Private equity, an infection that is eating the world

boing
62

The best part about this entire article is the feigned indifference to any alternatives. No wonder the USA is becoming a second-rate power, ossified and corrupt from the inside, while everyone sits around wondering what exactly to do about it.

Until the whole pile of hyper-achieving robber barons fails, there will be no change. But in America, a culture that worships profit over all else, I don’t expect it to. Perhaps it is karma for being global meddlers, eaten out from the inside by their own capitalistic larvae.

1 Like
63

@flyoverland

The way Mittens Inc. works is that they borrow 90% of the purchase price of a company, take some short term measures that increase the amount of debt the company can carry and then borrow another 20-30% of the purchase price in bonds due for repayment in 5 years time. They then pay the surplus to themselves as a dividend.

So say the company costs $100 million, they put in only $10 million themselves and borrow the other 90%. Once in control they find ways to free up some cash flow wich allows them to borrow another $30 million in bonds. ALL OF WHICH THEY PAY THEMSELVES AS A DIVIDEND. So they have a 300% profit on their initial investment.

By the time the bond repayments are due five years later, the money is beyond recovery. Neither Mittens Inc., nor the banks that arranged the bond sales are at risk.

3 Likes
64

You can’t pay out dividends and then go bankrupt. Any bankruptcy judge would instantly claw those back so fast your head would spin. That is no different than hiding assets and declaring BK. That doesn’t happen.

65

There was karma for Bain. They got crammed down. their share of ownership was vastly diluted by the bondholder (Ares) which now owns and controls the company. I wonder where all the concern for bondholders was here when Obama gave GM to the auto workers union and stiffed the bondholders.

66

Bingo. you had lawyers on staff. The majority of the people that these kinds of deals harm don’t.

1 Like
67

Please share with us which people were harmed? I can tell you, investors in Bain Capital. They are all big boys and did their own due diligence. All of them must by law have a net worth north of $1 million The people who were owned money would surely rather have been repaid, however, they now own the company instead. So, they have a chance to get made whole if the company performs. If it doesn’t they will also be out their money. Their investors are the same sophisticated investors who are not going to miss any meals. Not all investments work out. If you want a sure thing, buy CD’s with FDIC protection. Private equity is high risk and high reward. That is why the guys running the PE funds get paid so much. They deliver more winners than losers.

68

Really?

1 Like
69

Here’s what’s happening right now to private equity and venture capital:

1 Like
70

No income taxes, no property taxes. No trusts, no estates.

A single 99.9% tax on all inheritance and gifts, exempting the first $10million cumulative over a lifetime.

Make all the money you want, enjoy every penny- You’ve earned it. Leave your kids enough to do anything they want, but not so much that they can do nothing. Enough to maintain the standard of living they’re used to, but not enough to create a dynasty.

1 Like
71

That sounds an awful lot like the way property taxes work in the USA.

72

Not really, as USA’s property taxes aren’t high enough.

Say you’re earning a $60K a year. Around here, roughly a third of that is income taxed leaving you $40K. Of that 40K, let’s say roughly $10K of that is taxed through various sales taxes, real estate taxes, levies, etc (of that $10K, the real estate tax might be $3K, for a home of around $150K).

This leaves you with roughly half of your income as ‘disposable’. For most places in the developed world, people pay roughly half of their income as taxes.

This is especially true if you include medical care costs as if they were taxes - since for most parts of the developed word, this is how it works.

With a pure land value tax (LVT) system, you wouldn’t be charged income tax nor sales taxes. The only tax would be on your real estate (or the ‘real estate tax’ portion of a rental dwelling’s, er, rent).

So, for that same $150K home, the LVT would be $30K instead of current real estate tax of $3K. Yes, $30K in taxes! But you’d be able to afford it, since you’re already paying out that much without too much problem.

So what would be the difference? What would be the effect on the economy, on society? See here, here, and here.

In fact, you’d be more able to afford that home because the LVT, since it’s so high, would force the price of that home down. Right now, any reduction in the cost of owning a home is gobbled up by housing speculators and the banks. To quote Michael Hudson’s essay: “Untaxing real estate has served mortgage bankers by freeing more rental income (the land’s site value) to be paid as interest.”

3 Likes
73

Come on, it’s not like the solution for small-time farmers isn’t simple and obvious: any tax on the sale value of the land is put as a lien against the property, which only comes due when the land is finally converted to non-farming purposes. As long as the farm stays a farm, no tax needs to be paid.

The problem you describe is only a real one for farms near population centers, where the non-farming value of the land has risen to constitute the bulk of the farmer’s fortune (on paper, at least).

1 Like
74

then loot them (the looting itself looks very much like what the mob does to businesses it takes over).

Except the mob is a little bit more straightforward and honest about who they are. These guys think they’re great for society and should be celebrated for the trickle down of rancid piss they graciously bestow upon people who actually work for a living.

3 Likes
75

This is one of my complaints about Occupy – it identified problems, but didn’t have a few clear, cohesive, easy-to-communicate action items.

Occupy did and does, but for some strange reason the corporate media never covers it. You’d also think that the Occupy movement was dead instead of diversified if you get a lot of your opinion via corporate news as well. That’s one of many reasons why people like Bill Maher never understood OWS, and still don’t to this day. He takes a lot of issues to a limited, mainstream limit and stops there.

2 Likes
76

At the end of this article, he addresses this:

Thanks for posting that. It’s interesting how people who keep calling upon others to take action also tend to overlook the actions the others are actually taking. Most often without contributing actions themselves, which can be frustrating especially when they’re loaded with criticism for those of us that do actually get out there, put ourselves out on a limb… and at least try.

1 Like
77

Well they haven’t done that so far.

Clearchannel was on the verge of bankruptcy before they issued their last round of bonds. Nothing happened.

Of course its criminal behavior but the Bush administration wasn’t going to prosecute. And if the Obama people prosecute it will be attacked as retribution against political opponents.

2 Likes
78

Bain is also doing this to Clear Channel, home to Rush Limbaugh and other conservative voices. They’ve have lost money every year since they were bought and have been loaded with impossible-to-pay debt due in 2016.

So sometimes the destruction of a business for profit is funny.

I think they’re getting the last laugh.

They run right wing radio at a loss, but there’s a very profitable net gain in indoctrinating large swaths of the public with corporatist talking points and making things like labor solidarity look like communistic “groupthink”.

They pollute the airwaves, but that’s one form of pollution they have very little fear of being regulated on as long as they can and do use mindless fear to keep media fairness and accuracy at bay.

1 Like
79

I didn’t read the article… You have no clue what you are talking about.

I got quite a laugh from that, thank you.

1 Like
80

Yes, he did RTFA. so did I.

Actually, he didn’t and proudly admitted it.

Ares capital is just the undertaker.

Are they good for society once you’ve factored in externalities? Or, do we leave that out of the equation?

1 Like
81

Thank you, that’s a great article. I read it briefly before, but now I’m going to dig into it again in more detail.

1 Like