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Private Equity Wants in on the Bailout? Spare Me

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Re: Private Equity Wants in on the Bailout? Spare Me

#31

Post by close04 »

brenden2 wrote: post #29

What I learned in school growing up was that if I lose a bunch of money gambling at the casino with my credit card, I don't get a free bailout from the government. But maybe things have changed?

Companies get a bailout based on how big the fallout is if they fail (lost jobs, lost value for the economy, etc.) or how much value is expected they'll bring if they're saved. Like investing in Tesla even when they constantly lost money because you expect it to recover and bring you a profit. I am not considering any other interests involved, lobbying, bribes, etc. While important I'm sure the first part is already sufficient to explain what's behind a bailout.

This creates some really bad incentives for companies and their executives.

If you are not in the position to have such an impact, either good or bad, then nobody will ever bother to bail you out.

Re: Private Equity Wants in on the Bailout? Spare Me

#32

Post by HashThis »

brenden2 wrote: post #29

What I learned in school growing up was that if I lose a bunch of money gambling at the casino with my credit card, I don't get a free bailout from the government. But maybe things have changed?

The privileged class knows that congress sells us out. The privileged class are just again working to rob the masses to wealth transfer more to the privileged classes. Happens every year, some more visible than others. Hopefully this is one time congress won't sell us out.

Re: Private Equity Wants in on the Bailout? Spare Me

#33

Post by downrightmike »

leveredequity wrote: post #17
downrightmike wrote: post #14

Earlier quoted context omitted.

Buy companies, layoff and outsource staff. Over work those that are left. PE is already bad for employees.

I work at a PE firm. There are multiple strategies employed, but the name of the game is not to lose money. Disagree with the term "value creation" - fine - but my point is there is zero incentive to lose money. Otherwise, they would be out of business in the long term. I am arguing for worker protection. Not protection of equity value. You inherently take on risk by deploying it, and should accept the realities of t…

But the core activity is still harm employees at all times. and cut to the bone at every chance to the detriment of employees, that had the original company not sold out, would have had to take better care of their employees and also require more employees as there wouldn't be redundancy between the parent and subsidiary. And all around increases the value to the workers and community. PE over leverage so they have to detriment the employees by default.

Re: Private Equity Wants in on the Bailout? Spare Me

#34

Post by pnutjam »

thebean11 wrote: post #25
clairity wrote: post #18

Earlier quoted context omitted.

> "In fact, is there something we can do to PREVENT these colossal leverage figures?" yes, at least these 3 things: * remove the tax advantage of debt over equity (currently debt payments reduce tax burdens). * remove the tax advantage of capital gains over ordinary income. * on any bailout, massively cram down the equity holding of the PE firm(s) and all executives by issuing new shares to every other stakeholder be…

> on any bailout, massively cram down the equity holding of the PE firm(s) and all executives by issuing new shares to every other stakeholder besides them, including other shareholders IMO that's a step to far, and is a totally uneven punishment depending on how shares are held. Just make them give the government equity (or options) as part of the bailout that would dilute all existing shareholders. Executives aren'…

The whole point of shareholders is to dilute the investment so much that nobody really has a voice. Pick up some of the books by Frederick Lewis Allen, he wrote some great financial history books.

Re: Private Equity Wants in on the Bailout? Spare Me

#35

Post by gnopgnip »

bdcravens wrote: post #28
TuringNYC wrote: post #23

Earlier quoted context omitted.

>> In fact, is there something we can do to PREVENT these colossal leverage figures? Banks don't care, regulators can't do much about it, PE companies don't care, the companies being bought out don't have a say, and neither consumers. Yes there is -- let them fail if they cannot service debt. If you bail them out, it only fosters the behavior further.

Couldn't the same be said for highly-leveraged workers?

There is a difference in how this affects the broader economy. A business failing and going through bankruptcy still generally continues to exist if the business can be profitable long term, and the shareholders lose money.

