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Private Equity Wants in on the Bailout? Spare Me

bloomberg.com

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

#41

Post by SilasX »

close04 wrote: post #31
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…

>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

It's more like, they get bailout based on how big they can convince lawmakers, in an environment of little public debate, that will be.

I know, it sounds like a nitpick, but sometimes the distinction is big.

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

#42

Post by sytelus »

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?

What your schhool didn't told you was that if you have super sized credit card, you can make friends in government and then you do get a free bailout provided you have few minimum wage workers you can threaten to layoff.

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

#43

Post by thebean11 »

pnutjam wrote: post #34
thebean11 wrote: post #25

Earlier quoted context omitted.

> 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.

I haven't read any of his work..but surely there is some aggregate voice made up of the shareholders right? Do you think the shareholder votes are meaningless?

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

#44

Post by sytelus »

hazeii wrote: post #39

Matthew effect in full flight. [0] https://en.wikipedia.org/wiki/Matthew_effect

Capitalism is itself a pure unadulterated implementation of Matthew's effect. If you have capital of $X, you automatically are entitled increase in that $X. If you have $0 then you work day after day to find your share of global wealth keeps dipping. This is typically gets sold as "risk vs reward" system while the fact is that if you had invested in S&P500, your investment is practically protected by the US Army and its arsenal of nuclear weapons. The risk of your $X reducing to $0 over any conceivable long term is practically nonexistant. You simply see your wealth grow unbounded without you doing anything at all. You can count of US government to get you out of ditch even though the vast majority of the population has no investments in S&P500. Sure, folks screw up as always but that's the capitalism in essence and it gets better as $X gets bigger.

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

#46

Post by cs702 »

Buffett on private equity:[a]

> For some years, these purchasers accurately called themselves “leveraged buyout firms.” When that term got a bad name in the early 1990s – remember RJR and Barbarians at the Gate? – these buyers hastily relabeled themselves “private-equity.” The name may have changed but that was all: Equity is dramatically reduced and debt is piled on in virtually all private-equity purchases. Indeed, the amount that a private-equity purchaser offers to the seller is in part determined by the buyer assessing the maximum amount of debt that can be placed on the acquired company.

> Later, if things go well and equity begins to build, leveraged buy-out shops will often seek to re-leverage with new borrowings. They then typically use part of the proceeds to pay a huge dividend that drives equity sharply downward, sometimes even to a negative figure. In truth, “equity” is a dirty word for many private-equity buyers; what they love is debt. And, because debt is currently so inexpensive, these buyers can frequently pay top dollar. Later, the business will be resold, often to another leveraged buyer. In effect, the business becomes a piece of merchandise.

Left unsaid is what happens if things do not go well. Saddled with as much debt as possible, the business by design has been put in a position such that it cannot survive even a modest decline in revenue without raising significant additional capital.

Therefore, if government assistance is not forthcoming, the economic shock of COVID-19 looks likely to put a majority of leveraged buyouts in bankruptcy.

[a] https://www.berkshirehathaway.com/letters/2014ltr.pdf

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

#47

Post by theandrewbailey »

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?

It might be a variation on: If you owe the bank a million dollars, the bank owns you, but if you owe the bank a billion dollars, you own the bank.

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

#48

Post by [deleted] »

HashThis wrote: post #32
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.

[deleted]

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

#49

Post by mesozoic »

We need more bankruptcy, businesses where the equity holders were too risky getting transferred to the debt holders. Force companies who want bail outs into bankruptcy, and if they let people keep their jobs let them hold some small amount of the equity when the company is rebalanced. Let the system work as designed instead of bailing out the bad decision makers.

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

#50

Post by close04 »

SilasX wrote: post #41
close04 wrote: post #31

Earlier quoted context omitted.

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…

>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 It's more like, they get bailout based on how big they can convince lawmakers , in an environment of little public debate, that will be. I know, it sounds like a nitpick, but sometimes the distinction is big.

> I know, it sounds like a nitpick

No, you're right. It's always about the perceived value or impact. And that perception can be formed by deceiving, bribing, showing your books, etc.

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