investors happy and peddles the companies or their stocks for millions and millions in profits, money that could easily be used to keep paying pension benefits for the miners and still give Ross enough money to play around with. Bowen, whose story covered all the angles, noted:
About 2,300 Illinois retirees lost their health-care benefits when Horizon voided the union contract. Many of those aren't yet eligible for Medicare, and most have significant health care issues, with some medical problems related to their work in the mines. They have black lung disease, bad backs and joint replacements.
About half of the retirees are eligible for health-care insurance financed by Congress through the federal Abandoned Mine Lands program, but only those who retired before Oct. 1, 1994, are eligible. Anyone who retired after that date woke up Sept. 28 without health care.
"I have a half million in medical bills," said Charles Stayton, 60, a union retiree from Marion. "My medication is almost $1,000 a month, so that eats up Social Security pretty quick. I have no idea what I will do without medical care. This is what we worked our whole lives for.
"They said this was supposed to be guaranteed, and this is how they treat us? No one judge should have that much power over this many people. There is no way this is fair, taking everything we've worked for away from us."
A slower, less dramatic death stalks American workers, while people like Ross make obscene profits off their labor. Couldn't Ross settle for just outrageous profits? Apparently not, as Mark Reutter, author of Making Steel, has noted:
Between the "closing" of Making Steel in June 2004 and the book's publication in January 2005, an important event took place that sheds additional light on the motivations of Wilbur Ross as well as the staggering profits to be made by capitalists peeling off retiree benefits through bankruptcy proceedings.
On the morning of Monday, October 25, 2004, the business media was abuzz with news that Ross had struck a deal with Lakshmi Mittal, owner of a Netherlands-based conglomerate, to sell International Steel Group for $4.5 billion. Shares of ISG immediately jumped, so that by the end of the day Ross and other ISG shareholders were $545 million richer than they had been when the stock market closed on Friday.
When the smoke cleared, the consensus was that Ross had personally pocketed between $267 million (Financial Times) and $300 million (Fortune) from the deal, which will formally close in March or April 2005.
Just as Bowen captured the flavor of Ross's Illinois mine caper from the perspective of the miners, Reutter nailed Ross's maneuverings from the business angle, noting that Mittal got a $2 billion dividend in the steel deal with Ross and adding:
Mittal's towering dividend, which follows revelations of the tycoon's connections with UK Prime Minister Tony Blair and extravagant lifestyle, caused media consternation in Britain.
In the United States, however, most business pages ignored India-born Mittal and instead heaped praise on Manhattan-bred Ross, who, in the words of the Akron Beacon Journal, "has done it again" — parachuted out a money-losing industry with a fat wad of dollars.
Yeah, what a hero. Ross dumped the responsibility on the taxpayer. Reutter does a nice job of adding up the damage:
If Ross and Mittal were the winners in this game of cash and carry (solemnly described as shrewd maneuvers of "global vision" and "rationalization"), consider the unsung losers. They total about 150,000 Americans, all of them old, many of them sick, and nearly all of them poorer than they had ever imagined three years ago, when they still had their supposedly guaranteed retirement benefits.
Approximately 90,000 widows and retirees of defunct Bethlehem Steel, for example, collectively lost $380 million in health-care benefits between March 31, 2003, when those benefits were terminated by Judge Burton Lifland of U.S. Bankruptcy Court, and October 25, 2004, when Ross sold the former Bethlehem assets to Mittal.
Over this same time span, the Pension Benefit Guaranty Corp., a federal agency whose funds are collected as a tax on American companies with defined-benefit pension plans, paid out roughly $500 million to maintain a reduced level of pensions for ex-Bethlehem retirees. Roughly $200 million more in PBGC funds went out to retirees at LTV and Weirton Steel, steel companies that were bought by Ross's ISG after they had shed their "legacy costs."
In back-of-the-envelope terms, these Americans, plus a government agency and, indirectly thousands of U.S. businesses, absorbed roughly $1.2 billion in losses coming from Wilbur Ross's "rescue" of the bankrupt steel companies.
Good luck hanging on to your pension, if you even have one. Here's hoping Wilbur Ross doesn't show up to rescue you or your company.
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