Originally published at: https://boingboing.net/2019/12/16/capitalisms-grave-diggers.html
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I noticed that Bernie Sanders name wasn’t on the Big Money takers list…
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Yep. I have a nice plan to do away with them, using their own game.
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successful, productive business are acquired through debt financing, drained of their cash and assets, and then killed, leaving workers unemployed and with their pension funds looted, and with the business’s creditors out in the cold.
Obligatory:
Private equity is a business that attracts thugs who care little about real-world value (beyond dollars), and who are admired only by the kind of fools who think Gordon Gecko is the hero of Wall Street.
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In his 1978 book A Time for Truth, William Simon, the president of the Olin Foundation, had called on conservatives to fund intellectuals who shared their views: “They must be given grants, grants, and more grants in exchange for books, books, and more books.”
The John M. Olin Foundation used to be one of the usual suspects when looking into the funding of far right groups. (Media Research Center, Judicial Watch, David Horowitz Freedom Center…) By design, it ran out its funds starting in 2010.
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Isn’t saying private equity should be abolished the same as saying private ownership should be abolished?
Not really. Private equity as practised by those discussed here is a very specific parasitic business model build on gaming debt financing. One can own something without draining it of value or hoarding it.
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Private equity in itself isn’t’ the problem. It’s the tax, bankruptcy, and other laws that make bad behavior profitable.
If you and some friends pool your money to buy, say, a restaurant, that’s private equity. Nothing wrong with that. And scaling it it up to more or wealthier friends doesn’t necessary change it from good to bad. But taking out loans while striping the assets is shameful. Doing it to small restaurants is associated with organized crime and not acceptable. No one should complain about applying the same standards to larger PE.
There are PE groups that don’t indulge in asset striping. If they are acting in good faith, then they aren’t the problem.
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It isn’t really making private equity in the sense of "a company that owns other companies’ illegal, but making the operations where they can put all the debt onto the subsidiary, drain all the assets, and then shut it down.
There are “private equity” firms that don’t operate this way (although many of them are still pretty shitty) and AFAIK they would not be targeted by these proposed reforms.
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Robert Reich also has an excellent explainer on private equity. Maybe for folks who like watching more than reading.
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“whose idea of child-rearing was the douse his children with buckets of ice-water to rouse them from bed on weekend mornings.”
I wonder if they returned the favor when he needed caring for.
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I’ve never heard a satisfactory answer to the question of who is dumb enough to lend them the money, but I suppose someone will explain to me that some trusted financier is lending someone else’s money. At the end of the day isn’t someone breaching their fiduciary duty and/or committing fraud, so how is it the case that they get away with it. Or is it small money lending to giant money (who don’t need the money they just need a sucker) and no one has deep enough pockets to drag them through the courts for the decade it would take?
Private ownership is being abolished, but maybe not in the way you’re thinking.
Anyway, who really owns this or that anyhow? How about all those “American Dream” houses that people live in out there? Who owns those? Really.
AFAIK, the debt already exists and when it was created, there was an expectation that it would be paid back because the company would keep operating indefinitely.
I somehow had the impression that they borrowed a bunch of (new) money as part of the structure of the deal.
With it being old debt, you’d start to expect that the debt issuers to otherwise healthy pre-PE firms would add covenants on the debt that would protect (although not protect employees as creditors) in the case of a PE buyout.
More like outlawing vampirism by saying, “hey, you can be a vampire but you can no longer drain people’s blood.”
Nah, PE is the problem. The business model is fundamentally flawed, unless the PE manager somehow knows more about the business they’ve taken over than the people who have been managing it. The only way to make it reliably profitable is through vulture capitalism.
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You’re missing an important part of the whole scheme: once the victim of the parasite declares bankruptcy, the lenders get first dibs on the corpse. All the assets of the company are sold off and it goes to the lenders first, workers last.
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As much as I would like to private equity pay its share this doesn’t help us win the election in 2020. If you want to see this system change your will have to change the people to change the government.
I think you are right that it is new debit (or mostly new debit). So I’m not too clear on why banks and such grant loans. Or to be more clear I know why they grant some of them, the company has had a X year history of taking and paying back loans, growing the business over time. So when they come and tell you that they want $15mil to fund an ad campaign, and your records show they have previously had a $8 mil loans and paid it back…sure. When they come looking for a loan for a new factory, last loan $16mil paid in full, new loan $22mil…sure. At some point however they have more outstanding loans then they ever did before. Even that isn’t a real red flag if it is a reasonable amount…say 20% more debit then ever before? I’m not a bank, maybe 200% more then ever before isn’t a red flag either. Shouldn’t 500%? Or 10,000% more?
Surely there is some limit at which new loans are no longer considered good credit.
Banks should be able to find a nice number where they don’t lose a ton on busted-out by private capital, but also don’t leave a ton of money on the table. Maybe the problem is they have found that number and it is more then big enough for private equity to loot at a significant profit?
This private equity practice and the “maximize shareholder value” practice both irritate me. I understand “creative destruction” where inefficient businesses are destroyed to be replaced by more efficient businesses but this is not that.
There are businesses that putter along providing a product or service at a fair price for a reasonable profit and could go on forever. They employ people while producing a product or service. Nothing flashy. No get rich quick scheme. Just solid, hard working, boring, business.
Then the maximize shareholder value guys come in and want to see growth from one quarter to the next. They want the stock prices to go up so they can sell their shares or pay themselves a bonus. They do various short-term tricks, take on debt, sell off assets or intellectual property, cut the quality of the product by using cheaper materials or processes, whatever it takes to get the short-term growth.
After they are done, the company is crippled and maybe bankrupted or closed. Maybe the company continues but the reputation of their product is ruined because it is not built as well or tastes horribly compared to what it once was. The product or service is no longer produced and the jobs are gone.
That is not a case of making the company more efficient. It is not a case of increasing value. A company that can make a 1% profit for a century is more valuable than a company that can make a 15% return next quarter and shut down. This is not limited to the PE guys. This is any company focused on next quarter earnings. These days, those are most companies.
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