Re: Private Equity Wants in on the Bailout? Spare Me

#36

Post by solarkraft »

thebean11 wrote: post #25
clairity wrote: post #18

Earlier quoted context omitted.

> "In fact, is there something we can do to PREVENT these colossal leverage figures?" yes, at least these 3 things: * remove the tax advantage of debt over equity (currently debt payments reduce tax burdens). * remove the tax advantage of capital gains over ordinary income. * on any bailout, massively cram down the equity holding of the PE firm(s) and all executives by issuing new shares to every other stakeholder be…

> on any bailout, massively cram down the equity holding of the PE firm(s) and all executives by issuing new shares to every other stakeholder besides them, including other shareholders IMO that's a step to far, and is a totally uneven punishment depending on how shares are held. Just make them give the government equity (or options) as part of the bailout that would dilute all existing shareholders. Executives aren'…

This is exactly the type of bailout Germany is considering. Maybe it's better than giving a loan (certainly better than handing out free money), but also creates an incentive for the government to invest a lot of money and political good will into the company afterwards so its shares won't become worthless, which can be dangerous if others are still calling the shots, because those are suddenly motivated to take way higher risks, knowing the government probably won't let them fail.

Re: Private Equity Wants in on the Bailout? Spare Me

#37

Post by majormajor »

leveredequity wrote: post #17
downrightmike wrote: post #14

Earlier quoted context omitted.

Buy companies, layoff and outsource staff. Over work those that are left. PE is already bad for employees.

I work at a PE firm. There are multiple strategies employed, but the name of the game is not to lose money. Disagree with the term "value creation" - fine - but my point is there is zero incentive to lose money. Otherwise, they would be out of business in the long term. I am arguing for worker protection. Not protection of equity value. You inherently take on risk by deploying it, and should accept the realities of t…

> Otherwise, they would be out of business in the long term.

... that would be a fine incentive if we don't bail them out. Otherwise...

Re: Private Equity Wants in on the Bailout? Spare Me

#38

Post by solarkraft »

arcticfox wrote: post #30
bdcravens wrote: post #28

Earlier quoted context omitted.

Couldn't the same be said for highly-leveraged workers?

What is a highly leveraged worker? Is it someone that has no savings account? If so, what does letting them fail look like to you? To me, letting an over-leveraged worker 'fail' (starve, die, become homeless, whatever it is) is categorically different than letting an over-leveraged business fail.

Despite some court verdicts (or memes resulting from them) claiming otherwise, companies are not people and should be held to different standards.

Re: Private Equity Wants in on the Bailout? Spare Me

#40

Post by TomMckenny »

Havoc wrote: post #4

>But do they really deserve any part in a bailout? Do any of these companies? The whole concept of bailouts create bad incentives - to me that's more the crux of the issue. But if you're gonna do them anyway then I see little justification for including/excl some just because they're listed vs private. Plus it makes way more sense to "save" the economy at grass roots level anyway. I'd prefer more of a suddenly expand…

These two options for saving the economy: corporate bailout vs social safety net essentially correspond with belief in trickle down vs Keynesian stimulus. Stated even more bluntly, it is essentially whether you believe customers or assets are most important for business.

It is why the current path begins to resemble 1929 where consumer buying power spiraled downward. If the social isolation period ends with millions of consumers cashless, and in debt then there will be no one for businesses to sell to. In this cases, businesses would have to use any bailout money to employ people unnecessarily for the months it would take until consumers have spare cash: The months of paychecks it will take for them to pay outstanding mortgage payments, back rent, personal loans, credit cards etc plus interest on those. Bailing out consumers/employees avoids this convolution, does not assume that business will act in this uncharacteristic money losing way and, avoids extra expense/risk since consumer loans are higher interest rates/risk than government borrowing.

Furthermore, the trend away from brick and mortar toward online consumption may be enormously sped up by this social isolation period. In this case, many of the businesses bailed out will never fully recover. Consumer spending power is a much better way for the market to evolve than a government guessing which companies are will be viable at the end of this.

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